If one corporate governance mishap involving a blue-chip asset manager can be dismissed as unfortunate, then two must be regarded as careless. But three? That – at a minimum – is the number of howlers staring out from the pages of the Standard Life circular paving the way for its £7bn merger with Aberdeen Asset Management.
Howler one: the decision to hand Colin Clark, promoted to the board last year, a one-off share award worth £700,000 on account of his “skills [and] the value his appointment will bring to the Group”. Er, except that he’s not part of the merger plan.
Howler two: the swollen board of 16 (eight from each company), which is intended to maintain the facade that this is a merger, not a takeover. Standard Life Investments’ fund managers can probably explain the flaw in that logic quite comprehensively.
Howler three: the “incentivisation arrangements” for Rod Paris, the chief investment officer of the combined group. On top of a £450,000 basic salary, Mr Paris can earn up to a theoretical maximum of 865 per cent of that in bonuses and long-term share awards. 865 per cent! That’s enough to make BP CEO Bob Dudley jealous.
Two pieces of feedback for Sir Gerry Grimstone, Standard Life’s chairman, to mull over. One top 20 shareholder said: “With the current political environment and pressure on executive pay by leading investors such as Standard Life, we would have expected greater restraint by the new board. The industry needs to lead by example.”
And the chair of a FTSE 100 remuneration committee told me last night: “If this is the new yardstick being applied by Standard Life, it should make my job so much easier.”
After last year’s embarrassing climbdown over co-chief-executive-to-be Keith Skeoch’s pay package, it seemed obvious to me that lessons would be learnt. How wrong I was.
Lloyds chief’s job’s done
Sometimes the future is easy to predict. At some point next week, the government will announce the disposal of its last-remaining shares in Britain’s biggest high street lender. And Philip Hammond, the chancellor, will seek to take credit for the modest profit yielded from the four year-long sell-off. He shouldn’t: To put it in context, taxpayers’ gains from their stake in Lloyds will be modest, about 0.5 per cent of the NHS’s 2016-17 budget.
Lloyds’ board now needs to turn its attention to succession planning for the first time in six years – and that’s where the future is harder to foretell.
CEO Antonio Horta-Osorio has insisted that he has no intention of going anywhere in the short term. Few who know him well, though, believe the relatively modest challenges posed to Lloyds by ring-fencing and Brexit will keep him driven for much longer.
But while one obvious destination appears to be HSBC, beginning the hunt for a successor to Stuart Gulliver, it strikes me that Mark Tucker will want to prioritise long-term experience of Asian markets in his search. Horta-Osorio has done an excellent job for British taxpayers, but I think his next move won’t be to Lloyds’ rival.
Big Four play audit chess
Europe’s new framework requiring tendering of audit work every 10 years has turned blue-chip accountancy into a game of professional services chess: should the Big Four firms sacrifice the pawn of often-lucrative tax and IT work to pursue the prized but restricted queen of the audit mandate?
So it appears to have been with Reckitt Benckiser, the FTSE-100 maker of Dettol, where KPMG has just cleaned up by breaking PwC’s 20-year stranglehold on the contract after a pitch against Deloitte. But I’m told EY is not too disappointed with being left out, as it can continue to handle Reckitt’s well-paid tax structuring work.
That consolation prize softens the blow for those missing out on big audit contracts. But it also underlines the structural flaws of the accounting world’s closed-shop market that matters most when things go wrong – as they frequently do.