UK: PROFILE - MICHAEL HEPHER - BT MANAGING DIRECTOR. - Before joining BT, the group managing director berated it for bad service. Now, profits are up, prices are down and, he says, service is 95% right.

by Malcolm Brown.
Last Updated: 31 Aug 2010

Before joining BT, the group managing director berated it for bad service. Now, profits are up, prices are down and, he says, service is 95% right.

Michael Hepher wasn't exactly thrilled when he was approached in 1991 to see whether he'd be interested in becoming group managing director of BT. He'd had appalling service from the company, not once but several times. Five years ago at Christmas, for example, he spent ages in a draughty phone box pleading unsuccessfully for someone to get his telephone working again so that his wife, Janice, a Canadian, could phone home. It was all to no avail, but what really enraged Hepher was that the BT person at the other end of the line obviously couldn't care less.

'I wasn't an admirer of the company,' he says with studied understatement, 'so when the idea of coming to run the operations of BT was first mentioned I didn't exactly jump down the phone with enthusiasm.' In the end, of course, he weakened.

'It sounds as corny as hell, but it was something about the challenge. I said to myself, "If I say no to this, will I spend the rest of my life wondering what it would have been like?" ' Hepher is an actuary. He was bright at school, obvious Oxbridge material, but decided against university when, as a sixth-former, he read the findings of the 1961 Royal Commission on the earnings of the professions. Actuaries were top of the heap.

'Up until that time I scarcely knew what an actuary was. I thought I should find out a bit more about it when I discovered it was well paid.' He joined Provident Life in Bishopsgate but was very ambitious and soon worked out that if he stayed in London and played 'dead men's shoes' it would take him decades to get to the top. So he looked around overseas. If the UK was too conservative, America was just a bit too much the other way. Canada, on the other hand, looked like a good compromise. He shipped off there, promising himself that he would be running a company by the time he was 30.

He missed the target, but only by a year, and by the age of 31 he was president and chief executive officer of Maritime Life, an offshoot of the world's largest mutual insurer, John Hancock Mutual.

He loved Canada, and even became a Canadian citizen but was lured back to Britain in 1979 by ITT, which wanted him to run Abbey Life, a company that had revolutionised the insurance business with its direct sales of unit-linked policies.

When ITT sold the company by a public flotation in the mid-'80s Hepher very quickly realised that, profitable as it was, it probably didn't have a secure long-term future if it remained unchanged. There were far too many life assurance companies around and new forms of competition were emerging from the banks and the building societies.

In an 'if you can't beat 'em, join 'em' frame of mind he decided to look around for a merger with a major bank or a building society.

'The banks and building societies had huge customer bases with a strong franchise and if we could bring our proven sales and marketing techniques into conjunction with a very large customer base this would be real synergy.' Hepher approached Lloyds Bank in the spring of 1988 and eventually worked out a deal under which Abbey merged with the instalment credit, estate agency and other non-banking bits of Lloyds to become Lloyds Abbey Life. Hepher was chairman and managing director. He had had a difficult time persuading the City institutions that the hybrid would work but when it did they became big fans and even began to speak of him as a possible successor to Brian Pitman as chief executive of Lloyds.

The possibility had occurred to him, too - 'It was on my mind that in the fullness of time I might have played a fuller role in Lloyds Bank' - but the BT headhunters got there first.

If Hepher seems at home in BT it may well be something to do with his training as an actuary. Actuaries are experts at judging probabilities, but probabilities attached to large numbers, of which, of course, there are plenty at BT. That same actuarial turn of mind would probably, he suggests, make him a very bad entrepreneur. Entrepreneurs deal with much more limited, 'either/or' sorts of decisions.

'The trouble is if somebody presents you with one situation, that situation is either going to happen or it's not going to happen. You can't apply a percentage to it.

So the downside of the actuarial training is that it does not make you particularly prone to taking risks on one-off situations.' Among the big numbers that Hepher has had to get used to at BT are the tens of thousands who are being made redundant. The popular press has become expert at presenting BT as some sort of amoral corporate giant.

On the one hand, it makes obscenely high profits while on the other, it is sacking many thousands of long-standing, loyal employees.

