It is a quarter of a century since the last representatives of the Pearson family retired. The new professional managers inherited a collection of the some of finest assets in the world, in the shape of Chateau Latour, Lazard Brothers, Penguin, Longman, Madame Tussauds and, of course, the Financial Times.
Goodness, the big investors said to the professional managers, that will never do. We make the asset allocation, and we don’t like conglomerates. Your job is focus on one business and sell the rest.
Over the next 25 years, the professionals obeyed the investors. Yet, as the late Nicholas Berry put it: “These were the ‘fake owners’, not the real ones of the past. The fake owners were interested in the share price. The real owners cared about a long-term value, which was certain to increase from these trophy assets.”
This week it has become shockingly clear that the professionals would have created more long-term value by taking their salaries and lying on the beach, as the business, now focused on education in America, faces an existential threat.
Yet as my colleague Paul Murphy pointed out on the first day he could after the sale of the FT, at the end of the last century Pearson had all the ingredients to become what Bloomberg is today. In addition to the paper, it had a newswire, an on-line markets business and a company statistics archive. Instead of investing, everything was sold off, culminating in the paper itself.
That the sales fetched good prices served to disguise problems elsewhere. However, that this week’s admissions took so long, when similar businesses were warning of trouble, suggests that the Pearson management has failed tactically as well as strategically.
This is a cautionary tale for those advocating a spin-off of Primark from Associated British Foods, or a break-up of the Daily Mail group, for example. As Mr Berry might have said: Beware of fake owners, for they will mislead you.
No incentive to help others
The 2015 annual report from Bovis Homes devotes 15 pages to directors’ pay. Its magnificent mixture of thresholds, incentives, targets and rewards is a triumph of the remuneration consultant’s art. With hindsight, however, it is possible to see a few cracks, rather like those appearing in some of the company’s new homes.
Those stories of botched work and unfinished houses which produced the “Bovis house of horrors” headlines are reminiscent of the days before Polish workers transformed the building trade. The telltale crack in the remuneration report is the CEO’s failure to earn his customer service bonus.
A year ago Bovis shares were already worst-in-class in its peer group. This raised the pressure on the executives, and the result was the Christmas fiasco of paying customers to move into unfinished homes in a doomed attempt to avoid missing an arbitrary target. Russ Mould of AJ Bell Investment suspects the bonus structure with its reward for return on capital is to blame.
Well, maybe. The long-serving CEO has now gone and the company is promising another pay review. Bovis has achieved the baleful double of lousy share performance in a housebuilding boom and delivering a sub-standard product. Those carefully-crafted incentives benefitted neither shareholders nor customers. So cui bono? Oh, wait a minute…
The consultants’ consultants
It’s hard to know whether to laugh or cry at the decision by McKinsey to buy 100,000 sq ft at the old Mount Pleasant postal sorting office, now being redeveloped into snazzy new offices.
It’s reassuring when an international business sees sufficient life in London after Brexit to commit to a new HQ here, but there’s the old saw that you don’t call in management consultants, you contract them like a disease. Judging by the way the business has mushroomed, it’s contagious.
For its office design, McKinsey might study Boston Consulting Group’s new space in New York. To encourage the top dogs to get out more, their offices are windowless, while the hoi polloi have neither conventional desks nor telephones. The (open) plan will also measure how long each consultant goes without speaking to anyone. Naturally, BCG has brought in consultants to do this. Without conscious irony, the firm is called Humanyze.
This is my FT column from Saturday