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MG Rover: four fat cats and a funeral

Four bosses running MG Rover awarded themselves “unreasonably large” payouts, the long-awaited Department of Business report said.

The car firm went bust in 2005 owing £1.3 billion, with the loss of 6,300 jobs directly and more in the supply chain.

The pay and pensions of five directors (including the infamous Phoenix Four – MG Rover chairman John Towers, vice-chairman Nick Stephenson, Peter Beale and John Edwards) totalled some £42 million yet the risks they took were “relatively unsubstantial”.

The firm was tiny in mass car market terms yet the directors claimed they were doing similar work to the bosses of a major multinational.

Nice work if you can get it.

The report states that they “chose to give themselves rewards out of all proportion to the incomes which they had previously commanded, which were also large when compared with remuneration paid at other companies and which were not obviously demanded by their qualifications and experience”.

In fact, they tried to extract more from the complex operations of the group.

For example, ‘Project Patto’ was an attempt to reduce the indebtedness to BMW of Techtronic, which would have had the effect of increasing the value of the Four’s shares

This was abandoned when BMW realised what was going on.

Assets and liabilities were distributed across a hugely complex group.

Assets were allocated to non-MG Rover companies, while MG Rover was made to bear liabilities that should have been borne by Phoenix.

Tax losses to which MG Rover was entitled were transferred to Phoenix.

The report contains surprisingly little criticism of the Government and focuses on the greed of the directors in excruciating detail.

For example:

  • Stephenson paid more than £1.6 million to a consultant with whom he had a “personal relationship”
  • MPs investigating the demise of the firm were given “inaccurate and misleading information” by Beale
  • A £470,000 bill to solicitors which was invoiced to Phoenix was authorised to be paid by MG Rover the day before the firm went into administration
  • Beale used software to “clean” data from his personal computer, a day after investigators were appointed, despite being aware that they would want to review its contents.

The report also found that the Government couldn’t be blamed for the collapse of the talks in 2005 between MG Rover and SAIC, as the latter had lost interest in Rover.

While the British Government “seriously” considered offering a £100 million bridging loan to facilitate the deal, it rightly decided there was little realistic prospect of it ever being repaid.

In a blistering attack on the Phoenix Four, Lord Mandelson said that proceedings would begin to formally ban them from being directors.

He said the Government was determined to learn lessons to ensure greater transparency about the impact of decisions which directors are making and the state of the companies they are running.

This is potentially very significant. 

Of particular interest, the inspectors suggested improvements could be made to auditing and reporting standards that would increase transparency in financial statements.

The issue of “going concern” may need looking at and the Financial Reporting Council will be asked to look at this.

The report also suggests that although the transfer of assets and tax losses between companies with the Rover Group was in accordance with accounting standards, readers of their financial statements would have been better informed had the “true or potential value of these assets been explained”.

 Here the report suggests that making such disclosures mandatory would improve understanding of a company’s financial performance.

Let’s hope that the real losers here – the MG Rover workers – can now have some closure.

Some important lessons also need to be learned so that accounting and auditing procedures can be improved so as to provide greater corporate transparency and accountability.

 

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