Mid 250 Podcast: Rupert Soames - Teachings from a Turnaround Titan
Fund managers Jean Roche and James Goodman speak to a legend of the UK mid-cap genre who turned around two UK mid-cap companies before going on to become a prominent leader and advocate for the UK business community, Rupert Soames.
Authors
You can listen to the podcast by clicking the play button above. Or read, the full transcript below.
[02:58] - Rupert's early career
[08:20] - Aggreko's journey to 'multi-bagger' status
[21:48] - Restoring Serco
[29:41] - How can CEOs get the most from their Boards?
[36:35] - Rupert's typical working week as CEO
[38:52] - The future of UK capital markets
[47:19] - Advice to future CEOs and recital of Rudyard Kipling's 'If'
Transcript
Jean Roche (JR): Hello, and welcome back to the Mid 250 podcast. I'm Jean Roche.
James Goodman (JG): And I'm James Goodman.
JR: We're speaking to you from our own recording studio here at Schroders Head Office in London. This is our ninth episode in our ongoing series highlighting the strength of mid-cap companies in the UK equity market and the skills and strategies of those behind them.
JG: Today, we are speaking with a legend of the UK mid-cap genre who turned around not one but two UK mid-cap companies before going on to become a prominent leader and advocate for the UK business community.
JR: Without further ado, we are delighted to welcome the previous CEO of both energy solutions business, Aggreko, and services business, Serco, Chair of the CBI, and let's get it out of the way now, grandson of Winston Churchill. Welcome, Rupert Soames.
Rupert Soames (RS): Well, I'm so staggered by that description of me. I'll try not to make a complete horlicks of this as we go and take away people's ideas that I have any capability at all.
JR: You spent 11 years as CEO of Aggreko, that was 2003 to 2014, and then nine years as CEO of Serco, 2014 to 2022. But before that, you were at Misys and GEC. Can you tell us a bit about what motivated those earlier career moves?
RS: Well, I'm nearly all career mishaps. I was incredibly fortunate to go and work for somebody called Arnold Weinstock at GEC. I joined that in 1981 because I couldn't get a job elsewhere. I left Oxford, all my friends went off and become bankers and lawyers and stuff. I slightly blotted my copy book at university in almost every respect. The only person who would have me was Arnold Weinstock.
JR: Why was that?
RS: He said to me, I employ 110,000 people, one more or less won't make much of a difference. I literally did start on the... It's one of the things I am perhaps absurdly proud of. I started on the shop floor being a progress chaser at the Marconi factory down in Rochester in Kent. I lived in a bedside in Gillingham. And there I discovered this thing about learning every day, things about... It's really interesting. I was there during the Falkland's War, and we were rushing stuff out to get down to the Falklands. And I was involved in the head-up displays for the F-16 and the A-10 and the fuel management system for the early air buses and stuff to go on tornadoes. And it all had to be designed and made. It was just inspiring. I didn't get to see him very much. But when I did, particularly in the early years, he was just such an inspiring leader. Everybody used to think of him as being horrible, penny-pinching. He had a wicked sense of humour, and he just understood management accounts. That's where I learned how to go and read accounts and management accounts, and where I began to get sight of what I call my unified theory of everything, which is how to create value out of businesses. He was absolutely obsessed by return on capital and he was absolutely obsessed by cash. When I say obsessed by, he understood that return on capital is theory unless you can at least understand how it can be turned into cash ultimately. I would say that he was less than sophisticated in his approach to risk, which was all risk bad, no risk good. He was kind of addicted to low-risk businesses. He would deny this furiously, but the truth is, he was. It was later in my career when I went to Misys, and I learned from another genius called Kevin Lomax, who was a great entrepreneur and great creator of businesses, about the idea of risk and how you think about risk. There are different ways. In every risk, there is an opportunity. It was merging these two ideas of on the one hand and return on capital on the other. That gave me a foundation. Also, I have to say, of understanding how you manage business, monitor, control and have visibility over businesses through good management accounts. It was a terrific grounding. But I think behind your question is, why did you move from one business to another? The answer is every time I got fired, probably because I was very annoying.
JR: But actually, you went on to become CEO of Aggreko.
RS: Yeah, but that was after a year of unemployment.
JR: Okay. How did that come about?
RS: What it was I got fired from Misys. Kevin Lomax finally found me too annoying, and he was probably quite right. I say it rather unfairly the best thing that happened to me was being employed by Arnold Weinstock. But actually being fired by Kevin was a great piece of luck for me, albeit it did not feel like it at the time. I was a year, I had three children in education and tried to be very brave, and I tramped the streets every day doing job interviews. Then I was just out of somebody's tragedy, which was the death of Phil Harrower, who was the inspirational leader of the Aggreko, and the two lead candidates for the role of CEO, taking fright and dropping out during the process, leading poor Philip Rogerson, who was then the share with only one candidate, and that was me, who was jumping up and down and saying, me, me, me. I just knew it was a business that was made for me, and I knew it, particularly when I met Angus Cockburn, who was then the CFO. And that then started a partnership between the two of us that lasted 20 years.
JG: And I wanted to pick up on that because I did see your expression changed slightly when I described you as a legend earlier. But we've got some really good statistics to reinforce that. So Jean and I were looking at the numbers this morning. If you'd invested £10,000 on the day you joined Aggreko as CEO, reinvested the dividends, and then sold on the day you left, you'd have £118,000 on your departure, which is a compound annual growth rate of over 25 %. It's definitely part of a ten bagger, which is what we've talked about a lot in our prior podcast in our prior series. The first question is, how did you achieve that at Aggreko?
RS: Fundamentally, this was a company that had a fantastic proposition to customers, which is that we provide temporary power and temporary cooling, both of which are utilities that you really, really need. When you really need them, you really need them. You really need them. So you're dealing with customers who have to rely on you to deliver when their businesses have fallen over or when you got something like the Olympics or Glastonbury and you cannot afford the power to go off on the main stage. So you're dealing with a business where there is a high premium on quality and assurance, and there is a high premium on reputation. One of my favourite moments was hearing a customer saying, oh, we'll get an Aggreko to do that. We'll get an Aggreko to do that because they were gensets that would turn up on right time, reliable. If anything went wrong, we'd be all over it like a rash. It was a high service business, high capital-intensive business. But we also were blessed with a dose of combination of luck and highly skilled management. We had a group of people who were looking at power projects in emerging markets, and they were led by some really able people. There was a guy called Derek Shepherd, then subsequently, a guy called Kash Pandya, who's gone on to have huge success in other businesses as well. We rode a tide where developing countries, particularly those who had big reliance, they'd had hydro put in in the 1950s and '60s. Their economies had grown and the hydro just could not cope. So you had this thing of seasonal hydro, where for half the year, they had plenty of energy, and then the other half of the year, they had power cuts, and power cuts were no longer acceptable. And we built this fantastic business dealing with countries that other people, and this is where the risk comes in. We took large amounts of our balance sheet and we put it in the places like Yemen and Angola and Venezuela. I and colleagues went and did a lot of debt collecting there. And some of my most interesting times were in the countries like that, where we had a proposition that actually worked the risk thing. Other people were frightened of that risk, but we knew that keeping the power on was so important that we would actually get paid, and we did get paid. So able to charge a risk premium and still get to mitigate the risk was really important, but it was global. That's another important thing. It had scale. And we had differentiation because we made our own... makes our own kit and equipment. But it also had a culture to die for, a really amazing culture. And I'm a bit of a culture maven. I think the culture eats strategy for breakfast. If you can get both together, it's really good. But both at Aggreko and at Serco, my principal responsibility was not to mess it up, not to mess up the culture, because they were already really good. And Serco got into a lot of trouble, and people said that's a big cultural issue. Actually, fundamentally, throughout most of the Serco, there wasn't a cultural issue. Throughout most of Serco, they were just fine. A lot of them were former public servants. They were delivering excellent public services. And at Aggreko, you had these people who just knew they regarded themselves as the fifth emergency service.
JG: Okay. It's fascinating. Can you give me an example of a risk that you chose not to take on, in Aggreko?
RS: Yes. I forebored to go back to Tanzania. Tanzania went through a stage of whenever you... We were in Tanzania, and it was proved really difficult to get. We had certain countries that were on the... We had a lot of businesses that we could have bought that we didn't. We took some risks that we didn't bet big enough on the risk, which was down to me. We had the transition to different fuel types, from diesel to gas and to heavy fuel oil. I think I was not bold enough in pushing some of those transitions. We tried to do it and probably weren't fast enough. But I have to say that it's quite interesting seeing what has happened. When I left, the share price was about £16, having been at £24. So it went from £1.40 to £24, back to £16. And it stayed at £16 for about 18 months, two years. And then it started a relentless decline. And it eventually got down to about £6. It was taken over by private equity at £8, and is now worth a fortune. It's now worth it. Private equity has taken that business. And I don't get to see the numbers, but I hear talk that they've made a huge success of it. That tells me that comes down to the thing is that management is a thing in business.
JR: When we were preparing for this chat, we did talk a bit about M&A more generally, but it can't escape our attention that while you were at Aggreko, you had the GFC, but it sounds like it didn't really affect how the business ran.
RS: Because people still need power, even if they need power to run the computers was to work out what the hell to do with what was going on. So we did have the GFC, but people needed energy. We had huge things like the Olympics. I mean, on M&A, I think both at Serco and at Aggreko, we were, I would say, measured, but there was one business at Aggreko I really, really, really wanted to buy. And I knew I wanted to buy it from early on, and I knew that they were going to have to sell it. It was the energy rental business of GE, General Electric. It was just, should not have ever been in that business. It was a... They didn't know. I knew sooner or later they'd have to sell it. And the longer they kept it, the cheaper it would get. And it did. And we finally managed to buy that. And that was pretty transformative. It just gave us huge extra scale. And bluntly took somebody out of the market who was not happy in their work. And then we did some smaller ones and less successful ones, too. But we did some... And at Serco, we did some good ones there, too, principally taking a business that was UK and Australia focused with a bit in the US and turning it into... It's got a big US defence business now, and that's been driven all by M&A that we started. But it's now also got a big European business because they've gone... My successors did some successful M&A in Europe as well.
JR: I was in the US earlier this year, and I saw a huge building with Serco plastered across the top of it. So I guess that's your legacy there.
RS: I hope it's a huge building, which Serco occupies one floor. I didn't go in and check. You need to go in and check that. We pay a premium to have the sign, and people think, oh, look, Serco is really big, but hopefully, we're just one floor. But there is an example. I know the stats don't say that They're terrible. They're terrible. Other people's deals then. You can draw a couple of different conclusions from that. Let me tell you, there are some companies, no doubt some in your portfolio, that do it really well. I mean, Halma?
JR: Yes, Yes, we've had it in our portfolio.
RS: Diploma?
JR: Absolutely. Diploma? Yes, again, another multibagger.
RS: Serco did it quite well. Aggreko did it quite well. Some companies do it well. The ones that do it well tend to be the ones that do it quite a lot. And they become quite practised at it because there's an art. And then there are some industries, I think, some businesses where actually where R&D at different points of the risk curve Sorry, M&A is R&D. So you can choose- instead of, sometimes. Now, clearly, Misys was like that, and Smith & Nephew has this thing where you choose to go and buy into a product. At what point do you choose it when it's three professors working out of a hospital? Do you choose to buy when it's got its first trials have been done? Do you do it when it's got its first clearance by the authorities? And at each stage, they become much, much more expensive, but you're retiring a huge amount of risk.
