As a consequence of taking huge bonuses, chief executives must take the rap when things go wrong
Sir Christopher Gent, who can lay a fair claim to being the greatest British industrialist of his generation, may spend his day at Vodafone's annual general meeting in the pillory because of his latest award of options. Is it fair? Maybe not. Is it justified? Almost certainly.
Gent has spent the bulk of his career at Vodafone, and as chief executive has transformed it from a division of a relatively obscure British electronics company called Racal into one of the world's biggest telecom companies, and briefly, before its share price started falling, into Britain's biggest company.
He might expect shareholders to gather gratefully at his feet, perhaps proposing a round of toasts to the magnificence of his vision, the steeliness of his temperament, the cunning of his strategy, and the wisdom of his management. The meeting might end with a collection being taken to build a statue of the great man ' clasping a mobile to his ear, naturally ' for the spare plinth in Trafalgar Square.
It is not to be. He may even suffer the indignity of seeing a sizable block of votes cast against his pay. Gent is far from alone, however. On one of Surrey's lusher golf courses sometime soon, he could commiserate with Lord Simpson, boss of Marconi, who has only just tossed his designated successor, John Mayo, to a pack of baying shareholders. Later in the day, both men could swap notes with Graham Wallace, chief executive of Cable & Wireless, who was also given a rough ride by shareholders over his options package.
At British AGMs right now ' and soon at AGMs across Europe and US ' there is a lot of anger. Shareholders are bewildered, confused and hurt by the ride they have been through in the past two years. They are now using any available forum to vent that anger on the chief executives who have disappointed them. That may not be fair. But is it healthy?
In Britain, as in the US and to a lesser degree in Europe, the corporate landscape has changed in one important and subtle way since the last time there was an economic downturn. It is now regarded as routine for chief executives to be paid several million pounds a year for showing up to work in the morning.
If they do anything out of the ordinary ' like mounting the first successful hostile takeover in Germany in Gent's case ' they can expect to add on another few million as a bonus. If the share price goes up, which, it could be argued, was just part of their job, they get another big bonus on top of that.
All that money has come at a price: you are expected to perform, pretty much regardless of how difficult the market might be. It may not be your fault that the company is going down the tubes ' but the consequence of taking all that loot is that you are going to take the rap for it anyway. That often isn't fair. But then, it probably wasn't fair either that the average chief executive decided to start paying himself a hundred times rather than 10 times the salary of the average employee.
Take John Mayo (and keep him, Marconi shareholders would no doubt add). Between them Simpson and Mayo cooked up a strategy for taking Marconi out of the low-growth defence businesses where their predecessor Lord Weinstock had taken it, and moving it into high-growth telecom equipment market. They then went out and paid first-division prices for a series of second-division telecom manufacturers. The results were predictably miserable: when the downturn came, they were hit as hard as anyone, and they had huge debts as well.
In truth, though, something needed to be done. Defence was a declining industry, and Marconi wasn't even a world leader within it. The timing might have been poor, and the strategy botched, but the thought could well have been the right one.
Likewise Gent. His pay might be the issue that is being raised this month, but what is really troubling his shareholders is the decline in Vodafone's share price from 399p last year to just over 140p now. Over two years, Gent spent £200bn in shares, mostly, to create a company worth £100bn. Along the way, £100bn went missing.
He certainly made mistakes. But he has created the leader in its industry. In 100 years time, Vodafone will probably still be a force to be reckoned with. Of how many other European companies to have emerged in the last decade is that true?
Few chief executives can complain about a system where every mistake is punished by instant dismissal. They manufactured the cross, they now have little choice but to bear it. Yet one consequence, once the current downturn is over, may be a timid and frightened executive class, shy of initiative, hesitant to try out anything new.
That won't be perfect either. Maybe we should go back to the system, where chief executives were more modestly paid and expected to deliver more modest targets. In business, however, as in life, once the clock has ticked forward, it is rarely possible to turn it back again.
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