UK: THE DAVIDSON INTERVIEW - BRIAN STAPLES.

UK: THE DAVIDSON INTERVIEW - BRIAN STAPLES. - Fancy offices in Mayfair and fat-cat rewards for executives have hit the headlines rather more than the success of United Utilities' chief executive in pushing the privatised utility into the FTSE Top 50. Som

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Last Updated: 31 Aug 2010

Fancy offices in Mayfair and fat-cat rewards for executives have hit the headlines rather more than the success of United Utilities' chief executive in pushing the privatised utility into the FTSE Top 50. Some, writes Andrew Davidson, say this is the result of political naivety in an inexperienced manager.

For Brian Staples, chief executive of United Utilities, the general election cannot come soon enough. He knows the result he would like, too: a Labour victory, please, a nice spell in opposition for the Conservatives, and an end to the antics of publicity-hungry politicians and eager journalists doing all sorts of things outside UU's offices and AGMs.

Has he gone mad? Given that the Labour Party believes the privatised utilities work hand in glove with the Conservatives and is intent on organising a windfall tax to drain their profits, and given that Staples's company, which controls North West Water (NWW) and Norweb, is one of the biggest of the lot, you might think he would shift mountains to keep Tony Blair out of Downing Street. Not a bit of it. With Blair's team concentrating on the responsibilities of office and the pro-privatisation Tories in opposition, he reckons he will get some peace.

Well, it seems a reasonable enough proposition, if a little scheming.

And you can hardly blame him for wanting to pull his company out of the political limelight. The week before we met, Staples had had Labour employment spokesman Ian McCartney posing for photographers with an actor in a fat-cat-suit outside UU's swish new Mayfair headquarters. In July there had been a similar costume display to highlight UU's executive salaries at the company's AGM in Manchester. Then there was Michael Meacher's attack on water companies over sewage on beaches in August, which culminated in a furious row with Staples's chairman, Sir Desmond Pitcher, on BBC Radio 4. And all this after Staples had thought he was working something of a charm offensive on Labour MPs. It makes you wonder what the politicians say to him when he's buying them lunch. 'They say not to take it personally,' shrugs Staples.

It also makes you wonder just how well Staples is coping with the media barrage. A lifelong Midlander, 28 years in the construction industry with one outfit, the road builder Tarmac, Staples was a surprise choice for North West Water boss in 1994. He had a solid reputation as a big company divisional head but no experience whatsoever as a plc chief executive.

Since then, despite being virtually invisible to the public (his chairman generally fields the flak), he has so swiftly plotted a new direction for the utility - merging with Norweb, shedding staff, switching emphasis to expand non-regulated income, pushing into the FTSE Top 50 - that he surely can't be surprised by the ferocity of some of the attacks on UU.

For as he himself admits, the argument for privatising utilities is hardly won yet.

We meet in UU's soon-to-be-vacated London outpost in Westminster, to which Staples commutes from his home in Wolverhampton about twice a week; otherwise he is at the company's main base in Warrington. The third floor London offices are cramped, unflashy, and indeed not quite what you would expect from a multinational turning over £1.8 billion a year (with £273 million of pre-tax profit), hence the planned move to bigger premises in Mayfair this autumn. Staples, his jowelly face permanently beetled into a cautious expression, looks a little anxious as we settle round the large boardroom table near his desk, uncertain, perhaps, just when I am going to bite him. UU's corporate communications chief had told me before we started that the group now has no fewer than four different public relations firms working on its business. The mood is that of a company under siege.

It is, of course, all a problem of perception: namely that many consumers feel that running a utility is as easy as (to use the industry's favourite metaphor) running a bath, and that the commodities involved are simply too essential to risk by turning their suppliers into aggressively competitive corporations. We need water to live. We need electricity to cook, heat, see, whatever. There is constant demand. The supply system is in place.

It is not exactly a marketing miracle that utility companies are being asked to perform. Yet once privatised, they put their prices up, they boost their profits, they pay their executives and shareholders more, then a few botch up the supplies and wonder why customers cry foul. A fair summation?

'We do have an element of our business that doesn't have to fight for its income stream,' agrees Staples, 'but conversely it gets a lot of problems with that monopoly.' Not problems with the bottom line, surely? 'No, not if you are happy to sit there and just accept the bottom line the regulator gives you. But if you want the group to be as successful and profitable as can be, then all the drivers are just the same as in any other business.