JR: Yes, back to that balance again.
RS: It's back to this balance again. There's barely a MedTech, a company of MedTech of any size that does not use M&A as a way of refreshing its portfolio. That's down to the wisdom of the choices that you make.
JR: The reason I was asking about the GFC earlier was I just wondered whether that freed up good M&A opportunities, or was that just not really a good time?
RS: No, we've done our big plan. We've done it, which was the GE one, and we did that before then. We didn't really need to do a lot. What we were really focused on during the GFC was the Beijing Olympics, where there was the most horrifying moment because we were doing the power for the opening ceremony. We had a huge row with the Chinese who wanted to make us basically liable for everything. Should there be any failure of electricity or unlimited liability, consequential loss, reputational damage. We had the sense we were very, very... All the business I've run, I'm being really lucky to have people who understood about how to manage contractual risk. We just said no. Luckily, we had the Olympic Committee on our side. They told the Chinese, you got to use Aggreko. We can't use... So the deal was, is that we wouldn't sign these liability clauses, but sitting behind me, in the row behind me, were three very large people, I suspect from the Chinese authority, sitting behind me. And in the opening ceremony, this amazing thing, suddenly in the stadium, all the lights went out. Bam. Complete darkness. And I thought we had it. And in fact, it's part of the show. It was part of the show. And then suddenly the lights came on. And nobody told me it was going to happen. I was holding on to my wife's hand. I'm sorry, it's been nice to know you. We were very focused on that and then focus, of course, on the UK Olympics, which was one of the proudest moments of my life. We did all the power for that. And going and seeing Britain absolutely at its best. This amazing combination of culture and sport and imagination and wit and irreverence, but equally superb, superb execution. With Aggreko.
JR: With Aggreko. Shoring it all up.
RS: Yeah.
JG: You mentioned the transition to Serco. Serco, from the outside, at least, looked like it had a few more problems when you joined. What was the state of play when you got the CEO job?
RS: Well, You would say a few problems. We were going bust. We'd lost the competence of our largest customer. The morale was absolutely zero. We would be investigated by the Serious Fraud Office. Apart from that, it was all swimming.
JG: Maybe you're right to draw out my understatement, but you enter that situation as a CEO, what do you do?
RS: Well, first of all, you got to understand what the problem is. For both Aggreko and Serco, they gave profit warnings the day that I arrived. In the difference of Serco, we had to do an emergency rights issue to go and raise £150 million to keep financing going and to keep the shop running. And we subsequently had to go and raise a lot more. And we wrote down one and a half billion pounds. Most of it was goodwill, but it was about £400, £500 million of contractor provisions. But there was a strategic problem, which is it had diversified into what looked like an adjacent market, but was in fact very different. It had gone into commercial outsourcing rather than government. When I arrived, there were about 105,000 employees. Pretty quickly, we reduced that down to 55,000 by getting rid of all the commercial, which subsequently has gone on to be very successful in its own right, the commercial bit. I would have loved to have had shares in that as well, but it needed focused management. We couldn't give it that. There was not the interplay between the commercial and the government side. We turned it into a focus player in government. The strategy took us about six months to work out what we were doing. I remember sitting with them and suddenly a light bulb came on and it was called our 'Bingo Card'. It was territories down this side and areas of government that we would serve over in the vertical axis and how strong we were in each one. So we figured that out. I think one of the biggest lessons for me from that was that this was a very public a blow up. It had been all over the pages of the press. Literally, people in the business were denying that... They said they worked for Tesco, rather than Serco. I mean, they really did not. When they were going out to dinner with friends, they didn't want to say who they worked for. And I got wind of that very quickly. So I went and got a whole lot of shirts printed that said Serco and proud of it. And all my emails for the first two years went out to Rupert Soames, Serco and proud of it, and tried to get some pride back into the business. But the other thing is, when you are in that public, it's a terrible temptation that management have to tell people and institutions what they think they want to hear and subtly changing the words. Our constituencies were banks because we owed quite a lot of money and we're going to need quite a lot more. It was the UK government who were profoundly cross with us, so our customers. And it was also our colleagues who had been imbued with a culture of, we're really good people doing really good things, and we have very high moral values. All of a sudden, they discovered that, apparently, we didn't. It turned out it was... I don't want to diminish it because the government was very cross with us, and quite rightly so, they had every right to be. But actually, in the scheme of things, it was two contracts where there had been less than straightforward, in fact, in some case, arguably really poor behaviour in terms of our reporting to customers out of 600. Most of them are getting the balance between saying, yes, we have a problem here. Yes, we have this is a cultural issue as well as I think, but not making people who were on… Serco delivering government services. You are dealing, very often dealing with people at the worst possible time of their lives. Imagine being an 18-year-old who's just been arrested, put on remand, and goes to prison for the first night.
