Time to look forward at M&B

Running public companies is a brutal business. Simon Laffin for one might be feeling a little bruised right now. But management are hired guns, and shareholder activism is a good thing, isn’t it? In the event the vote at last week’s annual general meeting went overwhelmingly in favour of wholesale change in the Mitchells & Butlers (M&B) boardroom. And not many can suggest this was change for change’s sake. Anyone who holds an M&B share has cause to be somewhat fed-up with the hundreds of millions of pounds of losses stemming from the aborted 2007 property deal with Robert Tchenguiz. It’s also hard to quibble with concerns that £12m was an awful lot to spend of a strategic review in 2008 that merely confirmed the status quo. The large shareholders at M&B so vocal in the past few months need to have the benefit of the doubt extended to them for the time being. It is worth noting that, as the dust settles on a week of high drama in Birmingham, M&B has actually gained four very credible individuals, with a good mix of retail and sector expertise. It was a good thing then that one of the first acts by the new band of non-executives – John Lovering, Mike Balfour, Jeremy Blood and Simon Burke – was to issue a statement that said given the lack of normal process surrounding their recruitment, they would step down if enough shareholders – independent of Piedmont – wanted them to do so at next year’s annual meeting. The shareholders instrumental in putting these people on the board don’t seem to be calling for M&B to mortgage its future on the altar of an edgy propc-opco deal. They seem to be calling for operational focus in the name of greater shareholder returns. It says it all that M&B, arguably our finest managed retailer, has not been in a position to take part in the pub-landgrab that others have been enjoying during the recession. This is not to necessarily condone some questionable conduct that has been evident in recent months, notably the derailment of a credible process to appoint a new chairman last autumn, plus apparent shenanigans in trying to delay and amend accounts signed off by M&B’s own auditors. But now is the time to look forward and upward. A company that is as operationally sound as M&B should have been buying pubs last year. Instead, it was licking its wounds as a result of the strategic shambles it had engineered for itself. Adam Fowle, the current chief executive, will be rightly given the chance now to pursue the growth strategy he outlined two weeks ago. The larger shareholders and the non-executive board are also right to apply pressure to squeeze more cost out of M&B, to push to make it leaner and more efficient (larger shareholders have been briefing about M&B’s chauffeur culture). The moment, though, that those large shareholders victorious last week start to push for short-term value extraction at the expense of this great company’s long-term future is when the benefit of the doubt should be withdrawn. Starbucks, Schultz and CSR Howard Schultz was in town last week. After announcing a welcome return to growth, the founder of Starbucks (as we know it) was in ebullient form. Speaking at a dinner for business people, predominantly marketers, it soon became clear that the main thing – the front of mind message – that Howard wants to get across to everyone willing to listen, was not store operations, the brand, the profits, the growth, the turning of the tanker, or the coffee. It was corporate social responsibility (CSR). That’s not to say that he doesn’t talk about the coffee, he does. But it’s in the context of the farmers and the coffee growers, of associated education and healthcare programmes in place at the coffee bean’s countries of origin, all supported by Starbucks. Schultz comes across as a man possessed. It is a powerful thing to see the chief executive of what is one of the eating-out market’s biggest companies obsessing about this stuff. To take him at his word, the absolute primary focus for Schultz – who is trying to turnaround this giant company – is CSR. Few can relate to this, many think he overdoes it, but what is says to me is that this stuff is coming for everyone, to varying degrees. Starbucks is an extreme example, but the fundamental point is that brands must be trusted, and Starbucks has to work pretty hard at this. Brands must communicate values and the companies that stand behind these propositions must have integrity. The words CSR sound like complete, coma-enducing business jargon, but it’s a key facet of company strategy – for all companies – and it is probably the most under-developed competency for most. It is about giving a company identity and relevancy. It needs to be viewed as reputation management – it’s about validating a brand, a product, a service or a company in the eyes of both customers and staff. It is about taking care of the issues that people care about – the issues that could make them leave you in favour of a competitor, or make them leave a competitor in favour of you. Schultz, for one, knows this. As a couple of people pointed out to me last week, there is a danger that in all of this, people running businesses in the food and drink market forget about the really important things at the so-called “moment of truth” – the food, the drink and the hospitality. The judgement call is how much resource companies throw at CSR. But with the health brigade on the march, and government increasingly minded to legislate, companies need to raise their game. Pubs: time to smell the coffee? One other interesting point that Schultz touched on last week – and central to his CSR obsession – was a marketing campaign that Starbucks launched at the last presidential election just over a year ago. The coffee giant ran a national campaign in the US offering a free cup of coffee to anyone that voted. The success of this simple campaign, he said, was staggering. By encouraging people to vote, it was aligning the brand with positive connotations for its home market, such as freedom and democracy, not to mention patriotism, which is a particularly big deal in North America. With a general election fast approaching on this side of the Atlantic, and with the pub industry scratching around for common causes to unite behind (and in the process garner some much-needed public support), the Starbucks idea is worth some consideration.