The Men Who Run Rolls-Royce
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 Rolls-Royce (ISE: RR.L) .
Here are the key directors:
Sir Simon Robertson
James M. Guyette
President and CEO, Rolls Royce North America
Director, engineering and technology
Mike J. Terrett
Chief operating officer
Last year the terms of the government's "golden share" in Rolls-Royce were relaxed so that only one of the chairman and CEO must be British. That may come into play when the company seeks a replacement for chairman Sir Simon Robertson, who steps down at the end of this year after eight years. The former investment banker held senior posts in Kleinwort Benson and Goldman Sachs and is deputy chairman of HSBC.
That's part of a management transition as smoothly engineered as any of Rolls-Royce's engines. John Rishton took up the post of CEO in April 2011, succeeding Sir John Rose, who steered the company for 14 years, growing it into the world's second-biggest aircraft engine manufacturer.
John Rishton's appointment was something of a surprise. Though a nonexec of Rolls-Royce since 2007, his previous post as CEO of Dutch supermarket chain Royal Ahold seemed an unlikely fit. But he had been finance director of Rolls-Royce customer British Airways, and he had earlier worked in finance roles at Ford. Both his BA and Ahold jobs involved company turnarounds, but the challenge at Rolls-Royce is more about maintaining the company's market leadership.
Mike Territt, who joined the company in 1978, and Colin Smith, who joined in 1974, provide the engineering expertise on the board. Both are former chief engineers on the flagship Trent engines. Finance director Mark Morris is also a longtime company man, having joined in 1986. James Guyette joined in 1997 after a career with United Airlines.
Rolls-Royce's nine nonexecs, who have a broad mix of business and finance backgrounds, include Sir Frank Chapman, the respected CEO of BG Group.
I analyze management teams from five different angles to help work out a verdict. Here's my assessment:
Score (out of 5)
Reputation: Management CVs and track record.
Performance: Success at the company.
Excellent, but the CEO is quite new.
Board composition: Skills, experience, and balance.
Remuneration: Fairness of pay and link to performance.
Directors' holdings: Compared to their pay.
Executives have sizable holdings.
Overall, Rolls-Royce scores 21 out of 25. The quality of the company's board lives up to its name. CEO John Rishton is not yet fully tested in the job, and a new chairman will be appointed next year. But the mix of skills, and of insiders and external appointments, is impressive.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
Buffett's favorite FTSE share
Let me finish by adding that legendary investor Warren Buffett has always looked for impressive management teams when pinpointing which shares to buy. So I think it's important to tell you that the billionaire stock-picker has recently acquired a substantial stake in a prominent FTSE 100 company. A special free report from The Motley Fool -- "The One U.K. Share Warren Buffett Loves" -- explains Buffett's purchase and investing logic in full.
Are you a sophisticated investor hoping to profit from this uncertain economy? We urge you to read "10 Steps To Making A Million In The Market" today -- your wealth could be transformed. Click here now to request your free, no-obligation copy. The Motley Fool is helping Britain invest. Better.
Further Motley Fool investment opportunities:
The article The Men Who Run Rolls-Royce originally appeared on Fool.com.Tony owns shares in BG Group and HSBC, but no other shares mentioned in this article.The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.