Outlook: Corporate Viagra needed as Sykes leaves GSK

Andersen for sale; William Morrison
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The Independent Online

Britain produces few world class business leaders, still less does it produce ones that lead world class companies. Sir Richard Sykes' reign at what is now GlaxoSmithKline, can reasonably be regarded as a rare example. Not everyone admires Sir Richard's often prickly and sometimes outright belligerent style, but a Yorkshireman to his finger tips he seems to have done most of the right things during his near 10 years at the helm.

His only obvious failings were in the field of public relations. GlaxoSmithKline got it in the neck, unfairly in some respects, for defending patent rights over Aids drugs in South Africa. Intellectually Sir Richard's position was the correct one, but morally it was indefensible in a country so decimated by the tragedy of Aids. By that stage, Sir Richard was non-executive chairman of the company, and he should have seen the damage to public image that the company's intransigence would inflict.

Sir Richard also chose the wrong drug – Relenza, a somewhat questionable treatment for influenza – on which to fight his battle with the British government over attempts to apply value for money criteria to NHS prescribed drugs.

Originally from the research side of the group, Sir Richard became chief executive at a key time in the company's history. Glaxo had enjoyed huge success with a single product, the anti-ulcer drug Zantac, but had failed properly to address what would happen when the patent ran out. Sir Richard's chief corporate achievement, then, was to buy in the drugs pipeline that would replace Zantac, first with the acquisition of Wellcome, and then later through the more problematic merger with SmithKline Beecham. The Wellcome acquisition worked like a dream, but the jury is still very much out on SmithKline Beecham, which has yet to generate any value for shareholders.

Indeed, some of the rationale for the merger – that the company needed to get much larger in research and development in order to take advantage of modern scientific developments – is being questioned in some quarters. The group is still being forced expensively to buy in late-stage development drugs in key product areas and there is a growing concern about the ability of such a large bureaucracy to generate cutting-edge products. GlaxoSmithKline has been particularly slow off the mark in lifestyle products such as anti-impotence drugs. Even so, the company he leaves is in robust health, even if it is in need of a bit of corporate Viagra.

Andersen for sale

It is understandable that Andersen should be trying to sell itself post the collapse of Enron. The firm is in meltdown, not just in the US, but in the UK and elsewhere as well, even though these separate partnerships had nothing to do with the Enron débâcle and are arguably not legally liable for it.

Harder to understand is why anyone should want to buy Andersen, even assuming that the US partnership's liability could somehow be disentangled from the rest and left in a standalone vehicle. That's what Deloitte Touche Tohmatsu is said to be attempting to negotiate, but it surely won't be allowed. The idea is not so dissimilar to the old wheeze of putting all your assets in your wife's name as your business goes bankrupt beneath you.

Rarely are the courts prepared to accept this as a reasonable transfer of assets out of reach of short-changed creditors, and rightly so. It seems unlikely they will accept it in Andersen's case either. If the partnerships that make up Andersen share profits, it will be hard to argue they shouldn't also share liabilities.

It would also be a bad thing per se for the big five to become the big four. There has already been far too much consolidation among the big audit practices and for the Enron scandal to result in yet more of it would be a deeply perverse response to the scandal. What we need is more audit practices for investors to chose from, not less. It can reasonably be argued that the creation of powerful global players in the audit world, offering a big range of other services to clients on top, was part of the corruption that allowed Enron to happen.

Andersen's name may have been so badly damaged by the affair that it is already beyond redemption. The firm's main assets, its people and its clients, are walking with a speed that may mean there won't be anything left to salvage if Deloitte isn't successful soon in its attempt to buy what's left. But in an ideal world, Andersen would survive, having made the changes necessary to restore public trust.

Andersen's chief executive, Joseph Berardino, has been heard privately to suggest that Andersen could actually be a beneficiary of accounting reforms introduced as a result of Enron, in particular the rule that would separate audit from non-audit work. Andersen has fewer audit clients than any of the other big five (fewer by the day, as it happens), and therefore would suffer fewer conflicts of interest in bidding for non-audit work. Hope springs eternal, it would seem, but everyone knows what he means. No public interest would be served in having Andersen entirely disappear from the audit world.

William Morrison

It is a terrible thing for John Dowd to be forced out of the supermarket group William Morrison in what should be his prime because of declining health. It is also a blow to the company's management succession plans. Mr Dowd was second in command to the 70-year-old chairman Ken Morrison, and he was taking on increasing responsibilities in a way which suggested he was being groomed for the top job.

Now those plans are back to square one. The doughty Mr Morrison will take on the MD role too. From there it is a long way down to the deputy managing director Marie Melnyk, who analysts consider too young to make the step up. Another candidate for promotion might be Bob Stott, but he spoiled his chances with the boss by going off and working for Geest for a brief spell a few years back.

William Morrison prides itself on defying conventions and its approach to corporate governance is no exception. Shareholders have little to complain about. Performance has been so exceptional that nobody bats an eyelid. So what if Mr Morrison combines the top two roles, and so what if he is of an age when most would find it hard to hold down the post of non-executive chairman, let alone MD as well. So what if they haven't got any non-execs. Never mind the governance mumbo-jumbo, look at the numbers.

Associated British Foods, another family controlled giant of the stock market, left it mighty late to organise a successor to Sir Garry Weston too, but managed to pull it off in the end. The City feels much the same about the sprightly Morrison chairman, who surely has a good few years left in him yet. As Mr Dowd himself has said in the past, non-executives are no guarantee against corporate disaster. All the same, with Mr Dowd gone even the strong-willed Mr Morrison might welcome a non-executive shoulder to cry on.

j.warner@independent.co.uk

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