and JOHN RENTOUL
British Gas is to announce today that Cedric Brown, its chief executive, is to retire in the spring, a year early, following a revolt by big City shareholders.
In a dramatic move the privatised group is also planning to break itself up in a major restructuring aimed at protecting its profitable businesses from huge losses of pounds 1.5bn or more which are expected to be made on North Sea gas supply contracts.
Such a split would produce a new giant stock-market-quoted company involved in pipeline transmission of gas, exploration and international business together with a separate trading company supplying gas to customers.
News of Mr Brown's expected retirement prompted a political storm last night. The gas chief has been the focus of a sustained Labour campaign against "boardroom greed" in the privatised utilities since his controversial 71-per-cent pay rise in 1994, which took his annual pay to pounds 493,000.
Gordon Brown, the shadow chancellor, said that Mr Brown is "looking like the [Government's] fall-guy for the excesses and failures of the privatised utilities". A Labour spokesman said the party intends to continue its attack, and highlighted the size of Cedric Brown's pay-off and pension arrangements. The party's calculations of Mr Brown's pension, based on standard pension industry assumptions, are that his pay rise took the total cost to the British Gas pension fund to pounds 5.5m.
From being one of the more successful privatisations, British Gas became embroiled in controversy over pay and perks, suffered a surge in customer complaints and the effects of an increasingly competitive gas market, which forced the pace of internal change.
Mr Brown, 60, is expected to leave the company at its annual meeting in May. The meeting - picketed last year by GMB union activists who brought along a pig called Cedric which they fed from a trough - will also be asked to approve the biggest restructuring of a privatised company.
Apparently following a recent vogue for "demergers", the division of British Gas into separate companies would see most of the assets remain with the pipeline company while loss-making gas contracts would be left with the new trading company. This means that if the losses prove cripplingly high, only the trading company would be at risk. The move is designed to protect the profitable parts of the business. The idea follows similar break-ups in recent years by companies such as ICI and Courtauld. Hanson and Thorn-EMI are among those planning to split themselves up in the near future.
Richard Giordano, the chairman of British Gas, was told last year by big institutional investors concerned at the company's sagging share price and poor management that he must find a new chief executive or quit himself. To press the threat home it is thought they insisted that his own contract was put on a one-year rolling basis until a successor to Mr Brown is announced.
The institutions have been angered by British Gas's handling of the 75-per-cent earnings increase awarded to Mr Brown last year which caused a furore in the press and parliament, and was a key influence on the work of the Greenbury committee on top pay. Over the weekend, senior City investors said they believed the removal of Mr Brown would put that episode behind British Gas.
But they are also deeply concerned at the company's lack of direction, exhibited by the so-called gas bubble, in which British Gas has agreed long-term take-or-pay contracts with North Sea suppliers, which means the company must pay for gas even if increased market competition means it cannot sell it. British Gas refused to comment on the reports.
Mr Brown has already been isolated by a series of changes that have removed the company's old guard and is now the last of the pre-privatisation executives in the boardroom.
City Comment, page 21Reuse content