Mark Kleinman: South East Water’s excuses have run dry
Mark Kleinman is Sky News’ City Editor and the man who gets the Square Mile talking in his weekly City PM column
South East Water’s excuses have run dry
How the water industry could do with the raising of a Mervyn King eyebrow. While governor of the Bank of England in 2012, Lord King defenestrated Bob Diamond as Barclays’ chief executive amid the Libor-rigging scandal with a barely perceptible muscle movement.
South East Water’s board is lucky that there’s apparently nobody possessing a similar ability in its industry. After months of intermittent supply outages, the privately owned water utility has failed in the most rudimentary elements of crisis management.
It’s something of a sick joke that one of the external parties South East Water has been relying on for operational expertise in recent times has been Thames Water, the poster-child for incompetence in Britain’s water industry. Two drunks propping up a bar doesn’t even begin to cover it.
Dry Wells Action, a local community pressure group, put it aptly in a letter to Chris Train, South East’s chairman, last week when it said the company had “comprehensively lost the trust of Tunbridge Wells customers”.
“Only by providing us with answers and by sacking your CEO can you even begin to restore public confidence.”
To add insult to the injury of financial losses, school closures and cancelled hospital clinics, South East Water has barely said a word since the latest crisis began.
“The refusal to submit to public scrutiny, along with the persistent evasion of the national media by your chief executive, demonstrates an appalling lack of accountability by your failing organisation,” Dry Wells Action’s letter said.
The group is spot on; but it’s also the case that Ofwat, the watchdog which is on its way towards the regulatory scrapheap, has been far too inconspicuous at a time of deep public concern. A more effective regime is needed to restore confidence in the ability to revoke and replace water companies’ operating licences is urgently needed.
In the meantime, South East’s chief executive David Hinton must resign, forfeit his unvested and deferred pay, and be followed out of the door – in an orderly manner – by his chairman. That’s one flowchart the company’s board should be able to get right for the sake of its stakeholders.
Shell boss latest to benefit from new pay arms race
Call it a race to the top. Across the FTSE-100, boardrooms are clambering to join the pursuit of higher pay packages for their chief executives, and increasingly they are citing flight risk – both for individuals and corporate listings.
The latest example, which I disclosed yesterday, is the oil behemoth Shell. Under plans hatched by the company’s remuneration committee, boss Wael Swan is in line for a 50 per cent hike in his maximum potential long-term share award, from six times his £1.535m base salary to nine times.
That puts him in line for an annual LTIP alone which could be worth close to £14m – and that’s without any increase in his fixed salary. Chuck in the 250 per cent of salary as a short-term bonus, and you have a total package, excluding pension contribution and other benefits, of over £19m.
That’s a punchy response from Shell’s board at a time when the oil price is faltering and its own financial performance is steady rather than spectacular.
Nevertheless, I suspect that any pushback from institutional investors will be muted.
Notwithstanding a recent warning shot from Fidelity to corporate boards, the prevailing sentiment from fund managers in the last 12 months is that executive pay rises – even aggressive ones – are likely to be backed if there is a clear demonstration that stretching performance targets are being set.
At Shell, that will mean its annual report next month will be especially worthy of scrutiny, ahead of its AGM in the spring. The company was broadly backed for having eschewed a tilt at a takeover of BP last year, but its fragile historic relationship with the City means this is a pay revamp to watch closely.
KPMG’s next UK chief to face rising AI challenge
It was over four months ago that I revealed on Sky News that KPMG’s UK operation faced the prospect of an early leadership election as chief executive Jon Holt prepared to throw his hat into the ring to run the accountancy giant globally.
The race to succeed Bill Thomas as chair and CEO of KPMG International is now finally cranking into gear, and City PM’s newspaper rivals are finally catching up on the ramifications of the contest.
For the first time in years, KPMG’s UK arm is outperforming some of its big four rivals, as consolidated results for the British and Swiss operations implied last week: profit per partner was up to £880,000, outstripping that of both EY and PricewaterhouseCoopers after years of ranking as an also-ran.
Holt deserves much of the credit, although the tailing off of the protracted pipeline of regulatory fines which pre-dated his tenure is also partly responsible too.
Arguably the most telling statement in the results, though, was this: “Given ongoing headwinds and industry-wide lower levels of attrition, the firm continues to focus on managing costs.”
For staff at KPMG and its rivals, this is a clear warning of things to come: the artificial intelligence boom is coming to reshape swathes of their industry, much as it will the legal and many other professions. Progress on profitability cannot mask the fact that a major bloodletting is on its way.