Berkeley’s looking solid now – but watch out, the roof could fall in
Outlook: Is it not worth seeing if Vittorio Colao can create something with what remains?
Happy days are here if you’re a shareholder in Berkeley, the home builder. The housing market is picking up. Rightmove’s identification of gathering momentum, with demand outstripping the supply of new properties, promises to make the going very smooth from here on out.
The group is well on track to meet City forecasts and, what’s more, it will return a truckload of cash to shareholders over the next few years.
Only one voting adviser raised any questions at the AGM and with the outlook so rosy, the view in the City was clearly that it would be churlish to make any fuss, with only a token rebellion against the group’s remuneration report recorded yesterday.
Unfortunately, this is a parade I’m about to rain on, and you should too if you have shares in the company, or if your pension fund does.
Take what it calls part A of the 2009 long-term incentive scheme, which pays out simply if an executive stays in post with no performance conditions. That might seem ok given that the company is doing well, even if the rosy outlook has as much to do with Government intervention in the housing market as it does with the work of Berkeley executives.
But what happens if things go awry? Take the example of Darty, which owned electrical retailer Comet in its earlier guise of Kesa. When it came to give the CEO the boot after performance cratered, it emerged that he was due a fortune simply for sticking around. His golden hello came with no performance conditions.
Investors kicked up a fearful fuss, throwing out the remuneration report and slamming shut the stable doors after the horse had swished its tail and headed off for a nice holiday in the sun. It was too late, however. When you allow schemes like this to slip through when things look rosy and jolly, they have a habit of biting back.
Of course, in Berkeley’s case that was the 2009 edition. The 2011 scheme has performance conditions, calling on executives to return cash to shareholders. Which is scarcely any more credible. Returning money to shareholders through the payment of dividends and the like is a very basic part of an executive’s job. Like turning up for work in the morning. It is what they are hired, and paid handsomely, to do. So why the extra?
Of course, the reason that there wasn’t much fuss about all this is that the AGM votes are controlled by fund managers whose own remuneration contracts tend to have similar sweeties. Meanwhile, most of the voting advisers prefer not to make too much of a fuss, because life’s simpler that way, and they like getting paid too.
The losers are those of us with generally meagre pensions, and other savings, invested in the stock market.
While the City would struggle mightily without us, we lack any meaningful way to influence the likes of Berkeley, whose non-executive directors will doubtless trot out the usual clichés about the importance of retaining “top talent” as the reason for waving through such corporate larceny.
The best of it is, Berkeley is a long way from being the worst offender. It’s merely at the tip of a very large iceberg.
It may be too soon to hang up on Vodafone
Christmas is coming earlier for some of those fund managers – if, that is, they have Vodafone in their stockings.
The telecoms giant is about to shrink dramatically, having finally resolved the tug of love over Verizon Wireless with Verizon, its US partner, which will pay $130bn (£84bn) to take full control of the operation. Vodafone deserves a lot of credit for playing the long game here. It has extracted a very good price at a time when the US mobile market looks like it is going to get tougher.
There has been speculation that the rump Vodafone – what will be left after the divestment of its US joint venture – will now be a take-over target, composed as it is of some European and emerging market assets and capitalised at a size which a predator could (just about) contemplate swallowing.
But Vodafone’s shareholders should think very carefully before contemplating a second bite of a cherry that already looks set to leave their coffers fattened with a substantial windfall.
It’s true that Europe isn’t the most exciting part of the world in which to do business, while Vodafone’s record outside of it has been mixed at best.
But the chief executive Vittorio Colao has extracted an enormous slug of value from one part of the business. Is it not worth them seeing if he can create something with what remains?
That is a particularly pertinent question for UK-focused funds that invest in Vodafone.
They now have to find something to do with their share of an enormous Vodafone windfall, before they can even contemplate another.
Where’s that money going to go? More Kazakh miners, or other natural resources stocks, whose governance arrangements make Berkeley and its ilk look like paragons of virtue?
Or how about the UK banks which are set to come on to the market soon (and what’s the betting that UK Financial Investments seeks to test interest in Lloyds Banking Group shortly after the first tranche of the Verizon windfall is banked)?
Vodafone’s record when it comes to delivering shareholder value isn’t entirely unblemished, but compared with the likes Lloyds, and especially Royal Bank of Scotland, it’s had the touch of King Midas.
The top part of the UK stock market is dominated by miners, oil companies and banks, and that should give the people charged with stewarding our pensions pause for thought.
Vodafone actually has a multinational corps of investors, but those from these shores, whose success depends on British companies, might be well advised to be very careful before throwing the rest of this baby out with its American bath water.
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