City & Business: Brakes fail on the company roller

ON TUESDAY, I thought Alastair Ross Goobey's admirable crusade to stamp out one of the most pernicious areas of boardroom greed, long-term rolling contracts, had finally taken off. By Wednesday, I was having my doubts.

On Tuesday, PosTel, the pension fund giant headed by Mr Ross Goobey, voted against Argyll Group's three-year rollers at its annual shareholders meeting. Argyll agreed to modify the contracts.

The same day, Courtaulds, while not going as far as Argyll, at least agreed to take another look at the subject. Mr Ross Goobey, who controls 11 2 per cent of the stock market, at last seemed to be getting his message across.

Long-term rollers are the employment contracts that oblige companies to pay three or sometimes even five years' salary to executives they sack. They have created an army of fortunate executives who, though deemed to have failed and cost their shareholders dear, walk away with six and sometimes seven- figure payments.

They are so patently a Bad Idea that you might think Mr Ross Goobey's campaign would be widely and publicly supported by other institutional investors. Not so.

Not one other institution has put its head above the parapet, mainly because fund managers are terrified of losing existing business or offending potential new business if they rock the boat. The executives who enjoy these contracts are often the selfsame people who decide who to appoint to manage the company pension fund or other assets.

Then there are executives in institutions who are also on the offending contracts. Most notable is Mick Newmarch, head of the Pru.

Then came Wednesday. Bass, the brewing and bookies group, announced it was taking on Richard North as its new finance director, on a three-year roller. Mr North was already in bad odour in some circles for receiving a pounds 250,000 pay- off from his old employer Burton, despite leaving voluntarily and walking straight into another job.

It was a retrograde step. What chance of companies downgrading existing executives from three-year contracts if new recruits are immediately put on them?

Bass talks breezily about the competitive jobs market. Unless it offers terms like this, it claims, it won't get the most talented people. Balderdash. The best people are attracted by performance-related deals - share options and profit- related bonuses.

The offer of a cast-iron, gold- plated sinecure will simply attract people keenest to settle down in a cast-iron, gold-plated sinecure.

Perhaps the saddest aspect of the affair is that the head of the Bass remuneration committee is Kenneth Dixon, who is also deputy chairman of Legal & General, one of the country's biggest institutional investors. His decision sends all the wrong signals to British management. Mr Ross Goobey will win his war, but he has plenty of work to do.