AIM – Not enough liquidity, but plenty at Grocers Hall

Off to Grocers Hall  in the City for the Growth Company Awards where we sip champagne in a beautiful red velvet room adorned by paintings of well known grocers of shopping days past, including er…. Lord Carrington. I’m not sure what his connection is; perhaps like me he worked at Sainsbury’s while he was a student (though somehow I doubt it).

The Awards are sponsored by Sharemark,  promoting its leading alternative share-trading platform which allows small businesses to raise liquidity (even for businesses already quoted on another exchange). These events can become a bit indistinguishable from each other especially after plenty of liquidity of the bubbly kind and so it was good to see that Gavin Oldham, the founder and CEO of Share plc, Sharemark’s parent company, was the headline speaker to kick the evening off.

Mr Oldham always has something memorable to say, based on his many years in the City and having set up not only Share plc but also Barclays Stockbrokers. He is a fierce advocate of private shareholder rights and not afraid to point his finger at the City when he feels it appropriate, and that was what he did this evening. He had taken part in a breakfast seminar with a dozen CEOs of AIM companies and all were questioning the benefit of staying on the market; not surprising when you consider that 257 companies delisted from AIM last year.

The thrust of his talk was that too often companies are taken down the IPO route onto AIM or PLUS but that thereafter they get little support from advisers in making the most of their listing, and become “stranded”. The problem is often that too few companies focus on liquidity or get support from advisers on managing liquidity. This in turn is usually due to the IPO process almost invariably being satisfied by a placing to institutional shareholders and having too few retail shareholders on board. He suggested that City brokers should get retail brokers involved so the company has more private shareholders on its share register. These are the people who provide liquidity through frequent trading whereas institutional shareholders tend to hold their shares and not trade frequently and sometimes the shares stagnate due to minimal trading.

You can’t fault Mr Oldham’s logic but equally looking at this commercially from a City brokers point of view, it’s much easier to just talk to a few institutions and get the placing done rather than deal with tens or hundreds of private shareholders. Of course, Mr Oldham would point out that Share plc can handle this nightmare for City brokers, but this is too rational an argument; the City, despite its dynamic image, is actually quite slow at changing its ways whatever those ways are. Hence, Mr Oldham’s rallying call that this area requires a change of attitude from corporate advisers.

An excellent evening overall, and a good point made by Mr Oldham, but I was left wondering why something called the Growth Company Awards only has two of its nine awards for growth companies and the remainder for City advisers. Surely shome misthtake as they say after too much fizzy liquidity.

"M&S – You wouldn’t run your own company like this. Why do boards allow it?"

“If we don’t learn from history we’ll repeat the same mistakes.”

That’s an annoying phrase but in the case of Marks & Spencer it seems very appropriate.

You can’t have failed to notice that M&S has appointed a new chief executive and terms have finally been agreed with him. Marc Bolland will start on 1 May and will be paid a base salary of £975,000. Not excessive you might think except that there are six other components to his remuneration package which could mean that he receives £14.8m in his first year. This is quite a staggering amount for someone who until he joined Morrisons, had never worked in retail and who at Morrisons hasn’t had any experience of non-food retailing, which makes up the bulk of M&S revenues.

So, how did the board of M&S get to a situation where they have had the same CEO and then Executive Chairman for six years but haven’t got around to grooming one of their 75,000 employees to take over? If they had, they might find that they didn’t need to pay £15m to Stuart Rose’s successor. What does it also say about Sir Stuart Rose that he hasn’t been developing his executive team for the top job?

In any Chief Executive role, whether M&S or running your own small business, leadership skills are usually the most important characteristic of success. Every CEO should have as one of their objectives that they develop their successor and infact in good companies there will be two or even three potential successors who are then motivated to perform strongly with the hope of getting the top job. In smaller owner-managed businesses of course, the good Chief Executive develops the management team so as to make the company less reliant on him/herself which in turn makes the business more saleable at some point in the future.

In a business like M&S which has a board of directors of the great and good, how could the succession issue never have been addressed in all that time? Especially as M&S had been here before; Stuart Rose himself had been parachuted in during 2004 replacing internally-sourced CEO Roger Holmes, who clearly wasn’t the man for the job but had got the role anyway. Poor Mr Holmes was probably the least bad person for the CEO role at that time and might have muddled through had it not been for the hostile bid from Philip Green, at which point everyone recognised that he wasn’t the right person for the job after all. Stuart Rose came to the rescue having been snubbed for the CEO role previously as the M&S board obviously thought they had it covered when they didn’t.

