Diageo's Stellar Management & Stewardship

Morningstar analysts hold Diageo's management in high regard for consistently focusing on shareholder value 

Thomas Mullarkey, CFA 19 December, 2012 | 6:00AM
Facebook Twitter LinkedIn

We believe that Diageo (DGE) is well managed and we hold its management team in high regard. The recent deal to buy Mey Icki at less than 10 times EV/EBITDA shows Diageo's disciplined approach to acquisitions. Additionally, management's willingness to walk away from the Cuervo deal shows that they are exemplary stewards of shareholder capital and consistently seek to generate excess economic returns.

Management & Board Setting a Clear Path

Paul Walsh, a veteran who started at Grand Metropolitan in 1982 and spent a decade running Pillsbury, stepped into the CEO role in 2000. Walsh has been the driving force behind Diageo's strategy to shed noncore businesses, including Burger King and Pillsbury, in order to focus on spirits.

Franz Humer, a director since 2005, was appointed board chairman in July 2008 following the retirement of James Blyth, who presided as chairman for eight years.

We applaud the separation of the chairman and CEO roles and the fact that Diageo's 11-member board has nine independent members. We don't see any red flags in corporate governance.

Reasonable Compensation Levels at Diageo

Compensation levels seem consistent with those at comparable companies, and the CEO's and CFO's salaries were flat in 2009 to reflect the company's performance. About 70% of compensation is variable, based on both annual and longer-term performance, which we believe aligns the interests of management and shareholders.

The only gripe we have is that directors do not stand for elections annually; we think the company could strengthen its governance policy by removing staggered board elections.

To read the full Morningstar analyst research on Diageo, Premium subscribers can click hereNot a Premium member? Sign up for a free trial here.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Diageo PLC2,343.75 GBX-0.58Rating

About Author

Thomas Mullarkey, CFA  is an equity analyst at Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures