How to lose money and influence people
The lottery regulator’s catastrophic career
24 february 1997, guardian
Peter Davis’s career peaked three decades ago when, at 26, he came sixth in the country's accountancy exams. Since then he's been closely involved in two of Britain's biggest business failures, Harris Queensway and Lloyd's. Twice he's been paid to go away.
That didn't stop him becoming lottery regulator, a job requiring him to police a game 30 million of us play every week, and to scrutinise the companies that take our money, to be a man with a nose for scam. As regulator he's been criticised for hitching free flights with GTech, the American lottery company with the bad reputation. An upcoming report from MPs who criticised him for that indiscretion will raise further doubts about his ability to stand up to the big boys of the lottery business.
If you want to work in the £80m-a-week lottery business, you have to tell Peter Davis your secrets. Have you ever been sacked or turned over by investigators? You have to own up and explain. He'll judge whether you're ‘fit and proper’. But Davis declines to discuss his own record, and his published CV makes no mention of the financial chaos he's known, nor of the six-figure pay-offs he's had.
His first big disaster was Harris Queensway. He'd arrived there via Winchester and Oxford and a 17-year stint at accountants Price Waterhouse. ‘I needed a challenge,’ he once said. ‘I wanted to be in business myself and getting credit, or not, for what I did.’
He didn't get much credit at Harris Queensway, Britain's biggest carpet retailer, run by Tory fund-raiser Phil, now Lord Harris. ‘When times got tough, Harris let Davis take the flak, and he wasn't good at taking it,’ says a City analyst who interrogated him at the time. ‘He was a rabbit, caught in the headlights.’ He left Harris with his share of the £386,000 pay-off to departing directors in 1987. After several months' break, he was offered a chance to start afresh, at the Lloyd's insurance market.
As Davis settled into his new life at Lloyd's, his old company was falling apart. Harris Queensway was sold in 1988 and crashed two years later with £200m debts, putting 4,000 people out of work. But he won't talk about his time at Harris Queensway, and nor will Lord Harris.
Davis's time at Lloyd's is another thing he prefers not to talk about. His CV says he was finance director at Sturge, ‘the biggest Lloyd's insurance underwriting group.’ It's also the one that lost the most money — more than £1 billion — and at Lloyd's that's quite an achievement.
As he tucked his shoes under the finance director's desk at Sturge, the place was abuzz with news of an astonishing retirement present, from one of the directors to himself. Over oysters and Champagne in the Captains' Room at Lloyd's, over beer at the Lamb Tavern in Leadenhall Market, people talked, with awe and with envy, of the palace Ralph Rokeby-Johnson was building in Southern California.
There was talk of marble pillars, shipped especially from Italy, of gold-encrusted balustrades and gilded chandeliers. Of master craftsmen, flown from England to create rooms that might remind a nostalgic Rokeby-Johnson of the stately Adam Room at Lloyd's. A six-foot bath-tub was found in England and sent to Rancho Santa Fe. An 80 foot swimming pool, a world-class tennis court, a billiard room with gallery for spectators, nine acres of manicured lawn, a baronial master bedroom suite with two bathrooms, his in rosewood, hers in marble.
What was a homely accountant to make of it all? A man who lived in Wimbledon and holidayed in Cornwall? He won't say.
Before long there was talk of a more ominous kind. Rokeby had retired to California — he'd taken a liveried Lloyd's servant for a butler and left behind a hole that got deeper and deeper. Rokeby's syndicate was in trouble.
Asbestos was the problem. It made industrial workers sick, they sued their bosses and the bills stacked up at Lloyd's. The syndicate Rokeby ran had insurers of its own, in Chicago, and they picked up the asbestos bill. That's what Rokeby's replacement, Alan Lee, thought would happen, but it didn't.
Years later, when investigators peered into the hole and reported on their findings, Lee claimed he'd done his very best. Heading off for the sun, Rokeby had advised, if you want to keep Chicago happy old boy, then sharpen up your golf. But Alan's swing wasn't quite good enough. The boys in Chicago were unhappy, and not just about the losses. They suspected they were being taken for a ride.
By late 1989, they'd had enough, complaining Sturge had overcharged them by thirty million dollars and refusing to pay any more. The golfing days were over.
More worldly men at Sturge saw trouble coming, or so they told the investigators. To Davis it came as quite a shock. He told them: ‘I discussed it as a matter of urgency with Alan Lee who explained to me some of the background and the implications. I was at that stage aware of the serious implications for the first time.’ He'd been director of finance for sixteen months.
The implications, as he called them, were horrific. If Chicago stopped paying, the bills stopped at Sturge. The 5,000 people on the syndicate would be ruined. (And they were).
At the height of the crisis he was the man who wasn't there. Twelve times the syndicate's board met in 1990. Eight times an empty chair sat where Davis should have been. Next year there were eleven meetings and he turned up once. But he couldn't escape the crisis, even if he wanted to. A top-level team was picked to make peace with Chicago; he was on it.
The team had no asbestos expert, no terms of reference, and used estimates of the problem that were way out of date. Davis and his colleagues, with no framework and no expertise, just some wonky arithmetic, chose to cash in their insurance cover for a sum that proved laughably inadequate.
