Monday, 1 April 2013

Vested Interests: Iain Duncan Smith

Vested Interests: Iain Duncan Smith
 An accountant (who would prefer to remain anonymous for obvious reasons) delves into Iain Duncan Smith's financial affairs.

"The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness" JK Galbraith
We have come to learn a great deal about how our MPs are remunerated over recent years. The great scandal of expenses, the claims made and how they were administered has been covered by better writers and investigators than I. However we still have not heard much of the second jobs, directorships and shareholdings held by MPs. These I would argue are more of a scandal than the expenses.

These jobs and payments represent the ability of third parties to financially influence the legislative process. An MP with significant holdings of shares in a company will inevitably be swayed in their vote by how the law will affect them personally. Currently the details provided are scant at best. They are grouped under headings on the register of member’s interests. But unlike expenses which are available as downloadable excel files the register is only available as a pdf. I have therefore begun this investigation by looking at specific MPs and their links to the business community to try and discern if any conflicts of interest exist.

I would welcome suggestions from people if they have specific MPs they would like me to look at. However given that we are at the beginning of this process I thought I'd start with everyone's favourite The "Rt Hon." Iain Duncan Smith. Iain has a long history of hypocrisy over enriching himself at public expense.  Despite vilifying the unemployed in the press he claimed dole himself. Then there's Betsygate where he employed his wife for £15k a year at the taxpayers' expense to do, well..... nothing. he has spent virtually his entire career working either in or for the public sector at the taxpayers' expense. He also got caught out lying about his qualifications on his CV.

His only entries on the register of interests are membership of two private clubs for about £1,585 per year. Always handy to be gifted a quiet spot off the radar to meet the chaps and discuss business over lunch.  More interesting are his disclosures over share options he owns. Two listings are made for 2012 for Nlyte software - a data management centre specialist and Byotrol. In neither case do we know how many share options he owns or what strike price they were based on.

What is a share option? A share is a piece of the ownership of a company and gives the owner the right to a slice of the profits. These payments of profits are called dividends. The owners of shares may of course earn more money by simply buying and selling them. This is where share options come in. Options are contracts with the right to buy the shares at particular times for particular prices. The key being that the exercise or strike price (the value you buy the share at) is always given at an expected discount to what the share is actually/predicted to be worth.  So IDS is holding shares in companies that he could sell for more than he paid for them. Options can also be set up so they do not trigger payments from the owner until the sale is made. So IDS is possibly holding onto options that he will only pay for when he cashes them in at a tidy profit.

But how did he get them and when? How many options does he own? What strike price were they bought at? Unfortunately I cannot answer these questions at this time.  These questions are crucial because they would allow us to work out how much money he is likely to make on the deal. It is also not clear what his relationship to these companies is  I cannot find listings of him working for them in any capacity, past or present. I also have not found any direct links between himself and the directors or other major shareholders.

Nlyte sells data and IT solutions and partners with Carahsoft GSA for US government contracts. It has a number of these open with the Dept of Defense. I can find no evidence of this company doing anything UK side but clearly having the head of a major government department amongst your shareholders won't harm its chances of winning future IT contracts. Especially since the current round of DWP system overhauls have been such a "success".

Byotrol is a UK based hygiene specialist & sells a range of anti-bacterial hand washes and cleaning supplies. It is a relatively small company only turning over £1.9m in the last financial year and making a loss of £2.7m. It has an accumulated deficit of £17m.  These losses show that it will not be paying tax for some time. Nonetheless it has 1.6m in the bank in cash. The only way it generated this money was the issue of shares. It struck me as strange that such a small company would earn so much from shares until I began researching their directors. They come from companies like Unilever, Mars, Astra Zeneca, Proctor & Gamble, the list goes on.  Despite losing money throughout its history the company is publicly quoted and has 143 million shares in circulation.  The company is valued on the market at £13.2m. Why would anyone want to pay such a relatively large amount of money for a company with very few assets which is booking large losses every year and is therefore unable to pay dividends?

Well, as of January 13 2013 it has recently won contracts with the NHS, ADM (Archer Daniels Midland convert corn, oilseeds, wheat and cocoa into products for food, animal feed, industrial and energy uses) and Kimberley Clark; the major US healthcare company which owns brands like Kleenex and Huggies. The revenues for these contracts have not been seen yet but are expected to be significant. Some of their existing customers are Boots, Tesco, PZ Cussons and other companies that would stand to benefit from the privatisation of the NHS.  Part of the company strategy going forward is to sell licensing payments and royalties for the use of its patents. Selling a royalty to a major healthcare company who then supply large parts of the NHS is a good way to make money at public expense and then shuffle it away from the prying eyes of the taxman.

They can be assured of the right kind of help from the Pinstripe Mafia of course. The appointed auditors are Baker Tilly and they earn £23.5k for auditing the books. But they earn nearly 3 times that no (£68k) for non-audit services. Never underestimate the benefit of a yes man.

It would therefore be interesting to know when IDS got his options and what the strike price was or what he was reimbursed for. With 143 million shares in circulation IDS could own 100,000 shares and still own only 0.007% of the company. Now we don't know from the Register what IDS got as a strike price or how many options he owns but that's kind of the point isn't it? Currently the shares aren't worth much each and this means the strike price can be measured in pence. With privatisation of the NHS a company like this could grow quickly and its share price could increase from pence to pounds. They are certainly predicting that in their company literature. This would represent a significant gain. It's generally only possible to make these kinds of large profits if you get in at the ground level. So how did IDS know to buy shares in this company when it was a dog on paper? It was certainly very fortuitous to purchase these options before the company won major contracts with the NHS which will lift up the share price.

IDS once said that: "I think that the status that you have in life should be reflected in official documents." That's great news Iain, perhaps you'd like to expand on the entry in the register then and explain to us exactly how much you will financially benefit from the privatisation of the NHS?

All company figures and information are from their annual reports, their respective websites and the London stock exchange. The opinions are the authors own.

EDITOR'S NOTE: A couple people have left comments to provide evidence that Iain Duncan Smith was a Non Executive director at both companies, and that in 2009 he bought 65,000 shares in Byotrol. One wonders why neither of these directorships appear in the Parliamentary register of interests during the period that he was working with them. If he received salaries for his directorships they should have been included in category 2 (Remunerated employment) and if he wasn't paid then such positions fall under Category 11, which states that such interests should be declared "when a Member considers that an unremunerated interest ... might be thought by others to influence his or her actions in a similar manner to a remunerated interest ... Such interests may include, but are not limited to, shareholdings, unremunerated parliamentary consultancies, or non-practising membership of professions".
Here are the links.

Iain Duncan Smith - NED at Nylte Software
Iain Duncan Smith - NED at Byotrol and purchase of 65,000 shares

What you can do

Please take a moment to sign the petition against MPs and Lords voting on issues in which they have vested financial interests

About the author

The author is an accountant in an environmental company. On his days off he makes loud offensive rap music and stands outside government buildings with signs. 

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Anonymous said...

Very insightful :) -Michael @ DitUK

Anonymous said...

Have a look in to geofrey cox, mp for torridge and west devon, he earns so much money in his normal job it makes you wonder if he does anything as an mp at all!

Anonymous said...

Disappointing: one or two valid points and questions, lost in a sea of rampant paranoid misinformation.