How to spot an independent director he doesn't mind making a scene
0 h, look: an independent director. A real one, that is. He disagrees with his colleagues about the direction of the company and doesn't mind saying so. This is Paolo Scaroni, who sits on the board of BAE Systems — British Aerospace that was — and is about as popular with his colleagues as a stale smoked salmon sandwich. They seem to think that BAE should find someone, like Boeing, for instance, to merge with. He seems to think it should try harder to stand on its own feet and stop treading on the feet of the Ministry of Defence, its biggest and most exasperated customer. Through the boardroom doors this row is clearly audible. Mr Scaroni can fairly claim to have put Pilkington back On its feet when he was chief executive, but now he has gone home to run End l in Italy, and at BAE's annual meeting he will stand down from the board. This is not what the corporate governance mavens mean by an independent director. Their preferred model joins the board with a wide open mind, sits on various committees, makes his colleagues go through all the hoops of compliance, and moves on before his experience taints his independence. He may or may not contribute to policy, and he surely will not rock the boat, or not in public. Directors like this are not recruited from the awkward squad. Who was the last one to quarrel with his colleagues, make a scene, resign, and put the issue to the shareholders? This, though, is the independent director's ultimate sanction and the litmus test of his independence. Paolo Scaroni seems to pass it. BAE's shareholders should ask themselves whether, in this quarrel, he is right.
Rocked by Inchcape
Etched on City memories is the revolt at P&O, when an independent director took on an entrenched board and won. The historic shipping line had been persuaded to merge its fortunes with Bovis the builders, an incongruous match arranged between two clients of Lazard. Bovis had a dashing chief executive who was to take command, and also (as became apparent later) a financial subsidiary which was leaking money. Lord Inchcape, merchant, magnate and hereditary P&O director, could not stand the deal and resigned. Two executive directors backed him up. Feelings ran high. In Finsbury Circus, a purple Rolls-Royce — it was Oliver Jessel's — was coated with stickers reading SAVE P&O — TELL BOVIS NO! At the crucial meeting the shareholders threw the deal out, it was the P&O chairman's turn to resign, his colleagues went with him, Lord Inchcape took over. Lazard was fired, and a sour-faced chauffeur settled down to peel the stickers off. It can happen.
Getting real
'Realistic' wouldn't be my word for a life assurance office's accounts. Since it has to guess what will happen to its investments and its customers a generation out, an educated bet is the best we can hope for. Some guesses, like the Equitable's, have been too clever by half, some accounts are so encrusted with orphan assets and embedded profits as to resemble private jokes designed for actuaries, and the Financial Services Authority is right to hanker after realism. I am shaken, all the same, to see it make a start with Standard Life, which is now wondering whether it can or should remain the biggest mutually-owned life assurer in Europe. Exit lain Lumsden, chief executive and faithful Standard-bearer. Realistically, does it need to raise new capital to meet the FSA's tests? If it does, what about its weaker competitors, the National Prodigal, the Backscratchers Mutual, the Dog's Life, and others too libellous to mention? Gone arc the days when these life offices seemed to have capital to spare or to be scattered around by way of windfalls. Capital is what stands between their policyholders and a penurious old age. They, too, must learn to be realistic.
Towers don't flower
Just what the City doesn't need: another tower block. This one, at an insalubrious corner of Houndsditch, will be twice the height of St Paul's, and was nodded through this week by the City fathers. Towers, as they ought to know, have never bloomed in the City. Their own, on their estate in the Barbican, are relics of an outdated attempt to show off. Most of the space in NatWest's tower (now sold) was taken up by lift-shafts. Lloyd's ordered a spoof high-tech building (sold again the other day) to accommodate a business that used pencils and paper. The Stock Exchange is moving into Paternoster Square and leaving its drab tower behind it. The Swiss Re's 600ft Zeppelin standing on its nose is much admired, but may struggle to find tenants whose furniture fits into circular offices. The City has and will have plenty of space on the developers' hands without the Tower of Houndsditch.
Days in court . . .
This year's financial blockbuster, The Lawyers' Benefit, has now opened at the Royal Courts of Justice, but if you missed the first night, do not worry. Gordon Pollock, leading counsel for the plaintiffs, with a brief said to have been marked at £3 million, is expected to go on for months. In form, the case has been brought by Three Rivers Council, which deposited money with the Bank of Cocaine and Colombia and never got it back. In practice, BCCI's liquidators are suing the Bank of England for misfeasance in public office, which implies not just falling down on the job, but lying down and closing the eyes of supervision. If they win, they share in the proceeds, and if they lose. BCCI's creditors pick up the bill. I suggest booking seats for later in the year, when three successive Governors will give evidence — but it has long been evident who are this case's only sure-fire winners,
. . . funded by fudge
With bills to pay, the Bank of England needs a new profit centre, and the gift shop in its Museum now stocks its own fudge, in four different flavours. (I can recommend the chocolate and champagne.) Some would say that fudge has long been part of the Bank's stock in trade — guided by the Venetian proverb, it never tells a lie, but the truth not to everyone — but on this theme Mervyn King, the Bank's new Governor, has his own ideas. I expect him to introduce Transparent Fudge.
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