What does this say about how large company boards operate? Well, its not an encouraging sign especially after the debacles of poor board performance at other companies over the last year or two such as Northern Rock and RBS. What does it mean for owner-managed businesses in Enterprise Britain? Probably too much to go into detail in this column but it raises questions you should ask about how effective your board is and whether your board members add value and have accountability (yes even the non-execs!) and whether you are building a strong management team and developing your high-flyers. Because if these things aren’t happening then sooner or later, like M&S shareholders, you may end up paying a hefty price to compensate for those failings.

Focus, focus, focus

I was delighted to be at the Royal Courts of Justice last week for the Grant Thornton Quoted Company Awards. An unusual venue for a corporate event but a good use of the facilities that every FD would approve of as the building would probably be sitting empty after 4pm every day, instead of which the taxpayer benefits from 700 people celebrating success.

As you might know, these events are usually hosted by a newsreader type such as Sophie Raworth or Emily Maitliss so imagine our surprise when after the blaring introductory music on to the stage walks none other than Karren Brady just days after becoming MD of West Ham United; a job which you might think would take up at least 23 hours of every day.

This seemed a bit strange but perhaps it was just something to fill her time between clubs.

However, I do get a bit suspicious when business people spend more time raising their profile in the media than actually running their businesses. The worst example of this in recent years has been Lord Bilimoria who having grown Cobra Beer to become an established brand obviously felt he could afford to lose focus and engage in television programmes and conference speaking.

This isn’t a bad thing if it brings in more business for your company but I can’t believe people drank more Cobra because they saw Lord B speaking at an entrepreneurs conference. There may be no connection between Lord B spending more time away from the business and the business going into pre-pack administration leaving his creditors £75m out of pocket, but it doesn’t look good, or do his credibility any favours.

By coincidence, reading the Sunday Times yesterday the Fame and Fortune column was about, you guessed it, Karren Brady and it turns out her non-football business which includes speaking events, newspaper columns, and books is worth £82m!

If true, that doesn’t sound like a business person who has lost focus, but let’s hope that she makes West Ham as successful, at least off the pitch if not on it.

Ash Mehta
ash@orchardgrowth.com

“Flat is the new up” – Sir Martin Sorrell

Off to Paternoster Square for the London Stock Exchange’s Investor Relations conference where the opening keynote address is from the inimitable Sir Martin Sorrell of WPP plc. As someone heading up a corporation which has most of the worlds leading companies as clients he has a unique perspective on the business environment. Sir Martin has a 15 minute slot but when did you ever see him short of an opinion and he talks eloquently for 45 minutes handling questions deftly as he describes the benefits of improved internal communications within WPP utilising web technologies, and how your company can benefit in the same way (he is ever the salesman).

He also talks frankly about spending marketing and communications budgets wisely and not expecting such budgets to have a miraculous effect on sales. Downturns are downturns and Sir Martin has been through enough of them to realise that you have to get through them and come out stronger and leaner on the other side. He cautions companies to be satisfied with broadly maintaining their sales and not being over adventurous. “Flat is the new up” and any company showing flat sales should be quite pleased with itself.

A very quick 45 minutes is up and the audience is bouncing. Despite the fact that the conference hall is filled with bubbly investor relations people I sense that at 10.30am and with the conference ending at 5pm we have already seen the highlight of the day.

Ash Mehta
ash@orchardgrowth.com

Book Review: The Storm – Vince Cable

On the cover of this book Vince Cable is described by Rory Bremner as “the man who gives politics a good name”. He is one of the few people, politicians and others, to come out of the credit crunch with his reputation not just intact but enhanced.

You’d think therefore that this book would tell you everything you need to know about the credit crunch, written as it is by the one of the few people to recognise the warning signals from excessive borrowing by consumers and governments.

Readers expecting that story will be disappointed. The book starts off reasonably well describing Trouble on the Tyne and the Northern Rock affair, and moves on to discuss the growth in credit in the UK and the factors behind it. As you’d expect from a seasoned economist, the author writes as he speaks in a very clear style.

However, from the third chapter the book turns to covering general macro economic factors including the significance of oil in the global economy, food shortages and prices, international trade and the emergence of China and India as powerful economies. Surprisingly for a text on macroeconomics it’s very readable and very interesting but it’s not actually about the credit crunch.

