Jeremy Warner: Carphone's Ross condemned as either knave or fool
Mr Ross is entitled to do with his shares what he wants, but when he pledges them to others, the markets are also entitled to know about it
Tuesday 09 December 2008
Was it oversight, or did he do it deliberately? Whatever the answer, David Ross, entrepreneur, charmer and general all-round good bloke, has made his position untenable not just at Carphone Warehouse but also as chairman of National Express and very possibly as financial adviser to the 2012 Olympics, too.
By failing to disclose that shares in Carphone, National Express, Big Yellow and Cosalt had been pledged as collateral against personal loans, Mr Ross stands condemned as either incompetent or dishonest.
Despite the fact that Mr Ross is a trained lawyer and accountant, you have to believe that it was the former. There is no obvious motive for Mr Ross to hide his use of shares. But either way, it's not a comfortable position for anyone in high public office. As chairman of National Express, he's charged among other things with ensuring decent standards of disclosure and corporate governance.
As Boris Johnson's financial adviser on the Olympics, he's meant to ensure that budgets are adhered to and expenditures properly accounted for. On the face of it, he seems quite incapable of conducting his personal affairs in a manner that conforms to the way he's meant to act as steward for others.
Mr Ross is entitled to do with his shares what he wants, but when he pledges them to others, the markets are also entitled to know about it. There are good reasons for these rules, which were established during the last recession of the early 1990s when it emerged that a whole series of high-profile financiers and entrepreneurs, including Asil Nadir of Polly Peck fame, had pledged their shares as collateral against personal loans.
As Mr Nadir and others defaulted on the loans, the shares were called in as margin, causing the share price to bomb. Is the same thing about to happen with Carphone, where as much of 15 per cent of the company has been pledged against loans to Mr Ross's personal business interests?
Mr Ross has told Carphone that he is not at risk of default and has no "current" intention of selling, but given failure to disclose in the first place and the continued dearth of information around the terms of the collateral or even the nature of the loans the shares are pledged against, the stock market has good reason to be suspicious.
Mr Ross's main business interest outside his string of directorships is a joint venture with Morgan Stanley called Kandahar Group, which specialises in retail property. If this business is not in trouble then it must be about the only one of its sort that isn't.
At the very least, Mr Ross has been careless. You cannot so much as get out of bed in the morning as a director of a public company without having to disclose it. Mr Ross must have known that pledging the shares as collateral was a material fact. Never mind the lack of disclosure, he was also stupid to have done it in the first place. To secure a fixed-price loan with an asset as volatile in value as equity is nearly always the road to ruin, as bankers are finding to their cost with mortgages.
Still, all done now. If the shares do come on the market, Charles Dunstone, the controlling shareholder of Carphone, cannot buy as to do so would require him to bid for the whole company. BestBuy, Carphone's partner on retail, would be loath to buy, too. All of which leaves a big potential overhang, with no way of knowing whether Mr Ross even has any control over the way the shares are sold. Mixing of private and public company interests invariably ends disastrously. Mr Ross is just the latest to find out the hard way.
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