Brian McGowan had to go. The long-suffering shareholders in Rentokil Initial had to be given at least one sacrificial lamb after yesterday’s deeply embarrassing profit warning. The chairman, who had been talking about leaving anyway, rightly fell on his sword.

Doug Flynn, chief executive, has meantime gone into self-flagellation mode, bravely admitting his credibility is in tatters, but that may not be enough to save him.

For this was no ordinary warning. It was bad enough that Rentokil’s parcels division has plunged into loss and may stay in the red for the whole year. It was bad enough that this was the second warning in just over two months and will almost certainly lead to the blue chip’s explusion from the FTSE 100.

But between the lines of yesterday’s statement, the Rentokil board was having to admit something much more damaging. It had so misread the warning signals in December that it had accidentally misled shareholders, claiming that the problem was industry-wide.

At the time, it insisted – despite scepticism, including some from this column – that the sudden deterioration in sales was just down to a consumer slowdown. Every other parcels operator, it was claimed, was in the same boat.

That turns out to have been far from true. In fact, the problem division was a can of worms, with customer service levels collapsing as management closed depots and centralised call centres in an attempt to squeeze savings from recent acquisitions.

Sales were falling off a cliff, not because consumers were pulling in their horns, but because furious corporate customers were fed up with deteriorating delivery standards and were defecting to other delivery firms.

The phone wasn’t ringing any more because customers who were used to speaking to local staff who understood their particular needs were unhappy with impersonal regional call centres. New customers weren’t being recruited because of a lapse in sales management.

Rentokil’s failure to understand what was going on appears to be a serious indictment of its systems. It casts doubt on the quality of both its management information arrangements and its reporting lines.

It is not enough to blame the misinterpretation on the suddenness of the sales decline. Sales had been deteriorating from September, if not before. The management and board had at least ten weeks to get to the bottom of the problem before the fateful announcement in December.

The sad affair is a lesson to any management confronted with disappointing sales performance and tempted to fob off shareholders with the oldest excuse in the book.

patrick.hosking@thetimes.co.uk

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