Unfortunately, it looks as if the author was already writing a book about macroeconomic conditions and has then hurriedly tacked on some chapters about the credit crunch in a rather unconvincing manner. The grammar is poor on occasions, assumptions are made when names of people are used without detailing who they are or their significance, and the various factual errors such as referring to the notorious Sir Fred Goodwin of RBS as Frank Godwin detract from the overall reading experience.

All in all this is a surprising book for a number of reasons. Surprising that the author would allow such a hurried text to be approved by him, surprising that it’s not about what it claims to be about, and surprising in that the content is actually quite a good read.

Ash Mehta

A moat too far – MPs expenses and financial management

Now, what can we possibly say that hasn’t already been said about the MPs expenses debacle?

Well from our perspective it has a number of characteristics in common with other financial scandals whether in the public or private sector, which illustrate poor financial management and control.

1. An unclear policy
Much has been made by many MPs trying to mitigate their disgraceful behaviour by claiming that the expenses policy and regime was unclear. Certainly by what has been reported in the press, the fees office seemed to have a high degree of discretion in how much for example of a £2,300 plasma TV would be reimbursed. They also had policies which weren’t communicated eg. that they would normally pay no more than £750 for a TV. But if that was the case why didn’t they write it in and communicate it? Why did the John Lewis list only eke out into the public domain by chance last year? This can only have increased confusion and inconsistency in the application of the policy, such as it was.

2. A weak finance function
Most MPs are a pretty forthright lot. Perhaps they don’t always smack you on the chin like John Prescott but I suspect many of them can be fairly intimidating to administrative staff in the fees office. It does seem that the sarcastic and patronising correspondence from MPs to fees office staff that has come to light may have placed pressure on the fees office to pay claims which they might not otherwise have done. Apparently, there was also a fair bit of bullying going on .

3. Management override
A powerful management team or CEO in any organisation can often get their own way (passim. Fred Goodwin etc.). In this case the fees office seem not to have been supported by anyone in the House of Commons. Indeed two of the three main political parties consistently voted against greater disclosure and even for their own exemption from the Freedom of Information Act 2000!

4. Unclear reporting lines
On top of all this the reporting lines for the fees office were somewhat unclear and incestuous as The Guardian has clearly shown . If there’s no one at the “board” level with accountability then those at the board level have greater lee way to abuse the system. In the Commons, the most important person is the Speaker and it is his responsibility to safeguard the reputation of the House. His failure to do so and his mocking of those seeking it would be a dismissible offence in most organisations.

5. A misunderstanding of the ethos
Most people would understand clearly that expense claims are for costs incurred so that you aren’t out of pocket in performing duties for your employer. Was it really beyond MPs to understand this? Or was it even stated anywhere? Or was it as a concept overridden by daily sloppy practice in the organisation? Who was the guardian of financial prudence in the House?

When you get one of these issues arising it’s a cause for concern, but when you get all five it’s a disaster waiting to happen.

So what next? Well, in most organisations an issue like this would be dealt with quickly to produce an effective solution which have broad support. The measure of the House, the Speaker and the party leaders will now be how quickly they can produce a solution which meets the publics expectation for common sense.

Steve Easterbrook, CEO of McDonalds UK was on Question Time last week and was the voice of common sense and good business practice and was puzzled why this could not be fixed within 48 hours.

We wait with bated breath to see how quickly the honourable members take to deal with the issue and when the moat will stop rocking this hitherto fine institution.

(Meanwhile, this is a classic- See Eric Pickles MP explaining why he needs two homes in the capital to do his job).

Ash Mehta

Is Frederick Forsyth a communist?

No of course he’s not.

But disrupted by the weather, I caught a bit of the Daily Politics this week and was staggered to hear Frederick Forsyth positively raging about how bankers have got away with it and the establishment is protecting them despite collecting tens of millions in salaries and bonuses whilst they presided over the failure of our banks.

It sounds like he’s tapped in to the feelings of the man in the street (or in his case the bridle path). I recently also had the pleasure of hearing Vince Cable speak. Apart from some fascinating views on the creation of “narrow” banks ie. banks which only take deposits and lend money (now there’s a thought!), he mentioned how his constituents in Twickenham come up to him and rage about bankers, and when he looks under their arm they’re carrying not The Morning Star but The Daily Telegraph!

I suspect that bankers haven’t got away with it! This story is bubbling away and will boil over at some point.

Ash Mehta