Last of the radio stars
Profile: Sir Ernest Harrison; At 70, he has fought off two hostile bids for Racal. Now there's just the City left to deal with. David Bowen reports
Sunday 08 December 1996
The battleground was comfy, a suite in London's Dorchester Hotel: a man of 70 who earns almost a million pounds a year is allowed to choose his own ground. The enemy was nebulous but dangerous - loss of confidence by the City. And Harrison's barrage consisted of repeated briefings to investors, analysts and journalists. He had one aim - to talk up Racal's share price which, after a profit warning on Monday, had tumbled by 18 per cent in a day.
Ernie Harrison made a comforting figure, sitting in the expensive chintz of the Dorchester and waving his hands demonstratively as he reran the arguments. To say they were well- rehearsed was an understatement - he had produced them several dozen times in the previous few days. But, like a good actor's lines, they came out nice and fresh - a trace of Cockney, apparent more in a rapid elision of words than pronunciation, helped with his down-to-earth credibility. As he explained how the board had decided to remove three projects that may just perhaps not be won this financial year, it was easy to accept that there was nothing much amiss.
But there was no doubt that this was a week of crisis for Harrison. He called the decision to make a profits warning 24 hours before the company announced its interim figures "a tragedy". He wanted everyone to know just how sorry he felt for the poor shareholders who lost so much money on Monday, and how glad he was that at least some of the loss was clawed back over the next few days (this was before Friday's general share plunge).
He would of course have felt even sorrier had the share price triggered another hostile bid for Racal. Harrison has seen two of these off, and the last thing he wants now is another gruelling battle. He may have the stamina of a marathon runner, he may ring his staff up at three in the morning - but he is 70 and he does not want to die in harness. He wants to spend more time on his beloved garden, he wants to spend more time with his race horses (a bit of disaster last season) and he wants to return as a tourist to all those places he knows only by their hotel lobbies.
Therein lies the rub. The City has long admired Ernie Harrison. He is an accountant who speaks its language - "shareholder value" is a favourite phrase - and he believes he has delivered more of this than anyone else in Britain. One thousand pounds invested in Racal when he became chief executive in May 1966 would be worth pounds 411,000 now, against pounds 224,000 for Hanson, pounds 40,000 for GEC and pounds 18,000 for the FTSE index.
But he is 70, and seventiness is not something shareholders appreciate. They grumbled at Lords Weinstock and Hanson because of it, and they are starting to grumble at Ernie. There is no suggestion that he is unfit (quite the opposite, he insists), but unless a firm and satisfactory succession has been settled, the City will not be content. Harrison says there is such a succession - David Elsbury is already in day-to-day charge - but analysts are not so sure. They point out that Mr Elsbury was responsible for the radio division, whence came the profits warning, and link this with Harrison's main perceived weakness - he is too merciful. The implication is that his lieutenants are not strong enough to step into his place, and that he does not have the ruthlessness necessary to replace them.
Which is all a bit of shock for those of us who still think of Racal as a young company. Not so long ago - in the Sixties and Seventies - it was new, dynamic, throbbing: a rare but real product of the "white heat of technology" Harold Wilson had promised us. Now, we have to get used to the fact that the company is middle-aged and the man behind it is elderly. It is a corporate Rolling Stones, trying hard to stay trendy, but starting to show its age.
It is not quite true to say that the story of Racal is the story of Ernie Harrison, but it is not far off. He came from a working class, north London family (hence his obsession with Arsenal), and became, after grammar school, a chartered accountant. In 1951 he became the 13th employee of Racal, a company formed to make military radios by ex-Plessey managers Ray Brown and Calder Cunningham. Because it was such a small company, Harrison was more than the finance man - he learned everything about business.
In the late Fifties, Racal decided to bet the farm on refining a South African high frequency receiver. The cost almost brought the company down, but when the radio was adopted by the British army, it became the foundation of success. Racal was floated in 1961 and five years later Ray Brown was tempted away to help with government policy (Calder Cunningham had already died). Ernest Harrison, aged 40, took command.
Part of his success, and much of his ability to charm the City, comes from his strong financial background. But his record shows that he has been far more prepared to take risks than the average chartered accountant - he has bet shareholder funds in a way that would make Lord Weinstock, for example, shudder.
Much of Racal's growth came from exports to developing
where competition was ferocious and almost anything went in the race to win orders. This became embarrassingly ob- vious in 1977 when two Racal executives were charged with corruption. The company also made some big acquisitions, including the locks and security company Chubb.
In the early Eighties Harrison decided to bet the bank again, bidding for a contract to run one of the new cellular phone networks, and winning. "We put pounds 140m into Vodaphone and made pounds 30m losses before it started to make money," he says. "We would have been in serious trouble if it hadn't worked."
More recently it has poured money into the National Lottery. Racal is responsible for the communications system, and is a big shareholder in Camelot. Once gain, the bet paid out - few people realise what an achievement it was to make the system work.
Did these decisions arise through careful analysis, or because of the chairman's uncanny nose for investement? Both, Sir Ernest says - though he prefers, in current share-boosting mode, to be seen as a rational being without the useful hunches that he clearly has.
The disadvantage of a high risk approach is that you will, on occasion, lay yourself open to predation. Cable & Wireless bid in 1988, and Williams Holdings tried three years later. Both times Harrison escaped by pulling a rabbit out of his accountant's box of tricks. The first time he floated off 20 per cent of Racal Telecom, the second he spun off Vodaphone and Chubb as separate companies. Each time the share price rose out of reach of the predators.
Monday's profits warning is, per se, a hiccup. Harrison has made his excuses, and the share price recovery suggests they have been at least partially accepted. But if the City decides they are a symptom of something more serious - a succession problem - Harrison could find himself trapped. Investors would like him to go off and cultivate his garden, because he is 70. But they want him to stay because they are unsure about his successors. Good for his ego; not so good for the runner beans.
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