Credit where it’s due. After the accounting catastrophe in Italy and a big fine from Ofcom for overcharging for broadband access on the home front, BT’s remuneration committee has done the decent thing. It has awarded no bonus to chief executive Gavin Patterson and the outgoing finance director. It has clawed back bonuses from both men for past years because the Italian scandal caused a £268m overstatement of profits. That penalty will cost Patterson £338,000. His incentive package for this year has also been reduced because the share price is 25% lower than a year ago.
In a rational world, praise would be unnecessary. After BT’s hellish year, any bonus would have been outrageous, as Patterson happily agreed. Yet too many other companies, confronted by equal share-price disasters for investors, fail to apply common sense.
Elizabeth Corley, chair of Pearson’s remuneration committee, should call her BT counterpart, Tony Ball, for a lesson in what using “discretion” means. Corley’s crew dished out a £343,000 bonus to chief executive John Fallon after a year of record losses for the educational publisher, an astonishing decision that triggered a 60% revolt by shareholders.
Corley herself suffered an embarrassing 27% vote against her re-election, but Ball can probably expect to be returned at BT with the usual Soviet-style majority. Once upon a time, Ball’s own pay demands were deemed so excessive by ITV that the broadcaster dropped him as a candidate for chief executive. On this occasion, his hard-nosed approach was spot-on.
To complete the package, BT will terminate PriceWaterhouseCoopers as auditor. The aim is to get a new firm in place next year, which resolves Patterson’s previous odd vagueness about PwC’s future. The auditor can’t grumble. The alleged fraud in Italy, which was uncovered by investigators summoned from KPMG after a whistleblower’s tip-off, may have been sophisticated but its size was enormous. It shouldn’t happen at a large FTSE 100 company.
The smack of firm governance will give BT’s shareholders some comfort as they assess a year in which almost the only bright spot was the clean integration of mobile operator EE. The public sector market was weak, the global services division needs a job-cutting overhaul, and the TV business ended the year with a “soft” quarter.
Overall, top-line operating profits were £7.6bn, against an original goal of £7.9bn, and this year’s outcome could be £7.5bn. The differences sound slight but they mean this year’s dividend, while still being “progressive” in the jargon, won’t progress by the previously-promised 10%. The shares fell 4.5% to a whisker below 300p, a price seen as long ago as 2013.
Non-shareholders, though, have reasons to be cheerful. Broadband business Openreach, where Ofcom has applied its own governance shake-up by insisting on legal separation and a separate board of directors, will consult with rivals on how to invest more in fast fibre networks that run to customers’ doors. It’s impossible to tell yet how much extra money could flow, but this is exactly the type of development the regulator wanted to see. As with Patterson’s non-bonus and PwC’s exit, it’s what we expect.
An interesting rate review
Some say Mark Carney will never get the chance to raise interest rates during his term as governor of Bank of England, which is due to end in June 2019. The man himself clearly doesn’t like the idea that the deliberations of the monetary policy committee will be a snooze-fest as far as the eye can see. Carney warned that interest rates may need to rise sooner than investors expect if inflation continues to overshoot its target and if the Brexit process is “smooth”.
Well, yes, Carney’s scenario is plausible. The Bank underestimated inflation slightly in the last three months and, for all the argy-bargy with Jean-Claude Juncker, the market still expects the UK and EU to agree a deal. A responsible governor must also give fair warning to those credit-happy consumers who have been spending merrily.
Just don’t expect the market to take much notice of the Bank’s hawkish squawks. Forecasts for inflation in a year’s time were revised down slightly in Thursday’s report. Meanwhile, the Brexit uncertainty clouds everything. The consensus in the City is that it’ll be at least a year before the debate over raising interest rates becomes truly interesting again. That sounds about right.
… all the way to the prank
We can all feel a little sorry for Barclays’ Jes Staley for falling for the prank email purporting to be from his chairman, John McFarlane. Yes, there was a giveaway in the subject field – “The fool doth think he is wise” – but the initial deceit was cutely done.
The revelation in the exchange, however, was the degree of fawning gratitude that Staley was prepared to display after an annual shareholder meeting in which McFarlane came to the defence of his chief executive, who is under fire for seeking to unmask a whistleblower.
“You came to my defense today with a courage not seen in many people,” wrote Staley. “How do I thank you? You have a sense of what is right, and you have a sense of theatre. You mix humour with grit. Thank you John. Never underestimate my recognition of your support. And my respect for your guile.”
Maybe the gushing language is an American thing. Or maybe Staley applied the lard because he thought that is what McFarlane might want to hear. But the tone jars. A chief executive who is quite so thankful for his own survival looks a little too insecure.