JR: Very dark time.
RS: Never been away from home in their lives. It makes me blub to think about it. There are good prison officers and bad prison officers. And Serco had some really, really good ones. And the good ones would go along with a cup of tea at 3:00 in the morning and sit down in a cell with a broken teenager, or even not a broken teenager. It could be a broken teacher who has gone and been on their phone and killed somebody in a car crash and is just facing four years. Broken. And bringing this thing about public service, we're there to look after hospitals. I keep talking we. I talk, how's this we? I'm out of there. It's run by really, really good people, and they're doing an absolutely fabulous cracking good job of it. But actually, we ran, and Serco still provides, has unbelievably good people really doing their best to provide services to a government and keeping their confidence that you have their back, that management admires what they do, that it's okay to have purpose. It's okay to go and celebrate the fact that so-and-so went and spent an hour at, 3:00 in the morning, and they then turn up late the next day and say, well, why are you late? I was 3:00, I was 4:00. And you have a celebration about well done. You have people who celebrate the fact that, be it in trains or in defence or something, that people do great things. That gives them... I think if you are doing a job, both at Serco and at Aggreko, people in the business felt the same way as I felt when I was doing progress chasing, trying to get spare parts for the Harrier Jump jets out to the Falklands. You felt that you're doing something that had an importance beyond getting your paycheck at the end of the week. I think that I like businesses that are able to imbue in their, that can have a purpose that goes throughout the organisation beyond making money.
JR: Yes, and I think that brings us neatly to your role now. It's interesting, actually, that you still speak in present terms about Serco and slip into that because it just shows how into it you were when you were CEO. But now you have, let's say, the luxury of chairing the CBI, but you're also chairing Smith & Nephew. You're looking at things from a helicopter view, I would have said, probably a bit more. And what advice would you give to a CEO to get the best out of their board now?
RS: So having been a CEO and being a chair and being at the top of the CBI. Well, I'm a fully paid-up member of the CEO Trade Union.
JR: Okay. I didn't know that existed.
RS: I know what it does in my mind is that but I'm not a CEO. I don't want to be a CEO anymore. I'm past that. I've had to go through a transition, and my colleague Deepak Nath, who's the CEO of Smith & Nephew, said it was quite a long and difficult transition to be a chair. Can I just tell you, what is the role of a board?
JR: Yeah, great.
