CITY AND SUBURBAN
Break Guinness up management by merger is not good for you
CHRISTOPHER FILDES
The saddest achievement of Ernest Saunders is that under his leadership Guin- ness has acquired a bad name. Guinness is a name that speaks for itself, and few have evoked, until now, such a wide and genial response. That cannot be won by instant wizardry, financial or commercial: it has to be earned, over time. It is then the best asset of all.
Marks & Spencer is the classic instance. When the M & S directors, a few years ago, seemed to be favouring themselves a little more than they should, they were stopped by one sentence from a sharehold- er, Ralph Quartano of the Post Office pension fund. He told the shareholders' Meeting: 'St Michael ought to be on the side of the angels.' Guinness ought to be good for you. Guinness is bad — and bad, at last, for Mr Saunders. Officially, he has 'stepped aside' as chairman and chief executive until the Department of Trade and Industry's inspectors report. Who knows when that will be? If the report suggests that the law has been broken, it will (as I was saying last Week) go to the Director of Public Prosecu- tions and stay in his pending tray until the trial is over or until he has decided not to Prosecute — either of which, on all known Prosecute can take years. A business like G umness cannot be run by regents, keep- ing the throne warm for the king over the Water.
It is, in any case, the duty of a company chairman — it might be called his function --- to take the blame for corporate disaster. An unpleasant spectacle over the last few Weeks has been the way blame settled lower down the line, on Roger Seelig at Morgan Grenfell and then on Olivier Roux at Guinness itself. When things went bad- iY, they found themselves in the line of fire, Just as Lord Iveagh, the last family chair- man, was set to tell shareholders why he was not being succeeded by Sir Thomas Risk but by Mr Saunders. When things went well, no one was left in any doubt no was the ruling genius of Guinness. when Guinness went back on its commit- ment to Sir Thomas, which was also a c9nunitment to its shareholders, the deci- sive argument was that Mr Saunders must i ‘,..' allowed to run the company in his own ,waY, since it had been created in his image. '13 it had, and now the image's feet show traces of clay. The quarrel with Sir Thomas, seen in perspective, assumes a new significance. A chairman of powerful financial companies, a lawyer by training and career, he would have been a different proposition to the family earl. I should not have cared to explain to Sir Thomas why, at a time when the company was already heavily bor- rowed, it was passing Ivan Boesky a hundred million dollars to invest. What else would his prospective colleagues not have cared to explain to Sir Thomas? The stake in a second company of Mr Boes- ky's? The .purchase of Guinness shares by Distillers' pension fund? More far-reaching arrangements for the buying of Guinness shares? New answers suggest themselves daily.
At the time of the quarrel, the Governor of the Bank of England went some way beyond his brief, calling Mr Saunders in, and beginning the pressure which led to the appointment of five new non-executive directors. That intervention should be re- membered with credit. So should the decision of brokers Wood Mackenzie, alone among Guinness's advisers, to resign.
Now the non-executive directors find themselves stewards of the business Mr Saunders built. What a singular building it is! He found Guinness as a company selling its basic product into a mature market which was in slow decline, and trying to put the balance right with diversifications. He cleared those out, and bought new ones newsagents, for instance — but could not, until last year, arrest the falling sales of stout. Guinness then took over another single-product drinks company with what looked like a mature market — Bell's, the whisky makers. It still remains to be established why that bid was anticipated in the market, and who was behind the heavy buying of Bell's shares, which was reported at the time as coming from Switzerland.
Having swallowed Bell's, Guinness bought a company with similar problems, but worse, and on a far larger scale — Distillers. It is common ground that Distil- lers had for years been short of manage- ment and shorter of direction. The Distil- lers directors who allowed themselves to think of Mr Saunders as a friendly bidder, and in that faith had picked up many of the costs of the bid, soon learned better. Now their successors have gone, too. Scotland's largest manufacturing industry, and one of Britain's most important and consistent exporters, now lies with its direction in the hands of part-timers and its management in commission. Let that serve as a terrible warning of the folly of management by takeover.
Distillers' shareholders, and in particular the Scottish institutions which knew the company all too well, must fault them- selves for taking what seemed the lazy way out, accepting Guinness's specious prom- ises and its artificially inflated shares. They could and should have purged the Distillers boardroom, and put in the best, without anything like the cost and upheaval of a £2,500 million takeover. Now they comfort themselves with loose talk of curing Guin- ness by yet another takeover — bringing back Jimmy Gulliver of Argyll, whose bid for Distillers they rejected, or calling on the ever-ready Lord Hanson.
What Guinness needs is not be taken over, but to be taken apart. The takeover of Distillers, and no doubt of Bell's too, were false conclusions reached from discre- dited premises. No good will come from persisting in them. Distillers itself was a failed merger — a combine of the biggest whisky companies which, coming together, lost purpose and impetus and market share. In the business of selling high-priced drinks made from simple materials, size may do more harm than good. Have the first-growth vineyards of Bordeaux ever found it necessary to merge into one? They succeed in charging much more, even, than the whisky distillers, and they succeed by differentiation.
The break-up of Guinness will itself need careful stewardship, and sympathetic financing, on a scale not yet seen for de-mergers and buy-outs in this country. The institutions which, lured and led by Ernest Saunders, allowed the company to reach its present shape and plight have a duty to help it out. The Scottish institutions would have the additional satisfaction of giving Scotland control of its Scotch. Guin- ness was bad for it.
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