Communications giant Marconi last week became the latest company to make a sacrifice at the altar of City anger during a period of difficulty. John Mayo, its former finance director, who was being groomed to be chief executive, fell on his sword after Marconi shares were suspended ahead of a profit warning.
Whatever the rights or wrongs of this particular case, Mayo’s resignation is typical of the reaction by companies in a tight spot after dashing investor expectations. And it is pretty clear that such actions are taken to satisfy baying hounds from the big investment houses.
But is getting rid of a company chief really a wise reaction to plunging profits? After all, there are reasons other than management incompetence as to why profits go down rather than relentlessly up – sectoral downturns and recession are just two examples.
Of course shareholders have a right to demand changes in the management of their investment if they’re unhappy with the board’s performance. However, the ditching of a top director seems to have become a knee-jerk reaction – and the City’s demand for blood is surely a contributory factor in it being viewed with increasing scepticism by company directors.
Three-out-of-five finance directors in this week’s Accountancy Age Big Question survey said the City, which some describe as short-termist and fickle, was imposing unrealistic demands for growth on UK companies.
Those who run our top companies, it seems, are in the curious position on pandering to a group of people they are losing respect for.
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