Technology | 2009.05.23
Nils Pratley: I presume we're sorry for Ian Livingston
It is obligatory these days to sympathise with Ian Livingston for the shocking state of his inheritance at BT. In fact, sympathy should be made compulsory. The startling statistic yesterday was that Livingston could cut BT\'s dividend by 59% and still find himself running a company with one of the highest yields in the FTSE 100 – 7%.
The latest difficulty is well known. The Global Services division – which his predecessor, Ben Verwaayen, saw as BT\'s engine of growth – allowed costs to spiral out of control and instead generated provisions and write-downs as two major contracts went badly wrong. Charges will amount to more than £2bn by the time the restructuring is complete.
Livingston is confident this marks the end of the horror show in global services. He can also point to a few other areas of potential growth – BT will be laying fibre-optic cables at twice the pace originally planned to capitalise on its success in broadband, where it\'s doing a decent job of defending its high market share.
Then there are the savings to come from a further 15,000 job cuts. Add it up and there\'s a promise that free cash flow, before pension deficit payments, will be "in excess of £1bn" from this year.
But that pledge is only semi-reassuring. The pension deficit payment (before tax relief) will be increased to £525m and even a reduced dividend will cost £500m. That doesn\'t leave much for paying down debt. Livingston has little room for error.
In the background lies the fear that the pension picture could yet deteriorate. The £525m additional payment has been agreed with the regulator and set in stone for the next three years. That\'s the good news. But we don\'t yet know the size of the actuarial deficit that will emerge from the triennial review. The nagging worry is that the £525m figure has been set on the basis that it\'s what BT can afford at this point and that even larger sums may have to be extracted in the future.
The pension fund\'s liabilities stretch over 40 years so there is, of course, time for the winds to turn around. On the other hand, a glance at BT\'s progress since privatisation 25 years ago tells you the company usually walks into a storm sooner or later.
Bare essentials
Today the Treasury select committee takes a headline-grabbing kick at Lord Myners, the City minister, but the meat of its report makes some interesting suggestions about corporate governance and pay in the City. For example: let\'s have more disclosure about the remuneration of bankers who work below board level. This sounds like an excellent idea.
At the moment, company law enables shareholders to view only the pay and incentive arrangements of board members. The argument is that directors are appointed to run companies and must be allowed to get on with the job – shareholders might drive everybody mad by attempting to micro-manage.
Fair enough, but banks are not like other companies. One of the big mysteries about banks, especially investment banks, is how many individuals earn more than the chief executive. Insiders say jaws would drop in the outside world if this information was made public.
But, aside from having a good gawp, is there a proper reason to make banks reveal such facts? Yes, there is. If shareholders are to make a fuller assessment of the risks a bank is taking, they need to know what rewards are being handed out to senior managers. If someone has earned, say, £20m in a year, what performance criteria were applied? What are the arrangements for clawing back such bonuses when the profits turn out to be temporary?
Shareholders don\'t need the names and addresses of these high earners, of course. But having a rough idea of a bank\'s remuneration structure would be useful. We might even learn something about where the real power bases lie within some institutions. Simply relying on the Financial Services Authority to make sound judgments about banks\' pay policies below board level cannot be a complete solution.
Get off the fence
The late result from the vote on Amec\'s remuneration report was: 98m shares in favour, 84m against, and 27m active abstentions.
Why do institutions insist on ticking the box marked abstention? In this case, they were clearly unhappy about the 13% pay rise awarded to Samir Brikho, the chief executive, but couldn\'t pluck up the courage to go the whole hog. What message does that send?
Come on, guys, these votes on remuneration are only advisory. You really don\'t have to be so precious.
For more information, please visit
http://www.guardian.co.uk/business/2009/may/15/bt-ian-livingston-job-cuts
