by Mark Palmer
The harsh realities predicted came true in 1992, when Sears – which controlled the British Shoe Corporation – reported an £8.8 million pre-tax loss for the first six months of the year and immediately announced it was closing dozens of Dolcis, Saxone and Freeman, Hardy & Willis shops over the next three years in what became a £32 million restructuring programme.
Clarks’ six-month interim results to 1 July 1992 were depressing. The company made a £3.5 million pre-tax loss against a £2.5 million profit in the previous period. The decision was made to halve the dividend from 3.5 pence to 1.75 pence per share. Some 70 per cent of the shares were held by the family, another 10 per cent by family trusts, and 10 per cent by employees, leaving just 10 per cent in the hands of institutional investors.
A few months earlier, in February 1992, it was announced that 300 jobs would go across Clarks and K Shoes. Some 100 of those were backroom staff in Street and in Kendal, but K Shoes’ Norwich factory ceased operations immediately and Clarks’ Barnstaple factory was reorganised with the loss of 33 jobs.
Kevin Crumplin, the Clarks director of personnel, put out a statement expressing ‘very deep regret’, adding how he was ‘absolutely certain that we will come out of it a leaner, stronger and more secure company’. Two months later, that security looked more precarious than ever when further cutbacks were announced. These included a reduction of 173 jobs in the two Plymouth factories, affecting the cutting, stitching and making departments; nearly 100 job losses at the Barnstaple factory; 67 redundancies at Bushacre in Weston-super-Mare; a down-scaling at the K Shoes Askam factory in Cumbria, and the closure of Avalon Components in Castle Cary, where 89 people worked in last-making.
Walter Dickson’s forte was brand management. At Mars, he had come into contact with Larry Light, then chairman and CEO of the international division of Bates Worldwide, the advertising and communications agency. Light, a graduate of McGill University, had been responsible for all Mars Inc.’s advertising and brand promotion and was now to turn his hand to Clarks. During an intensive few months in early 1992, he presided over a number of management seminars, reportedly charging £5,000 a day for his labours.
The company was also paying considerable fees to McKinsey for consultancy services, prompting heated discussion on the board and among family shareholders about the company’s resolve to act upon recommendations going back as far as 1988.
Then, when it became apparent that the board was actively seeking approaches from potential outside investors, the mood soured further. One such approach came from two businessmen in Hong Kong, Li Ka-Shing and Chong Hok Shan, with whom Malcolm Cotton had had past dealings in the hope of setting up a joint venture to expand the brand into the Far East. Dickson was excited. China, three years on from the mass protests in Tiananmen Square, was increasingly flexing its economic muscle, with British companies scrambling to be part of the action.
Chong Hok Shan was connected to the Chung Nam Group, the watch and clock movement manufacturers. Perhaps more tantalising was the fact that Li Ka-Shing was one of the richest and most powerful men in the world, with huge interests in retailing.
It emerged that Li Ka-Shing and Chong Hok Shan would provide up to £40 million in cash in return for between 10 and 20 per cent of shares in C. & J. Clark Ltd. Lance Clark and the other dissenting voices on the board – including Richard Clark, Roger Pedder and Caroline Gould, who were dubbed the Gang of Four by some sections of the press – were furious about this development.
The situation came to a head in September 1992, when Clarks announced that an extraordinary general meeting (EGM) had been requested by the so-called Gang of Four and that it would be held on 16 October 1992 at Glastonbury Town Hall. The resolutions requiring a vote at that meeting called for the removal of both Dickson as chairman of C. & J. Clark Ltd, and Jim Power, one of the non-executive directors. It was proposed that they would be replaced by, respectively, Michael Markham, a businessman known to Lance, and Hugh Pym, Lance’s 32-year-old nephew, then a television news reporter with ITN based in Scotland.
In a letter to shareholders, the board – or, at least, a majority of the board – struck back, describing Dickson as ‘an agent of change whose record in brand marketing is well known, and whose leadership in developing the new strategy outlined in the 1991/92 Annual Report has been invaluable’. It went on to say that ‘these proposals represent another chapter, but no solution, to a long-running history of ownership, control and management issues which have bedevilled the Company for many years … Your board believes that the requisitionists’ proposals would:
• result in the loss of valuable, known talent and leadership to the Board and the Company;
• fail to provide the necessary balance on the Board required for the successful implementation of the business strategy of the Company outlined in the Annual Report;
• fail to add relevant experience to the Board;
• result in control of the Board by certain family groups without offering shareholders who wish to realise their investment the opportunity to sell their shares at a fair price.’
Included with the letter was an appendix in the form of a statement from Dickson and a separate statement from Power. The first was entitled ‘Resolution to remove me from the Board’, the second, ‘Resolution to remove me as a Director of the Company’. Dickson pointed out that in January 1992 he was offered an improved financial package tying him into Clarks until June 1994 and therefore it was absurd suddenly to seek his resignation.
Shortly after the sending of this letter, Clarks confirmed that discussions had opened with Electra Investment Trust, a venture capital group, which was keen to make a ‘friendly’ bid for the company, thought to be in the region of £100 million, or just over 125 pence a share.
