Falling company asset values keep FDs from jumping ship

FTSE-100 FDs have seen their assets held in their own companies slump in value, which has left them more likely to stick around in their current role rather than jump ship.

They held £2.3m in assets of their own companies each on average in 2008, from £3.2m in 2007, according to research published by Heartwood Wealth Management on 4 March.

The FDs lost £40.2m in total in the year, while the FTSE 100 index fell by around one-third in 2008.

Simon Lough, chief executive of Heartwood, said: ‘Finance directors in the UK’s largest companies were not immune to the effects of the credit crunch and experienced the full brunt of last year’s market turmoil.’

The wealth management firm said that of the assets held by FDs, 21% were held as shares in their own names and the remaining 79% were held in long-term incentive plans (LTIPs) and share options. By contrast, FTSE 100 CEOs hold a higher proportion of wealth in their companies via shareholdings (34%) than share options and LTIPs (66%).

Lough said: ‘If their firm is performing well, it can be difficult to sell down their personal stakes, because it may send the wrong message on the outlook for the company. But in the current environment, if they hold on they are likely to suffer along with their shareholders.’

There is little evidence of FDs jumping ship in these uncertain times. ‘FDs are very considered in their decisions and the value of shareholdings or incentive plans is only one factor in deciding whether to stay or look to join another company,’ said Suzzane Wood, head of the CFO practice and senior partner at headhunter Heidrick & Struggles.

Wood said last year’s plunge in many companies’ stock prices ­ and consequent fall in the value of stock-related remuneration ­ was just one factor causing directors and companies to be more risk averse.

‘It is getting harder to extract FDs currently, not least as risk aversion causes more companies to use internal hires rather than bringing in an FD. Also, one of our prime measures in selecting potential candidates is “stickability”, or length of time with a company,’ she said.

Heartwood’s analysis was based on FTSE-100 companies reporting annual results in the first six
months of 2008 with analysis carried out in October.