By March 2000, BMW signalled that it was about to act. Amid uproar from unions, local communities, and the press, the UK secretary of state for trade and industry engaged in frantic shuttle diplomacy between London, Longbridge, and Munich to try and stave off BMW’s imminent withdrawal. However, despite offers of £150m (a230m) in government subsidies, BMW eventually announced it was going to pull the plug on Rover, to the despair of workers and the embarrassment of the powerless government. Whilst finding a buyer for the ailing car plant was never going to be easy, the Rover business was eventually sold in May 2000 to the ‘Phoenix Four’ consortium headed by former Rover CEO John Towers. To sweeten the deal and hasten their own exit, BMW agreed to sell Longbridge to the Phoenix group for a nominal ten pounds (a15), and even provided the group with a massive ‘dowry’ in the form of cash, assets, debt relief, and loans, said to amount to some £1bn. Towers and his colleagues were hailed as heroes for averting catastrophic job losses and for keeping Britain in the motor industry. They even resurrected the classic MG brand in the retitled MG Rover business. Things were finally looking up at Longbridge. However, the optimism was not to last long. MG Rover continued to lose money and productivity failed to improve – but at least the spiralling losses of previous years appeared to be getting under control. By 2003, full-year losses were £77m compared with nearly £800m in 1999. Nonetheless, with profitability still a distant dream, MG Rover agreed to sell off the Longbridge site for a much-needed influx of cash and rented back the land from the new owners. Finally in April 2005, with sales plunging and a much-touted rescue deal worth £1bn with the Chinese state-owned Shanghai Automotive Industrial Corporation (SAIC) seemingly floundering, MG Rover hit crisis point again. As the extent of the beleaguered firm’s troubles became more evident, and with a UK national election due in a matter of days, senior government officials once again stepped in to try and save the company and prevent the loss of thousands of jobs. A government loan of £6.5m to pay the wages for a week did little to plug the holes in Rover’s finances and a frantic trip to China to try to persuade SAIC to complete a buy-out deal failed, despite the offer of a further £100m bridging loan. SAIC simply bought the intellectual property rights for the two main Rover models giving it the opportunity to market the cars in China. With little other choice than to admit defeat, the MG Rover boss, John Towers finally halted production and called in the administrators in April 2005. The fall-out from the collapse looks set to be painful, messy, and drawn out. The British government once again faced criticism for not acting earlier to save jobs, and a subsequent enquiry criticized the government for making a loan that would probably never be recovered when the chances of securing a last-minute deal with SAIC had been ‘remote’ – a finding that the opposition party seized on to denounce the government’s ‘election bribe’. The Longbridge site itself was eventually bought from the administrators by another Chinese company, Nanjing Automotive for £50m after a hard-won bidding war against SAIC and a British investor. Nanjing renewed the lease on Longbridge and pledged to retain a limited amount of vehicle production at the site despite its ‘Chinese takeaway’ strategy of shipping out much of the Longbridge machinery to lower-cost production facilities in China. Meanwhile, the UK’s accounting watchdog announced plans to investigate Deloitte over its role as MG Rover’s accountant and auditor, whilst Towers and his fellow directors faced a barrage of criticism for taking £40m in pay and benefits out of the failing business and squandering the £1bn dowry from BMW. In its leader page on the day, the administrators took over the company, the Financial Times said the Phoenix directors had ‘betrayed the trust placed in them by their workers, Questions Part A Set out the main stakeholders in the MG Rover business at the time of its collapse. How would you determine the relative importance of their stake? Part B Think about MG Rover’s actions in the case in terms of Carroll’s pyramid of CSR – which responsibilities was it upholding, and how would you say it was ranking them? Do you think this is appropriate or inappropriate in this situation? Could it have done more to treat its employees ethically? Part C Arguments for corporate accountability and citizenship emphasize the declining power of governments and the increasing power of multinationals. How would you assess the relative power of the main actors in the MG Rover case?
