COMMENT:Why Giordano must walk the plank with Brown
Tuesday 06 February 1996
It is hard to recall now, but just three short years ago British Gas was rated in surveys as one of the most respected and trusted companies in the land. Its transformation into an object of ridicule and hatred is more than a matter of poor public relations, bad luck, "fat-cat" misjudgement and a constant shifting of the regulatory goal posts.
These factors have been accompanied by a failure in management and leadership of quite breathtaking proportions. Mr Brown played his part in this, but it is his chairman who should take most of the blame. Mr Giordano spoke the language of change, but he failed to provide Mr Brown with the support and backing to carry it through. Indeed, all he did seemed designed, whether consciously or unconsciously, to undermine his chief executive.
Splitting the company into two is always what Mr Giordano wanted to do. He blames the old guard, including Mr Brown, for preventing such action at an earlier stage. Floating off the gas supply arm might even provide a solution, albeit a partial one, to the company's disastrous "take-or- pay" North Sea gas contracts problem. But should the fact that Mr Giordano wimpishly suggested this line for so long save him?
Anyone can have a good idea: it is the execution that matters. The departure of Mr Giordano and the three non-executive directors associated with him must be next on the agenda. Lord Walker, in particular, there only because he was the minister responsible for privatising British Gas, has proved supine and inadequate as a non-executive, failing both the company and its shareholders.
Not until the final clear-out is made, can the City and the public begin to have any confidence in this wretched organisation.
Bizarre battle over Chile Growth fund
The GT Chile Growth Fund sounds more like something out of a Tex Mex restaurant than the normally sedate world occupied by investment trusts. But investment trust it is. It is also the territory on which a bizarre little City takeover battle is being fought. The bid is unusual because it is taking place outside Takeover Panel controls, or any other regulatory authority for that matter. This in turn is because the company, though listed on the London Stock Exchange and managed out of London, is registered in the Cayman Islands.
For the past year or more the GT Chile Growth Fund has been under siege by a group of arbitrageurs called Regent Kingpin Acquisitions, an outfit that specialises in trying to narrow the gap between assets and share price in funds such as GT Chile Growth. Unbelievably, RKA beats the Chile Growth Fund for the number of domiciles it answers to (or more truthfully, doesn't answer to). Managed out of London, it is also registered in the Cayman Islands and is ultimately controlled, via Hong Kong, by a Canadian holding company.
According to GT Chile's financial advisers, the arbs have ignored getting on for every rule in the book in their quest for control of the fund's $385m of assets. Included in the list of alleged misdemeanours is misleading shareholders, not obeying the usual takeover timetable rules, and perhaps worst of all, offering favourable terms to some shareholders over others.
Regent denies it all, of course, but whether by fair means or foul, the arbs were last night claiming control over 62 per cent of GT Chile's shares and demanding the keys to the city. Not likely, says GT Management, which runs the fund. Even if they have 60 per cent, which GT Chile disputes, they have got there by disreputable means.
Some of these shareholders reckon they have accepted a cash bid, according to GT Chile, when in fact what they are getting is unlisted shares in a Cayman Island shell company with paid-up share capital of precisely one US cent. Oh, dear.Meanwhile, Regent accuses GT Management of wasting shareholders' money on costly and unnecessary counter-tactics designed only to secure its own management contract. But while there are important issues of principle involved here, it is hard to feel too sorry for GT Chile or its shareholders. There is only one reason companies set up shop in the Cayman Islands and only one reason investors are attracted to them; inadequate investor protection is part of the price paid for the assumed tax advantages. Furthermore, it is not at all clear that the arbs are indeed the force for evil they are painted. Since they arrived on the scene the discount has narrowed from 20 to 7 per cent. You won't find many shareholders complaining about that.
Heseltine injects a dose of reality
The greater the truth, the greater the libel. Michael Heseltine was given a sharp reminder of this old truism over the weekend when he prompted a storm of protest by remarking that late payment of bills was the mark of a good businessman.
It may not be to everyone's liking, but it is a fact that very small businesses struggling to survive are likely to juggle their debts and avoid paying creditors as long as possible. This must have been especially true in the property, hotel and publishing jungles where Mr Heseltine cut his teeth in the Fifties. There are a number of other celebrated modern businessmen, such as Richard Branson, whose biographies demonstrate the pressure to cut corners to stay afloat in their early days.
The truth of the matter is that most businesses attempt, with varying degrees of success, to use their suppliers as a source of free loans.
When they go bust there is a chain reaction of defaults. Small firm owner managers are also notorious for running slapdash and ineffective credit control systems, often without clear payment terms.
According to DTI figures, 40 per cent of small firms have no standard conditions of trade, so even their creditors are likely to be unclear about when the cheques are due and what happens if they are not paid. If the practice of late payment was confined to small firms, there might be more tolerance of it, but large companies are often the worst offenders, able to extort very substantial free loans from their smaller suppliers by the simple expedient of failing to send cheques on time.
Worse still, it has become clear over the last few years that government departments are as bad as anyone. Improvement is proceeding at no more than a snail's pace.
Mr Heseltine cannot be criticised for injecting a dose of reality into the debate, but the Government may find that legislation is both popular and less impractical than ministers and the CBI now claim.
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