Saatchi doesn’t matter – II

SBHD: Speculation surrounds Maurice Saatchi’s future. But in the media coverage two issues of corporate concern have been largely overlooked.

The events following the “shooting” of Maurice Saatchi reminds me of nothing so much as the denouement of a cowboy movie plot.

I toyed with the idea of The Magnificent Seven – the old gang regrouping for one last ride to the aid of struggling border village Santa Media. This accords with weekend speculation from The Observer’s customarily authoritative Emily Bell that Maurice is poised to join forces with Sir Tim Bell to bid for Saatchi.

But you have trouble making up the Seven. Frank Lowe? He rides with the Interpublic gang. Martin Sorrell? Oh, grow up.

No. Maurice is now cast more as the loner – a Clint Eastwood character. The Man With No Agency. Or, more appropriately given the possible link-up with old hired-gun Sir Tim, The Unforgiven.

I resist the strong temptation to speculate where he might find a suitable cowboy outfit. In any event, this magazine has elsewhere undertaken an unwrapping of the mystery from the Saatchi enigma with greater resource than this column could hope to muster.

So let me confine myself to two issues of corporate concern that have been largely overlooked in all the excitement. The first relates to Saatchi’s size and relative importance; the second to the role played by the non-executive directors in the Saatchi dbâcle.

I have banged on about size before, so I’ll be brief. On April 8 last year, I wrote of Maurice’s scrap with his chief executive, Charles Scott, that Saatchi had a market capitalisation of some £300m, about the same as builders’ merchant Norcros.

Life has been unkind to builders’ merchants recently – even unkinder than it has been to global advertising conglomerates – so Saatchi, nearly one year on from my last comparison, is considerably larger these days than Norcros. But who are its stock market peers? Well, there’s Boddingtons the brewery (£314m), Barratt Homes (£298m), Wilson Construction (£305.7m) and healthcare concern AAH (£303.5m). Granada (capitalised at some £3bn) has convertible preference stock that is worth more than the whole of Saatchi.

I have no idea whether a Mo Boddington has recently been ousted from his board, partly because the mass media have neglected to devote leader columns and splash features to the subject. What I appeal for is a sense of perspective. In business terms, the headlines should not be the ubiquitous and overworked “Saatchi isn’t working”, so much as “Saatchi doesn’t matter”.

Now to relative importance. Even within the microcosm of the London media world, all the major newspaper groups – even The Independent – are worth more than Saatchi. WPP, which for separate reasons mirrored Saatchi’s global contraction when the revenues died, is capitalised at £778m.

So, in bald corporate terms, it is a bit rich for Maurice to peel an onion and moisten the eyes of his loyal troops with a valedictory memo claiming that, before the recent shenanigans, Saatchi’s share price had risen 17 per cent, compared with a two per cent fall in the FT-SE Index.

The shares were worth some £55 a piece at their peak and Saatchi’s capitalisation topped £1bn. Since then, neither Maurice nor Scott nor Robert Louis-Dreyfus have properly turned things around. It remains to be seen whether Chicago fund manager David Herro has a solution, but shareholders – one hopes they are notional – who bought at the peak have effectively lost their money. In this respect, it is perhaps a trifle discourteous for Maurice to talk of the share price gain we have painstakingly won since the spring.

Compare and contrast Saatchi’s performance with that of WPP. WPP returned to dividend in 1993, paid an interim dividend that was increased by ten per cent last year and its banks, once close to pulling the plugs, enjoyed a £120m bonanza when their preference shares were converted into ordinary stock (though some of them chose not to exercise).

Three or four years ago, there were few offering odds on Sorrell’s survival. He’s still there. Maurice isn’t. Draw you own conclusions, but getting it right is as important – probably more important – in the austere mid-Nineties as it was in the booming mid-Eighties.

Which brings me to non-executive directors and, more particularly, remuneration. The play that was made of Maurice’s £5m share option agreement was in the finest tradition of spin-propagandists. It reminds you of the way in which details of Tiny Rowland’s lavish package were co-incidentally examined in the press just ahead of the Dieter Bock camp’s final assault upon his position.

Maurice’s deal was performance-related and he did not stand to collect unless shareholders cleaned up too.

Sorrell, meanwhile, also has a new service agreement. Last September, it was announced that, in addition to a basic of some £750,000, plus annual pension contributions of £325,000, he would invest £2.2m in existing ordinary shares for a minimum of two years and receive a performance-related bonus of 60 per cent of basic, plus 40 per cent of basic dependent on WPP’s performance relative to the market.

A key difference is that Sorrell’s package is to be put to shareholders at an EGM. Maurice has been denied an EGM and, therefore, his day in court.

Whatever the merits and demerits of Maurice’s case, that is scandalous and brings me to the role, or lack of it, of the non-executive directors.

Again, last April I wrote that it was to ex-Midland chairman Sir Peter Walters that the company looked “for arbitration as the relationship between Maurice and Scott dissolves”. Well, we may have just had that arbitration. But the non-execs, who include former Glaxo chairman Sir Paul Girolami, do not necessarily appear to have applied the sunlight test to Herro’s performance as Prince of Darkness.

I also wrote last April: “What Walters may consider is a break-up of the group.” There’s nothing about recent Saatchi events – and still less about the presence of a Chicago fund manager – that changes my mind.

The moral must be: If you are going to build a people business, don’t people it with non-execs who may one day fail to recognise you in the street – be it Charlotte or Wall.

George Pitcher is joint managing director of media consultancy Luther Pendragon.