THE FINANCIAL DIRECTOR INTERVIEW - "I had that financial director in

Most FDs consider themselves a key partner to their chief executive – they are the board member with the best understanding of the financials of the business and a strategic remit that makes them, in the management consultancy phrase, “agents for change”. Alastair Hill is no exception, but as the only professional manager, and the only permanent appointment, on the board of Dial-A-Cab, his situation is somewhat more tricky. Dial-A-Cab is a radio taxi service – it offers London black-cab drivers a booking service, regular corporate fares, an accounting system and data despatch terminals, so they can get the best fares and cut down on empty trips. Founded in 1953 by a small group of taxi drivers, the organisation remains to this day mutually owned, and every member of the board other than Hill is a cab driver who has been voted into their position by the 1,600-plus cabbies who “own” the company. “There are occasions when it feels like we have 1,600 other board members outside, all with their own opinion as to how the organisation should be structured and run, some of them more vociferous than others,” explains Hill. “Undoubtedly, you get quite a number of interesting ideas, but necessarily they tend to be to do with strict taxi industry matters, and one has to try and overlay that with the wider picture of the clientele we serve.” Hill is under no illusion that his first and overwhelming priority is to the cab drivers who employ him to manage the finances of the organisation. But naturally, as with any board and band of “shareholders”, there have been occasional differences as to the best way to develop stakeholder value. “Our responsibility here is to offer value for money to the drivers,” Hill affirms. “All of our members are entrepreneurs pursuing profit. They’re also members of a service organisation. So that does give us something of an identity crisis, because really we want to be bigger and better than our competitors. But the members just want us to offer the booking service.” Actually, Hill sees little conflict between developing Dial-A-Cab commercially and benefiting the drivers. But when a proposal emerged in 1997 to demutualise the organisation and create an equity stake for the membership, a significant proportion of the drivers voiced serious concerns about the move. “The drivers run their own private economy, and then are members of an organisation which has another economy,” Hill explains. “They aren’t in a position to participate in the fortunes of the organisation; being a mutual, we’re not a profit-distributing entity.” Ironically, members of Dial-A-Cab already have a form of “equity” in the company – it costs £50 to buy the share as part of the joining process. “At the end of their period of membership they get £50 back. In the meantime, the organisation might have grown quite substantially, to which the drivers’ endeavours will have contributed, and that seemed to me a highly anomalous situation,” Hill says. “They build a business, and when they leave they deserve to get a share in it. But the very structure of the organisation precluded that.” In fact, the situation for members of the cabbie fraternity in London is somewhat different to those in other parts of the world. “The (London) cab driver has failed to get into a position where he benefits in a capital sense from his skill,” explains Hill. “In many other cities in the world the licence is a valuable commodity – it increases in value over the passage of time. A driver in London does his knowledge, gets his cab, drives for 40 years, retires, and if he hasn’t saved, there’s nothing else. The badge has no intrinsic value. It’s handed back to the public carriage office, effectively, and re-allocated to someone else. If you go to other cities in the world, that badge has value. They might have bought it 20 years ago for $10,000, it’s now worth $100,000 – it’s a pension fund.” But despite the seemingly convincing financial and organisational benefits that demutualisation would have brought, the proposal was voted down by the membership. Although Hill himself does not go into detail about the process (except to point out that “it failed the requirement that, at a meeting, such a proposal needs a 75% majority, which is pretty demanding”), the press cuttings from that period show that the process was somewhat rancorous. “Taxi drivers have thrown out plans to take their Dial-a-Cab circuit on to the stock market with £4,400 windfalls, after a heated row marred by death threats,” wrote Ben Leapman in the London Evening Standard after the vote. “At a mass meeting last night of 1,280 cabbies the scheme backed by chairman Brian Rice was defeated … Days before the vote, police were called to investigate death threats against a prominent opponent of the flotation plan.” Hill was disappointed that the proposal was not passed (the show of hands showed a roughly 50:50 split), but remains philosophical about the vote. “It really was a very straightforward issue in my view,” he says. “But I think there were those who were confused by (the near 30-page legal document proposing the deal) and perhaps suspicious of the motivations and saw