Press Comment : Just how much money was taken out of MGR?

David Bailey and John Clancy, Birmingham Post, 17th September, 2009

We know from last week’s hard-hitting Department of Business report that the Phoenix fat cats gave themselves “unreasonably large” payouts. To be precise, the pay and pensions of five Directors added up to some £42m despite them having taken ‘relatively unsubstantial’ risks.

The defence of the Phoenix Four (who by the way didn’t have the bottle to be interviewed but who rather sent out their spokesperson to face the barrage of hostile questions), was that such payouts were already known about and that the money the directors awarded themselves didn’t bring down the firm.

Well, we’re not so sure – the Four point the finger at the Government for not coughing up £100 million at the end for a deal with Shanghai. Yet in reality by then there was no deal to be had as Shanghai had already walked away.

But more importantly perhaps if so much money hadn’t been stripped out already then either there would have been a few more months to find a deal or the firm would have been a more attractive proposition for SAIC.  On this, we are trying to work out how much money was actually taken out of the firm in one form or another.

Given that the firm was probably burning through £20 million in cash a month when it went under in 2005, that could have bought around 4 months of extra production if suppliers had stayed with the firm. That might have bought much-needed time to secure a deal with Shanghai.

Before doing that, we should pause to note that the £42 million snouts-in-the-trough bonanza was just what the Directors actually managed to extract. They really wanted more. Indeed, the report details efforts by the Directors to extract more through various ‘projects’.

Back, though, to the main argument. How much money was removed from the increasingly complex and bewildering array of firms under Phoenix control over 2000 to 2005 whether in pay, benefits and pensions for the Directors or in terms of payments to advisors?

Well, we’ve run through the 800-odd page report and had a look at company accounts and think it looks something like this:

Directors’ emoluments: £42 million
Dr. Qu Li: £1.7 million
Deloitte: £30.65 million
Eversheds: £1.9 million
Albert E Sharpe: £0.75 million

TOTAL: £77 million excluding any VAT chargeable

Given that the firm was probably burning through £20 million in cash a month when it went under in 2005, that could have bought around 4 months of extra production if suppliers had stayed with the firm. That might have bought much-needed time to secure a deal with Shanghai.

Or, look at it another way, the Phoeneix Four have repeatedly said they were just “20 minutes” from a deal with Shanghai and that a £100 million bringing loan from the Government could have secured the deal. Taking the Four on face value as to how close a life-saving Shanghai deal was, that loan would not have been needed if so much money had not been leached from the firm. Of course, we’ll never know as the firm crashed in 2005 with the loss of 6,300 jobs and more in the supply chain.

Or, look at it another way, the Phoeneix Four have repeatedly said they were just “20 minutes” from a deal with Shanghai and that a £100 million bringing loan from the Government could have secured the deal. Taking the Four on face value as to how close a life-saving Shanghai deal was, that loan would not have been needed if so much money had not been leached from the firm. Of course, we’ll never know as the firm crashed in 2005 with the loss of 6,300 jobs and more in the supply chain.

What this does tell us though is that firstly the Directors are missing the point in continuing their defence that the Government let the firm down at the last minute. If they hadn’t removed so much money from the operation in benefits and paying advisors, the Government’s money would not anyway have been needed IF a deal was possible.

Secondly, the efforts of the Directors to put in place a hugely complex group structure (without any real benefit in efficiency but rather an attempt to shift assets and liabilities around to benefit Phoenix) cost a lot of money in paying advisors of one sort or another.

Throughout all of this we have a point of trying to offer a balanced appraisal of what happened at MG Rover, noting that 5 years of continued production meant both employment for 6300 workers and time for the supply chain to adjust.

Despite the difficult odds faced by the firm in 2000, in hindsight the outcome might well have been more positive if a different team had come in. The Four failed, and yet rewarded themselves massively.

Going forward, we would like to see:

1. reforms to accounting and auditing procedures to provide greater transparency and accountability. There was a key corporate governance failure here even if nothing “illegal” was done.

2. more attention paid to industrial policy and manufacturing so that we recognise the value of high quality manufacturing jobs. The Government backed Phoenix in 2000 then sat back and let the Directors gorge themselves on the firm and fail to deliver a partner or new model. Better intelligence and monitoring would seem to be key here.

[Source: Birmingham Post]

[Editor’s Note: Professor David Bailey works at Coventry University Business School and John Clancy is a former corporate lawyer, now running several SMEs including mediafuturealerts.com]

Posted in: AROnline News, MG Rover
Clive Goldthorp

About the Author:

Clive claims that his interest in the BMC>MG story dates back to his childhood in the 1960s when the family’s garage premises were leased to a tenant with an Austin agency. However, back in the 1920s and 1930s, his grandmother was one of the country’s first female Garage Proprietors so cars probably run in his genes! Admits to affairs with Alfa Romeos, but has more recently owned an 06/06 MG TF 135 and then a 15/64 MG3 Style… Clive, who was AROnline’s News Editor for nearly four years, stood down from that role in order to devote more time to various Motor Racing projects but still contributes articles on as regular basis as his other commitments permit.

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