The Sunday Times - UK (2022-02-06)

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BUSINESS

to gauge — such as, how are staff feeling that week? How many hours have people worked? How satisfied are customers? Are the troops given the right measurement information to do their jobs properly? The more measurement you are doing, the easier it is to link performance to reward, because it is better for employee motivation if you can. We are not interested in sales per se; any fool can boost sales by slashing prices — and they will quickly go bust if they’re not careful (especially if margins are tiny). It is much more useful for businesses to measure and reward gross profit generation, which is sales multiplied by profit margin. One of the most important measures we have are the anonymous weekly morale scores we receive from every colleague across stores and support

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usually get a laugh when I say: “Working for Richer Sounds is like being in the mafia... no one leaves us voluntarily”... (I do hasten to add, “hopefully not for sinister reasons”). Labour turnover is a useful measure of how happy people are, albeit a crude one; if you are the only employer in the middle of nowhere, they obviously can’t just walk out and go somewhere else. But normally, if they aren’t leaving you, it is a good sign. Admittedly, measurement is not an exciting subject at first glance, but bear with me. How do we know if our loyal people feel appreciated? How would we know if things are going wrong, and what is the point of all this anyway? The culture of an organisation, IMO, is what its employees think about it at any point in time. In other words, it is

incredibly delicate. We once sent a badly worded email that wrecked morale overnight (thankfully, it was swiftly corrected). Staff are human beings and should be handled with extreme care. Done correctly, “measuring” should not be a dirty word. Indeed, we find that “what gets measured, gets done” — and it is accepted by our people with four important provisos: 1) They should understand why they are being measured 2) It must be done fairly 3) They should have an input into the process 4) To make it more welcome, measurement should be linked, where possible, to reward. All businesses need good management information telling them the financial basics. Yet there are so many other things that are equally useful

like Big Brother here, but I think it is much better to know that there is a problem than not. We have several key processes or “safety valves” in place, such as respected colleagues’ reps and “shadows” for new recruits. By the way, we hate annual employee assessments; they are time consuming and demoralising. Another is a genuinely anonymous (so people can really speak freely) attitude survey. Importantly, this is carried out in company time, and is designed to “take the temperature” annually across the company. One statistic, which must be handled with great care, is measuring absenteeism. If a company with oppressive rules on sickness has a low absenteeism rate, it could simply be due to fear that sick people feel forced to

departments. Every team submits its average and lowest score, and if either is below a 7 (out of 10, not 100!), we start sensitively investigating. It may be a non- work problem for which we can offer help, or it may have been a quiet week in the shop or a short-staffed department. At least we are aware of the issue and can monitor it. I really don’t want to sound

Measuring workers’ happiness is good for business

Annual employee assessments are time-consuming and demoralising

Julian Richer Sound Advice GERARDO JACONELLI

come to work. They won’t be able to work properly and will make others around them ill, too. And don’t forget to measure your customer service statistics carefully... especially the number of good and bad interactions, and the percentage of disgruntled customers you manage to turn round. We have the members of consumer group Which? voting every year for the best retailer in the land, which keeps us on our toes! The good news is that all this listening, measuring and caring for staff is good for your business. I am going to be talking about the huge financial payback in due course, but please believe me when I say that a happy workforce is the most profitable investment you can make. Julian Richer is founder and managing director of Richer Sounds

ULTIMATE NETWORKER

6 Like Gates, Mark Zuckerberg, 37 (pictured with his wife Priscilla Chan), dropped out of Harvard before making his fortune. The programming prodigy created what would become Facebook from his dorm room in 2004, initially as a networking site for fellow students. He quit the Ivy League college in his second year to focus on the company, which made him the world’s youngest self-made billionaire three years later. Twelve years after dropping out, he returned to Harvard to give an address in 2017. “I am honoured to be here with you today because, let’s face it, you accomplished something I never could,” he told graduates. Today, he is worth about $90 billion.

