How the mighty fall


When
James Henderson, former chief executive of Bell Pottinger, walked into the
agency’s Holborn offices on Monday 4 September, he pointed to an article in the Mail on Sunday and announced that he had averted the crisis that was
swirling around the firm.
The
article, which followed a three part expose in CorpComms Magazine,
discussed Henderson’s bitter battle with Lord Bell, his sorrow at the
revelation that Bell Pottinger’s work in South Africa had incited racial unrest
and revealed he had fallen on his sword. His then fiancée Heather Kerzner, who
with Henderson owned 37 per cent of the business, expressed her affection for
South Africa. Henderson even bizarrely suggested that charities in South Africa
might want to take advantage of Bell Pottinger’s expertise.
His
colleagues looked at Henderson in astonishment, particularly when he was heard
to describe his picture that accompanied the story as rather a good one. ‘It
was utterly unbelievable,’ said one. ‘He had told the newspaper that he had
resigned, but he was walking around the office like nothing had changed and
nobody knew what to say.’
But
Henderson’s resignation did not save Bell Pottinger. The release of an internal
review by law firm Herbert Smith Freehills, which criticised the agency’s
management, its expulsion from the industry trade body PRCA and Lord Bell’s car
crash interview on Newsnight, when he expressed the view that it was ‘curtains’ for
Bell Pottinger, caused the firm to implode.
The day
after Lord Bell’s appearance, insiders claim £850,000 worth of business walked
out the door. When clients quit, they are usually obliged to serve a notice
period of at least three months. But many of their contracts included a force
majeure clause, triggered in the event that the agency’s reputation had been
damaged: the notice periods were null and void. When the agency’s biggest
client, the Bahrain Economic Development Board, also cancelled its
multi-million pound contract last Thursday, it effectively signed Bell
Pottinger’s death warrant.
Internally,
the mood has turned from sorrow to anger at the way the crisis has been handled
so badly. Many believe that appointing a law firm to investigate the agency’s
work in South Africa merely served to stoke the flames. ‘We had resigned the
account. All Henderson needed to do was to announce that, say he had fired the
lead partner, suspended others and draw a line under the matter,’ said one.
‘There was no need to appoint Herbert Smith, but I think James thought it would
clear him of any blame.’ In the event, only an abbreviated version of the
report was released. Some shareholders have demanded sight of the full report.
‘We had
crisis management experts working in Bell Pottinger, and nobody thought to ask
them for advice,’ said another. ‘We had former journalists who knew how the
media worked. Instead, the senior management huddled together to sort out the
crisis and only made it worse. They didn’t include anyone else.’ Unlike many
agencies, Bell Pottinger also lacked an advisory board. There was no outside
counsel to turn to.
When the PRCA announced it was launching an investigation
into Bell Pottinger’s work for Oakbay Capital, some employees recommended that
the agency immediately resign its membership. ‘If we weren’t members, they
couldn’t reprimand us,’ said one. Ironically, insiders claim that Lord Bell had
opposed joining the trade body back in 2010. Instead, the decision was taken to
submit to the PRCA’s hearing, in part, insiders claim, to clear Henderson’s
name. If that was the reason, the strategy backfired.
But the seeds of Bell Pottinger’s destruction stretch back
further than its involvement with Oakbay Capital, and the controversial Gupta
brothers. It began three years ago when Lord Bell gave an interview to the Financial Times in which he
described bankers as ‘complete criminals’. With a client list that included
some of the world’s leading banks, Bell Pottinger’s senior management were
furious.
The
relationship between Henderson and Bell, which had been initially been cordial,
started to decline. Both had completely different management styles. Where Lord
Bell had been relaxed about staff winning new clients, Henderson was obsessed.
With a sizeable debt underpinning Bell Pottinger’s management buy-out, he
needed new business wins. ‘It was about client wins, not looking after the ones
we had,’ said one insider. ‘The margins on some of the new client accounts were
huge. Some were operating on a 56 per cent margin. If clients had known, they
would have been apoplectic.’
Everything
became about the P&L. Partners were set fee targets. Those who didn’t
perform were invited to leave. Employees who elected not to invest were branded
disloyal. Shareholders, including several of Henderson’s personal friends, who
had bought into Bell Pottinger at £1 per share in 2012, received a dividend in
year one, but nothing since.
Founding
partners were also invited to help pay down the debt. Bell Pottinger would
withhold their tax payments, but rather than ring-fence the funds in an escrow
account, as is usual in such cases, they would be used to pay down the debt. At
the end of the year, when the tax obligations fell due, those partners who
participated in the scheme would receive their tax back to pay the Inland
Revenue, plus an additional payment.
But
Henderson’s approach failed to win him friends within the business. Insiders
complain about his need to ‘micro-manage’, including his obsession with the
agency’s corporate and financial side. It was where the rump of Pelham, the
agency Henderson founded before selling to Chime Communications, had settled.
‘He was always looking over their shoulders,’ said one insider. ‘That’s why I
find it hard to believe he really was in the dark about their work for the
Guptas.’
Employees
who left were warned that, if they said anything negative about Bell Pottinger,
their careers would be ruined. ‘He was viewed as a bully,’ said a former
colleague. ‘James is riddled with insecurities,’ said another. ‘And that plays
out very badly when you are trying to run a business where many of the people
are much more impressive than you.’
The
enmity between Lord Bell and Henderson grew. ‘They were like two silver-backed
gorillas facing each other down,’ said one. The atmosphere became toxic.
Henderson accused the peer of failing to cover his costs, which included a
Mayfair office. It is a claim Lord Bell refutes. Such was the animosity that,
at a board meeting in August 2016 to decide his fate, Chime, then Bell
Pottinger’s biggest shareholder, ordered its representative Mark Smith to vote
against Lord Bell. Smith was appointed chairman. ‘They decided to back James,’
said one insider. ‘It was probably the wrong horse.’
Smith’s
action hurt Lord Bell deeply. The two had worked together for years, and he saw
the act as a betrayal of their friendship. ‘I saw Tim recently and he was
obsessed with Henderson and Smith,’ said one PR professional. But Bell’s
departure was costly. He was offered £1 million a year, payable until December
2017.
In
March, Bell Pottinger took out a loan with Lloyds Banking Group. The funds were
needed to buy out Lord Bell’s stake in the agency, but the news that he was
able to sell back his shares angered past and present employees. They demanded
the same right. ‘The shares have done nothing,’ said one. ‘We bought them at
£1, and I think at one point they reached £1.40, but they’ve never really been
above £1 for long.’ Lord Bell agreed to sell at £1.10. The initial bill crept
up. It was at this point that Heather Kerzner invested in the business: her
stake is now worth nothing. The engagement is off, and she is said to have
consulted lawyers to seek ways to recover her funds.
According
to its company accounts, Bell Pottinger had assets worth almost £6 million,
including £1.4 million of intangibles, in December 2015. Its heavily leveraged
position, coupled with the client exodus and the departure of key rainmakers,
such as David Rydell, who is believed to be joining Buchanan, meant the end was
inevitable. There are some that see the shadowy hand of Lord Bell at work. They
claim media attacks against Bell Pottinger in South Africa gained momentum
after his ousting, with emails and a video apparently released from the
agency’s server, but have yet to provide hard evidence to back such
suggestions. ‘This is a tale of greed, incompetence, vanity and revenge,’ said
one. ‘He went on Newsnight with one thing on his mind: revenge.’