Remoteness that characterised a sad decline
Tuesday 31 December 1996
Perhaps Lord Weinstock is just being a little more honest than his peers in disclosing this apparent lapse. Most busy executives rarely have time to visit the factory floor. Certain of them have actually made a virtue of it. Lord White, the late chairman of Hanson America, liked to boast that in all his years at Hanson he had never visited any of the businesses he controlled. Indeed he would have regarded it as a failure to have done so, for to visit a business is only to allow yourself to be polluted by excuses as to why things cannot be done. Much better, he always used to say, just to set a target and hold management to it.
Though he wouldn't put it in quite that way, this was plainly Lord Weinstock's way too. He ran his company via a book of numbers, a set of "ratios and statistics". As a way of keeping his company out of financial danger, and of delivering solid, if unspectacular, value to shareholders, it plainly worked. But there is also arrogance and a certain bankruptcy of leadership in a managing director who thinks it not necessary to visit his places of production. Such management remoteness from the workplace may not have been a cause of Britain's post-war industrial decline, but it certainly seems reasonable to see it as symptomatic.
Of course it is not possible for a man in Lord Weinstock's position to get round all his factories. But to visit none? The secret of good management in a large group of companies is not so very different from that of a small company, most successful entrepreneurs will tell you. It is to be involved with the product and the people who make it and sell it, to demand the impossible and to instill in employees that sense of enthusiasm and purpose that helps them meet those demands. Is that really possible from a darkened room in Stanhope Gate? Of course it isn't. Let's hope George Simpson, Lord Weinstock's successor, visits a few more factories.
Sorrell on target for millions
When Martin Sorrell's breath-takingly rich pay package at WPP was finally approved in June last year, after some adjustment by outraged institutional shareholders, the company said it was very unlikely the full amount would ever be paid. The targets were just too demanding, said both Mr Sorrell and the chairman of the remuneration committee.
Eighteen months on they don't look quite so demanding. The WPP share price topped 250p yesterday, well above the 230p target price that delivers Mr Sorrell his pounds 3.6m initial payout, not counting his already princely salary, bonuses, pensions and the like. Sure, the shares have to maintain their target levels for 60 consecutive days, and yes, the company must outperform the market, but both requirements look within reach.
Mr Sorrell has to hit 265p to get the next tranche of shares and then 304p by September 1999 to get the full whack of about pounds 27m, of which pounds 14m at least will be in the form of free shares.
Will he go all the way? Analysts are beginning to think so. Advertising spend was up by between 6 and 7 per cent in 1996, but WPP, following Mr Sorrell's restructuring efforts, saw its revenues climb by nearly 9 per cent and margins widen to more than 10 per cent. Pre-tax profits should grow to pounds 185m next year. If investors were willing to give WPP the same measure of support they award to the sector leader, Abbott Mead Vickers - which trades on more than 20 times next year's earnings - the shares would already be high enough for Mr Sorrell to get the full package.
That the shares are still on a rather subdued 16 times earnings is a measure of the City's caution at backing Mr Sorrell a second time. He's already lost one fortune. Many are still furious that he's been given the chance to rebase and make himself a packet merely by returning the company to where it once was. To be fair on Mr Sorrell, he has managed, through some energetic cost-cutting and some excellent client prospecting work to get the show back on the road.
There is still a chance the shares will continue to underperform, depriving Mr Sorrell of his pile. But with two pretty decent years for the economy and advertising ahead of him, and with most analysts projecting better- than-average growth at WPP, the chances he will see his way into the serious money have to be rated as reasonably good and getting better. If these are tough targets, it makes you wonder about the softer ones enshrined in many an executive long-term incentive plan.
De Beers casts Russia stony looks
News that Russia is set to sign a deal with the Central Selling Organisation will be met with scepticism by De Beers, the South African minerals giant which controls the diamond sales cartel. The last agreement between Russia's biggest diamond producer and the South Africans ran out a year ago and the negotiations to renew it ended in the autumn. Today's already twice- extended deadline for a new deal is almost certain to be breached.
Both sides claim to have been suffering from the ragged end to the old arrangements. De Beers has complained bitterly of the "leakage" of Russian rough diamonds, nominally intended for domestic use, on to international markets. The result has been to blow a hole in the CSO's dominance of the world diamond "market".
Not that it shows. Last year set another record for world-wide diamond sales, which rose 7 per cent to $4.83bn. Prices have also been rising, despite Russia. De Beers managed a 3 per cent rise on average in July.
Is the CSO a bad thing? The European Commission appears to be able to live with it, even if the Americans cannot. The truth is, however, that its partial breach seems to have done De Beers little harm. It might even persuade the company to step up its marketing efforts. Spurred by the cessation of hostilities in the Middle East, the company mounted its first advertising campaign in the Gulf earlier this year, while the Pacific Rim represents a vast and as yet under-exploited potential market. It may be that a dose of free market competition from the Russians would do everyone some good.
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