Gent risks his reputation in profiting from pain

Vodafone; Equitable Life; Japanese equities

The bigger they come, the harder they.... Few business leaders experience such a swift reputational turnaround as Sir Christopher Gent has had to endure over the past year and a bit. This time last year, the Vodafone chief executive was still riding high. There are precious few examples of a global leader in British industry and commerce, but the then plain Mr Gent had built one in double quick time. Forbes magazine had made him its businessman of the year for his vision in constructing the world's first truly global mobile phone giant, and even Tony Blair felt it appropriate to award this life-long Tory a knighthood.

We all know what's happened since. The telecoms sector has gone down the pan, and Mr Gent has been washed away with it. What's more, his pin-up boy image has been tarnished by an ill-judged display of executive greed. First there was the £10m "success" fee, an after the event bonus for value creation and completion of the Mannesmann acquisition. Ever since the money was paid, investors have seen nothing but value destruction. Then, more lately, there has been the award of another truck load of share options at close to the newly devalued share price.

If we were still living through the bubble conditions of a couple of years ago, shareholders wouldn't bat an eyelid. While everyone's making hay, investors don't much care if management is keeping a bit of it back for themselves. But if you've just lost your shirt on Sir Christopher's empire building, as so many have, then excess like this looks positively rude.

In the rush to create his global goliath, Sir Christopher spent well over $200bn – the great bulk of it paid for in Vodafone stock. Today the company is worth not much more than half that. When everyone else is being forced to belt tighten, a bit of the same from management wouldn't go amiss, and yet it looks as if Sir Christopher and colleagues are using the pummelling of the share price as just a fresh opportunity to enrich themselves. Like so many other humbled telecom bosses, Sir Christopher can expect a rough ride at tomorrow's annual meeting, and he almost certainly deserves it.

Investors should none the less be careful not to let the present mood of gloom and doom carry them away altogether. When you are in the eye of the storm, it is hard to see the sunlit uplands beyond, yet in Vodafone's case, they undoubtedly exist. Vodafone is essentially an excellent collection of assets and businesses which is uniquely well placed to capitalise on the still promising long-term future for mobile telephony.

Ten years from now, once the 3G networks are up and running at close to capacity, their spectrum filled with a rich and diverse array of new applications, we'll all be wondering what the present malaise was all about. Sir Christopher has positioned Vodafone for the long game, and unless he does something horribly wrong, his company will eventually emerge as easily the most powerful player in the industry. It is just that Sir Christopher would be well advised to be a touch more sensitive in his rush to get from here to there.

Equitable Life

Equitable Life's various policyholder action groups have come together to seek financial redress from the Financial Services Authority for "successive failings in regulation". The Government is the only connected party rich enough to pay meaningful compensation, and since nearly all financial collapses involve some degree of regulatory failing or oversight, policyholders might reasonably think they are on to a winner.

Unfortunately for them, they are almost certainly wrong. The precedent is the Barlow Clowes case, where compensation was paid after it was shown that the Department of Trade and Industry allowed Barlow Clowes to carry on taking deposits despite repeated warnings of misfeasance and untoward practice. No such similar evidence of negligent regulation has so far come to light in this case.

It is certainly true that the FSA and its predecessor body, the DTI, allowed Equitable to pay out more than it should have done in bonuses and to reserve too little. It is also true that the FSA should not have banked on a favourable outcome for the Equitable on the guaranteed annuity rates court case. The Law Lords, by the way, have a huge amount to answer for in this case. They may have been right in law to have backed the rights of guaranteed annuity policyholders, but by doing so they have made matters infinitely worse for all policyholders and holed the society below the water line.

The FSA cannot be blamed for the Law Lords' stupidity. It was also careful to avoid the trap of advising policyholders to stay put after the society was closed to new business. On these pages we advised policyholders to get out while the going was still relatively good, anticipating worse to come. We were right, but although we were roundly criticised at the time by the Equitable for being irresponsible and alarmist, the FSA wisely stayed silent.

The FSA's regulation of the Equitable leaves a lot to be desired, but so far no smoking gun has emerged in evidence and, without one, policyholders will find it hard to bring a case. Meanwhile, Equitable's position continues to look perilous in the extreme. Terms of the compromise deal with guaranteed annuity holders have yet to be announced, still less voted through. Legal opinion is awaited on whether other policyholders might be in a position to sue for mis-selling, on the grounds that they didn't know about the guaranteed liability when they bought. What a mess.

Japanese equities

Hope springs eternal when it comes to the Japanese stock market. Every year there's a rally, usually led by foreign investors keen to test the theory that no bear market can last forever. And yet every year they are disappointed. Yesterday, the Nikkei fell to a new, closing, 16-year low, unnerved by a renewed bout of jitters about the overhang of bad debts in the banking sector.

The economy is in recession, once hungry export markets are drying up, and both asset and consumer prices are continuing to deflate. What's more, there appears very little the authorities can do about it by conventional policy means. The Government cannot sensibly spend any more than it already is on public works while interest rates are so close to zero that they cannot physically be cut much further without imposing a negative interest rate – in other words, charging people for keeping their money.

For a while there, it looked as if the technology bubble might come to the Tokyo market's rescue, but now that's gone pop too, there's nothing left to buy. Most mature, Old Economy shares continue to look ridiculously expensive by international standards. Even the hope invested in the reforming powers of the new Prime Minister, Junichiro Koizumi, seems to be fading fast.

Is he a Japanese Margaret Thatcher, prepared to think the unthinkable and push through the necessary structural reforms, whatever the short-term pain? That's his promise. He was again hinting at a radical programme of reform at the G8 summit in Genoa at the weekend, but there's still little beyond the rhetoric. Investors should continue to avoid Japan until there's firmer evidence of real resolve.

j.warner@independent.co.uk