Investors as bouncers

Non-exec directors at Carlton are right to be outraged at the ousting of Michael Green

by Patience Wheatcroft, business and City editor of The Times

Sir Sydney Lipworth thought he knew how the City worked. His business career had taken him from launching the Abbey Life insurance company with Sir Mark Weinberg to the chairmanship of Astra Zeneca, and the South African lawyer won membership of the Square Mile's ruling classes, first as chairman of the Monopolies and Mergers Commission and then as chairman of the Financial Reporting Council. But he was unprepared for the events that hit him this October.

As a non-executive director of Carlton Communications, the 72-year-old Lipworth found himself in a public pitched battle with his shareholders.

Victory went quickly to them, with the removal of Michael Green from the eventual chairmanship of a merged Carlton and Granada. The fallout could have an adverse effect on corporate governance for years.

At issue is exactly who runs a company. Lipworth and his colleagues at Carlton thought the answer was clear: its directors. It has always been accepted that they must be answerable to the shareholders, who own the company, and the main gripe in recent years had been that they were too supine, failing to take their responsibilities seriously. Suddenly, though, things have moved in the other direction with a swerve. Here was a shareholder publicly instructing the directors on what to do, countermanding their plans and undermining their position.

If Lipworth was shocked, two of his co-directors at Carlton were livid.

John McGrath and Etienne de Villiers found the behaviour of the investors intolerable. They were angry that other dissident shareholders had sheltered behind Fidelity's Anthony Bolton to the extent that, when the Carlton non-execs tried to set up meetings with shareholders to explain their position, the institutions refused to see them, saying they were leaving the matter to Bolton.

They were right to be angry. In all the recent debate on corporate governance, the emphasis has been on the need for communication between company and shareholder: institutions seemed keen to have senior non-executives with whom they could communicate. But here were directors offering to explain their thinking and being refused the chance to do so.

It would be understandable if all the Carlton non-execs resigned after what has happened. Effectively, the shareholders gave a vote of no confidence in the board when they vetoed their decision to put Green in as chairman.

Since that decision had also been approved by the directors of Granada, it was also a vote of no confidence in the Granada board, but the directors of that company staged an unedifying change of heart and kowtowed to Anthony Bolton & Co. Since this is a merger born of necessity, and the heads of the two businesses are known to harbour little affection for each other, Charles Allen, the Granada chairman, is unlikely to have suffered remorse in back- ing the move to ditch Green as chairman of their partnership.

But the Granada board members should ponder the implications. Does Sir George Russell, a former chairman of the Independent Television Commission and 3i, really feel that Bolton should be telling him how things should be done? James Crosby, CEO of HBoS, is deemed to be one of the brighter youngish things on the corporate scene: presumably he'd thought through the issues before going along with the proposed boardroom structure for the merged ITV. The same goes for David Chance, a former BSkyB director, Richard Clothier, the former CEO of Dalgety, and Nigel Rich, ex-CEO of Trafalgar House. Yet when Bolton told them he wanted things changed, they rolled over, apparently unperturbed by the implied criticism of their decision.

They had to be aware of the doubts over whether the combination of Green as chairman and Allen as CEO was the ideal for any company, including the merged ITV. The animosity between the two was well chronicled. It was also true that investors were angry with both men for the £1 billion that had been lost on the ITV Digital venture.

But despite having known of investor qualms, the boards of both companies decided that the Green/Allen double-act was the best structure for the merged ITV board. Together, Carlton and Granada had already succeeded in winning a more favourable ruling from the competition authorities than either could have expected.

Yet the investors have insisted, and won, change. I'm all for shareholders exercising their responsibilities, but here they have made well-qualified directors look irrelevant. John McGrath ran Diageo before taking on the chairmanship of Boots, and he did not leave until he was sure he had the right CEO in place. Etienne de Villiers ran Walt Disney in Europe before going into venture capital. He is now likely to decide that he won't waste his time being a non-executive director if investors will treat the breed in such cavalier fashion. He would be right to do so. Green's ousting sets a dangerous precedent.

Sign in to continue

Sign in

Trouble signing in?

Reset password: Click here


Call: 020 8267 8121



  • Up to 4 free articles a month
  • Free email bulletins

Register Now

Get 30 days free access

Sign up for a 30 day free trial and get:

  • Full access to
  • Exclusive event discounts
  • Management Today's print magazine

Join today