Michael Harrison's Outlook: Glocer adopts the right course for Reuters, but suffers a failure in communication

The state of the unions in America - Trouble in store for Somerfield
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The Independent Online

Strip away the gobbledegook, and the message from Tom Glocer, Reuters' American chief executive, was that underlying revenue growth has risen for the first time since he took the helm four years ago.

In order to sustain that momentum, Mr Glocer has decided to embark on a new growth plan, Core Plus, before his old one, Fast Forward, is even complete. The strategy, if it pays off, will add 3 per cent to revenue growth from 2008 and very nearly double the size of the market available to Reuters to £12bn a year. In the short term, however, profits will suffer to the tune of £50m next year and £20m the year after because of the investment required.

Mr Glocer ventured that while some shareholders would want more cake today, the general reaction ought to be positive. Unfortunately, this message also failed to get communicated and Reuters shares fell nearly 8 per cent, making them the biggest faller in the FTSE 100, despite an attempt to sugar the pill with the announcement of a £1bn return of capital.

The reaction was reminiscent of that which greeted James Murdoch when he took over BSkyB and told shareholders short-term profit growth would have to take a back seat while he invested in long-term revenue growth.

In both cases, the strategy is undoubtedly correct. In the kind of markets where Reuters now operates, which are little to do with its historic role of news gathering and dissemination and much more to do with oiling the wheels of the financial markets, speed is of the essence. If Reuters wants to take advantage of the move to electronic trading and the opening up of new markets such as China and India, then its has to act now and not sit on its laurels. In Mr Glocer's case, to wait would be to miss the boat and watch competitors such as Bloomberg sail away with the business.

The difference between him and James Murdoch is that BSkyB is a family business whereas Reuters has a restive shareholder base to keep happy. Mr Glocer argues that the market reacted in a similarly negative way when he unveiled his first revenue enhancing plan two years ago and those who bought in have reaped the benefit. He is right that Reuters shares have bounced since then but today they are still worth only one-third of what they were when Mr Glocer took over. He has a lot to prove.

The state of the unions in America

The civil war which has broken out within America's organised labour movement has been widely viewed as a disaster for the Democratic party and, by extension, a boost for President George Bush. For generations, the Democrats have relied upon union leaders not only to raise funds for the party but also to mobilise its vote. In last year's presidential elections, a quarter of votes came from households with union members and the majority of those went to the Democratic challenger John Kerry.

So the decision of two of America's biggest unions, the Teamsters and the Service Employees International Union, to break away from the AFL-CIO - broadly the equivalent of our TUC - cannot been seen as anything other than a fillip for the Republicans. It would be a bit like the Transport and General Workers and Unison putting two fingers up to the TUC and the Labour party, and going their own sweet way. Whether it will lead to a schism to rank alongside the events of the 1930s when the American Federation of Labour and the Congress of Industrial Organisations broke entirely from one another remains to be seen. But the timing of the split could certainly not be worse, coming as it does just as the AFL and CIO celebrate their golden anniversary since re-uniting in 1955.

Over those 50 years, union membership in America's private sector has shrunk from one in three to fewer than one in ten as the pincer effect of increased automation and rampant globalisation has taken its toll. So the splintering of what is left of the labour movement, should also play into the hands of big business.

But what is happening to the union movement is as much an opportunity as a threat to organised labour. The breakaway unions want to spend less time, effort and money on political campaigns and more on recruitment. Greater competition to sign up new members, particularly in industries such as healthcare and leisure, could then spell a challenge to corporate America. A divided union movement could also pose problems for industries such as airlines and car making where a unified response from organised labour is badly needed to resolve contentious issues ranging from pension and healthcare costs to redundancy programmes.

Given the choice, America's unions would surely prefer not to be in its present state of convulsion. There is also more than a hint that behind it all lie personal rivalries as much as divergent principles. But out of it may grow a stronger movement, not a weaker one and that is something America's boardrooms need to be alive to.

Trouble in store for Somerfield

Another day and another addition to the rule book which dictates who may own Britain's supermarkets, and, if so, how many and where. The Competition Commission has ordered Somerfield to sell off 14 of the 115 Safeway stores it bought last year from Wm Morrison. Most of these are "mid-range" or convenience stores which slipped under the Commission's radar when it investigated the original Safeway/Morrison deal in 2003.

Sir Terry Leahy has been scooping up convenience chains left right and centre without so much as a raised eyebrow from the OFT or Office for Tesco as it has become known to retailing rivals. But as soon as Somerfield joined the fun, the OFT pounced and ordered a three-month investigation.

Using our old friend, the isochrone, with which fans of supermarket regulation will be only too familiar, the commission has concluded that shoppers as far apart as Littlehampton in the South and Paisley up in Scotland will experience a nasty bout of SLC (Substantial Lessening of Competition) unless parts of the Somerfield deal are unravelled.

Somerfield has 21 days to respond. It could probably do without the added headache of a fire sale of the stores when it has bigger fish to fry in the shape of two competing £1bn-plus bids for the company. It is not hard to guess which issue is soaking up more management attention.

All of which means that the commission's latest strictures will probably be enshrined in the rule book without a challenge. Meanwhile, Sir Terry marches on, running rings around the regulators. Those who suspect there is one rule for Tesco and another for the rest await his next move and, more importantly, the reaction it produces from the OFT.

m.harrison@independent.co.uk

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