The UK incumbent has bowed to pressure from some of its large institutional investors, which earlier this week told chairman Jan du Plessis that they were “losing faith” in Patterson.
Du Plessis said this morning that “the board is fully supportive of the strategy recently set out by Gavin and his team”, and yet it decided that the CEO has to go. The statement seemed to echo the famous surgeon’s comment: “The operation was successful, but the patient died.” In this case, “the strategy was right, but the strategist has to go”.
The statement was headed “BT Chief executive succession planning”, in a bit of spin-doctoring that was trying to indicate this was a long-term plan instead of something forced on the group in the last few days by its leading institutional shareholders.
BT’s shareholders remained unimpressed this morning. The share price, which was £2.08 on Monday, briefly spiked but then went down to £2.03 – implying a 2.5% loss of value in a single week. Two years ago they were £4.52.
A footnote to the announcement said that when he steps down Patterson “will be treated as a good leaver and be paid strictly in accordance with the terms of his employment contract and BT’s remuneration policy, as approved by shareholders in 2017”. But “he will now not be receiving the 2018 incentive share plan award described in the annual report”.
BT said in May that it will fire 13,000 people from its workforce, mostly in mid-management roles. The BT board appears to have accepted that Patterson is not the right person to handle that – or some of the other challenges that are facing the group.
With the exception of its mobile operation, EE, and its last-mile operation, Openreach, most divisions reported poor results a month ago. BT Global Services showed annual revenue down 9%; Wholesale and Ventures had revenue down 5%. On the consumer side, revenue was up 3%, more or less the current inflation rate in the UK. Overall revenue was down 1% and debt was up 7.7% to £9.6 billion.
This might be the opportunity for a new CEO to make some bold moves. One possibility would be offering to sell Global Services, for example, to another global carrier. BT’s UK competitors have long angled for Openreach to be moved out of BT’s direct control, either as a separately quoted company or perhaps jointly owned by major operators.
And of course a new CEO might decide to appoint a new senior management team.
Du Plessis, who became chairman late last year, said this morning: “The broader reaction to our recent results announcement has though demonstrated to Gavin and me that there is a need for a change of leadership to deliver this strategy.”
He added: “I am confident that, for the remainder of his term, Gavin and his senior management team will continue to display the energy required to deal with every dimension of the task at hand.”
In Patterson’s statement he led with the launch of BT Sport – showing defiance to many shareholders’ dismay at how much the company has spent on sports rights. He included in his list of achievements “the purchase and integration of EE” as well as “the agreement to create greater independence for Openreach” – though that was forced on BT by the regulator, Ofcom, in the face of stiff resistance by the company.
He said: “BT is a great business and, with the new management team I’ve recently put in place, is I believe very well positioned to thrive in the future.”
The new CEO, whoever he or she is, will have barely been in office more than a few weeks before a significant deadline looms. In January 2019, BT’s largest shareholder, Deutsche Telekom with 14%, will be able to sell its shares or – perhaps more likely – make a takeover bid.
The latest indication, in February 2018, was that Tim Höttges, CEO of Deutsche Telekom and a non-executive director of BT, would like to make a bid.