‘The whole thing is tentative at the moment. We are not a contentious organisation,’ Michael Stoddart, chairman of Electra, told the Daily Telegraph on 4 October 1992. ‘We will not proceed if there is any opposition, but we expect to be able to offer support to the people who want to carry this deal out.’
The next day, the ‘requisitionists’ as they were called formally – the rebels, informally – wrote to all shareholders explaining their reasons for calling the EGM, as follows:
For some considerable time we have been greatly concerned about the Company’s performance and its future direction. We fully appreciate that such a measure is a recourse of last resort, and we would not be taking this action unless all other avenues to protect the interest of shareholders and employees had been exhausted. We have tried through Board representations and in meetings with the chairman to have our concerns addressed, but without success.
The letter quoted the McKinsey report of 1988 on improving the company’s performance: ‘Successful execution of this strategy should, on best estimate rather than optimistic assumptions, lead to returns on capital employed of just over 20 per cent by 1992’. But, the requisitionists said, ‘on 13 August 1992 the Company issued a profit warning. Clearly things have gone very wrong in C. &. J. Clark Ltd’.
On 9 October 1992 the board responded – and the tone was distinctly less polite:
The requisitionists want control but have no strategy … their use of the McKinsey strategy is farcical: McKinsey have stated that, if market conditions had not changed, the company would be on track … they [the rebels] have damaged the Company and disregarded the interests of shareholders. If they have done this as requisitionists, how would they behave if they controlled the Board?
The credentials of both Markham, who was 40, and Pym, who did not have a business background, were questioned, their experience contrasted with that of Dickson and Power. ‘What do Hugh Pym and Mr Markham add, other than Board control for the requisitionists?’ retorted the board. Markham had been described by the rebels as an ‘experienced businessman specialising in corporate turnaround’ who was involved in a ‘Special Project on running a group of leasing companies’. Supporters of Dickson and Power were forthright
in their response:
Our difficulty is that the requisitionists have persistently refused to provide the Board with any details of his career or qualifications. This remains true to this day. What is his career history? What are his qualifications? What is the factual basis of this ‘outstanding record in corporate turnarounds?’ What has leasing to do with branded footwear? We wish to know, and so should you.
With the EGM scheduled and the voting forms printed, the requisitionists realised that the stakes were dangerously high. They had a change of heart. Rather than calling for a vote to oust Dickson and Power, the meeting at Glastonbury Town Hall would ask shareholders to agree to an adjournment, with a view to holding another meeting later. But there would still be a chance to debate the future of the company.
On the morning of the EGM, The Times reported that Markham had issued further details of his career. Since 1982, he had undertaken a number of projects for Banque Hunziker, a Swiss bank, and was currently engaged in restructuring Product Finance, a leasing subsidiary of DG Bank, for the Co-operative Banks of Germany. Perhaps more pertinently, The Times added that he had advised a group of rebel shareholders during an acrimonious eight-year battle for boardroom control at Southern Resources, an Australian gold-mining company. The rebels felt that although Markham did not have experience of the shoe business he had the expertise that was needed. They also felt his credentials were no less worthy than those of Dickson, who came to Clarks from a confectionery firm.
The Glastonbury meeting was open to the media. This was another late decision. Originally, John Clothier wanted it to be for the ears of shareholders only and asked Eric Dugmore, who worked for C. & J. Clark Properties, to find a firm that would search the premises for listening devices. Dugmore sought advice from a London company and was told that the sophistication of modern surveillance technology was such that it could be operated from outside the town hall. ‘I do not feel therefore it would be worthwhile having a search, at a considerable cost,’ he reported back to Clothier in a memo.
It was an overcast morning on Friday, 16 October 1992. Almost every seat in the 480-capacity hall was taken. On stage, the board sat behind a long table, with Caroline Gould at one end, Roger Pedder at the other. Judith Derbyshire, the company secretary (and daughter of Ralph Clark), occupied a seat behind the board, alongside Nigel Boardman, from the company’s solicitors, Slaughter & May. A photograph of the Queen looked down from one wall, a ticking clock from another.
Dickson tried to break the ice. ‘If we had sold tickets for this meeting we might have made a bit more money than we are making from shoes at the moment.’ There was a nervous titter. No one seemed in the mood for levity. After several minutes explaining the current state of trade, Dickson said there was full recognition that Clarks ‘products must be improved’ and that both sides realised the ‘marketability of shares is a pressing problem and has been a problem for some time’. Then he paused, before continuing, his voiced raised: ‘So how on earth have we managed to get into this contentious impasse?’
He outlined the key disputed areas over ownership and control, and then confirmed that on 18 September 1992 the board had received a letter from Colin Fisher – representing Electra – with a view to making an offer to shareholders. If the EGM agreed to an adjournment, that offer, and any others, would be considered in an orderly way over the next few months, leading up to the annual general meeting (AGM) in the spring. He proposed establishing a special bid committee, which, he stressed, would work in the interests of all shareholders and remain independent of any warring factions.
Then, before asking for a show of hands to agree or disagree on the adjournment, he opened the meeting for questions from the floor. There was no shortage of takers.
