Luke under the spotlight
FOR an Aim-listed outfit, the travails of high street baker Patisserie Valerie have attracted enormous attention.
indeed, the company, best-known for its cholesterol-filled creations, now finds itself in the sights of Rachel Reeves at the Business select Committee, whose most recent target was Unilever, with a market value of £106bn.
Patisserie Valerie is not Carillion, this year’s most spectacular crash. the ingredients which make it so tasty are that it is an aspirational brand, that its proprietor Luke Johnson is seen as an entrepreneurial guru, and that there was drama in the speedy arrest of its finance chief, Johnson’s longtime associate Chris marsh, after the discovery of a accounting black hole.
But even though Patisserie Valerie is a minnow, it does cast a light on business practices which pass beneath the radar.
Johnson follows a private equity model in which he buys small, promising brands, expands the franchises and offloads shares onto the public.
Past successes, such as Pizza express, mean that he earned the trust of investors even if the pizza crust has shrunk. What Johnson watchers could not be aware of is that he sits on a pile of up to 40 directorships, including the Brighton Pier Group (which i hold for sentimental reasons), and Bread Holdings, which owns Gail’s, the fancy baker coming to your neighbourhood soon.
Admittedly, over-boarding in Johnson’s second-tier companies is much less of a sin than in the Ftse 350 elite, but it raises many of the same questions about governance. Professionals are there to help with this stuff, although auditor Grant thornton has questions to answer about its work for Patisserie Valerie.
it audits several of Johnson’s other enterprises making the firm fee-dependent on the entrepreneur – and possibly compromising its independence.
the bigger issues of governance, overstretch and audit will need to be tackled in the Commons inquiry. doubtless Johnson, if called, will be robust as ever. But he is unlikely to be as entertaining as the ‘King of the High street’ sir Philip Green.
Carter myths
eVen fervent trump supporters could not help but be disturbed by the president’s attack on the Federal Reserve chairman Jay Powell as ‘loco’ and ‘crazy’ for raising Us interest rates.
What was quirky about the attack is that trump personally chose Powell for the job, displacing renowned economist Janet Yellen who might have raised rates more slowly.
equally farcical is the Ft publishing an op-ed in praise of Jimmy Carter for showing forbearance by allowing Paul Volcker a free hand at the Fed to raise interest rates in 1979-80.
What former Carter adviser stuart eizenstat forgets are the circumstances of the time. Carter’s original choice as Fed chair, G William miller, turned out to be hopeless. On his watch, inflation spiralled into double digits, the dollar went into freefall, and the Us treasury sold gold and even had to seek short-term credit from the international monetary Fund.
Volcker inherited a crisis of mammoth proportions and took radical steps to bring inflation under control, raising the Fed’s key rate by two full points, putting a temporary surcharge on credit card interest rates and adopting new targets for the money supply. Volcker rescued the White House economic team from a crisis which they lacked the courage to tackle. Carter ended up fighting the 1980 election with Ronald Reagan in the face of recession.
the present circumstances are very different. the Us economy is robust, inflation negligible and Powell is normalising policy a decade after the financial crisis. Carter had no choice but to keep stumm about the mess he created. trump is engaged in shifting blame.
Presidents play politics with the Fed at their peril.
Book learning
tHe main claim to fame for successive chief executives of Pearson is that they succeeded in selling off crown jewels such as the Ft leaving behind an enterprise dependent on the whims of state budgets in the Us and a changing text book market.
the nine-month report from Pearson shows the rot has slowed but revenues for the year are flat at best. the big bet for Pearson is selling digital course material online.
But the availability of free online courses – or open access publishing – puts that at risk too. investors could be forgiven for yearning for the good old days of madame tussauds, Waterford and Royal doulton to add a little sparkle.