Michael Harrison's Outlook: Dyke is the man for ITV, if only its board could put pride and prejudice behind them

Let the market be the judge on auditing; Clever Trevor plots the Pendragon way
Click to follow
The Independent Online

The departure of Charles Allen from ITV has been one of the most heavily rehearsed story lines in commercial television. Today's blood-letting on the South Bank will not, however, solve the broadcaster's problems. Just as important as the removal of the current chief executive will be the identity of his successor.

Whoever slips into the role is taking on a daunting challenge. When the ITV network was launched 50 years ago it was famously described as a licence to print money. Today, it has become a licence to lose money for those shareholders, led by Fidelity, who were persuaded to reject an offer earlier this year from Greg Dyke and Goldman Sachs worth 130p-a-share.

Last night ITV's share price closed a shade above £1, reflecting the dismal outlook for the business. Viewer numbers are down, advertising income is in freefall, competition is growing. Once upon a time, the eyes of half the nation were glued to ITV, drawn to the channel by a rich mix of programming. Dramas such as Brideshead Revisited demonstrated ITV's artistic credentials, documentaries such as World in Action its commitment to public service broadcasting. Today ITV has been reduced to a depressing mix of reality TV, lifestyle and quiz shows and its audience share is down to less than 20 per cent. In short, the channel has lost its identity and its flair for programming.

It is this central point which the ITV board needs to address when it comes to the appointment of a successor. Mr Allen prided himself on delivering for shareholders. He piloted the ITV merger through some tricky regulatory waters - no mean feat in itself. He persuaded the regulators to cut ITV's licence fee. He increased the size of the share buy-back to appease investors. But he singularly failed to deliver for viewers.

Channel 4 has demonstrated that it is possible to hang on to market share even in a rapidly fragmenting market, which is one reason why its chief executive, Andy Duncan, is among the favourites for the ITV job. Another is Stephen Carter, who recently resigned as chief executive of the regulator Ofcom and has television experience with NTL. A third is Sky's director of programming, Dawn Airey.

All three are serious candidates but in each case there are reservations. Mr Duncan may not actually want the job. Mr Carter has a serious conflict of interest since he was in charge at Ofcom when some important commercial decisions went in ITV's favour. Ms Airey may not have quite enough experience at senior level for the post.

The inspired choice would be Greg Dyke. He has the experience and the vision to restore ITV to at least some of its former glory and the leadership skills to rejuvenate a demoralised workforce. Having rejected a bid from the Dyke consortium, could the ITV chairman Sir Peter Burt and the rest of his board seriously now offer him the job of chief executive without undermining their own reputations? It would be a large helping to digest of humble pie. But in the interests of shareholders, it is one they should think about swallowing.

Let the market be the judge on auditing

You can only do your weekly shop in one of four big supermarket chains, sign up to a mobile service from one of five networks and, if you happen to have the money, buy a large commercial airliner from one of two manufacturers. What, then, is so bad about being restricted to a choice of four big audit firms?

A lot, according to the Association of British Insurers, whose members control about one-fifth of the UK stock market. The ABI is concerned that the big four auditors - PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young - have become a little too big for their boots and are damaging the interests of Britain's largest companies and the investors who own them.

The ABI wants the competition authorities to force the Big Four to shed clients if their market share rises to an "excessive" level. It is careful not to define precisely what that means although presumably PwC, which audits 40 of the companies in the FTSE 100, would have good cause to start looking over its shoulder.

The ABI is not so much worried about the Big Four keeping the cost of audits artificially high. In fact, it says the danger is more that they will keep them artificially low in order to make it more difficult for other players to enter the market.

Rather, its principal concern is one of "regulatory capture" - in other words, the ability of the Big Four to exercise an undue influence over the regulatory climate and shape regulation in their favour, precisely because there are so few of them. As evidence of this, the ABI points to the debate over whether an auditor's liabilities should be capped. The Big Four successfully argued against doing away with the cap altogether on the grounds that unlimited liability could in an extreme case lead to the collapse of one auditing firm, narrowing the choice to three.

You would have thought that this was precisely the kind of reduction in competition that the ABI and its members would be most worried about, the Big Five having already gone down to Four following the Enron-inspired demise of Arthur Andersen.

There is no doubt that an audit - a service bought by one party for the benefit of another - is a peculiar thing. But for large multi-nationals, buying an audit is, in essence, no different from hiring an investment bank, a City law firm or, for that matter, a financial public relations adviser. If you want the best, then there are only a handful of players to chose from.

There are plenty of audit firms outside the Big Four. But it is hard to see how it could possibly be in the interests of investors to chose an auditor without the scale or international reach to match that of the client.

Far better to regulate the way auditors behave in practice to avoid obvious conflicts of interest - for instance by ensuring that the Big Four to not carry out lucrative consultancy work for the same companies that they audit. Otherwise, the matter of which firm a company chooses to conduct its audit is best left to the market.

Clever Trevor plots the Pendragon way

Who would be a car retailer? Interest rates are rising. So is the price of oil. So is clamour for greater environmental curbs on the motor industry. About the only think that isn't going up is the size of the new car market, which is projected to fall by 5 per cent this year.

Trevor Finn, the chief executive of Pendragon, thinks, however, that he has cracked it. He has turned the art of selling, repairing and servicing motor cars into a science and, in the process, has made Pendragon the biggest car dealer in the country by some margin.

Customers who ring one of his 348 dealerships to book a service will get through, not to an oily mechanic in a pair of overalls, but a smartly dressed lady in Pendragon's Nottingham call centre.

He has a patented software system for shifting metal from forecourt to driveway that leaves the average salesman shivering in his sheepskin. He is even planning a national television advertising campaign (though, modestly, not featuring the chief executive).

He reckons Pendragon's scale and sophistication will leave the competition dead. It worked on Reg Vardy shareholders but Lookers's were not impressed. Still there are plenty more fish in the sea. Even though Pendragon is number one, it still only has 5 per cent of the market. There are plenty more minnows to scoop up. Look out car dealers everywhere. Finns ain't what they used to be.

m.harrison@independent.co.uk

Comments