22 JULY 1995, Page 21


The crew come ashore with their gold, but the owners go down with the ship


It has been a bad week for owners. Bar- ings' shareholders, who were wiped out, can now see that the business was not being run for them. Most of the equity belonged to a charitable trust, and the preference shares, £57 million of them, were mostly held by people in retirement. They may have thought this was their venture, but they have learned better. (The noteholders were not owners, but had to learn, too.) As the report on Barings' wreck shows, when the ship hit the rocks, the officers were just getting ready to parcel out the prize money. It had, they thought, been a prosperous voyage, and more than fifty shipmates would collect between a quarter and a half of a million pounds each. Five officers would get more than half a million each but less than three-quarters. Four gold-braided figures on the poop-deck would get any- thing from £880,000 to almost twice that. They were not looking where the ship was going. Their lines of command and control were in a tangle. Their reckoning was out. You might ask how this sea-going branch of the Swiss Navy could rate itself and pay itself so highly. The answer can be found in one sentence of the report: 'Until the col- lapse, Barings' management in London believed the trading conducted in Singa- pore to be essentially risk-free and very profitable.' Nothing in markets, as a banker ought to know, is free of risk and very prof- itable. This trading, though, was what put the gold on the braid and the bonuses. The officers' risks and rewards were not the same as the owners', and indeed the two interests were pulling in opposite direc- tions. Most of the ship's company were picked up with their feet dry and with the pieces of eight still in their possession. The owners went down with the ship.

Greed and fear

THE CHILLING truth is that Barings could have been saved. The markets picked up the scent of trouble and gave warning. Barings' officers pooh-poohed the warnings and its supervisors in the Bank of England never picked them up. The ripples spread across the world as far as Basle, home of the Bank for International Settlements. The Bank of England works closely with the BIS, and I find it incredible that the warnings did not go all the way. 'Markets', as Sir Patrick Sergeant says, 'are ruled by greed and fear, and the price is always telling you something.' None are so deaf, though, as those who won't listen.

Put up and shut up

SUNK BY Barings, snubbed by Greenbury, taxed by a Conservative government: own- ers must be wondering who their friends are. Pure mint humbug, as I feared, is the flavour running through Sir Richard Greenbury's stick of boardroom rock. A group of chairmen and directors, asked who should be responsible for setting boardroom pay, were bound to answer: chairmen and directors. Never mind the owners. Theirs not to reason why, theirs but to put up and shut up. In a capitalist sys- tem, though, the owners have a job to do and no amount of committees, Greenbury, Cadbury or any other flavour, can replace them. To see what happens to a company with a hole where the owners ought to be, the implosion of Barings must now become the textbook example.

Wider still and wider

THE GAP between ownership and man- agement in British industry will now be wider. Such is the bizarre effect of taxing gains on share options as income and decreeing that a gain is scored when the option is taken up — not, as you might expect, when the shares are sold. To the director whose options form part of an already bulging package, the difference will be no more than marginal. It is the junior down the ladder who will feel the differ- ence and will doubtless sell his newly acquired shares to pay his tax bill. This Government used to believe in turning earners into owners. The Prime Minister says that he wants to change a tax regime that now penalises individual ownership. Why does he allow Sir Richard and the Revenue to make things worse? If greed in the boardroom embarrasses him, why does he not make allies of the owners and empower them to deal with it? After all, it is their business, not his.

The exporters' friend

I AM pleased to see the Chancellor taking an interest in an export industry based just down the road from his office. Last year its exporters chipped in £20 billion to the bal- ance of payments, and they feel unloved at his end of town. Selling financial services, they seldom appear among the pill-pushers and marmalade-potters honoured with the Queen's Award. They see that the British Overseas Trade Board, backed by a £45 million budget for export promotion, thinks that it has more deserving causes. It leaves them to paddle their own canoe, with an occasional tow from the Royal Yacht. At their own end of town, support- ers form themselves into clubs which, as clubs do, form rivalries: British Invisibles, the Bank of England, the Corporation of London, London First, and what not. Ken- neth Clarke is a supporter himself. He has staged two Far Eastern tours on his own account, and last month he gave a vigorous lead to British Invisibles' promotional mis- sion to Delhi. This seems to have prompted him to call the leaders of the rival clubs into the Treasury this week for some construc- tive head-banging. What he needs from it, and what I hope will come of it, is a small group to support this export industry and improve the promotion and marketing of its services — with a direct line to him, and under orders not to proliferate committees. I would call it the City Export Board and he might (by way of annoying the Deputy Prime Minister) appoint himself its president.

Round figures

A FAT cat writes: May I, through your columns, deprecate the outbreak of feline girthism which likens us to company direc- tors? Such thoughtless terms can give offence. Belloc said it for us: 'If it be true that nations get the cats they deserve, then indeed are the English fortunate in their cats, for there are none so prosperous and contented in all the world.' Ours is the homeland of the non-executive cat.