Sir Mike Rake, accountant, chairman and now CBI president, wants the public to trust business again – banks included. By Pip Brooking.
Mike Rake, chairman of BT and the CBI’s new president, is known for his straight talking. But after eight uninterrupted minutes of it, it’s clear he thinks the UK faces a huge number of issues over the next two years, in which the CBI has a role to play.
In quick succession he covers referendums (both Scottish and European), international trade and competitiveness, energy, infrastructure and skills. He talks about the importance of facts not emotion, of politically inconvenient truths, of uncertainties that are hurting and decisions that need to be made.
It is the referendums that are likely to dominate Rake’s presidency. The Scottish referendum took top billing in media reports of his first official speech as president at the CBI Scotland annual dinner in September. Debate on the EU will also define the run-up to the UK elections, likely to take place in May 2015. But that preoccupation does not bother him. “It’s exactly why I think it’s an important time to be president,” he argues.
And with an international mindset, forged from spending 17 years overseas at KPMG and a career working with multinational clients, he views the outcome of both as critical for the UK’s position in the world. “The UK’s competitiveness has never faced more challenges,” he explains, pointing to the US, where energy prices are “at half our level”, and developing markets, “which can work at cost levels we can’t”.
But Rake is adamant that it is the CBI’s role to present the facts and opinion of its membership, and ask the important questions on their behalf, rather than campaign for one outcome or another. “There's been more emotion than fact in this debate and we need to deal with this,” he says of discussions around the EU.
Rake himself is definitely in the pro-European camp. He’s a member of Business for New Europe for starters. And as a board member of the Trans-Atlantic Business Council he sees the current trade talks between the EU and the US as “absolutely critical” and a sign of the union’s strength.
He also sees some benefit coming from the discussions around membership. “There is now recognition across Europe that we need to move towards the reform of the EU, the completion of the single market and reduction of regulation – it’s not just the British complaining,” he explains. “The referendum will hopefully help drive a mood across the EU for business organisations to agree on labour flexibility, competitiveness, energy and so on.”
But he is keen that more people realise that when they take issue with regulation from Brussels, the problem is largely with gold-plating that happens at a UK government level. He warns about the impact uncertainty will have on investment. And he emphasises the importance of eastern European immigration to businesses in the UK.
“Rightly or wrongly, we do not have the skills available or the attitude to work that allows SMEs across the country to get access to the people they need. This may be politically inconvenient but it’s the truth,” he says.
And this is an area that Rake, although modest, is well qualified to talk about. He was the first chairman of the UK Commission for Employment and Skills, where he recognised that “we’ve sent far too many people to university, in the wrong subject. We haven’t had enough apprentices and we haven’t had enough focus on practical skills.” He adds: “This is beginning to be understood more clearly.”
The skills issue has been high on the list of concerns among every CBI member he has met so far, as have energy prices and the security of supply. Such unanimity reflects Rake’s worry that the UK has been too slow to make decisions “on a whole series of really important policy matters”. And from his vantage point as chairman of BT and former chairman of Easyjet, he emphasises the importance of infrastructure in ensuring we have a sustainable recovery.
He has a “just get on with it” attitude towards Heathrow’s new runway. “I think it is fundamentally important to jobs and prosperity,” he argues. And although he is less clear cut on HS2, saying he “is not expert enough to know where priorities should be”, he adds: “We’ve underinvested in railways and roads, that’s for sure.”
Then, with a logic that is difficult to argue with, he states that BT’s roll-out of fibre broadband across the UK “is the only really successful infrastructure project being privately funded over the past several years”.
It proves that private investment is possible, he continues, but in order for that to happen government has to make choices and reduce the uncertainties that are hurting businesses.
For better or worse
But the timing of the interview, three days before the fifth anniversary of the collapse of Lehman Brothers, gives Rake a platform to show how he is keen to argue on businesses’ behalf through thick and thin. He is also deputy chairman at Barclays and was at the bank “that day – on a Sunday – when it all went down”.
