What you need to know about the mining 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 Xstrata (LSE: XTA), the mining group subject to an agreed bid from Glencore (LSE: GLEN).
Here are the key directors:
|Sir John Bond||(non-exec) Chairman|
|Mick Davis||Chief Executive|
|Trevor Reid||Finance Director|
|Santiago Zaldumbide||Executive Director|
Sir John Bond rose through the ranks to become CEO at HSBC (LSE: HSBA) (NYSE: HBC.US) in 1993 and chairman from 1998 until 2006. That was a time of rapid expansion by the bank, including its disastrous foray into US sub-prime lending.
He was then chairman of Vodafone (LSE: VOD) (NYSE: VOD.US) in 2006, departing in 2011 soon after the Ontario Teachers' Pension Plan criticised the company's 'disastrous' acquisition record.
He became chairman of Xstrata in May 2011, replacing Willy Strothotte who was also chairman of Glencore. His appointment was seen as guaranteeing that Xstrata shareholders would get fair value if 34% shareholder Glencore made an approach.
In the event, Xstrata's largest independent shareholder is holding out for better terms than were accepted by the board, and Sir John is the prospective chairman of the combined group.
Mick Davis became CEO when Xstrata floated in 2002, having previously been CFO of Billiton. He was an architect of its merger with BHP (LSE: BLT) but left when he did not get the top job. He then built up Xstrata through a series of acquisitions, making unsuccessful tilts at Anglo-American (LSE: AAL) and the now struggling Lonmin (LSE: LMI).
The FTSE's highest-paid director in 2011, Mr Davis has been criticised for the planned retention payments which Xstrata would pay top management under its deal with Glencore, which initially were not at all performance related.
Trevor Reid became finance director in 2002 and was the FTSE's highest-paid FD in 2009. His background is in banking and corporate finance, presumably more appropriate for Xstrata's deal-making than for counting beans.
Santiago Zaldumbide, who runs Xstrata zinc, was formerly with Rio Tinto (LSE: RIO), Repsol and Banesto.
Xstrata's nine non-execs include three Glencore representatives, meaning that the chairman hold the balance of power between the independent non-execs and the Xstrata/Glencore camp.
I analyse management teams from five different angles. Here's my assessment:
|1. Reputation. Management CVs and track record.|
|2. Performance. Success at the company.|
Share price down 8% since flotation.
|3. Board Composition. Skills, experience, balance|
Not sufficiently independent.
|4. Remuneration. Fairness of pay, link to performance.|
|5. Directors' Holdings, compared to their pay.|
Overall Xstrata scores 12 out of 25, an equally poor result to Glencore's. A highly acquisitive growth strategy has arguably benefited management more than investors.
I've collated all my FTSE 100 boardroom verdicts on this summary page. I hope it helps with your research.
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> Tony owns shares in Xstrata, HSBC and Vodafone, but no other shares mentioned in this article.