At one time, BT employed 240,000 people. By the time Hepher arrived it was already down to 205,000. The total is now around 165,000 and the cuts look likely to continue for several more years. Yet the profits roar on - onwards and upwards. Hepher isn't embarrassed by criticism of BT's profits. He just thinks it is misconceived.

'Our profits in proportion to our size are not obscene at all. We plough back into the economy of this country about £3 billion a year in capital investment, something like 7% of all the capital investment in the country. People forget that. They assume that I and Iain Vallance (the chairman) just sit here with a great mountain of profit that we stick in our pockets. But that is not the way the world is. We need to make that kind of money to invest in the best telecommunications network in the world.'

As to the redundancies, getting BT's numbers down is vital if it is to be efficient enough to fend off the ever-increasing competition. The company is going through major change. It is facing competition from Mercury, the cable companies and new licence holders of every shape and size. On top of that, the regulator is squeezing prices down and generally interfering in lots of different ways.

The combination of these two factors - keener competition and greater pressures from the regulator - has become more obvious to the public in the past few months, first with the introduction in December of lower weekend call charges, then, last month when BT abolished peak-rate charges for local and international calls. And the competition is likely to become even more intense. Within hours of Hepher announcing the abolition of peak-rate charges, Mercury announced the removal of its equivalent 'prime rate'.

To compete in that sort of world, companies need to be constantly examining their costs. 'We have a choice,' says Hepher. 'We either rise to those challenges and have a very healthy but very different company by the turn of the century, or we succumb to them and become the next IBM, the next Midland Bank - companies that were once great but somehow didn't respond to the market realities.' Telling people that may not make them ecstatically happy about their own job security, he says, but it helps them realise that BT's management isn't just whimsical, that it isn't cavalier about the future of its people.

Solving BT's people problems was one of the two major jobs Hepher agreed to take on when he joined. The other, very apposite when one considers his own personal experiences, was improving the service to customers.

He thinks, and will back it up with statistics, that BT is getting better all the time and that the proportion of what it does well is now very high. But then he would say that wouldn't he? Or would he? This, after all, is a man who says he hated BT before he joined because of its bad service. If BT now gets right 95% of what it does - which is what his statistics tell him - that still leaves 5% that's wrong and in a company as big as BT, says Hepher, that 4 or 5% translates into 'horrifyingly huge numbers'.

He gets fewer press headlines now about 'Bungling BT', 'but we've not yet cracked the last bit as well as we must. We've got to get to the point where every last customer really matters.' Some of the more intractable problems, he says, are in areas where over-rigid working practices agreed with the unions many years ago limit BT's flexibility. But it will get there eventually.

'I consider it personally outrageous', he says, 'that if your phone breaks down on a Friday afternoon before a bank holiday that the working practices say we really can't do much about that until next Tuesday. We should be providing a seven-days-a-week service, and we are going to.

'Another example is that customers who aren't at home during the day will often say it would suit them better if we could come after six in the evening. It's a perfectly reasonable request. We've got to accommodate that.'

Presumably he himself now gets a first-rate service from his own company but he still loathes bad service wherever he finds it. 'I deeply hate bad service. I hated it before I came here. I hated BT when they treated me the way they did. My blood pressure really does rise. When I go into a shop and say "I wonder if you could help me with this" and you can just sense that the assistant couldn't care less (there's a sort of shake of the head and you're a nuisance) my gut wrenches, I just can't stand it.'

If there are still some little irritations like this in life, the pay he takes home from BT probably helps soften their impact a bit. It is not quite a telephone-number salary, but not far off.

'There's no point in being coy about it,' he says. 'My salary is £415,000 and my bonus is about £100,000.' He has no difficulty finding things to do with it.

'We've got three kids in private education - that's a way of spending vast sums of money - a nice house, three cars, good holidays. Just a bit of everything. But I don't do anything outrageously exciting. I don't have a yacht in the Caribbean or a ranch. I don't feel I'm living a high-roller life.' He also saves a bit.

'If this place ever finds me out and sacks me,' he says laughing, 'I'd like to have a few pennies put aside.'.

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