Last updated: February 14, 2013 6:14 pm

Rolls-Royce names next chairman

Ian Davis is to succeed Sir Simon Robertson as chairman of Rolls-Royce, the British engine maker, at its annual meeting in May.

Rolls-Royce’s decision says much about the board’s priorities. Despite reporting impressive results on Thursday, with profits up almost a quarter, it is grappling with allegations of corruption and bribery in China, Indonesia and beyond.

“Ian has been tested under brutal fire at BP and done a terrific job,” John Rishton, Rolls-Royce’s chief executive, told the Financial Times.

Eighteen days after Mr Davis joined the board of BP as a non-executive director in April 2010, the British energy group’s Macondo well exploded in the Gulf of Mexico.

For 87 days the company tried to stop the flow of oil from the well and halt its progress towards the shores of Louisiana. BP’s chairman found little favour amid angry Washington politicians, and its chief executive made matters worse by bemoaning his lack of a holiday and later being seen sailing in a yacht off the Isle of Wight.

Amid the chaos, BP turned to Mr Davis, who became chair of its Gulf of Mexico committee, eventually overseeing the company’s report on what went wrong.

Rolls-Royce’s own problems of alleged bribery and corruption among its agents, which is being investigated by the Serious Fraud Office, are rather less dramatic but could also prove company-changing.

Although the company has spent the past decade reducing its network of overseas agents and tightening its compliance procedures, Mr Rishton said there remained a lot to do.

“These things take a hell of a lot of energy and time to get your arms around,” he said. “You need constant vigilance on this. We will not tolerate any improper behaviour.” But he noted that “making that stick within any company” was far more challenging than simply saying what needed to be done.

A clear priority for the new chairman will be overseeing the SFO investigation to ensure Rolls-Royce’s strong City and international relationships fostered under Simon Robertson’s tenure remain intact

- Roger Johnston, Edison Investment Research

Roger Johnston, analyst at Edison Investment Research, said Mr Davis’s experience at BP would be invaluable for Rolls-Royce. “While the executive board can focus on its continued operational growth, a clear priority for the new chairman will be overseeing the SFO investigation to ensure Rolls-Royce’s strong City and international relationships fostered under Simon Robertson’s tenure remain intact,” he said.

Sir Simon remains on the board of HSBC and is deputy chairman of the bank.

For now Rolls-Royce’s investors have largely shrugged off the impending decision by the SFO on whether to launch a criminal investigation. Shares last year rose 12 per cent and most applaud the company’s decade-long growth in revenues and profits.

Analysts and executives at Rolls-Royce’s peers say it reacted quickly to the allegations and was smart to hire Lord Gold, former senior partner at law firm Herbert Smith – despite his sizeable fees – to review its procedures. But they note that the City is wary after the experience of the long drawn-out investigations and prosecutions of BAE Systems, the UK defence contractor, over its payments to middlemen.

It helps that Rolls-Royce’s results last year were again robust and better than analysts’ expectations. The company reported a 24 per cent jump in full-year underlying profits to £1.4bn, as revenues increased 8 per cent to £12.2bn, with revenues up by 16 per cent at its civil aerospace unit thanks to demand for more fuel-efficient engines.

Mr Rishton said he expected “modest growth in underlying revenue and good growth in underlying profit” this year.

Rolls-Royce’s order book, an important measure of the company’s future prospects, rose 4 per cent to £60bn, and its interim dividend was up 11 per cent at 19.5p a share.

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