UK: FAVOURITES AND FALL GUYS.

UK: FAVOURITES AND FALL GUYS. - The City is fickle in its affections and today's wunderkind can easily become tomorrow's villain. So who is markedly in or out of favour?

by Matthew Lynn.
Last Updated: 31 Aug 2010

The City is fickle in its affections and today's wunderkind can easily become tomorrow's villain. So who is markedly in or out of favour?

The City likes to pride itself on being a cold and rational centre where emotion has no place in the calculus of commercial affairs. In truth, however, its people are as susceptible to the sway of personality as anyone else. For a period, particular businesspeople can build up tremendous reputations. And, for a time at least, the City will be convinced that they can do no wrong.

Like lovestruck schoolgirls, however, the analysts, corporate financiers and journalists who make up City opinion are fickle in their affections. Executives who are lauded as heroes of the City one day can easily find themselves recast as villains the next.

Lord Hanson would be one example. For much of the '80s, Hanson, along with his partner Lord White, was regarded as something close to a superman.

Now the company is little more than a joke. Even when Hanson announced a demerger, the most fashionable move a company can make this year, its share price sank like a stone. The same is true of Lord Weinstock. Regarded as a colossus for two decades, when he finally announced his retirement this year, GEC's share price moved up sharply.

So reputations change. With that caveat born in mind, however, Management Today has attempted to chart the City's current heroes and villains - 10 businessmen currently scoring the top marks on the Square Mile's clapometer and six industrial leaders who could expect to be booed from the stage, should they dare to show their faces in public. The criteria for each category are straightforward. The 10 heroes are executives who could launch a hostile bid for a rival and expect to win comfortably, no matter how little sense the bid made, based purely on their reputation. The villains are six people who could expect to lose, simply because of who they are.

Some names are obvious. Gerry Robinson, for instance, cruised through Granada's bid for Forte because his fan club overwhelmed Forte. Similarly Clive Thompson's Rentokil easily ran over BET because of his personal popularity. Both men's reputations rested on their having made pots of money for the City in the past five years.

Others owe their inclusion more to luck. Marks & Spencer, for example, is such a strong company that a monkey could run it and emerge with a glittering reputation (so long as the monkey didn't tamper with the formula).

Likewise, Henry Ford could probably be drafted in to run Sears, and within a couple of years be castigated as the biggest blunderhead ever to be put in charge of a corporation. Warren Buffett got it right: when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the business's reputation that remains intact.

The moral, apparently, is that if you want to glitter, it is wise to make sure the company you are running is made from gold.

The Favourites

A. Michael Green, Carlton Communications

Despite leaving school with just four O levels, Michael Green has carved out a reputation as one of the smartest entrepreneurs of his generation.

Having first bought a mail-order business and then expanded into print and video, Green reversed his company into the Fleet Street Letter (a stock market tip sheet set up by Nigel Wray, another City favourite) in 1983 and renamed it Carlton. Then the company had a market value of just £44 million; now it is worth almost £3 billion. Much of that growth is due to shrewd acquisitions, including the Central ITV company which Green merged with his Carlton London franchise, and to Green's relative financial caution which has kept the company growing while other acquisitive rivals from the '80s have crashed. His expansion into video duplication in the '80s provided the company with a leading position in one of the fastest growing industries of the decade, even though many thought he had overpaid at the time he acquired Technicolor. Green's dogged pursuit of an ITV franchise has made Carlton one of the dominant TV companies in Britain.

In fact, not since Lew Grade's stranglehold on independent television in the '70s has any one figure held so much power in commercial TV. The City is now convinced that Green will stay the distance and has been urging him to make another bold move, most recently by suggesting he should snatch United News and Media away from Lord Hollick's MAI.

B. Sir Richard Greenbury, Marks & Spencer

Few businessmen illustrate better the adage that if you want to shine, you should first find a good company. A lifelong Marks & Spencer man, Sir Richard Greenbury is one of the few people outside the Sieff family to have risen to the top of the retail chain, and he has shown a sure touch during his eight years as chief executive and then chairman.

