Quit the HSBC job right now, under-f ire BBC chief is warned
BBC Trust chairman Rona Fairhead is facing calls to step down immediately as a director of HSBC over her links to the bank’s tax scandal.
Mrs Fairhead, 53, has said she wants to stay for a least another year, but yesterday it emerged that two major investors and a leading shareholder group have voted to get rid of her.
She has been under mounting pressure to quit both of her lucrative positions, at the BBC and the scandal-hit bank, after claims that HSBC’s Swiss operation helped wealthy clients hide billions from the taxman.
Last month she was criticised by MPs as ‘incredibly naïve or totally incompetent’ for her failure to pick up on the scandal.
And last night it emerged that American investors Christian Brothers Investment Services and Trillium Asset Management, which manage more than £4.9billion of assets between them, have lodged their votes to get rid of Mrs Fairhead as a non-executive director on HSBC’s main board.
One of the UK’s most powerful shareholder groups has also urged investors to vote against her re-election as an independent director at the bank’s annual general meeting next week.
In a note to investors, the Pensions & Investment Research Consultants – which advises pension funds and other institutional investors managing £1.5trillion – said: ‘Ms Fairhead chaired the HSBC audit committee up until 2010, a period when the company’s Swiss arm was allegedly undertaking tax avoidance and evasion on behalf of clients.
‘Given the lack of control and oversight of this practice, it is considered that Ms Fairhead failed in her responsibility as a guardian of HSBC.’ But HSBC has told shareholders that Mrs Fairhead, who has been on the board of the embattled bank since 2004, has ‘agreed to stay on the board for a further one-year period’ – the maximum she can be voted in for. Non- executive directors at publicly listed companies must be elected on an annual basis, regardless of how long they intend to stay.
A source said that both she and the bank would ‘assess’ whether she should stand for re-election in 2016 ‘closer to the time’. HSBC declined to comment. Last year Mrs Fairhead received more than £513,000 in fees and benefits for her work at the troubled bank, including a £334,000 fee as non-executive chairman of HSBC North America Holdings.
PIRC said the huge pay package ‘could be considered to compromise her ability to scrutinise the bank’s activities independently’.
Mrs Fairhead al s o earns £110,000-a-year for her three-daya-week job as chairman of the BBC Trust, and a further £130,000 as a non-executive director of the fizzy drinks giant Pepsi. Many MPs expected her to resign from HSBC, especially after her bruising encounter with the Commons public accounts committee.
Its chairman, Margaret Hodge, told her she should resign or be sacked by the Government as chairman of the BBC Trust, because she had done her job at the HSBC so poorly.
‘Either you knew [about the tax evasion] or you didn’t know – and I think in that case that you are either incredibly naive or totally incompetent,’ she said.
Mrs Fairhead told MPs that she had not been aware of any wrongdoing. She said she had relied on various committees and structures to flag up problems, and was ‘horrified’ when they later discovered what was happening.
‘Failed in her responsibility’
MY conversation with Sir Charles Dunstone, at t he of f i ces of TalkTalk in an unfashionable corner of Holland Park is intended to focus on the telecoms tycoon’s latest venture.
His private office, Preston Road Ventures, has launched an online residential property sales firm, House Simple, that offers consumers a different choice to grasping estate agents.
He describes the existing estate agency franchises ‘as money for old rope’ in that they mainly use the same percentage commission for any property they sell whatever the price. ‘The average house in the UK costs £6000 to £7000 in estate agents fees, against our £475. Its doing to estate agents what Uber has done to Computer Cab. The idea of an expensive intermediary in the middle isn’t adding enough value.’
Dunstone strongly believes in entrepreneurship and suggests that the Tories, whom he believes will win the General Election, have missed a trick by limiting the amounts invested through the tax-efficient Enterprise Investment Scheme to £1m.
‘If you are doing £10m a year you can make it far more industrial,’ Dunstone’s argues. He thinks that the bold reform he would like to see is being blocked at the Treasury. ‘Ultimately you would get more tax revenue because there would be growing and expanding and starting,’ he declares.
He is as enthusiastic about his new enterprises, including a student accommodation outfit Student Castle, as he is about his quoted companies. As the founder of Carphone Warehouse (now merged with Dixons) and TalkTalk – two companies that have made a real difference to Britain’s consumers and businesses – Dunstone talks with real authority. It quickly becomes apparent for Dunstone, relaxed in shirtsleeves and tieless in his glass-clad minimalist office, that the lack of backing for new enterprises is not the only political issue at present on his mind.
