John Parker, EADS
Release Date: 2009-01-23
You have been credited by many for smoothing over relations between the Bank of England and the government. You have recently announced your intention not to reapply to be the Chairman of the Court of the Bank of England following recently announced reforms. Today's headlines, as dramatic as they may seem, announce 'the end of the British Labour Party.' Is such pessimism about the monetary policy or financial health of the UK economy warranted at all?As to me, I have served as Chairman of the Bank of England for five years in May 2008 and the maximum one can serve in this position is six years, so I've decided that it would be inappropriate for my successor as a Chairman not to be in place for the selection of people for the next term. If I had stayed on and I applied, as indeed I was encouraged to do by government and by the Governor of the Bank of England, it would have meant that my successor would be taking over a group of people that I would have had a part choosing as the next non executives. Having had five years of heavy reform and change, of which the last eighteen months in particular have been exceptionally busy and very demanding, especially considering my many other commitments, I felt it was the right time to step aside.
As to the economy, we are living in very turbulent times. I believe that monetary policy has been conducted very successfully by the Monetary Policy Committee of the Bank of England over the last decade. We have had a great run of controlling inflation as well as having positive economy growth in the UK. I don't think any other industrial nation has matched this success in the post WWII era. As to the future, quite clearly the seismic shocks that are emerging from the global destabilization of the banking system will not be subdued quickly ?they will reverberate for quite some time to come. Every day brings some fresh negative news. It is important for industrial and corporate sectors that the banks and the financial markets get back to normal lending patterns again, because the lack of liquidity in their business activity could become a huge down driver towards a more radical recession than we might otherwise have.
These types of crises tend to yield winners and losers. There is going to be tremendous opportunity for some companies, the ones with exceptionally high liquidity and exceptionally low gearing ratios, to expand in a big way globally. Do you believe that any particular UK-based industries or corporations will be in the position to benefit from this impending trend?
I believe we still have a very strong engineering and technology base here in the UK where there are a number of world-leading companies based around engineering technology and the biosciences. Our very strong academic community will also play an important role in supporting our commercial drive. We have some great companies like Rolls Royce, which plays a very important role in the success of Airbus. I am Chairman of National Grid which employs a huge number of very talented engineers. Half our business is in the US and we are always looking for new markets to enter. There are many other companies like ours that keep looking for overseas opportunities.
Foreign Direct Investment (FDI) outflows from the UK reveal a very strong affinity for activity in the US. For example, UK-based companies own a substantial portion of the North America defence industry. But when we look to the East, there seems to be a big wall after India. Do you believe that some sort of physiological barrier keeps UK companies from being more proactive in expansion in the Far East?
There are quite a large number of British companies that have substantial operations in the Far East - China, Singapore, and Hong Kong ?mainly though joint ventures with local partners. But you are right that there is a propensity for investment to go first towards North America, then to Europe, the Middle East, and perhaps India, but I think that beyond that there are some artificial barriers for some companies. Many companies would like to do business in China but I think that finding a good partner and going to a country where English is not necessary the spoken language are challenges large enough that some companies are deterred. And yet when you go to China, English is a very wide-spread language, so this shouldn't really be a barrier. UK government has made concerted efforts to encourage British companies to 'put down firmer roots' in China, and in Asia generally. I was involved in the Asian Task Force for considerable time that was set up by Gordon Brown when he was Chancellor of the Exchequer, and by the current Chancellor, Alistair Darling, when he was Secretary of State for the Department of Trade and Industry in 2006-2007. We have been studying ways to encourage British companies to be more progressive in going there to 'put down roots.'
Mr. Juan Manuel Eguiagaray, your colleague on the EADS Board of Directors, believes that the Spaniards were the first Europeans to privatize national industries (under his watch as Spanish Minister of Industry and Energy). The UK also has a strong history of privatization and is very proud of the high level of commercial freedom and limited protectionism or artificial walls that characterize its economy. For example, BAA Airports, one of the world's leading airport companies, was sold to a Spanish group. From the perspective of an industrialist, are there industries that should have any type of barriers or permanent conditions on ownerships, or do you believe that the full lifting of any and all barriers on ownership in all industries is essential?
Yes, I am very keen on open markets. I have been involved in selling major UK companies to overseas companies. As Chairman of RMC Group, the largest ready-mix concrete company in the world, I supported the sale of our company to CEMEX of Mexico in 2005. Then in 2006, as Chairman of the ports and ferry group P&O, I led the Group's sale to DP World (Dubai). Those were two quite iconic British companies. I was also on board of Princess and P&O Cruises when we merged with Carnival Group from the US - I am still on the Board at Carnival Corporation. All those sales have probably led to a richer investment flowing back to the UK. In the case of Carnival, we built Queen Mary 2, the Queen Victoria, and additional cruise ships for P&O, so in fact, there has been a depth of investment that exceeded what we could have generated from the company as it was on its previous scale. I think the same is true for RMC Group and certainly P&O Ports, since DP World (Dubai) is now building the largest container port in Britain on the River Thames, a ?.8 billion project. So selling companies which continue to operate in the UK with a new name above their door, is not necessarily a negative business decision for UK Limited.
