Haythornthwaite takes up the Invensys chalice

Haythornthwaite; Business message
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The Independent Online

Allen Yurko has trodden on so many toes during his eight years as chief executive at first Siebe and then Invensys, and he's generally rubbed so many of those he came into contact with up the wrong way, that few will shed a tear now that he has decided finally to fall on his sword and go. That said, not many behave as honourably as Mr Yurko in candidly admitting that the job requires a fresh approach, new blood and, well, no longer oneself, the present incumbent.

Business leaders as determined and aggressive as this go-getting American normally have to be carried out in a box, and when they are, it is almost invariably with a king's ransom in compensation strapped to the side to ease their path into the next world. Mr Yurko, by contrast, has done the decent thing and is "retiring" early with only his contractual pension entitlements.

Just to make sure these entitlements are as beneficial as possible, he's staying on to the end of the year, ostensibly to help his successor, Rick Haythornthwaite, with the transition, By that time he'll have turned 50 and can take his money out as a lump sum. Even so, Lord Marshall, the chairman, has had to deal with much more painful and costly departures than this one at his other two main charges, British Airways and British Telecom. With Mr Yurko, he'll count himself lucky to have escaped so lightly.

Mr Yurko didn't even try to pretend yesterday that his departure was any more than a case of jumping before he was pushed, but then after the latest profits warning – the third since September – he would have been hard pressed to do otherwise. Invensys, the product of a merger between Mr Yurko's Siebe and the stricken BTR, has been an investment disaster almost ever since it was created three years ago.

This is not entirely Mr Yurko's fault and, indeed, he's delivered on virtually all the synergies and cost benefits promised. Even at the time, however, the merger was an unconvincing combination. It looked too much like two weak players trying to prop each other up. Most outside commentators said it wouldn't work, and it hasn't. Perhaps the main mischief was that there was still a huge amount of accounting baggage to be worked out of the balance sheet, which has exaggerated the company's propensity to disappoint.

BTR was one of the great conglomerates of the 1980s, built by Owen Green out of a hectic series of ever more daring takeovers. So long as the sales and profits kept growing, no one much cared where they came from, but then the takeovers stopped, and the profits stopped growing with them. Eventually the authorities put a stop to the accounting mumbo-jumbo too, and BTR no longer looked like the brilliant exercise in cost and industrial management it once did. Siebe was just a lesser, more focused version of the same thing.

But that's by no means the whole story. Mr Yurko compounded the problem by constantly promising more than he could deliver. Wishful thinking is the curse of so many chief executives, and Mr Yurko delivered it by the truck load. Investors like to be let down gently, not in sudden and unexpected leaps and bounds, as Mr Yurko did, accompanied usually by the promise of sunlit pastures just beyond the next horizon.

Well, the horizon keeps on receding and yesterday, Mr Yurko seemed to be making up for his years of over optimism with a trading update which was positively apocalyptic in its view of the near-term future. The statement talks in worrying terms of "extreme trading conditions ... the worst recession in US industrial production since the 1970s ... continued deterioration ... and the spreading economic slowdown".

The language makes things look probably worse than they really are, but that won't make Mr Haythornthwaite's task much easier. He's little experience of these businesses and, although he is generally acknowledged to have done an excellent job at Blue Circle, Invensys is of a different order of challenge altogether. The company operates in some of the most viciously competitive industrial markets in the world, most of them are deep in recession, and the company's technology is said by rivals to be in need of serious investment. The company is in no immediate financial danger, but with the collapse of the telecoms market, the once planned IPO of the power systems division, which is heavily dependent on base station spending, is a non starter.

As luck would have it, Lafarge's takeover of Blue Circle makes Mr Haythornthwaite immediately available. Furthermore, his name has been widely touted in the press, which seems to be all the qualification you need these days for a top job in Britain's growing list of corporate casualties. Corporate restructuring is never a good substitute for hard graft and management application, but Mr Haythornthwaite may find that renewed break-up of Invensys is his best chance of success. Investors can only pray he's up to it.

Business message

"We are not economists here at Invensys, we're just telling it as we see it," Mr Yurko said yesterday in characteristically blunt manner when asked whether things were really as bad as he paints them. It's becoming ever harder to reconcile what business leaders say is happening in the economy with what the politicians and policy-makers claim.

Paul O'Neill, the US Treasury Secretary, was over here in London yesterday, and he was singing from the same hymn sheet as our own Chancellor in insisting that everything is basically OK. On a day when the global total of announced corporate redundancies reached 35,000, which is surely some kind of a record, Mr O'Neill blithely claimed that US growth would be up to 2 per cent this year and 3 per cent next year. The British Treasury, meanwhile, is sticking to 2.5 per cent this year and next.

Mr O'Neill was a leading industrialist for 25 years, so we can assume his finger is more on the pulse of the real economy than most. Even so, the difference of view between business leaders and policymakers has rarely been more glaring. Nor is it entirely explained by resilient consumer spending in both the US and the UK, for the policymakers will know as well as anyone that if the job losses continue to bite, consumer confidence will soon follow business into a sharp downturn.

Much depends on whether Alan Greenspan's interest rate therapy works. So far it has done wonders in buoying consumer confidence, but with Japan and the rest of the Far East already in recession, and Europe not far behind, it's going to take more to restimulate business activity. The message from the coal face is usually a more reliable one than that of the economic models, and that message is clear enough; it's going to get worse, possible a lot worse, before it gets better.