Any other business

Advice from the Institute of Directors: prepare for the scandal tornado

17 March 2018

9:00 AM

17 March 2018

9:00 AM

As ‘business lobby groups’ go, the Institute of Directors has always struck me as worthy but unexciting: a more authentic voice of mid-sized corporate Britain than the fat-cat smugfest that is the CBI; a fount of sound advice on governance, gender equality and ‘mental health at work’; and a handy Pall Mall watering hole for business folk up from the provinces. But as the storm of revelations about personal behaviour topples one pillar of respectability after another, the IoD has suddenly been reduced to reputational rubble following allegations of racism and bullying against its chairman, Lady Judge — who resigned in fury last Friday, shortly after being suspended by the IoD’s Council.

American-born Barbara Judge, a lawyer who has held a vast number of boardroom jobs, is well known to be a formidable operator. The Spectator was once offered an interview with her in her capacity as chairman of the UK Atomic Energy Authority. I sent our most debonair contributor, Elliot Wilson — the Roger Moore of business journalism, you might say — to see whether he could charm her into saying anything off-script. He found her impeccably briefed but unsmiling in her high-backed chair and starched ruff. ‘Frostier than a Siberian morning’, he told me; in print we called her ‘a cross between Marie Antoinette and Jessica Tandy’.

But whether or not that characteristic hauteur has contributed to her nemesis, the IoD’s handling of her case has been catastrophic. Director-general Stephen Martin (who secretly recorded a conversation that was used in evidence against Judge) deserves a special prize for empty hyperbole: the episode, he announced, ‘marks the start of a new era for the IoD where we are freed… to share our learnings from this difficult challenge’. More telling was the resignation, alongside Judge, of the IoD’s respected deputy chairman Sir Ken Olisa, a tech entrepreneur who also happens to be the first black Lord-Lieutenant of London: he called the process leading to Judge’s suspension ‘fatally flawed’ and ‘a personal vendetta’.

Meanwhile, what’s left of the IoD’s Council must be wishing it knew of a nearby institute that could offer urgent advice on governance and mental health for organisations in meltdown. And every other corporate body in Britain that thinks it might ever have witnessed a whisper of inappropriate language or behaviour should run a weekly exercise, like a fire alarm test, rehearsing for when the scandal tornado strikes.

Old-fashioned City spectacle


In a takeover joust between a British engineering company whose roots go back to the Industrial Revolution and a bunch of 1980s-style corporate raiders, you might expect this column, on past form, to take the side of history. But in the case of GKN and Melrose, I was inclined to go the other way. Yes, GKN is a last stronghold of research-based UK manufacturing in the defence, aerospace and automotive sectors. But its management seems to have been adrift for some time and its response to the bid — involving taking an axe to its Brush engineering arm and selling a majority interest in its auto-parts division to Dana of the US — smacked of desperation.

You might not want every company to be as hard-nosed as Melrose, on the other hand, but it’s good to have corporate catalysts that exist to ginger up the slackers. Melrose has a proven record of extracting value from acquisitions and looked unlikely to inflict more radical surgery on GKN than GKN was in effect proposing for itself. Support for GKN from the Unite union and Labour MPs such as Jack Dromey, claiming to speak for ‘the industrial interests of Britain’, merely encouraged Melrose’s supporters. And despite the defence angle, no overwhelming case was made why business secretary Greg Clark should intervene to block the takeover of one UK company by another.

But this week’s increased and final offer from Melrose, at £8.1 billion in cash and shares, met a mixed response. Only one institution, Aviva, spoke in favour. The price hike did not look decisive. This has been an enjoyable battle of City spin versus counter-spin. But canny investors know hostile takeovers have a habit of disappointing in the end, and look set to shun this one. Let’s hope GKN goes on to sharpen its performance without hollowing itself to self-destruction.

Goldman’s heir

It’s always useful to know who’s next in line to run Goldman Sachs, the much-feared US investment bank, because it also tells us who’s likely to run the world’s treasuries and central banks in a few years time. Current chairman Lloyd Blankfein reportedly plans to step down this year. At a time of squeezed profits and regulatory pressure, the succession race was between co-presidents Harvey Schwartz , an ex-nightclub bouncer from the trading floor, and David Solomon, a more polished banker whose hobbies include yoga and fine wine. Schwartz’s retirement now leaves Solomon sole heir, perhaps presaging a less fearsome Goldman ahead. But a footnote to this story is that Solomon recently suffered the theft of $1.2 million worth of wine by a ‘former personal assistant’. That’s a lot of wine to lose: Goldman shareholders will hope he keeps a tighter grip on risk than he did on his cellar keys.

Splitting the Pru

Another historic City name reinvents itself. Prudential, founded in 1848, is splitting off its insurance business in Asia, the US and Africa while creating a separate company, M&G Prudential, to offer savings and investment products in the UK and Europe. Both will remain headquartered in London, and both will be big enough for membership of the FTSE100. So there should be no loss of jobs or critical mass in the City as a result of the demerger — which will make better use of the Pru’s capital and give it more strategic thrust in high-growth insurance markets. If there’s a downside to the demerger, I haven’t spotted it.

 

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