Brown hangs on as British Gas purges old guard

Boardroom upheaval: Speculation over future of chief executive grows as he waives right to pounds 2m long-term incentive scheme

MARY FAGAN

Industrial Correspondent

British Gas announced sweeping boardroom changes yesterday, leaving chief executive, Cedric Brown, as the only remaining member of the old guard. The shake-out - the biggest since Richard Giordano became chairman in January 1994 - coincided with confirmation that Mr Brown is waiving his right to a long-term incentive scheme that could eventually have earned him about pounds 2m in shares.

The move fuelled speculation over the future of Mr Brown, who has almost five years to go before he officially retires. However British Gas said: ``Cedric is not going" and that the changes announced yesterday are "part of an on-going process of orderly change". City analysts said some purge of the old guard has been expected to take British Gas forward in a changing industry.

At the same time the company revealed details of the incentive scheme, under which three directors have been "allocated" a total of up to 287,452 shares worth almost pounds 700,000 at yesterday's closing price. The number finally awarded depends on company performance and the shares will not be released for five or six years.

The management changes include the abrupt departure yesterday of Russell Herbert, the 51-year-old executive director with responsibilities including the global gas business. His duties will be assumed by Stephen Brandon, who recently joined the board from General Electric of the US.

It was also announced that Howard Dalton and Norman Blacker, also executive directors, will retire "in due course". Mr Dalton is aged 61 and has responsibilities including exploration and production. Mr Blacker is 57 and has been with British Gas since 1969. His duties cover Europe and the UK gas trading operations.

The company refused to comment on whether Mr Herbert, who has been with British Gas since 1966, will receive any payoff. He was on a two- year rolling contract with pay and benefits last year totalling pounds 178,000. It is also unclear what will happen to the residential property bought jointly by British Gas and Mr Herbert in 1992. Last year's annual report valued the company's share of the property at about pounds 40,000.

Mr Brown has been at the centre of controversy since it was revealed last November that his basic pay had been increased by 75 per cent to pounds 475,000. The situation has been exacerbated by a series of public relations fiascos that have dogged the company for almost a year.

Explaining his decision not to take part in the long-term incentive scheme, Mr Brown said: "I believe too much attention has been paid to my remuneration over the past 11 months and sincerely hope that we can now get on with the many complex and difficult challenges facing the company. I strongly believe it is in the best interests of the company if I do not participate in the scheme."

One City analyst said the changes announced yesterday should not be seen as an attempt to apportion blame. "This reflects the need for a smaller, more commercially oriented and more dynamic board. It should mean a better chance of getting key decisions through," he said.

The relentless demise of British Gas' reputation from one of being highly regarded by the public has astonished the City and the industry as a whole. The company is being forced to restructure to prepare for competition in the domestic gas market from next spring - a timetable imposed by the Government that has been widely but quietly criticised as being too tight.

The resulting upheaval caused a deterioration in some service standards and unhappiness among many customers. It has also caused problems between British Gas and rival suppliers who need to use the company's pipes.

British Gas has also exacerbated the situation by introducing a series of deeply unpopular measures ranging from discounts for prompt payers at the expense of others to the ending of bill payment at gas showrooms.

Complaints and enquiries made to the company and to the Gas Consumers' Council have soared. In what became a vicious spiral earlier this year the company could not cope with the influx of telephone calls, which in turn caused even more complaints.

The Gas Consumers' Council holds the view that the company, while attempting to bring standards of service towards former levels, does not feel that British Gas has focused itself enough on the consumer. There is also a view in the industry that the company, under Mr Giordano's rein, will become more of an international player and could even sell out of public gas supply as competition grows and margins are squeezed. It is thought that Ofgas would not object to such a move, as long as the gas supply operation was sold piecemeal. The regional electricity companies, most of which already supply gas to industrial or commercial users, would probably be keen to buy.

The bulk of British Gas' assets in the UK in any case lie in the multi- billion pound pipeline system, which will remain a monopoly. It is seen as the jewel in the crown. But any sale of the gas supply business would end the group's role as a public service company. And that, whatever the ambitions of the young blood in the boardroom, is still how millions of consumers see British Gas.

British Gas Directors

Staying Started

Cedric Brown 1952

Roy Gardner 1994

Philip Rogerson 1992

Stephen Brandon 1995

Going

Russell Herbert 1966

Howard Dalton 1990

Norman Blacker 1969

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