it as some kind of get-rich-quick scheme for unspecified others – and should be rejected on those grounds.” Apart from the effect that mutual status has on financing the company, the structure also has an effect on the way the board is selected. Every two years, the membership votes to reselect the entire management team. “The whole board could be changed one year and I’ll be sitting here with six total strangers,” Hill says. “I do not think that is very good for the organisation.” The FD would rather limit the voting to half of the board each time, in order to guarantee some continuity. That said, the re-election of an entirely new board has yet to happen. But even spot changes at election time can be, well, interesting. “Over the years, lots of different people have been on the board, and then one day they can be voted off at an AGM, and everything changes,” Hill says. “Whatever they were doing on Friday stops. And similarly, a man who was driving a cab on Friday, Monday morning can pitch up and he’s sales and marketing or whatever.” But Hill has the utmost respect for the board (especially chairman Brian Rice), and admits that their intimate knowledge of the taxi business is critical to the company’s well-being. The remuneration of the board is a slightly more intriguing puzzle. “Members like to think that the board members are still sufficiently attached to their cab-driver roots that they still have cabs and can go out and do work if they want to,” Hill points out. “But the nature and the size of the business means that isn’t always possible, in which case owning the cab is a significant financial burden – particularly since if he were driving his cab it would probably be a tax deductable expense.” Board members have to keep paying their monthly Dial-A-Cab subscription, which obviously gives them no benefit. Even more significant is their salary. “They are paid on the basis of an hourly rate, which is geared to replicate what they might earn if they were still out there driving their cabs,” Hill says. So they are hardly fat cats, then. In fact, Hill likes the model used by charitable organisations such as the National Trust, which has an elected board made up of members who speak for the community and influence strategy appropriately; and an executive board which makes the day-to-day decisions. One of the reasons this appeals – apart from the stability it would bring – is that the taxi business is changing fast, and Hill believes that Dial-A-Cab needs to change with it. “It is a strength of the organisation that it is membership owned, but it is also something of a weakness in terms of diversification,” Hill thinks. “The painful decisions are difficult to make in an organisation like this. That tends to mean that as long as nobody else changes you’re fine, but if somebody else in the industry – and the industry is now bigger than just three big radio circuits, there’s limousine companies, potentially rail and bus companies who might seek to investigate the personal transport market – if they changed, then Dial-A-Cab will be found somewhat leaden-footed in the marketplace.” Some of the taxi firm’s biggest City clients – which spend up to £1m a year – have many staff they need to get home after working late. Hill can see a benefit in responding to demand – a City bank may want to consolidate on a luxury bus rather than using 30 cabs in a short period after the US exchanges shut, for example – but Dial-A-Cab members might perceive this as undermining their core business. “But the alternative may be that the customer has already decided that those 30 staff are going to go by bus, and it’s just a matter of whether we provide it, or someone else does,” Hill argues. Hill has to maintain this balancing act between mutuality and commercial pressure very carefully. And if many of these problems seem outside the traditional remit of the FD, he is quite happy to admit his own job is far from simple number-crunching. “I’m probably as much of a commercial manager as a finance manager,” he points out. “The day-to-day bookkeeping activity is relatively straightforward. It’s more to do with trying to guide the organisation along more commercially successful lines than might otherwise be the case.” As far as his own background goes, soon after qualifying as an accountant, Hill followed in his father’s footsteps into the City, ironically where much of Dial-A-Cab’s business is. But 1973 was a very bad time to be going into the stockmarket, so in 1975, Hill decided (on the advice of a friend that the beer and cricket were better up North) to move to Tyneside, where he first learned the art of company financial management. It was there he witnessed first-hand the devastating effects of recession in the early 1980s on a region that was, by and large, reliant on old heavy industry. Now at Dial-A-Cab, Hill is also very mindful of the effects of a downturn. “We are very much a mirror of the UK economy, as well as the global economy, in the sense that if our investment bankers are busy in South East Asia, there’s lots of traffic between the City and the airport – it’s a very simplistic view that, fundamentally, if they’re busy then we’re busy,” Hill explains. “The cab trade is