The last Lord Ribblesdale, who died in 1925, is remembered chiefly as the subject of a remarkable portrait, known as ‘The Ancestor’, by John Singer Sargent. For those who enjoy the byways of social history, this tall, unmistakably aristocratic figure in late-Victorian hunting garb is also remembered for other things: he was a celebrated amateur boxer capable, it was said, of knocking out any man in the House of Lords; he was a long-time denizen of Rosa Lewis’s louche Cavendish Hotel in Jermyn Street; George Bernard Shaw is believed to have used him as the model for Professor Higgins in Pygmalion; and he surprised London society in 1919 by marrying as his second wife the former Mrs John Jacob Astor, née Ava Willing of Philadelphia. His walk-on part in the history of corporate governance is, by contrast, largely forgotten — but almost as colourful to those like me who enjoy the byways of business history.
Ribblesdale was perhaps the ultimate example of a ‘lord on the board’ — or what Tiny Rowland of Lonrho once described as a corporate ‘Christmas-tree decoration’. He was a director of the City Equitable Fire Insurance Co, which collapsed in February 1922 and became the subject of a leading case that defined the extent to which non-executive directors could be held responsible for the actions of executives — an issue that is still argued over every time a big company goes astray, from Enron to Northern Rock. If City Equitable’s story sounds unpromisingly dusty, it’s not: the bankruptcy was the result of spectacular fraud by the era’s most gilded rogue, Gerard Lee Bevan.
For years I have been stalking Bevan — who died in Cuba in 1936 — with a view to bringing him back to life as a semi-fictional character. But for now let us concentrate on his erstwhile friend Thomas Lister, 4th Baron Ribblesdale, one of several upper-class stooges whom Bevan took for a humiliating ride.
First, ‘The Ancestor’: the portrait was painted in Sargent’s studio in 1902 at the suggestion of Edward VII — who nicknamed Ribblesdale ‘the Ancestor’ because he felt the Lancashire peer’s ancient lineage, imposing presence and archaic mannerisms of speech and dress encapsulated everything an Englishman ought to be. Ribblesdale’s life was at its zenith in those early Edwardian days, but became progressively sadder: his eldest son died in Somaliland in 1904; his first wife Charlotte died in 1911; his second son Charles died at Gallipolli; and in their memory he gave Sargent’s painting to the National Gallery, of which he was a trustee.
Prone to deep depression and violent temper, Ribblesdale took refuge as a semi-permanent resident of the Cavendish Hotel, where he was an unlikely companion of Rosa Lewis, the former shilling-a-week maidservant turned cook who ran the place as a haven of discreet, upper-crust misbehaviour. Perhaps it was there, over cards, that Ribblesdale was befriended by Bevan — it being the ideal place for Bevan to have kept one of his several mistresses.
A son of the first chairman of Barclays Bank, ‘Gerry’ Bevan was a black sheep of the City’s most respected Quaker banking dynasty. He made his career in the stockbroking firm of Ellis & Co, which he ran as a personal fiefdom from a grand office in Cornhill with his monogram carved into the panelling. Arrogant, smooth, well connected — his wife was a cousin of Neville Chamberlain, and his own relations included the Duke of Bedford — Bevan was the very model of an Edwardian City swell.
City Equitable was to be his undoing, however. It was a modest reinsurance business when it was bought from German and Austrian owners in 1914 by Clarence Hatry, a wheeler-dealer who was to serve time for fraud, and later became the proprietor of Hatchard’s bookshop in Piccadilly. Hatry bought City Equitable for £60,000, reorganised it in six months and sold a controlling interest for £250,000 to Bevan and an associate called Peter Haig Thomas.
Despite the price, their acquisition was initially counted as a brilliant exercise in wartime opportunism. On the one hand, German and other Continental reinsurers had abandoned the market, leaving an open field for British firms; on the other, war risks had driven insurance premiums sky-high, particularly in the marine sector. Those conditions were bound to be reversed when the war ended, but creative accounting helped disguise the position until 1921, by which time City Equitable’s premium income had multiplied fivefold in five years.
Bevan was also cunning in his construction of the City Equitable board: he stuffed it with grandees who were unlikely to ask awkward questions, or indeed any questions at all. He then secured the board’s agreement that the company’s investment decisions, up to a limit of £5,000, should be delegated to a committee of himself and Haig Thomas plus the company’s solicitor, Henry Grenside. But the £5,000 limit was soon forgotten and not even Grenside was fully in the picture: at Bevan’s subsequent trial, the solicitor was asked about a £45,000 investment in an entity called Willoughby Summer. ‘I think it is a company in Canada.’ Did it pay a dividend? He did not know. Did he think he ought to know? ‘I made no inquiries about this company.’
