LONDON -- 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. I hope to separate the management teams that are worth following from those that are not. Today I am looking at Severn Trent , one of just three listed U.K. water utilities.
Here are the key directors:
Director, Strategy & Regulation
CEO, Severn Trent Services
Director of Water Services
For one of the FTSE 100's smaller companies Severn Trent has a big board, with five executives and six non-execs including chairman Andrew Duff.
In post since 2010, Mr Duff is familiar with regulated utilities. After 16 years with BP he joined National Power in 1998 and on its sale to German power company RWE he served as CEO of RWE npower for eight years. At that time the company owned Thames Water.
Tony Wray, CEO since 2007, recently announced plans to step down in spring 2014, after the next five-year plan is agreed with industry regulator Ofwat.
His earlier career was spent in the gas and electricity industries where he was involved in their privatization and restructuring. He joined Severn Trent at a time when its reputation was tarnished: it had been investigated by the Serious Fraud Office and fined over misreporting data to the regulator.
Wray has restored the company's image, and improved its operational performance. During his tenure Severn Trent's shares have risen by 30%, significantly more than its peers United Utilities (up 7%) and Pennon (up 12%).
He has been a vocal figure in the industry, calling for more consolidation, more competition, and the introduction of water trading.
A chartered accountant, Michael McKeon has been finance director since 2005, joining after the mis-reporting offences were committed. His finance career includes spells with Rolls-Royce. Last year Severn Trent was the first water company to market an inflation-linked bond to retail investors.
The three divisional directors were appointed to the board at the time of Tony Wray's elevation to CEO. Tony Ballance is a former chief economist for Ofwat, Martin Kane a longtime Severn Trent employee, while Andy Smith has a background in HR.
Severn Trent five non-execs look impressive for a company of its size, including Baroness Noakes, former shadow treasury minister, and a former chief scientist for BP.
The ABI issued an "amber-top alert" over the company's remuneration report in 2011, after it adjusted performance targets to enable executives to receive bonuses. Pirc advised shareholders to reject the 2012 remuneration report, mainly over excessive termination payments.
I analyze management teams from five different angles to help work out a verdict. Here's my assessment:
1. Reputation. Management CVs and track record.
2. Performance. Success at the company.
3. Board Composition. Skills, experience, balance
4. Remuneration. Fairness of pay, link to performance.
5. Directors' Holdings, compared to their pay.
Overall, Severn Trent scores 14 out of 25, a poor result. An impressive-looking board and decent operational performance doesn't make up for the whiff of being self-serving.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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The article The Men Who Run Severn Trent originally appeared on Fool.com.
Motley Fool contributor Tony Readingowns shares in Pennon, but no other shares mentioned in this article. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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