The Men Who Run Centrica

Published in Company Comment on 2 August 2012

What you need to know about the utility group's top executives.

The best companies are those run by talented and experienced leaders with strong vested interests in the success of the business, held in check by a board with sound financial and business acumen. Some of the worst investments to hold are those run by executives collecting fat rewards as the underlying business goes to pot.

In this series, I'm assessing the boardrooms of companies within the FTSE 100 (UKX). I hope to separate the management teams that are worth following from those that are not. Today I am looking at Centrica (LSE: CNA).

Here are the key directors:

DirectorPosition
Sir Roger Carr(non-exec) Chairman
Sam LaidlawChief Executive
Nick LuffFinance Director
Phil BentleyMD, British Gas
Martin HanafinMD, Centrica Energy
Chris WestonMD, North America

Roger Carr has been Chairman since 2004. He is president of the CBI, deputy chairman of the Court of the Bank of England, and a City grandee par excellence, though not wholly without controversy in his career. He has previously been criticised for taking on too many roles, and was chairman of Mitchells and Butlers when it lost £440m on financial transactions and Chairman of Cadburys when it was taken over by Kraft, leading to the closure of its UK factory.

Vertical Integration

Sam Laidlaw joined as CEO in 2006, having previously worked for oil groups Chevron, Enterprise Oil and Hess. During his tenure turnover, profit, EPS and dividend have all grown well, though the share price is up by just a third and is still below 2007's high. He has progressed a strategy of vertical integration, acquiring upstream assets to hedge the company's exposure to retail energy prices.

The last two years have seen Mr Laidlaw benefit from performance related pay schemes that have attracted negative publicity, perhaps inevitable for the owner of British Gas.

Nick Luff is a chartered accountant who joined in 2007 from P&O, where he was CFO. Phil Bentley was previously Centrica's finance director, and in addition has 15 years experience at BP (LSE: BP), whilst Mark Hanafin spent 21 years at Shell (LSE: RDSB).

With six non-execs, Centrica does not have a majority of independent directors following a resignation of the seventh non-exec last year. However the intention is to recruit a new non-exec with upstream and operational experience in the US, to complement the existing skill set.

I analyse management teams from five different angles to work out a verdict. Here's my assessment:

1. Reputation. Management CVs and track record.

Top flight chairman and CEO
Score 4/5
2. Performance. Success at the company.

Good, except for the share price!
Score 3/5
3. Board Composition. Skills, experience, balance

Dominated by the management team
Score 2/5
4. Remuneration. Fairness of pay, link to performance.

Moderately controversial
Score 3/5
5. Directors' Holdings, compared to their pay.

Laidlaw has £8m worth of shares, Bentley £7m, Carr's negligible
Score 3/5

Overall, Centrica scores 15 out of 25, a middling result. Though Sam Laidlaw has produced results, a possibly over-burdened chairman with no financial commitment to the company, and a weak-ish team of non-execs, doesn't provide enough oversight.

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> Tony owns shares in Shell but no other stocks mentioned in this article.

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Comments

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onlyben 03 Aug 2012 , 2:24pm

Very interesting and informative. Is currently on my buy list but I will definitely take a closer look after reading this article.

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