Michael Harrison's Outlook: America's unravelling options scandal threatens to take a bite out of Apple

Thames Water tempts bidders; Housing: the planners strike back; Plastic bag solution
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The Independent Online

Just when you thought you had seen the last pictures of till-pilfering American chief executives being led off in shackles, along comes a new scandal that has shocked even those hardened pursuers of corporate fraud at the Securities and Exchange Commission, Wall Street's watchdog.

As both the SEC and independent academics started to nose around the area of executive remuneration, they noticed the startling regularity with which the grant of share options coincided with a low point in a company's share price.

As statisticians are wont to do, they ran the numbers, and found that such coincidences were just a little improbable. Some directors were having luck equivalent to winning America's multi-state lottery. Twice.

As if share options aren't perk enough, it now seems that executives routinely turbo-charged them by pretending they were granted at times when the share price was low. That locks in an extra load of profit when they are finally exercised. It is a depressing reminder that executives spend almost as much time coming up with weird and wonderful schemes for enriching themselves as they do running their companies.

While there is a preponderance of tech firms in the 80 so far identified by the authorities, that is largely because Silicon Valley was the place where options first became a popular method of remuneration. They were a way of luring executives that small start-up companies could not afford to pay, except through a promise of being able to cash in on a seemingly ever-inflating share price.

So far only three executives from an obscure Silicon Valley firm have been charged, but the SEC promises there will be more.

Suddenly we have the extraordinary prospect that Steve Jobs, the founder of Apple and probably the dominant personality in technology today, might just be getting his collar felt.

We have only coincidences, no evidence that Apple has done anything wrong, still less that Mr Jobs was involved in any hoodwinking of Apple shareholders. But Apple now says it could have to restate its financial results for the past three years to reflect irregularities in option grants, so at the very least Mr Jobs will have a lot on his mind at the company's technology seminar next week.

As if it is not already work enough coming up with a new generation of iPods to stop the challenge from Microsoft's Zune before it starts.

Thames Water tempts bidders

Only 10 days left for would-be buyers to register their interest in Thames Water, possibly Britain's most unloved company. Deutsche Bank and Goldman Sachs, the two banks handling the sale on behalf of Thames' German owners RWE, have set a deadline of a week on Tuesday for first-round bids.

There appears to be no shortage of bidders, despite the tsunami of negative headlines which Britain's biggest water company attracts. The latest to add its name to the list is the state-owned Qatar Investment Office, which has teamed up with UBS. They are likely to find themselves in competition with at least two other bidders. Guy Hands, who runs the private equity fund Terra Firma, has made no secret of his desire to get his mits on Thames and has hired an old water industry hand, John Roberts, to mastermind his bid. The ubiquitous Macquarie is also likely to throw its hat in the ring. Then there is Hong Kong's CKI, which already owns Cambridge Water, and a consortium of Borealis and 3i if they can get the financing together.

RWE continues with the fiction that its preferred method of sale is actually to float Thames on the stock market and include an offer to retail investors. But the list of reputational and regulatory problems the company faces is so daunting that any private investor would want their head examining before taking the plunge.

The charge sheet is a long one. Not only has Thames applied for a drought order, giving it all manner of powers to interrupt supplies to customers, it has also has missed its leakage reduction targets. The result is that Ofwat has forced the company to spend an extra £150m from its own pocket on mains replacement. It is also facing a fine of up to £140m from the regulator for failing to meet customer service standards. And to cap it all, it was named and shamed last week by the Environment Agency as one of the country's worst polluters.

None of this matters to the private equity bidders who are now running their slide rules over Thames. All they see is a monopoly infrastructure operator with secure revenue streams and a price control regime which has proved relatively benign to the water industry.

The same considerations applied to the airports owner BAA and if Goldmans and Deutsche can get the same sort of price for Thames as Rothschilds achieved for BAA, then there surely cannot be too many complaints from Germany.

Housing: the planners strike back

Iain Napier of the housebuilder Taylor Woodrow appears to have hit a raw nerve with his criticisms, reported here yesterday, of local authority planning departments. The Royal Town Planning Institute retorts that the problem lies not with inconsistent planning guidelines and poor quality planning officers but the slipshod nature of many planning applications put forward by developers.

According to a survey carried out by the Institute in June, nine out of 10 applications had important pieces of information missing. In eight out of ten cases, when the planner made suggestions as to how a scheme might be improved, the advice was disputed.

Overall, a half of all major housebuilders were rated as poor or very poor when it came to understanding their environmental responsibilities, while 41 per cent were rated as moderate. Two-thirds of respondents said the majority of schemes they were asked to approve appeared to have been produced without the involvement of an architect. One respondent told the Institute: "Nearly all the big housing developers are guilty of just seeking to cram as many of their standard range of house types on all their sites regardless of their context or local environment. The designs of the houses put forward are usually bland and unimaginative and pastiche designs of old architectural styles. The housebuilders do not offer any choice - they all build the same crap."

The Institute's president Clive Harridge says: "What is clear from this survey is that planners and housebuilders need to improve their relationship." Amen to that.

Plastic bag solution

Earn a Tesco club point for every plastic bag you do without. Sir Terry Leahy's latest green initiative got a predictably churlish response yesterday from the environmental lobby who chose instead to highlight the tons of unnecessary packaging and thousands of "food miles" that supermarkets are responsible for.

Tesco should be encouraged and not criticised. But there is a much simpler solution to the curse of the plastic bag which lies outside the hands of individual retailers. Introduce a government levy on them - say 10p a time - as they did in Ireland some years ago. The problem would be solved overnight.

m.harrison@independent.co.uk

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