M&S is the yardstick against which all other British retailers, and arguably all other British companies, are measured. The takeover of Brooks Brothers in the US briefly tarnished its image but is now coming right. Meanwhile, Greenbury has been cautiously concentrating on exporting the M&S formula.

There is now a growing chain in France, Germany and Hong Kong, and roots are being put down in eastern Europe. Greenbury's success is largely due to the fact that he has been smart enough not to fool around with a winning formula.

C. Peter Job, Reuters

Like many of his colleagues, Job is a lifelong Reuters man. He joined the company from Exeter College, Oxford, in 1963, as a trainee reporter, and has stayed there ever since. His climb through the ranks has been smooth and uninterrupted, mirroring the expansion of Reuters over the past 30 years from a news agency into one of the largest media companies in the world (although it has a much lower profile, Reuters is a bigger company than, for example, Rupert Murdoch's News Corporation). By staking out the leading position in the provision of electronic financial information, Reuters has become a money machine; profits in the past five years alone have risen from £340 million to £600 million, and show few signs of slowing down. Job is a quiet, consensual leader but he has taken Reuters in some bold new directions; it was his decision to move into providing health and marketing information electronically, for example. There is little prospect of Reuters making a large, hostile bid, but little doubt the City would back Job if it did.

D. David Jones, Next

David Jones was educated at King's School, Worcester, after which he was spent most of his career in the mail-order industry, rising to be chief executive of Grattan, before he really got the chance to prove himself.

Through the '80s, Next had been one of the retail successes of the decade under the leadership of the flamboyant George Davies; its shops, stuffed full of double-breasted suits and shoulder pads, were the epitome of yuppiedom.

By 1991, however, wild ambition had bought the company crashing, and the shares stood at just 13p. Jones, who had become deputy chief executive following Next's takeover of Grattan in 1988, stepped in as chief executive, and has quietly and confidently nursed the company back to health since then. Earlier this year it rejoined the FTSE 100 index, and the shares are back above 550p. Next no longer has the flamboyance associated with the Davies era, but is now seen as one of the most professional outfits on the high street. The City would love to see Jones work the same magic on some of his struggling rivals.

E. Robin Miller, Emap

Curiously, there are three former journalists on our list - Miller, Job and Martin Taylor at Barclays - which probably says as much about the ability of media people to manipulate opinion as it does about their managerial abilities. That said, Miller is unquestionably one of the City's stars. He joined the company in 1965 as a reporter on Motor Cycle News, which he went on to edit, before moving into management. Under his leadership, Emap has been transformed from a tired regional newspaper business into one of the snazziest media companies in the country. The core of its success had been its magazine division, which, with titles such as Smash Hits, Q and more!, has proved itself the most innovative in the UK. Expansion into radio and business publishing has helped push profits up from just £27 million in 1992 to £78 million this year. The City has backed acquisitions in France and the US, and would like to see more.

F, Gerry Robinson, Granada

A smooth, fluent Irishman, Gerry Robinson is probably the closest the City has to a hero right now. The ninth of 10 children born to a Donegal carpenter, Robinson learnt early on how to work a crowd and his skill in this department has never left him. His initial reputation and fortune were based on the management buyout he led of Compass, the catering group, in the '80s, but he has flourished most dramatically since being drafted in as chief executive of Granada in 1991. At the time he joined, Granada was a sprawling mess, still recovering from its disastrous involvement in British Satellite Broadcasting. Since then, the share price has quadrupled.

Robinson's skill has been to impose tight management disciplines on the television interests, earning him the memorable epitaph 'upstart caterer' from John Cleese, while also winning the backing of the City for a series of astute acquisitions - the caterer, Sutcliffe, the London ITV franchise holder, LWT, and, most recently, Forte. The City has always been enthusiastic about following him, and shows no signs of stopping.

