Time to step aside after an industrial revolution
THE MONDAY INTERVIEW; Sir David Lees; The chairman of GKN is satisfied that a crucial restructuring is complete as he prepares to hand over to a new man. He talked to Russell Hotten
Monday 11 March 1996
"I think that 1995 was something of a landmark for us," says the chairman. "Last year represented the end of a major phase in terms of our divestment programme." With the job of restructuring completed, Sir David, 60, is going part-time, becoming non-executive chairman when GKN recruits a new chief executive. It will be a tremendous wrench handing over to someone else, but at least he has the satisfaction of "quitting" while ahead. As the 61 per cent jump in profits last Thursday revealed, GKN is in good health and the company has never been higher in the FT-SE 100.
Now GKN has been streamlined into three core international businesses - automotive, defence, business services - the question in the City is whether the company is now fully focused. "Yes," maintains Sir David. "Though the business must continually evolve to stay ahead." There will be no fourth leg added to the company, but as GKN has pounds 464m in the bank most observers are expecting some acquisitions.
The company has long been talked of as a possible bidder for the tanks- to-cars group Vickers, though Sir David expresses mild weariness at being asked about subject again. "It is just the Friday night rumour mill doing the rounds. There is no logic in GKN owning Vickers' Rolls-Royce cars, for instance. We are not interested."
But he frankly admits there is scope for collaboration between their defence businesses, as part the necessary consolidation going on between arms companies throughout Europe. "If you agree that European defence companies need to restructure, I do not think that it requires a master strategist to see that the UK has got some rationalising that it can do itself. There is some logic to laying bits of GKN and Vickers together. But you can rationalise without companies taking over each other."
GKN, maker of the Warrior personnel carrier, and Vickers, which makes the Challenger 2 tank, are among four companies in the UK producing a range of armoured vehicles. Sir David says: "The domestic market is unlikely to be able to support four companies. It is not necessary to have full mergers, because project collaboration can happen outside the corporate shell. And to that end I think there will be further movement."
But any restructuring, at home or abroad, will not be easy. Arms firms, particularly in France, are suffering huge financial imbalances, he says. "It is difficult to put any sort of value on some of these companies. That does not make for an easy merger or collaboration at the equity level."
And the move towards joint government defence procurement is fine in principle, but difficult in practice. "The danger is that a product is made that the military does not really want because there have been so many compromises. Then you have got to sort out which country will make what. The whole issue is fraught with difficulties."
The motor industry, too, faces consolidation as component makers are forced to serve car makers on a global scale. Sir David expects the industry eventually to be dominated by a few international players. But he is not predicting a sudden revolution. "Like many things in the motor industry, rationalisation has been slow coming. Whether it will happen, I am not totally sure," he says. Nor does he expect GKN to be at the forefront of any changes. The company's drive-line business - making the components that link the wheels to the engine - is number one in the world with a 35 per cent market share. "It is not clear to me with whom GKN would rationalise," he says. "If we were a number three or a number four, then it might be a good idea."
After school at Charterhouse, Sir David trained as an accountant - though he never wanted to be one. His father, a Rear Admiral, did not wish to finance another of his sons through university and the young David Lees saw accountancy as a way into industry. He joined the accountancy firm of Binder Hamlyn in 1962, but grabbed the chance to move to GKN Sankey as chief accountant in 1970. His eventual elevation to the realms of the UK's business establishment remains something of a surprise to him, and colleagues testify to a lack of the naked ambition common to so many executives. "I never ever thought about becoming chief executive of a large company; never thought it could conceivably happen. I have always been someone who has taken steps one at a time, before thinking too much about the next job."
He recalls being summoned to the Bank of England, oblivious that the then Governor, Robin Leigh-Pemberton, was to ask him to join the Court. "I even rang up the Treasury to ask if I had done anything wrong. I really had no idea why I was going."
After eight years as the top man at GKN, Sir David is not stepping aside so he can spend more time with his hobbies: golf (handicap 15), opera, or walking in the hills around his Shropshire home. In July he becomes chairman of Courtaulds, where he is currently a non-executive. Other commitments include being a Fellow of the Royal Society of Arts, and being on the main committee of the CBI.
Sir David was also a member of last year's Greenbury committee on directors' pay, a bruising experience but one he does not regret. The whole question of directors' pay was, he says, "a boil that had to be lanced. There had been some quite celebrated cases where clearly pay and performance were not matched; cases which the corporate sector should not be proud of."
He regrets that Greenbury is only remembered for the row over share options. But the recommendations will have a lasting impact, he believes. "You will now see a lot more disclosure. The biggest single problem of this whole subject is the secrecy that surrounds pay and remuneration."
GKN's annual report, out in a few weeks, would be leading by example: "It will be more open, honest, and out on the table," he promises.
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