Jeremy Warner's Outlook: More questions for Compass as catering group attempts to draw line under UNgate

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The Independent Online

The spot of bother Compass is experiencing over a contract to supply food and drink to a UN peacekeeping force doesn't appear to fall remotely into the same category as Andersen's misdemeanours, yet it is quite bad enough, the more so as it happened on American soil, where the penalties for this kind of offence tend to be much harsher. If the upshot is that Compass finds contracts cancelled, or its name struck off the list of favoured suppliers by state and corporate purchasing managers, then things are more serious than they seem.

Yesterday, the company's chairman, Sir Francis Mackay, acted to draw a line under the affair by sacking his head of UK, Ireland, Middle East and Africa operations, Peter Harris, and two line managers. Mr Harris appears to have been fired mainly because the buck had to stop with someone and he was the executive ultimately responsible for the contract and the behaviour of his subordinates. Yet he appears to have had some involvement in the affair too.

The company hopes that yesterday's action demonstrates both that the problem is being treated with the utmost seriousness and that it is being contained. Yet I doubt very much this is the end of the matter.

The problem investors have got in attempting to assess the damage is that it is not yet known precisely what the company did that was wrong. What we do know, because it was made public by a Congressional Committee, is that a Compass offshoot, ESS, employed a consultancy which specialises in advising on how to win business from the UN.

Eventually, ESS was sent confidential information on rival bids for the UN contract in question. The degree of culpability hinges around when Compass received this information and what use was made of it. If used in preparation of the bid, then that may be a matter of criminal investigation and prosecution. If, however, the information was received after the tender process had taken place, the consequences may not be so serious.

Other unanswered questions include whether Compass would have owned up to the matter had it not been aired by Congress. Was this a single rotten apple, or is the problem endemic? Was there a cover-up, and when did the Compass hierarchy get to hear about it? What controls and standards of conduct does Compass have in place to prevent unethical behaviour and why did they break down in this case?

The company has surrounded itself with lawyers and is saying as little as possible. Yet already some investors are gambling on the answers being largely benign. With the shares at an all-time low after a series of profits warnings, the episode is being used by the brave as a buying opportunity.

High-risk stuff, but they might be right. My own understanding is that this was indeed an isolated incident and, if that's the case, then it should be possible to contain the fall-out. Mike Bailey, the chief executive, will be going in any case as soon as a successor can be found, while the causes of underperformance in the core UK business are now fully out in the open. What happened here is that Compass had won some extraordinarily high-margin contracts looking after the catering needs of troops in Iraq which had disguised a wider problem of lost contracts and narrower margins elsewhere.

This once lucrative source of business is now falling away as the authorities try to move the contracts on to a peace footing, which consequentially has much lower margins. Like everyone else, Compass has some difficulty in recognising a state of peace in war-torn Iraq, and with the costs of security still painfully high, is pulling out.

In turn, this has exposed underlying weaknesses elsewhere in the UK operation. Well, they've just fired the man only recently promoted to turn it around, but on the basis that it is always darkest just before the dawn, it may be possible to believe Compass has finally reached its low point. Sir Roy Gardner, who should be in a position to step into the chairman's shoes by spring next year assuming a successor can soon be found for him at Centrica, is nobody's fool and if anyone can get a grip, he can.

Quite a challenge for the FT's new editor

The City house journal, the Financial Times, has a new editor, and about time too, many in the business and financial communities were saying yesterday. Yet although the FT may have lost its way in recent years, it's easy to see why. A new editor may not necessarily solve the problem.

It's called the internet, and it's hitting traditional sources of business news harder than most. Why wait for tomorrow's FT when you can read it real time on the worldwide web?

Yet Pearson's response to this challenge has on the whole been a poor one. Hundreds of millions of pounds have been poured into in a move which seems only to have cannibalised the newspaper sponsor's readers. The paper has responded to the progressive globalisation of business by going global itself, pitching at the world's top decision makers in business, policy and finance.

Yet not only is this an extraordinarily costly and difficult exercise to pull off, it is also deeply flawed. Outside The Economist, which is only a weekly, no newspaper has yet succeeded in going global, witness The Wall Street Journal's increasingly desperate European edition, which now sells so few copies that you wonder why they bother. Those Europeans interested in the Journal's mix of old-style reporting and extreme Republican views would do much better to access the US edition online than buy the paper version of the title in Europe. It's cheaper and better.

The global medium is the internet. Newspapers risk stretching themselves too thinly in trying to compete with it. Yet they can remain highly relevant, even in the digital age, by properly addressing markets they know something about. By attempting to go global, the FT has lost sight of and neglected the needs of its own home market, thereby creating an opportunity which rivals are only too happy to take.

Belated attempts to reverse the decline in UK circulation have been confused and ill-directed. The balance of news is also wrong for what's meant to be a business paper, with acres of space devoted to public policy and politics. Many of these stories are well informed, but if they are at the expense of what used to be the FT's key strengths in journal of record reporting on UK companies and the City, then they only further detract from circulation. Say what you like about the Journal, but at least in buying so wholeheartedly into the capitalist system it knows its market. The FT's backing for the core values of business is much more questionable.

No one was saying yesterday what the "strategy differences" were that led to the departure of Andrew Gowers as editor, but his was an impossible task, torn between the competing demands of the FT's global and domestic ambitions. In today's ever-shrinking world, we all struggle to reconcile the global with the local, but the FT has made a poorer fist of it than most.

The FT still has a great brand and a prodigious wealth of talent. What's more, after years of losses, it is now breaking even again. That's a better platform to operate from than many new editors enjoy. With so many competing forms of media these days, few newspapers are ever going to return to the glory years of peak circulation. Yet the opportunity for the FT to re-establish itself as the authoritative voice of business and the City is there for the taking.

Whether Pearson allows its new editor to seize it remains to be seen.