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| Business review 2014: boardroom dinosaurs and corporate ghosts | |
| (3 months later) | |
| Supermarkets | Supermarkets |
| This proved to be the year that the grocery market changed – possibly for ever. The chief executives of the UK’s two biggest players, Tesco and Sainsbury’s, both checked out: Sainsbury’s Justin King on his own terms, and Tesco’s Philip Clarke perhaps at the suggestion of others. There’s an argument that Dalton Philips, boss at the UK’s fourth-largest supermarket, Morrisons, might have been the third big departure, only to be saved by the City’s endearing inability to concentrate on more than one issue at any one time. | This proved to be the year that the grocery market changed – possibly for ever. The chief executives of the UK’s two biggest players, Tesco and Sainsbury’s, both checked out: Sainsbury’s Justin King on his own terms, and Tesco’s Philip Clarke perhaps at the suggestion of others. There’s an argument that Dalton Philips, boss at the UK’s fourth-largest supermarket, Morrisons, might have been the third big departure, only to be saved by the City’s endearing inability to concentrate on more than one issue at any one time. |
| Anyway, King foresaw the end of the glory days of the supermarket and seemingly felt no shame in then: a) handing in his notice shortly after insisting he would be leading the grocer for the long term; and b) delivering a deft hospital pass to his mate and successor, Mike Coupe, who is now tasked with dealing with the wreckage. | Anyway, King foresaw the end of the glory days of the supermarket and seemingly felt no shame in then: a) handing in his notice shortly after insisting he would be leading the grocer for the long term; and b) delivering a deft hospital pass to his mate and successor, Mike Coupe, who is now tasked with dealing with the wreckage. |
| Just as King was about to depart, his stellar run of 36 consecutive quarters of sales growth abruptly ended. So Coupe and his rivals in the big four were left running huge mid-market retailers being squeezed on the one hand by the irritating German discounters Aldi and Lidl, who had devised the unthinkable ruse of charging lower prices, and on the other by upmarket competitors such as Waitrose, whose outrageous innovations include selling tasty food. Added to that, customers now seem to prefer shopping in stores based in convenient locations. Few in the industry foresaw that customers might like this. | Just as King was about to depart, his stellar run of 36 consecutive quarters of sales growth abruptly ended. So Coupe and his rivals in the big four were left running huge mid-market retailers being squeezed on the one hand by the irritating German discounters Aldi and Lidl, who had devised the unthinkable ruse of charging lower prices, and on the other by upmarket competitors such as Waitrose, whose outrageous innovations include selling tasty food. Added to that, customers now seem to prefer shopping in stores based in convenient locations. Few in the industry foresaw that customers might like this. |
| Clarke certainly didn’t. His tendency to blame Tesco’s woes on those around him (his “every belittle helps” strategy) finally exhausted all the easy targets – but he was still scheduled to attend a party to celebrate his 40th anniversary at the retailer when it proved time for him to become the unexpected item in the debagging area. | Clarke certainly didn’t. His tendency to blame Tesco’s woes on those around him (his “every belittle helps” strategy) finally exhausted all the easy targets – but he was still scheduled to attend a party to celebrate his 40th anniversary at the retailer when it proved time for him to become the unexpected item in the debagging area. |
| His replacement, Dave Lewis from Unilever, had never worked in retail, although he quickly seemed to appreciate the scale of the crisis. Lewis issued three profit warnings – taking Tesco’s tally for the year to five – which included a £263m accounting scandal that has attracted the attentions of the Serious Fraud Office. | His replacement, Dave Lewis from Unilever, had never worked in retail, although he quickly seemed to appreciate the scale of the crisis. Lewis issued three profit warnings – taking Tesco’s tally for the year to five – which included a £263m accounting scandal that has attracted the attentions of the Serious Fraud Office. |
| All of which leaves Clarke – who became Tesco’s fourth boss after Sir Jack Cohen, Lord MacLaurin and Sir Terry Leahy – looking a long shot to emulate his predecessors and take an honour in the new year’s list. | All of which leaves Clarke – who became Tesco’s fourth boss after Sir Jack Cohen, Lord MacLaurin and Sir Terry Leahy – looking a long shot to emulate his predecessors and take an honour in the new year’s list. |
| His services in the field of German retailing, on the other hand, make him a slightly shorter price for a grand cross. | His services in the field of German retailing, on the other hand, make him a slightly shorter price for a grand cross. |
| Luxembourg | Luxembourg |