RS: I think you got to start from the point of view from the premise that, first of all, you're dealing with other people's money and assets. And of course, not in the case of any managers that I've ever worked with, but the fact is the power corrupts, absolutely. And everybody's got to have an institution or a body or a group of people to whom they are accountable. Now, you can put a negative spin against it, and that's what the word governance tends to mean. We're here to govern you. Govern, govern, govern. And I think it's a horrible word. But a board is there to do a number of tasks, one of which is to be the modus of accountability for management that when it steps out of the board meeting, should have very considerable power to be able to go and do things, go here, they go there, but everybody needs accountability. The other thing is that I don't buy this idea of people who say, oh, being a CEO is so lonely. I'm a very lonely. I've never got that. How could I be lonely with Angus Cockburn there and with all the crew? The trouble is, though, that you become... It's natural that you become a group an executive team that is very bound up in its own thing and having an accountability is not, but having other people who are looking at it from an outside perspective and who are able to ask those questions, what if, in a way that they are completely on your side, that everybody sitting around the board should be on the side of management being successful.
JR: Yes, so everyone pulling in the same direction.
RS: That doesn't mean to say that you can't sometimes help that success by asking questions which sometimes feel a bit awkward, I'm really bad. People will attest on this because I've been, served on 10 boards or something. I've had 10 chairs, so I've seen it. But this thing about asking questions in a very delicate way, just ask the bloody question. Just go on and say. It's a much better way of doing. But also, I think that non-execs that need to be humble to the extent that they don't know the business nearly well enough. They need to have respect. But one of the best definitions of the task of a board, I heard somebody was actually when I was working at Misys, where one of the board director, the most valuable thing that a board can do is make executives feel brave. We live in a world where executives are constrained by their naturally, and actually making them feel brave is quite important. Sometimes you have to make them feel unbrave. But it is this thing. I think boards are... We got a fabulous board now, a fabulous board full stop at Smith & Nephew. When you see this thing of executive management and a board who respect each other. I personally, when I was CEO, and I shouldn't say this because it sounds a bit... But on the whole, you got to have a sense of how useful non-execs can be. I tell you what, most of the time, I think executives think that the non-execs are not particularly useful because they're opining on things they might not know in the business. But actually, if CEOs listen quite attentively, there's quite often a point there. But the other thing is that when things go wrong, my God, you need, but that's when boards start. I've been in businesses that have gone horribly wrong. Seeing then the difference between a good board and a bad board. But like it or loathe them, but you got to have them.
JR: Yeah. I think that's the requirement, isn't it? But also it's good to see when they work well. It's good to hear that from your point of view as well with all that experience.
RS: Yeah. I really do think we got a good... And it doesn't mean to say you never make mistakes. It doesn't mean to say we don't infuriate each other from time to time. But why I got to learn over the time. I was 20 years a CEO, and I went through a learning curve. And some of the most useful conversations I had with non-execs were offline, ring them up. Also this thing about having been always available as a chair. You got to be always available. As a CEO, you got to feel that you can ring them up at any time.
JG: Twenty years as a CEO.
RS: Long bloody time.
JG: It's a long time. What was a typical working week? Did you have downtime? How did you balance?
RS: No. I say this in all seriousness. It sounds, I mean it in all seriousness. Addiction is a difficult thing for the people around the addict. And we've all probably had in our lives, friends, who are addicts of something. My family had to put up with me being a work addict. I loved it. Absolutely addicted to it. I found it hugely rewarding. My children and my wife, they were really good about it. But there were, how many rugby games was I not there watching? I did not have a work life balance at all. I think it's quite... It's just a different generational thing. But I was outright, downright addicted to work. So I would be working. I'd do five hours work every weekend, and probably was a crashing bore as a result of it. Maybe I didn't get to schedule the dinner parties I could have gone to, and maybe I could have done other things. But the thing that I am most relieved about, because you know very often that children go and react, rebel against their parents' behaviours, I worried. I said, oh, my God, supposing my children say, "I do not want to be anything like, I want to just hang around". All three of my children are serious grafters. They work really hard and they do different things. And they are, but the pride that I have is that they have, and thanks to my wife who kept them on the straight and narrow, that they have not thought that the world is a terrible place and they want to go and sing Kumbaya. It would be fine if they did. But actually, they're grafters.
JR: Kumbaya's a great song!
RS: Quite repetitive.