The change management tasks are just bigger.'

It is not, he adds, just about downsizing, but about retraining and changing the mind-set of managers who have been used to working in the public sector.

'Effectively empowering people to get on and make decisions is the most difficult thing. The public sector is a pass-it-upstairs, don't-let-this-decision-stop-at-your-desk culture. We are getting our people to bite the bullet and make the decision and understand they are not going to get sacked for getting it wrong. It is a tremendous task in its own right.'

When Staples came into North West Water in April 1994, he immediately instigated a wide-ranging strategic review of its activities. His conclusions were twofold: the water business was much more complicated than most people realised - it is an essential service hemmed in by environmental legislation and regulatory safeguards with a huge amount of attention taken up by just dealing with the customer - and the company's balance sheet, one of the biggest along with those of Thames and Severn Trent, was highly inefficient. In particular, it was producing a lot of cash but failing to do much with it. 'We had a balance sheet that was under-geared, we had the financial capability to do other things, we needed to look around and see what we could do,' says Staples. 'If you have got that strength, and you can't determine what to do with it, then you should give it (the cash pile) back to shareholders. But if you are a pro-active manager and part of a pro-active board, then clearly you look for something that is more earnings-enhancing for shareholders than merely giving them back money. I'm a strong believer in sticking to one's knitting, therefore where to go to develop the group was to develop the core business, which was running utilities.'

Hence the decision to acquire Norweb, a £1.8 billion move which raised a few eyebrows, and not just because some thought Staples paid too much.

Where's the overlap? Principally in the customer interaction and the geographical link, says Staples. The technical side obviously stays separate. 'The press had a fun time with it - water and electricity - but there are plenty of other multi-utilities in the world.' What started as a friendly merger rapidly became a takeover as NWW's value leapt following Staples' presentations to the City, and Norweb's value dropped after the regional electricity companies tangled with their regulator Stephen Littlechild. Only one former Norweb director survives today on the UU board.

The company that has emerged is very much Staples's creation, right down to the name, which he thought up. He has broken the group into six divisions, spinning off as much as possible out of the grip of the regulators.

One of the divisions, retail (which comprises Norweb's electrical goods shops), has been earmarked for sale. The other five - regulated utility, energy and telecommunications, international, facilities management, and process equipment - are organised into an approval delegation and reporting structure which he freely admits is based on Tarmac's. He is, he says, a huge admirer of the old Tarmac boss, Sir Eric Pountain. 'Eric had a gentle touch which I like to think I occasionally achieve. He had a great expression at budget time: "Do you think you could do a little bit more for me, flower?" It was a Black Country expression. If you were in favour, you were a flower. I never knew anyone who declined.'

Yet whereas the charismatic Pountain, who rebuilt Tarmac in the '80s, led loudly from the front, leaving his subordinates to get on with hitting their targets however they pleased, Staples is far more of a hands-on manager. That way, according to one ex-Tarmac executive, he ensures his ideas get through. Nor is he frightened of new approaches to old problems.

Staples says he genuinely wants to create a caring, progressive company that looks after its employees, customers and society at large as well as its shareholders. Sound familiar? No wonder, to some, Labour's attacks on UU have a certain ironic piquancy.

Of course, Staples's backing for stakeholding could all be conjured up to increase Labour's discomfort, but he is not, by reputation, a Machiavellian manager. Those who have done business with him in the past describe him as a team builder and a thinker, a shrewd, warm man whose standards of conduct in a tough industry were always unimpeachable. 'He's a very good manager and a very decent man,' sums up Jim Harrower, managing director of Group 4, who first met Staples while working on prison construction in the late '80s. 'You don't need a contract with Brian, just a handshake, and when you build up a relationship with him, it sticks.'

Staples has lived and breathed construction since an early age. The youngest of three brothers, he was born late into an engineering family: his father, a concrete expert, was 50 when he was born, his brothers were 13 and 15 years old respectively. Brought up in Northampton and Rayleigh, Essex, Staples went straight into the Sandberg engineering consultancy at 18, having 'messed up' his A levels at the local grammar school. He remembers his father was adamant that he should retake his exams and try to get into university, but he refused. 'I felt I had wasted enough of my parents' money and took the option of going into work. I think the fact I didn't go to university was for many years something of a spur to me.'

