Today’s London morning began with news that Royal Dutch Shell had agreed to buy BG Group, the oil and gas exploration business that is the UK’s third largest energy company, for £47bn ($70bn).
Some of the business media rubbed its hands together in its coverage about the rise of M&A in 2015- this deal could be the largest one yet. Everyone speculated about the implications of the oil price slump. BG Group recently announced it would write down the value of its oil and gas assets by nearly £6bn, while Shell has announced major spending cuts. The energy sector is nursing its wounds.
There was also the coverage of the bare facts of the deal for Shell shareholders- a promise of big premiums, enhanced dividends, share buyback….what’s ‘not to like’?
But where was the immediate reaction in media coverage from the standpoint of the very purpose of business and its corporate governance? It was slow to come.
Helge Lund, chief executive officer of Statoil ASA, pauses during a break between sessions at the 21st World Petroleum Congress in Moscow, Russia, on Tuesday, June 17, 2014. BP Plc are expected to sign a $20 Billion LNG supply deal with Chinas Cnooc today. Photographer: Andrey Rudakov/Bloomberg via Getty Images
Only two months ago, Helge Lund became CEO of BG Group. When the remuneration details of his move from Norwegian oil company Statoil were first revealed – £12 m in shares on top of £13 m in pay, or a total of £25m -the deal was condemned as “excessive and inflammatory” by shareholders and business leaders. There was a lot of noise, as evidenced here also in coverage in the Daily Mail.
The UK is heading for a general election on May 7, and there is a lot of talk about business, its value and its purpose – although perhaps not always couched in that language. There is also a lot of muttering about #execpay – but it is often strangely disconnected from the rest of the argument about the composition and role of business.
This morning BG Group shares opened up 42% on the London Stock Exchange. I idly wondered what, if anything, would happen to Helge Lund’s pay package, and tweeted to that effect.
By lunchtime, Bloomberg had the facts: Mr Lund might well walk away with $43m. By any standards, that is an enormous amount of money.
At a time of growing and widespread income inequality among the customers and stakeholders of business, uncertain future business strategies amid geopolitical turmoil and changing markets, it starts to look like a mistakenly large amount of money.
The board at BG Group itself admitted in its annual report that it “did not strike the correct balance” on pay with its original offer of a £25m package to Mr Lund. This was amended last December to ensure his earnings would be more closely linked to company performance.
In the BG annual report, Sir John Hood, the head of the remuneration committee, wrote that there was a “difficult balance to be struck” between offering competitive remuneration in an international market and “taking appropriate account of shareholder and public concern in the UK about the level of executive pay.”
“The board recognises that, in designing the original package for Helge, it did not strike the correct balance” he wrote.
Despite signs that executive pay is coming down, there still appears to be a corporate governance ‘disconnect’ in UK business: one that treats pay at the top as somehow separate from the beating heart of what makes a business tick.
Ironically, Mr Lund himself seems to know that things have not worked out quite as intended. In an interview with the Financial Times, he said he supported the deal. He also said: “I was looking forward to running the company for the next few years – I was looking forward to helping it do a lot better on its own.”
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