Double standards in Dobson's £10.5m package

New Lazards head
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The Independent Online

Schroders is one of Britain's leading fund management groups with tens of billions of pounds under management. Its clients include some of Britain's biggest charities, public authorities and pension funds, so you'd expect it to be at the forefront of the new spirit of shareholder activism which has swept the City. And maybe it will, but it will not be doing it from a position of strength after the corker of a deal it has just agreed with its new chief executive, Michael Dobson, nor will it be able convincingly to argue any kind of a case against boardroom excess.

Schroders insists that the package, worth £10.5m over three years plus another £3.75m if the share price doubles over five years, is in all aspects "Cadbury correct", but that's not going to stop many pension fund trustees, public authorities and charities positively foaming at the mouth about the iniquity of it all.

More upsetting still for those exercised by the reward for failure debate, his contract entitles him to a minimum £3.5m on termination. Mr Dobson could screw up monumentally, and he would still get the money. Schroders is still a family controlled company, so there's not a lot anyone can do about it other than withdraw their money, just as there wasn't anything they could do about the £5m ex gratia payment the company made to its former chairman, Win Bischoff.

Bizarrely for an organisation that would frown on anything similar in the companies it invests in, Schroders maintains an archaic capital structure that splits voting shares from non voting – the mechanism through which the family maintains control. Well, their need was desperate. Since selling off the investment banking side to Salomon Smith Barney, the company has lost its way. The share price has taken a hammering, the company's own investment performance has been poor to abysmal, and clients have been walking out the door with growing determination.

Even so, did the board really need to sign up to a deal which guarantees Mr Dobson £3.5m annually over three years, whatever his performance? Bonuses are meant to be for the purpose of aligning the executive's interests with those of shareholders. Mr Dobson's deal plainly has nothing to do with that principle.

Nor is it just the cash and free shares that outside investors will take objection to. To get its man, Schroders is also having to buy his company, Beaumont, for £33.5m. Beaumont is a start-up fund manager with little in the way of track record and a so far very limited pool of funds. Indeed, in a letter to shareholders this week, Schroders admits that since signing the deal, Beaumont has lost a client worth more than 10 per cent of its total funds under management.

So is Mr Dobson really worth it? As ever, City opinion is sharply divided on his talents or otherwise. Prior to Beaumont, Mr Dobson was head of Deutsche Asset Management, both in the UK and the rest of the world, which was a big job, and he sat on the management board of the wider Deutsche Bank group.

His decision to quit that position on a matter of principle was both brave and right. Mr Dobson took umbrage at the terms of Deutsche Bank's planned merger with Dresdner, which he thought both undersold the asset management side and would have been a disaster in investment banking. He was correct on both counts and shortly after he resigned, the deal collapsed amid bitter recriminations all round.

More controversially, Mr Dobson was chief executive of Deutsche's investment banking operations at the time of the Peter Young affair, a débâcle that ended up costing the bank £500m in compensation. Again Mr Dobson won brownie points for the way he handled its aftermath, which could easily have been a lot more disastrous than it was, and he was subsequently very successful in reviving and expanding the business.

Managing this fruitcake masquerading as a fund manager wasn't any part of Mr Dobson's responsibility and it would be wrong to hold him accountable for the failures in compliance that allowed the débâcle to happen. Certainly neither the bank nor the regulators ever attempted to. Asset management was handled by someone else on the board. Even so, it was part of the investment banking operation, and Mr Dobson was the investment bank's chief executive, so like many around at the time, he couldn't help but be tarred by the experience to some extent. For everyone, it was a difficult time.

In any case, chief executives can presumably look forward to a kinder and more forgiving approach from Schroders to executive pay and other corporate controversies now that Mr Dobson is in the hot seat.

New Lazards head

So we now know for sure that Bruce Wasserstein is leaving his job as executive chairman of investment banking at Dresdner Bank. The only mystery is why the man who became synonymous with the 1980s leveraged buyout took so long about it. Ever since Dresdner bought his company, Wasserstein Perella, their relationship has been one of mutual mistrust, if not outright hostility. The final straw was when Dresdner decided to renege on promises to float off the investment banking interests.

The bigger question is whether he's capable of turning round Lazards. For years, this venerable name in investment banking has been ruled with a rod of iron in New York, London and Paris by Michel David-Weill, one of the great patriarchs of international investment banking. Everyone knew his reign was coming to an end. His troops are increasingly rebellious and without the capital or pay necessary to compete in the cut throat world of global investment banking, Lazards seems to be slipping into the sea.

Is Mr Wasserstein the man to save it? If Mr Wasserstein found his German masters at Dresdner hard to take, he will find it even harder to live with Mr David-Weill, who together with friends controls Lazards through a byzantine structure of holding companies and different classes of share capital. Outside Mr David-Weill, no one properly understands how it all works and hangs together. All we know for sure is that it's a terrible mess. Still, he's now 69, by all accounts he's losing interest, and everyone's got to hang up their boots eventually. Unfortunately for Mr Wasserstein, the old man remains as chairman, which will undoubtedly make life awkward.

Mr Wasserstein was a big star in the 1980s, but there are plenty in the City who believe he's past his sell by date too. Whether he's got the energy, imagination and ambition to do it all for a third time must be open to question. What's certainly true is that he cannot succeed without more capital, and to get more capital there will have to be reform of the present structure of ownership. As things stand, Lazards is controlled through a cascade structure of French holding companies. Every man and his dog has had a go at trying to unlock the value that lies hidden in this maze of different assets and interests, but so far with limited success.

One of the most recent to join the party is Credit Agricole, a French mutual with big ambitions. It's already secured a seat at the table by buying into one of the holding companies that controls shares in Lazards. The bank is also demutualising through an IPO, so it will soon have the money to play an even bigger role. The story's got a long way to run yet.

j.warner@independent.co.uk

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