| “Discover the unexpected Luxembourg”, gushes the grand duchy’s tourist website – and in many ways we all did so in 2014. | “Discover the unexpected Luxembourg”, gushes the grand duchy’s tourist website – and in many ways we all did so in 2014. |
| Still, it was not the notion that plenty of folk might visit Luxembourg on a tax-dodging expedition that was the unexpected bit. The shock this year came from how few people were actually in Luxembourg to generate the frankly heroic profit levels needed for the tax dodging ruse, following November’s revelations of aggressive avoidance by PwC clients in the country, published by the Guardian and more than 20 other international news outlets. | Still, it was not the notion that plenty of folk might visit Luxembourg on a tax-dodging expedition that was the unexpected bit. The shock this year came from how few people were actually in Luxembourg to generate the frankly heroic profit levels needed for the tax dodging ruse, following November’s revelations of aggressive avoidance by PwC clients in the country, published by the Guardian and more than 20 other international news outlets. |
| Take the UK-based City broker Icap, which operates in key financial centres across the globe. One of its most lucrative operations is in Luxembourg, where its three offices – and, er, one local employee – generated almost $250m in financing income in seven years. | Take the UK-based City broker Icap, which operates in key financial centres across the globe. One of its most lucrative operations is in Luxembourg, where its three offices – and, er, one local employee – generated almost $250m in financing income in seven years. |
| Anyway, the leak of 548 letters, relating to 343 companies, showing how PwC wrote to Luxembourg tax authorities to agree on how their clients structured their businesses for tax purposes, proved as awkward for Jean-Claude Juncker, the new president of the European commission and Luxembourg’s former prime minister, as it was for the firms involved. Many questioned his suitability for his new post, while the tax deals offered to big companies by Luxembourg during Juncker’s spell as PM are being investigated by his own organisation, as illegal state aid. | Anyway, the leak of 548 letters, relating to 343 companies, showing how PwC wrote to Luxembourg tax authorities to agree on how their clients structured their businesses for tax purposes, proved as awkward for Jean-Claude Juncker, the new president of the European commission and Luxembourg’s former prime minister, as it was for the firms involved. Many questioned his suitability for his new post, while the tax deals offered to big companies by Luxembourg during Juncker’s spell as PM are being investigated by his own organisation, as illegal state aid. |
| Women on boards | Women on boards |
| Swiss Toni, the appalling car salesman from the comedy sketch programme The Fast Show, used to love comparing everything to sex. “Having therapy is very much like making love to a beautiful woman,” he would schmooze. “You get on the couch, string ’em along with some half-lies and evasions … and then hand over all your money.” | Swiss Toni, the appalling car salesman from the comedy sketch programme The Fast Show, used to love comparing everything to sex. “Having therapy is very much like making love to a beautiful woman,” he would schmooze. “You get on the couch, string ’em along with some half-lies and evasions … and then hand over all your money.” |
| The character was deliberately a dinosaur, even when the show first aired 20 years ago, but the sketches worked then (and, perhaps, even now) because this bloke really does exist – especially in the corporate world. | The character was deliberately a dinosaur, even when the show first aired 20 years ago, but the sketches worked then (and, perhaps, even now) because this bloke really does exist – especially in the corporate world. |
| Take the commodity trader Glencore, based in Zug, Switzerland. Its previous chairman, Simon Murray, said in 2011 that he wasn’t too keen on female directors as “I know they’re going to get pregnant and they’re going to go off for nine months”. | Take the commodity trader Glencore, based in Zug, Switzerland. Its previous chairman, Simon Murray, said in 2011 that he wasn’t too keen on female directors as “I know they’re going to get pregnant and they’re going to go off for nine months”. |
| Anyway, in 2014 the group trotted out new chairman “Swiss” Tony Hayward to reiterate promises to appoint a female director, and thereby cease being the dinosaur that was the final FTSE 100 company with an all-male board. In a move that astonished almost everybody, Hayward kept his word and hired Patrice Merrin, a Canadian mining veteran, as its first non-exec. | Anyway, in 2014 the group trotted out new chairman “Swiss” Tony Hayward to reiterate promises to appoint a female director, and thereby cease being the dinosaur that was the final FTSE 100 company with an all-male board. In a move that astonished almost everybody, Hayward kept his word and hired Patrice Merrin, a Canadian mining veteran, as its first non-exec. |
