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) (UKX). I hope to separate the management teams that are worth following from those that are not. Today I am looking at Carnival (LSE: CCL.L - news) , the world's largest cruise operator.
Here are the key directors:
|Micky Arison||Chairman and chief executive|
|Howard Frank||Vice chairman and chief operating officer|
|Pier Foschi||Chairman and CEO, Carnival Asia|
Carnival and Panama-incorporated Carnival Corporation (NYSE: CCL - news) operate a dual listing whereby shareholders of both share equal economic and voting rights. The two companies have identical boards and officers, and produce combined accounts according to US accounting principles.
The governance arrangements are also more familiar to US investors and deficient from a UK perspective: the chairman and CEO roles are combined, and the chief financial officer does not have a seat on the board.
Micky Arison is, therefore, very much captain of the ship. The billionaire is the son of Carnival Corporation's co-founder and has worked at the company through his career, starting at the bottom and progressing to become CEO in 1979 and chairman in 1990. He steered its growth through acquisition, including the 2003 merger with P&O Princess Cruises, Carnival's predecessor. Family interests control 27% of the combined voting power. He also owns the Miami Heat basketball team.
Mr Arison has recently come under fire over Carnival's safety record, with the Senate Commerce Committee chairman complaining of the cost to the US coastguard of reacting to Carnival's 90 "serious events" in the last five years, and the Costa Concordia disaster in Europe. In the past 10 years, Carnival's shares have underperformed the FTSE 100 by 30%.
Aged 70, Howard Frank has been vice chairman since 1993 and chief operating officer since 1989. He was formerly an accounting partner with Price Waterhouse.
Pier Foschi started his career at the OTIS Elevator Company. He joined Costa Crociere as CEO in 1997, assuming the additional role of chairman when the Italian company was acquired by Carnival in 2000. He joined Carnival's main board in 2003.
Two months after the sinking of the Costa Concordia in January 2012, Mr Foschi retired as CEO of Costa Cruises at age 65 in accordance with a long-term succession plan. He was appointed chairman and CEO of Carnival Asia, to develop the group's regional presence, in September 2012.
The two Brits among Carnival's eight-strong non-execs provide the maritime expertise: Sir Jonathon Bond, former First Sea Lord and Chief of Naval Staff, and Anglo-American chairman Sir John Parker, whose background includes restructuring the Harland and Wolf shipyard. The other non-execs have a mix of backgrounds including retail, advertising, casinos and consumer goods.
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.
Underperformed, safety questions.
3. Board Composition. Skills, experience, balance
Combined chairman and CFO; no FD; entrenched management.
4. Remuneration. Fairness of pay, link to performance.
Unable to locate remuneration report.
5. Directors' Holdings, compared to their pay.
Execs are expected to hold three-times base salary.
Overall, Carnival scores 12 out of 25, a low result. This may be a case of "two countries divided by a common language", but governance arrangements look weak from a British perspective.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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> Tony does not own any shares mentioned in this article.