CONDUCTING AN INTERVIEW with one of the UK’s most well-respected and successful executives in a room piled high with tables and chairs is not ideal. Then again, the agency working with ex-Sainsbury chief executive Justin King, which kindly set up the meeting, has just made the move into new premises.
So with King looking to make a foray into new territory, perhaps such a venue is appropriate. Financial Director asks what his next move will be: Is he in the twilight of his career? Does a non-executive portfolio beckon?
Ongoing headlines linking him to a role in Formula One – either as a team owner or even replacing the seemingly irreplaceable F1 chief Bernie Ecclestone – suggest a ‘back seat’ role is unlikely. Disappointingly, for Financial Director at least, he has seemingly ruled out the top F1 job, post-interview.
Middle of the road
“Mathematically, I hope [my career is] somewhere in the middle,” says 53-year-old King. “I don’t see myself as being somebody that puts my feet up on a beach somewhere.” And King seems intent on taking a new direction.
“Having had the opportunity to run Sainsbury’s relatively early in my career and managing for a pretty long stint – longer than most do running big public companies – I want to take the opportunity of throwing my arms as wide as possible, if you like, and seeing what else I could turn my hand to,” he explains.
“I’m hoping to do something quite different and that’s my plan; obviously something that uses my skills but hopefully also – when announced – it raises the odd eyebrow.”
In an ‘ownership’ sense? Financial Director asks pointedly. King remains relaxed – but non-committal: “Maybe, but maybe not. I don’t have a particular target from that point of view. It might be another public company but in a different channel.”
He is definitive in refusing to work for a competitor of Sainsbury’s. But public, private, big or small … even relating to government, King runs through the list of possibilities. A ‘King Report’ will not happen, he says, and neither will he become a Premiership footballer, he quips. But outside of those three reported options, the possibilities are endless.
King points out that he has been a risk taker in the past, his move from a very solid role in with Marks & Spencer to head Sainsbury’s being a prime example – as was moving out of FMCG into M&S in the first place.
“Some would say taking Sainsbury’s at the time I took it was a big risk. I never saw it that way but I understood why people from the outside looking in did. And similarly, I remember when I moved from working in FMCG – which was the first ten years or so of my career – to retail, people thought I was nuts,” says King.
“People asked why I would want to leave a proper professional dynamic world of FMCG and go to the much more ‘roll up your sleeves and get down and dirty’ side of retail. But the more people asked the question, the more it convinced me it was the right thing to do.
“Most people would say, I think, that those who work on both sides of that particular table are by far the best equipped to lead on either side.”
An example of which is Tesco’s new chief executive, Dave Lewis, formerly of Unilever. “We’re seeing, in Tesco, another guy from FMCG cross the table, so to speak,” comments King.
Grocery retail woes
Talk of Tesco naturally leads to the various serious accounting and governance issues it faces – and the rebuilding it faces to create a growth platform.
“It is unfortunate the travails [Tesco] faces are seen as an indication of some kind of wider malaise,” King says – he believes Tesco’s problems are not an indicator of structural or governance failings across the industry.
“I doubt there’s a sector that’s had more Competition Commission investigations … three fully fledged. All of them concluded that, despite people arguing there was a tremendous amount of smoke and therefore must be a fire, this was a highly competitive industry.”
King questions the Groceries Code Adjudicator’s positioning, as its “normal role” would be to protect the consumer, as opposed to becoming involved in business-to-business relationships.
“To have an adjudicator whose role, one might argue, is to fetter the competitive activity of the industry to the benefit of suppliers – which by definition means to the detriment of consumers – is a really odd construct,” he says.
“[The industry] is excessively focused in its DNA on doing a great job with customers, and I don’t think the industry should apologise for negotiating with the likes of Coca-Cola, Pepsi and big multi-national corporations, all of whom are significantly bigger and more powerful than any grocer in the UK.”
However, he concedes that retailers must step up to allay fears that they abuse their position in relation to smaller suppliers. “I do think the story does need to be told better – but essentially that’s for individual retailers to do. At Sainsbury’s we were very clear that – if you look at what customers say is important to them – they want great prices but don’t want them at the cost of paying unfair prices to the supply base. That conjures up the image of the small farmer but more widely the vast majority of suppliers are small to medium-sized organisations, and that’s competitive turf,” he explains.
