Press Report : The Phoenix Four’s response to the DBIS’ MG Rover Report

Birmingham Post, 11th September, 2009

At 9am today the Government published the long awaited report into the collapse almost five years ago of MG Rover.

The 850 page report – which has cost taxpayers upwards of £16million – accused the so called Phoenix Four – John Towers, John Edwards, Nick Stephenson and Peter Beale – of putting personal gain ahead of the success of the company and of being out of their depth.

The report confirms many facts already well known about the debacle including that four men, along with the former Chief Executive Kevin Howe, took £42million out of the company in pay and pension contributions during their time at the company.

However, there was no mention of the Government’s involvement in either brokering the original deal or its attempts – or not as the case may be – to save the company when the takeover from BMW turned sour.

While the report clears the Phoenix Four of any illegality, Business Secretary Lord Mandelson is now reported to be looking to ban them all from holding directorships, a move described by the four as further political grandstanding by the Government.

Any readers wishing to study the DBIS’ Inspectors’ Report on MG Rover Group Limited can do so by following this link to the Department of Business, Information and Skills’ website from where Volumes I and II can be downloaded in full.

Here the Directors of PVH Holdings and the Phoenix Four give their response to this morning’s report:

The report is entirely as we expected – a witch hunt against us and a whitewash for the Government. It is also dripping with the hallmarks of this Government – spin, smear and point blank refusal to take any responsibility for their own actions.

We criticised the Government for failing to help MG Rover. As we have seen elsewhere, there is a price to be paid for criticising this Government and for us this report is that price.

The Government was, however, willing to spend £18 million of taxpayers’ money on a report – many millions more than they ever gave MG Rover. Not surprisingly, they have got a version of events that suits their interests. This report was supposed to explain why MG Rover collapsed and it has failed to do that. Our remuneration was not the reason for the collapse. The real reason it collapsed is because this country’s Government bottled its chance to save MG Rover.

The script for this report had been written before the process started. The Inspectors were not interested in hearing about any of the fundamental business processes, and in virtual denial when it came to discussing the role of Government.

The Government also tried to accuse us of fraud – a tactic that failed. The latest indications are that they will pursue Disqualification Proceedings against us, despite the fact that it is very well known that there is no possibility of us ever again considering this sort of role in the UK. It is political grandstanding.

This report tells us nothing new about our remuneration – everyone knew what we were paid. It was never a secret. They did not have to spend £18 million to find that out. Our remuneration was all in the company accounts and signed off by Deloitte, one of the world’s most respected firms of auditors. It was entirely legal, above board, and much less than similar payments in large car companies.

Swept aside in this report is the fact that, in April 2000, the padlocks were going on the gates at Longbridge. The mighty BMW was closing the company and thousands of people were staring the dole in the face.

That didn’t happen because we were not prepared to let it happen. We then succeeded in drastically reducing the company losses where BMW could not. We secured hundreds of millions of pounds of new investment and most importantly, secured employment for a workforce who received £1 billion in wages over five years. The Exchequer also received £450 million in taxes.

Our greatest regret is that the company could not ultimately be saved. All of us had strong links to the company. Saving MG Rover was why we took the challenge on in the first place, not personal gain. And no-one else wanted the job. The suggestion that we put personal gain ahead of the interests of MG Rover is utterly offensive and a complete travesty of the truth. One point which has been conveniently overlooked in the report, even though it was widely known, was that we were willing to put £10 million of our own funds back into the business to ensure the future of the company.

We tried our best and to this day we are bitterly disappointed that when the moment came for the government to step up to the plate to help MG Rover, it didn’t.

The Directors make the following comments in relation to key areas of the report.

Remuneration:-

Our motive for getting involved with MG Rover from the start was to do what we could to save the company and the jobs of thousands of workers. This was recognised widely in West Midlands at the time. We did not have a clue what our remuneration would be at the time we took over. We reject the accusation that we did not take risk. We were not particularly wealthy people and £240,000 for us was a significant commitment and we firmly believed we were liable for at least a proportion of the professional fees which eventually came to over £7 million. Our risk and commitment cannot just be measured in cash. We were successful professionals and we changed our whole lives.

Our remuneration packages were in keeping – or less – than the leaders and owners of other similar sized companies in the automotive industry and other industries. The report compares our remuneration with the likes of the people running Morgan cars. It is a ridiculous comparison – like comparing a supermarket with a local delicatessen.

We find it offensive and untrue that we acted improperly in relation to remuneration. Everything was legal, above board and arranged in consultation with lawyers and corporate governance experts to ensure our remuneration was in order.

Character Assassination

The Government Inspectors have attempted to portray us as being unqualified to run MG Rover and were motivated primarily by personal gain. Nothing could be further from the truth.

