A Lord on every Board.
Once upon a time, there was a very clever man, who was much in demand during his political career as a 'fixer' and mediator between often difficult people.
After his retirement from political life, he went to the House of Lords and followed the example of many senior politicians in making his services available as a non-executive director.
We refer to Lord Wakeham, who was once reputed to have held fourteen directorships at the same time. Thirteen have been forgotten but one stands out - Enron - Lord Wakeham was the chairman of the Enron Audit Committee, the sub-committee of the board that is supposed to oversee financial probity and ensure that the independent auditors were doing a good job. Alas, although the board of Enron seems to have felt that a Lord on the Board would be a sign to the world of straight dealing and probity, it appears that the possession of a peerage and a successful political career does not offer a guarantee of any of these good things!
Lord Wakeham seems to have blended quietly into the background since Enron, but the habit of fronting the board with lords seems to have found a new life with the gaggle of Russian and ex-Soviet state companies that are currently invading the London Stock Exchange.
We hope that the experience will be better for investors than Enron - but have our doubts.
- The business culture of many of the countries in which the companies are based
- The actual or potential involvement of the Russian government in many of the companies
- The backgrounds of the owners, often known as 'oligarchs', who have used the opportunities offered by the breakdown of the Soviet economic system to the full.
The fact that these companies are not queuing up to conduct their IPO's in New York, Frankfurt, Paris or other stock markets that might be argued to have more robust regulatory regimes than London - as one seasoned observer, Max King, investment strategist at Investec commented: Partygaming (Gibraltar based) and Kazakhmys (Kazaksthan) are also refugees. With at least four (now many more) Russian companies lining up for flotation, London is well on the way to joining Panama and Liberia as a 'flag of convenience' location.
So who are these new Lords on the Board?
- Lord Owen was international chairman of Yukos, before that company succumbed to the control of the Soviet government and was declared bankrupt in very dubious circumstances.
- Lord Daresbury, a former jockey and the chairman of Aintree racecourse, became chairman of Highland Gold, and steered it to an AIM listing in 2003. In 2004, profits slid 30% and costs surged. Lord Daresbury retired from the board. Undeterred, he became a non-executive director of Russian steel company Evraz Holding and chairman of KazakhGold in 2005.
- Lord MacKenzie of Framwell Gate is a director of Oriel Resources, a company with mining interests in Russia and the old Soviet Union. Before his appointment he was a chief superintendent in the Durham police.
- Lord Renwick of Clifton joined the board of Kazakh copper company Kazakhmys before its London listing. It is reported that he was put forward by JPMorganCazenove, the lead manager of the IPO, where he is vice-chairman. Lord Renwick was waspish with those who questioned his involvement with Kazakhmys: "I am not on the board because I am a member of the House of Lords but because I have many years experience in the mining industry". Looking at his CV, it appears that he was a career diplomat from 1963 to 1995, then had involvements with Robert Fleming, Fluor and Financieres Richemont until 1997, when he joined the boards of BHP Billiton, Harmony Gold and now Kazakhmys. A friend who had a career in mining wondered what specific mining expertise Lord Renwick had that Kazakhmys found so useful.
- Lord Lamont met Gagik Zakaryan, a Russian entrepreneur at a party at Cliveden last year and was recruited as a non-executive director to help steer Zakaryan's bank, Unistream to a London listing. Said a company spokesman, "Lord Lamont is obviously a very respected figure in the City... and he's a lord, which helps too".
One wonders what the promoters of stringent corporate governance think of all this. Here's one view: Bill Browder, chief executive of Hermitage Capital said: "Russian shareholders are cash-rich and credibility poor, so if they can get an important person on their board it's a good thing. If important people ask me if they should accept posts on Russian boards, I always say 'No', because most of the time they will have no ability to change what the Russian shareholders will do, but will still have some liability for what happens".
We wonder why they all do it?