Olisa's league table for corporate malfeasance may make a difference
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Version 0 of 1. Ken Olisa knows a thing or two about bad governance. He was the man who coined the memorable phrase “more Soviet than City” to describe the mining company ENRC when he and colleague Sir Richard Sykes were booted off the board in a move orchestrated by the controlling oligarchs. So when he oversees a report for the Institute of Directors, an organisation that has had some interesting, even progressive, things to say in recent months on subjects ranging from banking reform to executive pay, it is worthy of our attention. The report, written in conjunction with Cass Business School and published today, takes the view that the UK corporate governance code is all very well, but given the number, and character, of recent governance failures something more than simple compliance with it is needed to restore corporate Britain’s battered reputation. The panel overseeing the project has tried to separate the governance goodies from the governance baddies by assessing companies’ performance across a wide range of categories (bosses’ pay, shareholder engagement, etc) and also by conducting surveys of professional people who know them well (accountants and the like). The result, to be unveiled this morning, is that the IoD will probably find its phone system is in danger of meltdown from the volume of whiney calls it is going to receive from communications bods at companies placed on its new naughty step. In other words, those in the bottom couple of tiers (there are eight) of an index which rates performance between 0 and 1000. Actually, three indices have been produced, one using those “instrumental factors”, one using survey data, and a third combining the two. Regular readers won’t be at all surprised to learn that none of the banks comes out very well. Rather like the code itself, the index the IOD is proposing won’t serve as a panacea. It won’t stop companies behaving badly, and it is perfectly possible for those with previously high ratings to go wrong. However, if it is regularly updated and starts to gain currency in the market, it might serve as a useful tool. Particularly if investors bang on about it when they hold meetings with the directors of businesses in tiers seven and eight. The stock market took a decidedly sour view of Majestic Wine’s full-year results, which can’t have come as a great surprise to anyone, given that profits were down by more than a fifth. It didn’t help much that newly minted chief executive Rowan Gormley, whose Naked Wines Majestic had to take over to get him, warned that it will get worse before it gets better, and reinvestment means short-term profits will suffer. Unlike many executives, Mr Gormley’s interests are closely aligned with those of investors because he pumped a majestic share of the proceeds from the Naked deal into his new shop’s shares. “Mrs Gormley ain’t getting a new jumper after all,” he opined at the time. He won’t be getting one either if he can’t turn Majestic around, because he stands to lose at least part of what he spent several years building up. Unlike most chief executives, he really does have skin in the game. Perhaps that’s why he appears willing to slay some of Majestic’s sacred cows, such as the increasingly antiquated requirement that customers buy at least six bottles if they want to sample its wares. The last time Majestic addressed that issue – by reducing the minimum purchase from a full 12-bottle case – it coincided with a marked revival in its fortunes. It’ll be hand-knitted cashmere for the Gormleys if lightning strikes twice. Should it matter to us that a multibillion-pound leviathan like Royal Bank of Scotland buys back a few millions shares here, or issues a few million more new ones there? Investec’s Ian Gordon thinks it should. In his latest note Mr Gordon explains that last Thursday evening RBS said it had issued 21.3 million new shares, cutting the Government’s stake to 78 per cent. Every time the state’s stake in Lloyds falls to a new low it is widely hailed, but in RBS’s case it barely merited a mention. Of course, the Government is in the midst of a planned sell-off of Lloyds, so each milestone reached brings the end of the taxpayer’s involvement a step closer. It will take years for RBS to get to that point, and the most recent tranche of shares were issued for rather more arcane purposes: to offset some of the money paid in interest to certain bondholders. Mr Gordon professes himself “puzzled” as to why the bank is bothering with so many small share issuances (it’s been here before) given that it ought now to have ample capital reserves. And he has a point. In the grand scheme of things it isn’t of earth shattering importance. It certainly doesn’t change Mr Gordon’s buy rating. But it is a question RBS ought to answer. While it formulates a response, it should at least be of comfort to taxpayers that there are still one or two independent analysts out there willing to poke around in the bowels of company announcements like this and to raise questions where things seem a bit off. A few more like Mr Gordon might do wonders for the City’s battered credibility. |