Robinson Hambro
Robinson Hambro: Board Search and Chairman Advisory

Karina's Column

An insider’s view on the City of London and beyond

From Ethiopian emperors to CEOs

Companies to sell, companies to buy

Emperor Tewodros, who reigned over much of Ethiopia for a decade from the mid-1850s, was a visionary leader. His star rose as he unified a great deal of the country, abolished the slave trade, looked to undermine the excessive power of the Church and was vocal in his disapproval of battlefield mutilations.

Yet as the years wore on, excessive power, a sense of God-inspired destiny and probably some mental imbalance, lead him to become a monster of massacres and murders, as detailed in a gripping book on his reign titled The Barefoot Emperor, by author Philip Marsden.

The pendulum often sways from recognition to obscurity, from undue heroism to disproportionate opprobrium, both for human beings and institutions.

Continuing on our royal theme, consider the British Royal Family. Following Princess Diana’s death, they were perceived as unsympathetic, cold and out of touch with the nation. Seventeen years later, they are riding high with the support of over 75% of the British people.

And so to the corporate and financial world.

Assuming the pendulum that has swung too far will always swing back, which company is due for a fall? There are common threads in many examples – the hero CEO who turns into an over-controlling, hyped up central figure; over a decade in the job; the blind enthusiasm of investors/the public; a stream of acquisitions and the lack of an obvious successor.

I propose creating an index, called CRASH, based on companies where a minimum of two of the above factors apply. Its motto would be the Biblical quote, “I have seen everything that is done under the sun, and behold, all is vanity and a striving after wind.”

Investors who shorted CRASH would be winners.

Tesco captained by CEO Terry Leahy was the retailer of choice in the UK and the darling of the City for a decade. Then it started losing market share to new competitors and in the autumn of 2014 discovered a £260m black hole in its accounts. Many blame his successors – but he was in power for 14 years and a gung-ho company culture takes many years to reverse.

Something similar may be about to happen at SKF, the Swedish ballbearings makers, transformed by CEO Tom Johnstone, who is stepping down after 11 years.

Jeff Bezos’s Amazon is already in the index, not least because like Jamie Dimon of JP Morgan Chase, the founder has gathered a triumvirate of titles to himself: President, CEO and Chairman.

A similar story is to be found at Fiat Chrysler Automobiles. CEO Sergio Marchionne turned around the Italian and subsequently the American car company. He proceeded to merge them. He hasn’t looked back from 2004 when he became CEO of Fiat. So far so good.

In October 2014, a decade on, he listed the shares of the merged entity on the New York Stock Exchange in order to gain access to larger capital markets, a necessary step on the road to creating the world’s largest car maker by taking over another target, a grandiose notion that Marchionne toys with in interviews. Plus, last month, he engineered the resignation of Ferrari Chairman Luca Cordero di Montezemolo and appointed himself. There is a whiff of hubris in the air.

Another example, also in the car sector, is Volkswagen. Martin Winterkorn has been Chairman of the Management Board since 2007, fulfilling our ten year criteria. He insists on personally signing off on every model design change and refuses to speak English when dealing with investors and analysts.

Or Samir Brikho, the CEO of Amec, an energy-focused engineering services business valued at over £3.6bn. He took over in 2006 and transformed the company by ditching its construction arm, yet now his office is awash with photos of himself with world leaders like George Bush and in February he agreed the takeover of a £1.9bn US company.

Last but not least of the many examples that spring to mind is Simon Wolfson, CEO of retailer Next since 2001. When the Financial Times writes in an article that, “As so often, Simon Wolfson at Next is showing how to do it” and other press calls the company “the City’s darling,” you know Lord Wolfson’s company is a worthy component of the index.

Companies in CRASH might be taken out of the index if the CEO took on a fool (a reputable successor or Chairman), like King Lear’s, to point out his conceit. If the company head actually listened to the fool – unlike Shakespeare’s famous king – we would slip them quickly into our BULL index, whose companies we would fervently buy.

catherine phelps