While our open markets have served us quite well, there are some industries that have critical importance to the country. There are those who might argue that Government should take special care to ensure that we have a critical mass of defence capability. Since defence companies deal in high technology, there is also a huge spin off between the university community and the engineers and technologists and scientists that work in those companies. There are of course those who would argue that a company like National Grid, which controls the nation's arteries for gas and electricity, is part and parcel of the fibre of the country, just like water companies. There are those who would argue that these utility-type companies are critical to the future wellbeing of the country and we shouldn't let anyone buy them.
I heard what my Spanish colleague says but I think Britain was amongst the leaders in privatization on the scale it was actually done. Mrs. Thatcher's government certainly did a huge amount to denationalize steel and all the utilities, privatized what was left of the coal industry, and while the shipbuilding industry, including naval shipbuilding, was partially wiped out, what was left was transferred to private ownership. There are many big examples. The big debate between public ownership and privatization has been running for a long time in Great Britain.
Today, National Grid is turning in record numbers in many key areas including overall profitability. At the same time, has the complete privatization of utilities in the UK yielded better value and better, more reliable service for the habitants of the country?
Thankfully, reliability at National Grid is the famous 'six nines' which means that we are delivering 99.9999% reliability. This is a world-class standard of operation. We have also been able to delivery significant cost saving over the years in the transport of energy so the consumers have done relatively well out of this element of the energy bill and we are still taking costs out of the business.
Today, the BRIC economies, and certainly China, have the unique opportunity to build infrastructure from scratch. What would be your advice as the Chairman of National Grid on building the right infrastructure for the future, one that gives delivers value, reliability, flexibility, and a world-leading technological advantage?
We probably operate one of the most sophisticated energy system operations in the world, in that we have price bids by generators onto our grid to provide the lowest cost to the consumers. It's probably one of the largest computer-based systems of this type in the world and it's rather unique in the way it has been designed to give the economic best deal to the consumer. Every hour every generation has to bid to us to get on the grid for the next hour; bids are organized in order of cost, and we take the lowest cost energy first to feed our demand curve. This process obviously leads to great cost benefits to consumers. I would advise that it is one thing to build infrastructure and quite another thing to build the system operations that can deliver these benefits. We would be very happy to share our experiences with infrastructure companies in the energy field in Asia, and indeed to work with them over time.
You have turned down several opportunities to be board member or to even Chair a Board (as you turned down BAE Systems). Why was the chance to join the EADS Board in 2007 interesting enough to accept?
I am a naval architect by training. There are a lot of similarities between designing and building a ship and an aircraft. Many of the same engineering skills are used; even fluid mechanics is a similar law, just a different density of fluid. So I think designing and building great projects and being part of big industrial companies are things that have been a great part of my life. I saw joining the EADS Board as a wonderful cross- border challenge. I met the board members, and I liked them: Chairman Dr Rudiger Grube of Daimler, CEO Louis Gallois, and Airbus CEO Dr. Thomas Enders. They are all great professionals. I was also joining a board with other very experienced international businessmen: Lakshmi Mittal and Michel Pé–Žereau from BNP Paribas. We now have a very interesting board. I am particularly keen on modern corporate governance in boardrooms. EADS was modernizing its governance from having a dual-headed Chairman, a dual-head Chief Executive, and mainly government or directors from the existing shareholders, to bringing in external directors, moving to a single chairman, a single chief executive, and an overall modern boardroom governance system that is very akin to what we practice in the UK. That is an area that is of extreme interest to me and since I have been fortunate enough to have a lot of experience in different board rooms, this seemed to be a very interesting cross-border challenge.
You are clearly big on transparency. To what extend is it a challenge to have a uniform understanding of what transparency is in such a multi-ethnic cross-border environment?
There are certain basic principles that must be pursued in any boardroom that I am part of. Leading governance practices that are beyond criticism must be installed. Very strong central financial control must be there. Other necessities are sound administration and compliance with the laws of the lands in which we operate. This entails good tracking of decision making and excellent paperwork reaching the boardroom on which decisions can be made. Those are the principles that I pursue and I can now say that the standard of governance has improved very significantly at EADS; it is of a particularly high standard. I believe that out of those principles comes transparency. You have to encourage transparency of culture, meaning that people must be very mature and not attempt to hide things, they must say how things exactly are with no 'fog index.' Fostering such a board culture is fundamental to creating a clear, transparent situation.
After Year One on the EADS Board, corporate governance has improved, but from your perspective, what opportunities and challenges must take priority over the next few years?
