The Men Who Run SSE

Published in Company Comment on 31 August 2012

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

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 SSE (LSE: SSE), whose recently announced 9% price increase was not popular with consumers.

Here are the key directors:

Lord Smith of Kelvin(non-exec) Chairman
Ian MarchantChief Executive
Gregor AlexanderFinance Director
Alistair Phillips-DaviesGeneration And Supply Director

Lord Smith of Kelvin has been chairman since 2005, and also chairs FTSE 100 engineer Weir Group (LSE: WEIR). A former chairman of the BBC, with a background in accountancy and finance, he sits as a crossbench life peer and has been named as chairman of the new Green Investment Bank. That's a busy agenda.

Safe and Steady

Ian Marchant trained as an accountant, and then joined a predecessor company in 1992, becoming finance director of SSE in 1998 and stepping up to CEO in 2002. As befits a utility his stewardship has been safe and steady. He has largely continuing the strategy of his predecessor Jim Forbes under whom he served as FD, including the company's push into renewables.

However he has taken some bold initiatives, including breaking ranks with the other big utilities to sell all SSE’s electricity in the open market, and pulling out of the company's junior position in a nuclear consortium.

One blot on his copybook was SSE’s conviction for doorstep mis-selling in 2011, for which sin the directors accepted a cut in bonuses.

Gregor Alexander’s tenure with predecessor companies also goes back many years to 1990, becoming FD in 2002. A relative newcomer, Alistair Phillips-Davies joined the company in 1997 and the board in 2002.

There are five non-execs with backgrounds in banking, finance and business though none with obviously relevant industry experience.

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

1. Reputation. Management CVs and track record.

All good.
Score 3/5
2. Performance. Success at the company.

Solid over a long period.
Score 4/5
3. Board Composition. Skills, experience, balance

Busy chairman, and not clear how involved in energy the non-execs are.
Score 2/5
4. Remuneration. Fairness of pay, link to performance.

Score 3/5
5. Directors’ Holdings, compared to their pay.

CEO has £3m worth, other execs £1m+, chairman £300k
Score 4/5

Overall, SSE scores 16 out of 25, which puts it in the top half of companies that I've looked at so far.

What most strikes me is the apparent disconnect between the long time served in the company by the executives and the irrelevance of the non-execs’ backgrounds, neither consumer champions nor from relevant industries. With a busy chairman, the management may not be under as much scrutiny as might be desired. But it would be hard to fault their ability and performance.

I've collated all my FTSE 100 boardroom verdicts on this summary page. I hope it helps with your analysis.

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

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