CPO: STALEMATE! TIME FOR A COMPROMISE.

The latest Chelsea Pitch Owners AGM proved one thing. Barring a loss of concentration by the fans, no resolution of substance requiring a 75% ‘Yes’ vote will get through.

And the small shareholders of the CPO, who despite thousands of lost addresses and the inevitable inertia surrounding shares sold over 25 years ago, show no sign of missing a beat. Following the purchase of large blocks of shares by people closely associated with the club, the numerous individual holders came together to block the sale of more shares and made it clear that this was unlikely to change in the near future.

So where now? The AGM has generated more unfortunate publicity for the club, and the atmosphere at times was unpleasant despite Dennis Wise’s attempts to bring calm. Barring a change of tactics, this is likely to continue for years to come.

Stalemate.

Yet at their heart, all shareholders in the CPO have the same aim: to pursue the best for Chelsea FC. The vast majority would be happy to move to a new stadium if the case was clearly made that Stamford Bridge could not meet the needs of the club in the future.

So is it time for compromise? For the club to sit down with a balanced group of CPO shareholders (and the broader fan base) to come to an outline agreement that gives the club flexibility while protecting the long term future from the inevitable property speculators that might threaten us once Mr Abramovich has gone? I think so.

Compromise.

£4m For A Few Weeks’ Work? It’s Normal Practice, So Don’t Haggle

I don’t pretend to understand how those in the City make their huge bonuses – I’m not sure they do either – but occasionally I get first hand experience of the business practices that fuel this excess….

I have been a non-executive Director of Holidaybreak plc for the last seven years. Holidaybreak is a large travel group covering a range of businesses from PGL (school trips) to Keycamp (family holidays in mobile homes at campsites throughout Europe). Almost without exception the people I have met who are working at Holidaybreak have been down to earth, hard working and passionate about the service they are providing. This isn’t glamorous work; the largest number work on site, often cleaning the facilities, and earn a below average wage.

Even at senior levels we have tried to hold to a policy of paying our senior executives salaries below the average pay for their roles (somebody has to be below average if the average isn’t to rise forever), and avoided the appalling golden parachutes that people can sometimes get when they leave. As a team we have tried to reward performance, something that hasn’t always been forthcoming in the current economic environment.

Recently the business received an approach from Cox and Kings, an Indian travel group, to buy Holidaybreak. This ultimately led to us accepting a bid and in the next few weeks shareholders will receive the proceeds of this. As is normal, in fact required, the board hired an investment bank, supposedly to ‘advise’ on how to deal with potentially selling the company.

We all knew that the bank would be paid only if a deal was completed. To some degree this makes sense as shareholders don’t necessarily want to rack up expenses if no transaction takes place, a bit like when you sell a house through an estate agent.

We were also wise enough to know what a ‘no sale, no fee’ arrangement does for the bank’s incentives. As Warren Buffett says, ‘you don’t ask a barber if you need a haircut’. We couldn’t and didn’t let the bank lead the negotiations. Effectively their compromised position prevented the bank’s team, however clever, from adding significant value. Their advice, however worthy and well presented by capable people, was considered tainted.

So how much did we pay for this work? Well you might think that to answer that in a meaningful way would require some knowledge of how much effort they put in. Did they have a team of dozens of high flyers working round the clock for six months? Had they put in thousands of man-hours in advising Holidaybreak on aborted transactions in the past?

I’m afraid I don’t know the answers. Their opening proposal for a fee was over £4m based arbitrarily on 1% of the total (debt and equity) value of the transaction. Why 1%? Because it’s normal, conventional, what everyone does…

Now many of us have paid estate agents a fee based on a percentage of the property value – maybe a fee of a few thousand in total. But at least in most cases the agent found you the buyer, led the price negotiation and managed the complicated process of keeping the often emotional transaction on track. For Holidaybreak the buyer found us, any potential counter-bidders were known to us, we led the negotiation as we didn’t trust the bank’s incentive, and our team, the lawyers and others handled the largely administrative process of completing the transaction.

I’m told, and tend to believe, that most companies simply would have paid the £4m. I estimate the total effort put in by the bank’s senior team at no more than 100 days, probably much less. At £4m the fee is £40,000+ a day – making Premiership footballers look rather impoverished.

We tried to haggle, we asked for details of time spent working on the deal; we stopped making eye contact, we made it clear we didn’t care about the implied ‘reputational’ cost of not playing the game (that the bank would not recommend us for other senior jobs). In the end we were plain unpleasant at times.

This generated a great result: we saved £2m, and all but halved the fee. It was clear from the bank’s body language that we’d broken the unwritten rules. Great – but that’s still £20,000 a day?! To my mind probably still at least 10 times too high, maybe 100 times. But it was as far as we could get without risking the Cox and Kings deal, which we know would benefit shareholders.

Nice work if you can get. And damn hard to explain to the hard working folk at Holidaybreak.

Pietersen: From Good to Great

There’s no doubt that Kevin Pietersen is our best batsman. He has been born with an extraordinary talent that he has applied to leave him unchallenged as our top man in all forms of the game.

But as my children know, sport is about being the best you can be, whatever genetic inheritance you start with (bad luck kids!). And KP isn’t anywhere near his best.

