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 (FTSE: ^FTSE - news) . I hope to separate the management teams that are worth following from those that are not. Today I am looking at ARM Holdings (LSE: ARM.L - news) , whose chips are in 95% of the world's smartphones.
Here are the key directors:
|Sir John Buchanan||(non exec) Chairman|
|Warren East||Chief executive until 01/07/13|
|Simon Segars||President and CEO from 02/07/13|
|Mike Muller||Chief technology officer|
|Tim Score||Chief financial officer|
Sir John Buchanan has been in the chair just over 12 months. He spent 33 years with BP (LSE: BP.L - news) , becoming chief financial officer for six years before retiring in 2003. His previous non-executive directorships include the chairmanship of Smith and Nephew, senior independent director of Vodafone (LSE: VOD.L - news) , and AstraZeneca (NYSE: AZN - news) .
An engineer, Warren East joined ARM from Texas Instruments (NasdaqGS: TXN - news) in 1994 to set up its consultancy division, and rose through the ranks becoming chief operating officer in 2000 and CEO in 2001. Since then, turnover has quadrupled and operating profits have risen five-fold.
The shares have quadrupled, after seriously dipping in his first year. Mr East was responsible for taking ARM into low-powered chips when industry leader Intel wasn't interested, leading to the company's current dominant position.
Mr East surprised investors by announcing his retirement, to be replaced by Simon Segars. The logic is that with product development lasting five to seven years, staying now would mean a 20-year stint to see through the next generation of products. But some might think it's good timing to depart on a high.
Simon Segars joined ARM in 1991 shortly after its formation, and worked on the design of ARM's early chips. He has worked in a number of areas, concentrating on technological roles, and presently runs the IP division. The two men have worked closely together and analysts do not expect any change of direction.
Mike Muller predates both: he was a founder of ARM, working for its predecessor company Acorn. He undertook marketing roles before being appointed chief technology officer, joining the board in 2001. Another founder, Tudor Brown, stepped down from the board last year.
Tim Score is the outsider, joining as CFO in 2002. A chartered accountant, he undertook finance roles in a number of companies and was finance director of mid-caps William Baird and Rebus.
Unsurprisingly, ARM's five non-execs have predominantly technological backgrounds, which they probably need to effectively interrogate the close-knit management.
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.
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.
Four execs have £40m-worth of shares between them.
Overall, ARM scores 20 out of 25, a high result. This is a technology-heavy board that has delivered by out-thinking the competition, which no doubt involved luck as well as judgment. Shareholders might have slight concerns that the old guard are starting to leave.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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