G. Sir Colin Southgate, Thorn and EMI

After a decade in charge of Thorn EMI, Sir Colin Southgate has emerged as one of the City's favourites, although there have been times when it has harboured deep suspicions about him. Southgate made an early fortune from the management buyout of a software company that was eventually sold to EMI. He left the company after the EMI deal only to return one year later. At the time that he took over, Thorn was a sprawling mess of businesses, built up by the late lighting entrepreneur Sir Jules Thorn; defence, electronics, retailing and entertainment were all part of the empire. Southgate spent most of the '80s slimming the company down to a more rational entity, while making sure he kept pumping funds into those parts of the business that he thought were most important. His acquisition, for example, of Richard Branson's Virgin label for more than £600 million was regarded as wildly extravagant at the time, but it now looks like one of the shrewdest deals of the '90s; it secured EMI's future as one of the world's leading players in a fast-growing industry. Now, following the demerger, EMI is one of the most courted companies in the world, and its share price has soared.

H. Martin Taylor, Barclays

When Martin Taylor took over as chief executive of Barclays, the bank's reputation was in tatters. He was an unlikely choice. A former journalist - he was editor of the influential Lex column at the Financial Times - he became a protege of Sir Christopher Hogg, who took him out of journalism and brought him into Courtaulds. He later rose to be chief executive of Courtaulds Textiles when the company demerged. A series of disastrous loans in the late '80s, particularly in the then booming property market, had hit Barclays' profits. But under Taylor the image of the bank has gradually been restored. Staffing levels from the often bloated high-street branches have been cut - over 18,000 jobs have gone at the bank since 1990 - and a new, streamlined system for approving and monitoring loans has been installed in an attempt to avoid the losses of the past.

One result has been an upsurge in profits: Barclays made over £2 billion last year, compared with a loss of £244 million in 1992. With those kinds of results, there is little doubt the City would back any expansionary moves Taylor might make.

I. Sir Clive Thompson, Rentokil

Thompson's nickname in the City is 'Mr Twenty Per Cent', a moniker that refers not to any imagined Mafia connections but rather to his pledge to push ahead earnings per share at Rentokil by a relentless 20% a year, come rain or shine. Since joining what was then a rather sleepy wood products company in 1982, following an early career that took in both Shell and Boots, Thompson has managed to hit his target most years, and has been rewarded with the admiration of the City. His secret has been to use Rentokil's expertise in customer services as a platform to expand the business into new areas such as office-cleaning and plant-care. Each has been a success and Rentokil is now one of the largest business services companies in the world. When Thompson made a hostile bid for his rival BET, there was little serious doubt about the outcome, even though the new management at BET had made a good start on restoring that company's prospects. The weight of the Thompson fan club was too much to resist.

J. Nigel Wray, Burford

Known in the City as 'the small investor's pin-up', Nigel Wray has spent more than a decade building a reputation as an acute spotter of value in small and unloved businesses, and has, as a result, built up a large fan club. He made his first fortune as the founder of the Fleet Street Letter, which later merged with Carlton Communications, where Wray is still a non-executive director. In 1988, he moved into the property company, Burford, and has since transformed it into one of the smartest operators in a troubled sector. When Burford launched a £142 million rights issue earlier this year, investors subscribed for the shares enthusiastically.

Wray's other great success of the decade has been the Trocadero, the leisure centre next to London's Piccadilly Circus, which has been turned from a desolate white elephant into a snazzy new development and now owns the rights to the Enid Blyton characters. Wray's presence on the share register is currently enough to ensure City support for any company.

The Fall Guys

A. Lord Blakenham, Pearson

A patrician of the old school, Lord Blakenham is a fine example of the City's suspicion of toffs.

A Harvard graduate, the Pearson chairman is a member of the Cowdray family, which controls 20% of the company and still has a decisive influence on its affairs. Until recently, Blakenham was regarded as a competent though unexciting chairman. However, the acquisition of Mind-scape, a Californian CD-Rom company, for close on £400 million, has shot the reputation of the company and its chairman to pieces. Pearson is now viewed as a collection of trophy assets ripe for a break-up bid; Granada's Gerry Robinson is seen as the man most likely to pull down the final curtain on the Pearson empire. Should he do so, he would find Blakenham an even easier target to roll over than Sir Rocco Forte.

