22 November 2018
Bad Times for Capitalism
Trouble in the executive car park.
By J R Thomas
If you think the political pages are gloomy reading, and the international news fails to cheer, then, whatever you do, refrain from turning to the business sections of our national broadsheets.
It’s not so much the stock market (down) or the pound (down) or indices of business confidence (down), it’s that the business news seems to have got muddled with the crime section. Carl von Clausewitz famously made the observation that “War is politics by other means” but might have shown a more modern insight if he had pondered whether business is crime by other means. Certainly, readers of the commercial pages may be beginning to think so.
Nissan’s long- serving and hugely successful chairman, Carlos Ghosn, asked to attend a series of meetings with his chief executive, flew to Tokyo at the weekend and was promptly arrested on charges of fraud and false accounting, as was another director, Greg Kelly. It is alleged that they concealed from the Tokyo Stock Exchange the true amount of their salaries (the allegation, for our more innocent readers, being that they underdeclared them, not over-stated them), and that Mr Ghosn also falsely claimed expenses and used company resources for his private benefit – double desserts in the staff canteen, no doubt. Nissan, in its tripartite alliance with Renault and Mitsubishi, has, under Mr Ghosn over the last twenty years, become one of the most successful car companies in the world. Where it goes next, and how deep this matter goes, the board were not prepared to say.
The collapse and rescue of Johnston Press, as mentioned in our Business Shorts section, was concluded over the weekend. This was swiftly followed by well ventilated leaks from the Pension Protection Board that the fall into Administration had taken place two days before Johnston was due to make an agreed £10m payment into its underfunded staff pension scheme. The PPB later confirmed that it was indeed investigating the timing and nature of the insolvency process and would be looking at the actions and responsibilities of the Johnston board in this. Quite how the PPB would have raised £10m in the circumstances in which Johnston found itself it did not explain, but talked of the directors personal liabilities in such matters.
In the long running legal actions between the board of Stobart Group, logistics and airport operators, and its former chief executive Andrew Tinkler, this week Neil Woodford, one of the City’s best known and most respected investment managers, was accused of dereliction of duty for not meeting the chairman of the Stobart board, Iain Feguson. Mr Ferguson has supported Mr Tinkler in the dispute, seeing only him among the directors as possessing the necessary skills to run Stobart. Mr Woodford’s investment fund owns 20% of Stobart, so may be held to have some interest in who runs the group.
Accountants Grant Thornton have chosen a new chief executive to replace Sacha Romanovitch who was the first and so far only female chief executive of a major accountancy firm. Ms Romanovitch upset a number of partners in the firm by introducing “a culture of fear” (and reducing partner pay) and her performance review (if nothing else, highlighting the dangers of 360 degree reviews by subordinates) were sent to several newspapers. She left, not happily, and is contemplating her position.
Those stories are just from one day’s business section of the Telegraph.
Increasingly, business is a dangerous place to be if you are at the top. Make sure, if contemplating signing a contract to become MD or CEO, or even COO (chief operating officer) of a company in the public eye, that you are fully covered for legal fees. Even if you are as innocent as bricks and cement, trouble can come your way. The board of housebuilder Persimmon, a very successful housebuilder which has come from nowhere to industry leader in 45 years, agreed a new bonus arrangement for its chief executive. All was done properly with proper process and documentation. Apart from one thing. The bonus had no upper limit. Persimmon (named after a prize winning racehorse) had a spectacularly profitable 2017 and the CEO’s bonus when calculated came to £110m, no doubt much to the delight of chief executive, Jeff Fairburn. Shrieks from some of the shareholders (though most seemed quietly delighted with the company performance), and departure of the company chairman, an investment banker who perhaps ought to have spotted the lacuna. Mr Fairburn is undoubtedly able and hardworking, and agreed £75m might be more appropriate. But a media witch-hunt saw him off last week, when he gave up trying to fight off the distraction of his pay-packet bonus. A pay-packet bonus (though barely mentioned in the hullabaloo) largely payable in future share awards. If the shareholders do not do so well in the future, neither will he.
But if he decides that banking is the place to turn next, he might pop over for a chat with the senior men at Barclays. The former top man, or the present; either will do. Both know about legal actions. Former top man John Varley, together with two senior colleagues, was charged that the measures taken to save the bank from collapse in 2008 were not fully or properly disclosed. They recently won that battle against the Serious Fraud Office, but the SFO has intimated that it may have another go. Mr Varley must be wishing that he had let the bank go to the wall and asked the government for taxpayers money. Current chief executive Jez Staley was wrongfully accused by a whistle blower of not following proper process in a senior appointment. Mr Staley tried, understandably, but against a strict interpretation of regulator rules, to find out who the anonymous accuser was. That cost him a £1.1m fine and public knuckle rapping with the regulators’ steel ruler.
You might argue that all these people are very well remunerated, and if the job entails having mud and worse thrown at their office doors, that is life and what they are paid for. And maybe it is. Mr Staley did not follow proper process in trying to find his secret accuser, though most of us would like to know who has got it in for us. Mr Varley, and the Johnston board, were in desperate straits trying to save their businesses, and must be astonished to find themselves pilloried by those without insight and responsibility. Others mentioned here may or may not turn out to have been naughty or rude or stupid. Mr Fairburn at least has the consolation of his cash pile, and perhaps, of removing himself from the public eye.
But if big public businesses are, like politics, starting to fail to attract the best talent, and if boards increasingly are preoccupied with defending claims and endless consideration of proper process instead of new products and better widgets and stealing marches on competitors, is it any wonder? Business is very competitive and the west is losing rapidly its prime place to enterprises in other parts of the world who are, shall we say, more focussed on the essentials. We may soon find our overly legalistic and absurdly high moral stances cost us a lot – not least, our jobs.