closely aligned with London’s pre-eminence in financial and legal services. And there is a very close correlation between cab usage and domestic problems like recession; 1991 was a bad time for the cab trade.” Fellow FDs should be fairly happy to hear that Hill’s assessment of the current situation isn’t at all bad. “Recession is something that would hit us fairly hard, and we see no sign of it. Business is buoyant, very buoyant, and it has been buoyant for quite a sustained period now,” he says. Hill is also very happy with the direction of Dial-A-Cab’s finances. The company turns over around £30m, with £25m-odd going straight back into the cabbies’ pockets in the form of fare dispersements for pre-booked contract jobs. The cabbies’ subscription level has remained constant for three years, which is another important means of putting money back into their pockets in the tradition of mutual organisations. The remaining surplus is then ploughed back into the business. Professional financial management has proved invaluable for the company in this respect. Hill explains that for some of their (mutual) rivals, the budgeting process is rather haphazard: “Historically the industry has indulged in orgies of capital expenditure, where you buy an all-embracing, all-singing, all-dancing system which sets you back ‘X’ pounds. The interest and depreciation cripple you for five years, then you wash your face at the end of it and have a two or three year breather before you have another big bang; renew the terminals in cabs, radio infrastructure, control room, software, hardware, accounting, the whole lot; and incur a huge cost – gulp – interest, depreciation kill you for another five years, then you come out and repeat the cycle. Some of our competitors have been immersed in that cycle, and they have paid the price.” But spreading out the capital expenditure has smoothed that cycle away for Dial-A-Cab, which now has a more modular systems infrastructure that can be upgraded piecemeal. IT, in the form of accounting systems, data despatch (to tell the drivers what jobs are available) and data analysis (which allows the company to evaluate its customer trends and predict how much new business it can take), is the very cornerstone of Dial-A-Cab’s operations, and Hill sees it as a critical risk management issue. “We run a real-time activity, there’s no hiding place,” he points out. “If you take a booking for 20 minutes time, you can’t say, ‘damn, the system’s gone down, we’ll do it tomorrow’. We have a major task in making sure our systems are as resilient as we can possibly make them. Our members, who pay my wages, don’t understand anything different.” Hill has clearly come to understand the radio taxi business very well, and through application of his financial acumen has made it a better company despite operating with a single product, effectively fixed margins (the meter rate cannot be fudged, and you cannot short-change the cabbies) and a strongly independent membership. But he still holds out the possibility of convincing his core customers – one might almost say his employers, the cabbies – that change can bring them and the company significant benefits. “The business has a very exciting and challenging future,” he enthuses, “and it would be nice to be part of the team that realises that within Dial-A-Cab. We do now have competitors which are financed externally, by equity shareholders. We’re unlikely to see them being kind and benevolent – they’re likely to be more vigorous competitors than we would wish, and Dial-A-Cab has to make some concessions to the changing environment – ideally sooner rather than later.” CURRICULUM VITAE Name: Alastair Hill Career: 1975-80 Financial controller and company secretary, Newcastle Warehousing Co Ltd. 1980-89 Accounts manager (1980-98), chief accountant (1983-84) and divisional managing director (1984-89), Sea Containers, London 1989-91 General manager finance and administration Europe, Unifruco Ltd (Cape Fruits) 1991-94 Financial controller and company secretary “K” Line (UK) Ltd Overseas development project manager, United Transport Tank Containers Ltd 1995 Board member and finance manager, Dial-A-Cab 1996-Hill on change: I believe that an organisation, particularly in this day and age, is unlikely to survive if it merely says, “That’s what I was told to do back in 1953 and that’s all I’m going to do.” We might have to do lots of other things in the future to protect our core business, but that does present some political problems. Hill on the low pay of board members: It’s a jealously guarded right of the membership to fix the board’s remuneration. Hill on demutualisation: It would have offered the opportunity for drivers to participate in the fruits of their labours – not just on their takings, but also in terms of their organisation, the dividend potential, the capital ownership potential – because at the moment, nobody owns Dial-A-Cab in the sense of having financial value in it. Hill on the skills shortage: There is a big problem with recruitment into the industry. It takes several years to complete the Knowledge, and the net increase in drivers every year for the past few years is less than 100. But business is expanding rapidly.