B. Tony Hales, Allied Domecq

When Tony Hales became chief executive of Allied Domecq in 1991, at the tender age of 43, he appeared at the time to be one of the brightest young stars in British business. After graduating from Bristol University, he had spent a decade at Cadbury Schweppes before joining Allied in 1979. But five years after taking control, Hales' star has waned. In his hands, Allied has continually disappointed the City. Sure, under his leadership, there has been a considerable amount of activity: in 1994, for example, the company spent £1 billion buying the tequila giant Pedro Domecq, and the traditional food businesses (including the Lyons tea shops) have been sold, raising more than £700 million. But little has actually been achieved. The company's share price and profits have remained stuck in a rut, and the City is now looking to the new chairman, Sir Christopher Hogg, as the company's one last chance of revitalisation before a predator moves in.

C. Brian McGowan, House of Fraser

As the long-term partner of Nigel Rudd at Williams Holdings, Brian McGowan was certainly one of the glamour boys of the City during the heady '80s.

But the last two years have only proved how fragile financial reputations can be. After a brief retirement, McGowan accepted Mohamed Al-Fayed's invitation to chair House of Fraser at its flotation. His task was to lend the company credibility in the City. His involvement was certainly enough to make the float a success, but since then House of Fraser has been a disaster; the company's profits have collapsed, the shares are still below the 1994 issue price and the chief executive has been fired. All in all, it will be a mighty long time before McGowan's name on a prospectus inspires City confidence again.

D. Lord Saatchi, MC Saatchi & Megalomedia

There was a time when Maurice Saatchi would have headed any list of illustrious city heroes. Through the '80s, he and his brother Charles turned Saatchi & Saatchi (now renamed Cordiant) into the world's largest advertising agency through a series of audacious takeovers, with the raid on the American agency Bates the biggest and the most ambitious. At one stage Saatchi's ambitions even stretched to planning a takeover of Midland Bank. But in the '90s, the dream turned sour; the shares fell from £53 (adjusted for rights issues) to just £1 by the time Maurice was ousted two years ago, following a coup led by maverick Chicago fund manager David Herro of Harris Associates, with the backing of unit trust managers M&G and other investors.

Maurice has since started a new agency and is chairman of the quoted Megalomedia, a vehicle for investing in media companies. But most investors have been too badly burnt to want to trust the Saatchis with their money again.

E. Liam Strong, Sears

When he took control of Sears in 1993, Liam Strong was a favourite of British business. As marketing director of British Airways, under Lord King and Sir Colin Marshall, he was one of the men credited with transforming its image from 'Bloody Awful' to 'The World's Favourite Airline'. At Sears, however, he has stumbled from disaster to disaster, consistently failing to deliver the much-promised turnaround in the company's fortunes.

Most recently, he managed to sell a series of underperforming shops to Stephen Hinchliffe's Facia group, only to find them bouncing back into his own portfolio after Facia went into administration. Analysts believe Strong only has one more year left at Sears before the shareholders start demanding his resignation.

F. Alan Sugar, Amstrad

Alan Sugar never had any love for the City, and the feeling is, by now, mutual. His star shone briefly in the '80s, when Amstrad's cheap word processors introduced a generation of British wordsmiths to the keyboard. But an ill-judged push into making cheap IBM clones was the start of the decline, and Amstrad products have become a rare sight on the high street. The City now trusts nothing Sugar does.

When he tried to take the company private, shareholders assumed they were being ripped off, and turned the deal down. When he keeps it public, they punish him with a share price so low he cannot issue any paper. And when he tried to sell the company to Psion earlier this year, the bankers persuaded Psion to pull out of the deal. In truth, right now Sugar could not give tenners away in Throgmorton Street.

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