Diageo Scotland FD, Richard Bee

Portraits: Glyn Satterley

Even after many years of meeting and interviewing business leaders all over the world, a new and curious experience is the distinct ­feeling of staring into the whites of capitalism's eyes and finding that those eyes are staring blankly, defiantly, unapologetically back at you.

The unrepentant peepers in question belong to Richard Bee, who is coming up to one year in his job as finance director for Diageo Scotland.

In that year, he has cemented a profile for himself among the FTSE-100 drinks group's top brass by working with the Scottish management on arrival last February to devise a controversial restructuring plan, involving £100m in ­investment, to reduce its production capacity and upgrade some ageing operations.

Shifting production and packaging of its iconic Scotch whisky brand Johnnie Walker out of its historic homes in Kilmarnock and Port Dundas to more economically viable plants in the Ayrshire and Glasgow regions is expected to save Diageo £40m a year to 2012, but at a cost of 900 jobs to some of Scotland's most economically fragile areas. Up to 700 jobs will go at its packaging plant in Kilmarnock - where Johnnie Walker was born in 1820 and where Diageo is relied on as a major employer – and 140 jobs will be lost from the decision to close the historic Port Dundas distillery and adjacent Dundashill cooperage. Outsourcing distillery co-products haulage and consolidation work to third-party providers will provide the balance of redundancies.

In good spirits
In contrast to the furore over the announcement on 1 July last year, which sparked a summer of angry protests, union campaigns and heavy press coverage over the sheer number of redundancies and the fact that most of the pain centred on poorer parts of Scotland, Bee is positively cheery about the work ahead and not hamstrung by the emotional impact on the communities in ­question. “The reality is, we have too much ­production capacity for the volume we expect to s ee in the future," he says. “We considered many different things, a number of smaller objectives to take cost out and this was at the larger end." Putting that in perspective, the Scotch whisky business under his remit makes up about 40% of Diageo’s global volume.

Descended from a long line of accountants, there is an almost audible ambition coursing through Bee’s veins, explaining why he’s on his seventh job in 11 years with Diageo – and he is one oft he few FTSE-100 FDs not to wear the regulation suit and tie to a press interview with Financial Director.

One can see why he had a shot at the Scotland FD job given the restructuring plan.

This isn’t his first experience in a restructuring job. He cut his teeth in corporate recovery work while qualifying at KPMG, and later, while in his first Diageo job in business support for its global supply arm, ending up dedicating two years to the 2001 acquisition of Seagram’s wines and spirits business (which was jointly bought and split between Diageo and Pernod Ricard). He believes restructuring is a “natural part” of any manufacturing business.

“I’ve been involved in a number of restructuring projects over my career. This time around I’ve been more operational as I’m involved in the proposal and the implementation. I’m on the sharp end this time,” he says. “[In my first role at Diageo] I got into some work around KPIs for global supply, but it wasn’t taking up all my time.

The Seagram thing came along and I was supposed to spend 25% of my time on it, which became 50% and then very quickly, 100%. I spent the next two years of my life on it, from working with Pernod – which was absolutely fascinating – to getting a bid together and4 ­getting engaged in the Federal Trade Commission stuff (where he represented Diageo in its testimony to gain approval of the acquisition),” he says. “My job there was simple, but daunting: defend the synergies, one of which was the production footprint, and defend the ­savings we would be making.”
Whether Diageo anticipated that it could use a good defence when it announced its Scottish redundancy plans, or was as shocked by the public reaction as the rest of Scotland was by a very profitable business announcing such deep cuts, it had a man who could undertake that role in Bee.

Alternative view
Forced by the backlash to do something about the job losses and the threat to one of Scotland’s biggest exports, Scottish First Minister Alex Salmond asked the Scottish Executive to engage with Diageo and come up with an alternative plan to protect jobs.

Bee was selected as Diageo’s point of contact for the government’s people and was the daily point of contact for partners at BDO, the audit firm which won the mandate from the Executive to represent government interests at the bargaining table, meet with Diageo’s management to examine the facts and figures behind their restructuring decisions and formulate a plan B.

“Our primary thought was that the government would want to see if there were holes in our financial case, so Bryan Donaghey (Diageo Scotland’s managing director) asked me to take the lead,” he reveals.

“I was a bit nervous beforehand. You could draw conclusions about our business case ­without actually seeing the plant, so I built a plan for engagement based on that and we had seen BDO’s scope document so we knew what it was trying to do,” says Bee. “We had them look round the sites and I checked in with them every day to make sure they were getting what they needed.

“Then I got them together with myself, Richard Bedford (grain malt distilling director for Diageo Scotland), David Kavanagh (engineering director) and John Paterson (head of spirits and ready-to-drink packaging and supply for major markets in the UK, Europe and North America) to take them through the ­business case step by step, the thinking behind our plan, the key assumptions and why we arrived at those assumptions.”

Bee was well placed to explain this, having worked alongside Donaghey and group global supply director and executive committee member, David Gosnell, to write the paper on their restructuring ideas that was submitted for consideration by the board and got the ball rolling.

One senses that neither Diageo nor Bee was about to let government intervention become the fly in the ointment. Despite three months of work put into the alternative plan by BDO, the Scottish Executive, unions and local government ­representatives, Diageo took just a week to review and reject it outright, forcing the Scottish government into a humiliating climbdown. “I still do not believe that Diageo appreciates the social consequences of its financial decision in turning its back on 200 years of history in Port Dundas and Kilmarnock,” Scotland’s Cabinet secretary for finance, John Swinney, said of the rejection.

Bee, however, saw it as a double success. “They had no impact on our plans other than confirming that we’d got the right decision. I personally feel very positive about it because we engaged with [BDO] in a very open way, took it through the plans, answered all its questions and, as a result, it basically said our plans were sensible,” he says. “None of the proposals it put on the table came anywhere near what we needed to do and none of them were ideas we had not already considered and rejected ourselves; they resulted in significant job losses, but the financial case was much worse. They weren’t viable solutions.”

He continues. “The good news was two-fold: one, whatever they came up with wasn’t better than what we put on the table and two, they were able to say that Diageo was helpful and open, that we didn’t hide anything or try to lead them off the track. It would have been very embarrassing if they had come up with ­something that was a better alternative. We went through a huge amount of challenge on it, but something like that doesn’t get to Diageo’s board unless it’s been reviewed at all the relevant stages. The engagement was certainly a challenging opportunity, but it was absolutely right for me to do it as FD of this business to lead that discussion. And I thoroughly enjoyed it.”

Future wrangles
Even once the restructuring is done, expected to be in 2012, Bee hints at future wrangles Diageo may have with the government if it decides to move parts of its business out of Scotland, which many believe is inevitable. As the controversy over its restructuring plans rumbled on last ­summer, Diageo came under fire for having taken millions of pounds in government grants for ­preserving a certain quota of jobs in a certain period of time in the past. “Diageo had grants for jobs in Leaven and Kilmarnock of around £2m, but all the employment requirements for those grants were completed and satisfied, so there’s no connection in our mind. We could have applied for grants associated with this restructuring, but chose not to,” he says.

“If an appropriate situation comes up – for example, if there’s a choice about whether we bottle here in Scotland or somewhere else in the world and there’s an opportunity to apply for a grant to support that, for me that is the right thing for the government to support. Our job is to ensure our business is as competitive as it can be and we are competing in a global marketplace from within Scotland; we are arguably overweight in bottling our products in Scotland, but we believe there is power in that today.