Centrica boss Sam Laidlaw: 'Energy is more worthwhile than selling luxury goods'

The MT Interview: Attacked over gas bills, high pay and his second swimming pool, has the Centrica boss had enough?

by Chris Blackhurst
Last Updated: 19 Feb 2015

Lord knows who is the one. Is it the CEO of a bank, the head of a train company, the boss of one of the big outsourcers? In the UK right now, there are several contenders for the title of the country's number one hate figure. Right up there is Sam Laidlaw, chief executive of Centrica, British Gas's parent company.

Judging by the column inches he has received and the personal nature of much of the coverage, Laidlaw could be on his own, the undisputed number one target for the left, the popular press, stand-up comics - anyone who professes to despise big business.

It takes something special to incur the criticism of Saga, the over-50s holidays, insurance and finance provider. But Laidlaw did just that in October 2013. Then it was revealed, two days after British Gas said it was raising the price of electricity by 10.4% and gas by 8.4%, that he was having a second swimming pool built in the garden of his home in the Cotswolds.

'Maybe he'll open up one of them for pensioners to have a dip,' joked Paul Green, Saga's comms chief.

To put the story the way it was recounted in the tabloids, Laidlaw was the 'millionaire boss of British Gas who...was paid £5m in 2012...uses twice the amount of energy to heat this pool than the average family spend heating their house...is an Old Etonian...lives on a sprawling estate.'

As one headline screamed: 'Sammy Two Pools: British Gas chief plans to build a second swimming pool at his mansion as millions of families struggle to pay energy bills.'

Blimey. Sammy Two Pools is sitting in front of me. We're in his office in London's EXCLUSIVE Mayfair. It's a VAST room with EXPENSIVE modern art on the walls. He's wearing a HANDmade suit and SILK tie. He offers me GROUND coffee in a CHINA mug. His PLUMMY voice is straight out of the top drawer.

Stop, I hear you and the MT editor cry. Enough of the hysterical upper case. Back, then, to the monster, this apparent cruel-hearted beast of capitalism.

In reality, he's understated - a serious person in a serious role. His suit is dark, his shirt white and his tie conservative, shoes black and polished. And he's definitely smooth, but more in the way of a natural-born, urbane diplomat than a slick super-salesman. If he wasn't doing this, I could easily imagine him running an embassy somewhere.

But that only serves to highlight the problem. Laidlaw is nothing if not sophisticated. He's surrounded by advisers - indeed, one is present throughout our meeting - guiding him on what to do. In this, he's not alone: all the energy companies are bursting with all sorts of expertise.

It's the same with banks: all those smart, sassy people, yet they've failed constantly to win so much as a single point in the relentless PR battle. Even now, five years after the financial crisis, sections of the media and politicians knock the bankers on an almost daily basis.

I put this to Laidlaw, who listens intently. He nods and says: 'Hopefully, we're starting to make progress. These are important issues for Great Britain. Until recently, there was cross-party consensus on energy. The previous government made sure investors got incentives to build low-carbon power stations.'

He shrugs. 'But, if bills are frozen (Ed Miliband has said that if he wins the next election, Labour will freeze energy prices), that incentive vanishes and we won't get that investment. We've got to rebuild that consensus. It's a big task. As to how much progress we can make, I don't know.'

He sighs. 'With a fixed-term government, I thought, good, we will get more stability, but we've already started the election campaign with 18 months to go. We've actually created a lot of uncertainty.'

Laidlaw has spent the past six months fending off politicians' assaults. Most prominently, there was Miliband with the price cap, and the suggestion that power companies that both generate and supply power should be broken up. Then, Ed Davey, the energy secretary, wrote to the regulator, Ofgem, saying British Gas might even be broken up.

Davey said the margins made on gas were as much as five times higher than those on electricity. And, he pointed out, British Gas has a 41% share of the gas market, compared with its nearest rival, SSE, which has 16%. There have been others.

