Group was in worse shape than anyone imagined

SOMEONE has to say this before history is rewritten completely. Sir Peter Davis was dealt a lousy hand at Sainsbury's and came to a company in much worse shape than anyone on the outside had imagined.

He may not have closed the gap with Tesco in his three years at the helm but he has at least ensured the company is still in the race by investing massively in the modernisation of its infrastructure.

The second point is that the plan to move him from chief executive to chairman, and the remuneration to go with it, was cleared in advance with a majority of shareholders (not just those representing the family trusts) who overwhelmingly approved the move in a vote at the annual meeting last year. It may have been a bad idea but they agreed to it with their eyes open.

The third point is that Davis wanted to go when his term as chief executive was due to run out in March 2004, and it was the board which persuaded him to stay.

It was worried about the transition and wanted him to steer in a new chief executive and then, after a decent period, to put in place a new chairman.

Decent succession planning is the responsibility of the whole board, particularly the non-executives, so if the result has been a shambles it is the fault of a dysfunctional board.

It should fool no one if it tries to heap all the blame on Davis.

Finally, it is wrong to portray Davis' tenure as one where he was cosily protected by the indifference of the family shareholder trustees. If a trustee speaks in public, he or she unblinds the trust, which is not very clever. But silence should not be confused with lack of attention.

Caz quandary

THE brutal message beneath the just-published figures from Cazenove, London's leading independent stockbroker, is that, as an independent firm, the business is insufficiently profitable to expect to continue to attract and hold the top talent, it needs to prosper long into the future.

But selling out to a larger firm - Barclays and Lehman Brothers are seen as potential suitors - would destroy what makes the company unique. The value of Cazenove is in the name, and the name is inseparable from its independence. Take that away and, as Bedlam Asset Management observed in a typically perceptive commentary, you have a firm which is no longer at the core of the City, which appears to have lost its pioneering drive and which is much smaller than its reputation implies.

Much is made of the company's knowledge of the London market and unrivalled position as corporate broker to more FTSE 100 clients than anyone else. But this is an eroding franchise because, despite attempts to internationalise the business and move up the value chain from information to advice, Cazenove is essentially UK-focused. Increasingly, however, its customers operate internationally.

There is nothing wrong with what it does but it covers only one part of the market, and often its clients need more than that. So other advisers are also retained, which reduces Caz's share of the cake.

Profits are well up on a year ago - from a derisory £14.3m to a more respectable £41.7m - but there are limits on how much the firm can be expected to make in normal times.

Much is also made of the belated discovery by American investment banks in London of the merits of corporate broking. US corporations do not pay a retainer to a broker to monitor the financial markets and report on developments that might have a bearing on the company and its share price, so corporate broking does not exist in New York.

But in the post-Spitzer world where investment bankers have had to distance themselves from their analysts, they are looking for new avenues into boardrooms in order to sell their wares, and have hit on corporate broking.

Thus the past few months have seen a considerable poaching of the available pool of talent as the banks jockey for position. This increases the attractiveness of Cazenove, one of the principal repositories of that expertise.

The attraction of Cazenove for Lehman is presumably that no homegrown broker could hope to open more UK doors more effectively. But a fundamental point has been missed. The very point of corporate broking is its independence. It is relationship-driven, not deal-oriented, so the client can trust the information and the advice. Once the broker is part of a larger financial organisation that exists to sell financial product to clients, the function becomes sullied, the advice becomes tainted and the worth of the service is lost.

So good luck to Cazenove if it finds a buyer and good luck to anyone prepared to pay £1bn for a people business whose profits for the year are one twentieth of that. But London would be better served if Caz partners were prepared to lower their financial expectations in order to preserve its independence.

Road to riches

CENTRICA has made so much money out of buying the AA and now selling it to two private equity firms that it has ended up with the kind of return the latter covet for themselves.

In a deal announced today, venture capital houses CVC and Permira will pay an astonishing headline figure of £1.75bn for the organisation. Even the net figure of £1.45bn is twice what Centrica paid just five years ago. Why the venture capitalists think the business is worth this much is hard to say. Both have been disappointed in other recently attempted deals (CVC for the Telegraph and Permira for WH Smith) so maybe they simply had a lot of cash burning a hole in their pockets - the economics of private equity being that if the cash is not invested, the firm can't take its management fees.

That said, it remains a full price. Roadside servicing is not an exciting business and the mail order side has been well exploited by Centrica. Costs can always be cut but it is hard to see what can be done to grow the top line and transform its pretty average profitability.

But if finding a home for their money is a problem for private equity houses, Centrica has no such doubts. In a move that will no doubt astonish and delight its shareholders, it is to give them back £1bn and use up £500m through a further rolling share buyback. The aim of chairman Sir Roger Carr and chief executive Sir Roy Gardner is to underline Centrica's focus as a customer services company and this action will, they hope, speak louder than any words.