| Merrin’s appointment prompted much coverage about every FTSE group now having a female director, and you’d have been forgiven for thinking that the congratulatory mood suggested Lord Davies’s target of 25% female representation on blue-chip boards by 2015 had been achieved. In fact, 23% of FTSE directors are female – but 60% of companies are still below the 25% benchmark. All of which might explain why the Davies target appears to have been softened: it has been quietly changed from “by 2015” to “in 2015”. | Merrin’s appointment prompted much coverage about every FTSE group now having a female director, and you’d have been forgiven for thinking that the congratulatory mood suggested Lord Davies’s target of 25% female representation on blue-chip boards by 2015 had been achieved. In fact, 23% of FTSE directors are female – but 60% of companies are still below the 25% benchmark. All of which might explain why the Davies target appears to have been softened: it has been quietly changed from “by 2015” to “in 2015”. |
| Takeovers | Takeovers |
| Foreigners have been milking the UK’s great institutions for years, allowing British interests to be squeezed out. Well, that’s always been the excuse – whether it be the explanation for the success of US investment banks in the City or the fact that the home nations pathologically refuse to compete seriously to win proper football trophies. | Foreigners have been milking the UK’s great institutions for years, allowing British interests to be squeezed out. Well, that’s always been the excuse – whether it be the explanation for the success of US investment banks in the City or the fact that the home nations pathologically refuse to compete seriously to win proper football trophies. |
| We saw this argument being trotted out again in 2014 in a corporate version of the football phone-in, this time as the pharmaceuticals industry became a political issue in relation to Pfizer’s planned takeover of AstraZeneca. | We saw this argument being trotted out again in 2014 in a corporate version of the football phone-in, this time as the pharmaceuticals industry became a political issue in relation to Pfizer’s planned takeover of AstraZeneca. |
| Pfizer is American, of course, while AstraZeneca is, well, a little bit British. Cue UK politicians becoming impassioned about the nation losing a great research firm if Pfizer’s evil intentions were not thwarted, which rather ignored a couple of facts: namely, that AZ’s most promising technologies had largely been acquired, and that the company has a stellar research track record of inactivity and disappointment, despite press releases suggesting imminent great works for the country. | Pfizer is American, of course, while AstraZeneca is, well, a little bit British. Cue UK politicians becoming impassioned about the nation losing a great research firm if Pfizer’s evil intentions were not thwarted, which rather ignored a couple of facts: namely, that AZ’s most promising technologies had largely been acquired, and that the company has a stellar research track record of inactivity and disappointment, despite press releases suggesting imminent great works for the country. |
| Still, just as with football, the argument gained legs. Pfizer got a kicking in parliament and the media, and the deal eventually evaporated – although not because the City is a principled place that thought US asset-strippers would have wrecked British science. In the end, AZ turned the approach down on price. | Still, just as with football, the argument gained legs. Pfizer got a kicking in parliament and the media, and the deal eventually evaporated – although not because the City is a principled place that thought US asset-strippers would have wrecked British science. In the end, AZ turned the approach down on price. |
| Banks | Banks |
| So have City bankers been good girls and boys this year? The best they could tell Santa was that their behaviour had (probably) not deteriorated in 2014. | So have City bankers been good girls and boys this year? The best they could tell Santa was that their behaviour had (probably) not deteriorated in 2014. |
| However, the fines for previous misdemeanours still rolled in. In November, six banks were collectively fined £2.6bn by UK and US regulators over their traders’ attempted manipulation of foreign exchange rates. HSBC, Royal Bank of Scotland, Swiss bank UBS and US banks JP Morgan Chase, Citibank and Bank of America all coughed up. A separate investigation is continuing into Barclays – the self-styled “go-to bank”, presumably as that is where the Financial Conduct Authority goes to each time it fancies trousering a cheque. | However, the fines for previous misdemeanours still rolled in. In November, six banks were collectively fined £2.6bn by UK and US regulators over their traders’ attempted manipulation of foreign exchange rates. HSBC, Royal Bank of Scotland, Swiss bank UBS and US banks JP Morgan Chase, Citibank and Bank of America all coughed up. A separate investigation is continuing into Barclays – the self-styled “go-to bank”, presumably as that is where the Financial Conduct Authority goes to each time it fancies trousering a cheque. |