By March 2000, BMW signalled that it was about to act. Amid uproar from unions, local communities, and the press, the UK secretary of state for trade and industry engaged in frantic shuttle diplomacy between London, Longbridge, and Munich to try and stave off BMW’s imminent withdrawal. However, despite offers of £150m (a230m) in government subsidies, BMW eventually announced it was going to pull the plug on Rover, to the despair of workers and the embarrassment of the powerless government. Whilst finding a buyer for the ailing car plant was never going to be easy, the Rover business was eventually sold in May 2000 to the ‘Phoenix Four’ consortium headed by former Rover CEO John Towers. To sweeten the deal and hasten their own exit, BMW agreed to sell Longbridge to the Phoenix group for a nominal ten pounds (a15), and even provided the group with a massive ‘dowry’
in the form of cash, assets, debt relief, and loans, said to amount to some £1bn. Towers and his colleagues were hailed as heroes for averting catastrophic job losses and for keeping Britain in the motor industry. They even resurrected the classic MG brand in the retitled MG Rover business. Things were finally looking up at Longbridge. However, the optimism was not to last long. MG Rover continued to lose money and productivity failed to improve – but at least the spiralling losses of previous years appeared to be getting under control. By 2003, full-year losses were £77m compared with nearly £800m in 1999. Nonetheless, with profitability still a distant dream, MG Rover agreed to sell off the Longbridge site for a much-needed influx of cash and rented back the land from the new owners. Finally in April 2005, with sales plunging and a much-touted rescue deal worth £1bn with the Chinese state-owned Shanghai Automotive Industrial Corporation (SAIC) seemingly floundering, MG Rover hit crisis point again. As the extent of the beleaguered firm’s troubles became more evident, and with a UK national election due in a matter of days, senior government officials once again stepped in to try and save the company and prevent the loss of thousands of jobs. A government loan of £6.5m to pay the wages for a week did little to plug the holes in Rover’s finances and a frantic trip to China to try to persuade SAIC to complete a buy-out deal failed, despite the offer of a further £100m bridging loan. SAIC simply bought the intellectual property rights for the two main Rover models giving it the opportunity to market the cars in China. With little other choice than to admit defeat, the MG Rover boss, John Towers finally halted production and called in the administrators in April 2005. The fall-out from the collapse looks set to be painful, messy, and drawn out. The British government
once again faced criticism for not acting earlier to save jobs, and a subsequent enquiry criticized the government for making a loan that would probably never be recovered when the chances of securing a last-minute deal with SAIC had been ‘remote’ – a finding that the opposition party seized on to denounce the government’s ‘election bribe’. The Longbridge site itself was eventually bought from
the administrators by another Chinese company, Nanjing Automotive for £50m after a hard-won bidding war against SAIC and a British investor. Nanjing renewed the lease on Longbridge and pledged to retain a limited amount of vehicle production at the site despite its ‘Chinese takeaway’ strategy of shipping out much of the Longbridge machinery to lower-cost production facilities in China. Meanwhile, the UK’s accounting watchdog announced plans to investigate Deloitte over its role as
MG Rover’s accountant and auditor, whilst Towers and his fellow directors faced a barrage of criticism for taking £40m in pay and benefits out of the failing business and squandering the £1bn dowry from BMW. In its leader page on the day, the administrators took over the company, the Financial Times said the Phoenix directors had ‘betrayed the trust placed in them by their workers,
Questions
Part A
Set out the main stakeholders in the MG Rover business at the time of its collapse. How would you determine the relative importance of their stake?
Part B
Think about MG Rover’s actions in the case in terms of Carroll’s pyramid of CSR – which responsibilities was it upholding, and how would you say it was ranking them? Do you think this is appropriate or inappropriate in this situation? Could it have done more to treat its employees ethically?
Part C
Arguments for corporate accountability and citizenship emphasize the declining power of governments and the increasing power of multinationals. How would you assess the relative power of the main actors in the MG Rover case?
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