He joined Tarmac as a materials engineer in 1966. Three decades later, having fought his way almost to the very top, he met Sir Desmond Pitcher while co-ordinating the construction of the Mersey barrage. When Pitcher, a former Littlewoods and Merseyside Development Corporation boss with deep roots in the region, started looking for a chief executive for NWW, Staples was - with one other - top of his list.

Was it not a risk to appoint a man with no experience as a FTSE 100 plc boss? Pitcher says not, and points out that anyway, it is very difficult to prise away any current FTSE 100 boss. 'I was looking for a team builder,' says Pitcher. Staples fitted the bill. He was rumoured to be unhappy working for Tarmac's new boss Neville Simms, he had construction experience (a large part of NWW's budget is spent on building and repairing) and had shown by the way he worked his way up through Tarmac that he was determined and ambitious, qualities equally essential for the rough ride that any utility boss was likely to get.

But of course nothing really prepares you for running a privatised utility.

Small stories get distorted. Politicians twist figures. Keeping the balance between pleasing the public and the City, neither of whom is really that enamoured with utilities, is fraught with difficulty - the public, because it is always being told that Staples and his team are fat cats, and the City because utilities still have a lot to prove. Despite the fact that analysts expect UU's profits to double by 2000, many will always see it as a bond-type investment while its two main businesses remain firmly in the hands of the regulators. A further worry is that, having decided to expand its utility interests and having pushed gearing to nearly 90%, UU is now very vulnerable to anything a future Labour government might do to dent the utilities' profits. That is why UU's shares are out of favour at £6. One broking house, NatWest Securities, summed it up simply this spring with the headline on its UU analysis: 'Unloved'.

So is Staples a fat cat? It is a curious slur to throw because neither he nor his chairman actually earn that much (upwards of £300,000) compared to other FTSE 100 bosses. But questions have been raised about the UU team's political nous. Plans for new, fancy offices in Mayfair and large, long-term incentive schemes for executives have certainly seemed rather ill-timed.

Then there were the special bonus payments revealed in this year's annual report to reward senior staff for their hard work during the Norweb takeover.

Staples received £48,000, finance director Bob Ferguson £32,000, and regulated utility head Derek Green £18,650. These kind of handouts appear incautious, to say the least, in the current climate. Not only did they play up to the anti-privatisation lobby's worst fears, but they annoyed the City too, where UU shareholders had seen little benefit from the takeover as the share price had gone down. What right had the executives to reward themselves? Surely they are paid big salaries for hard work in the first place?

'Um,' says Staples. 'Let me tell you the background. I put forward the recommendations for bonuses for the team that worked with me on the acquisition, and I don't have the slightest compunction about defending them, because people did work extraordinarily hard, and don't forget, business didn't stop during the period. And I'm pleased to say we didn't drop the ball in any of the areas of NWW's original business. People worked colossally long hours. OK, I can understand the view that that is why people are paid a lot in the first place, but that wouldn't stop me recommending these bonuses.' He does, though, acknowledge that it was an error of judgment on his own part to accept the bonus. Was he naive? He laughs. 'No, there are just occasions when you know some things you do will cause a flurry but you do it because of the principles involved. Incidentally ...'. Staples moves off the record to remind me of other bosses who have been rewarded for successful takeover actions. And as for big salaries: 'We are one of Britain's top 50 companies, we have to pay the going market rate for our executives.' And, he adds waspishly, he still earns rather less than the boss of Tarmac does for running a considerably smaller company.

But not for long if the much-criticised, long-term incentive schemes kick in. Staples sighs. 'My ceiling is 87.5% of salary. To hit it, I have got to put UU up into the top 25 companies in the UK. If you look at the possible impact of a windfall tax and changes in regulation, I'll be very pleased to earn that. What it means in terms of shareholder returns is that I will have doubled the value of the company in three years flat.

In those circumstances, I don't think they would be too disappointed with paying me my 87.5%.'

