The demise of Lion Hudson: j’accuse
On 2 Feb, The Bookseller announced that Lion Hudson had made 35 staff redundant. On the 21st, it reported that the company had gone into administration.
As a long-time shareholder (originally of Lion, then of Lion Hudson), this saddens me.
It also angers me, because I think three groups of people were guilty of poor decision-making.
First, my fellow shareholders. The company hasn’t paid dividends in recent years, but it has in the past. Whenever it proposed doing so, I voted against (either in person or by proxy). My reasoning was simple: shareholders would have been better off using the money to reduce debt.
Any shareholder who was intending to sell their shares would of course be justified in voting for a dividend: taking the money and running is an undeniably rational strategy. But Lion Hudson was characterised by the loyalty of its shareholders. By voting in favour of dividends, those people were in principle doing the same thing as racking up credit card debt: they were using money to buy (less) money.
Had they refrained, the company would have been more financially robust.
Second, the board. On more than one occasion I pointed to the ratio between stock and sales. Stocks were too high and rising. The board failed to bite this bullet. On the first occasion I raised this, Paul Clifford (in many ways an admirable publisher) told me that the worsening stock turn was a one-off, the result of changes in distribution arrangements in America. I pointed out that, if true, the position would then improve and I looked forward to seeing that.
But the board never did get to grips with this issue.
I was unable to attend the 2016 AGM, but in 2015 I put the point about stock turn very directly: I explained that the company was in effect taking money from shareholders and handing over to printers. The 2016 accounts revealed that the board failed to act on this point.That doesn’t surprise me.
I also pointed to the company’s markedly worsening cash position – a point that the FD did not dispute.
I had actually considered making a bid for more shares – the share price had declined, the market was illiquid, and numerous shareholders had indicated a willingness to sell, so I think it would have been possible to acquire tens of thousands of shares at a low price. But — thankfully! — I decided against it because the board’s responses had left me with no confidence in their willingness to turn things round.
I’m not at all certain that improving stock turn would have saved the company, but it certainly could have bought some time.
Third, the management. At the lunch that followed the AGM, two senior managers accosted me. They seemed to think I’d been unfair. It was as if even to raise these issues was somehow impolite.
Both managers (a) told me how very difficult these things were and (b) how hard they tried. They had, I think, convinced themselves that somehow stock control was impossible.
I had to point out that the unit of measurement for the accounts was £ sterling, not good intentions. In both cases I had to look them in the face and point out that, far from objecting, they should welcome the kind of comments I had: I explained to both of them that if the company failed to deal with these problems, they would be out of a job.
I don’t believe they took this point seriously.
My impression was that both the board and the management were locked into a self-defeating narrative: rather than focus on the things that they could control and make the decisions that needed to be made (which sadly, even at that point, would have required reductions in staffing), they told themselves hard luck stories, based on market conditions that they couldn’t control.
A particular weakness was, I think, a failure to identify potential risks and to formulate contingency plans.
This experience has strengthened my views that (a) when people queue up to explain how ‘very difficult’ everything is, one should be very afraid and (b) continuity management, though rather boring-sounding and unsexy, lies at the heart of a board of directors’ work.
I also suspect that the LION Hudson board was too big. Does it need six or seven directors to run a company with a revenue of well under £10 million? Here I’m thinking not so much of the savings that could have been made on directors’ salaries (though that would have helped), but rather of the question of responsibility. Did they all just leave it to each other?
That, for me, is a learning point: I’ll certainly take more notice of questions of governance when it comes to other companies.
Looking back, I suspect that the key event might be one that occurred many years ago. Lion had been quoted on Ofex, but decided to delist. That was sensible, because being listed carries costs. But the decision meant that there was no readily available share price for shareholders and others to take as index of the company’s strength; and the illiquid market that ensued probably amplified the effect.
Lion Hudson was, and to the extent that it survives, still is characterised by a strong Christian ethos. But in one way the it was very un-Christian. Nowhere in the Ten Commandments does it say ‘Thou shalt be wasteful with resources’. Indeed, the concept of stewardship requires the opposite: one should cut one’s cloth according to one’s need.
According to the first Bookseller report, the team prayed for the staff made redundant, which is good. I hope that as well as the prayers, those who lost their jobs received apologies from the decision-makers who failed the. There were some good and talented people at the company, who deserved better.