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RUTH SUNDERLAND: Boardrooms shouldn’t mix with private equity houses

Not very long ago, rising to become the chief executive or chairman of a FTSE 100 company was the pinnacle of success in the business world.

Now, not so much. Increasingly, the men and women in top positions at UK-quoted companies present themselves as poor relations, compared with private equity barons.

They are nakedly conscious of the great wealth they could tap if, and when, they jump ship.

Boardroom envy: Increasingly, the men and women in top positions at UK quoted companies present themselves as poor relations, compared with private equity barons

Spin-doctors routinely defend CEOs against criticisms of fat-cat pay by pointing to how much more they could get in the private equity sphere, where rewards are cloaked in secrecy.

Plenty have taken the private equity route, including former Sainsbury’s boss Justin King, Glen Moreno, the ex-chairman of Pearson, and Iain Conn, one-time chief executive at Centrica.

The rewards for those who succeed can be vast. Sir Terry Leahy has made huge amounts on his stake in The Hut Group and the B&M discount chain – probably far more than he earned in his three decades at Tesco. 

He is now advising US private equity firm Clayton, Dubilier & Rice on its bid for Morrisons, where he reportedly wants to be chairman. 

He may well be a brilliant choice, and one who would bring great acumen to bear. In theory, Morrisons’ board could fire the current chairman and install Leahy in the £500,000 a year post. 

That would be a lot simpler, cheaper and less distracting than a contested takeover bid but it would also mean everyone concerned missing out on multi-million pound jackpots.

CD&R has, over the years, assembled a stellar roster of advisers from the ranks of FTSE grandees.

They include Sir Nigel Rudd, who is also chairman of Meggitt, one of the UK defence firms being targeted by US private equity.

Then there is Liam Fitzgerald, who was the CEO of FTSE 250 health care group UDG for 16 years. CD&R is trying to take over that company in a £2.8billion deal.

It is reminiscent of the way some politicians leverage a stint in government, where by the standards of the elite they are relatively low-paid, into a wealthy afterlife.

George Osborne, the former chancellor, with his string of well-paid jobs, the latest of which is at investment bank boutique Robey Warshaw, is probably the leading exponent.

There is nothing wrong with anyone seeking a second career, least of all a well-paid one. But greed can overcome better judgment, as it did with David Cameron and Greensill.

And the traffic – of which the public is largely unaware – between boardrooms and private equity houses does raise questions.

Is it healthy for anyone who leads an important British company to view their job as a mere staging post on the road to greater personal rewards? What of the potential conflicts of interest?

There are legitimate concerns about private equity bids for UK listed companies.

But can CEOs view these objectively, if they already have ties to that industry, or if they know they could make a packet from it later on?

No hurry to raise rates

When will central banks start to unwind the emergency measures they have deployed to protect families and businesses in the pandemic? This was the question on everyone’s minds at the Jackson Hole gathering yesterday.

The US Fed has been making $120billion a month of asset purchases. Shares on Wall Street hit new highs after chairman Jerome Powell said the Fed may start tapering back later this year.

The Bank of England set out an exit strategy from its £895billion programme earlier this month. But the UK economy, like that of the US, is at a delicate juncture.

Governor Andrew Bailey is of the view that recent rises in inflation are temporary – a stance that was borne out when the UK CPI rate for July fell to 2 per cent from 2.5 per cent.

Inflation remains a worry due to supply bottlenecks and staff shortages which could drive up wages. 

Employment has held up well, albeit with the support of the furlough scheme. As the Bank’s former chief economist Andy Haldane has argued, the economy has the potential to bounce back like a coiled spring, because of the pent-up demand from a populace freed from lockdown.

He is right about the spirit. At a performance of Singin’ In The Rain at Sadler’s Wells this week, you could feel the sense of liberation and the determination to have a good time again in the atmosphere. 

Set against that, the threat of the Delta variant is bearing down. Central banks will remain cautious when it comes to rolling back on emergency measures or raising interest rates.

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