Beware the feeble boards
ONe boast frequently heard in the financial community is that London leads the world on corporate governance.
sure, some quoted companies – insurance broker Quindell and miners’ eNRC (now renamed eurasian Resources Group) and Bumi – slip through the net, but UK codes, policed by the Financial Reporting Council, look to be something in which to take pride. But is that really the case? Big battalion investors and enforcers tend to let sleeping dogs lie when companies, particularly those run by dominant executives, produce brilliant returns. Yet the history of the City is strewn with the wrecks left behind when feeble chairmen and boards fail to challenge exuberant bosses.
The financial crisis exposed this. Both Adam Applegarth at Northern Rock and Fred Goodwin at Royal Bank of scotland were given a virtually free ride. some 90pc of RBs shareholders backed RBs’s disastrous purchase of ABN Amro in the autumn of 2007, long after the fragility of the global banking system had been exposed.
Further back in time we have extreme examples of implosion at Tiny Rowland’s Lonrho and Robert Maxwell’s quoted outfits. CITY EDITOR But even in the past week there have been reminders that governance is not as robust as we like to think.
The survival of Keith Hellawell at sports Direct, with help from fund manager schroders, is a case in point. Hellawell has no means of curbing the excesses of founder Mike Ashley, who didn’t even turn up to the annual general meeting.
At Reckitt Benckiser the board is in breach of governance codes about length of service. it has been able to slough off criticism because performance has been exceptional. Now that it has slipped on some biggish banana skins, questions are being asked.
WPP is by far the most impressive company in Britain’s creative media and advertising sector and, as reported this week, is engaged in frenetic expansion, completing 33 takeovers this year alone. The group’s chief executive, sir Martin sorrell, is among the best paid and most dominant in the land, and almost every year willingly cocks a snook at dissident investors.
Other companies who regard governance rules for everyone but themselves include Ryanair and Berkeley Homes.
Far be it for me to suggest that poor governance will damage any of these beacons of the free markets, but the lights do flash amber.
Overseas threat
WHAT a pity that the Archbishop of Canterbury Justin Welby was chosen as mouthpiece for the iPPR’s Commission on economic Justice with his preaching of a ‘broken society’.
How much more authoritative it might have been if the floor had been given over to some of the eminently level-headed voices.
The commission explored the much higher proportion of takeovers in Britain than among our competitors. in the period 19982005, leading up to the financial crash, deals in the UK were worth 22pc of total output – more than double that in the Us and almost three times more than in Germany.
it notes that 30pc of the value added by business in the UK comes from foreignowned firms as a result of the surge in deals which took out emblematic names including Asda, Bentley, Cadbury, iCi, Pilkington and scottish & Newcastle.
With so many important decisions to the economy being taken from headquarters overseas, the risk to investment is much higher than with home-grown companies.
This is a useful message at a time when UK firms Worldpay and Aveva are about to be swallowed by foreign predators.
A corporate governance overhaul is recommended to ameliorate the problem. At present it is investors alone who decide the fate of UK enterprises, and the tendency is to take the cash and run. A broader definition of stakeholder interests would be one way to go.
Indian giver
PRiZe for deal of the week goes to Rupert Murdoch and 21st Century Fox. All UK eyes have been fixed on the bid for sky, but in the meantime his star india offshoot has snapped up global television and digital rights for the indian Premier League for £2bn, outbidding new competitors such as Facebook and Bharti Airtel.
The willingness to pay big bucks for rights to a neophyte league provides a sharp reminder of how Murdoch backed the Premier League so as to dominate pay TV in Britain.
smart thinking.