Michael Harrison's Outlook: Gadget Shop verdict wrecks a reputation and sends a warning to minority shareholders

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The Independent Online

Jon Wood, head of proprietary trading at UBS, makes his money by taking calculated risks, so he presumably thought he knew what he was doing in going to court over the bust-up at The Gadget Shop. The law is a lottery, and in entering it, Mr Wood has lost out big time. Not only has he had his case dismissed out of hand, he'll also now have to pay his opponents' costs, running to several million pounds, and worst of all he's found himself branded by Mr Justice Warren an unreliable, evasive and dishonest witness.

From Mr Wood's point of view, there could scarcely have been a more crushing outcome. He's risked reputation and pocket and he has ended up severely damaging both. Mr Wood's business is to trade in the capital markets, which are unpredictable and capricious enough, but few of his stock market strategies could ever have backfired on such a grand scale as this. Everyone said he was mad to bring the case, and whatever its merits, they have been proved right.

One thing, and one thing only comes across loud and clear from Mr Justice Warren's extraordinarily verbose judgment: he did not like or trust Mr Wood. In his judgment, the points of law become largely lost in the page upon page of character assassination. Sir Tom Hunter, the Scottish entrepreneur and main defendant, insisted all along that Mr Wood's only purpose in bringing the case to court was to embarrass him. Plainly he was believed. From Billy Big Bollocks, to drunken rows in public toilets, the press has had a field day. Rarely does the City's dirty linen get so thoroughly washed in public.

Sir Tom describes the outcome as a moral victory, yet it is hard to agree. Nobody emerges entirely unblemished from this case, and if causing embarrassment had been the purpose, there are easier, less costly and less high-risk ways of achieving it than going to court. Leaving the personalities aside, the underlying complaint was that Sir Tom and other majority shareholders in The Gadget Shop had unfairly prejudiced the minority in buying Birthdays for themselves rather than for The Gadget Shop.

The detail is convoluted and complex, but as far as Sir Tom is concerned the verdict totally vindicates him. The implication, however, of Mr Justice Warren's judgment is plain. Provided a shareholders' agreement is drafted widely enough, majority shareholders and directors can appropriate corporate opportunities for themselves to their heart's content, even after the company's time, name and money has been spent pursuing them. There's not much of a moral victory in that. All minorities should beware; the law won't protect them.

Germany sends out the worst message

From the High Court in London to justice as practised in Germany where the chief executive of Deutsche Bank Josef Ackermann has been ordered to stand trial again on criminal charges over the Mannesmann affair. If found guilty, Mr Ackermann could face 10 years in jail even though he and his fellow supervisory board members of Mannesmann at the time never benefited from the €60m in bonuses awarded to its executive directors for selling the company to Vodafone.

Even if he is found not guilty again, the retrial could in effect destroy his career and force his resignation from Deutsche Bank. The board of the bank declared yesterday that Mr Ackermann had its full support. But this sounds ominously like the vote of confidence a football manager receives from his chairman just before being sacked. Indeed, Deutsche's chairman, Rolf Breuer, has already begun the search for a successor.

The first prosecution was a political show trial, motivated more by outrage that Ackermann and co had allowed Mannesmann to be taken over by foreigners than that they had made a handful of wealthy businessman richer still.

The retrial is, if anything, an even bigger disgrace, since Germany's Federal Court of Justice appears to have concluded that it is justified on the grounds that the original hearing last year failed to prove that the awarding of the bonuses were in the interests of the company. Are we missing something here or has German law reversed the burden of proof by requiring the defendant to demonstrate his innocence rather than having the prosecution establish his guilt?

Mr Ackermann may not be a very sympathetic witness or even a likeable character. At the start of last year's trial he flashed the two-fingered victory sign which older Germans will have associated more with Winston Churchill than the chief executive of its biggest bank. This, however, is beside the point. At Mannesmann, he and his fellow directors created huge amounts of shareholder value, as reflected in the price Vodafone eventually paid. At Deutsche Bank, Mr Ackermann has also created a much more profitable and healthy business, albeit at a heavy cost in terms of jobs.

Unfortunately for him and for the company, there is a virulent strain of anti-capitalism coursing through Germany's body politic. It manifested itself in the attack on the foreign "locusts" who were supposedly threatening to undermine German industry and German jobs and it is on display once again in the persecution of Mr Ackermann.

For that reason, it is hard to imagine this trial taking place anywhere but Germany. It may in some strange way cleanse the collective soul but it does untold damage both to the country's international reputation and the idea that wealth creation is a laudable pursuit.

Changing of the guard at RBS

Sir Tom McKillop, the new chairman of Royal Bank of Scotland, is as Scottish as they come and yet not to everyone's taste following his less than glorious exit from AstraZeneca. But undoubtedly the more interesting of yesterday's two appointments is the hiring of an outsider as the bank's new finance director.

Guy Whittaker is English-born but American-bred, having spent the past 10 years in New York with Citigroup. In that sense, he is a welcome break from the past and, hopefully, a good pointer to what the future holds for Britain's second biggest bank.

For better or for worse RBS attracts a "Goodwin discount" in the markets on account of concern that its chief executive is about to bet the ranch again and gamble on a big deal which brings size but not necessarily shareholder value. Indeed, such is the mutual suspicion that apparently exists between Sir Fred the Shred and the City that the bank's outgoing chairman Sir George Mathewson felt obliged to issue a statement denying that his chief executive was thinking of quitting.

Mr Whittaker's appointment will hopefully bring some re-assurance that RBS is more interested in organic growth than world domination. His predecessor, Fred Watt, is leaving RBS to spend more time with his young children but he cannot have enjoyed being constantly in the shadow of a dominant chief executive.

The relationship between Sir Fred and his new finance director needs to have a different dynamic if RBS is to start to improve on its lowly rating.

m.harrison@independent.co.uk

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