Lessons from Weinstock

It is immeasurably sad that Arnold Weinstock should have died on the same day that his company, Marconi, issued another set of results so dismal that they could barely keep the market value of the group above £100m.

It is tragic that he should have had to stand on the sidelines recently while one of the original constituents of the FT30 index was relegated from the FTSE-350 into the realm of Small Caps.

The stress of watching others take two years to destroy the corporate empire he built up over four decades might even, to some extent, have been literally mortifying.

Lord Weinstock created the enterprise that he always referred to – accurately if pedantically – as ‘The GEC’ through the amalgamation of a number of businesses in the early 1960s (most notably Radio & Allied Industries and English Electric), but as the 1980s dawned his investors and City critics demanded more.

Weinstock built up a cash mountain worth billions of pounds, but while this reflected Weinstock’s natural caution – and parsimony – it hardly seemed to be the raison d’etre for the company. Frustration with his apparent inaction was so great that City bankers even launched a hostile – but ultimately futile – bid for GEC.

Weinstock’s mastery of the company budgets was legendary. With a speed dialler on his telephone, he had a direct line to scores of managers who lived in fear of his phone calls querying an overspend here, a lower margin there. He had the greatest respect for ‘the shareholders’ – of which he, of course, was one of the largest – and would not tolerate profligacy: the company’s Mayfair head office was extremely spartan and directors had to buy their own copies of the Financial Times.

He was no Thatcherite, however – but his wasn’t because of any liberal-minded approach to industrial relations. As the Daily Telegraph reminds us today, the head of one of the major unions once described Weinstock as ‘Britain’s largest unemployer’. Rather, Weinstock’s business relied on public sector contracts – telephone exchanges for the GPO, radar for the RAF, nuclear power stations for Tony Benn’s Department of Energy: the free market winds of change that blew away cost-plus pricing and insisted on better value-for-money through competitive tendering were never likely to appeal to a man who perhaps paid more attention to trivial deviations from the budgets and less attention to the need for expensive customer-focused reform.

It is academic now to speculate on what sort of business GEC might have been had he splurged more on acquisitions, invested more in his brands and undertaken more ambitious restructuring.

But it’s worth a few minutes’ thought to contemplate Weinstock’s reluctance to adopt a strategy that others believed would have created more shareholder value (had the City had such words in its vocabulary in those days). Weinstock played a low-risk game and cash was vital for survival in lean years. Who can say how much value he failed to create at a time when the share price of American rival GE was racing ahead? What is certain is how much value was destroyed by his successors in pursuit of a strategy that may have overlooked the fact that high reward is not guaranteed by high risk. Weinstock’s strategy wasn’t always right – but it wasn’t always wrong, either.

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