Ms Hewitt can bark but her pay law won't bite

Dobson's choice; Spot of bother; Railtrack action  
Click to follow
The Independent Online

When Labour was in opposition, boardroom pay was a stick with which to beat the Government, as often and as hard as possible. As soon it came to power, however, the party began praying for the issue to melt away for fear that it would have to act and thereby risk upsetting its new found friends in big business.

Well, having managed to fudge the issue for the last four years, Labour has at last acted and a half-baked approach the new Trade and Industry Secretary Patricia Hewitt has adopted too.

Her boardroom pay legislation is the corporate equivalent of Kenneth Baker's Dangerous Dogs Act. And, like Mr Baker's pursuit of deranged Rottweilers, it stands as much chance of success.

Luckily for the fat cats in business, Ms Hewitt's bark looks like proving much worse than her bite. For while quoted companies will be obliged to give shareholders a vote on the remuneration report at annual meetings, the result will be advisory. Nor will shareholders be able to vote on the pay of individual directors, much less recoup pay-offs awarded to directors who are long gone.

Boardroom pay tends to become an issue when an ex-director has picked up a fat cheque for failure, or a serving director has been rewarded with a bonus he did not deserve. Ms Hewitt's new law will catch neither. It would not have stopped Lord Simpson picking up £300,000 for driving Marconi to the brink of receivership. Nor, to take another celebrated case, would it have stopped Vodafone paying Chris Gent a £10m success fee for the Mannesmann takeover when his actual job is to run the company, not wheel and deal. In both instances, the money had already been pocketed long before it got anywhere near to a formal vote at the AGM.

By taking a sledgehammer to crack a nut, Ms Hewitt risks missing the target. Granted, the present situation is unsatisfactory. Faced with boardroom excess, institutional investors can only vent their anger by voting against the adoption of a company's entire report and accounts or the re-election of the directors concerned, provided they are standing by rotation. But when Labour's new legislation comes into force, things will not be much improved. The only sanction available to shareholders will be to vote against the entire remuneration policy when 95 per cent of it may well be uncontroversial and even progressive.

The best that can be hoped is that by elevating the issue, Ms Hewitt will encourage a new culture of responsibility in Britain's boardrooms. She may even shame a few more institutions into using their voting powers actively. But there is not much she or anyone else can do about a watertight contract of employment, as Derek Bonham discovered at Marconi.

The truth is that no one, not even politicians, much cares about pay, even of the excessive variety, when a company is doing well for its shareholders and employees. By the time it becomes necessary to reach for the corporate governance law book and wheel out the bloc vote, the damage has invariably been done.

Dobson's choice

One way, of course, of avoiding those tiresome votes at the annual meeting is to make sure you have been paid up front, in advance and before you step foot inside your latest employer. So it is that Michael Dobson has engineered himself the golden hello of all time at Schroders. Mr Dobson and friends are £33.5m richer after less than a year's work. This is the eye-watering price Schroders has agreed to pay for Beaumont Capital Management, Mr Dobson's hedge fund operation, which only received IMRO authorisation in May and didn't exist at all less than year ago. It is also the price of securing Mr Dobson's agreement to become chief executive of Schroders, which has been losing staff and pension fund mandates like no tomorrow.

Schroders is a publicly quoted company and it will have to disclose Mr Dobson's pay and benefits as all listed companies do. Far better to disguise a big fat cheque as part of a deal than get lambasted when it pops up in the annual report. This view is supported by the valuations applied to other fund management deals. For example, Prudential paid 10 per cent of M&G's funds under management and that was considered generous. On this basis Beaumont's £192m under management would make it worth £19m at best. Ah, says Schroders, but hedge funds are not like traditional fund managers, they have terrific growth prospects and they can make zillions of profits (in a good year). For their sake, let's hope so.

Spot of bother

Bioglan, a specialist in acne products, is in a spot of bother and the reputation of its founder, chairman and chief executive, Terry Sadler, is more than a little blemished. The company had planned one of those deals that advisers like to call "company transforming" but it's all gone wrong. Not only could Bioglan not afford the £527m purchase of Bristol-Myers Squibb's skincare operations, it now appears it can barely afford to keep Mr Sadler. Sales of the firm's higher margin skin creams have been slipping away, and cash is oozing out of the company. The bankers are giving the firm ten days to arrange some long-term credit. Meanwhile, a hundred staff have been squeezed but, tellingly there's plenty of recruitment going on at board level.

When Bioglan was a stock market darling ­ it was worth £860m at the height of the tech-share boom, against just £24m yesterday ­ investors didn't seem to mind that it overlooked such corporate governance niceties as having an executive chairman. But investors are no longer so keen to rely on the vision of Mr Sadler, and today the company is looking for a chairman and chief executive to replace him, as well as yet another finance director.

Perhaps if the roles had been split from the start the company may not have persevered with the doomed Bristol-Myers deal. For a company of Bioglan's size, it was just too ambitious. True it was a transforming deal, but you could say that about trying to buy Pfizer.

For someone there's an opportunity here. Demand for Bioglan's products has not altogether dried up. With the share price on its knees, the new chief executive can expect a rash of attractively priced options.

Railtrack action

Shareholder opposition to Stephen Byers' treatment of Railtrack is fast beginning to resemble the organisation of the national rail network in all its chaotic splendour. In descending order of credibility, we have the Railtrack Shareholders' Action Group followed by the Class Law Railtrack Action Group followed by the Private Railtrack Shareholders Action Group. Yesterday, the last two held simultaneous meetings, one of which the press was invited to and then barred from entering. The serious money is on the Railtrack Shareholders Action Group, which represents the big institutions, since the other two have not quite worked out where they will get the money from to fight Mr Byers in court. Surely there is a case for a spot of railway-style vertical integration here, in which case the pension funds could at least spare the poor private investors the loss of even more money.

m.harrison@independent.co.uk

Comments