No smoke without fire

No smoke without fire

As group finance director of BAT Industries, David Allvey has beenpart of the team which has seen it move from a tobacco-based company to amultinational conglomerate encompassing life insurance and retail. JohnHinton reports.

‘Smoke? Of course you can smoke – we positively encourage it,’ jokes a passing secretary. The 14th floor reception of BAT Industries reflects the confidence and esprit that is one of the greatest benefits of longevity. A Victorian tobacco jar sits proudly on display, a reminder of the product that built the company and even in the health-conscious 1990s still contributes massively to profits.

‘We are committed to the defence of tobacco products and our consumers’ right to choice,’ says group finance director David Allvey.

The modern BAT is a multinational conglomerate, and determined – publicly at least – to stay that way. While dinosaurs like Hanson demerge, the group continues to embrace the curious pairing of life assurance and tobacco.

Allvey, 51, doesn’t smoke. But then it’s hard to imagine when he’d find time. BAT’s u500,000-a-year group financial director is a member of CEO Martin Broughton’s executive committee. He’s on the board of two subsidiaries, the Farmers Group and British American Financial Services (UK and International).

In 1993, he became a non-executive director of McKechnie plc and, the following year, chairman of the Fiscal Committee of The Hundred Group of Finance Directors. He is also a member of the UK Accounting Standards Board and sits on the Technical Directorate and other committees of the English ICA.

Many of the 100 staff at BAT’s head office report to him including investor relations, taxation, treasury, personnel and strategic planning. ‘My number-one task is people – finding the right people and then involving them in management development,’ Allvey explains.

‘They may be qualified as accountants but they should use this qualification to get into other areas. Much of the repetitive work is now done by machines and perhaps it’s not long before the machines will begin to think. The great trick in adjusting to this kind of change is to develop people with great flexibility. There is no reason why accountants should not work, for example, in marketing.’

Beginning in construction

This new breed could do a lot worse than follow the Allvey example. After a civil engineering degree, he spent several years working for major construction companies and was then headhunted to manage a new one. During its early years, his interest in business and financial management grew and at 27 he left the company and became articled to a small firm of chartered accountants in Eastbourne. Piling on the pressure, he also studied for and passed a taxation qualification.

At 32, Allvey joined Price Waterhouse as a tax specialist, eventually becoming a manager in the firm’s London international tax consultancy practice. If restlessness is one of the hallmarks of the ambitious manager, Allvey showed it again when the prospect of a partnership began to loom.

Should he take it or go back into industry?

Industry – BAT – won, partly because of what he saw as the frustrations of large accounting firms. ‘In 1979, the fear of liability was already there. By the time a letter had gone through the technical and legal wringer, it was very difficult to offer proper advice. These days, accountants in the large firms carry a lawyer around with them in their back pocket.’

A 1980 snapshot of BAT, when Allvey joined as group deputy tax manager, would show one of the great old tobacco baronies worried about the long-term future for cigarettes and diversifying desperately. Two of the largest US department stores – Saks Fifth Avenue in Manhattan and Marshall Fields in Chicago – came under the umbrella, as did ice cream, cosmetics and a whole host of other product areas. But where was the reliable business engine to carry the group forward to the turn of the century and beyond?

In perception terms, it looked untidy. ‘And moreover,’ says Allvey, ‘it was not efficient for the shareholder.’

The response was an aggressive move into financial services. In 1984, BAT acquired Eagle Star. The following year it took over one of the UK’s most dynamic life insurance companies, Hambro Life, changed its name to Allied Dunbar and turned it into the market leader. With the 1988 acquisition of Farmers, BAT could claim to be the largest UK-based personal life insurer, ranking second in Europe.

Where was Allvey in all this? At the heart of it, but wearing a variety of hats: firstly financial director of the group’s cosmetics interests; then two years as finance adviser and manager of taxation at British American Tobacco; transferring back to BAT Industries in 1986 as head of the finance department. He became finance director in 1989.

u13bn bid from Goldsmith

It was after the Farmers acquisition that a shadow fell over BAT in the shape of Sir James Goldsmith who tried to force through a u13bn bid for the group. Accusing the conglomerate of doing little for its shareholders, he coined the phrase ‘unbundling’ to show that the parts would bring them more cash than the whole.

As Allvey sees it, Sir James did BAT a favour. ‘You need a sharp reminder and the Hoylake bid enabled us to change much faster.’ One of the weakest links in its armour against predators was communication. Phenomenal change – on a scale much bigger than Hanson – had taken place but, Allvey admits, ‘we hadn’t communicated it to the City effectively enough’.

‘Getting the message across both internally and externally was the most important thing but we hadn’t done very well at telling people on the outside how much had changed.’

Hoylake’s intervention also focused on the need for change to be more rapid and purposeful. ‘If you are going to do something, you might as well get on and do it,’ he says.

The defence document

The Goldsmith episode prompted a critical look at published accounts and, at that time, the clarity of defence documents for shareholders.

‘You learn how little is actually read. You spend hours poring over the position of commas and find afterwards that half of the shareholders have just chucked the defence document in the bin.’

The adage ‘less is more’ lies at the heart of his belief that longer and longer company statements, however glossily produced, betray a fundamental ignorance of what the shareholder – small or institutional – needs and wants. In 1990, Allvey introduced summary reports to BAT. You’d have to send plenty of timber to the sawmill to supply the group’s annual report and accounts to the 150,000 or so shareholders. And more than 10% of the business is owned by just 180 institutions. The waste – perhaps the communications opportunity not being best addressed – offends both Allvey the professional as well as Allvey the accountant and businessman.

‘The problem is that presently we’re not permitted to circulate specific accounts to meet the needs of separate users. The law needs to be changed.

In the same way, there should be rapid moves towards the international standardisation of reporting so accounts from other regions can be easily compared.’

Between trips to the US and the Far East, and stopovers at home with his family in Sussex, Allvey still has time to rattle his sabre up and down the corridors of the English ICA. He has strong views on many accounting issues, like corporate governance, as befits his active committee life.

‘Ninety-nine per cent of corporate UK operates and reports responsibly.

It seems perverse to enact abuse rules for the irresponsible 1%. Such rules would never be completely successful and would adversely affect the vast majority.’

PW partner Graham Ward is chairman of the institute’s Technical Directorate: ‘If David sees that something needs changing, he will commit himself to doing that. He thinks around problems very seriously, but always does so with good humour. He’s great fun to be with in meetings.’

Mention, however, the failed get-together of the English ICA and CIMA and Allvey shakes his head sadly. Elitism, he says, is taking the profession up a cul-de-sac – rather like BAT in the days before Allvey and his management colleagues decided to make the necessary changes. Faced with the ultra conservatives, all he can do is continue to be among the best embodiments of the lesson that for today’s ambitious accountant flexibility is the sine qua non.

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