As the biggest shareholder and chairman of Dixons Carphone and TalkTalk he is deeply hostile to the wave of mergers being proposed for the telecoms industry that he bestrides. Under the proposed transactions, BT will buy mobile provider EE for £12.5bn and Hutchison-owned Three would merge with Telefonica-owned O2 in a £10.25bn deal that would severely reduce choice and competition in the UK.
‘It’s crazy,’ exclaims Dunstone. ‘We worked out the other day that if BT is allowed to merge with EE 40pc of all the money spent on telecoms by UK businesses and consumers will be spent with the enlarged group. Some 75pc of access by everyone else in the market place will be spent by BT,’ he notes. ‘Vodafone [the other player in telecoms] is agitated by that too.’
Just as ridiculous, in Dunstone’s view, is the proposed way the authorities intend to examine these gamechanging transactions.
‘Bizarrely BT-EE gets looked at in the UK and O2-Three gets looked at in Europe. So we might have this odd thing when the whole thing is not looked at as a whole. I think most importantly for everyone, they should be looked at together.’
Most damagingly for consumers, Dunstone worries, is that ‘if you give someone that kind of monopoly they will not invest more money.’
He believes it is not just an issue of giving the enlarged providers greater pricing power – there is also critical technological change at stake. Dunstone regards it as ‘amazing that 85pc of mobile usage is indoors but all mobile networks are outdoors.’
As a result, the providers spend their life with towers trying blast the signals into buildings and into lifts, spending a fortune to do so, when what you actually need is an inside network.
‘You actually need the networks inside and then have the towers and things for outside. Lots of people have realised this and are already doing their data on their home wi-fi rather than their network,’ Dunstone observes. To answer TalkTalk’s ‘outside’ needs it has done a deal with O2. To deal with inside, TalkTalk is building its own router that will also act as a 4G base station.
‘So we will have our own mobile network that will roam onto O2 when you leave the home or office.’ he says.
Dunstone describes TalkTalk as ‘the challenger brand’ in telecoms. ‘We are the only people in the market not trying to protect a vested interest. Sky is in the market because it wants to charge a lot for TV, so it wants to give cheap telephony. BT wants to keep charging a lot for telephony so it can give cheap TV.’ And what about Virgin, now owned by John Malone’s Liberty Global?
‘Virgin is just expensive for both and has the speed, so they’re the premium brand.’
As for the reputation of TalkTalk for poor service (it received Money Mail’s wooden spoon in 2011 and 2012) Dunstone brushes it aside. ‘We’re getting better and better,’ he says sounding a bit like an extract from Ed Miliband’s election manifesto. ‘What we’re trying to do is a bit of an easyJet. Having been the cheap and cheerful player we are simplifying our systems and improving things.’
His other quoted concern, Dixons Carphone, received a free gift when Phones4U collapsed last year. The private-equity owners, in his view, failed to appreciate that the mobile operators get ‘incredibly nervous’ if they think the retailer is not secure. ‘They took the dividend [£200m] out and sold the insurance business with its good recurring revenue,’ he notes. An additional factor in the collapse was that the merger between Dixons and Carphone Warehouse meant that 160 Phones4U sites, operating out of PC World and Currys – both owned by Dixons – ‘were going to shut.’
As the Dixons Carphone merger settles down, a pattern is being established. ‘We will end up with most of the Carphone Warehouse stores in shopping centres and in high streets and then a Carphone inside every PC World Currys that is out of town. Don’t forget we’ve done that with Best Buy in America – that was a great success.’
Overseas, Dunstone remains committed to Scandinavia where it has both mobile and electrical goods. What really excites him, however, is another new enterprise, Connected World Services, under which the group sells its expertise to others.
‘It’ll amaze you to know that if you go into an Apple shop and buy an iPhone, it is actually transacted over our systems. They use our software.’
Back in PC World, Dunstone is full of praise for his Old Etonian chief executive Seb James. ‘What he is doing is very clever. Free delivery, more training, better people, more investment in stores so we end up with a virtuous circle.’ He adds, referring to Lord Kalms, the former Dixons chairman who stepped down in September 2002
‘Allowing BT and EE to merge is crazy’
but is still life president: ‘I think that one of the troubles Dixons had from Stanley’s days is that it got into a circle of decline where it kept on taking more and more things away because the profits were declining.
‘Our TVs now come with a free fiveyear warrantry, so a business that was absolutely dependent on selling warranties is weaning itself off.’
No one has more at stake in making sure that Dixons Carphone and TalkTalk continue to innovate than Dunstone. It is fascinating that, despite sitting atop a company in the FTSE100 and another heading in that direction, he is still bubbling with new ideas and seeking to bring revolution to the most traditional activities such as home-buying. Given his record, the ambition is hard to ignore.