JR: I'd like to take it to probably the really easy one, I say that tongue in cheek. What do you think future of UK capital markets looks like.
RS: I love the saying by Wayne Gretzky, the ice hockey championship. Don't look at where the puck is, look where it's going. I think that the puck is headed in a couple of... First of all, I think this island obsession of these stock markets all the way around the world, I think inevitably there's going to become, why?. I mean, different pools. And you can see in some companies now that have dual listings and then they're swapping. AstraZeneca have done where they've swapped what was essentially a secondary listing in New York, and they swapped it around with the UK, but they've also got a listing. And I think that the way this is going is that there's going to be global stocks, which should be really easy to trade. And in that, in that environment, the UK is really well placed. We've got the rule of law, we've got the time zone that enables me to get up in the morning, speak to Australia and go to bed at night and speak with the US. It's a great place to do business, but just don't expect all the shares to be traded through this thing called the London Stock Exchange. I think that's going to happen. I think the other thing is going to happen. I'm hugely admiring of what you do and of the fund that you run and the way that you think of investment. But I just think this relentless squeezing of the fees that people are prepared to take to exposure will lead to, broadly speaking, two classes of investment. One will be more or less index, and the other will be specialists who have much more concentrated positions, who really do the hard work. I see this with some of our investors now who do a huge amount of work on stocks, who understand that they and have bigger positions because they can leverage them and they can invest more in them. But I think it's difficult. I think the work that you do is admirable and spotting these businesses that are, How do you do it from the outside? It was difficult enough from the inside, but so what you do from the outside, I think that that is difficult. But really, trying to... I mean, Buffett was on this as on other things, right, in the long term, unless you have some differentiated strategy, it's hard to beat the trackers in some respect, unless you say we're going to have this approach to risk and reward that allows us to... That we concentrate on a smaller number of bets where we know more about these businesses than the market does.
JR: Okay, so the future is either passive or concentrated, very active.
RS: Yeah, I think that and a continuum of markets potentially not regional. I think tokenisation of stocks in one form or the other. But I have seen, coming back to this thing about cash flow and risk-adjusted returns on capital. I don't buy the perfect market theory that the market knows everything all the time and therefore it adjusts really quickly. I kid you not, when I went to Serco, there were people coming to me with bids to go and run rail franchises. I looked at them and I said, You haven't got a bid. No. I mean, on what planet does this model make sense? And the answer is, well, these are the rules of the road. This is the way the market works. And that bonkersness went on for about five or six years. People relentlessly bidding stupidly low prices based on impossible traffic volumes, because that was the way to bid it. And at the end of the day, they made 2%. Where's the fun in that? And so spotting, it's not perfect. So spotting where the risk-reward thing is good and better is what you're paid to do. That's what you're paid the big bucks for.
JG: And on that theme of investors getting to know companies better, getting to know management teams better. I'm sure you've probably sat in hundreds of investor meetings. If the roles were reversed, though, if you were the fund manager sitting on our side of the table, what are the questions you would be asking? What areas do investors miss, do you think?
RS: I wouldn't ask that question and say, is there anything we haven't asked? Yes. That's the thing. By the way, I did once get... There was a company called Adecco. I once managed to get halfway through an investment meeting before I realised that they thought we were Adecco and not Aggreko. That was quite an achievement. There are some questions I would ask. One of the things, I think that management are not aware of, but is very revealing, is asking the same question repeatedly over a series of meetings and seeing how the answer changes. Oh, yes. I'm a great believer in the elevator speech, which is that any company should be able to describe what it does between floor one and floor seven on the elevator. Just remind me, what's your elevator speech? Write it down. The next thing is, so we last met a year ago. Tell me some things that have changed, both within your business and within the market. Getting people to recount what is changing. And what I think the executives don't realise is the extent to which you take notes and remember. One of the greatest things, there's a friend of mine who's an asset manager, and he comes up to me and says, I remember when you were 27, you said this. I can't remember what I said 27 days ago, but they remember everything. I'm seeing these patterns, getting people to talk about what has changed. I think also as a qualifying question is, how do you think about your balance sheet? I think that that's an important one. Tell me how you measure the performance of your individual businesses. Is it monthly? Is it quarterly? Is it the management? I think that's useful. But teasing out these things about what's changing, and things are changing so fast. People will explain to you what is the situation now, what they're less good at doing, which you have to do, is how does that compare with what they told me a year ago? In that, you will see trends that maybe they don't see. Do you want to swap jobs?
