Comment

Can Bird help save Pearson from across the pond?

The publishing group's new chief executive will run the business from Malibu and New York - not its London headquarters

Malibu
Living in Malibu, California, has some clear advantages, but it is not obvious that it is the best location from which to run London-based Pearson Credit: Karol Franks/Getty 

It must be tricky starting a new office job in a pandemic. All the unmet colleagues and awkward Zoom socialising will make it hard to feel settled in a new role.

Spare a thought then, for Andy Bird, the new chief executive of Pearson. He is taking charge tomorrow with the western world of work still firmly in the grip of coronavirus.

What’s worse, even when the crisis recedes he’ll remain socially very distant from most of his workforce and investors.

Thousands of miles away, in fact.

Under his unusual deal with Pearson, Bird, a former Disney executive, is staying put in Malibu, California. His other base will be New York, where his two sons live and where shareholders are due to cover a $20,000 (£15,485) per month apartment (plus tax). Pearson says he’ll spend roughly half the year there and there are no plans for his family to use the property.

Meanwhile, the company will remain British, with a London listing, a spot in the FTSE 100 and rather nice headquarters on the Strand.

By running Pearson from the US, Bird will be eschewing an office with one of the best views in London, overlooking the Thames.

It is all pretty odd, not least since Pearson has spent the past several years assuring everyone that its struggles in the US should not be overstated. The American market was of declining importance to its global education business, the outgoing boss John Fallon would argue, with the backing of the same board that has decided Bird should run things from the US.

Pearson shareholders, apparently roused from their long slumber by the arrival on the register of the activist Cevian, are now in something close to open revolt.

As well as Bird’s living arrangements, his pay package has sparked anger. Within little over three years he is in line for three payouts totalling $9.4m, which in the eyes of shareholders are tied to financial performance nowhere near tightly enough.

Some of them voted through Bird’s package against their own better judgment. Though a third rebelled, most were desperate for new leadership after a belated and lengthy search by US/Brazil-based chairman Sidney Taurel, who was assisted in the end by the City headhunter Jan Hall.

Either Bird had to be approved or it was back to the drawing board with another six months to a year of drift, they decided.

Their frustration is compounded by the fact that Bird was already on the Pearson board as a non-executive and was allowed to interview other candidates before taking the role.

It all means that from day one the new boss is under extreme pressure to come up with a strategy to overturn years of disappointment that included an extraordinary run of seven profit warnings in seven years. He perhaps has 100 days to make an impression on Pearson and placate shareholders.

Andy Bird replaces John Fallon, pictures Credit: Simon Dawson/Bloomberg

It is a tall order. Those who have discussed Pearson with Bird say he is a believer in its future as a lifelong online learning provider to consumers.  He has spoken of investing in Pearson as a brand in its own right and forging direct relationships with individuals, which would last through school, college and into the world of work.

It’s a voguish, Netflixy idea that attracted Fallon too, perhaps understandably given that in the real world he was occupied by rounds of mass sackings and implementing centralised management software.

Pearson may well believe that its shares – in a deep slump – are undervalued and that its current investors simply do not appreciate the growth opportunity. Yet this is another example of a board blaming what it cannot control rather than addressing its own strategy.

Its claims of superior market position in online learning have fallen on deaf ears in a pandemic that has lifted others. So “Pearson as a service” is speculative at best next to the company’s urgent challenges, as its lucrative business selling very expensive university textbooks evaporates under the white heat of digital publishing. Over the past decade, operating profit is down 32pc as students and teachers have sought cheaper options.

That said, based in the US and as an accomplished business-to-business dealmaker for Disney, Bird is well placed to renew the relationships with colleges and exam boards that are the bedrock of Pearson in America. If he is not too busy trying to build “Netflix for education”.

Shareholders are entitled to wonder who will do the rest, however. Fallon’s restructuring of a business cobbled together through acquisitions with high central costs remains unfinished. It is hard to see how Bird will force through a major culture change in London headquarters from New York, let alone from Malibu.

Bird and the Pearson board will need credible answers to such basic challenges, quickly.

One alternative scenario is that Cevian, which already owns nearly a tenth of the company, muscles its way onto the board and starts demanding a break-up. The Swedish fund has fought a long battle at the Swiss engineer ABB on comparable logic and now looks positioned to get its way with a new chief executive reviewing its portfolio of businesses. There is support in the City, too, for the argument that Pearson’s disparate businesses will never make a coherent whole.

Taurel, the chairman, is unlikely to oversee whatever comes next. After his handling of Bird’s appointment, there are signs that he may be a target for Cevian and others at Pearson’s AGM next spring if he does not hasten his departure. Taurel has recently signalled he aims to stay until the end of next year, which might be too long for some.

With Bird in the US, Pearson’s next chairman should be based in London and ready to do some heavy lifting.