COMMENT : Great British Success Story is a complacent myth
Friday 28 February 1997
Ministers have exploited the recession in the Continental economies and the struggle to restructure their economies to drum up evidence for the Great British Success Story. Why on earth would overseas companies want to invest in European failure, they have argued. Well, there you go. That's what politicians do at election time. The reality, unfortunately, is a rather less comforting one.
As any British-based multi-national knows, their Continental competitors are far from down and out. They are not the supposedly flabby and overweight sparring partners in export markets that the Conservative rhetoric might imply. Furthermore, for all the economic problems on the other side of the Channel, our European partners are still far more productive and prosperous than Britain.
Figures from the UN yesterday further undermine this complacent myth. While Britain is still the country of choice for inward investment into Europe, its share of all inward investment has shrunk quite sharply during the 1990s from one third to one fifth. It is impossible to know what the precise causes of this phenomenon might be but anecdotal evidence suggests that growing Euro-scepticism may have been a contributory factor.
Monetary union sharply divides the British business community. Big multi- nationals tend to be in favour, smaller companies against. However, even the bitterest opponents of British membership of monetary union have come to recognise that the hijacking of the political debate by a fringe of the Conservative Party has been damaging. There is no doubt that the most extreme Euro-sceptics in the Tory Party want to shift the battleground from joining the single currency to whether we should belong to the EU at all.
Pragmatic business people have at last started to tug against this dangerous tendency. If an Asian conglomerate wants low costs and flexibility, it can turn to eastern Europe. If it wants to be sure of access to the EU market, France and Germany now look like the safe bets. It might be too late to prevent permanent economic damage.
A far from perfect compromise for Boots
A great deal of soul searching, hand wringing and general angst must have gone into the decision at Boots on the management succession, for the chairman round there is Sir Michael Angus, he of both the Cadbury and Greenbury committees on corporate governance and executive pay. The structure had to be just so, or he'd be accused of hypocrisy. As it is this is a less than perfect set of compromises.
Sir Michael stays on for a further year as non-executive chairman, after which Sir James Blythe steps up to become executive chairman. On the face of it, this is most un-Cadbury. The code ideally requires a split in the positions of chairman and chief executive. The distinction made by Boots between the position of executive chairman and that of chairman and chief executive is a fine one that most of us are going to have some difficulty in seeing.
None the less, the reasoning seems understandable enough. By the time Sir James takes on his new role, he'll only have two years left to retirement. Part of his intended function during this period seems to be to act as a kind of referee between the two managing directors as they fight it out for the top job. Like most compromises this is not a particularly satisfactory state of affairs. Three powerful egos have for the time being been appeased, but the structure established could hardly be regarded as a stable one.
Giordano passes the buck
How should Richard Giordano at British Gas be judged, having bowed out as executive chairman by announcing such horrendous results? Had he hung up the gloves at the end of 1995, the picture would have looked a much better one, with the massive provisioning of 1993 working new life into the profit and loss account before the take-or-pay problem came fully home to roost.
Sadly for Mr Giordano,1996 became a vintage year for the British Gas soap opera, packed with more nasty surprises than an omnibus episode of Eastenders. Some of them, such as the take-or-pay disaster, were not of BG's recent making. But others were. The alarming drop in customer service standards suggests BG's top team took their eye off the ball at the worst possible moment. The 1993 provisions should have generated annual savings of pounds 600m, yet last year's inflation-adjusted saving was just pounds 436m.
Mr Giordano admits that the pace of change was too fast, but blames this on the industry regulator and the Government for moving too fast on competition. "That was a political decision," he complains. This will not wash. Top managers are not paid half a million pounds a year to pass the buck. The real test for both Centrica and BG this year will be proving that the bad years and the massive restructuring charges are over for good.
What's in an old-fashioned name?
How refreshing to see the extraordinarily named RTZ CRA bucking the trend towards abbreviation and returning to a semblance of its original name - Rio Tinto. There's more than nostalgia behind this very welcome move, however. Apparently the company kept on getting confused, sometimes deliberately, with Ritz Crackers. Hard to believe, but true.
The Rio Tinto (wine coloured river) is in fact a river in Southern Spain, on the banks of which the company's original copper mines were located.
Floated on the London stock market in 1873, the mines were eventually sold to local interests in the 1950s and the money reinvested in Africa and America. There's not much chance of Rio Tinto returning to Spain but how much nicer the old name sounds than the letters.
Lamentably, most companies are still going the other way, the excuse usually being a wish to distance themselves from their "British" or "Imperial" origins, which these days are said to count against them in export markets.
Thus British Telecom, shortly to become Concert, is for the time being just BT. British Gas has become BG and Centrica. British Tyre and Rubber company long ago became BTR. And so on. In some cases the acronym might seem rather appropriate. MAM for Mercury Asset Management seems about right for a company headed by Carol Galley. As does FAD for Fine Art Developments. Most of the time, however, the good old-fashioned name does just nicely.
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