John Towers, a CBE, had already successfully turned the Rover Group from loss to profit as a former Managing Director, John Edwards’ family had been associated with the company since 1916, Peter Beale was a respected accountant, and Nick Stephenson, holder of the MacRobert Trophy, was regarded as one of the UK’s most talented automotive engineers. He also led the team that designed the new MINI.

During their investigations the Inspectors deliberately rejected all evidence from us in relation to our achievements for the company during our tenure.

Instead, they pursued a pre-ordained strategy of character assassination and ignored all evidence put to them to the contrary which didn’t fit the picture they were trying to paint. They failed to establish any breach of fiduciary duty by us and failed to make any case that anything that had been done was illegal. There is no basis whatsoever for the Government to seek our disqualification as Directors.

We could equally challenge the Inspectors’ competence to run such an enquiry. They continually demonstrated a complete lack of knowledge or understanding of the motor industry and very little understanding of business in general.

Alternatives to the Phoenix Consortium

There were no alternatives to the Phoenix bid for Rover. The report itself makes clear that the so-called bid by Alchemy had been withdrawn. It also states that had the Alchemy bid gone ahead, Alchemy would have been paid £500 million by BMW which was to have funded huge immediate job losses.

The stark reality of the situation is that at the time, the BMW liquidation team had arrived at Birmingham Airport and were about to prepare for the closure of Longbridge – the end was that close and it is a day we as Directors will never forget.

Role of the DTI and Government.

The Government has spent more money on this deeply flawed report than it ever put up to help MG Rover. MG Rover received less than £5 million in subsidy during our tenure as directors.

In 2004, the DTI was already planning for the collapse of MG Rover – they called it contingency planning. News of this quickly got around the business community. The effect of this was to create the equivalent of a run on the bank by suppliers and dealers and seriously affected our business. This was commented upon by an investigation and report by the National Audit Office which has been ignored completely in this report.

Instead of planning for closure, The DTI could have helped MG Rover and its workforce by actively trying to help the company keep going.

The £100 million loan that could have saved MG Rover.

From the outset we made it clear that MG Rover needed a joint venture to secure long term survival. After several attempts we were on the verge of securing a deal with Chinese car makers.

The report’s Inspectors understood little about the actual deal being negotiated in China. They continually refer to SAIC (the Shanghai Automotive Industry Corporation) and its advisors Rothschild whereas the deal was actually being negotiated with a joint venture company, Donghua. This joint venture was set up on the insistence of the Chinese Government.

The report supposedly details the final hours of the collapse of negotiations with the Chinese car manufacturers.

However, It is clear from the report that officials in the DTI did not want to offer MG Rover the £100 million bridging loan even though Patricia Hewitt and Tony Blair believed it should be done if possible.

The report manifestly fails to explain the full role of the Treasury, the then Chancellor Gordon Brown and Shriti (now Baroness) Vadera, a Treasury adviser, both of whom had a key role in the final decision on the loan.

The Chinese only indicated they would not go ahead with the deal when they knew the UK Government would not be making the loan to MG Rover.

It is our firm belief that a combination of civil servants opposed to the loan and the failure of Brown and Vadera to openly support the proposal sent signals to the Chinese that the UK Government was at best deeply uneasy about supporting Rover. In a country like China where government is central and very active with business and industry, this was the equivalent of a death blow. This, in turn, led the Chinese to halt negotiations.

UK Government special advisors have been gently slapped over the wrists for leaking negative stories to the press at a critical stage in the proceedings. In reality this had a devastating effect on the business creating an 11th hour stampede by suppliers. It was one of the final nails in the coffin.

There was nothing more we could do. We had prolonged the life of Rover so that the supply chain could massively reduce its dependency on the company so that even were it to fail the consequences would be far less. We delivered the JV partner we always maintained would be required to ensure MG Rover had a long term future. We presented a deal that was so advanced that these Government Inspectors agree in their report it was there waiting to be done. We had guaranteed an unprecedented request from the Government for £10m of our own money to make it happen.

For its part, our Government had indicated it would lend the required bridging money: just £100m. All that was required was that our Government fulfilled its promise to push the deal over the line. That it could be relied upon not to dither and do a U-turn. It could not. And the workers at Longbridge and the UK taxpayers who support them have been paying the price since.

Surprisingly, the Government then offered MG Rover £6 million after the company collapsed, despite being told by the Administrators that there was little possibility that the Chinese deal could be resurrected quickly. It was too little too late and reflected the DTI’s lack of understanding of the process. The Chinese did eventually take over the business but at a human and financial cost that would have been very different had the original process been supported. It is also interesting that the Inspectors have not commented on this issue of the £6 million despite much comment in the press.

Running MG Rover

When we took over MG Rover BMW were suffering losses of £700m a year. During our tenure we reduced those losses to £80 million per year.