Frederick Terry, a former employee, pleaded with the board ‘not to be at one another’s throats’; Grant Bramwell, who had previously worked at K Shoes, said Clarks was in danger of becoming the ‘laughing stock of the shoe trade’; and Michael Fiennes, who had left Clarks to work with Ecco, said the meeting would not be happening if an ‘effective international strategy’ had been put in place fifteen years earlier. Specifically addressing the original resolutions, David Edwards, a shareholder married to John Clothier’s sister, poured scorn on Markham’s credentials.
Edwards ended by calling for Lance Clark’s resignation. Lance responded, chronicling the deterioration of company profits in the previous six years, which, he said, now valued shares at 90 pence. He added: ‘We were also concerned that the proposed investment of considerable sums of money behind the company’s brands was inappropriate until the quality of the shoes had been considerably improved and that it was a waste of money until that had been done.’ Lance welcomed the adjournment, but reminded the meeting that ‘as a major shareholder you inherit not only considerable advantages but a responsibility and a duty’ and that it was ‘wrong to sit back and do nothing’.
Daniel Clark, by this time the treasurer of Bristol University but still a non-executive director of Clarks, was seated next to his brother, Richard. He said:
… no company can run under a divided board and I think we have to realise that, whatever the outcome, if the resolutions before the EGM were voted, the board would remain divided. So what is the solution? The only one that I can see is that there must be a change in ownership and I have to say I am extremely sad to have to come to that conclusion. It is our business. I am the fifth generation of the family in the business and I know that many of you share that feeling. But we cannot live in the past.
Three away from Daniel was Pedder. He wished to speak and wanted to do so from the lectern in front of Dickson. Centre stage. Dickson moved behind into the second row. Pedder announced:
We have a situation where this company is not profitable, has declining profitability and we need to pull it up by its bootstraps. If I don’t see that happening then it is right I should object.
Then, in what amounted to a declaration of intent, Pedder said he had an independent track record in turning round another business and suggested that he was ‘the only one in this hall to have done that’. He added: ‘I believe you need a vigorous and entrepreneurial management.’
Following comments about the damage the meeting had caused to the morale of those who worked in the business, there was a show of hands in favour of the adjournment. The meeting was closed.
The Bid Committee that was formed to explore options for selling the company at the highest possible price was chaired by Jim Power. Its other members were Daniel Clark and Roger Pedder from within the company, and Sir Maurice Hodgson, the former chairman of ICI, and Andrew Laing, the managing director of Aberdeen Trust plc, from outside. Hodgson was a former chairman of the Civil Justice Review Advisory Committee reporting to the Lord Chancellor between 1985 and 1989 and was a serving member of the Council of Lloyds. Laing, aged 40, had experience as a commercial lawyer and had advised several private companies about their futures.
Dickson had warned at the October 1992 EGM that Clarks would experience a ‘dangerous’ six months while soliciting bids. His prediction was correct. For the year ending 31 January 1993, pre-tax profits were down by nearly a third to £19.7 million compared with £28.8 million twelve months earlier.
By the beginning of March 1993, three potential suitors had come forward: Electra Investment Trust, the company which had identified itself as an interested party prior to the October EGM; F. I. I., a rival shoe manufacturer, which made footwear for, among others, Marks & Spencer; and Berisford International plc, a properties and commodities group that was in the throes of rebuilding itself and actively seeking investment possibilities.
On 21 March 1993, Monty Sumray, chairman and managing director of F. I. I., went on record saying that his company would make a good fit with Clarks. ‘We are strong in more formal footwear and Clarks is strong in more casual shoes,’ he told the Sunday Times, confirming that the figure of £150 million was, more or less, common to all three bids.
Two
days later, Clarks announced that Berisford had been selected as the party to proceed to the next stage of negotiations and that the two companies’ respective merchant bankers, Schroders and Baring Brothers, would begin working together to this end. Berisford’s due diligence investigations triggered six weeks of intense speculation as rival factions began preparing themselves for what would be Clarks’ ‘high noon’, an EGM on 7 May 1993 to decide the future ownership of the company.
Finding itself in the spotlight was not something that sat easily with Clarks, but both sides of the argument tried to conduct themselves with dignity. The Daily Telegraph said shortly after the news of Berisford’s intentions that ‘so far the Clarks boardroom has been as leak-proof as its shoes’.
Berisford became a public limited company in 1982 when it diversified from its commodity-and-food-based activities into property and financial services, achieved mainly by a high degree of leveraging. The property crash of the late 1980s and falling commodity prices had rocked Berisford and led to a refinancing package conditional upon a programme of disposals and cashing-in of assets.
John Sclater, a trustee of the Grosvenor Estate and a member of the Council of the Duchy of Lancaster, was appointed its chairman in March 1990. He oversaw the selling off of Berisford’s largest asset, British Sugar, for £880 million a year later.
The company’s chief executive, Alan Bowkett, who was 42, had only begun his job a few weeks before the proposed Clarks deal made it on to the negotiating table. Bowkett arrived from United Precision Industries Ltd, where he had led a management buy-in and where he oversaw a £200 million turnover, with 4,000 employees in ten countries.