City & Business: Ten Thousand Snouts in Company Trough

Article excerpt

CEDRIC BROWN must be glad the week is over. The British Gas chief executive's 75 per cent pay rise to pounds 475,000 has made him Public Enemy Number One. I can't recall any businessman's pay packet sparking quite such national outrage. His good fortune touched a raw nerve, and not just on the Labour front benches. It's rather ironic for a man who is the antithesis of the lavish sybarite. Brown is a modest, blokish sort whose idea of a good time is one spent discussing gas.

But the salary hike proved to be a pay rise too far. The electorate is fed up with seeing mediocrities who run privatised utilities stumbling into vast fortunes, fed up with the ministers who privatised those businesses later joining their boards, fed up with the price rises they have to shoulder to pay for it all. Anger about greedy management is not confined to privatised companies.

John Maples, the Conservative deputy chairman, had it exactly right in the party document so embarrassingly leaked last week. Even estranged Tory voters are getting sick of what they see as "the rich getting richer on the backs of the rest".

The public perception is increasingly of a charmed circle of businessmen and advisers who conspire to keep themselves in clover. They sit on one another's boards. They act as consultants to one another's companies. They advise on deals for the sake of deals, sometimes cobbling companies together, sometimes breaking them up, not caring which so long as the fees come in. Sometimes it's customers who are shortchanged, sometimes shareholders, sometimes employees, sometimes taxpayers. But the coterie of top managers and their advisers never seem to release their grip on the gravy train. Even when they lose their jobs, they get six-figure pay-offs.

In Victorian times we had the Upper Ten Thousand - the aristocracy and land-owners who owned and ran the country. The 1990s seem to have spawned another plutocracy - and one which in the eyes of the public is not much more deserving than its 19th-century predecessor. Count the directors of our big quoted companies, add the partners in the law firms, auditors, brokers and merchant banks who advise them, and you get to something like 10,000 people.

Rarely has this latter-day Upper Ten Thousand been regarded with such suspicion. It has got to the point where every large deal needs to be scrutinised to determine what's really driving it. Take the plan to merge and float the Halifax and Leeds building societies. Is this ambitious project primarily driven by the desire to give members better and cheaper financial services? Or is the true motivator the pounds 100m in fees the advisers stand to collect, and the bonanza of shares and options the senior managers will inevitably be awarded?

As for British Gas, its inept handling of the Brown affair should be held up as a classic case study in lousy public relations. The story was deliberately leaked by British Gas at the highest level because - unbelievably - it thought its reform of executive remuneration would win it Brownie points! No one appeared to consider that gas price rises announced 48 hours earlier would hardly put consumers in a sympathetic mood.

Monday saw the pathetic spectacle of the cornered Brown on prime-time television trying to defend his own pay rise. Of the remuneration committee - the group of five non-executive directors who actually decided and sanctioned the pay rise - there was not a peep. Not one of them was prepared to lift his head above the parapet and try to support the chief executive.

Ultimately the responsibility lies with Roger Boissier, chairman of the committee. …