Other car manufacturers in the UK were being closed left right and centre. Ford closed Dagenham, Vauxhall closed Luton. Peugeot closed Coventry. The industry was going through a very difficult time. This is not reflected in the report at all.

As Directors, we secured more than £800 million of inward investment to MG Rover at the time from foreign investors, which was the biggest investment achieved in Europe.

We have been accused unfairly of having a complex company structure. The criticisms of the structure of the company ignore business realities, and ignore similar structures in other car companies.

Protecting profitable areas of the company simply makes good business sense and is commonplace, and was done on the advice of the company’s professional advisors.

The group already consisted of 20 companies when it was taken over from BMW. Other companies were created to enable JVs and acquisitions, to reflect changes in shareholder structure and to protect intellectual property. The structure of PVH was simple relative to other car companies. At the time BMW had 250 companies worldwide and 30 in the UK, DaimlerChrysler had 500 companies worldwide and PSA had 300. The Inspectors deliberately ignored these comparisons because they did not fit their pre-decided narrative. They also ignored the fact that our structure and the transparency of our reporting meant that people knew more about the detailed activities of the company than ever before in its history. And to suggest that the structure made information about the group more difficult to discern is to ignore completely that all information such as that on remuneration was readily available in the notes to the accounts of the parent company every year.

Profits made by other parts of the group were poured into the manufacturing activities to help their survival, for instance £23 million of profit resulting from the MGR Capital transaction was ploughed into MG Rover to help its operating costs. This was ignored by the Inspectors, as was the fact that Xpart sale proceeds were sought and provided to fund MG Rover.

It would be absurd to suggest that we did not make mistakes. For example, our efforts to seek a joint venture partner in China got off to a bad start, subsequently realising we had failed to comprehend fully the complexities of doing business in China. We succeeded in remedying the situation but it cost us valuable time. We learned from it. We also failed to engage properly with the media in the early days. Whilst we were reactive to negative PR, we failed to understand the importance of positive PR to inform others of what we were trying to achieve with our business strategy. Hindsight is a wonderful thing but we learned from our mistakes and focused our concern at all times on the survival and future prospects for MG Rover – a company we were proud of, with a workforce for which we had the utmost respect.

Conclusion

The Directors submitted 325 pages of defence documents covering every aspect and every criticism in the report. These have been almost entirely ignored. The result of that omission is a report which is seriously flawed, prejudiced, incomplete, slanted towards Government and which – most damning of all – completely fails to explain why MG Rover was allowed to collapse.

[Source: Birmingham Post]

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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  1. Ross Armstrong says:

    Funny thing is, I’m inclined to believe most of what the Directors are saying. There are a lot of gaps and points in the report that either hold half-truths or don’t actually tally up. Indeed, to be fair it all seems so one-sided that it’s almost a theatrical joke.

    Certainly, I’m not saying that they’re perfect – so many stupid mistakes (as mentioned elsewhere on AROnline) could have been avoided and saved them time and money in carrying the business forward but, judging by what others have said, they weren’t exactly resting on their laurels in trying to find JVs from around the world.

    The whole thing does stink of a whitewash and typically looks like it’s had Gordon Brown’s stamp of approval all over it. He’s always around to take credit when everything works but, when it doesn’t, he is nowhere to be seen…

  2. didierz65 Didier Ziane says:

    Who hasn’t made wrong decisions at work? I don’t think the Phoenix Four wanted Rover to go under – it was their job, they tried their best. Which ever side you take, it’s obvious that the Government didn’t try to save Rover at all – it wanted the “English patient” to die. 30 odd years on a life support machine had already cost billions in today’s money… a £100M loan wasn’t that big to save 6,000 workers’ jobs but Blair/Brown feared a media backlash and there were 4 scapegoats on the ready to blame and bash (that’s £16k each and it was a “loan”).

    How much has been spent on skills/careers/training etc? Well, at least, that keeps civil servants in jobs!!! Ahh, politics…didn’t take long for Brown to rescue the banks whose CEOs and Directors have been lining their own pockets (and their shareholders’) but came cap in hand for BILLIONS. Double standards…

  3. Roger Atkin says:

    Interesting that the Directors feel that the report took virtually no account of the 325 pages of material they sent to the people conducting this investigation.

    Given that they feel that their actions have been mis-represented, it would be good if the material that they submitted could be similarly published so that people can make up their own minds.

  4. David says:

    The amount the four Directors paid themselves was, in hindsight, excessive given that they were running a loss-making company and should not have rewarded themselves such a generous remuneration package. However, the 830-page report fails to identify some of the wider issues MG Rover Group had to face when BMW rushed through the sale of the Cars division ahead of an important Shareholders’ Meeting, such as having to re-establish a sales presence in a significant number of export markets where Rover dealerships were previously shared with either the Land Rover or BMW franchise. MG Rover’s ability to reduce costs and improve productivity of its models was also completely overlooked in the report, as well as some of the other avenues they persued with other potential partners such as Fiat.

