Why bosses have to get a grip on reality
IN the big six supermarkets alone, there have been three new chief executives and one new chairman this year. Mike Coupe has taken over from Justin King at Sainsbury’s, Dave Lewis has seized control of the checkout at Tesco and Richard Pennycook has taken the helm at the Co-op.
Wm Morrison has a new chairman in the shape of Andrew Higginson – and there must be doubts about the future of its chief executive Dalton Philips after recent poor performance.
Tesco is searching for a new chair to replace Richard Broadbent, a casualty of the accounting scandals.
There is similar churn in banking, where the only top duo still in situ from before the crisis are Peter Sands and Sir John Peace at Standard Chartered. Perhaps not for much longer – their grip is so enfeebled that the bank issued a statement backing them.
At Barclays, Antony Jenkins came in with a mandate to transform ethics after the tarnished Bob Diamond era. But how long will he last, once the bank’s new chairman, the hard-boiled John McFarlane, arrives from Aviva?
The turnover at the top should come as no surprise. Post-crisis, a different kind of leadership is needed for FTSE 100 companies. The old model where maximising ‘shareholder value’ was the overriding aim has been overthrown.
The realisation has dawned that running businesses in this fashion led to dubious behaviour, from forex-rigging to horsemeat and questionable accounting for supplier revenues.
It also defeated what should be the real purpose of business. That is not to enrich a few rogue operators and wilfully blind executives, but to create greater prosperity for society as a whole. The new generation of bosses is contending with a different environment to the one before the crisis. Scrutiny by regulators is far more intense and the risk of financial penalties is greater.
This is not just the case in banking, but in industries such as pharmaceuticals, where GSK paid £313m this year over a China bribery case and £1.91bn two years ago in the US for mispromoting drugs. In consumer goods, this week Unilever and Reckitt were fined more than 1m euros apiece over personal care and household products.
Household finances are more constrained both in developed markets such as the UK and in emerging economies.
Some executives visibly struggled with adapting their personal rewards and lifestyles to the new era – step forward Sam ‘Two Pools’ Laidlaw, the departing chief executive of Centrica.
His replacement, former BP man Iain Conn, is coming in on a lower basic salary.
Nonetheless, executive pay has been remarkably resilient in the face of public criticism, social division and corporate failure.
The requirements for a CEO have changed – the one thing that stays stubbornly the same is their surging pay.
Home and away
FTSE 100 companies are happy to cast their net overseas for top talent.
According to a recent report in the Investors Chronicle magazine, no fewer than 43 out of the top 100 chief executives hail from foreign climes.
Even discounting those from the Commonwealth, the US and Ireland there are still 22 ‘real’ for- eigners – and before snarks start accusing me of xenophobia, this is the IC’s language, not mine.
That is much higher than the global average of about 12pc of overseas bosses for the world’s 500 biggest companies. So does all this international talent lead to better performance?
Well, after taking account of all the problems comparing executives in different industries, who have been in situ for varying lengths of time, the IC thinks not: its top ten are all Brits.
Back to the future
WITH the general election looming next year, broker Panmure Gordon is casting its mind back for insights into what it might mean for share markets.
Since 1966 there have been 12 General Elections, six resulting in Labour winning the most seats and six for the Conservatives; Labour was in power for 22 years and there have been 26 years of Conservative or Tory-led governments.
Shares did better under the Tories, with returns of 11.7pc while they were in power, compared with 7.3pc under Labour.
Alarmingly, Panmure sees parallels between now and 1973/74.
In December of that year the country faced the fallout from an oil price shock, questions over its place in Europe and a hung parliament.
An election in early 1974 left the incumbent Conservative government unable to form a coalition, leading to a second poll later in the year. Uh-oh!