A board-commissioned report, written by an independent outsider, that tells the unvarnished truth about a company is rare. It’s rarer still that the board publishes the review and concedes the damning criticisms are correct and must be addressed.
So well done Persimmon, or at least its new-ish chairman, Roger Devlin. We knew the housebuilder had disgraced itself under his predecessor when it paid a £75m bonus to the tin-eared former chief executive Jeff Fairburn. Now we know other horrors lurked within.
Last week’s report by the barrister Stephanie Barwise painted a vivid picture of how a company can be spectacularly successful in financial terms while failing customers in a most basic way. Many of the houses weren’t up to scratch.
The company operated poor systems to check the quality of work and had a general approach “which increases the risk of build defects”, said the report. Worst of all, there was a “systemic nationwide failure” to install the correct cavity barriers in timber-frame constructions, thereby exposing customers to an “intolerable risk” in the event of fire.
“The board needs to be clear about Persimmon’s purpose and ambition,” Barwise concluded. In other words, it needs to decide if the company wants to turn a quick buck or wishes to be known for building decent homes.
Devlin and his board promise the latter, thankfully. Construction processes are being improved, the cavity faults are being rectified and a “purpose” update is promised for next spring. But here’s the rub. In some corners of the corporate world, mere mention of “purpose” provokes groans. It’s the buzzword of the year but not every corporate boss and City investor is a fan.
If the government is going to continue to spray around subsidies, let the money finance good construction
Some, though they don’t broadcast their view loudly, regard “purpose” as a wishy-washy interference in the everyday business of making a profit and paying salaries and pensions. They know companies should adopt a “purpose” or “mission” to satisfy the new fashion, as they would see it, but they’d prefer such declarations of good intentions to be bland. After all, doesn’t the market ultimately punish companies that short-change their customers?
Persimmon is a tricky case in this context because short-term greed hasn’t obviously been a losing strategy from shareholders’ narrow perspective. The share price is close to its all-time high. A capitalist cynic might ask: why reform?
The answer is not simply that it is right for a housebuilder to build houses that are safe and of good quality. It is also that a high share price can be a terrible guide to real commercial risks.
Persimmon was lucky. It was courting catastrophe if it kept going down the same path, as many investors worked out when Fairburn’s pay was the sole scandal. “The long-term success of the company is being endangered by the reputational damage associated with grossly excessive pay,” Euan Stirling of Aberdeen Standard Investments told last year’s annual meeting. The same applies tenfold to a reputation for building shoddy homes.
The government should take the Barwise report as a prompt for a wider investigation of the housebuilding sector. Persimmon’s failings were egregious but were they unique? One suspects not. At the very least, if the government is going to continue to spray around subsidies, whether via Help to Buy or a successor scheme, let the money finance good construction.
If the government were to get active, as it should, a sense of societal “purpose” might be commercially valuable. The entire outsourcing sector, still recovering from scandals of half a decade ago, would be in a better place if it had remembered there’s more to life than short-term profit-maximisation. Or look at Boeing in the US.
Reports like the Barwise one can be commercially useful. And, if you’re a non-executive director on the board of a housebuilder, you should be asking: do I really understand the company’s business?
As renewables rise, onshore wind should not be becalmed
Thousands of homes across Britain were offered the chance to earn extra money this month by turning their electric vehicles on to charge overnight or setting a timer on their laundry load. Customers on a new breed of “smart” tariff were effectively paid to help make use of the UK’s abundant wind power generation, which reached a record 16GW of electricity, to make up 45% of the generation mix for the first time.
It is an early glimpse of the increasingly important role that cheap, renewable energy will play in the decade ahead – and a timely reminder to the new government of the huge potential that could be harnessed with the right policies to support one of the UK’s fastest-growing industries.
Clean energy from wind turbines and solar panels is no longer at the fringes of the UK’s energy system. As the government’s own data revealed last week, renewable energy – including wind, solar, hydro and bioenergy – emerged as the UK’s largest source of electricity in the third quarter of this year, eclipsing the output of gas-fired power plants for the first time.
The figures also showed that offshore windfarms produced more electricity than onshore for the first time too. This tipping point was inevitable, given the vast scale of the UK’s coastal wind arrays, but hastened by previous governments’ refusal to support new onshore projects.
It’s time for ministers to lift this block on onshore wind, which has consistently proved its critics wrong over the past 10 years. The points in favour of more renewable energy are well understood, and the cost of an onshore wind renaissance to the public coffers would be negligible now that technology costs have plummeted. The industry needs little more than a guarantee that returns will be in line with the typical market price to satisfy investors. It’s time for a second wind for onshore turbines.
Winners and losers as Heathrow’s third runway delayed yet again
In this triumphant dawn where leaders Get Things Done, the news from Heathrow strikes a jarring note. It will be 2029, not 2026, when it opens its third runway – a crucial accessory for post-Brexit Britain, supporters argued, despite half of the airport’s flights going to the EU. Once Britain’s global trading realignment is quickly done and dusted, the nation must enjoy the sunlit uplands/economic wastelands on just the two runways for eight long years.
The airport’s regulator, the Civil Aviation Authority, with its eye on cold hard reality, has concluded two things: that Heathrow was spending more money than justifiable before its expansion plan was sealed; and that it didn’t have a cat in hell’s chance of building a runway by 2026, regardless. The upshot is a classic fudge: Heathrow can spend an extra one billion pounds, but not two, just in case.
The ruling lets the airport blame the regulator for a delay to another massive infrastructure scheme which will doubtless, like Crossrail, miss completion in its target decade.
Meanwhile, British Airways’ owner, IAG, is ostensibly spitting tacks at a decision that allows Heathrow to spend more – and thus potentially charge airlines more – before the runway is a reality. In fact, IAG, which controls more than half the take-off and landing slots at Britain’s biggest airport, will not entirely rue a development that leaves its Heathrow hegemony unchallenged for longer.
Nonetheless, as the CAA shapes the prices IAG pays Heathrow, the airline denounced the regulator for letting consumers be “taken for a ride” while the airport gets “guaranteed dividends for shareholders”.
Interestingly, a 20% shareholder in both Heathrow and IAG is Qatar’s sovereign wealth fund, guaranteeing a winner in the Gulf either way. The other winner, alas, might be a certain Mr Johnson – potentially seeing out two five-year terms while never having to cut the ribbon for a runway he once vowed to oppose.