Buried in one fat volume on the scandal is a sad little note of something Davis confessed back in 1991. ‘While he was beginning to understand the operational matters of the managed syndicates, he felt there were people on the board who understood insurance matters better than himself.’ But they didn't. A billion pounds later, even Davis could see.
Sturge was a business in trouble and a wretched place to work. A close triumvirate ruled the company like a personal fiefdom, competence came a poor second to breeding. Davis, a man who'd made his own money but not much, was treated like an estate manager, one who follows orders and doesn't ask questions. ‘He was a nice, decent, guileless man who found the politics of the place distasteful,’ recalls a friend from those days.
Senior colleagues recall him as a harmless chap, a nice man to work with, but one who lacked gumption. ‘He found it difficult to argue. Of course, he didn't understand the insurance business,’ sniffed a former executive. Sturge underwriters will say he didn't mix much. ‘Provided his little patch was all right,’ one said coldly, ‘he wasn't too concerned about anything else.’ He left in March 1993 with a £182,000 golden good-bye, took a Club Med holiday in Turkey and popped up months later as the lottery watchdog.
Davis refused requests over several weeks to discuss his time at Lloyd's. Talking to him is a dialogue with the dead. A spectral presence, he's not really there, but there's a medium — a government information officer. ‘First and foremost it was over five years ago and is nothing to do with the lottery,’ she said briskly. His involvement, she said, was ‘peripheral’.
I told this to John Rew, who won a multi-million pound compensation deal for those who lost money at Sturge. He threw back his head and laughed loudly. ‘It's the best documented worst decision in history,’ he roared. ‘This was the single biggest financial transaction the group was ever involved in. It's extraordinary to say the group finance director wasn't materially involved.’
While Rew caught his breath, I asked Peter Davis about his truancy again. The medium replied: ‘Regular attendance at board meetings as a non-executive member was not necessary because board meetings were generally about technical underwriting matters and Mr Davis received copies of the relevant papers.’
The medium went on: ‘As a full-time director of the group Mr Davis was in touch with those involved on a daily and sometimes weekly basis.’
It didn't make sense. You'd think a regulator would know that being ‘non-executive’ isn't like being excused games. It's a matter of whose interests you champion, not whether you can bunk off to the bike-sheds.
And another thing. Non-executives normally represent outside shareholders; they're an independent voice on the board. On this board at Sturge they were supposed to look after the syndicate's members — the people who lost all those millions. But how, you might ask, could Davis do that if he was also the company's finance director? It's a question that regulators might ask. They did, and he couldn't, they said in 1989. His finance job, ‘precluded him from adequately fulfilling the non-executive requirement.’ Yet he stayed on the board, in this push-me-pull-you role, a routine absentee, until September 1991.
I wrote inviting Davis to explain. I wanted to ask him the questions he asks in his job as the lottery regulator. Surely he'd at least answer those. Why did you leave your various employers? I asked him. How much did they pay you to go? What did you do between jobs? Were you aware of Rokeby's California retreat? Did you visit?
He didn't write back. I called the medium who said sheepishly the regulator had nothing to say. You could almost hear Davis from the beyond, sounding two feeble knocks for NO. I suggested he might look silly if people read his excuses as they were. The medium returned to the spirit world and came back — with nothing.
The best thing on Davis's CV, something everyone who knows him will mention, is his £20,000-a-year part-time job at Abbey National, the mutual building society turned bank. He was a non-executive director for twelve years until 1994, when the business world had to accept such long stretches were unhealthy. They made him deputy chairman in 1988, but that wasn't everything he claims. His CV says, ‘he was heavily involved in the strategy for the conversion of Abbey National from a building society into a listed public limited company.’ I told that to a man who's known for being heavily involved at the time. ‘That's absolute bollocks,’ he snorted. Abbey's spokeswoman was more diplomatic: ‘Mr Davis was a member of the board which took the decision to convert,’ she explained, ‘but as a non-executive director I don't think there were specific responsibilities for him.’
Davis once pronounced publicly: ‘I believe in the principle that if you ask someone to do a job, it is a good thing for him to have something to lose as well as something to gain.’ It's a principle he's not had to live by. If he's pushed out of office he'll land softly, with a golden good-bye from his £84,000-a-year job.
There's also his £20,000-a-year from Equitable Life, the upmarket insurer where he's a part-time director — a prize won since he started serving the public. And then there's £28,000 from Provident Financial, another post-lottery win.
It's the Provvy to its customers, cash-strapped families who'll pay £150 interest for a £500 twenty-week loan. The Provvy Man knocks at your door, every week, to collect and with luck he'll use some discretion; you don't want the neighbours to know. He's not a loan-shark — they're one down the feeding chain — but he can be persistent because he's on commission and he's pretty poor too.
Davis's prospects look good. Touting Provvy shares last summer, its broker said door-to-door lending was a ‘growth business’ thanks to social trends such as ‘wealth polarisation’ and banks' growing reluctance to lend to the poor. So Davis needn't fear for his family's future. As for the Provvy Man's customers, you never know, a few of them might win the lottery.