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A very British coup at BAE

This article is more than 22 years old
A year of bitter rows with the MoD ended with John Weston falling on his sword. Richard Wachman on the boardroom chicanery behind his shock departure

The fate of John Weston, chief executive of BAE Systems, Britain's largest defence contractor, was sealed at an emergency board meeting at the company's London headquarters last Monday morning.

There was outward calm, with biscuits on the table, but the atmosphere was tense as non-executives and executive directors voted on Weston's removal in what turned out to be a very British coup.

Weston was not in the room when the deed was finally done.

Instead, about halfway through the proceedings, executive chairman Sir Richard Evans got up and went to meet Weston in his office at the other end of the Georgian building in Carlton Gardens, London.

It was there that the two men had one of those awkward conversations, which ended only when Weston agreed to tender his resignation with immediate effect. Afterwards, Evans returned to the boardroom to brief his colleagues. Among these was Mike Turner, chief operating officer, who would take over from Weston. The other faces round the table included Steve Mogford, head of defence programmes; George Rose, finance director; and Charles Masefield, vice chairman. The non-executives were headed by Sir Ronald Hampel and included Lord Hesketh, Professor Sue Birley, Pilkington boss Paolo Scaroni and Sir Robin Biggam.

Although the City and investors were caught by surprise, the seeds of the boardroom revolt against Weston were sown 15 months earlier, when BAE issued the first of two profits warnings and disclosed that it was taking a £300 million hit on its Nimrod air reconnaissance programme.

It was then, according to industry sources, that Weston's battle became an uphill one. According to one defence analyst, he would have needed to pull off a number of impressive deals for impressions to have changed.

Instead the opposite happened. There was another profits warning later in the year. And, most significantly, rows between Weston and the Ministry of Defence continued over various weapons programmes right up to his resignation. Those disagreements lay at the heart of the problem and eventually sparked the boardroom revolt that engulfed Weston - a rebellion spearheaded by Evans, who was chief executive up to 1998.

Quite simply, relations between the Government and BAE had reached rock bottom and Evans and his colleagues, especially the non-executives, felt that a new man was needed to mend fences with the group's most important customer in Europe.

Few shareholders had pushed for Weston's removal, but the Government and the MoD had grown increasingly critical of him, although they strenuously deny that they had anything to do with his decision to resign.

Weston had irritated Defence Secretary Geoff Hoon by his opposition to the Government's defence procurement process. The arguments over Nimrod were a case in point. Weston wanted the Government to take on more of the risk, by agreeing additional funding for the project.

Establishing what went wrong with Nimrod is as difficult as any defence contract can be. But the programme is running two years late, not least because the company tried to fit new engines into redesigned wings when it discovered that the fuselages had been built in a different era, and were far from identical. The attempt to bring imaging processes together became a software nightmare. Weston was furious and demanded that the MoD review the 'balance of risk and reward' tied to military programmes.

The procurement process continued to dog relations between Weston and Whitehall. BAE clashed with the Government over the building of new Type-45 destroyers. The company did not want to share the work with rival Vosper Thorneycroft, on the grounds that such a deal would make the programme commercially unviable.

There was also a bid battle with Thales of France to build new aircraft carriers. Weston wanted the competition curtailed: he thought it unfair that the contestants should have to invest significant funds without reasonable assurance of winning the contract. BAE wanted to avoid another loss similar to the charge it took against Nimrod.

But there is still a puzzle in all this. Evans always appeared to be right behind Weston during their disputes with the MoD.

Given that there was no apparent difference of opinion between the pair on relations with the Government, one can only conclude that ministerial pressure on Weston helped to convince the board to dispense with his services.

An alternative view is that this was not a dispute about substance that drove a wedge between Weston and Evans, but a difference of managerial style. Evans is good at relationship building; Weston has sometimes been criticised for adopting a more robust approach with officials.

Whether Evans was a late and reluctant convert to the cause of removing Weston may never be known. But analysts believe that there was constant friction between the two men over the past year.

However, yet another factor may have come into consideration: Weston's apparent preoccupation with the US, where BAE last year generated sales of over $4 billion, making America its biggest defence market.

BAE has long had a privileged position with the Pentagon because of the 'special relationship' between London and Washington. That means the British group has gained security clearance to participate in a number of sensitive US defence projects - ones that would not be open to French, German or Italian companies. BAE has played down the idea of a strategic disagreement between Evans and Weston, but some defence specialists have suggested that Turner, who played a major role in the revamp of Airbus, the pan-European civil aviation project in which BAE has a 20 per cent stake, is a better man than Weston to mend fences with the Europeans, especially the Germans.

Germany has never forgiven Weston for merging BAE with Marconi defence systems in 1998 instead of with Bonn-based aerospace company, Dasa. Two years ago, the Germans joined a western European defence grouping called EADS. Now, City analysts are speculating that Turner will be the man to forge closer links with that organisation.

Only last year, EADS chairman Manfred Bischoff signalled his willingness to establish closer links with the British, perhaps by combining their two fighter aircraft businesses into a joint venture. Suddenly, that looks like a real possibility.

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