Backing the boss at Wetherspoon

There’s never a dull moment when Tim Martin is around. Last week his company JD Wetherspoon surprised one and all when it announced that two of its senior team – finance director Keith Down and chief operating officer Paul Harbottle – were to leave the business with immediate effect. No reason was given but abrupt departures normally follow boardroom bust ups, and it seems this situation was no different. The chatter suggests that Martin, a disciple of Sam Walton and the Wal-Mart way, wanted to use hard-won efficiency gains at the company to lower drinks prices, maintaining margins at 10%, a classic tactic of the big supermarket boys that would cement Wetherspoon’s pricing credentials in the eyes of the consumer. It is thought that Down, and possibly Harbottle too, opposed this, not wanting to sacrifice a rare opportunity to improve profit conversion. There may also have been some disagreement over the pace of expansion. In keeping with previous disagreements among the Wetherspoon board, the problem was quickly resolved at the expense of the non-believers. It looks like Down and Harbottle were sent on their way with an old-fashioned compromise agreement in hand, receiving a year’s salary. More telling was the reaction to the news. Just about the single strongest comment of sell-side analysts that cover the stock was “we would view this news as very disappointing”. Others, whilst expressing surprise, pointed to the track record of Martin. Essentially it was a case of “Tim knows best”. As Simon French of Panmure said: “We are happy to back the views of founder Tim Martin, who has grown the group from one pub to 784.” Nigel Parson of Evolution said: “It’s an uncompromising culture at Wetherspoon, and you either like it or you don’t.” John Hutson, chief executive, is really the only senior director to go any sort of the distance with Martin. Talented operators naturally butt up against a ceiling – a succession of ambitious would-be chief executives such as Harbottle, and Nathan Wall before him, have reached a natural end point to their time at the company, leaving to further their careers elsewhere. With almost a quarter of the shares, the non-executive bit of Martin’s job title is pretty redundant. This is a man who spends on average of two days a week at JDW HQ in Watford and up to three days travelling the length and breadth of the country visiting pubs. I can think of a couple of chief executives that are significantly less full time than the Wetherspoon founder. More to the point, Martin lives and breathes the company. Britain’s best-known pub landlord – probably one of the most recognisable faces in British business – is the only boss at Wetherspoon. The rest of the senior team know it, investors know it and customers and the public know it. And what’s more, the market knows it too – I can’t really think of any other company that could announce the departure of two such senior directors with such little consternation or fuss. The shares have come off by about 5% since the announcement, but such a development at most other quoted firms would have left commentators and observers speaking of a company in turmoil, in disarray, close to implosion. Of the spat that is said to have resulted in the boardroom departures, Panmure’s French said: “If Tim Martin believes that margins need to remain at 10% in the short to medium term to maximise the long-term potential of the business, then one has to acknowledge he has always placed the long-term health of the business ahead of short-term earnings momentum.” When you buy into Wetherspoons, you buy into Martin. He doesn’t always get every decision right, but there are few business leaders in the sector that have demonstrated the same ability to navigate the correct path for a business over the long term. That’s why the company has largely “got away” with last Thursday’s tumultuous announcement. What is certain is that all eyes will be on margins when the company next updates the market on November 4.