What about Miliband? A frown crosses Laidlaw's face - it's a reflex that no amount of preparedness can hide. Since the Labour leader made his move, Centrica shares have fallen by a fifth. 'Breaking up is a popular sound bite, but you need companies of scale to bring gas to Great Britain. He's misunderstood the situation.'

Just when we should be building what Laidlaw calls 'greater trust' between the power companies, government and the financial community, Miliband and Davey have delivered a wrecking ball. 'It's all very well talking about a price freeze, but it's what happens after the freeze that is so unsettling.'

This uncertainty, he stresses, is the enemy of investment: nobody is going to put their cash into the British energy market to create new sources of supply when the backdrop is so fragile.

New money coming into the industry, says Laidlaw, has virtually ground to a halt. But by 2020, the UK will be relying on imports for 70% of its gas needs. 'In primary energy, the UK's production of gas is falling rapidly. North Sea oil and gas output has fallen by 38% over the past three years. So, when it comes to security of supply there is a pressing need for solutions.'

Yet politicians are falling over themselves to slate the energy companies with British Gas -the supplier of gas to 15 million homes - the principal villain. How have things got so low?

'There has been a lot going on. Ever since the credit crunch, there has been disdain for large businesses. Household incomes have been flat to falling, so a lot of people have been feeling the pinch. We're mandated to replace power stations, and that puts costs up, which in turn puts bills up. So it is always going to be difficult.'

Yes, but this difficult? He smiles a rueful smile. 'We've always tried to do our pricing efficiently, to take a more pragmatic approach. It's worth going back to 2007, when household incomes were increasing and all prices went up sharply. In 2007, bills went up by 50%, then we brought them down. But there was little of this. The main change is the lower disposable income for households, plus politicians are capitalising on the situation and making promises they will find hard to deliver.'


It's not the level of interest he resents - he understands that - but the interference based on ignorance. 'This business is so interwoven with the fabric of Britain and the fortunes of our customers that it can make a real difference to the quality of life. It can never be like any other business with just a profit motive; we've always got a much broader agenda. So we've got social programmes that have helped 1.8 million customers with their bills, and another half a million given extra assistance.'

But he is realistic. 'We're not expecting to be immune from politics,' he says. What's causing the difficulty is the sheer short-termism of those doing the shouting, the lack of vision for Britain's long-term energy needs. That's what he finds hard to countenance.

It's worse for British Gas and its owner, I suggest, because of the history. You don't have to go back too far to when it belonged to the people, when it was a state-owned monopoly supplier. He nods in agreement.

'It's true, there are some customers and politicians who still yearn for the old model. What they forget is what we've achieved. Fiercer competition has delivered lower prices and we've delivered choice. None of that would be there if we were nationalised.'

Contrary to what some may aspire to, 'we can't put the clock back. We're now in an international market and the sums of capital required are huge. We need foreign capital, foreign investors, to meet that challenge.'

It's easy, he says, 'to forget how far we've come. We know what our job is: to make the service the best we can while delivering energy at the lowest possible cost. Even as recently as 2006, there were 16 million exceptions (where the bill has to be checked or authorised by a human and can't be processed automatically) and people complained they could not get through on the phone. We've come a long way since then. We're now much more efficient.'

In February 2013, Centrica announced that Phil Bentley, the managing director of British Gas, would be leaving (he's now CEO of Cable & Wireless, with Chris Weston taking his place at British Gas). For the six years he was at the helm, Bentley seemed to do little but dodge flak. He was the public face of the company, frequently having to defend rising energy prices for residential consumers, the subject of demonstrations by protesters, and facing hostile questioning in rounds of TV and radio studios.

In the end, though, in a decision some regarded as tough, Bentley lost out: the Centrica statement accompanying his departure pointedly said he was leaving 'to pursue his ambition to become a chief executive'.

Laidlaw disputes that Bentley was left to carry the can alone. 'We all take responsibility here,' he says.

