ALEX BRUMMER: Return of a 'pig' called Cedric... No rational justification for the way BG board approved £25m pay package for prospective boss
When senior bankers, often reviled for their own excessive earnings, find a pay deal to be extraordinary and beyond the pale then you know something is really wrong. But the sheer scale of the pay for the new BG chief executive was the talk of a private City dinner this week.
There is no rational justification for the way in which the board of oil explorer BG Group approved a £25million pay package for its prospective chief executive Helge Lund with utter disregard for Britain’s hard-won corporate governance codes.
One of the great ironies in this is that such a row should break out at BG Group. For those who have forgotten, BG is the former exploration arm of British Gas until it was spun off in a demerger in 1997.
Oil explorer: BG Group
It was at newly privatised British Gas that the first major shareholder revolt over pay broke out in 1994 over a 75 per cent increase to then chief executive Cedric Brown, whose pay soared to the magnificent sum of £470,000.
That is a number short of the relocation allowance that BG is paying the former Statoil boss Lund.
It was out of the British Gas pay row, which saw a pig named Cedric paraded by shareholder protesters outside the company annual general meeting, that led to the first corporate governance initiatives in Britain. Reports, first by Sir Adrian Cadbury, of the chocolate family, and then by Sir Richard Greenbury, of Marks & Spencer, sought to rebuild the reputation of Britain’s boardrooms – to make them more responsive to investors – and to put boardroom pay on a rational basis.
The BG affair shows that the current crop of non-executives on the BG board have learned absolutely nothing from the history of their own company or from years of work by institutional shareholder groups and enforcers such as the Financial Reporting Council.
Some of the BG board, it could be argued, have insufficient experience to recognise the hole they were drilling for their new chief executive.
Others, like Baroness Sarah Hogg, a seasoned veteran in the City’s boardrooms and a former chairman of 3i, cannot but have been aware of the outrage that is now being unleashed and which could unseat the board’s choice and, potentially, the chairman too.
Fundamental to the problems that now confront BG are two factors. The first is a back-scratching culture of networks where the same small cadre of directors vote on each other’s rewards.
Secondly, and more seriously, is the role of the remuneration consultants to whom much of the detailed work is devolved. With each reward package they create complex matrices which seem to justify ever-higher salaries using the broadest possible global comparators.
It is something of a confidence trick and an easy way in which independent directors can slough off their responsibilities.
Shameful.
Hampton’s court
If finding a chairman for the child abuse inquiry is proving one of the most fraught tasks for the government then next down the list is persuading someone to become the next chairman of Royal Bank of Scotland. The current chair, Sir Philip Hampton, wants out and is due to join the board of GlaxoSmithKline on January 1, 2015, as a non-executive director.
Ideally, Glaxo which has its own share of reputational problems at present – despite some sterling work on Ebola vaccines – wants to slot him in as quickly as possible.
Finding a qualified person to head any bank, untainted by the scandals of the last decade or so, is hard enough. But equally difficult is finding someone able to navigate through the political shoals of bonuses, abusive practices of RBS’s Global Restructuring Group and eventually the return of the 84pc taxpayer-controlled bank to the market. That will have to wait until after the election.
The two most promising places to look are the Anglo-Saxon commonwealth, that already is doing sterling service with Mark Carney, Mark Wilson (at Aviva), Moya Greene at the Royal Mail, among others, or former regulators.
It could be a job for one of the former candidates to be governor of the Bank of England Lord (Adair) Turner, Sir Howard Davies or Paul Tucker. GSK, meanwhile, is being kept on tenterhooks.
Less convenient
You have to feel a little sorry for the hapless Dalton Philips of grocer Wm Morrison. Hidebound by the past, the company launched itself into an expensive online deal with Ocado and started on a rapid programme of convenience store openings in the hope of properly competing on the high street.
Rivals were quick to criticise both initiatives on cost grounds.
They appear to have been right. Morrisons has now decided to close six of its convenience shops, including one on Kensington High Street in West London, because it is uneconomic.
Funny that. It shows how careful the grocers need to be in seeking to compete on a new front.
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