    Watching the reaction of Lord Mandelson from a psychological perspective is also interesting, as it suggests there is an overwhelming desire to get the general public to shift all focus of the collapse of MG Rover and the cost of the report that followed away from the Government and onto the Phoenix Four instead. Lord Mandelson’s uncharacteristically fast response to the Phoenix Four’s reaction to the published report and using powerful phrases such as “brass neck” and “contempt” also reinforces the authoritarian slant to minimise further focus on the conduct of the Government before BMW sold Rover to the Phoenix Four in 2000, the period during its independent trading up to going into administration and conducting this four year Inquiry.

    Now is the time for the Phoenix Four to present all their evidence and give academics and the general public who are not constrained by censorship the chance to compare it to the report endorsed by the Government in order to arrive at a more balanced and potentially more reliable conclusion.

  5. Steve McGill says:

    How ironic is it that the Government can sneer at and criticise and basically damn the Phoenix Four when the Government have wasted more in 3 months than MGR lost in 10 years! MPs expenses claims and endless other scandallous wastes of taxpayers cash could have been used to keep MGR going until they got back on their feet. If you ask me the “crimes” of the Phoenix Four were tiny compared to those of Blair and Brown…

  6. Jonathan Carling Jonathan Carling says:

    MGR didn’t have a chance of survival as a volume producer, as the Phoenix 4 would have known from the start. The only option then was a possible sale or eventual closure. They took the risk and ensured that 5,000 staff remained in work for five years – not a bad outcome, given that the alternative was redundancy for most of them in 2000.

    There’s no doubt that the pay they received was excessive but, if they had put half of it, say, back into the company, how much longer would it have lasted? Another couple of months maybe? The accusations should be of incompetence in failing to get taken over (drunken negotiations with the Chinese, if true, showed how far they were out of their depth), although they seem to have come close.

    The unacceptable face of capitalism? Maybe, but a fairly unique set of circumstances and I think, to some extent, mitigating.

  7. Ian Elliott says:

    Just a couple of points:

    1) Mandelson’s ‘outrage’ at the P4 is a bit rich coming from the Prince of Darkness himself, who twice had to resign from the Government in disgrace. How about making sure that he should never hold public office again?

    2) The media, in their usual hackneyed way of maximising the ‘bad news’ about anything to do with the former British Motor Industry, keep going on about the £1 billion-plus debts of MGR. It should be pointed out that a very large chunk of that debt was ‘wooden dollars’ owed to the P4 themselves!

  8. Andrew Howlett says:

    Frankly I can’t see what these men are supposed to have done wrong! Left to BMW, the plant would have closed in 2000, as the German firm wanted rid of it ASAP. This would have thrown thousands of workers onto the dole.

    The Phoenix Four bought it cheap and kept it open for 5 years, during which it provided employment for thousands of people, both locally and in suppliers across the country. So they took an average of £10 million each? That’s peanuts compared to what some people take home and would have kept the plant running for a few extra weeks. The real culprits are Stephen Byers etc, who shoved in just enough money to get through the General Election and then pulled the plug! Snakes.

  9. Hilton says:

    Despite the so called “rights & wrongs” of the Phoenix 4, I still think that HMG should have made the £100M loan to save the SAIC deal. Yet another case of transient Politicians (eg Patricia Hewitt/Steven Byers etc.) wrapping up a company then walking away into another Government dept!

    The cost of the report (£16M) weighed against saving the company was a further waste of public money. Yes – I agree that Peter Mandelson shouldn’t be shooting his mouth off against the P4, given his own chequered background in public office.

  10. Richard Turpin says:

    On the face of it the Directors look greedy but, let’s face it, they were on a hiding to nothing from the start. The real villains of the whole mess were Labour from the day the Government got involved in the 60’s although under Maggie things starting improving [Michael Edwardes, Honda, Graham Day etc.].

    However, with this lot in charge things have gone from bad to worse. The Japanese and the Germans appeared to act honourably but I wonder… Anyway, the end result is we end up begging the Chinese to buy up what’s left of Rover – this would never have been allowed to happen in any other large industrialised country.

    We shouldn’t forget the role of American multinationals in all this either. High economy of scale companies like GM/Vauxhall and Ford have always been thought of as British companies by buyers but they are nothing of the sort. Through the 70’s, Ford were importing more cars than the Japanese but they never got the flak. Now, apart from Transits, Ford make no vehicles in this country and yet they are still the best selling make.

    I’m therefore sort of glad that Towers and company managed to grab some dosh before MGR collapsed but the Government will still slag them off to take the public’s attention away from its own lamentable performance.

  11. Jonathan Carling Jonathan Carling says:

    @Hilton It may well be that the Government couldn’t do the loan deal because of European state aid rules.

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