Jeremy Warner's Outlook: It's all about timing, but despite the last year, it has been a good innings for Lord Browne

Teflon Nicoli survives again at EMI; Interest rates have further to rise yet
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The Independent Online

Business is so much more clinical than politics. Tony Blair looks as if he'll be able to cling on to power long enough to see out his tenth year in office. Lord Browne of Madingley, the chief executive of BP, is not being allowed that luxury.

Last summer, he fought a bitter boardroom battle to be allowed to stay indefinitely, and when this was disallowed, he hoped at least to be able to see out BP's centenary celebrations next year. Yet even this fall back, compromise date has now been scrapped. A successor has been named, and Lord Browne will be out of the door in June, a year earlier than previously agreed.

This is exactly as it should be and if politics were business it would write the script for Mr Blair's prompt departure too. For BP, the naming of a successor and the early departure of Lord Browne bring closure on what has been a truly disastrous year for one of the country's most important companies. Thanks to the high oil price, profits are still gushing, but just about everything else has gone wrong, culminating in news this week that production has fallen for the sixth quarter in succession.

From the Texas oil refinery blast, to leaks in Alaskan pipelines and the summer's unseemly row over the succession, not in his worst nightmares could Lord Browne have dreamt of such an inglorious end to an otherwise glittering career. He'd wanted to stay on at least long enough to set things right, but this was never a realistic proposition. Like Tony Blair, he'd become a lame duck leader. Time to move on, and let someone else have a go.

In business as in life, timing is all, and though Lord Browne has many talents, this one has eluded him. He should have retired two years back, when he was at his peak. Others - Richard Harvey at Aviva and James Crosby at HBOS - have since learned from his mistake. Yet ironically, the row that did him so much harm - his campaign to win more years beyond the company's official retirement age - was pursued to try to correct this misjudgement. He'd wanted to work on until his reputation had been salvaged.

As it is, the disasters of the last few years should not be allowed to obliterate his achievements. In the 12 years he's been CEO, the share price has risen 250 per cent, there's been a fivefold increase in market capitalisation and profits, and earnings per share are up 600 per cent. Not a bad epitaph.

Teflon Nicoli survives again at EMI

At the last annual general meeting, one shareholder accused Alain Levy, EMI's head of recorded music, of being an overpaid prima donna. He'll no doubt be pleased to see Mr Levy and his loyal number two, David Munns, get their just desserts.

Mr Levy is an almost legendary figure in the music industry, having built huge success at PolyGram before selling it on to Seagram. But he's failed to repeat the trick at EMI, which has been limping along for years on an unadventurous roster of old and new that has predictably failed to excite the public's imagination. EMI needed at least three platinum-selling albums to hit its forecasts this year. Only one of them came close.

Yet perhaps the biggest mystery is how the man who has presided over this slow-motion car crash, Eric Nicoli, has again managed to survive it. He's been executive chairman at EMI for nearly eight years now, and other than a string of failed merger proposals, profit warnings, write downs, restructurings and executive firings, there is still nothing to show for it.

In fairness, it ought to be said that few industries have faced such profound structural change as music. It's not just piracy and music downloads. As if these two issues don't make things tough enough, there's also the rising power of the supermarkets, which have forced deep discounts from the music majors and an ever dwindling range of top artists. The days of milk and honey were over for this industry a long time ago. Yet today it seems to be down to just bread and water. Mr Nicoli answers these changed circumstances with what seems to be a strategy of despair - another swingeing round of cost cuts.

By throwing Messrs Levy and Munns to the wolves, he seems to have won another stay of execution. As recently as last summer, he and his board rejected an offer pitched at 320p a share from Warner Music. Last night, the shares were changing hands at 246p. Mr Nicoli cannot be blamed for the damage the internet is doing to his business, or perhaps directly even for the poor showing of his artists this Christmas. But for this act of misjudgement he most certainly can.

Interest rates have further to rise yet

A catch-up, or a pre-emptive strike? The shock waves were still reverberating yesterday over this week's surprise decision by the Bank of England to raise interest rates. Until we see the minutes, it is impossible to know exactly what the Monetary Policy Committee's reasoning was, or indeed how split its members might have been on the course of action determined.

Yet the general assumption in the City is that the move falls into the category of a stitch in time - that the MPC may not have been entirely sure a rate rise a month earlier than expected was the right approach, but took the view that nothing would be gained by delaying a decision which, if it later proved unnecessary, could easily be reversed. By acting, the Bank sent out a powerful message.

Well, maybe that was the MPC's reasoning, but I can't share the logic. Rather, this looks to me to be a simple and belated reaction to rising levels of inflation and overexuberance in the economy, including crucially the housing market. In other words, more of a panic reaction than a carefully thought out pre-emption. Something spooked the bank. The only oddity is that it has taken the MPC so long to wake up and notice the inflationary snake in its bed.

Mervyn King, Governor of the Bank of England, may this weekend be facing the humiliation of having to write a letter of explanation to the Chancellor on why inflation has risen more than one percentage point over the 2 per cent target. We'll know whether this is the case next Tuesday, when last month's inflation rate is scheduled to be published.

Whatever the exact figure, it is not going to look pretty. Mr King can reasonably blame quite a lot of the present surge in inflation on higher energy prices, which is plainly something outside the Bank of England's control.

Even so, it is the Bank's job to take such shocks in its stride. Something happened that we didn't anticipate is not really a justification for busting the inflation target. Nor would it be wise for the Bank to rely on the lower oil price that now rules to deliver lower general price inflation later this year.

Renewed instability in the Middle East could equally well prompt the opposite outcome. All hope of meeting the inflation target would then be out the window. What's more, quite a lot of any remaining downward pressure on prices stems from the strong pound. Again, the Bank cannot rely on this influence to persist.

I've never been much of a believer in pre-emptive action, of any variety. It is no easier to justify the pre-emptive interest rate rise than it is the pre-emptive war. I suppose it might be argued that up to a point all monetary policy is pre-emptive in nature, as the idea of changing interest rates is to ensure that inflation meets its target two years later.

Yet in a perfect world, rate changes would only occur if circumstances change too. What's changed here is that it is now plain as a pikestaff that inflation is coming through quite strongly with little reason to think these pressures are about to abate. So this is more reaction than pre-emption.

How high might rates go? It depends crucially on what effect this rate rise has. Paradoxically, the immediate impact might even be to exaggerate second-round inflationary effects. If higher mortgage rates make workers feel poorer, they are likely to try to compensate with higher wage demands. The last two rate rises seem to have had no effect on the housing market whatsoever. If this one fails to do the trick too, then we could easily be looking at rates rising to as high as 6 per cent. That's where the pips really begin to squeak.

j.warner@independent.co.uk

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