Moral failings at City Link
ONE might have thought that after the debacle of the City Link collapse over Christmas, the last business person BBC’s Newsnight might have chosen to reflect on last week’s Budget was Jon Moulton, the person behind Better Capital, the private equity owners of the collapsed delivery outfit.
The choice of Moulton to pontificate on the evening of the Budget was bizarre in that a key element of George Osborne’s plan was a clampdown on the tax avoiders.
New legislation is designed to end the ‘umbrella’ arrangements under which exploitative firms, such as City Link, circumvent labour law by using self- employed workers who are not on staff.
Vans at City Link were daubed with the company’s logo and directed by the company. Drivers technically were working for themselves.
So pleased was Newsnight to have found itself an uncompromising entrepreneur it never thought to mention that Moulton’s Better Capital was the owner of City Link. Nor was it thought relevant that the company’s collapse was the subject of a Parliamentary inquiry, that a Tory Chancellor was endeavouring to crack down on perverse tax arrangements, including the favourable treatment of debt over equity, a key tool of private equity.
What we now know from the findings of the thorough-going inquiry by the Scottish Affairs and Business Committees of the Commons (Focus – Page 69) is that Moulton’s Better Capital showed private equity at its worst. Among other things the probe found that long after there were serious questions as to whether City Link could continue, the selfemployed drivers were encouraged to take on extra costs even though there was a strong likelihood that they would never be paid.
The committee says it was ‘dismayed’ by the way drivers were treated. It also argues that City Link made an already difficult situation at the company worse by failing to provide staff and contractors with ‘timely information’ on the poor health of the enterprise and likely impact on jobs. It may well have been in breach of employment law which requires a statutory period of consultation of up to 45 days when more than 100 jobs are at risk.
The report also suggests that City Link and Better Capital are morally responsible for the difficulties that many contractors and small businesses working with the company find themselves in. ‘They were deliberately deceived as to the true state of the business,’ it says.
No two insolvencies are the same but there are important broader lessons to be drawn from the City Link debacle. The main costs of insolvency are too often borne by the taxpayer and the workers rather than the secured creditors who are able to waltz away from their obliga- tions. Much the same could be said of the events at Phones 4u, earlier in the year, when the private equity owners left the scene with a fat dividend cheque and other stakeholders, including most of the staff in the stores, lost their jobs.
Pointedly, the Parliamentary committee offers a reminder that when it comes to insolvency matters the directors can be held responsible if they failed to act in the best interests of all creditors. Administrators must report on the conduct of the directors within six months and the Insolvency Service has the power to disqualify those responsible as directors.
The Insolvency Service is never reluctant to use such powers when dealing with small time bankrupts and wrongdoers. How much more faith people would have in the capitalist system if high profile directors, supported by best legal advice, and wealthy private equity investors, were in receipt of the same tough justice.
Wiping clean
IT is bad enough that legendary City lunches have become water only affairs and political correctness now dominates all forms of public discourse. We now learn that one of the last bastions of rowdiness, the trading floors of our major banks, are to be cleansed. There will be no more of the ‘whore’s drawers’ to discuss the ups and downs of the foreign exchange market under a new central bank code that outlaws cockney rhyming slang or national stereotypes in making deals. Chat-rooms and informal electronic communications are banned and only ‘aggregate information’ – such as a market view on interest rates – can now be discussed.
The bad behaviour of the foreign exchange cheats has ruined the high jinks for which City trading rooms are famous.
Gender imbalance
WOMEN chief executives in the FTSE 250 have been terrifically successful with Caroline McCall at EasyJet, Angela Ahrendts formerly of Burberry and Harriet Green formerly of Thomas Cook among those with impressive records. So there is good reason to welcome Jill McDonald as the chief executive of automobile and cycle concern Halfords, fresh from running McDonald’s in the UK.
She brings the number of FTSE 350 women bosses up to 13. That is an appalling record and shows that the stranglehold of ‘old boy’ networks that dominate boardroom appointments persists.