Persimmon’s toxic legacy
Jeff fairburn, the boss who brought housebuilder Persimmon into disrepute with his obscene £75m bonus is gone but not forgotten.
His departure should not mark the end of this particular story, but merely the beginning of an overhaul of governance and business practice, starting now. There are also wider lessons for other companies and for the Government that must be heeded.
Tomorrow the company is expected to confirm it is the first housebuilder in Britain to make profits of more than £1bn in a single year.
A profits bonanza would normally be a cause for celebration. In this case the achievement is tainted by the row over pay and the firm’s use – and possible abuse – of the taxpayer-backed Help to Buy scheme.
The backlash has begun. Ministers are now reviewing Persimmon’s right to sell Help to Buy homes – around half those it built last year were sold under the scheme – after allegations of poor standards and hidden charges. Shareholders take note: these huge profits may not carry on much longer. fairburn was asked to leave in November by new chairman Roger Devlin and the company might announce a successor as soon as this week.
But the extreme fat-cattery has complicated the search for a top-notch chief executive. The problem with inside candidates who might normally have stepped into the role is they were part of the old culture. Around 130 of them have themselves received enormous sums under the incentive scheme. The company is being run on an interim basis by a fairburn lieutenant named Dave Jenkinson.
His haul of around £40m made him one of the top-paid managers in the FTSE 100 last year, extraordinary for someone who was not even in charge. Another fairburn flunkey, finance director Mike Killoran, made £50m-£60m. This makes for a major problem with hiring from outside.
PERHAPS Persimmon can attract, say, Sir Martin Sorrell. Or maybe it can persuade Monaco-bound billionaire Sir Jim Ratcliffe to move to its HQ in York and try his hand as top brickie. failing that, the new boss will be a Cinderella CEO surrounded by underlings much, much richer than him or herself.
This is an inversion of the natural hierarchy of money and status at the top of a company and it is bound to create trouble.
There are two big lessons here. The first is that government interventions in markets, such as the Help to Buy scheme, or in a different sphere, the energy price cap that has perversely pushed prices up, can easily have unfortunate consequences.
Help to Buy was well intentioned but it has done as much harm as good by inflating house prices and boosting profit margins and executive pay.
The second lesson is that objections to inordinately high pay is not just the politics of resentment. extreme rewards for managers (entrepreneurs are a different matter) are almost always an indicator of other dysfunction at a company.
In the case of Persimmon it is indicative of a culture that was arrogant and gluttonous for profit even at the expense of the company’s reputation.
Had it not been for the deservedly awful publicity about pay, and the wider scrutiny that resulted, the company might not have attracted ministerial attention and might not now be facing the loss of its lucrative Help to Buy contract. Greed, in the long term, is not good.
fairburn and his cronies made short-term profits but have left a lingering poison that will afflict Persimmon for years to come.