IT’S GOOD TO SHOW STAFF YOU CARE
Fat cats refusing the cream? Not unheard-of but rare enough to make the news. And that’s the point. There is a message to be delivered. There are three audiences – investors, lenders and staff.
I’m a big fan of Regus. It has a good business model – providing short-term leases for office accommodation to allow companies to grow flexibly without being forced into those awful long-term leases.
But it is a business model that is very susceptible to economic cycles.
Most of the costs are fixed so short-term profits depend almost entirely on the volume of sales – and there will be good years followed by bad years. Judging cycles is notoriously difficult and for Regus particularly since it has only recently gone through a period of massive growth.
The message to investors and lenders is they should ‘stay with us’ through this bad period. This is a company worth saving. Having been a customer of Regus, I am also a fan of its services. The customer-facing people on the shop floor were efficient and knowledgeable. They understood my problems. The follow-through on service was immaculate.
So the message to staff is we are all in this together. It helps alleviate the pernicious feeling of ‘it’s all right for them’. Management still cares.
You don’t run a successful company without your people behind you. And it seems Regus has been successful in gaining the support of its staff.
It is always traumatic making large numbers of people redundant as Regus has recently done, and you need to keep people on board.
Taking a pay cut is not enough on its own to deliver these messages.
It won’t save bad management or a bad business from the chop. It won’t make staff trust an uncaring management. But it can very effectively emphasise an overall message – the downturn in the business is temporary, management is not changing its spots, we can turn this around.
It’s not a weapon in everyone’s armoury – if you have a huge mortgage and school fees it may simply not be possible. And in many cases it would be a futile gesture – such a move by the bosses of BT or Marconi would have had a cynical reception.
But the directors of Regus are on the right track. It is appropriate.
I wish them the best of luck.
– Neil Chisman is a director of several companies, former FD at Stakis and Thorn and a member of the Financial Reporting Council
LEAVE THE DRAMA TO THE SOAPS
Devotees of Brookside or Corrie know that in soaps the dramatic gesture is de rigeur. Now it seems life is beginning to resemble art. The recent headline-grabbing dramatic decision by Stephen Stamp, financial director of Regus, to forgo his salary in response to the company’s difficulties has a superficial attractiveness but it should not be confused with leadership.
A foregone salary will have no impact on shareholders. It certainly won’t make them financially better off. And will it really help to motivate the troops? Isn’t there a danger of showing up the contrast between the ordinary employee, who could contemplate giving up the salary as much as deciding to fly, and top brass?
Not that business leaders are the ones who have started the empty gesture in the realm of corporate governance. The focus of corporate governance was meant to be about stewardship of a company as a whole, of which directors’ pay is a significant part, but just a part. A mixture of government politicking and tabloid journalism is in danger of turning the whole subject into a narrow debate about pay. No wonder people like Stamp are under pressure.
Look at recent announcements from trade secretary Patricia Hewitt, who said: ‘Shareholders are to be given the right to an annual vote on directors’ pay, in a move that will strengthen links between pay and performance in the boardroom.’ That sounds radical, but directors can rest assured their pay and bonuses are not under threat from fed-up empowered shareholders.
What the new law will require is for quoted companies to table a resolution each year on the directors’ remuneration report. The vote will be advisory, and will not require shareholders to approve specific levels of remuneration.
It will, the government assures us, enable shareholders to express a view on matters such as the robustness of performance criteria and membership of the remuneration committee.
It is hard to see a company like Regus being affected by such a change.
It is good at PR and has pleased the City with restructuring plans. Anyone running a business will have huge sympathy with it. Regus has shown great entrepreneurial spirit and risk-taking ambition to build a business from nothing. It is to be hoped the multimillion pound losses can be stemmed.
But Stamp working for free or taking his full contractual entitlement will not make a jot of difference.
So Stephen, or any other FD thinking of such a gesture, all I can say in the finest tradition of EastEnders is ‘leave it out!’
– Peter Williams is a freelance writer.
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