Jeremy Warner's Outlook: It would be funny if it wasn't so sad. Sir Ken's Greek tragedy enters its final act

Common sense prevails on rail bids

The rise and fall of Sir Ken Morrison has taken on the attributes of Greek tragedy. Hubris has been overtaken by Nemesis. Like Icarus, Sir Ken has flown too close to the sun, which has melted the wax in his wings and sent him plummeting to earth. And like Icarus, Sir Ken cannot claim he wasn't warned. Rivals said he was biting off more than he could chew in bidding for the troubled Safeway supermarket group. Many in the City said so too. They were right.

Having opened Pandora's box, Sir Ken now finds his grip on the board steadily weakening. The stand-off which has developed between Sir Ken and his deputy chairman, David Jones, over the appointment of non-executive directors, was not a battle Sir Ken could win. He's probably right in thinking the candidates nominated by Mr Jones, although all perfectly good people in their own right, are collectively not up to the crisis management now required. Despite yesterday's outbreak of common sense Morrisons needs a big hitter. Perhaps he's the appointment promised at some stage in the next four weeks.

Yet City confidence in Sir Ken's management and leadership has been shattered by five profits warnings, and with the business now apparently out of control, it's hard to see how he can remain executive chairman for anything beyond the next few months.

Sir Ken is determined not to be shunted upstairs into the largely honorary position of life president, but how else is the present impasse to be resolved? No one is going to join as chief executive, or indeed senior non-executive, while Sir Ken continues to hold the levers of power, and it is already as plain as a pikestaff that he's not the man to achieve the hoped-for turnaround. The company needs a new chairman if it is to recruit a credible chief executive.

The present crisis stems largely from arrogance. As a smallish, regional supermarkets group, Wm Morrison was fantastically successful. Nobody could quite work out how the company managed to out-trade much larger national rivals in the areas where it operated, both on price and customer preference, but somehow Sir Ken seemed to achieve the apparently impossible.

One reason may have been that, with more than 40 per cent of the shares, he controlled the company and therefore didn't have to obey the accepted mores of corporate governance. Unity of management and ownership can be a powerful combination in business, capable of achieving exactly the right balance of risk-taking and money-saving conservatism. In Sir Ken, outside investors had the brash, no-nonsense Yorkshireman of stereotypical stubbornness.

He did it his way and if the City didn't like it, they could go take a jump. But they did like it. The profits rose and the shares rose with them. While once much bigger supermarket groups such as J Sainsbury and Safeway were losing the plot, Morrisons forged ahead. No one should be surprised that it went to Sir Ken's head. Fifteen years ago, Wm Morrison barely used to figure on the business pages. Suddenly Sir Ken found himself feted wherever he went, hungrily pursued by profile writers, and the object of glowing testimonials. His company went into the FTSE 100 and he was knighted in the New Year Honours.

For the struggling Safeway, he seemed the obvious solution to the lack of critical mass that was pricing the company out of the market. Other supermarket groups were likely to run up against insurmountable competition hurdles - which duly proved the case when the Competition Commission came to investigate them - but the possibility of creating a fourth force in national supermarket retailing by merging with Morrisons would have clear public interest attractions.

In the end, the Competition Commission ridiculously forced Morrisons too to divest many of the Safeway stores it acquired, but this was not the root cause of Morrisons' nemesis. Rather it was in the integration, which has turned into a textbook example of how not to do it. Sir Ken refused to take any advice from the business he was buying.

Rather than waiting until the two distribution systems had been integrated into a functioning whole, he immediately imposed Morrisons' much lower prices, and many of its own brands, on the Safeway stores, thereby collapsing the profits. Since most of these stores hadn't yet been converted to the Morrisons format, customers became confused and deserted in droves.

The rest is history. Five profit warnings later, and investors are understandably trying to wrest control from the still obstinate Sir Ken. The shares issued to acquire Safeway mean that Sir Ken and his family have been diluted down to as little as 18 per cent of the company. That's not enough to keep him in the driving seat.

The buck has to stop somewhere and Sir Ken is the logical place. In itself Sir Ken's 73 years of age shouldn't count against him. He still has twice the energy of much younger men. Yet it's already plain that the approach which established Morrisons as such a successful regional retailer isn't appropriate for the cut-throat business of a national chain, with the likes of Tesco and Asda as direct competitors.

Sir Ken wanted to block the appointment of non-executives nominated by David Jones, saying they are not high calibre enough. Yet even if he had won it would have been a pyrrhic victory. Sir Ken is finished. His knowledge and experience of the business, or indeed his success in establishing it, count for nothing in this environment. The tragedy has reached its climax. From superstar to fallen angel in just two short years. You couldn't have scripted a sadder plot.

Common sense prevails on rail bids

The arrangements for vetting bidders for rail franchises on competition grounds have long been in disarray and now the regulatory authorities have belatedly recognised it. The Competition Commission has promised that in an as yet unspecified way it will change the rules so that there will be no repeat of the waste of money which occurred over FirstGroup's bid for the East Coast Mainline.

Just to recap, the commission had already spent £250,000 and was half-way through its inquiry when the Strategic Rail Authority awarded the new franchise to the incumbent operator GNER instead and so made any further examination of the bid redundant.

At the other extreme, National Express had been happily operating the new Greater Anglia franchise for two months, having been named preferred bidder five months before that, when it suddenly found itself up before the commission last year. The subsequent inquiry cleared National Express but not before hundreds of thousands more pounds had been thrown down the drain.

The Strategic Rail Authority, which awards passenger train franchises, takes the view that competition happens when a franchise is put out to tender and rival rail companies make their bids. This seems a fair enough approach, as it is hard to see how proper competition could be introduced on the railways. You cannot have rival operators running on the same lines. Each franchise is a monopoly, and it may not matter how many of them an individual operator controls. The SRA in any case wants fewer franchises.

The Office of Fair Trading, which seems to have gone referral crazy when it comes to the rail industry, takes a narrower view of its obligations under the Enterprise Act, adopting a "when in doubt, refer" mentality.

The sensible thing to do might be to stop classifying rail franchise awards as mergers under the Enterprise Act, for the reality is that the real competition to public transport operators comes, these days, from the private car, the coach and the low-cost airline and not each other.

The alternative approach would be to get the competition analysis out of the way at a much earlier stage in the process, before huge sums have been spent by all parties concerned. That, however, sounds a little too much like joined-up thinking, and that simply wouldn't do, would it.

j.warner@independent.co.uk