| Anyway, the UK portion of the forex fines – £1.1bn – flowed to the Treasury, and the chancellor, George Osborne, announced in his autumn statement that it was to be put towards improving GPs’ surgeries, so we all (sort of) get to benefit. | Anyway, the UK portion of the forex fines – £1.1bn – flowed to the Treasury, and the chancellor, George Osborne, announced in his autumn statement that it was to be put towards improving GPs’ surgeries, so we all (sort of) get to benefit. |
| Added to that was the usual list of other raps on the knuckles – RBS paid out £56m in November for its IT breakdown, Lloyds £105m for Libor and Barclays £38m for putting client money at risk. | Added to that was the usual list of other raps on the knuckles – RBS paid out £56m in November for its IT breakdown, Lloyds £105m for Libor and Barclays £38m for putting client money at risk. |
| Yet, somehow, all of these banks were made to look professional by the Co-op, which continued its astonishing form from 2013. It concluded 2014 by failing a Bank of England stress test, which assessed the ability of major UK lenders to withstand another financial crisis. | Yet, somehow, all of these banks were made to look professional by the Co-op, which continued its astonishing form from 2013. It concluded 2014 by failing a Bank of England stress test, which assessed the ability of major UK lenders to withstand another financial crisis. |
| Flotations | Flotations |
| In August, the investment giant BlackRock turned on its own. In an unusual move in which one financial institution criticised others, the group’s European head of capital markets, Rob Leach, bemoaned the way investors had been stung when buying shares in a string of newly floated companies that had then failed to perform as hoped. | In August, the investment giant BlackRock turned on its own. In an unusual move in which one financial institution criticised others, the group’s European head of capital markets, Rob Leach, bemoaned the way investors had been stung when buying shares in a string of newly floated companies that had then failed to perform as hoped. |
| The leak of his letter to clients was helpful in deflecting some criticism from BlackRock’s poorer stock selections, but Leach did seem to have a point. Britain’s pension funds are routinely invested into initial public offerings (IPOs) and – in a busy year for new listings – they were losing money. | The leak of his letter to clients was helpful in deflecting some criticism from BlackRock’s poorer stock selections, but Leach did seem to have a point. Britain’s pension funds are routinely invested into initial public offerings (IPOs) and – in a busy year for new listings – they were losing money. |
| The City being the City, it certainly bought some pups this year, not least the pet shop group Pets at Home, where shares floated at 245p, but are now changing hands at 190p. | The City being the City, it certainly bought some pups this year, not least the pet shop group Pets at Home, where shares floated at 245p, but are now changing hands at 190p. |
| There was also the financial services-cum-travel agent Saga (floated at 185p, now at 151p), the electrical products website AO World (285p to 280.8p) and the property website Zoopla (220p to 200p). | There was also the financial services-cum-travel agent Saga (floated at 185p, now at 151p), the electrical products website AO World (285p to 280.8p) and the property website Zoopla (220p to 200p). |
| And, best of all, the crowning glory was King Digital Entertainment, the British computer games outfit behind Candy Crush (and not much else), which was stuffed on to Wall Street with hilarious and predictable consequences (it floated at $22.50 and now stands at $16.12). | And, best of all, the crowning glory was King Digital Entertainment, the British computer games outfit behind Candy Crush (and not much else), which was stuffed on to Wall Street with hilarious and predictable consequences (it floated at $22.50 and now stands at $16.12). |
| Still, these losses did not turn out to be the entire 2014 IPO story. The fast-food business Just Eat floated at 260p and closed before Christmas at 318.5p, the discount retailer Poundland listed shares at 300p that now stand at 320p and shares in the AA started off at 250p but now stand at 352.25p. | Still, these losses did not turn out to be the entire 2014 IPO story. The fast-food business Just Eat floated at 260p and closed before Christmas at 318.5p, the discount retailer Poundland listed shares at 300p that now stand at 320p and shares in the AA started off at 250p but now stand at 352.25p. |
| Meanwhile, there are two banking flotations that have – so far – refused to embrace their sector’s love of controversy, having performed steadily: Virgin Money listed at 283p and is now 288p, while TSB floated at 260p and now stands at 274.5p. | Meanwhile, there are two banking flotations that have – so far – refused to embrace their sector’s love of controversy, having performed steadily: Virgin Money listed at 283p and is now 288p, while TSB floated at 260p and now stands at 274.5p. |
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