The group, Laidlaw emphasises, was very different when he took charge in 2006. It had been a conglomerate - a deliberate plan to move away from energy, to not be so reliant on gas and electricity - with AA motor insurance, One Tel telecoms and Goldfish credit cards in the portfolio. 'As soon as I arrived, I tried to join up energy and energy services,' says Laidlaw. 'We needed to focus on doing a few things well and we have. We've become more of an integrated company.'

But for a period, Bentley was the frontman, the head of a business that was part of a group that still behaved as a conglomerate. British Gas had little production of its own. Since then, Laidlaw has developed the upstream side.

The result is a more stable organisation, one that is not so exposed to volatile, international energy exchanges. When he became CEO, in the UK 80% of the company's gas and energy came from the wholesale market, 20% from its own production. Now, only 30% comes from wholesale, with 70% being generated internally.

He's diversified, but geographically, into America, not along product lines. It's also a more cohesive organisation. 'We have a weekly meeting of the senior team at which we discuss the interrelationships between the different energy operations. We all feel collective responsibility for British Gas. We now have a different way of running the group.'

At the CBI conference last November, Laidlaw sprang a surprise when he announced he would not be taking his annual bonus, which could have been worth around £1.7m. It was a shock to the audience, since it had not been trailed, and to the Centrica workforce.

One person close to the Centrica management told me that Laidlaw's move caused a near mutiny, as his senior colleagues were furious at being made to feel indirectly pressured to follow suit, to waive their payouts. Laidlaw denies he acted on the spur of the moment and provoked a storm in the group headquarters.

'I'd made the decision some time before. I wasn't doing it for personal acclaim. The pay of the CEO had become an emotive issue. It was distracting from what we call the "trilemma", of having secure supplies of energy at affordable prices while meeting climate change objectives.' If, by forfeiting his bonus, says Laidlaw, he could get people to focus on these issues rather than his pay, then it was worthwhile.

He's adamant, however, that 'the bonus issue is personal to me. People who work here need to be rewarded properly - there's no question of them not receiving their bonuses.'

We've become, as a nation, he acknowledges somewhat wearily, consumed by the politics of envy. 'In the US, it's not even raised. In the UK, it's not a very edifying debate we're having, especially as we're trying to get our companies to compete on the world stage. In the US, entrepreneurs and big business are celebrated and supported; in the UK, there is scepticism, which can be unhelpful.'

What about the opprobrium surrounding his former school and house? He grimaces. 'I took the job knowing it was high profile. Where it crosses the line is when it affects my family (he's married to Debbie and they have four children). They're entitled to their privacy.'

He pulls a face at the madness of it all. 'It is always going to be controversial; I guess it's become more controversial. It's not because bills are going up 2% to 3% a year. The increase is actually lower than inflation, but the difference is that household incomes have been going down. Energy is a growing portion of household expenditure - and politicians are wanting to cash in on that.'

Is he fed up? There has been what looks like well-informed speculation in the press that this year will be his last. His smile now is broad. He was expecting the question.

'Every day, I look forward to trying to solve the equation of running Centrica and trying to do the right thing because we've got fantastic people here and they do not deserve it.' He pauses. 'You know, all the controversy does is to create a greater sense of loyalty among all of us to this business.'

Nevertheless, is he leaving? 'Chief executives can stay too long in their jobs. From time to time, management teams needs refurbishing.' So that's a yes, then? 'When the right time comes, I will seek to make an orderly succession.' He beams. 'And I'm not there yet. We've got a new strategy (to innovate, to allow customers to have greater control over their energy use, to integrate the natural gas business, and to increase returns through greater efficiency) and we don't have a finance director.'

As to what he will do next, he will not comment. He will be 59 next year and probably has one major corporate job left in him.

Apart from a brief period after Cambridge when he did his articles at City solicitors Macfarlanes, his entire career has been in energy.

