“I have a strong preference for an external candidate,” said lauded fund manager Neil Woodford in March when Sir Andrew Witty announced his exit and GlaxoSmithKline launched its search for a new chief executive. The argument, one assumes, was that an outsider would be more likely to explode a corporate structure that Woodford complains is like four FTSE 100 companies bolted together.
The fund manager may therefore be miffed that Witty’s successor is an insider. Indeed, Emma Walmsley is boss of the consumer healthcare division, in theory the easiest unit to detach. Is GSK giving its critics the brush-off? Is it signalling that its collection of consumer brands, which runs from Horlicks to toothpaste to headache pills, is so prized that is must always be retained?
That is one possible explanation but, as ever with new chief executives, it is not wise to prejudge them. And, actually, Walmsley should take her time. There is no urgent need to reach for the corporate hacksaw – and it may never be required on her watch.
The natural moment to assess the future of her consumer business is 2018, which is when joint venture partner Novartis can sell its 35% holding to GSK at “fair” market value. If Reckitt Benckiser, or whoever, makes a fat offer for the brands in the meantime, that would change things; but there’s no sign so far.
The break-it-up theory runs deeper, of course, and rests on the idea that GSK would be better managed in pieces, and be worth more. It’s an idea but it doesn’t feel compelling today. First, the shock of GSK’s profits warning in mid-2014 has passed. Second, Brexit put a whoosh into the share prices of dollar-earners. GSK is now at £16.45, not the £14 of the spring; it got lucky, but they all count. Third, if the company can show it can survive the loss of Advair, its fading asthma blockbuster, without cutting its dividend, life gets easier. There are no more big patent expiries for about a decade.
Walmsley, then, can afford to be patient. For a first step, she could concentrate on retaining Abbas Hussain, head of the core pharmaceutical division and her main internal rival for the job. Witty was similarly a surprise victor eight years ago and both his rivals quit within months.
Surely it’s third and last chance for Mike Ashley
We’ll judge the independence of Sports Direct’s “independent” review of working practices and corporate governance when it arrives. But Mike Ashley must know this is his last chance to address the complaints credibly. He conducted the first attempt himself; for the second, he appointed a tame, retained legal firm, RPC; the third version has to be the real deal.
The reviewer could start by testing Ashley’s claim on Tuesday that “you’d be surprised at how little I knew what was going on, and that was really where the failing was”.
This statement is odd in several ways. The Unite union had been shouting its complaints loudly for years. A curious owner, let alone a famously hands-on operator such as Ashley, would have made it his business to investigate. Or, if chief executive Dave Forsey is to blame for failing to inform the board, which was RPC’s version, why is he still in a job? Forsey was docked a £3.6m bonus, but, measured against the damage to Sport Direct’s standing, the forfeit seems an exercise in tokenism.
The harder governance questions relate to the make-up of the board. It is impossible to believe a properly independent review could support Keith Hellawell’s survival. The chairman has been rejected by outside shareholders, a public loss of authority from which there is no comeback.
But the review must also explain why Sports Direct can seem at times to be run as a family firm, rather than as a public company where outsiders own 45% of the equity. Ashley’s daughter’s 26-year-old boyfriend, Mike Murray, is paid “at the board’s discretion” to do property deals with an annual budget of £300m, equivalent to a year’s profit. Then there is a distribution deal involving Ashley’s brother’s company. Are these arrangements being policed adequately on behalf of independent shareholders?
Maybe the candidates for the new position of workers’ representative on the board could ask the same question. It’s fascinating that Ashley has created the post to try to promote healthy relations with staff. But, if it’s a proper directorship, the duties and responsibilities aren’t limited to speaking up for the workers. Let’s hope Ashley appreciates the point.
French Connection needs disconnection of chairman’s two jobs
A full governance review isn’t required at French Connection because, after too many loss-making years in the fashion wilderness, one reform should be obvious: founder and 41% owner Stephen Marks should give up his dual role as chairman and chief executive, as agitating 8% investor Gatemore Capital is demanding.
Marks himself, apparently, accepts he can’t wear two hats forever – it’s just that he doesn’t want to suffer the supposed disruption in the middle of a turnaround programme. To be fair, Tuesday’s half-year figures contained some early evidence of improvement: like-for-like sales in the stores improved 6.5%. But if Marks really is prepared to split his roles, he should announce a deadline.
