IS SIR Tom McKillop the next chairman of the Royal Bank of Scotland? City gossips have been convinced of the fact for months. He is Scottish, which seems to be taken as a prime qualification, although why this should be the case for a bank which is spreading across the United States and heading into China is something of a mystery.
Those opposed to such nationalist tendencies might argue that, with a Scottish chief executive in the shape of Fred Goodwin, the replacement for Sir George Mathewson, when he steps down, should be from another country.
This would be equally silly. What Royal Bank needs, when Sir George does depart, is the best person to chair the board of a very big bank. Nationality should not be a consideration.
Yet it seems that at Royal Dutch Shell, as the newly united company is known, there is a determination that the new chairman should be neither English nor Dutch, so that neither of the two components of the joined business should feel that they are getting the top job. It may well be that the best candidate to replace Lord Oxburgh comes from neither of those countries but nationality should not preclude candidates. At the moment, the betting seems to be on the former boss of Siemens, Heinrich von Pierer, but the search, according to the company, has not yet been concluded.
Since the job description apparently involves spending two and a half days a week in the Hague, it may not appear the most attractive position to some potential candidates. And, despite the relatively good figures that Shell produced yesterday, the head hunters may find that there are still widespread qualms about the company. Despite the brave and determined efforts of Jeroen van der Veer to restore morale and morality at Shell after the appalling revelations of its imaginary oil stocks, the Sakhalin affair is a major set-back. Mr van der Veer is adamant that, as soon as he was made aware of the extent of the escalating costs, he passed on the information to shareholders. Yet the last published estimate for costs on the project was “over $10 billion”. For the update to be $20 billion is somewhat hair-raising. It has forced lengthy renegotiations of terms with Gazprom, which is taking a stake through an asset swap. And the sudden doubling of cost estimates suggests, at the least, that Mr van der Veer was perhaps not being kept properly informed, despite the new culture that he has been trying to impose on the company.
If potential chairman are not tempted by Shell, there are other organisations still in need of a leader. Unilever is hunting for someone to take over from Antony Burgmans, and probably will not be requiring two and a half days a week from a chairman that the chief executive insists should be definitely non-executive. Pearson has also still to name a successor for Lord Stevenson of Coddenham. The most likely candidate seems to be Chris Gibson-Smith, the chairman of the London Stock Exchange. He is giving up the chairmanship of the National Air Traffic Service which would leave him plenty of scope for taking on the education and publishing business. He also has long experience of working in the United States, where much of Pearson’s business is now concentrated.
Experience rather than nationality should surely be what determines the suitability of someone for a chairmanship. Sir Tom McKillop would probably be an admirable chairman for RBS whatever his nationality. He has been a determined chief executive at AstraZeneca and, despite some hiccups, he is at least departing from the business as the good news is flowing agin.
Rolls-Royce flying high
INVESTORS have taken some convincing but yesterday they acknowledged that the message that Sir John Rose has been delivering for several years might actually be correct. The share price of Rolls-Royce bounded up by a tenth as the company delivered a set of figures which showed the engine maker powering ahead.
After the attacks of September 11, 2001 Rolls-Royce fell from favour in the ensuing fears over the outlook for airlines. The panic was that demand for new aircraft would slump and, with it, so would the engine maker. But Sir John had been working hard to insulate Rolls-Royce against such consequences. Maintaining engines is regular and lucrative work which provides a shock absorber against fluctuations in the market for new planes. Over the past decade, this source of revenue has grown by a compound 12 per cent a year. In the half year, income from servicing civil aircraft grew by 18 per cent and accounted for almost 60 per cent of sales from the civil aerospace division.
It finished the period with group sales up by 14 per cent and a record order book of £21.9 billion. Investors celebrated the bumper profits with a 5 per cent increase in the interim dividend. Some had seen the good news coming and the shares had already moved from 250p to 315p this year. But they should have further to go. Sir John declared yesterday that the company was “on target” to generate continued growth in profits and reduction in debt.
The latest wave of terror attacks in Britain made for a little predictable nervousness among travellers but it is too soon to say whether it will have any real impact on the airlines. Rolls-Royce, however, as Sir John has been at pains to convince the City, has lowered its dependence on new aircraft sales. It supplies engines for the defence sector and also the marine industry.
But even the most efficient engines contribute to global warming. It may be true that more efficient traffic control around the world, and more direct flight paths, might save as much money as the world’s airlines are currently losing, and contribute to slowing global warming. Different power sources would also help. Rolls has just invested another £100 million in developing a power system based on fuel-cell technology. In three or four years it will be clearer whether there is any commercial future for it. By then investors will be clear that this is a company investing for the long term.
Hard bargain
A PENSION deficit of £530 million might be a fine poison pill defence against a bid but it is an unpleasant weight for a company of Royal & SunAlliance’s scale to bear. As the Pension Protection Fund moves to charging risk-based premiums, it could bring extra penalties.
So R&SA has negotiated a bargain with its staff: the company will shovel millions of extra cash into the pensions funds if they accept lower pensions. The deficit is cut by a quarter and the PPF bill should be less onerous.
The insurer persuaded trade union Amicus to back its plan and briefed 6,000 staff in 118 face-to-face meetings. The result was an 83 per cent vote in favour of the less generous pension scheme, which is based on average earnings rather than final salary.
Since taking over at troubled R&SA, Andy Haste has ensured that all staff have a performance-related element in their pay. Now he aims to encourage them to channel those bonuses into pension plans to augment their scheme entitlements. That idea may be harder to sell than the change to the scheme. But Mr Haste is clearly a skilled salesman.
- WAL-MART’S puritanical parsimony is loved by investors but feared by suppliers and by employees at its 3,700 stores from Arkansas to Shanghai, where the company opened for business for the first time yesterday. That may explain why it is relentlessly pursuing Tom Coughlin, its recently retired vice-chairman, over alleged fiddled expenses and misuse of company gift vouchers. By highlighting its ruthless streak, Wal-Mart is also issuing a warning to US trade unions, which have just broken from their cartel to compete more vigorously for new members, particularly at Wal-Mart.
