Dear Paul,
It’s always tricky to jump from senior non-exec to chairman, but desperate times and all that. Fortunately, you weren’t aboard for the AIA bid, which lit the bomb under the top management. That was a “transformational” deal, a word that strikes dread into the heart of the average investor. It says “our prospects are so dire that we want to do something else”. No matter that AIA might just have worked. Rule one: avoid transformational deals.
You can also finesse the bust-up over executive pay at the last AGM. That’s what the rem com’s for, and appointing a new chairman would change that – nothing to do with the row, of course. You don’t run the business. Your chief executive, who seems to have put the AIA fiasco behind him, does that. You may not even have to understand the Pru’s balance sheet, which must be a great relief, since few of us can. It’s not so long since investors were offered three versions of the P&L account. Clarity would be a welcome bonus from all the companies in this opaque industry.
Assuming the old girl can avoid too many nasty shocks, your biggest opportunity is in reviving what the Pru and its offshoot M&G always stood for in the City: fair dealing and shareholders’ interests. Nowadays, this means trying to stop, and even reverse, the runaway train of executive pay.
The grotesque spectacle of Mick Davis being promised £30m just for turning up at Glenstrata for the next three years rather makes the point. The Pru’s own plan, which got the raspberry at the AGM, could yield a similar sum to seven directors. Do you really think it’s justified? The remuneration consultants have done their baleful work here, with whole spreadsheets of justifications, but the Pru should be above this.
It should set the tone; if it loses some top executives, then let them go. There are (or there certainly should be) plenty of able people in your organisation. Get to know them. The best way to resist demands for seven-figure bonuses is to say: Off you go, our bright young things will step up to the plate. They’ll be more loyal, too, if they can see the prospect of a bloody war and quick promotion. Nobody is indispensible – except for a newly-appointed chairman following a drubbing of the board by the shareholders. Go to it, and the best of luck. You’ll need it.
Thames Water boasts a single phone number. Its call-centre operatives are polite, patient and quite helpless. Complaints sink without trace (don’t ask). Its executives are shy, retiring individuals, and its shareholders are similarly private equity specialists led by Macquarie, Australia’s answer to Goldman Sachs. In between exhortations to customers not to use the product, Thames has handsomely rewarded its shadowy owners, as debt has replaced equity. In 2010/11 (non-taxable) interest payments absorbed £426m of the £600m of operating profits, made on £1.62bn of sales. And you thought they were Running Water for You.
Now a part of another privatised utility, the BT Pension Fund, is taking a 13 per cent stake. As usual, the price is not disclosed. None of our business. Still, the fund could always do itself a good turn by inviting BT to pitch to improve communications with the captive customers. Oh, silly me.
Ah, spring in London: the Chelsea Flower Show, hosepipe bans – and a plan to redevelop Battersea power station. The derelict monster on the Embankment is, it seems, about to get yet another new owner, but lovers of monumental follies should not worry. True, the Malaysian buyers aren’t getting into the spirit of things with crackpot plans to build an amusement park, football stadium, or giant funnel to dwarf the old structure itself. Their proposed mix of offices, shops and housing would improve the derelict wharf look the site sports. The obstacle is the Grade II* listing, and the uncomfortable fact that it’s impossible to turn the building into anything useful (one Bankside is surely enough). The new owners may consider their £375m investment as a bargain, especially compared with the £500m debt run up by the last lot. They’ll learn.