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On the vexed issue of executive pay, Glencore’s Ivan Glasenberg has spoken up in favour of ‘entrepreneurs’ like Sir Martin Sorrell. But the truth is, WPP has underperformed
As the chief executive of commodity trading giant Glencore, Ivan Glasenberg has had to handle his fair share of flak since the company floated just over a year ago. The company’s shares have slumped by 33%, his chairman created a right kerfuffle by questioning the suitability of women to hold high-level executive roles, and the trading group’s operations have been attacked by campaigners for a range of alleged crimes including profiting from child labour, polluting Africa and bribing European officials.
Still, say what you like about Glasenberg (and plenty do) but please don’t call him a shirker. When he stood up to address the Melbourne Mining Club last week at a dinner held at Lord’s cricket ground, the chief executive addressed all these points before going on to make an intelligent contribution to the debate on executive pay. His arguments were transparently self-serving, of course, but they were no less interesting for that.
The following day’s headlines concentrated on Glasenberg’s view that executives should be allowed to trouser huge rewards, which seemed a touch rich in the wake of the controversial decision to pay close to Â£30m to Mick Davis, his counterpart at Xstrata, just to stay in post if the two companies’ planned merger comes off.
But Glasenberg’s wider point was that companies need to differentiate between chief executives who are entrepreneurs and those who are merely caretakers. The entrepreneurs are the ones who will be incentivised by the possibility of reaping the massive pay packets in return for delivering huge gains. The caretakers will not.
Entrepreneurial chief executives should be aligned with investors by owning â€“ and holding â€“ significant stakes in the company, Glasenberg added, before challenging Sir Martin Sorrell, the boss of marketing giant WPP, to resign this week if his controversial Â£12.9m package for 2011 is rejected by shareholders.
“I don’t know if Mr Sorrell will do it, but if I was him, to be honest, and my shareholders voted down my salary because they didn’t believe I was worth it, I think you’ve got to leave. You’ve got to resign,” he said.
“You have to keep every share in the company while you are CEO,” added Glasenberg, who is Glencore’s largest shareholder and who has pledged not to sell any of his stake while he remains at the firm. “CEOs have got to show shareholders: ‘You invest in the company, I’m right alongside you’.”
In some ways this could all be viewed as support for the likes of Sports Direct’s Mike Ashley as well as Sorrell, who built WPP from a business operating out of a single room, with two people and a market value of just Â£1m, to a business that employs 160,000 people in 108 countries and has a value of Â£10bn. The WPP boss also still holds a significant stake in the business and doesn’t tend to sell shares.
It is also true that running a mature company does not rule the boss out of being an entrepreneur. The real value created by Steve Jobs’s entrepreneurship was not in the first phase of his career when he founded Apple (although he created plenty), but in the second when he returned to the established (but struggling) computer maker and transformed it into the electronics behemoth we know today.
But unfortunately for Sorrell, none of this will actually help his argument this week. WPP shares underperformed the market last year and the real value he created for investors came at the beginning of his career. Certainly WPP shareholders have seen little benefit since Mr Sorrell became Sir Martin in the New Year’s Honours List in 2000, and WPP shares languish at lower levels today than they did when he stood before the Queen.
Sorrell might justifiably claim that the wider market is lower too, but he would be advised not to. That would be the argument of a caretaker.
Europe needs a little Anglo-Saxon wriggle room
The standard European view of the global financial crisis pins the blame on the excesses of Anglo-Saxon capitalism. An absence of restraint allowed unbridled market forces to be unleashed, so the theory goes, and this resulted in the orgy of speculation that led to the meltdown.
Yet, as City analyst Dhaval Joshi has noted, this view sits oddly with the policy response to the most severe downturn since the 1930s. It has been the Anglo-Saxons â€“ Britain and the US â€“ that have been most willing to override market forces, trying all sorts of unconventional measures to get their economies moving. The US Federal Reserve and the Bank of England have openly admitted that quantitative easing is a deliberate attempt to manipulate bond markets.
By contrast, the Europeans have looked askance at the money-creation activities of the Anglo-Saxons and instead have adopted a more orthodox approach, even while the combination of recession, austerity and government debt has exposed an increasing number of countries to the full force of the bond markets and put the future of the single currency in jeopardy. Germany, in particular, has insisted that the solution to Europe’s problems must be structural reform and budget discipline rather than the demand-side approach favoured by the Fed and the Bank.
In part, this may stem from the historical German suspicion of anything that smacks of Keynesian demand management. In part, too, it is the result of Berlin’s inflexible insistence that there must be no tinkering with legally binding treaties. But the fact that Spain has become the fourth, and biggest, candidate for a bailout shows that it may be time for the Europeans to put words into action and adopt a more pragmatic plan.
Joshi argues that European treaties are ambiguous enough to provide the European Central Bank with wriggle room if it wanted to wade into the bond markets and buy chunks of eurozone sovereign debt. This is surely what Ben Bernanke and Sir Mervyn King would be contemplating â€“ as a bare minimum â€“ if they were running the show.
M&S’s performance looks a little green
The progress update on Marks & Spencer’s eco-drive â€“ “Plan A” â€“ made more cheerful reading last week than the company’s annual report. It offered a long list of things to make you feel warm and fuzzy about shopping at M&S: buying its clothes is now carbon neutral and they even recycle the coat hangers! The retailer ploughed on with its green mission â€“ perhaps former boss Sir Stuart Rose’s proudest hour â€“ long after the colour went out of fashion for listed firms, and five years on it has reached 138 of its 180 goals. Not bad.
The achievements of Marc Bolland after nearly two years in charge are less obvious. M&S’s womenswear business, which underpins profitability, lost market share while the food division stood still. Selling less is one way of reducing your environmental impact, but that’s probably not what Rose had in mind.