The new boss of BT, Philip Jansen, has some big governance questions to address. He could hide behind a wall of secrecy.
Or he could handle the allegations of wrongdoing at the time of the 2017 discovery of a £530million black hole in Italy in the transparent manner that Dave Lewis tackled an historic accounting fraud at Tesco.
At the very least, shareholders need access to the findings of the internal KPMG probe commissioned at the time of the debacle.
In at the deep end: The new boss of BT, Philip Jansen must handle the allegations of wrongdoing at the time of the 2017 discovery of a £530m black hole in Italy
It is also in the public interest that the damning, unpublished 353-page report by the Italian financial police (seen by Reuters) be placed in the public domain.
When the loss emerged during the leadership of chief executive Gavin Patterson it was seen as a typical Italian scandal caused by shoddy accounting.
The inquiry by Italy’s financial police casts the affair in a dramatically different light. Email records suggest the scandal began in London with requests by a senior official, Brian More O’Ferrall, to Italian-based executives asking them to boost profits.
The allegation that the directive to pad profits come directly from BT headquarters and was not a book-keeping muddle should be a matter of deep concern.
Among the ingenious methods allegedly used by BT’s Italian executives was the treatment of wages as a capital cost so that they could be written down over time rather than as an immediate expense. This made earnings look healthier.
BT struggled for several years with the under-performance of its Global Services division.
Contracts were badly mispriced, draining resources at a company with multiple calls on its cash flows including broadband rollout, pension fund contributions, dividends and a big spend on sports rights.
Demonstrating that Global Services, which serves international corporations, was in the black and no longer a burden was vital to investors.
Discovery of ‘constant and unrelenting pressure’ to improve returns by distorting accounting policy has echoes of events at Tesco. There, senior managers under stress inflated earnings to make them look better.
Tesco eventually agreed to a deferred prosecution agreement with the Serious Fraud Office (SFO,) in which it acknowledged that it had ‘dishonestly created a false account of its financial position by overstating its profits’.
BT is no ordinary company. Its Open Reach arm has an iron grip on Britain’s broadband connections. It levies a ‘poll tax’ on many houses in Britain through landline rentals. It has large base of small shareholders dating back to privatisation in 1984.
The only UK investigation of the Italian job so far is by the flaccid accounting watchdog the Financial Reporting Council, into the role of axed auditors PwC.
The board needs to restore integrity without delay, laying out all the facts as it knows them and calling in the SFO to establish if the law was broken.
If Taylor Wimpey boss Peter Redfern expected plaudits for pulling out of a deal to buy a luxury apartment at a £436,000 discount to its original asking price, he was badly mistaken. Aside from anything else, disclosure of the transaction was opaque at best.
It was absent in the accounts from the director’s remuneration report and the section on related-party transactions.
Investors wanting to know more would have to turn to page 188 of the annual report and ‘Notes to the Annual Meeting’.
Equally unsettling for Redfern is the criticism from advisory group Pirc of excessive pay, more than double base salary.
He is not in the category of former Persimmon boss Jeff Fairburn and his notorious £75million bonus.
But Redfern is hardly a pauper, having been paid £39million over the last decade.
Pirc suggests greedy executive pay has become a political problem as damaging as the MPs expenses capital.
It gives capitalism a bad name and fuels the socialist narrative, which threatens free markets. Investors need to curb excess in the name of decency.
The Royal Academy of Dramatic Arts is launching a course for executives, entitled ‘Creating a Powerful Leadership Presence.’
It is billed as teaching how to lead with ‘openness and honesty’.
Given current governance failures the should be no shortage of candidates.