LONDON BRIEFING:A bullying letter from Serco group to its suppliers has sparked government fury, writes FIONA WALSH
IF YOU write a bullying letter to almost 200 of your suppliers, you really shouldn’t be surprised if it is leaked to a wider audience.
Andrew Jenner, whizz-kid finance director of outsourcing group Serco, scored a spectacular own goal at the weekend when his demand that the group’s suppliers share the pain of government cost cuts was made public. It wasn’t just the fact that Jenner wanted “cash rebates” of 2.5 per cent on this year’s spending from Serco’s 193 largest suppliers, it was the chilling way in which the “request” was worded.
“Like the government,” the Serco finance director wrote, “we are looking to determine who our real partners are that we can rely upon. Your response will no doubt indicate your commitment to our partnership but will also be something I will seriously consider in our working relationship.”
The message is pretty clear – if you don’t play ball on this, you won’t be one of our suppliers for much longer. It’s hardly surprising one of the outraged recipients leaked the letter, sparking a ferocious reaction from the government and forcing Serco into a humiliating climbdown.
Suppliers are used to being squeezed, particularly in troubled economic times. But the Serco letter went way beyond acceptable business practice. At 41, Jenner is one of the youngest finance directors of a FTSE 100 company. He was no doubt keen to impress his colleagues by finding a way to absorb the cost cuts while protecting his company’s margins. But he really should have known better than to threaten suppliers in such a manner – and it would be interesting to know whether the rest of the board, led by chief executive Christopher Hyman, was aware of his tactics.
They certainly came as a surprise to Francis Maude, the cabinet office minister in charge of stepping up government efficiency (otherwise known as “the Axeman”). He was said to be furious, as he understood that Serco would absorb the cuts itself rather than kick them down the chain. Suppliers have now received an “unreserved apology” from Serco and one imagines they can expect kid-glove treatment from their FTSE 100 customer, for a while at least.
Serco’s own position is less secure, however. It has angered its largest customer – the government – which accounts for some 40 per cent of a business that ranges from running prisons and ports to nuclear facilities, schools and Boris Johnson’s new bike-hire scheme in London.
Until now, Serco has put an optimistic spin on the opportunities that this age of austerity will throw up for outsourcing companies. But the fumbled attempt to claw back cash from its suppliers has highlighted the vulnerability of its business and set the market wondering just how it can accommodate the cuts.
The worries were reflected in a 9 per cent slump in Serco’s share price, wiping more than £200 million from its stock market value. That must make it one of the more expensive letters the unfortunate Jenner has penned in his hitherto unblemished career.
Proof, if more were needed, that the poor are to bear the brunt of the government’s austerity drive has been provided by the John Lewis Partnership, retailer of choice for Britain’s middle classes.
The department store to Waitrose supermarket group said it now expects to beat its 4 per cent sales growth target this year after calculating that its core “middle England” customer base will be less hard hit by the cuts than first feared.
According to director of retail operations Andrew Murphy, because of the balance between spending cuts and tax rises, “the blunt fact is that the John Lewis core consumer has been slightly more protected than we might have thought they would be”.
This is likely to translate into second-half sales growth of 6 per cent – a figure that will be way beyond the reach of most other retailers. Even that might prove conservative, Murphy indicated.
“Whatever UK retail plc comes out with, we will come out right at the top end of that,” he said.
That upbeat forecast will be good news for John Lewis staff, or partners, as they are known. The 70,000 full-time employees own the group and take a share of its profits each year. Last year they received a total payout of £151 million, equivalent to around 15 per cent of basic pay.
And, unlike the government’s cutbacks, the John Lewis bonuses were fairly shared, with everyone from the chairman to the check-out girls receiving the same percentage payout.
Fiona Walsh writes for the Guardiannewspaper in London
