The conviction of former Polly Peck International plc chairman and CEO, Asil Nadir, is a reminder of the importance of effective governance, and of just how far best practices have come over the past two decades in the UK.
Polly Peck’s collapse in 1990 was one of the main corporate scandals that instigated the 1992 Cadbury Report, the foundation of the modern UK governance regime, which recommended separating the roles of chairman and chief executive, and ensuring a majority of non-executive directors. Mr. Nadir’s £29 million theft from the company he ran certainly demonstrates the potential downside of the concentration of corporate power and the power that one individual can exercise when the roles of chief executive and chairman are merged.
However, the conviction also highlights the development of corporate governance practices and stronger stewardship in the UK since 1990. A similar abuse of power would be all the less likely in the UK today; not only does the separation of chairman and chief executive remain best practice, but Cadbury and subsequent governance reviews have emphasized the importance of an active, majority-independent board in overseeing executives. Moreover, whereas shareholders blindly supported Polly Peck’s expansion in the 1980s, the principles of the Stewardship Code, adopted in 2010, also recommend that institutional investors monitor and actively engage with their investee companies.
The theft verdicts relate to money transfers Mr. Nadir authorized without consulting the Company’s board of directors. The money was transferred from Polly Peck’s bank accounts to subsidiaries and other companies, but according to the Serious Fraud Office (“SFO”),
“the end use of the money transferred included the covert purchase of shares and share options in [Polly Peck] and other businesses by companies controlled by Nadir and his family. Payments were also made to banks so that they could make loans to companies owned or controlled by Nadir or which were part of the Nadir Family Trust.”
The end of Mr. Nadir’s trial marked the conclusion of a meteoric rise and fall, for both Polly Peck and Mr. Nadir, spanning decades and at times evoking dramatic movie plot lines. Mr. Nadir took a controlling interest in Polly Peck in 1980 and the Company expanded through acquisitions in the 1980s, joining the FTSE 100 Index and notably acquiring Del Monte in a £577 million deal. Despite rapid growth, Mr. Nadir remained firmly in control, retaining the right to make payments without board or other management approval, and delivering astonishing profits through a complex and opaque structure. In 1990, PPI’s financial stability and its ability to pay debts were called into question. The company collapsed and was put into administration in 1990, and the SFO began its investigation.
In 1993, months before Mr. Nadir’s original trial was set to begin, he fled by private plane to northern Cyprus, returning to the UK seventeen years later hoping to clear his name. Mr. Nadir’s trial in 2012 lasted seven months and the SFO claimed a major victory with its prosecution when jurors found Mr. Nadir guilty on 10 of 13 counts of theft. Far from clearing his name, Mr. Nadir will serve a minimum of one year of his five year prison term before being eligible for release on license, and the SFO is seeking legal costs and compensation to the Polly Peck administrators.
Ideally, well-developed corporate governance and stewardship practices serve as safeguards for shareholder interests, decreasing the likelihood of such abuses of power. However, while Polly Peck’s collapse is ancient governance history, the story of an overleveraged company without appropriate oversight, funded by no-diligence credit facilities may call to mind more recent events. The UK governance regime has come a long way; but regulations and best practices will only be as effective as the directors at the board table.