Even after many years of meeting and interviewing business leaders all over the world, a new and curious experience is the distinct feeling of staring into the whites of capitalism’s eyes and finding that those eyes are staring blankly, defiantly, unapologetically back at you.
The unrepentant peepers in question belong to Richard Bee, who has nearly completed his first year as finance director for Diageo Scotland.
In that year, he has cemented a profile for himself among the FTSE 100 drinks group’s top brass by working with the Scottish management since arrival last February to devise a controversial restructuring plan, involving £100m in investment, to reduce its production capacity and upgrade some ageing operations.
Shifting production and packaging of its iconic Scotch whisky brand Johnnie Walker out of its historic homes in Kilmarnock and Port Dundas to more economically viable plants in the Ayrshire and Glasgow regions is expected to save Diageo £40m a year to 2012, but at a cost of 900 jobs to some of Scotland’s most economically fragile areas. Up to 700 jobs will go at its packaging plant in Kilmarnock – where Johnnie Walker was born in 1820 and where Diageo is relied on as a major employer – and 140 jobs will be lost from the decision to close the historic Port Dundas distillery and adjacent Dundashill cooperage. Outsourcing distillery co-products haulage and consolidation work to third-party providers will provide the balance of redundancies.
In good spirits
In contrast to the furore over the announcement on 1 July last year, which sparked a summer of angry protests, union campaigns and heavy press coverage over the sheer number of redundancies and the fact that most of the pain centred on poorer parts of Scotland, Bee is positively cheery about the work ahead and not hamstrung by the emotional impact on the communities in question. “The reality is, we have too much production capacity for the volume we expect to see in the future,” he says. “We considered many different things, a number of smaller objectives to take cost out and this was at the larger end.”
Putting that in perspective, the Scotch whisky business under his remit makes up about 40% of Diageo’s global volume.
Descended from a long line of accountants, there is an almost audible ambition coursing through Bee’s veins, explaining why he’s on his seventh job in 11 years with Diageo.
One can see why he had a shot at the Scotland FD job given the restructuring plan.
This isn’t his first experience in a restructuring job. He cut his teeth in corporate recovery work while qualifying at KPMG, and later, while in his first Diageo job in business support for its global supply arm, ended up dedicating two years to the 2001 acquisition of Seagram’s wines and spirits business (which was jointly bought and split between Diageo and Pernod Ricard). He believes restructuring is a “natural part” of any manufacturing business.
“I’ve been involved in a number of restructuring projects over my career. This time around I’ve been more operational as I’m involved in the proposal and the implementation. I’m on the sharp end this time,” he says. “[In my first role at Diageo] I got into some work around KPIs for global supply, but it wasn’t taking up all my time.
The Seagram thing came along and I was supposed to spend 25% of my time on it, which became 50% and then very quickly 100%. I spent the next two years of my life on it, from working with Pernod – which was absolutely fascinating – to getting a bid together and getting engaged in the Federal Trade Commission stuff (where he represented Diageo in its testimony to gain approval of the acquisition),” he says. “My job there was simple, but daunting: defend the synergies, one of which was the production footprint, and defend the savings we would be making.”
Whether Diageo anticipated that it could use a good defence when it announced its Scottish redundancy plans, or was as shocked by the public reaction as the rest of Scotland was by a very profitable business announcing such deep cuts, it had a man who could undertake that role in Bee.
Forced by the backlash to do something about the job losses and the threat to one of Scotland’s biggest exports, Scottish First Minister Alex Salmond asked the Scottish Executive to engage with Diageo and come up with an alternative plan to protect jobs.
Bee was selected as Diageo’s point of contact for the government’s people and was in daily discussions with partners at BDO, the audit firm which won the mandate from the Executive to represent government interests at the bargaining table.
“Our primary thought was that the government would want to see if there were holes in our financial case, so Bryan Donaghey (Diageo Scotland’s managing director) asked me to take the lead,” he reveals.
“I was a bit nervous beforehand. You could draw conclusions about our business case without actually seeing the plant, so I built a plan for engagement based on that, and we had seen BDO’s scope document, so we knew what it was trying to do,” says Bee. “We had them look round the sites and I checked in with them every day to make sure they were getting what they needed.
“Then I got them together with myself, Richard Bedford (grain malt distilling director for Diageo Scotland), David Kavanagh (engineering director) and John Paterson (head of spirits and ready-to-drink packaging and supply for major markets in the UK, Europe and North America) to take them through thebusiness case step-by-step, the thinking behind our plan, the key assumptions and why we arrived at those assumptions.”
Bee was well placed to explain this, having worked alongside Donaghey and group global supply director and executive committee member, David Gosnell, to write the paper on their restructuring ideas that was submitted for consideration by the board and got the ball rolling.
One senses that neither Diageo nor Bee was about to let government intervention become the fly in the ointment. Despite three months of work put into the alternative plan by BDO, the Scottish Executive, unions and local government representatives, Diageo took just a week to review and reject it outright, forcing the Scottish government into a humiliating climbdown. “I still do not believe that Diageo appreciates the social consequences of its financial decision in turning its back on 200 years of history in Port Dundas and Kilmarnock,” Scotland’s Cabinet secretary for finance, John Swinney, said of the rejection.
Bee, however, saw it as a double success. “They had no impact on our plans other than confirming that we’d got the right decision. I personally feel very positive about it because we engaged with [BDO] in a very open way, took it through the plans, answered all its questions and, as a result, it basically said our plans were sensible,” he says. “None of the proposals it put on the table came anywhere near what we needed to do and none of them were ideas we had not already considered and rejected ourselves; they resulted in significant job losses, but the financial case was much worse. They weren’t viable solutions.”
Even once the restructuring is done – expected to be in 2012 – Bee hints at future wrangles Diageo may have with the government if it decides to move parts of its business out of Scotland, which many believe is inevitable.
“If an appropriate situation comes up – for example, if there’s a choice about whether we bottle here in Scotland or somewhere else in the world and there’s an opportunity to apply for a grant to support that, for me that is the right thing for the government to support. Our job is to ensure our business is as competitive as it can be and we are competing in a global marketplace from within Scotland; we are arguably overweight in bottling our products in Scotland, but we believe there is power in that today.
“But if that means we can’t sell our products competitively elsewhere in the world, that could be a problem for us.”
Temptation lurks in many corners for Bee’s next move. He wants to be a part of Diageo’s financial leadership group and is currently reviewing the financial capabilities in his team that, he indicates, will probably lead to change within the finance function as the group expects more output from reduced resources. He’s keen on an FD job at one of Diageo’s bigger markets, but equally interested in moving to a treasury role.
“Some exposure to treasury is a good thing if you’re going to continue up the finance ladder. I don’t see myself being a CEO. I like the controlled finance environment; I don’t like the term beancounter, but someone’s got to count the beans and I like being a strong business partner with those blocks of experience.”
Name Richard Bee
Biggest operational restructuring role
Feb 2009 FD, Diageo Scotland; FD, Diageo Europe Supply
Most profitable region experience
Sep 2006-Jan 2009 SVP, financial planning and reporting, Diageo North America
First business division FD role
Mar 2004-May2005 FD, Diageo Belgium and Netherlands
First head office finance role
Dec 1995-May 1996 Financial accountant, Procter & Gamble
2004 Fellow, ICAEW
1990 Bachelor of Law, University of Manchester
This interview first appeared in the January issue of Financial Director
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