Radical changes bold step for Jardine Fleming

PUBLISHED : Friday, 27 September, 1996, 12:00am
UPDATED : Friday, 27 September, 1996, 12:00am

Jardine Fleming has spent most of the past month ducking bullets. Yester day, it was its turn to bite one as it announced a radical management restructuring in an attempt to arrest the erosion of its reputation as Hong Kong's premier fund management group.

Its response to the litany of malpractices revealed late last month amounts to an upheaval in the composition and style of management of the firm and delivers Robert Fleming and Jardine Matheson a tighter grip over the conduct of their wayward subsidiary.

As envisaged, the changes should alter a broad range of the firm's day-to-day operations and procedures. They could, over time, serve to alter the culture which gave it the reputation as a free-wheeling operator that often tempted the boundaries of what was acceptable business practice.

The firm is to be complimented for the imagination and scope of the restructuring. This is the first time that a supervisory board with such sweeping powers has been imposed on a corporate structure in Hong Kong.

It is innovative and tangible evidence of how earnest the two parent firms are in their desire to stop the rot and avert a possible repetition.

However, the management's response is not disproportionate to the damage the scandal has inflicted upon the reputation of the firm, the fund management industry in Hong Kong and the territory's standing in international business circles.

The timing of yesterday's move, a month after the full extent of the scandal was exposed, would indicate that it came as the result of mounting pressure from authorities and key figures in the industry.

The firm's initial responses were seen as window-dressing which failed to address the severity of the problems. The firm was wiser, but this wisdom gave insufficient guarantee that other gaping holes in its compliance and supervisory procedures would not be exposed.

Robert Fleming was clearly not satisfied and was beating the drum loudly in London demanding a more fundamental overhaul of the operation.

The appointment of four representatives from the British firm to the supervisory board indicates that this point has been conceded. It also shows that if it was not the architect of the new structure, it certainly will be the engineer of its implementation.

In the past few weeks a situation arose where nothing less than the departure of Alan Smith, the chairman, would help calm concern. He represented a discredited era in the firm's recent history and in the minds of many close to the situation should have been shown the door when the scandal broke.

That he was not is evidence that Jardine Fleming believed it could ride out the storm, incurring a minimum loss of life and with its reputation only slightly battered.

But the scale of the changes gives ammunition to those who believe that the problems at Jardine Fleming were far more profound than those so far admitted to.

The firm's case rests on the misconduct of one employee, Colin Armstrong, who flouted the rules and exposed weaknesses in the system. He, we were told last month, had been dealt with and then measures would be taken to correct the situation.

However, yesterday's restructuring was far more sweeping than could ever have been anticipated. Why totally re-establish the management of the firm, bring in new senior executives and see the belated departure of two senior members of the board if it was simply the case of a rogue manager operating against the firm's interests? Obviously, holes needed plugging. The surprise is that they were so big that they took an upheaval in the management of the firm to do it and that their existence was known to so few people in the firm.

That said, this is a bold step towards a new future for Jardine Fleming. Much needs to be done and the management is committed to change. This is such an important firm in Hong Kong that there is little doubt it will succeed. The hope is that yesterday delivered the last of the surprises.