Jeremy Warner's Outlook: The problem with G7... where's China?

Tesco: brain drain or star academy? Sanderson is parachuted on to the Rock
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The Independent Online

The G7 communiqué was scheduled to be issued too late last night for the purposes of this column, but whatever it says, it's unlikely to have much of an impact on markets, which are driven by forces more powerful than the collective musings of G7 political leaders. The trouble with the G7 is that it is a 1970s institution which seems quite incapable of squaring up to the emergence of the BRICs economies.

Even the IMF now accepts that the dollar may have further to fall. Borrowing from the language of such communiqués, the danger is of what to date has been a relatively benign correction turning into a disorderly rout with possibly serious consequences for the US and world economies.

The nub of the problem is that though the dollar seems to be in free fall against the euro and the yen, the normal disciplines of the market hold no sway with respect to China, whose currency is pegged against the greenback. China is now in effect a G7 economy but with its fixed exchange rate it neither plays by the same rules as everyone else nor is even present at the table. On this occasion, lack of Chinese participation was more evident than usual. Strangely, all the banqueting that occurs around the five year Communist Party congress took priority, making any Chinese presence almost wholly absent from the Washington eco-fest. China's world within a world makes whatever the communiqué has to say about the dollar seem almost wholly irrelevant.

While the dollar sinks against the euro, it remains virtually the same against the renminbi, creating manifold distortions in trade and capital flows. Though the US Treasury complains about these arrangements, the US also benefits from them. The renminbi peg makes it easier for the Federal Reserve to cut interest rates without triggering inflation. If the Chinese currency floated, it would appreciate massively, causing traded goods with the US to become more expensive.

Yet at the same time, the weak dollar is helping to put a rocket under the oil price. Oil-producer nations are demanding more for their oil, which is priced in dollars, because of the way the currency is devaluing.

This has inflationary consequences for both the US and China. The upshot is a dangerous pressure cooker of influences against which the G7 seems impotent. In some ways it suits the Chinese to stay out of international organisations such as the G7. If the cooker isn't to blow up in all our faces, they must eventually be shoe-horned in.

Tesco: brain drain or star academy?

It's irritating, to put it mildly, to have your senior executives the constant target of headhunters, but it is also a complement, and frees up top-ranking positions for upcoming younger talent. The apparent rash of executive departures at Tesco, though characterised in the press as a "brain drain", shouldn't therefore be regarded in an entirely negative light.

There was another one yesterday, the second this week. Keith Down, the director of commercial finance, is leaving to become finance director of JD Wetherspoon. To me this looks like at best a sideways move, but there you go. Mr Down joins Julia Reynolds, who this week announced she would be quitting her role as head of central european clothing to become chief executive of Figleaves.com, an online retailer of lingerie.

There have been a number of others over the past year too. J Sainsbury has poached several while just recently Steve Robinson, head of Tesco Direct, and John Browett, Tesco's operations and IT director, announced they were quitting for pastures new. Just how serious is this outflow, and what might be causing it?

As one of Britain's biggest and most successful corporations, Tesco has become a hotbed of executive talent. By tapping into this talent base, rival organisations hope to learn something of the secrets of Tesco's success and replicate them elsewhere. There is also a perceived log jam at the top of Tesco. Sir Terry Leahy has been chief executive for more than 10 years now, but still in his early 50s, shows no signs of wanting to move on.

Yet none of these departing executives, with the possible exception of Mr Browett, would have been thought an obvious successor to Sir Terry even if he did decide to leave, so I'm not sure lack of promotional opportunity can be cited as the main mischief here. To the contrary, Tesco continues to expand rapidly, both internationally and domestically, and therefore offers more opportunity for advancement than most organisations.

Again with the exception of Mr Browett, all these departures have been at below board level, either from what Tesco calls the level 5 tier of executives, numbering in total more than 50, or level 6, who are numbered in their hundreds. Strength in depth means the vacancies are quickly filled. Indeed, the turnover of senior people may be no higher than you would see in most corporations of this size. Yet because Tesco is the company it is, these things tend to get noticed.

All the same, it is bound to be a concern. Interestingly, there is now a caché about working for Tesco, in the same way there once was about Marks & Spencer and BP. Boards like to recruit Tesco-trained executives, never mind that in big companies it is nearly always the organisation rather than the individual that is behind any perceived success. Ambitious young executives are able to capitalise on this reputation to win themselves better positions and money-making opportunities elsewhere.

As with Goldman Sachs, the Tesco diaspora is growing fast. Not since the famous Mars academy, which spawned Allan Leighton, Justin King and Richard Baker among others, has there been anything quite like it. Sir Terry's ducklings are flying off all over the place. We must assume that the Tesco culture and talent base is strong enough to withstand this migration.

Sanderson is parachuted on to the Rock

Is it commiserations or congratulations for Bryan Sanderson, the new chairman at Northern Rock? Whatever the answer, his appointment should probably be seen as mildly positive for the company and its shareholders. The discredited Matt Ridley is gone, and another local man – Mr Sanderson is a former chairman of Sunderland Football Club – is appointed in his place.

The challenge is to save the company and salvage something for shareholders. Is he up to the task? Mr Sanderson is an accomplished industrialist who earned his spurs as head of BP Chemicals. Yet he was not well thought of as chairman of Standard Chartered Bank, where he clashed with the chief executive, the forceful Mervyn Davies.

Still someone's got to do it, and whatever happens, he's unlikely to make a worse fist of it than Matt Ridley, who with the benefit of hindsight was completely out of his depth. As a local man, Mr Sanderson is doing it out of a sense of public service. Few are more suited to stand up for the interests of Northern Rock stakeholders than Mr Sanderson.

As I have argued, Northern Rock is almost certainly salvageable as an ongoing business and as the stock price still indicates is definitely worth more than mooted bidders seem prepared to pay. Hedge funds with big long positions in Northern Rock may have more to say on this front next week.

Yet the company is only worth something as long as the Government is prepared to continue with life support. Alistair Darling, the Chancellor, is desperate to wriggle off the hook and certainly wants a resolution by February, when technically EU rules on state aid may force him to pull the plug. Having lectured European neighbours on the evils of state aid, the UK Government certainly doesn't want to go cap in hand begging for an extension.

Mr Sanderson has therefore got his work cut out. If there are no viable alternatives by February, Mr Darling may force the Rock to sell at any price, even though the buyer would ultimately make a killing from any such steal.

j.warner@independent.co.uk

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