The Men Who Run GlaxoSmithKline
LONDON -- Management can make all the difference to a company's success -- and thus its share price.
To me, at least, 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. On the other hand, some of the worst investments to hold are those run by executives collecting fat rewards while the underlying business goes to pot.
In this series, I'm assessing the boardrooms of companies within the FTSE 100. I hope to separate the management teams that are worth following from those that are not. So far I've examined Barclays, which is mired in the LIBOR-fixing scandal, and BP, which is still recovering from the Gulf of Mexico disaster.
Today I am looking at GlaxoSmithKline (ISE: GSK.L) , which has just agreed to a $3 billion settlement with U.S. regulators and pleaded guilty to criminal charges for overly aggressive marketing tactics and selective use of clinical-trial data. But GSK's settlement relates to conduct more than 10 years ago, and the current management has clean hands.
Here are the key directors:
Sir Christopher Gent
Sir Andrew Witty
Chief financial officer
Chairman, research and development
Sir Christopher Gent became chairman on Jan. 1, 2005. The former CEO of Vodafone, he is credited with building that company from a start-up to an FTSE 100 member in a series of deals. He's regarded as a real City heavyweight.
Joining GSK as a graduate trainee in 1985, Sir Andrew Witty, who was knighted earlier this year, became CEO in 2008. He led a clean-out of the U.S. management team behind the drug mis-selling and has strived to improve the company's reputation with both the public and shareholders. That has included initiatives to provide medicine in the third world and develop an anti-malaria vaccine in association with the Bill & Melinda Gates Foundation.
His efforts to enhance GSK's reputation with shareholders have been rewarded with a 30% rise in the share price since he took over, during which time the FTSE 100 has retreated some 7%. Rival AstraZeneca's shares have done just as well -- such are the attractions of defensive sectors these days -- but the market is more worried about the latter's patent cliff.
Witty's strategy has included diversifying away from blockbuster drugs and toward emerging markets, over-the-counter pills, restructuring and cost-cutting, a couple of significant acquisitions, and increased dividend payouts and share buybacks.
Appointed last year, Simon Dingemans is a former Goldman Sachs mergers and acquisitions investment banker. He's clearly there to do deals -- not count beans. Slaoui has worked in GSK's R&D function for 24 years and spearheads new product development. There are 11 non-execs with backgrounds in business, finance, and medicine and a pretty impressive collection of CVs. With five women, it must be one of the most gender-balanced boards in the FTSE.
I analyze management teams from five different angles to help work out a verdict. Here's my assessment:
Score (out of 5)
1. Reputation -- Management CVs and track record.
2. Performance -- Success at the company.
3. Board Composition -- Skills, experience, and balance
4. Remuneration --Fairness of pay and link to performance.
5. Directors' Holdings -- Compared to their pay.
Overall, GSK scores 19 out of 25 for me. It has one of the better boards in the FTSE 100. The company is not immune to the problems of the pharmaceutical industry, including the fall-off of income as blockbuster drugs come off patent, but it has a clear strategy for change -- itself a testimony to its management -- and is executing that strategy confidently and competently.
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At the time this article was published Tony owns shares in GSK, AstraZeneca, and Vodafone but no other shares mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of Vodafone Group. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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