Hutchings faces the bullet as Tomkins pledges quick inquiry

Pressure mounts on conglomerate's chief executive over allegations of improper use of company assets
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When David Newlands, the former finance director of GEC, was brought in over the summer as chairman of Tomkins, he knew there were some corporate governance concerns about Greg Hutchings, the chief executive who had built and run the company since 1983.

When David Newlands, the former finance director of GEC, was brought in over the summer as chairman of Tomkins, he knew there were some corporate governance concerns about Greg Hutchings, the chief executive who had built and run the company since 1983.

Over the weekend, the seriousness of the questions surrounding Mr Hutchings became clear. It is alleged that he put his wife and housekeeper on the company payroll. It is also alleged that Tomkins made large donations to a charity run by a friend of Mr Hutchings.

There are also questions about two London flats and four corporate jets owned by Tomkins and whether these have been for the personal use of Mr Hutchings.

Yesterday, Tomkins confirmed that it had appointed Arthur Andersen, the accountants, to investigate the matter.

"Following recent press speculation and allegations relating to certain board practices at Tomkins, the chairman, David Newlands, can confirm that a full review of both historical and current practices is now underway. This review will be completed as soon as possible," the company said.

The charge is that Mr Hutchings has been putting some of the company's assets to personal use. If so, there may be tax implications - benefits in kind need to be declared to the Inland Revenue.

But Tomkins insiders claim that certain shareholders and one individual are waging a personal vendetta against Mr Hutchings. The affair was ignited at last month's annual meeting, where representatives from one shareholder, JO Hambro Capital Management, asked whether the company owned the planes and flats.

At the event, Mr Hutchings appeared to side-step the issue and implied that it did not. Immediately after the AGM, he had to admit that they did indeed belong to Tomkins.

Mr Hutchings had only recently had his wings clipped. Under pressure from investors, Mr Hutchings was forced in July this year to give up the chairmanship of Tomkins, which he had added to his chief executive role in 1996. Sir Brian Pitman was also appointed a non-executive director to bolster the credibility of the board.

If Tomkins and Mr Hutchings have become synonymous, it is because he created the sprawling conglomerate out of a small Midlands maker of belt buckles and screws.

Greg Hutchings was an acquisitions supremo at the all-conquering Hanson, the archetypal conglomerate, before he arrived at Tomkins in 1983 as chief executive. Once there, he launched it on a buying spree that would see it grow big enough to enter the FTSE 100 index in 1992. By 1998 it was worth over £4bn.

Along the way, its acquisitions included, Hayters, the lawnmower company, Smith and Wesson, the gun-maker, and Rank Hovis McDougall, the branded foods business.

Tomkins was only following fashion. In the eighties, conglomerates such as Hanson, BTR and Williams were lighting up the stock market. The idea was that management at these companies would acquire under-performing businesses at rock-bottom prices.

Applying superior corporate skills, they would strip out costs and sell off non-core assets, leading to a turnaround in profitability. The constant acquisitions drove earnings growth, year after year.

These corporate raiders offered a diverse stream of earnings, so that a downturn in any one market, could be balanced by other sources of income. But by the early nineties, the model started to disintegrate. Acquisitions became more expensive and so the returns from buying other companies started to diminish.

Once City confidence was dented, the inflated shares of these conglomerates took a knock, making paper acquisitions harder still. Earnings growth started to dry up.

Investors began to clamour for focus, arguing that they could create diversity themselves in their own portfolios.

One analyst said: "BTR soldiered on and died. So has Tomkins. Only Hanson successfully broke itself up into four good businesses." In 1996 and 1997, Hanson split into four businesses - tobacco, energy, chemicals and the building materials company that still bears the Hanson name. After a spate of profit warnings, BTR fell into the arms of Siebe at the beginning of last year, in a merger that created Invensys. Williams began to divest in the mid-90s, to concentrate on fire protection and security.

It was Tomkins' acquisition of Rank Hovis McDougall in 1992, which was seen as a deal too far, both for Tomkins and the conglomerate ethos. It was this deal that spawned the famous "guns-to-buns" tag for Tomkins when it was asked what a company that made windscreen wipers and pistols was doing setting itself up as a bakery. Analysts saidthe company lost the confidence of the market with this deal. Mr Hutchings seemed to be the last conglomerate king to reform his ways and even then, he did so only reluctantly. It was in July last year that the message from shareholders finally got through. Tomkins announced that it would concentrate on being an engineering group serving the automotive, construction and general industrial markets.

It said it would sell all other interests. In August this year, it completed the sale of Rank Hovis McDougall, for £1.1bn. It has also raised about £500m from the divestment of non-food interests. Smith and Wesson is still for sale.

The problem for Tomkins is that while it has gained some focus, it has ended up in a poorly regarded sector, serving the car industry, just as its going through a downturn. It fell out of the FTSE 100 two years ago.

Michael Blogg, an analyst at Charterhouse Securities, said: "Tomkins does not appear to have much technological differentiation, compared with other engineers. In does not stand out in terms of market position or growth prospects."