By Kenneth Roy
You can still order t-shirts with the logo: ‘Being called a sophisticated snake oil salesman was a low point in my personal career’. It has become one of the quotes of the age, though not one that Martin Gilbert, chief executive of Aberdeen Asset Management, to whom the saying is attributed, will be found repeating. Mr Gilbert hasn’t bought the t-shirt.
Ten years ago this spring, Aberdeen (as it is known for short) was branded the ‘unacceptable face of capitalism’ over an investment fund which was promoted to individuals as ‘the one-year-old that lets you sleep at night’. The one-year-old turned out to be a waking nightmare which left thousands of small investors sweating and screaming in the wee small hours. The fund collapsed, wiping out the value of their contributions.
The Financial Services Authority came calling in the granite city, where granite faces cracked more than a little at suggestions that this was the worst misconduct the FSA had ever had to deal with. Fortunately, everything in the financial services industry is relative. There was worse, far worse, to come, but no one bothered to take the train to Edinburgh at that early stage in the humbling of Scotland.
The Treasury Select Committee gave the company and its senior executives a severe roasting. It seems to have been John McFall, the then chairman of the committee, who called Mr Gilbert, founder of Aberdeen Asset Management, a sophisticated snake oil salesman; Mr McFall, at any rate, usually gets the credit. At first the FSA rejected the company’s attempts at a compensation package, concerned that it was not clearly setting aside money to fund the claims. Finally Aberdeen and its associates shelled out £200 million in compensation to 40,000 investors, pushing it to the brink of administration.
It was an awkward time for the former foreign secretary, Sir Malcolm Rifkind, who had joined the board as a non-executive director in August 2000, not long before the scandal broke. But if it was embarrassing for that Tory grandee, it was horrid for Mr Gilbert, who either offered or was prevailed upon to repay a £650,000 bonus. ‘Painful’ he called that. He was particularly pained when a journalist followed him round a golf course – he was playing off a handicap of 10 at the time – and went on to liken him to a Nero of the links, chipping and putting while portfolios burned. The handicap is now reported to be 12.
Unexpectedly, although one of his team was disqualified, the chief exec played on to complete a messy round and his play suddenly improved out of all recognition. From being the Dead Man Walking of the investment business, Mr Gilbert is now routinely described in the ultra-forgiving financial press as a swashbuckling Scot with an eye for the big deal. Sir Malcolm stayed too, picking up annual fees of £55,000 as chairman of Aberdeen’s remuneration committee. He resigned earlier this year, but not before buying 10,000 shares in the company at a price of 220p each.
It looks like a sound bet. So completely has Aberdeen been turned around by swashbuckling Martin Gilbert that it recorded a profit last year of £302 million.
If Aberdeen Asset Management played good, simply bankrolling the whole deal, it would make scarcely a dent in its £302 million profit. Mr Gilbert personally has earned enough in the last two years to pay for the Scottish Open himself.
Although the transformation is indeed gratifying, it would be going too far to suppose that Mr Gilbert is free of controversy. There are at least 40,000 people – the ones who were assured they could sleep at night – who must view Aberdeen’s new-found fluidity with mixed feelings. More to the point, there are many current investors – City ones – who are not at all happy with the extravagant pay rises granted last year to Mr Gilbert and two of his executive colleagues with the approval of the then chairman of the remuneration committee, Sir Malcolm Rifkind.
Mr Gilbert, his deputy chief exec and the financial director each took a hike of £100,000 a year as the governments in London and Edinburgh introduced swingeing cuts in public services. Mr Gilbert’s basic salary rose to £500,000. In addition he got a cash bonus of £1 million and a deferred bonus of £3 million – a total for the year of £4.5 million, compared with a miserly £3.7 million the year before.
This was too much for a significant minority in the City. Investors holding 33% of the shares in Aberdeen voted against the remuneration report or deliberately abstained: again something of an embarrassment for Sir Malcolm. There are murmurs, too, about Mr Gilbert’s judgement in joining the board of BSkyB at a time when its chairman, James Murdoch, was under intense scrutiny over the News of the World phone-hacking scandal.
None of this has been allowed to get in the way of the most intriguing partnership of the year so far: the association of Aberdeen Asset Management and the Scottish Government in the sponsorship of the Scottish Open Golf Championship at Castle Stuart, near Inverness, in July. In these tough times for the sport, the European Tour is delighted to have two new sponsors on its books. Why not? The cost of staging the Scottish Open is between £6m and £8m (the figures quoted tend to be vague), a fair whack of which goes straight into the pockets of rich young men who come off the 18th green declaring that they ‘played good’ – or not, as the case may be.
But here is an inconvenient fact. If Aberdeen Asset Management played good, simply bankrolling the whole deal, it would make scarcely a dent in its £302 million profit. Mr Gilbert personally has earned enough in the last two years to pay for the Scottish Open himself.
Why, then, is the Scottish Government, with so many demands on its tight purse, moving into golf sponsorship with Martin Gilbert?
Tomorrow in SR: Part 2 of Golfing Buddies
Courtesy of Kenneth Roy – read Kenneth Roy in the Scottish Review