The buck should stop with senior executives

COMMENT: 'Calls from the SFA and other City regulators for the burden of proof to be reversed so that responsible executives have to prove their lack of culpability look more and more like the right approach'
Where should and does the buck stop in organisations hit by catastrophic loss? There are two questions here, and the answers are often very different ones. After what is claimed to be a thorough investigation by Coopers & Lybrand and Linklaters and Paines, NatWest is about to take what is billed as "tough disciplinary action" against those held accountable for its pounds 50m loss on interest rate options. The man directly responsible has already left and his immediate superior has been suspended. Up to three others are to be fired and perhaps as many as half a dozen shifted sideways into other positions.

The approach generally adopted in these exercises is to root out anyone with a fingerprint on the episode - that is to say not just those who knew about what was going on but also those who negligently failed to spot it. The latter category is always the more difficult one, for those responsible for control often have a reasonable excuse. In any case it is nearly always true that organisations where this sort of thing happens have an endemic culture of poor control and cavalier practice for which the compliance department is not wholly responsible. Ultimate accountability for the management of an organisation should always lie with the top man.

So where to stop? It would plainly be ridiculous to call in this case for the head of either Lord Alexander or Derek Wanless, chairman and chief executive respectively of NatWest, notwithstanding the embarrassing nature of their assurances only days before the losses were discovered about rock-solid controls in investment banking. But what about Martin Owen, chief executive of NatWest Markets? And if him, why not Lord Alexander and everybody else in the chain of command from top to bottom?

These are difficult questions and it would perhaps be silly to generalise across the growing number of rogue trader incidents. All the same, calls from the SFA and other City regulators for the burden of proof in such matters to be reversed so that responsible executives have to prove their lack of culpability look more and more like the right approach. There was a howl of protest when the SFA first floated the idea as part of its response to the Barings collapse.

Even so, the SFA seems determined to push through some kind of rule change in the near future. Other regulators should follow suit. The sooner City executives are made to realise that compliance and control are as important a part of their function as profits, market share and the size of their bonus, the better.

Pain of the strong pound may ease soon

As the company results season gets into full swing, there will be no shortage of complaints about the strength of the pound. Psion is the latest, warning yesterday that the fact that it priced European sales in German marks would hit its sterling profits.

For the time being, exporters are taking the impact of the strong pound on margins rather than conceding market share. How long that goes on will depend on what happens to the exchange rate during the next six months. There are two parts to this debate. One is the shifting prospects for the single currency and how that will spill over into the semi-detached pound. The other is the outlook for the UK economy itself. They are tugging in different directions.

Take the euro first. Although the more thoughtful analysts now reckon that the markets have taken the prospect of a delay too seriously, given that the chances of economic recovery in France and Germany are brightening, it is clear that the European currencies are in for several bouts of turbulence between now and next spring when the key EMU decisions will be taken. As long as the pound looks more likely to stay out than join the first wave, these bouts will tend to boost its exchange rate against the mark.

However, the domestic economic situation is likely to pull sterling in the other direction. There is short-term downward pressure anyway from the growing likelihood that Ken Clarke will resist Bank of England advice to raise borrowing costs - and might even, at an outside chance, cut interest rates in a final act of pre-election desperation. On a slightly longer- term horizon, economists now reckon that a Labour government will raise interest rates but not too much because it will have a tougher fiscal policy. With US interest rates also likely to increase soon, the peak of the UK interest rate cycle should not be high and not too far away. Once the currency markets can see it they will price it in.

Put these two together, and what does it mean for the pound six months from now? City forecasts range from DM2.60 to DM2.85 - between a 5 per cent fall and a 5 per cent rise. But with the oil price falling and Ken Clarke's monetary policy not all that tough compared to our European partners, the odds must be on a decline. Company executives should sit tight, and put up with the pain a bit longer.

A dangerous race for Ecclestone

Bernie Ecclestone's plans to float Formula One have sprung a premature leak and, rather like Damon Hill during the warm-up lap in Melbourne, he and his advisers have encountered a few technical difficulties.

First off is the vexed question of what this business is really worth. Few industries are as secretive or as prone to intrigue as grand prix motor racing and Mr Ecclestone did not disappoint yesterday. No one is saying how much revenue the labyrinth of companies run under the Formula One banner bring in and Mr Ecclestone, and his financial advisers, Salomon, have not yet even constructed the vehicle that will float.

Part of the problem is that the prospectus is still at least two months away and there is plenty of rubber yet to burn before Formula One is in a presentable shape for investors. The back-of-envelope calculations being offered yesterday suggest that it could be worth something like pounds 2.4bn based on present cash flow and with everything thrown in including that Ecclestone-owned camera technology which gives armchair Michael Schumachers a driver's eye view of every hairpin.

It probably does not matter that Mr Ecclestone owns neither race tracks nor race teams. What he does own are the much more valuable television rights and with pay-per-view around the corner, even pounds 2.4bn could be a conservative valuation. The danger from his point of view is that by floating the business and exposing its true worth, Mr Ecclestone will encourage others to demand a bigger share of the cake.

The commercialisation of football and rugby has already proved that sportsmen are as avaricious as the next. Three of the 12 Formula One teams, including the present constructors champion Williams, are holding out against the current revenue-sharing deal offered by Mr Ecclestone. It would only take a Rupert Murdoch to come along with a rival plan, the money and a vast television audience to shunt the whole flotation into the pit lane.

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