UNIVERSITY

OF LIFE Graduate jobs are booming, but many tycoons who built empires worth billions dropped out of college, writes Anna Menin

6 Recent figures showed that the jobs market for graduates has rarely been hotter. Vacancies for grad jobs have surged 22 per cent on a year ago, according to the Institute of Student Employers. But many tech titans dropped out of higher education before making their billions. Bill Gates left Harvard in 1975 after two years of study to found Microsoft — a move that made him a millionaire by the age of 26. Gates, now 66, has been ranked by Forbes magazine as one of the world’s four wealthiest billionaires every year since 1995, and has a net worth of more than $131 billion (£96 billion). However, despite his success, he still has one regret about his college years. “I wish I had been more sociable,” he told a group of Harvard students in 2018. “I was just so into being good at the classes and taking lots of classes.”

CLASS WARRIOR

in every company they contain. With such a wide range of investments, they rarely have the time or inclination to agitate management teams for change. As a result, if a company is underperforming, they will often quietly welcome a noisy active shareholder coming in to shake things up. That might be the case at Vodafone, for instance, where its big investors are large tracker funds. Sonja Laud, chief investment officer at Britain’s biggest index tracker, Legal & General Investment Management, said the distinction between trackers that do not speak out and activists that do was not always clear-cut. Firms such as hers could never deploy resources on the same scale as activists, but she stressed: “Being passive doesn’t mean that you don’t have the responsibility to engage. “Activist investors and mainstream houses like ours should join forces... in order to raise market standards and, obviously, to improve individual companies,” she said. The activists can appear to be indis- criminate in their targets, but Tom Mat- thews, a partner at White & Case, a law firm that acts on behalf of many of them, said this was the result of the sweeping changes caused by Covid. “As we come out of the pandemic, everyone’s realising that their sector is being shaken up.” THE ASK While different activists have different strategies, their motivation is the same: to make a profit on their stake. “[They] don’t do this for fun — they do this to make money,” said Hopkins. They have also adapted their tactics from the ones they might deploy in America — to force shareholder votes for boardroom seats, for example. “I don’t think any big-name activists in the UK now think the right approach is to ring the doorbell and punch the company on the nose as the first shot,” said Matt- hews. Companies do not always know imme- diately when an activist is buying shares; it does not need to be made public until a 3 per cent stake has been amassed. Activists may demand management change, a break-up of the business or, more recently, changes on environmen- tal and social grounds. They like to differentiate themselves. Cevian is often described as a “construc- tivist”, working with bosses of the firms in which it takes stakes and not speaking publicly to criticise management. Hedge funds such as The Children’s Investment

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tephen Hester had barely got his feet under the desk in his new job running RSA when he had to start deal- ing withan activist inves- tor on the shareholder register. It was Cevian, Europe’s biggest activist, which saw opportunities to demand change at the embattled FTSE 100 insurer after three profits warn- ings and a £200 million hole in its Irish division. This was not the welcome any incom- ing chief executive would have hoped for; activists have a reputation for making their lives a misery. In his new role after a bruising five years at the bailed-out Royal Bank of Scotland, Hester had confidence in his strategy to sell off underperforming businesses. Yet he made sure that ideas drawn up by Cevian were given a fair hearing, even if not acted upon. “It’s the management’s job and the board’s job to manage the company for the benefit of shareholders — and if some- one else has good ideas on how to do that, you should listen,” said Hester, who now chairs easyJet after selling RSA for £7 billion last year and is even chairing a bank, Nordea, in which Cevian has a stake. Other bosses across Britain will be hoping their brush with activists ends so harmoniously, and not like it has in the past for the boards of Alliance Trust or the London Stock Exchange.

