Life may be hard in the High Street, but
the chairman gets a soft landing
Sit Peter Davis is an affable fellow with a mansion in the Cotswolds and a yacht on or off the Cote d'Azur, and now he will be able to spend more time with them. Until the other day he was chairman of J. Sainsbury, but he has shaken the boardroom's dust off his feet or, rather, has been shaken free of it. He should compare notes with Luc Vandevelde, who until the other week was chairman of Marks & Spencer. Life is tough in the High Street these days, especially at the wrong end of it, and famous names are no protection. Poor old Safeway has proved, what we all know, that no good comes of sitting around and waiting to be taken over. Now in the process of digestion, it has given Sir Ken Morrison heartburn and caused Wm Morrison's veteran chairman to warn, for the first time in his life, that profits would disappoint expectations. With Sir Peter's departure came the third such warning in a row from Sainsbury. The shares now yield almost twice as much as the FT AllShare index, and the message is self-evident: the market fears that the new regime will cut the dividend. Philip Hampton, the incoming chairman, has form as a cutter, and these things are always easier when you can blame your predecessor.
Trust in charity
A cut in their income would be bad news for the Sainsburys and for their charities and, most of all, for their beneficiaries. A generation ago this was a family business with the family firmly in charge. Those days have gone, there are no Sainsburys left on the board, but the family and its trusts still control more than one-third of the shares. Good causes, great and small, up and down the country, can be grateful to them. In our own time, no family's record outshines theirs when it comes to supporting the arts. The National Gallery's most splendid pictures now live in the Sainsbury wing. Covent Garden now has a Linbury Theatre, named for Anya Linden, the ballerina who married a Sainsbury. Only the trustees know whether these charities have spread their investments out over the years, or how far they depend on the dividend. There are precedents either way: the Wellcome Trust diversified, the Nuffield Foundation went down with the ship. Those who count on the Sainsburys' generosity, or hope to, should nerve them selves when they open the post. Other families have found that it is no fun to have their money tied up in the family business if the family does not run it. They may then be tempted to open the door to a bidder.
Paying Peter
The ejection of Sir Peter may turn out to be a landmark and already has the making of a boardroom classic. He is an old Sainsbury hand, he went off to run the Prudential, he came back as chief executive and ascended to the chair. The new code of corporate governance frowns on this, but the idea was that he would see the job through until a new team was in place. Two things went wrong with the plan. The headhunters went off to look for a new chairman, but the candidate they brought forward was greeted with raspberries and cries of 'Oh, not him again.' So Sir Peter stayed on and he and his contract began to look rich. Apart from his salary, pension pot and other comforts, he was in line for a bumper bonus of £2,400,000 — somehow related to the group's performance last year. It was no bumper year for the shareholders, and Sainsbury's annual meeting on Monday will see fireworks. The directors can expect to be asked how the bonus scheme worked — answer: badly — and how much money Sir Peter can now expect to take with him — answer: don't know, but a long way into seven figures. Like that, a fellow can keep himself stocked up with mansions and yachts.
Boardroom inflation
In front of our noses, boardroom inflation has taken off. Get into the small club of senior managers and onto the headhunters' short lists, and you can ask for a sackful of money for joining a company, a sackful for
staying, a sackful for getting the sack. Heads you win, tails the company loses. This is something new. When the chairmanship of Imperial Chemical Industries was the top prize in British business, the winner was amply rewarded but could not expect to live like a lord or retire with a fortune. Are today's prizewinners so much better? Their pay-packets are in a different league. What, or what else, has got into them? Globalisation, or so we are told. The City's example, and (in good years) all those guaranteed bonuses. The example of managers who turn themselves into owners, buying the businesses they have been running, and later, or so they hope, cashing in.
Making a mystery
Even in boardrooms, though, prices are set by supply and demand. Something must have tipped the balance. Put like that, we can see what it is. The codes of corporate governance have made boardroom life a mystery. The top jobs are now filled by committees, made up of directors who work for other companies but become non-executive on Fridays. People like them (they would say) need to be properly motivated and picked from the top of the tree. All this will be sure to show up in the remuneration report, so the committee reaches for a security blanket and hires some consultants. Justifying their fees, they put together elaborate packages — options, bonuses, longterm incentive plans, all needed, they argue, to get their man out of bed in the mornings. The headhunters happily take their commissions. All then agree how hard it now is to find and retain the best people. For a change, companies might try promoting them. Directors might then insist that their job is not to jump through corporate hoops but to make the company prosper. Shareholders might stop believing that codes can do their work for them. Sainsbury is a virtuous company and, I am sure, complied with the codes in every detail.
Don't ask me
This week a headhunter who had to speak at a conference rang me to ask for ideas. 'Tell them,' I said, 'that the codification of British boardrooms has led to grotesque rewards for directors, much to their own advantage and that of the headhunters.' Of course, I should have recommended her to ask Sir Peter Davis.
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