Old school tie fudges the issue of fair treatment

COMMENT

The City practice of blackballing has always been an imperfect and unsatisfactory one. It works like this. The Bank of England or one of the other City regulators decides you are not fit and proper to hold a position of responsibility in the City or offer investment advice. It is not necessarily obliged to give any reasons and most of the time does not. In the Bank of England's case there is a lengthy and mysterious appeals procedure, all heard in private you understand, which most agree breaches all principles of natural justice. But so what, it might be said. Whatever the system's faults, if it succeeds in keeping the rotten apple out of the barrel, then it can be no bad thing.

Now, courtesy of the Securities and Futures Authority, we have a new twist - the blackballing which is not a blackballing. Thus Peter Baring and Andrew Tuckey, though cleared of responsibility for the failure of their bank (a subtle point, this, since it was they who ran the show), have been asked for assurances that they will not seek to re-enter the investment industry. Mr Baring has given that undertaking but Mr Tuckey has not.

In Mr Tuckey's case a compromise has been agreed. If he limits himself to corporate finance advice, then he's OK. While this will clearly restrict him, it is obviously a fudge bordering on a show of old-school-tie favouritism. Mr Tuckey has continued to work for Barings as a consultant, despite all that has happened. Either the SFA believes Mr Tuckey is accountable, in which case he should be properly blackballed, or it does not, in which case he should be fully cleared. Proper rules and guidlines need to be laid down in this area. If the City is going to blackball, the process has to be seen as fair and equitable. The other ranks, meanwhile, look set to get it in the neck. The SFA's silence on the others can only mean it intends disciplinary action against them.

Yorkshire finally grasps the nettle

It has taken Yorkshire Water longer than it might have done, but finally the nettle has been grasped and the two most senior positions in the company, chairman and managing director, are to be vacated and filled with new blood. There is always the possibility, ofcourse, that Yorkshire will receive a takeover approach, that Sir Gordon Jones and Trevor Newton, like Keith Court at South West Water, will have to be "persuaded" against retirement so that the barricades can be manned and the invading hoardes seen off.

Joking apart though, the oddest thing about the Yorkshire duo's departure is that the company won't admit it has anything to do with last year's drought. No, neither has been sacked, the company insists, they are just retiring. Cute stuff this. While it may be just about believable in the case of Sir Gordon Jones, who is in his late sixties, it is not in Mr Newton's. He is just 52 and gold plated though the remuneration packages of utility bosses tend to be, that is not an age at which anyone willingly retires.

Mr Newton is the man who famously urged his customers not to take baths, and then was caught taking one himself in a neighboring water region. In his public relations, Mr Newton was plainly inept. This was also the man who at one stage was spending hundreds of thousands a week tankering water around Yorkshire to cope with the company's inadequately prepared water infrastructure.

There is another odd feature about all this, however. Normally managements are turfed out because of discontent among shareholders. That is not the case with Yorkshire where the City was generally supportive of encumbant management throughout last year's drought. Ironically, Yorkshire's management was thought of as amongst the most enlightened and sensitive of the water companies. Furthermore, neither man is leaving with any kind of pay-off or pension top up. In that sense they are genuinely "retiring", doing the honourable thing after a year in which they were lambasted and ridiculed by their customers for failure to anticipate the drought. Their departure has nothing to do with failure to deliver shareholder value.

Nor are their successors - Brandon Gough and Kevin Bond - the utility fat cats of legend. The new chairman comes in at "just" pounds 120,000 a year and Mr Bond at pounds 135,000, no options, no bonuses and no long-term incentive packages. These are not large sums for a company of Yorkshire's size - it is honest pay for an honest job. Could this be stakeholder capitalism in practice? Neither the departures nor the rates of pay reflect the normal priorities of the City. Rather, they are a response to the demands of ordinary customers.

US prospects suggest a happy ending

It has all the hallmarks of a disaster movie; the runway lies directly ahead, but the pilot cannot see in front of him, the panels are giving erratic readings and there is a blizzard buffeting the aircraft. The story of the US economy has been a cliffhanger for the past six months or more, but after the latest figures the soft landing scenario is coming to seem the most likely once again. The pace of activity is now showing clear signs of picking up after lingering dangerously close to recession. Inflation is low and will remain so - at least until much later in 1996. Like the movies, a happy ending is in prospect.

The markets do not like it, of course. They would have preferred a crash landing guaranteeing the demise of inflation and an injection of cheap money to revive the economy.This is short-termism with a vengeance. What could be better for the profitability of American companies than faster growth with inflation well under control? The stock market has been overlooking the fact that the tilt towards recession which would have led to lower interest rates was starting to hit profits too. Fourth-quarter earnings have disappointed analysts' expectations. The fact that the economy appears to have pulled out of the nosedive will help improve earnings this quarter. The pick-up might carry the penalty of higher inflation towards the end of the year but there is no sign of it yet. Meanwhile, chief pilot Alan Greenspan has his craft back under control.

Fokker's failure cheers the sceptics

Eurosceptics are bound to take heart from Fokker's predicament. It will confirm their claims about the impact on industry of joining a strong and rigid currency area dominated by the mark. Fokker is certainly a case study in how a middle-ranking company, operating in world-wide dollar- based markets, is likely to have a dreadful time if it is based in whose currency is harnessed to the mark. But this was not the only factor behind Fokker's demise. Daimler-Benz Aerospace, the controlling shareholder, also failed to get a grip on strategy. It spurned the Franco-Italian ATR consortium's attempt to consolidate the European feeder aircraft industry to reduce costs and strengthen marketing. Instead, it demanded that the business should be concentrated around Fokker and Dornier, DASA's turbo- prop subsidiary. That sealed Fokker's fate.

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