In the past month alone, the bosses of two FTSE stalwarts, Nick Read at Voda- fone and Alan Jope at Unilever, have felt the hot breath of activists. Read is grap- pling with Cevian while Jope has attracted the interest of Trian. They join the likes of Dame Emma Walmsley at Glaxo Smith Kline, where Elliott is on the register along with a smaller operation, Bluebell; Amanda Blanc at Aviva, where Cevian is also present; Gary Nagle at Glencore, where Bluebell is making demands; and Alistair Phillips-Davies at energy giant SSE, where Elliott, again, is turning up the heat. At Shell, Ben Van Beurden is facing Third Point. And think of Warren East at Rolls-Royce. He was rid of one activist, ValueAct in 2019, only for a new one — Causeway — to arrive last year. Most bosses, and indeed the chair- men, do not welcome the presence of activists, as it makes them fear for their jobs. And it means that when Glaxo and Unilever report results this week, they can expect some harsh feedback on their strategies. The arrival of the activists has sparked a thriving business for City advisers in drawing up defence strategies for those firms appearing vulnerable. But it also begs questions about why these investors are targeting London-based businesses, what they are demanding — and what the boards can do to fend them off. LONDON’S LURE Few doubt London’s appeal to activists; the stock market looks cheap relative to its peers in America and continental Europe. That gives rise to what Malcolm McKenzie at the consultancy Alvarez and Marsal calls a “double whammy”: first a gain from shares that are undervalued, then a gain from the activists’ actions. Given the size of London’s market, the biggest in Europe, and its corporate governance rules, funds that take a stake in a company know they will get a fair hearing. That contrasts with continental Europe, where more companies have a management-friendly majority shareholder that would deter an activist. “Compared to the Continent, our shareholder registers are dispersed and we don’t have as many companies with significant block holdings in them — for example, very significant family owner- ships,” said Scott Hopkins, partner at law firm Skadden, Arps. On the contrary, London’s big companies are more likely to be mainly owned by “passive” investment funds, which track the major indices by taking stakes

As Vodafone and Unilever join Glaxo in feeling the heat from investors

agitating for change, Jill Treanor asks why UK firms are being targeted, what

they can do about it — and whether activists are actually a force for good

THE PLAYERS ELLIOTT MANAGEMENT Founder: Paul Singer Size: $48 billion MO: Analysis can take months or years before a decision is made to build a position. Seen as the most aggressive of the activists, it famously fought the government of Argentina over a bond default — although of late, observers say it has dialled down the aggression. UK stakes: Taylor Wimpey, Clinigen, SSE, Glaxo CEVIAN CAPITAL Managing partner: Christer Gardell Size: $15 billion MO: A self-styled “constructive activist” that makes one to three new investments a year. It only invests in European companies and owns about 15 at any time. Patient yet persistent, it holds positions for more than four years and has had seats on the boards of more than 50 companies. UK stakes: Vodafone, Aviva, Vesuvius TRIAN PARTNERS Founder: Nelson Peltz Size: $8.5 billion MO: Positions itself as a critical friend to the board, but its tactics might not always seem that way. Peltz and his team are also in it for the long term and rarely make public statements against the management. Instead, Peltz asks for a seat on the board, as was the case at Procter & Gamble; he left the P&G board last year after a four-year tussle. UK stakes: Unilever THIRD POINT Founder: Daniel Loeb Size: $18 billion MO: Highly selective, it picks one or two companies a year. It is also known for public criticism of boards — Loeb described one chief executive as “incompetent”. UK stakes: Shell, Prudential BLUEBELL CAPITAL PARTNERS Founders: Marco Taricco and Giuseppe Bivona Size: $300 million MO: Punches above its weight and is known for being innovative. It starts with four main areas for potential improvement before deciding where to invest. UK stakes: Glaxo, Glencore

$48bn Size of Elliott Advisors, the world’s most feared activist

CLUES TO SPOT THEIR NEXT TARGETS Is the business really suited to being a plc? Does it have a poor track record of shareholder returns? Does it have any undervalued divisions that can be sold? Are there poor-performing divisions? Is it time for the whole business to sell up? Does it have a new chairman willing to make bold moves? Does it have an efficient balance sheet? Are its shareholders likely to welcome change?

The Sunday Times - UK (2022-02-06)

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