Carr emerges as forerunner in BAE’s hunt for chairman

In India, one of Sir Roger Carr’s sweetest personal successes as chairman of Cadbury was capturing a 70 per cent share of the chocolate market with the help of a small, inexpensive ball of chocolate that could withstand heat of 27 degrees centigrade without melting.

If, as widely expected, he becomes chairman of BAE Systems, one of his first tasks will be more challenging, as he must strive to find a way to reverse New Delhi’s $20bn decision to shortlist France’s Rafale fighter jet over the Eurofighter Typhoon, made by BAE and its partners.

Is the 66-year-old Sir Roger the man for one of the UK’s top industrial jobs?

BAE believes so. Nick Rose, BAE’s senior non-executive heading the search, told the Financial Times there was no need to cast the net wider than the UK, hinting he had found his man. People close to Sir Roger are confident the government and BAE’s investors will back him and that an announcement could be made as early as next week.

Sir Roger has emerged as forerunner only after several others, most notably Sir Nigel Rudd, founder of Williams Holdings, Sir Philip Hampton, chairman of Royal Bank of Scotland, Sir John Rose, former chief executive of Rolls-Royce, and Sir John Parker, chairman of Anglo American, declined to consider the role.

This may reflect less on the quality of the pool of industrial leadership talent in the UK than on the appeal of chairing BAE.

Over the past decade, this task has been one of UK industry’s most challenging. When Dick Olver arrived as chairman in 2004, he was forced to revamp BAE completely, ridding the company of its top management and its powerful, well-compensated web of middlemen, in the wake of serious allegations of widespread bribery and corruption in the UK, the US and other countries.

In the UK, Mr Olver also had to repair BAE’s relationship with the Ministry of Defence, which had become deeply adversarial due to the spiralling costs and delays of programmes such as the Nimrod spy plane.

During his decade-long tenure sales doubled, operating income increased sixfold and the share price rose 88 per cent. But just as BAE seemed to have regained the trust of key regulators and was poised to reap the benefits of its rebuilt reputation in UK political circles, the global defence industry was hit by the end of the Iraq and Afghanistan deployments and the global recession. Western governments cut their defence budgets and BAE’s financial progress stalled. The future looked so bleak that last year Mr Olver sought to sell BAE to EADS, the pan-European aerospace company. But the €36bn deal failed after Germany and the two companies’ investors opposed the deal.

Given the scale of the challenge, investors suggest it is not surprising other high-profile business leaders have not been keen to consider the job.

One head of equity at a UK investment house, which has only a few shares in BAE, compares the company to a second-tier British football team: “Let’s look at it in simple football terms. If the team is Manchester United, then they can get the best. If the team is Blackburn, they have to make do with second best. Carr is a solid businessman, but ... he is the best BAE can hope for.”

Sir Roger says he was approached by BAE about the chairmanship. “I am attracted by the challenge and am enthusiastic about the potential of the company,” he says.

Sir Roger’s roles as UK plc’s chief lobbyist at the head of the CBI, chairman of energy group Centrica, deputy chairman of the Bank of England and adviser to the prime minister have certainly elevated him to the top of British industry.

Nevertheless, people inside and outside BAE worry that may not be enough.

“It is really important that whoever gets the job has the gravitas, the ability and the recent experience to be effective with ministers in India, the UAE and elsewhere,” says one influential British industrialist. “He [Carr] obviously has got the position in the UK and the gravitas in the UK, but not internationally.”

Sash Tusa, an analyst who has watched more than five BAE chairmen come and go, agrees: “Ultimately the heads of state or ministers want to see the chairman, closely followed by the prime minister, Prince Charles and the Queen.”

But even in the UK, some people who have dealt with Sir Roger in Whitehall question his political clout. They say he is widely respected but that he does not “strike the fear of God” into politicians.

When it comes to delivering the big political and royal guns to clinch large international deals, Sir Roger can count on help from the Ministry of Defence.

The bigger problem would arise if BAE’s chairman were too weak to do battle with the UK government and MoD when their interests diverged, as so often has been the case on domestic defence programmes.

“This is not a job you can do as a classic non-executive,” says Mr Tusa. “It is a full-time job. The chairman is absolutely integral to the company, always having been very hands-on while presenting a unified front with the chief executive, especially in the face of pressure from Her Majesty’s Government.”

Those who watched Sir Roger as chairman of Cadbury generally agree that he was indeed “hands-on”, noting he would have no trouble sacking BAE’s chief executive Ian King if it became necessary. But opinions sharply diverge over whether he is supportive of management. Sir Roger himself, and his proponents, say he squeezed as good a price – a 48 per cent premium – as possible out of Kraft of the US, which bought Cadbury in a hostile takeover in 2010.

“His track record is solid. BAE needs a chairman who has contacts in the City and abroad and he has both. He is also an establishment type, which is right for BAE,” says one top 10 investor.

Others, including several people who worked with him at Cadbury, felt that he undermined senior management and that his heavy-handed cost-cutting left the company exposed. His arrival at Cadbury from Mitchells & Butlers in 2008 had already angered investors after he stepped down as chairman in the wake of a strategic review, the consequence of disastrous financial bets the pub manager had taken during his tenure.

Sir Roger strongly disputes that he left Mitchells & Butlers prematurely and says its financial difficulties were beyond his control. “I never left an organisation with a job undone,” he says.

It is these experiences, coupled with his time at Williams Holdings and his role as senior adviser to private equity firm KKR, that have given Sir Roger a reputation for selling, rather than growing companies.

“Dealmaking is in his [Sir Roger’s] mentality for good or ill and I am not sure that is a mentality that fits well with BAE,” says the chairman of another FTSE 100 company.

Indeed, BAE has such a long and chequered M&A history that some of its key investors have grown wary of supporting big deals. Meanwhile, lead times for BAE’s most important products, such as jet fighters and submarines, are often counted in decades, rather than years, and lend themselves poorly to a short-term mindset.

BAE’s current strategy of selling more equipment in Asia and the Middle East while branching further into areas outside governments’ defence budgets, such as cyber security and electronics, will only take it so far.

Investors say the primary challenge for BAE’s next chairman will be to put in place a convincing long-term strategy for the company in the wake of the failure of the EADS merger. This will require BAE to again make big bets on the future of warfare, such as it did when it agreed to become Lockheed Martin’s main partner in the trillion dollar F-35 Lightning II strike fighter programme.

When it does, the responsibility of getting it right will rest not only with the company’s chief executive, but with its chairman.

Additional reporting by Kiran Stacey

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