BAe Airbus sell off

BAe gave the Government a nasty shock when announcing its plans to sell off its share, making the wings, in the Airbus.

This interest had been considered the jewel in the crown of Britain’s truncated civil aviation industry. It embodied European co-operation, tapped a huge world market with a commercially successful offering, and kept Britain in the kind of industry it should have.

But BAe, Britain’s largest defence contractor, has been struggling ever since the day a book appeared lauding the company’s achievements under the previous management. It turned out that this glowing report was too shiny by far.

That’s no surprise, or shouldn’t be. Star companies – starry in the sense of high reputation – have a disconcerting way of sputtering and falling below the horizon. The explanation is partly that events shatter the image, partly that the image was significantly false in the first place.

After all, Enron’s peers voted it America’s most innovative company for six years running. None of these captains of industry knew that Enron’s innovations were not the ones it claimed, but the financial shenanigans it would rather have kept locked away from sight for ever.

Not only can other companies be fooled about the quality of another’s management and performance, so can journalists, the investment community, government – all of them, note, outside the company. It’s only from the inside that you can hope to get an honest picture of the business with all its warts.

I talked to an engineer recently who had gone to work as a young man for an industrial giant with an impeccable reputation. Expecting the best, he only found that his employer displayed all the chronic management failings that explain the awful collapse of so many of Britain’s industries – light, heavy and middling – since the 1960s.

But the manufacturing sector is not alone – think of all the utilities and banks and their poor records of satisfying the customers. Even in the retail sector, the pride and joy of a supposed nation of shopkeepers, there have been deep collapses in reputation – led by none other than the once almighty Marks & Spencer.

Outsider praise can be safely ignored, but the anecdotal experience of the individual customer is far more than just anecdote. The road to M&S’s set-backs led through poor customer experiences and reactions that were detailed, not only in conversation, but in market research reports.

If something looks wrong, it probably is wrong. The customer, remember, has only one interest - to be served well. The outsiders in and around the city, however, have another overweening interest – the behaviour of the shares.

It was the grossly misleading performance of Enron’s equity that explained the readiness of outsiders, including so perceptive a guru as Gary Hamel, to believe that the company had found genuine new ways of making loot.

Besides, reputation has an insidious, seductive effect. We’re all fans at heart, with myself no exception. I went along for years with the crowd who thought IBM was the greatest show on earth. I remember being overwhelmed with the giant’s innovative breakthrough with the PC.

I hadn’t realised, because I didn’t know, that the company’s absurd deal with Microsoft over the PC’s operating system would hand over leadership in the new technology to Bill Gates and lead to IBM finally and ignominiously selling the PC business to China. The gross errors committed along this road to ruin show clearly that IBM was never the paradigm of modern management and technology in which almost everyone believed.

The moral is not a very enticing one. Be deeply suspicious, don’t take anything for granted, demand hard evidence of any claims, believe all criticism unless it can be disproved, and always make sure your information and judgment are up to date.

As for the share price, that has nothing to do with management performance – unless you’re thinking of the Enrons of the world. And you don’t want anything to do with them!