But he’s worried the pendulum is swinging too far when it comes to the reaction, reform and regulation that has happened since. Although he thinks greater clarity is emerging around the new regulatory environment, and he is hopeful for the new Bank of England regime under Mark Carney, he argues that the “discontinuity of approach to capital and liquidity” in Washington, Brussels, Frankfurt and London is harmful.
“Frankly, whatever the sins of the banking community – and there are many – these were at least equalled by regulatory failures, accounting failures, reporting failures, behavioural failures: there are a lot of people to blame for this,” he says.
In 2006 he gave a speech while he was still at KPMG raising his concerns about the complexities of products in investment banking, which could be easily misunderstood. Perhaps unsurprisingly given his no-nonsense approach, he is pleased to see the return of “vanilla products” on that front. “If you buy a chocolate bar from Tesco you pay 75p, you eat it and you either like it or you don’t; if you buy an investment product, it can go up or down in value – that’s just a fact,” he says.
He adds that it is just as important to avoid complexity for consumer products, noting that PPI and other mis-selling losses have cost more in some banks than investment banking activities. But he believes that the way that has been handled by the banks, the regulators and the courts has made it far more costly and damaging than it ever should have been.
On the issue of lending, he says: “Business is about taking risks, and after a crisis like that the truth is that your regulators and your banks all become risk averse. It’s a double whammy.”
And referring to more recent events, he says: “Libor was a minority – things were got badly wrong – but at some point we’ve got to settle down and recognise that banks are important to the UK.”
Nevertheless, he thinks it will take at least a decade to restore the reputation of the banks in the UK. “Fair or unfair, that’s the reality,” he says.
Championing a cause
And if, after his two-year stint, Rake is remembered for championing one thing, he wants it to be the return of trust in business as a whole. As the former chairman of Business in the Community says, “it’s not just banking that isn’t trusted”. He continues: “I want businesses to be seen as source of jobs and investment; as socially conscious and a force for good.”
He reels off a long list of distrusted organisations – including politicians, unions, the media and the Church. “Probably the only things that are trusted now are social media (which can be manipulated) and the military,” he adds. And although he agrees businesses need to speak out on important issues, he maintains it will be hard while public confidence in them is lacking.
But Rake has been involved in building businesses back up from low ebbs before. It has been six years since he left KPMG to start what he sees as essentially a new career as a pluralist director. But the skills he learnt there – particularly in terms of juggling issues being faced by different clients – quickly came in handy.
Rake says his friends often joke that shortly after he took on the roles at BT, Barclays and publisher McGraw Hill, all three of them “immediately went into crisis”, with share prices at each collapsing.
“I’m not sure people didn’t think I was a bad omen,” he laughs, joking that at times he thought the only thing to do was pay a visit to St Paul’s – the cathedral that looms large in his BT office window. “But all three are great organisations and all three have pulled through this crisis – or are beginning to.”
It was for his role at BT that Rake won at the 2012 Non-Executive Awards, where he was praised for his results-driven approach and his clear focus.
“Sir Michael has often been outspoken and challenged the thinking of others. He has worked hard to raise awareness of the need for regulatory reform in the industry and his high standards of corporate governance and ethics have led to him becoming a well respected member of the BT Group board,” the judges said.
And while Rake praises the quality of people and thought at the CBI, of his own skills he simply says: “I hope I can use my experience in professional services, at BT and public companies, in banking and in private equity, to get across the facts so that our politicians, the trade unions and the public can understand the implication of policy matters on the economy and employment.”
2007–present: Chairman, BT Group; non-executive director, then deputy chairman, Barclays; director, McGraw-Hill Companies; chairman, Easyjet (2010-13).
2002–07: Chairman, KPMG International.
1974: Joined KPMG, becoming UK senior partner in 1998.
Other roles: Chairman of the UK Commission for Employment and Skills (2007-10); chairman of Business in the Community (2004-07); director of the Financial Reporting Council (2008-11) and a member of the prime minister’s business advisory group (2010-12).
Rake is also chairman of private equity oversight group the Guidelines Monitoring Committee; the Henley Festival; and of the governors at Wellington College.