Yet, as with so many incentive schemes, the targets aren't actually as unrealistic as the scheme's beneficiaries insist (this is why the targets are set, after all). UU, as Staples admits, is poised for massive expansion over the next five to 10 years. Everybody expects the utility sector to shake out, leaving four or five major players, one of which is almost certain to be UU; it is already looking to expand into areas of the UK contiguous to the North-West. Overseas, the opportunities, both in terms of selling operational and privatisation expertise and of investing in new businesses, appear limitless. 'We have more good investment opportunities overseas than we know what to do with,' grins Staples. Then there is possible expansion of the company's interest in gas and telecommunications - already one of its divisions has conducted a successful experiment running a telephone service on the electrical mains, an innovation which could have a huge impact on the telecommunications market. And there's UU's facilities management division, Vertex, which is already bidding for outsourcing work from local authorities, government departments and health trusts.

Staples has even promised 11% real growth in UU's dividends, already 33p, in the year, and wants to increase unregulated earnings to 20% of profits.

The main driver of big dividends is, of course, the desire not to leave too much cash lying around for a windfall tax to sweep up. So why not spend more on, say, repairing leaky water pipes? 'Well, we are,' says Staples, moving cautiously as he senses dangerous ground. Why not spend even more, then? 'We already have a discretionary investment programme of £375 million by the year 2000,' he says. 'We judge it to be enough at this time. We are devoting about £25 million of our profit to giving customers rebates and guaranteed service schemes. That's significantly more than anyone else.'

But is it enough? It's a circular line of question-and-answer that is as long as a London ring main. The problem for Staples, of course, is that he wants to manage UU like any other big British corporation - but it isn't, it's abnormal. It's a privatised utility. Expectations are different.

And many in the City, which should provide natural supporters, remain uncertain about Staples's style and his strategy. One analyst cites the doubts over the cost of the Norweb acquisition and voices concern about the board's political naivety. 'Staples seems to be on the right track but people are still raising questions about some of the decisions being made,' the analyst concludes. The worry is that in their excitement at building a big company, UU's managers might lose sight of reality.

The interview nearly over, I ask Staples if there is any area we have missed. He says, well, it might be worth talking a little more about his desire to develop UU into a truly world-class company. It is, he explains, bound in with his commitment to the Tomorrow's Company work, and his views on the importance of stakeholders. I ask him bluntly: how do we know that he means it, and it isn't just so much guff from a company with a serious image problem? 'You know it's not guff,' he says slowly, 'if people actually deliver on it. It is a large area of our focus in developing the group.

We are in the forefront of the Tomorrow's Company work, helping to develop the measurement of it.'

A month after we met, as this article was going to press, the Mail on Sunday revealed that Staples had left his third wife to move in with Sir Desmond Pilcher's personal assistant. 'The fat cat who ran off with his boss's secretary' ran the headline gleefully. It has nothing to do with Staples's business abilities, of course, but it is not a great way to keep your company out of the limelight.

Biographical Notes

1945

Born 6 April, Northampton

Educated Sweyne Grammar School, Rayleigh, Essex

1966

Materials engineer, roads division, Tarmac

1980

Measurement services, Tarmac National Construction and Tarmac Construction International

1985

Director of measurement services, Tarmac National Construction and Tarmac Construction International

1987

Executive director of Tarmac National Construction and director of Tarmac Construction International

1988

Managing director of major projects division of Tarmac Construction 1991

Managing director, Tarmac Construction 1992

Chief executive, Tarmac Construction

1994

Chief executive, North West Water Group plc

1995

Chief executive, United Utilities plc

What People Say

'Brian is there to run the business. I am there to protect it. The only way you can run a good business is as a team.'

Sir Desmond Pitcher, chairman of United Utilities

'Brian is good with people. You will find all the people who worked for him at Tarmac are very loyal to him. They might not have liked him all the time, but they respected him. Like all these kind of guys, he can be hard and ruthless when he has to be.'

A former Tarmac colleague

'Making him the boss of a big plc was less of a risk than some think.

Sir Desmond knew him, he could see Brian had a strategic mind.'

Jim Harrower, managing director, Group 4

'One of his great strengths is spinning off ideas. Often he will come up with something that is completely off-the-wall but is 100% successful.

He is pretty pro-active and he likes to be involved in bringing those ideas to reality.' Gordon Waters, managing director, international division, United Utilities, who followed Staples from Tarmac

'He came with a good reputation from Tarmac and he's got the full support of his chairman, but I think the jury is still out on the Norweb takeover.' An Analyst.

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