Nor, while the going was good, did anyone else make inquiries about the truth behind City Equitable’s apparent success. In the boardroom, the unhappy Ribblesdale sat alongside the Earl of March, heir to the Duke of Richmond, who had been seriously incapacitated in the war, and Sir Douglas Dawson, a retired military attaché well on in years. It’s a fair guess that none of this trio had the foggiest clue about the intricacies of insurance or investment. The shipbuilding tycoon Sir Henry Grayson allowed his name to be added to the letterhead in 1917 but rarely attended and later admitted he ‘knew little about anything’ that went on in City Equitable’s Lothbury offices. Only one director, an Aberdonian lawyer called Milligan, ever demanded an investigation of the company’s finances, but by the time he did so it was too late.
Meanwhile much the same was going on at Ellis & Co, where Bevan’s partners later claimed to have known almost nothing of his dealings. In fact Bevan was busy amassing a portfolio of exotic and speculative investments, impenetrably intertwined with his own private interests and those of City Equitable. Both firms, as well as Bevan and Haig Thomas personally, had large holdings in a Brazilian ranching venture; both were shareholders in Claridge’s Hotel in Paris, one of Bevan’s favourite watering holes.
The hidden truth about City Equitable was that it was owed more than £900,000 by Ellis & Co, had made assorted investments and loans completely inappropriate for a reinsurance business, and was probably insolvent by the end of 1919. Ribblesdale’s eye was by then well off the ball, since that summer he married Ava — who had divorced J.J. Astor shortly before he went down with the Titanic, and whose maiden name of Miss Willing provoked ribald jokes from Rosa Lewis.
While Ribblesdale was enjoying a brief return to happier form in the comforts of Ava’s house in Grosvenor Square — gossips said it was a marriage of convenience, title for her, money for him — the wider economy was on the slide. As slump conditions set in over the following two years, Bevan executed a series of increasingly desperate swerves to maintain his deceptions. His companies borrowed heavily and in 1921 he arranged for City Equitable to take over three smaller insurance firms in order to strip out their assets, raising the mo
ney to do so by the flotation of a sister company, City Equitable Associated. ‘The shares have undoubted attractions,’ said the Financial Times, seduced by Bevan like everyone else. The prospectus was later shown to be a comprehensive pack of lies.
For the last six months of 1921, Ribblesdale’s health was too low for him to attend to business at all. But by January 1922, the game was up anyway. Rumours were rife, and City Equitable’s share price collapsed from 54 shillings and ninepence to three farthings. Bevan tried his luck one last time round at Barclays in Lombard Street, pleading that he had already made every personal sacrifice he could to keep his businesses alive. But when no rescue loan was forthcoming, City Equitable had no choice but to file for bankruptcy — followed shortly by the ‘hammering’ of Ellis & Co. The two firms were found to have liabilities of £3.75 million between them. Some creditors eventually received a few pennies in the pound.
The Economist called it ‘mismanagement quite incredible in its fatuity’. ‘Vanity, pure vanity’, was the explanation offered by a City player of the time for Bevan’s reckless exploitation of shareholders, partners and friends such as Tom Ribblesdale. Bevan himself blamed his fall on an industrial slump caused by ‘the nightmare of taxation’ and the high price of coal.
But he did not go down without a struggle. On 8 February, he fled to France in disguise, using a false passport and apparently heading for Russia, beyond the reach of extradition. He reached Vienna, where he was arrested in violent circumstances and spent two months in custody before being brought back for trial at the Old Bailey on charges of fraud and deception. He was jailed for seven years and spent his sentence working in the print shop at Maidstone jail; while there he also wrote poetry in the style of Swinburne and was reported to miss the cakes and pastries to which he had been partial. At the end of his sentence, divorced by his wife, he married his French mistress and slipped off to Havana, where he ran a distillery.
The shame of City Equitable’s collapse blighted the last three years of Ribblesdale’s life; he subscribed to a ‘salvage fund’, but was dying by the time the directors and auditors of City Equitable were brought to trial for malfeasance in 1925 — in which an ‘exclusion clause’ in the company’s memorandum and articles effectively let them off the hook, and Mr Justice Romer took a rather kindly view of their failure to oversee Bevan. His judgment provided a template for the ‘standards of skill and care’ expected of non-executives that was to hold sway in English law for many years to come. A director, he said, need not exhibit a greater degree of skill than may reasonably be expected from a person of his knowledge and experience — a director of a life assurance company, for example, does not have to have the skills of ‘an actuary or a physician’. Nor is he bound to give continuous attention to the affairs of his company.
But still the outcome of the case caused public disquiet, and after a committee of inquiry, company law was eventually altered (it took until 1948) to close the ‘exclusion clause’ loophole. Non-executives’ responsibilities are more arduous these days, and much more tightly defined. But the moral of the story is timeless: never sign on as a director of anything unless you understand its business in detail and you know its managers to be completely honest. A copy of ‘The Ancestor’ should hang in every boardroom as a reminder.