Regular readers will know that I don’t hold with the “old” and “new” economy labels that were popularly ascribed to various industries last year. It has always seemed to me that there are far too many companies which were wrongly assigned to the alleged new economy, or consigned to the old (which, funnily enough, has proved considerably more resilient than the new).
Telecommunications was, supposedly, part of the cutting edge of the new world economy. Yet BT, as a lumbering neo-utility from the public sector, has always lugged around its old economy baggage, not least in the ham-fist of its man-and-boy former chairman, Sir Iain Vallance.
Meanwhile Ford, a global manufacturer of motor cars, with its anti-environmental offer of gas-guzzling monsters, was deemed to be part of the old and discredited economy. In the meantime, the company was snaffling up brands worldwide – including Jaguar and Volvo – and filling cars with microprocessors every bit as clever as anything that was going into a personal computer.
The truth is that BT and Ford have far more in common than the glib analysts and list-makers would have us believe. Both have undertaken global expansion plans. Both have suffered spectacular failures in doing so – Ford in neglecting its market share in the US; BT by overreaching in the US.
The similarities don’t stop there. Last week, both BT and Ford lost their chief executives, suddenly and – shall we say – not under the happiest of circumstances. Detroit being Detroit, Ford’s Jac Nasser was summarily sacked on his arrival at work on the Monday morning. London being London, Sir Peter Bonfield retired early, if also rather suddenly, having apparently enjoyed an “action-packed” time in the post.
What was apparent was that both men paid the price for testing the patience of shareholders – or, as they are more accurately called at Ford, “owners” – with expansion and rationalisation plans aimed at delivering greater value.
Both also suffered from overweening chairmen, for whom it was handy to have a chief executive in place to do the hard work and to take many of the difficult decisions – not to mention most of the flak – but for whom it proved impossible not to try to run things themselves.
Jac the Knife – so called for his ruthless reputation for closing businesses and laying off their workforces, a trait that admittedly could not be ascribed to Bonfield – had the ill luck to have a chairman called Ford. Namely William Clay Ford II, who foisted an “office of the chairman and chief executive” on Nasser as a means of exerting greater direct family control over the company.
With 40 per cent of Ford in family hands, that direct family control was always going to be exercised when Nasser halved the dividend just over a fortnight ago. So be it. The Fords have got their family ball back. Let’s see how they play with it.
It wasn’t family ownership at BT that was the problem for Bonfield, of course, but you wouldn’t necessarily have known that from the behaviour of erstwhile chairman Vallance. He had been at the company so long that – as with other plutocratic and long-serving chairmen, such as Marks & Spencer’s Sir Richard Greenbury – he seemed to think he owned the place.
Vallance is credited – or debited, more appropriately – with the abortive merger with Cable & Wireless and the MCI fiasco in the US, as well as the “remedial” strategy of a partnership with AT&T. The Sunday Telegraph put it best: “Bonfield may have been running the show, but it was Vallance who was moving the scenery.”
So Nasser and Bonfield may appear to be worlds apart, geographically and economically, but the circumstances that led to their departures bear comparison. In one significant regard, however, the circumstances surrounding their departures could not be more dissimilar.
I have seen virtually no coverage of the recent effect on Ford’s share price of Nasser’s stewardship. In fact, Ford’s shares closed last week at a shade over &£11, little more than &£1 above their low for the year and way off their &£21 high for 2001. Along with the slashed dividend, that performance won’t make Nasser a popular man among Ford’s shareholders, who surprisingly seem fairly quiet on the subject.
I have also heard nothing of Nasser’s pay-off. By contrast, a BT share price that peaked last year at over &£15 and last week closed at &£3.40 has been greeted by near-hysteria in the City, as has Bonfield’s severance payment, which is variously pitched at &£1.5m or &£3m, depending on the degree of double-counting in which his detractors are prepared to indulge.
The truth is that Bonfield is being paid &£1.5m, which is one year’s basic salary plus bonus – a far cry from the three-year rolling contracts that so got up corporate-governance noses during the Nineties. And, in any event, Bonfield’s contract was approved by shareholders – the same shareholders who now complain that they haven’t been delivered sufficient value and so would like to renege on that contract.
In the US, shareholders take rather more responsibility for the executives they appoint. No wonder Bonfield is said to want to return there. Perhaps he could compare notes with Jac the Knife.
George Pitcher is a partner at communications management consultancy Luther Pendragon