BUSINESS

Rewards and punishment

A prominent British businessman faces imprisonment

HOLGER JENSEN September 10 1990
BUSINESS

Rewards and punishment

A prominent British businessman faces imprisonment

HOLGER JENSEN September 10 1990

Rewards and punishment

BUSINESS

A prominent British businessman faces imprisonment

Four years ago, Ernest Saunders was one of Britain’s most successful business executives. He had rescued Guinness PLC from almost certain bankruptcy and increased the value of the drink company’s stock sixfold to more than $10 billion. For that, he was handsomely rewarded. He lived in a $2million country estate, sent his children to school in a Rolls-Royce and hosted the Queen at lavish social functions. But in January, 1987, Saunders was fired in disgrace after police began investigating his role in illegal stock market transactions during a 1986 takeover fight for Distillers Co. PLC. That, however, was only the beginning of his fall from grace. In May, 1987, police slapped criminal charges on him. Then, his wife left him, he suffered a nervous breakdown and, impoverished by his legal expenses, he has been living on welfare. Last week, in a final indignity, the former Guinness chairman was sentenced to five years in prison for conspiracy to commit fraud, theft and false accounting.

In the City, London’s square-mile financial district, the sentence was considered especially harsh, particularly because Saunders had already been ruined by the Guinness scandal. But like his American business associate Ivan Boesky, who has just finished serving a threeyear sentence for insider trading in the United

States, the 54-year-old Saunders had come to symbolize the greed that characterized the takeover mania of the 1980s on both sides of the Atlantic. Guinness, brewer of the famous stout since 1759 and distiller of Bell’s Scotch whisky, faced hostile competition from the Argyll Group PLC supermarket chain in its bid for Distillers Co. and its globally marketed products, Johnnie Walker and Dewar’s Scotch whiskies, as well as Gordon’s London Dry Gin. As a result, Saunders orchestrated a sharebuying campaign to bolster the value of his company’s stock offer, which ultimately became worth $5.9 billion.

In passing sentence at the conclusion of the 107-day trial—one of the longest and most expensive in British history—the judge said that Saunders had been guilty of “dishonesty on a massive scale,” by having secretly agreed to pay back investors for any losses they might suffer in acquiring Guinness shares and by giving up to $55.4 million in illegal “success fees” to those who helped him out. “When greed is in the saddle,” said Crown court Justice Denis Henry, “the voice of conscience will not be heard.”

Saunders’s accomplices also received harsh sentences. Among them was Gerald Ronson, 51, head of the Heron International Group PLC, a property and retailing concern that is Brit-

ain’s second-largest private company. Ronson, a noted contributor to charities, was sentenced to a year in jail, fined a record $11 million and ordered to pay $974,380 towards prosecution costs. Another accomplice, Anthony Pames, a 45-year-old stockbroker nicknamed “the Animal” because of his predatory ways in London’s financial community, fainted before he was sentenced. When he recovered, he received a 30-month jail term and was ordered to pay the same amount as Ronson for prosecution costs. Sentencing was postponed for a fourth defendant in the case, Sir Isidore Jack Lyons, a 74-year-old financier and arts patron, because he was in hospital about to undergo an operation.

According to The Independent newspaper, which claimed to have evidence that was not introduced at the trial, Boesky first alerted British authorities to the Saunders stock-promotion operation. At the urging of Ronson, the newspaper said, Boesky spent $90.8 million to buy up 14 million Guinness shares, in return for which Guinness put $100 million into one of his investment funds. The Independent said that Boesky disclosed the deal in an attempt to win leniency from American authorities when his own legal problems broke in 1987, most likely to secure a promise of immunity from prosecution in Britain.

Throughout his trial, Saunders shouted “bullshit” at prosecution witnesses and argued that he was the victim of a massive conspiracy. He said that influential British politicians and business executives laid the entire blame for the Guinness debacle at his feet in order to create the impression that it was an isolated issue and that corruption was not widespread in London’s financial community. During his testimony, Saunders characterized his prosecution as a “classic pre-emptive strike, a buckpassing operation of the most cynical kind.”

Indeed, opposition party critics in Parliament said that the case exposed flaws in British financial regulations. And said Menzies Campbell, Liberal Democrat trade and industry critic, the case “besmirched the reputation of the United Kingdom as a financial centre.”

After last week’s sentencing, Saunders’s lawyer son, James, 24, said that his father would appeal what he described as a “show trial” and an “appalling and totally unwarranted” prison term. But Jonathan Guinness, 60, a former director of the family company, said that “had there not been a guilty verdict, it might have been open house for quite a lot of undesirable practices.”

Saunders’s appeal may have to wait until after a second trial, scheduled to start early next year, in which he may appear with three other prominent financiers also facing charges arising out of the Distillers Co. takeover. Clearly, for Britain’s financial community, the punishments meted out last week served as a stark warning that the courts are now determined to root out corrupt behavior in the business world.

HOLGER JENSEN with JEREMY HART in London

JEREMY HART