Trinity Mirror: How to fail better

4th April 2012

What is it about Sly Bailey, the Trinity Mirror chief executive? Could it be the connotations of her first name (her birth was registered as Sylvia)?  Or might it be the trademark head of hair that marks her out from fellow bosses? 

Whatever it is, the fifty year old chief of the group that owns the Daily Mirror and a number of local papers is rarely out of the headlines. And these concentrate on three factors – her pay, her spending habits and the steep decline in the group's equity   price.

But could she, as someone at the head of a communications company, communicate better?  She, or someone else,  might be better off openly admitting that there is little or nothing that anyone can do to reverse the group's waning fortunes and that the best or only course would be a strategy that recognised that managing the group for decline is in everyone's best interest.

Declining market is tough cookie

Making money out of a declining market is tough. If you have products that fly off the shelves – take Apple's electronic gadgets for example – it's easy to coin profits.  But the real chief executive test is when fewer people want what you offer  – it's a story ranging from cigarettes in the 1970s and Atari in the 1980s to terrestrial television and mass market printed newspapers now.

Sly Bailey's salary issues tend to dominate Trinity Mirror corporate coverage even though the average investment banker would not get out of bed for her remuneration package.

Earlier this week, the group announced further cuts in executive pay in response to shareholder agitation – last year 11 per cent voted against her pay. This follows last month's announcement of a further 40 per cent pre-tax profits slump to £74m, despite the closure of the News of the World (competing with Trinity's Sunday Mirror and Sunday People) for half the year. Five years ago, it made £191m.

Big bonus cut

Executive bonuses – including that of Ms Bailey – were cut by 60 per cent for 2011 and there was also "adjustments" in the long term incentive plan (LTIP).  Her total package dropped to £1.3m in cash, shares and pension contributions from £1.7m the previous year.

But big shareholders told the Financial Times that the board had failed to listen to investors.

"The pay plan is a wholly inadequate response by the board to consistent and strong messages from top shareholders unhappy at Ms Bailey's pay and the group's performance," said one large investor. "The board's response is ridiculous. They have effectively ignored us." Another investor said that the pay scheme was "wholly unacceptable".

The defence from Sir Ian Gibson, Trinity Mirror chairman and member of the remuneration committee, was that her roles as head of both commercial and editorial departments made her worth it. He said the  deal was more closely aligned with long term performance and the share price. |In theory, the new LTIP arrangement could increase her pay.

£20,000 private jet trip

While a lifestyle that includes flying off in a reputed £20,000 private jet trip for a 2008 holiday in Sardinia during a profits warning crisis does not endear her to investors, shareholders have to ask why they are holding on. What do they expect her to do? And if they were chief executive, what would they do?

Trinity Mirror is saddled with one national daily and two national Sundays in steep secular decline. They have low online visibility. The heart of its local paper advertising has been lost to the internet. Turning some of the locals into freesheets has not been an unalloyed success – basics such as failing to deliver on time or at all have detracted from the policy.

Do Sly and the board have a policy?  So far, it has been concentrated on sacking   journalists, a plan which reduces the quality of the product, and reducing other costs such as centralising reporters on some local papers into regional offices, far from their areas. All this has pushed the titles  into an even faster spiral of decline.

Newspapers are not cigarettes where falls in sales can be matched by inflation  busting price rises for the addicted consumers.

Investors' difficult options

Investors now have choices – but not the status quo or continuing to snipe at Bailey's pay. The owners should tell Bailey to

·      find a private equity buyer – this could provide a profitable get out at the current share price or

·      acknowledge that she has no strategy for managing the long term decline and quit in favour of someone who does or

·      come up with plans that acknowledge the shrinkage of the current product range but promise a new course ahead.

Decline of Atari

There may be lessons to learn from the decline and fall of Atari, the number one name in video games in the late 1970s and early 1980s (just as the Daily Mirror was the top UK newspaper in the same period). Atari was hit by competition on price and by better products as the industry went through substantial change with personal computers starting to replace other games platforms.  It had a rigid management which continued with outdated concepts while not seeking out new lines – this in an industry where the product life is often measured in months. It tried to reduce the staff headcount, but bled cash until it was taken over by Warner Brothers in 1984.

It failed to make redundancies fair or treat those leaving with dignity. But most of all, it failed to plan for a future that would need a different technology. The Atari name remains, however, after a number of corporate reorganisations and owners.

Bailey could earn her pay

Bailey and Trinity Mirror shareholders could learn from this. They need to consider that the decline in profits and share price could be caused by the gap between the company as its sees itself and its current and future environments. It needs to evolve, understanding what is happening to its industry, planning the future and coming up with strategies that reflect the decline.

If Bailey can manage this vision, she would deserve all her pay – and more. If not, investors need to replace her.

 

More on Mindful Money

Executive Pay: Trinity Mirror and the pay disconnect

Tesco: Innovation and ineptitude

What can investors learn from innovative failures?

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