JR: I think I'll say to them, so better, worse, same relative to last year? It makes people think on their feet as well, some of these more open questions.
RS: What's changed? Things are changing so much. Is it to demand? The other thing which I always like to do is tell me about one of your competitors and what you think they're good at and what you think they're bad at. It's getting them to reveal stuff about themselves and how they think about the business.
JR: So Rupert, what would your advice be to somebody who aspires to become a CEO?
Speaker 1
Well, I'm a big believer, as I said, in that culture eats strategy for breakfast. Culture comes from the perceived behaviour of the leadership, and particularly a CEO. I would say, if I was mentoring somebody to be a CEO, I would say, go and read, learn, and inwardly digest the poem, 'If', by Rudyard Kipling. I can see that you have had that same emotional reaction to it. It's written by a Victorian poet to his son, who was killed in the First World War, and it broke Rudyard Kipling. So, if you'll just excuse me, I'd like to just read it because I think it's got so much truth about behaviour in life, particularly for CEOs, for people who aspire to be leaders. But it is written for his son, so it's very man-oriented. It's also very Victorian in its language. So let me just read it. If you can keep your head when all about you are losing theirs and blaming it on you. If you can trust yourself when all men doubt you, but make allowance for their doubting too. If you can wait and not be tired by waiting or being lied about, don't deal in lies, or being hated, don't give way to hating. And yet, don't look too good nor talk too wise. If you can dream and not make dreams your master, if you can think and not make thoughts your aim, if you can meet with triumph and disaster and treat those two imposters just the same. If you can bear to hear the truth you've spoken, twisted by knaves to make a trap for fools, or watch the things you gave your life to, broken, and stoop and build them up with worn-out tools. If you can make one heap of all your winnings and risk it all on one turn of pitch and toss and lose and start again at your beginnings and never breathe a word about your loss. If you can force your heart and nerve and sinew to serve your turn long after they are gone. And so hold on when there is nothing in you except the will that says, hold on. If you can talk with crowds and keep your virtue, or walk with kings, nor lose the common touch, if neither foes nor loving friends can hurt you, if all men count with you, but none too much, if you can fill the unforgiving minute with 60 seconds' worth of distance run, yours is the Earth and everything that's in it, and, which is more, you'll be a man, my son. It's not a bad, it's not a bad set of behaviours to remind yourself of.
JG: And It goes beyond being a CEO, doesn't it? As you said.
JR: It's aged very well, that poem.
RS: It's really, really. I can bet you can hear, I can barely read it without choking up on it because it's aged. Because, as you so rightfully say, being a CEO is about being a human being. That's what people see. They see the human being in you. If you are a human being without values and without these sorts of things, then you won't be as successful as you should be, and you won't be much fun to work for either.
JR: Rupert, that has been a discussion full of wisdom and a powerful lesson in strategic execution. Your results underscore the whole point of our series that the UK market is home to, and capable of, delivering genuine multi-baggers.
JG: To reiterate that point and to remind our audience, £10,000 invested in Aggreko on the day you became CEO in 2003 was worth £118,000 with dividends reinvested on the day you left in 2014. Rupert Soames, thank you much for joining us on the Schroder UK Mid Cap podcast.
RS: Thank you for having me.
Important information
This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.
The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.
Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.
Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.
Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.
Authors
Topics