The Human Factor

Management Today, December 18, 2002 | Go to article overview

The Human Factor


So endemic has the pay-off concept become that investors are accustomed to paying large sums to executives who leave because they fancy a change.

A terrible coyness surrounds most executive departures. The chances of anyone in corporate life doing 'an Estelle' are about as likely as the prospect of the former minister being invited to lead an expedition to the north pole.

Executives go quietly, clutching as much money as they and the company deem necessary to ease the process. No matter how dire their performance or how fraught the boardroom rows, shareholders are supposed to accept the bland explanation that the personnel change is entirely amicable and no reflection of problems within the organisation.

Hence Sir Patrick Gillam remained seemingly unaware of the crescendo of City voices calling for the head of his chief executive at Royal & Sun Alliance when he announced the departure of Bob Mendelsohn in September. The shares had lost three-quarters of their value since the start of the year and investors refused to support a cash-raising issue without change at the top, since they'd lost all confidence in Mendelsohn's ability to steer R&SA through its troubles.

Yet Gillam said the affable American had 'set a firm strategic direction' for the group. 'In order to exploit the work done to date, it is the board's view that the best interests of the group will be best served by a change in the top management.' And since it is merely the whim of the board deciding that it's time for a change, there has to be payment of one year's notice period.

Since it is the chairman's role to ensure that a business has the right chief executive, there may be a certain reluctance to admit to having chosen someone inadequate. But a consequence of this no-fault approach is that boards hand over a farewell cheque as a reward for a job not well done. Mendelsohn, generously rewarded during his time at R&SA, collected more than #1 million for going.

At Abbey National, the man who let the wholesale banking business become dangerously attached to high-risk bonds was sent packing when the risks involved became clear. But the risks had been more for Abbey shareholders than Gareth Jones, who took #1 million with him. So it was only fair that when his boss Ian Harley was ousted as CEO at Abbey this summer, he also collected about #1 million.

So endemic has the pay-off concept become that investors are now accustomed to paying large sums to executives who say they are going because they fancy a change. …

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