When the Burberry chairman Sir John Peace led Standard Chartered’s board, he showed a remarkable level of indulgence to the bank’s then chief executive. We all know how that worked out.
While Peter Sands swanned around Davos delivering high-minded addresses, Standard Chartered wrote a succession of duff loans in Asia and copped a heavy fine in America for its lax money-laundering safeguards. Its shares have tumbled 60% from their 2013 highs.
Burberry investors will be praying that history does not repeat itself. But the omens are not encouraging.
For years, Peace has mollycoddled Christopher Bailey, the luxury goods maker’s creative dynamo, to an extraordinary degree. First, he handed him a £20m “golden handcuffs” pay deal. Then, in 2014, Peace installed Bailey in the chief executive’s office — left vacant by Angela Ahrendts — while allowing him to keep his creative brief.
This unusual move didn’t work out, so Peace hired a new chief executive. Former Céline head Marco Gobbetti takes charge in July.
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So has Peace finally shown Bailey who’s boss? Hardly. In an apparent attempt to avoid denting his ego, Bailey has been anointed president and, crucially, will report directly to his chairman, not his nominal boss, Gobbetti.
Bailey will be in sole charge of brand and design, with the Italian in charge of commercial and operational matters. Together, the two will plot the company’s strategy and workplace “culture”. Such muddled structures are a recipe for dysfunction, particularly at an organisation such as Burberry, which thrived under Ahrendt’s clear-sighted and charismatic leadership.
Peace has long defended Bailey as a creative genius, deserving of preferential treatment. That was an easier claim to make five years ago, when Burberry check designs were a must-have for China’s burgeoning middle classes.
The case is far less compelling now. Over the past year, Burberry’s profits and share price have been bolstered by the pound’s slide since last June. More than 80% of its sales are generated abroad and are worth more when translated back into sterling. Yet, even with this Brexit boost, Burberry is expected this week to report a fall in annual pre-tax profits to £400m, according to Deutsche Bank. In 2015, it enjoyed a £445m surplus.
Burberry’s revival rests on a bounce in luxury goods spending and Gobbetti’s ability to navigate its complex boardroom politics. Both are questionable. Avoid.