'It's funny, the one piece of advice I had from my father (Sir Christopher Laidlaw, the former chairman of BP) was: "Don't go into the oil industry." The reason he said that was he was speaking in the 1970s, when we had the Yom Kippur war, Opec flexing its muscles and the price of a barrel going from $2 to $19. He was convinced oil was going to run out. It was a time when all we ever heard was "peak oil" and how it had got only 20 to 30 years left. He told me to go and get a professional qualification.'

He studied economics, and then switched to law. While at Macfarlanes, he realised that being a solicitor was not for him. 'Acting as an adviser had all the frustration of watching a game rather than getting on the pitch and doing it yourself.'

Laidlaw went to Insead to obtain an MBA. Then he joined Amerada Hess, the independent US energy firm. 'It was important I worked away from my father and made my own way. Working for Amerada Hess was great fun. It was a very entrepreneurial place and Leon Hess was inspirational. He'd been in the D-Day landing, he was in charge of fuel supply for General Patton, he went on to build a hugely successful oil business from scratch, then bought the New York Jets.'

He preferred, too, working in the US. 'The business environment there is better. Everyone is more positive, less sceptical. There's a "can-do" attitude, decisions are taken quicker.'

Which brings us back to the UK and now. Centrica is investing in fracking, which he hopes will be helpful in providing one source of alternative gas supply. 'We've got to get it into our heads that we need to develop our own supplies of energy, or else we will be overdependent on imports,' he says.

He'd like to think opposition in the UK has softened. 'Energy bills this winter were lower than last winter and the economy is growing again, which may mean household incomes will rise again and there will be less focus on energy.'

What we urgently require, he says, is for the animosity to cease and for our political leaders to concentrate on what really matters: addressing Britain's future energy needs. 'We need to re-establish cross-party consensus on the building of power stations. We need that debate. We can't wait until the election.'

In his spare time, he's a keen sailor: the yacht that ex-bp boss Tony Hayward infamously sailed around the Isle of Wight in 2010 during the Macondo oil spill disaster was co-owned by Laidlaw.

He's frustrated by Miliband's price freeze and the break-up call. 'It was a surprise to us because he's been energy secretary and knows the issues. He's highly intelligent but economically flawed. We've had conversations with him.

He has a view that the markets don't work and he wishes to control them. But the price of gas is set internationally. No matter how much he wishes to control it, he can't. It's like Miliband wants to take us back to the days of the nationalised British Gas, when it was a monopoly buyer from the North Sea and set the price. Those days are over.'

Investors, says Laidlaw, will turn away. 'If they can't get a return from investing in our energy market, they will go elsewhere.' Is that a threat? He shrugs. 'No, just the way it is.' We desperately need their backing for new power stations, he repeats, for reducing our reliance on imported fuels.

Don't get him wrong, though: Laidlaw is not unhappy. 'I love being in energy. It's got everything.' He laughs. 'It's more worthwhile than selling luxury goods. The margins may not be so good, but I'm doing something worthwhile and relevant, which is also why 40,000 people also enjoy working here.'

It's a positive note to finish on. If only our politicians could warm to him and his company: then we might have the energy policy this country so urgently needs.

FOUR CHALLENGES FACING LAIDLAW

Find the right person to succeed him at Centrica

Persuade politicians to focus on what really matters and switch attention away from him and his pay

For British Gas to continue to develop alternative supplies of energy and not be so reliant on imported fuels

Use the experience garnered from Centrica and decades at the top of the energy business to find another senior role

LAIDLAW IN A MINUTE

1956: Born in Kensington, west London, the son of Christopher (later Sir Christopher) Laidlaw, who became chairman of BP

1977: After Eton College, studies law at Gonville & Caius, Cambridge

1979: Qualifies as a solicitor with Macfarlanes

1981: Studies for an MBA at Insead and joins the Amerada Hess oil company in the US

1995: After building Amerada Hess's North Sea business, becomes president and COO

2001: Chief executive, Enterprise Oil, which he sold to Shell for £3.5bn

2002: ice-president of global business development, Chevron Corporation

2006: Chief executive officer, Centrica

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