How we missed out on Marconi
By John Plender
Published: January 11 2004 19:22 | Last Updated: January 11 2004 19:22
The case for a good post-mortem
Here is an arresting salvo in these scandal-ridden times from Sir John Banham, chairman of Whitbread. "It's nothing short of tragic," he says, "that while Congress has been busy holding public hearings into events at Enron and WorldCom, there have been no public hearings into Marconi, Railtrack or the other dozen or so major companies which have together cost pensioners billions." Maybe he casts his net a little wide, but I think he has a point. Similar arguments come from US shareholder activist Robert Monks, who recently asked a group of British fund managers, with some irony, what they had learned from the Marconi hearings.
The fact is that British parliamentarians are less interested and less knowledgeable about the workings of capitalism than their counterparts in Washington. Select committees become excited about fat cat pay, fraud or anything that hits retail investors in the pocket. Yet far greater damage has been done to the British economy over the past economic cycle by managerial incompetence and failures of governance than by crookery or greed.
The other, arguably more effective, British response to corporate disasters has been the Department of Trade and Industry investigation. Here, too, the recent focus of investigations has been on egregious corporate wrongdoing. Yet there has long been a Companies Act power for the secretary of state to appoint inspectors where shareholders have not been given all the information they might reasonably expect.
That would certainly have passed muster at Marconi, where the former deputy chief executive, John Mayo, has alleged that its acquisitions in the US could not be financed with paper because the company was not compliant with the US Foreign Corrupt Practices Act.
Published inspectors' reports have an important role in clearing the air. The better ones provide an infinitely superior guide to managerial and governance best practice than any management book trumpeting the seven and a half steps to successful corporate wizardry.
There is surely an important public interest in a dispassionate, independent assessment of the hugely costly mistakes made at Railtrack. But since much of what went wrong would be laid at the government's door a probing post-mortem has always been out of the question. As for Marconi we are still dependent on the scarcely impartial account of Mr Mayo, published in the Financial Times, for our understanding of what went wrong. Given that Marconi's management in the late 1990s perpetrated the most impressive feat of value destruction in British corporate history, this failure to conduct a forensic inquiry is a dismal omission.
Analytical blast
In talking to Sir John Banham last week I was struck by his exceptionally downbeat view of the quality of UK stock market analysis. It has never, he tells me, added anything to his knowledge of the companies in which he has been involved. And whatever you think about conflicts of interest on Wall Street, he adds, the research there has greater depth and grasp of corporate strategy.
The UK investment institutions come in for similar stick. They could, says Sir John, charitably be described as having only one aim: to quantify the current year's earnings prospects, without regard to longer-term strategic, managerial or ethical considerations. Bracing food for institutional thought.
Japanese hazards
Shinsei, formerly Long Term Credit Bank, is expected this week to announce an initial public offering which will provide a profitable exit for Ripplewood, the US private equity house, and a consortium of foreign investors. Ripplewood's remarkable efforts to put the bank back on its feet were conducted in the face of constant sniping from Japanese politicians and media. The deal is nonetheless being seen as a demonstration that foreign direct investors can enter and exit a country that has traditionally been hostile to such investment.
For outsiders the climate has certainly improved. But there can still be unexpected hazards for due diligence, notably in accountancy and audit. Darryl Green, president and chief executive officer of Vodafone KK in Japan, tells me that when Vodafone acquired J-Phone, then number three in Japanese mobile phones, it was amazed to discover, when checking the inventory, that the records were not computerised. Yet the manual entries were highly accurate. He also counsels that relationships with dealers can be tricky because they are often based on oral agreements.
Incidentally, if you want to understand why Japan's banking crisis has dragged on for ever, read a new book by my colleague Gillian Tett, which looks at Japan's economic malaise through the story of Shinsei.* She tells a riveting tale and appears to have been a fly on half the walls in Tokyo. I found it hard to put down.
* Saving The Sun, HarperCollins. |
