The criticism levelled at Vince Cable over the botched Royal Mail flotation this week might have an unlikely consequence. No, it won’t claim the Business Secretary’s scalp because in a delicately balanced Coalition Cabinet, the Liberal Democrat is too big to fail.
But as the former City minister Lord Myners prepares a report on how privatisations could be better handled in the future to avoid more mishaps, what doesn’t need to be sold probably won’t be.
The remaining state shares in Lloyds are still likely to be offloaded before the election, and Royal Bank of Scotland will follow at a distance as making it ship-shape is a longer job. In both instances, the companies are listed, so the market is already saying what it thinks they are worth; there is no opportunity to fix a low issue price that appears to disregard investor appetite, as with Royal Mail.
What is interesting is that up to this point, talk of a Channel 4 privatisation had been getting louder. It may even get a mention in the Tory manifesto for the election. But there isn’t much point in pursuing a Channel 4 sale from a financial point of view; it might raise a billion or so after fees. The ideology behind the transaction is that commercial entities belong in the private sector, not that they are great fundraising exercises.
Royal Mail wasn’t about the money either. It was about creating something commercially viable from an organisation that was a drag on the state as emails replaced letters. For all the criticism that Mr Cable cost us a billion pounds, what is often forgotten is Royal Mail’s pension fund liability – quietly serviced by the taxpayer at a cost of around £400m a year.
The difference with Channel 4, its fans say, is that it isn’t a drag on anyone. Its status as state-owned and advertiser-funded is the perfect blend. Yet that hasn’t stopped the privatisation chatter. Benefits Street and Gogglebox aside, the broadcaster must work harder to demonstrate its unique difference, how it keeps the BBC honest, and why it shouldn’t be tampered with. Its defenders say that with the American broadcaster Viacom snapping up Channel 5, a sell-off of Channel 4, with the risk of it falling into overseas hands, would be a catastrophe for Britain’s cultural landscape.
And after the second-class Royal Mail delivery, ministers might decide against the risk of another giveaway anyway.
Burberry’s chief can do as he pleases, as long as he’s good
Big money has always been in fashion at Burberry. And that’s been fine while its stock market performance has been stratospheric. But due to emerging market wobbles, some of that growth is now firmly in the rear-view mirror. It means that the pay package for the chief executive Christopher Bailey is either gruesome excess or the spur that takes the fashion house on to the next level.
Either way, the City isn’t keen, as yesterday’s bloody nose demonstrated. Investors follow tight strictures on how remuneration should be put together. Outliers are not welcome. But what the dual pay vote – where shareholders have a say on a company’s pay report and pay policy – actually does is blunt the effect of a rebellion. It creates a consequence-free channel for investors to vent their spleen without actually sending the company back to the drawing board.
What might Mr Bailey be worth to a rival? How much does he need to be prevented from turning tail to set up a fashion house of his own? Burberry has always behaved as if it were too cool for the stock market and the rules that it employs.
Outliers can do what they like – until they stop outperforming. Sir Ken Morrison was no fan of non-executive directors until the abortive Safeway acquisition showed why his supermarket group needed better governance. Apple – where Mr Bailey’s predecessor, Angela Ahrendts, has gone– was happy to husband its giant mountain of cash until fears of slowing growth finally persuaded it to pay a dividend.
Burberry has every justification to cock a snook at the best-practice brigade. But Mr Bailey had better be every bit as good as his fat pay package says he is.
The weather can’t dampen a venture born out of tragedy
Staying in fashion, I chaired a discussion the other night in which Rob Forkan, the co-founder of Gandys Flip Flops, talked eloquently and openly about how his company was born from tragedy. Its trendy footwear has harnessed social media, captured celebrity fans and the support of Sir Richard Branson and Sir Philip Green. A portion of its profits funds children’s homes in developing countries. Yet Gandys might not have been set up by Mr Forkan and his brother, Paul, if they hadn’t lost their parents in Sri Lanka in the tsunami of 2004.
There is nothing more powerful than grief to give someone a sense of mission. Coupled with that, Mr Forkan contends with the same challenges faced by most entrepreneurs: supply problems, competitive pressures and the best way to grow the business. Despite this summer’s soggy turn, he is confident that most weather is flip-flop weather. He was even more relaxed when I suggested that his footwear might one day slip out of fashion. Instead of broadening out to sell clogs, there are other brand extensions on the way. With the 10th anniversary of the tsunami a few months off, Gandys is a venture that deserves to thrive.