City: Bang to rights

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I don't want to apologise for Peter Costain, chief executive of the Costain contracting group; he perhaps fully deserved the roasting he got in last week's press for announcing his second rescue rights issue in two years. Many of the cock-ups that have occurred in recent years are ultimately down to him. In most companies, institutional shareholders would have demanded his head on a platter.

So why is Mr Costain still there? Given the precipitous fall in the company's share price, its reckless over- optimism at the time of the previous rights issue a few years back and its failure to check the deterioration since, you would have thought he would long since have departed. 'He's another of those Teflon men,' one analyst remarked rudely.

But it's not quite as simple as that. Nor is his survival anything to do with the fact that he is from the company's founding stock; the Costain family's power base on the share register has long since gone. No, Mr Costain probably owes his job more to the continuing support of his bankers and customers than anything else. He may not be the best chief executive in the business, but he's certainly one of the most respected contractors. As one banker puts it: 'Without him the company would not have survived. We probably would have pulled the plug, and the ongoing client relationships which are such an important part of contracting might have evaporated, leaving the company bereft of business. He is a man whose word can be trusted.'

In itself, the assurance of bankers would have been insufficient to persuade disillusioned institutional shareholders to cough up the extra cash; Morgan Grenfell, sponsor of the rights, took extensive soundings in the City and if the institutions had said they wanted Mr Costain out, it would not have been able to proceed - not until a replacement had been found, anyway. As it is, management changes already made, including fresh blood at the operational level and a new finance director, appear to have appeased investors. The real clincher, however, was the appointment as chairman a few months back of Sir Christopher Benson, something of a professional company chairman with MEPC and Boots already locked away in his portfolio. It is plain from his contract that he is expected to perform more than the role of a normal non-executive figurehead - pounds 100,000 a year for a minimum three years, plus an incentive package of up to pounds 300,000 linked to the performance of the company's share price payable on termination of the appointment. No one in the City would think of Costain as out of the woods yet, but it is equally clear that Sir Christopher wouldn't want to take on a dodo as his swansong.