He believes that the government “kind of gets that”, and is looking for voluntary agreements, as opposed to piles of legislation, to drive market change. Even a Labour-led government, which has put much fire and brimstone in the path of big business in recent months, would maintain this policy.
“In legislative terms, I don’t think we’ve seen a significant change from this government to the one that preceded it,” says King.
There is a caveat to this approach. The legislation process forces government to work hard to justify its approach, whereas a more collaborative approach could be viewed as rules “on the cheap”. Having said that, King flags up the work between the government, alcohol industry and other representatives as an example of a non-legislative approach working.
An area where we can all expect more legislation is tax.
Transfer pricing and profit-shifting have become issues of global concern, yet a single global action plan still seems a way off. The OECD’s attempt to set out a singular position through its BEPS project has been potentially undermined with the UK’s diverted profits tax plan.
Essentially, the public want businesses to pay their way, a ‘fair’ amount of tax. King is pragmatic about an issue that has become so important: “Any customer-facing organisation ignores their customers’ definition of ‘fair’ at its peril. To some extent, it doesn’t matter what we think ‘fair’ looks like; it’s a good word because it’s different for different customers. But I think the issue with tax is simple: it shouldn’t be part of the competitive advantage.”
This ‘advantage’ manifests itself in what has been a big bug bear for King – the difference in tax rates for physical businesses and for ‘virtual’ businesses.
“Rates on occupation and the use of physical assets have been a pretty good proxy for the amount of consumption of societal resource, the amount of activity a business has undertaken,” he explains.
“I’m not saying internet business are doing anything wrong in that regard – what space they do need can be located in spaces where there are tax incentives. The issue is that the things that taxes pay for – the societal things that business rates pay for – are used and consumed by businesses that don’t contribute towards business rates.
“They drive on roads that are maintained by local councils, and the brown paper boxes that are used to deliver to people’s homes are collected by waste collectors.”
Justin King on CFOs, governance, and their next step
The senior accountant seems to be the panacea for all governance ills. Be it audit committee chair, chief executive or chairman, accountants or former CFOs seem to fill the majority of these slots.
“The CFO role is where the rubber hits the road on a tremendous amount of the governance issues that are increasingly coming the way of big public companies,” says King.
While much of the increased regulatory and legislative burden falling on companies has been “well intentioned”, it has proved burdensome, with the CFO picking up many of the governance duties.
As such, King has seen the senior finance chief’s role split into two. The traditional ‘FD’ role, of making sure the accounts have been collated and produced, now sits squarely with the second-in-command. That’s not to say the CFO has abdicated responsibility for the reporting, but the board-level position is more externally focused: dealing with analysts, regulators and handling key strategic decisions on capital allocation.
But King warns there is a risk of burdening businesses with too much in the way of reporting.
“We need to get back to the basic idea: what information shareholders need to make an informed decision on their investment and not be misled in any way. I am a supporter of the idea that there are multiple stakeholders in the wellbeing of an organisation, but again I don’t believe that legislation is the right route to force organisations to engage with other stakeholders,” he says.
But as pointed out earlier, the CFO route does open up other career opportunities. Again, King words a note of caution for prospective CEOs. Firstly, should a CFO feel compelled to become a CEO?
“There is an incredibly projected expectation on CFOs that the logical next step is to be a CEO, and I don’t hold with the idea that there’s more inherent logic in a CFO being the next CEO, rather than any other functional director,” says King. “Both my chairmen at Sainsbury’s were ex-CFOs who were not CEOs (Sir Phillip Hampton and David Tyler). They were both quite different in terms of chairmen but they were both people who fulfilled the role of being chairmen without ever having been CEO.”
For those CFOs looking for the ‘top job’, King advises that they break out of the “linear” path that is so easy to follow in finance.
“I would encourage any FD or finance person who has ambitions to be a CEO to get lateral experience and it’s much easier to get that lateral experience earlier on in your career,” he explains.
“The further up your career you go, the harder it is – emotionally, and harder for the organisation. So if you look at what we did in Sainsbury’s, some of our young talented finance people relatively early in their career moved to be regional managers, store managers in some instances. It’s a pivotal part of their experience, valuable in the here and now, and will be invaluable if they reach the top of the tree and have aspirations to be a CEO.”
Justin King is Financial Director’s keynote speaker at the CFO Agenda 2015. Covering politics, economy and future risk, the event is essential attendance for UK CFOs and finance directors. The CFO Agenda takes place on Thursday 18 June at the Royal Society of Arts