‘Whan that Aprill with his shoures soote/ The droghte of March hath perced to the roote,’ wrote Geoffrey Chaucer, long before scientists realised that wind turbines cause climate change by raising night air temperatures. If Chaucer’s General Prologue to The Canterbury Tales gave us pungent insights into late 14th-century English life, then its modern equivalent is surely the 2011 annual report of Anglian Water, whose operatives are currently busy replacing all those hosepipe-ban warning posters that have been washed away by torrential rain.
I note, for example, that on turnover of £1.1 billion of which £266 million came through as net profit — a monopolistic money machine, if ever I saw one — the company boasts of spending ‘an additional £4 million on preventing and detecting burst mains’ last winter, while investing £267 million by 2015 on increased protection for ‘plants, animals and habitats’. At least there’s no mention of investing in wind turbines. But if that sounds like a confusion of priorities in an industry that has long been accused of putting almost everything, including boardroom pay, ahead of investment in basic infrastructure, I invite you to compare the mantra at the front of the report, ‘Aiming For 100 Per Cent Customer Satisfaction’ with the note at the back headed ‘Link between Directors’ pay and standards of performance’.
Here we see (and in fairness to the company, the note is a model of transparency) that managing directors Peter Simpson and Scott Longhurst were judged to deserve 91 per cent of their potential maximum bonuses, having scored full marks for financial performance. Including his long-term incentives, lucky Mr Simpson collected an extra half million or so, more than doubling his base salary and pension contributions. Yet within the overall performance assessment, the categories of ‘level of service’ and ‘very satisfied customers’ together counted for just 10 per cent of the points total, against which the directors were collectively adjudged to have scored 2.6 per cent. In short, you can double your pay for making just 26 out of 100 captive customers happy, so long as you keep the profit machine running. We bang on about bankers so much these days that we forget where the clamour against fat cats began 20 years ago: outside the boardrooms of privatised utilities.
Tough cookie
A word of sympathy for Alison Carnwath, the chairman of Barclays’ remuneration committee, whose re-election to the bank’s board failed to win support from a quarter of its shareholders at last week’s turbulent AGM. Investors were right to be enraged that the bank had ladled out three times as much in bonuses for 2011 as it paid in dividends — almost a third of them declined to support the pay proposals, a signal of how sentiment is shifting in the investment world. But they were unjustified in targeting Mrs Carnwath, who became a Barclays director less than two years ago and seems to have taken a hospital pass from her committee predecessor, the former Customs & Excise chairman Sir Richard Broadbent.
The arcane formulae that produce such inflated rewards for chief executive Bob Diamond and his posse year after year, despite miserable share performance, were stitched into Barclays’ fabric long before Broadbent handed over the chalice. And Carnwath at least had the decency to tell the AGM that ‘the balance of rewards between shareholders and employees has to change in favour of shareholders’ in future.
Also chairman of the property group Land Securities and former chairman of the derivatives broker MF Global (which went bust, after her time, under former US senator Jon Corzine), Carnwath is a seriously thoughtful operator with a reputation for cutting swiftly to the chase. She also, I suspect, doesn’t bother cultivating journalists, some of whom — Nils Pratley of the Guardian to the fore — have called for her resignation from Barclays. But I hope she stays and is allowed to put her words into action, because bank boards need tough cookies like her who are not afraid of change.
If anyone should consider his position, however, it is the bank’s chairman, Marcus Agius — a nice man and an admired corporate financier in earlier days, but one who has made little public impact during his five-year tenure at Barclays, made a hash of this AGM and, unlike Stephen Green at HSBC or Sir Philip Hampton latterly at RBS, has failed to articulate the moral issues with which the banking sector is so beset. Carnwath might even turn out to be the right person to succeed Agius.
Apple harvest
In our Investment Special this week, Tim Price explains smart ways of picking defensive stocks, and Alex Brummer highlights the ‘rise and rise’ of Apple’s share price. My own investment technique has always been defensive, but rarely smart: how I wish, for example, that I had followed more of my hunches about products and brands that pleased me as a consumer. Every word I’ve ever written as a journalist, for example, has been typed on a succession of Apple computers and laptops, each more powerful and more intuitively user-friendly than the last.
For many years Apple’s market value was a poor reflection of its design brilliance, so backing that particular hunch wouldn’t have looked clever. But in late 2004, when the ubiquity of the iPod transformed the company’s profits, the shares began to soar — and since 2009, with the cult of Steve Jobs and the triumph of the iPhone and the iPad, they have risen five times faster than the booming tech sector as a whole.
If each time I had forked out for a new item of Apple kit over the past 20 years I had invested the same sum in the shares, my total outlay of less than £10,000 would have produced a holding worth well over £300,000 today. Hey-ho, that’s probably why I couldn’t find my name in this weekend’s Sunday Times Rich List.
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