Murphy's law

Far from being a a temple of avarice as would befit its supposedly rapacious occupants, Camelot’s headquarters is an unprepossessing construction of concrete and glass that does not live up to its likeness in the company’s handouts. And where were the angry crowds protesting at its directors’ boundless greed? Where was the press pack? The photographers?

The police?

Just two weeks before all hell had broken loose with the leaked report of massive bonus payments to directors. Prime Minister Tony Blair was outraged. Camelot was carpeted by Heritage Secretary Chris Smith and pilloried by the tabloid press.

Fat cats and privateers were among the more polite things they were called.

The department of National Heritage received ‘hundreds of thousands’ of calls from people baying for their bonuses – if not their blood – and Smith demanded that the directors donate their extra payments in full to charity.

It wasn’t the best time to try to confirm Accountancy Age’s interview with one of the most famous finance directors in the land. Not the day Peter Murphy and his fellow directors threatened to resign. Would there be an FD? Would there be a mass walkout? Would Smith, who had ridden the wave of public fury and roughshod over Camelot’s contracts, put any of his threats into action?

He had threatened to terminate Camelot’s licence immediately, kick it out when the licence expires in 2001, force it to become a not-for-profit operation in the short term and impose further sanctions and tax.

Yet, a few days later, all was quiet on the Watford front, or at least Camelot’s corner of it. There was no sign of the bunker mentality that usually follows a tabloid savaging.

Murphy was surprisingly laid back.

‘You’ve got to have broad shoulders in this job,’ he shrugs. ‘Most of the time the press is really very supportive and very co-operative. Oh no, don’t put that in – I can just see the tabloids now, some Sun headline about trying to influence the press.’

Murphy is no media virgin and he says that he knows news editors and headline writers put spins on stories that the writers themselves never intended. Still, having details of your salary package splashed across the nation’s news media and being portrayed as some sort of immoral parasite cannot have been pleasant. ‘Look, without appearing arrogant, we know that we are doing a good job of raising billions of pounds for good causes.

We have got to stick to the facts rather than getting carried away with the emotion,’ he says.

It is a fact that Murphy, along with chief executive Tim Holley, communications director David Rigg and operations director David Clark, received pay rises averaging 40% last year (Murphy’s totalled 76%) and that they will receive a further u700,000 in bonuses this year. It is also a fact that ticket sales fell 10% to u4.7bn, which means that contributions to good causes fell by u143m. At face value, these payments are outrageous and it was taking these figures at face value that led Smith to demand that they be handed over to charity.

However, he missed several important points. The first, and most important, of which is that the payments were based on the previous year’s performance, not the lacklustre year-end figures to March 1997.

The year before was exceptionally successful with two double rollover jackpots and the launch of Instants scratchcards. In addition, as Murphy points out, they were part of a long-term incentive scheme that has always existed and has been in every set of accounts we have published – it would have been easy enough for anyone to calculate,’ Murphy comments.

What’s more, the schemes were arrived at by three independent sets of remuneration consultants, are monitored by a remuneration committee and Camelot adheres to all corporate governance guidelines, he says.

Murphy expected some ‘comments about fat cats’, it isn’t the first time that he has been called one. However, one senses that he has been surprised by the sheer scale of the reaction against what he sees as appropriate rewards.

‘It is very important to recognise and reward entrepreneurial success, it is the lifeblood of a successful economy and it is vital that culture is maintained. (The bonuses) make a real difference to us. We have a vested interest in ensuring that the amount generated for good causes is maximised.

‘I could understand if we were failing but this is the most successful lottery in the world. How many British businesses can you say that about?

We are generating u400m a year for good causes – that is real money – let alone how much we have raised for the Treasury. The basic message is that the amounts we have earned are based on our performance and I am comfortable with that,’ he asserts.

Newspaper reports of his and his fellow directors’ determination to resign rather than hand over their bonuses proved to be a turning point in the affair. Swathes of staff at Camelot indicated that they would follow and, effectively, the Department of National Heritage backed down. A compromise was reached which involved Camelot donating an equivalent amount to their existing bonuses to charity, turning over interest on unclaimed prizes to good causes, considering ways of operating the lottery on a not-for-profit basis and the directors contributing to a joint fund to go to charities nominated by them from their forthcoming long-term bonus payments.

These future contributions will be at their discretion and will not be publicised but will be monitored by the non-executive directors on the remuneration committee. ‘I am quite sure that everyone already does make charitable donations,’ Murphy notes. His favourite charities are those concerned with children and cancer because he believes in ‘ensuring that kids can have a better life by investing in the early stages’ and because he lost his mother to cancer.

Murphy obviously loves children. A large photograph of his three boys and a girl, aged between 5 and 11, beaming at the camera, dominates the decoration in his otherwise rather dowdy office. It doesn’t look like the sort of place you could find an overblown fat cat: it is big but not that bit. His secretary has a larger desk than he does, and his meeting table would be hard pushed to seat six people.

But this twinkly eyed 40 year old isn’t a workaholic who lives in his office. ‘It is important to maintain a balanced lifestyle,’ he observes, listing his family, tennis, walking and golf as his hobbies.

His lifestyle may be balanced, but the work side is nothing if not busy.

As well as the usual FD functions, such as accounting, finance, tax and treasury, he is responsible for internal audit, strategy and corporate development, logistics, which means making sure that 35,000 retailers never run out of pay slips or tickets, warehousing, managing the prize payout for more than one million winners a week and the subscription service.

Several of the papers that enjoy vilifying him also noted that he was tipped for ‘the very top’.

Murphy did not decide on accountancy until his final year at Leeds. He thought about sales and marketing, at which he probably would have been a natural. He is fluent and intelligent when discussing Camelot’s marketing challenges, such as how the lottery competes with every other impulse purchase available on retailers’ shelves and how Instants are the top impulse brand, second only to Coca-Cola. However, his somewhat direct approach to ‘getting issues out on the table’ – Murphy admits to being diplomatically challenged – might have been a disadvantage in the soft soap world of marketing.

Murphy has always been ambitious and accountancy gave him a good training for the world of business. Naturally, for someone who relishes a challenge, he jumped at the chance of working on the lottery bid in 1993.

But that move does not rank as his best decision, which was to leave Price Waterhouse in 1989. ‘It was nothing negative about (PW) at all, it was just the right time to set me on a career path in industry. Here you are accountable for your results. I get a big kick out of running a business, being responsible and making real decisions,’ he says. ‘Both the rewards and the challenges are greater.’ In his part of industry, it appears that half the challenges are to do with the rewards.

PETER MURPHY

Age: 40

Born: Dar Es Salaam

Education: Leeds University (Economics); ACA

Drives: Jaguar XJ6

Reading: Sahara by John Tussler

1978: Price Waterhouse trainee

1981: Audit senior

1983: Assistant manager then senior manager of PW, Sydney, Australia

1985: Manager of PW’s London office

1986: Senior manager of PW’s Windsor office

1989: Finance director of international operations of Management Scientific America, which became Dun & Bradstreet Software

1991: Del La Rue currency division finance director

1993: Camelot finance director.