Rolls Royce could be about to totally restructure its management, as the company looks to get back on the right course after a difficult couple of years.
The company is under pressure from investors to make changes following five profit warnings in the past year and a half, and bosses are expected to fly into London today to try and restore confidence in the flagging engineering firm, it is reported.
Rolls Royce’s most recent profit warning, less than two weeks ago, prompted new CEO Warren East to say that 2016 will be a “very challenging” year. Alongside profit warnings, shares in the firm have tanked by more than half in the past two years.
East is now moving to try and remove a reputation amongst investors of Rolls being an extremely poor communicator. One source quoted by the Times says “The key issue is transparency,” “The next move has to be to restore confidence in the company.”
Investor pressure increased last week when American hedge fund and angel investor ValueAct, already the company’s biggest investor, increased its stake in Rolls to 10%, and reportedly demanded a seat on the company’s board.
East immediately implemented a major review into the way the company operates after taking the top job in July, and will report his initial findings to shareholders and analysts on Tuesday. A source believed to close to Rolls Royce management told the Daily Telegraph that “The review is the first step in restoring investor confidence”.
According to a report in the Telegraph, East wants to address what he perceives as too many managers within the company. Rolls Royce has around 2,000 senior managers, and employs a total of about 54,000 people, meaning that there is roughly one senior manager for every 26 employees.
The huge number of senior managers means that reacting to changes can be slow, and hurt performance, according to sources within Rolls Royce quoted by the Telegraph.
“The problem is information about what is happening in the market is not being acted upon fast enough,” “It takes too long to realise something has changed and then to do something about it. There’s a lack of accountability when there are so many people between the guys on the shop floor and the executives.”
Whilst he is expected to address the bloated management structure at Rolls, East will not listen to calls from some investors to demerge the company’s aero-engine business, according to a report in the Times. The report does indicate that parts of the company’s marine and agricultural operations could be sold.
East is also expected to ditch former CEO John Rishton’s Four C’s mantra of “customer, concentration, cost and cash”.
Business Insider has reached out to Rolls Royce for confirmation of these investor talks, and will update this story when we hear back from the company.
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