I just take each day as it comes. I am very fortunate to have a very rich variety of things that I do, including varied geographic involvement. EADS is a great pan-European company that has a broad global vision which includes building relations with China. That is particularly interesting for me because in my days of shipping and shipbuilding I spent a lot of time selling in the Far East, a part of the world that I enjoy very much. That is a very interesting job but I am also involved in Mondi, the paper group, which has got operation in at least 27 great countries, including many emerging markets and a big present in South Africa. Then I am involved with DP World in Dubai, the big container port operator, and the Court of the Bank of England, which provides me with a wonderful outlook on the British, European, and the global economies. And I 'hang my hat' and manage my diary from my office at National Grid, a great company which we have grown significantly to reach the 19th or 20th place on the FTSE 100.
I will have no time to get bored, even after I leave the Bank of England. I will have a little more time on my hands, because the bank has been very demanding, but I do believe that I've had a wonderful relationship with the man I hugely admire, the Governor of the Bank of England, Mervyn King. He is a world-class central banker and I think when the history of this crisis has been written he will be seen to have been one of the very important navigators in helping the country get through.
So that has been a wonderful experience in my life but now I will either take up something else or take the free time and apply it to my other businesses, because clearly in a time of crisis they demand more of my time. Although it's up to management to run a company, it is in times like these that boards have to take particularly great care to navigate through, to manage the balance sheet and cash properly. 'Cash is king,' and it's particularly 'king' in a crisis like this. When you go in to turn a troubled company around, as I've done on several occasions, you can always be sure that management took their eye off managing cash. I learned the lesson early in life that you can go bankrupt even if you are profitable, if you don't have the cash. So it's very important to manage liquidity as well as profitability. One must never lose sight of that particularly in a time like this.
The Chinese leadership has stated in no uncertain terms ?time and time again ?that China is committed to developing a complete aerospace industry. Is there room for a third major player in each aircraft market segment in the world?
Well, you can't say there is not. There are many examples in other industries where there are many other players supplying major equipments. In the defence industry, for instance, you have significant choice in the United States, British Aerospace here, Thales in France, and some of the EADS companies. You have a great range of companies. Maybe at the end of this crisis there will be fewer of them since crises always create consolidation opportunities. But even so, the successful entry of a third competitor is not something that can be ruled out, because markets always adjust. The most important thing no matter how many competitors you face is that you develop the highest quality and most reliable products, that you sell them in a very competitive way, and that you take care of your customer with good support services. This logic applies just as much to the aviation industry as it does to many other industries.
Some pessimists (in your country) believe that American companies like GE and Boeing pretty well have China wrapped up. After all, they were the first movers, they entered in a big way, and they followed the exact principles you just outlined. Is it too late for British industry to compete in a serious way in China because of this background?
No, I don't agree. Everything comes back to technology, the quality, freshness and innovative nature of the product, and the progressiveness of the companies concerned. Great companies with great brand and great products will prevail at the end of the day. Even if somebody else gets there first, it doesn't mean they have the sustainability. Sustainability in markets is a very important thing.
What evolution do you expect in collaboration between UK and China-based industries over the course of the next five to ten years?
I think we will see China subject to the depth of this financial crisis, but in more normalized circumstances, within the next decade, I see Chinese companies investing more in Britain and the rest of the Western world. I think the pent up level of cash in that system will ultimately lead to this kind of a greater backflow of investment. We have the same backflow coming from the Middle East into mature economies as well as Africa. We will see something like that from China. That will lead to new relationships (which are to be welcomed) and opportunities for the British companies that new foreign investors tie up with in the UK to actually go back to China and reinvest there as well. This is why free trade is so important; it creates two-way traffic which creates more business, and so the world keeps its economic engine turning over.
As one of Britain's most senior indsutrialists, what lessons have you learned throughout your career that might be of particular relevance or interest to the leaders of business and government in China?
We could take a lot of time to talk about the importance of leadership lessons. One of my favourite Chinese proverbs is 'When the best leader's work is done, the people said 'we did ourselves'.' For me, that encapsulates the essence of good leadership. The people must have known what they had to do, so there must have been a good strategy and a clear plan, and the people must have had a leader who was prepared to trust them while encouraging them to deliver according to the plan. Obviously the leader must have communicated the plan well to the people, because he was not taking the credit when the mission was accomplished. You also get the sense that the leader must not have been arrogant. He wanted the people and the success to be given priority. I love that analogy of leadership and I love that Chinese proverb.
The Chinese people are very wise and I have always enjoyed my time dealing with them as they are also very business orientated and they know how to strike a tough but fair deal. At the same time, from my experience, you can trust them to keep their side of a contract even though it might take you quite a long time to actually finalize business. My experience in China over the last thirty years has been consistently very good, even through all the amazing changes that have taken place in Chinese society.
| Company: | EADS |
| Position: | Board of Directors |
| Country: | Germany |