Sure he is outstanding. Even having fallen from his highest point (his ICC batting rating is 10% off its peak two years ago), Pietersen averages 51 and is ranked six in the world. But it could all be so much better.

Like many, twice in the last 12 months I have seen him hole out in his 90s, sacrificing not just a personal milestone but creating openings that both South Africa and the West Indies took to win the series. Are these exceptional occurrences, or symptoms of a man who, when in total control, loses self-discipline and lets the opposition off the hook? He wouldn’t be the first to do so.

A few statistics may help answer this question (or they may put you to sleep).

• When KP comes to the wicket he is 18% likely to score a hundred. This is an exceptional figure, ahead of Tendulkar and only marginally behind Ponting.

• Once set KP is hard to shift. By the time he reaches 25 not out, he will convert to a century one in three innings. If he makes it to 45 this figure is 3 in 5; in other words he is 60% likely to make a ton.

• And from 45 onwards his batting is extraordinary: he would expect to make a further 74 runs, on average, before getting out. I think this all fits with what we have seen: KP is cautious, even a little slow to get going. But get him towards a 50 and the runs seem inevitable, his bat twice the normal width.

• And then come the nervous 90s. A disaster area for Pietersen and England, but not as bad as just after KP charges down the wicket celebrating his hundred. Between 100 and 109 he gets out one in three innings.

• Which means that his batting average once he gets to 90 is just 38 – a sort of below par Ian Bell type performance.

Compare this to Sehwag, who shares a similar average to KP. A poor starter he may be, but once set he too scores for fun. Sehwag at 45 not out averages 75 more runs, just like Pietersen. But the big difference is once Sehwag gets to 90 – at that point he averages a further 87 runs (to KP’s 38).

The result is that Sehwag has two triple centuries and three doubles to KP’s one double. And bowlers around the world know it.

So a plea to Kevin this summer: try batting when you have scored 90 just as you did when you reached 45 – just pushing the ones and twos and not trying to force the pace beyond dispatching the bad ball to the boundary.

If you do that, a career average nearer 60, maybe as many as 50 test centuries, and a place as a true great will be yours (not to mention the Ashes!).

Accountability - the missing link in MPs expenses

So Gordon Brown thinks replacing second home expenses with an attendance allowance will fix the outrageous misuse of public money by MPs claiming expenses? In football parlance, he must be 'having a laugh'.

As most private sector employees know the main reason not to fiddle your expenses is that your boss has to sign them off and if there is anything awry you can be fired! That doesn't completely stop people trying, but it certainly acts as a sharp deterrent.

So assuming MPs end up with a sensible expenses policy (like the rest us - say use of the centrally purchased local Novotel when in town, free meals in the House of Commons canteen, second class travel from the constituency), all that is needed is for the bills they submit to be approved prior to payment by the people they work for.

And who do MPs work for? You and me. So let us pick a group of say 12 people for each MP (like a jury randomly from the local electoral roll), refresh a third of them every six months, and have them agree any expenses before payment.

Then watch the costs reduce!

Inefficient Markets: Have You Been A Beneficiary? Or Why City Executives Make So Much Money...

It is frustrating when we pay for a service that is expensive and adds little value. Often this is due to an uncompetitive market creating inefficiency. Many feel this way about the taxes they pay and the services produced by the state. Closer to home for me, it is hard to believe that the new Terminal 5 at Heathrow, which is in essence a large shed, would have cost £4bn+ if there was a truly competitive market for airports.

It is fun to point at these shocking examples of waste, to groan at the vested interests such as strong unions that push rewards above market rate. But how often do we assess the money we have made ourselves in such a light?

- How come so many people (bankers, lawyers, accountants) have made so much money from M&A advisory work when most studies show that acquisitions typically don’t add value?

- Isn’t it odd that almost all hedge funds and private equity managers charge the same ‘2 and 20’ price? Are there no scale economies in this industry? Doesn’t this look like monopolistic pricing?

- It is well documented that tracker/index funds outperform the typical asset manager, yet the latter are very well paid...

- Independent Company Directors set the pay of Senior Executives; the benchmarks created then set remuneration for Independent Directors in their own Executive roles; does that sound right to you?

The Bottom Billion: Why the Poorest Countries are Failing and What Can be Done About It (by Paul Collier)

While the top billion of the world’s population (in the developed world) and the middle four billion or so (in developing nations such as India and China) have or are growing towards a decent standard of living and life expectancy, the ‘Bottom Billion’ are going nowhere or, in many cases, backwards.

This book uses rigorous analytical techniques to identify the causes and solutions that go beyond the emotional pull of a G20 protests or Bono’s latest campaign. Please read it.

Is the FSA to allow Barclays to increase its tier 1 capital ratio on the sale of iShares to CVC?

How does the FSA allow Barclays to claim an increase in its tier 1 capital ratio following the sale of iShares to CVC? Barclays has swapped a business that cost $2.2m to build up for $1.3m in cash and $3.1m in IOUs from a highly leveraged private equity deal, debt of the kind that no longer exists in the open market due to the recent high failure rate.

And will Bob Diamond really get his £4.7m bonus in cash; shouldn’t this be deferred until Barclays is sure to have been paid? Or is this another example of executives boosting their short term pay by taking balance sheet risks, knowing that if the worst comes to the worst the tax payer will pick up the mess of a failed high street bank?