Business

Persimmon, crony capitalism and a moral meltdown that makes it difficult to defend capitalism

BY Iain Martin | iainmartin1   /  7 November 2018

The rise of Jeff Fairburn is a story of social mobility, intelligence and hard graft of the kind that we should be celebrating in Britain. As the son of a motor mechanic in York, he left a comprehensive school and trained to become a quantity surveyor. He joined the homebuilder Persimmon in 1989 and progressed until he was appointed chief executive in 2013.

Today, he left the company under a cloud as the result of one of the most troubling and baffling scandals in corporate Britain in the last decade.

No laws were broken. But the damage done, and the way it seemingly confirms a dangerous  and wrong Corbynite critique about all business being greedy, is serious.

Fairburn’s fall is a shaming moment for George Osborne too, the former Chancellor and architect of the appalling Help to Buy scheme designed to boost home ownership by government subsidy. Osborne was told repeatedly by various MPs and commentators that it would inflate the profits of the building firms and distort market incentives, and he wouldn’t listen. Help to Buy came on top of firms being helped out by the lending schemes agreed by the Treasury and the Bank of England.

Fairburn had been given a remuneration package linked to how well the company performed, and Help to Buy and government support helped a lot in that regard. Bafflingly, as was pointed out at the time by a handful of analysts, his pay package was uncapped. When it emerged last year that Fairburn would be paid more than £100m there was outrage, with several board members resigning. Fairburn voluntarily gave up £25m to charity, but was tin-eared when asked questions about the £75m he would be left with.

You’ll hear some capitalists saying he did nothing wrong and took what he could get because he deserved it. This is an elementary mistake, rooted in a misunderstanding of markets and how risk works and is rewarded. Fairburn hadn’t risked his own capital, investors do that. The man hadn’t risked anything. He was a skilled and hardworking executive, who should have balked – even out of self-preservation – at being paid like a multi-billion tech entrepreneur who grew something from nothing and made sacrifices.

The heart sinks at a story like Persimmon. For years now capitalists – or those of us who support capitalism, and seek its reform so it survives and generates prosperity in a fashion that is politically and morally sustainable – have written pieces saying capitalists need to make a better case and be tougher on moral failure to strengthen the case. Profit is healthy, as Adam Smith demonstrated. There’s not all that much that can be done usefully without the fruits of enterprise. The search for profit pays wages and fuels tax receipts that pay for social spending.

Now comes this act of epic corporate muppetry at Persimmon, a leading British company. None of us can claim to be morally perfect or free from error, but what on earth did those involved think they were doing? It’s not even as though it took place before the financial crisis. It happened after the worst emergency in markets and society since the 1970s at least and maybe since the Second World War. Executive pay and greed, and capitalist failure, were live topics. Or perhaps, because the taxpayer had bailed out finance and by extension business, by 2012-2013 the worst was seen to be over thanks to taxpayers. Time to make out again like bandits, it seemed, underpinned by taxpayer support.

Persimmon is clearly a company in a state of crisis. The website still contains Fairburn’s mission statement:

“Sustainability is important to Persimmon. It is about acting responsibly to do the right thing for the business, whether that relates to our customers, employees, the communities in which we build or the environment. By integrating sustainability throughout the business we can also improve operational and financial performance.”

Although there’s some of that typical corporate rubbish in there, Fairburn’s pride in the company he helped build is clear. This is an infuriating scandal, tinged with sadness.

There is good news, however. It took many months, but belated pressure from large investors (the owners, who put up their own capital) made an impact, and Fairburn stepped down. It is a sign, perhaps, that with the spectre of a Marxist Chancellor John McDonnell looming business is finally beginning to realise the scale of the the threat. Speaking as a pro-market loather of Marxism I do hope business is not too late.

Astonishingly, some London financial firms are – a little like blasé residents of Paris in early 1940 thinking it would never get that bad, surely, so relax – opening their doors to the far leftists such as McDonnell in pursuit of constructive “dialogue”. Those doing so need their heads examined, but that’s another story.