The elusive search for trust
AMONG the most used words in the annual reports of Britain’s top companies in the past year was ‘trust.’ It appeared 317 times in 2014 against 38 times a decade ago, according to the Chartered Institute of Management Accountants. Yet trust can be tissue-thin, as Merlin Entertainments, the owner of Alton Towers, and Thomas Cook have learned in rapid succession.
Leisure companies that rely on customer confidence are particularly vulnerable to catastrophe.
The insensitivity of Thomas Cook and its current and former executives, who appeared to be more concerned about their own legal liability than fair treatment for the family of two dead children, is a case study of what not to do.
Nick Varney at Merlin, in the wake of the horrendous injuries to riders on the Alton Towers ‘Smiler’ rollercoaster, was more sensitive.
He took to the airwaves on the BBC’s Today show to offer apologies and regrets, announced an investigation and closed the ride.
But whatever is discovered about the accident and the on- the- ground response, Varney’s public apology is not going to be enough.
As the world’s largest theme park operator, running everything from Chessington to Legoland, the correct response would be to shut down not just the Smiler but every rollercoaster across its big portfolio. All should be conducting major safety checks, staff retraining and, from what we know of what happened at Alton Towers, better response times to accidents need to be built into the system.
It is an interesting test for Merlin. It arrived on the stock market in 2013, at the second time of asking, came out of Blackstone private equity stable with heavy borrowings (more than twice the level of shareholder funds) which subsequently have been trimmed.
One-third of the stock is now in the hands of Lego owners KIRKBI which will be concerned to restore trust and protect reputations – even if it proves horrendously expensive.
All of this is a little unfortunate for Merlin.
Compared with other major companies the overall safety record, given the number of people who use its complex and ever more derring-do rides, is not notably bad.
Anglo-Australian mining giant RTZ, for instance, has been criticised after 33 gold miners died at a Rio joint venture in Indonesia. It has been widely reported that 1,200 workers have died on Qatar’s World Cup construction sites, an allegation denied by the Gulf state.
The wider point is that construction, mining and many of the other industrial accidents go by barely noticed. If business really wants to be trusted it has to do a great deal more than keep on apologising.
It needs to treat the safety of workers and customers with the same reverence as the chief executive’s bonus.
Oh no, Antonio
THE High Court ruling that Lloyds Bank cannot redeem more than £3bn of convertible bonds, issued at the height of the financial crisis, will come as a blow to the group’s chief executive Antonio Horta-Osorio.
He long has maintained that the bank’s offer to buy back the bonds, that were designed to see it through stress tests in 2009, was fair and that a relatively few investors would be affected.
It is unfortunate for Lloyds that it has been lumbered with paying high coupons of up to 16pc – for less than useful capital – until 2021 when most of the bonds mature.
The high cost of servicing the bonds, up to £200m in extra interest a year, will be a burden for the broader numbers of equity investors. It will also be negative when and if there is a retail offer of shares to the taxpayer.
The judge was unimpressed with the Lloyds claim that when it passed its most recent stress tests with flying colours it amounted to a ‘capital disqualification event’ because the emergency bonds were no longer necessary.
Maybe, but the buyers of the bonds took on risks at a time when the future of the bank was still uncertain.
They should not be punished for that.
Dimon geezer
THE disclosure by Bloomberg that Jamie Dimon, the chief executive of JP Morgan Chase, has joined the ranks of the dollar billionaires is mind-boggling.
Much of Dimon’s fortune derives from the $485m (£317m) he has accumulated through share incentives since arriving at JP Morgan a decade ago.
The rest has come from an investment portfolio built with shares accumulated during his period as right-hand person to Sandy Weill at Citigroup.
Never mind that the Citi he left nearly came a cropper during the financial crisis and that JP Morgan is the most heavily fined bank in the world for regulatory breaches.
Despite all the penalties and the ‘storm in a teacup’ London Whale affair, Dimon has riches beyond the dreams of avarice. No wonder he is always pictured smiling.