City & Business : Surgical gloves on for gory dissection

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The Independent Online
A learned acquaintance was musing about Marjorie Scardino. "Ah yes," he said. "American, a bit feisty. She cuts up dead bodies and finds out who killed them." He was, as it turned out, referring to Kay Scarpetta, the fictional chief medical examiner who features in Patricia Cornwell's books, but the description could almost apply to the new chief executive of Pearson.

For while Pearson may not yet be dead there is little doubt it requires extensive dissection to establish what has made it so ill. It has fallen to Scardino, another feisty American, who has been running the Economist for the last few years, to perform the pre-mortem and breathe some life back into Pearson.

Ms Scardino moves into the top job at the end of the year, which gives her a couple of months to muse over what she will do with the business. The clear impression is that Ms Scardino will be an agent of change. More fuzzy is what that change will be.

The main problem is that as a focused media group Pearson makes a rather good unfocused conglomerate. If it had never got rid of the china and oil interests it might still be a proper conglomerate. Although there is superficial coherence to the bulk of its activities, this does not readily translate into any great sense of internal co-ordination. Autonomy certainly has its part to play in any management philosophy but it does seem at times that Pearson has missed out on potential synergies because of the stand alone attitude of so many of its businesses.

Ms Scardino has a stark choice. Either she brings the businesses together or she breaks them apart. It is easier to do the latter than the former. For while Pearson has been fond of drawing overlapping circles linking its information, education and entertainment divisions this has largely been a pretty theoretical exercise.

Not only is there little synergy between the divisions. It is also, apparently, woefully lacking on an intra division basis. Trying to change the culture to rectify this shortcoming would be a time-consuming and probably unproductive exercise.

Much better then for Ms Scardino to try the break up approach and introduce some real focus to the group. One of her problems is identifying where that focus should be. In each of the divisions Pearson finds itself up against formidable and more powerful com- petitors.

Identifying her new core will not be easy, but identify it she must. The scatter-gun approach to investment has spread resources too thinly. Critical mass has not been secured but a critical mess has. The company has spent approaching pounds 1.5 billion on acquisitions in less than three years but appears to have very little of substance to show for it. That kind of money should buy you real market leadership, providing you concentrate on one market.

When Reuters looked at buying Pearson earlier this year it shied away from a bid because it realised that the most fruitful way forward was to orchestrate a break up of the group. Reuters is not a break up specialist and did not believe it would serve its shareholders well by experimenting in the field.

There is a message in Reuters' view for Ms Scardino. That message is that there is more value to be secured by breaking the group up than by trying to bring it closer together. It is not that the businesses are bad (even Mindscape is apparently getting better), it is just that they do not gel particularly well together.

Ms Scardino has said there are no sacred cows - she should put her rhetoric into action. She deserves to be the FT-SE 100's first woman chief executive. Now she should set about being one of the shortest serving chief executives. She may put herself out of a job at Pearson but that action would ensure she got plenty of job offers elsewhere in the index.

Corrective amnesia

When we tried to establish from some equity strategists last week what their forecasts for the US and UK stock markets had been nine years ago there was, unsurprisingly, something of a memory and document loss. This sudden amnesia perhaps had something to do with the fact that nine years ago yesterday the world was experiencing what we now know as Black Monday, when global stock markets crashed and crumbled, dived and tumbled.

That made it all the more poignant that the Dow Jones Industrial Average chose last week to break through the 6,000 barrier. With London having breached 4,000 and with both markets at all-time highs it is entirely understandable that no one wanted to cast their minds back to those dark days nine years ago.

Not only have equity markets defied gravity, they have also defied the pundits who have been predicting that if not a crash then we are heading for a correction.

It was intriguing then to peruse Merrill Lynch's quarterly survey of fund managers. In the US fund managers are much more bullish about the US market and are no longer selling US equities. UK fund managers are also less negative about the US market than they were earlier in the year. In Japan there are dramatically fewer sellers of US stocks than there were in September and August.

Only in Europe, where fund managers had become much more positive about the US in September and August than earlier in the year, was there some selling into strength.

There is a similar broad consensus about the UK market. Our domestic fund managers who have been bearish about London all year are no longer sellers. European fund managers, who until three months ago were heavy sellers, are now net buyers again. US fund managers who have been equivocal about London all year turned significantly positive in October. Japanese fund managers, who, like the Continentals, were very bearish about London from March through to August, became positive in September and only mildly negative in October.

In summary, fund managers from around the globe have shifted their views quite markedly and become much more positive about both the US and UK equity markets.

The cynics would argue that this change of heart is the clearest indicator yet that the crash which has eluded the experts for so long is only just around the corner. Yesterday may have been the ninth anniversary, but tomorrow is Monday.

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