The Men Who Run AstraZeneca

Published in Company Comment on 17 August 2012

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

Management can make all the difference to a company's success and thus its share price.

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 AstraZeneca (LSE: AZN) (NYSE: AZN.US), one of the FTSE's highest-yielding stocks, which is facing the well-documented challenge of its patent cliff.

Here are the key directors:

DirectorPosition
Leif Johansson(non-exec) Chairman
Simon LowthInterim chief executive

AstraZeneca currently has just one executive on its board, and he is an interim stand-in following David Brennan's ousting in the shareholder spring that saw investors rebel against high pay for poor results.

Simon Lowth had been finance director since November 2007 and stepped up in June. He was formerly an engineering industry management consultant with McKinsey, and subsequently finance director of Scottish Power.

Cutting costs and making deals

Credited with success in driving down costs at AstraZeneca, he is tipped as a possible permanent CEO. Though some may fear he lacks the necessary business background, AZN's innovative deal alongside Bristol-Myers-Squibb (NYSE: BMY.US) to acquire biotech company Amylin has bought him a lot of credibility.

Chairman Leif Johansson's appointment in April 2012 reflected the Swedish half of AZN's roots. He was CEO of Volvo for 14 years from 1997 to 2011 and since 2011 has been chairman of Ericsson. He was also a non-exec of Bristol-Myers-Squibb from 1998 to 2011. That's a strong background, but leaves his hands full.

With Simon Lowth standing in as interim CEO, his deputy Julie Brown is fulfilling the role of interim CFO below board level. A chartered accountant who has previously undertaken management and strategy roles with AZN, she looks likely to step up if Simon Lowth is confirmed as permanent CEO.

There are nine non-execs whose collective background includes a good dose of pharmaceutical and scientific expertise. The appointment in April of Graham Chipchase, CEO of Rexam (LSE: REX), and Genevieve Berger, chief of R&D at Unilever (LSE: ULVR) has injected fresh blood.

Other non-execs include John Varley, who was CEO of Barclays (LSE: BARC) from 2004 - 2011 and remains chairman of AstraZeneca's remuneration committee despite the shareholder revolt, and Baroness Shriti Vadera, Gordon Brown's favourite City adviser.

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

CategoryScore
1. Reputation. Management CVs and track record.

Execs good.

3/5

2. Performance. Success at the company.

Too early to judge.

3/5

3. Board composition. Skills, experience, balance.

Reasonable.

3/5

4. Remuneration. Fairness of pay, link to performance.

Jury still out.

2/5

5. Directors' holdings, compared to their pay.

CEO has £6m worth.

3/5

Necessarily held back by its interim composition and the short tenure of the top two, AZN's board scores a modest 14 out of 25, in the lower half of companies that I have examined so far.

For comparison, I've collated all my FTSE 100 boardroom verdicts on this summary page.

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> Tony owns shares in AstraZeneca and Unilever but no other shares mentioned in this article.

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Comments

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SmilingKiller 17 Aug 2012 , 4:01pm

About 18 months ago, or thereabouts, I think that I recall reading about AZN's fantastic prospects in some emerging markets (China's and India's new, ageing, middle classes maybe) on TMF, and it was all about OTC medicines, etcetera; the patent cliff was probably mentioned too, but the gist was about opportunities rather than problems. There was cash in the bank as well, I remember.

Not any reflection on this article today, which is informative, but a lot of the good EM news seems to have evaporated, though the customers and the infrastructure to get "stuff" to them presumably have not.

I find it pretty difficult to find for old articles on TMF.

SmilingKiller 17 Aug 2012 , 4:05pm

".. find it pretty difficult to find for old articles on TMF."

Sorry, to find or to search for.

ANuvver 19 Aug 2012 , 4:46pm

Killer:

There is an archive - I'll grant you, it's not terribly well organised.

AZN, as I see it, is valued as a runoff business. I've long held the view that scratching in the dirt for biotechs, etc, isn't worth it. Buy a Zeneca, Glaxo or Roche, because they're going after new medical advances and they have the funds and the marketing clout to make a go of it.

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