C&W boss walks financial tightrope

The unruffled demeanour was on show again at a recent press conference to unveil C&W’s full-year results. C&W holds a 49 percent share in TSTT, with the government holding the rest.

The troubled telecom carrier disappointed the market with a 30 percent slump in profits, but most attention was focused on the staggeringly generous incentive scheme he has devised for its management team, led by John Pluthero and Harris Jones.

Lapthorne has spent the past weeks meeting investors to explain the plan. In a nutshell, it could see Pluthero and Jones — managing directors, respectively, of C&W’s UK and overseas businesses — pocket up to ?22 million each, with millions more for other managers, depending on performance over the next four years.

Lapthorne, 63, seems bemused at people’s inability to see the logic of these arrangements, which require drastic improvements before executives even begin to benefit. “Our market cap is currently ?2.4 billion. If management push it up to ?4.3 billion, they’ll get three percent of the upside. If they reach ?5 billion, they’ll get six percent of the upside. As a shareholder, I’d love to have to pay this out, because by then I’d be quite wealthy myself.”

But why should highly regarded executives need extra cash to do their jobs well? Lapthorne obviously considers the question naive. “In my experience you don’t get turned on per se by money, but you don’t half get sharpened.”

A trained accountant, Lapthorne has previously served as finance director at British Aerospace and Courtaulds. Surprisingly, he has never been a chief executive, but he holds numerous non-executive directorships besides his ?400,000 job at C&W. Lapthorne insists he is not spreading himself too thin: he works one day in three, and is a keen gardener.

Still, the chairmanship of C&W has been no sinecure, and Lapthorne was appointed in 2003 as a troubleshooter. The results, say industry observers, have been mixed. One analyst says: “He had an extremely good time at BAE, coming over as a supremely confident chief financial officer. When he moved over to C&W there was a lot of goodwill but it all seems to have gone pear-shaped for him.”

C&W’s history dates back to the Victorian enterprises that laid cables across the British Empire. It owns a series of “mini-BTs” across the Caribbean, which remain a source of profit. The legacy he has had to grapple with, however, is more recent: a series of drastic, but botched, strategies and repositionings.

The problems probably began in the late nineties, after C&W’s chief executive Dick Brown spent billions developing operations in businesses including mobile phones, undersea cabling, and cable TV. Graham Wallace, who succeeded him in 1999, reversed this expansion, selling peripheral businesses.

The plan could have worked famously. Wallace created a streamlined company with a formidable treasure-chest by selling assets just before the dotcom crash of March 2001 would have rendered them almost worthless. Tempted, however, by the firesale prices of some of his rivals, he dived back into the market from which he had so shrewdly withdrawn. Some ?9 billion was spent turning C&W into a data infrastructure company, but Wallace had gambled wrongly — the telecoms boom had created a huge overcapacity of networks. C&W’s market value collapsed by more than ?30 billion and its share price has never recovered.

Lapthorne’s arrival saw C&W settle a ?1.5 billion tax dispute for just ?380 million and replace Wallace with Francesco Caio.

Pluthero, the former Freeserve boss and a migrant from Energis, is busy plotting yet another new course for C&W. He is determined to create a hi-tech operation in the Energis mould, geared to compete for big-money corporate and government clients. He is cutting C&W’s UK workforce roughly in half, and its customer count from 30,000 to all but the most profitable 3,000. But the plan is fraught with difficulties, mainly because BT and others are chasing the same customers, raising the prospect of a price war.

The new chief executive spent ?630 million buying rival corporate telecoms firm Energis, and about ?250 million developing internet provider Bulldog, before leaving this year as part of a reorganisation that sees Pluthero and Jones running the UK and overseas businesses.

Lapthorne admits this job is “the most difficult I’ve ever had to do.” But he believes that success beckons for C&W, and dismisses any thought that it might fall into the hands of a private equity buyer. “Why sit here and let private equity pick up the value gains? We’ll deliver them ourselves for our shareholders.”