Have you ever wondered why there are only two world-class companies in England?

BP and Vodafone could hardly be more unlike. One derives its value from a commodity now entirely un-indigenous, the other from a service initially wholly domestic. One has been around for a century, the other for less than two decades. One had been run as an arm of the State, the other is the epitome of private enterprise. But BP & Vodafone have in common a management and shareholder base alive to the challenges and opportunities of the global marketplace and successfully committed to the execution of international best practice – to ‘best of breed’ in Deutsche Bank head Rolf Breuer’s historically unfortunate turn of phrase.

Largely unheralded, however, has been the recent retirement from the field of the most likely contender to become Britain’s third entry in the World Cup of business: Cable & Wireless.

Originally the Master Builder of England’s imperial telegraph and telephone network, C&W went through a series of Frankenstein’s monster-like incarnations in the 1980s and 1990s, changing Frankensteins with every operation.

The creature that finally emerged from the laboratory turned out, against expectation, to be the world leader in internet carriage and corporate web hosting. Let me repeat that: Cable & Wireless was the World #1 in internet traffic and corporate web site hosting. No one was bigger or did it better. On a par with BP & Vodafone. The Andre Agassi of the internet. The Tiger Woods of the web.

But institutional investors in the City and the press couldn’t stomach this preeminence, or perhaps the risks attendant on such ambition, and on 4 June new CEO Francesco Caio announced that C&W was abandoning its global ambitions and retreating to its atavistic corporate shell. Ignore the internet. Up the strategic importance of Jamaica, the Seychelles and the Solomon Islands! Long live the Empire!

How did the company reach such a pass? The current Caio/Lapthorne team are both senior managers of considerable international experience and stature, not callow youths with under-developed self-esteem. The single most justified criticism of prior C&W management has been mishandling of communication of corporate positioning and strategy to the City and the press – a failing C&L have successfully remedied, albeit in furtherance of a strategy which could without exaggeration be called unfortunate. Still, the past decade has witnessed a shocking series of strategic and management serpentines by C&W. Let’s examine the record. Hold on tight: the zig-zags of HMS Cable & Wireless are enough to drive one to dramamine.

In the early 1990’s, the incumbent CEO James Ross and Chairman Lord Young had the helm of good ship C&W. While steaming through the lambent tropical seas of Cable & Wireless’s legacy colonial businesses, the ship was suddenly beset by tropical storm Gorbachev. Notwithstanding the distance of the storm from C&W’s trade routes, Ross & Young couldn’t resist the opportunity to expand C&W’s business model by leaping into the newly emergent markets of central and eastern Europe, accepting minority positions without management or operational control as the price of admission to this new imperial opportunity. Thus C&W shareholders awoke one day to discover they’d been exposed to such insalubrious locales as Latvia, Bulgaria and Russia without prophylaxis. Management also entered the mobile telephony business by setting up One 2 One to operate in tandem with Mercury, the fixed-line duopolist competing with BT. The strategy seemed to be: ‘Let’s concentrate our money and time on second tier positions in secondary markets which can be relied on not to grow too fast and disrupt the clubby calm of the executive suite.’

With time, criticism of Cable & Wireless’s delegated management approach to the international telecommunications business became deafening, even in the Board room. So followed regime change. When James Ross was deposed, Dick Brown moved into the captain’s chair from Ameritech, the local telephone company for the middle-western united states, who decided that being the second carrier in a competitive market was a great way to lose money and so initiated a series of disposals including Latvia, Bulgaria and Russia and oh, by the way, also including Mercury and One 2 One in the U.K.

Consequent on the change of strategy, HMS C&W spent several years backing water and reversing course: divesting these now ‘non-core’ holdings while CEO Brown formulated and commenced execution of the internet vision via the purchase of MCI’s IP backbone, which it was forced to divest when WorldCom of blessed memory acquired MCI, whose name is has recently appropriated as its new persona.

When Dick Brown tired of his captaincy and was lured back to Dallas to run EDS, ex-One 2 One, CEO Graham Wallace assumed the C&W helm, honouring his predecessor’s memory by continuing the disposal programme and accelerating his internet expansion. In most of its businesses, C&W is a monopolist. Hewing to Brown’s theory that in a competitive telecoms market you need to be Number One or you’re nowhere, Wallace spun off the bulk of the Mercury and One 2 One businesses, and also C&W interests in markets as diverse as France, Israel, Japan and Australia. Using the proceeds of these transactions, he also expanded the internet business, purchasing Digital Island (US$ 280 million) and Exodus Communications (US$ 850 million) in the US and several ISPs in Europe. Also on his watch C&W executed the first successful hostile takeover by a foreigner in Japan to take its stake in its joint venture there from a minority to nearly 100%.

But then, after all this expensive effort, the company lost its nerve and brought in Richard Lapthorne and Francesco Caio, not to re-reverse course, but to scuttle the ship. Caio’s 4 June announcement brings us to the present.

Let’s recap this mad dash.

Act I (circa 1900, Red Countries on the Map): Cable & Wireless builds and operates Her Britannic Majesty’s colonial telegraph and telephone network.

Act II (1989 end of Cold War, Former Soviet Union): Ross/Young plump for Empire+ by adding bits of the Evil Empire to C&W’s ragbag of colonial properties and engaging in a joust with BT and Vodafone at home. The City and Fleet Street complain of lack of coherence and synergy leading to a market value below ‘sum-of-the-parts’.

Act III (1997, a Blasted Heath): C&W’s Board responds to shareholder complaint by putting Ross/Young out of our misery and fortifying the anaemic company’s bloodline with an infusion from the New World. Brown/Robbins unravel Ross/Young’s expansion and plump for the go-go market of the future: the internet. Birth of C&W’s e-Strategy.

Act IV (1999, the Texas desert): Brown decamps, having decided that reviving C&W will cost more blood than he’s willing to shed. Replacement Wallace accelerates daring e-Strategy with acquisitions in US, Europe and Japan. Internet/telecoms crash of 2000 shreds everyone’s business plan. Two years of global industrial chaos as corporate apostles await revelation of business models that work.

Act V (2003, the Salisbury Plain): City loses its nerve and sends Wallace to Coventry. Fleet Street concurs. New executive suite occupants Lapthorne & Caio launch strategic review leading to repudiation and demolition of e-Strategy and refocus on the Empire. Full circle in 5 tragic acts.

Why did the City feel so strongly that C&W should abandon its e-Strategy? Granted many investing institutions would prefer to destroy their investors’ value directly rather than through the intermediation of corporate management (shades of Lloyds?), and thus pushed C&W to return its ‘excess’ cash to them via a special dividend. Granted Cable & Wireless was losing money on its newly-acquired and –built businesses, like everyone else since the Great Collapse of 2000. But is it really conceivable that the engine of global growth and productivity improvement could be unprofitable over the long run, in more normal times, for its most senior engineer? Does it enhance shareholder value to give away expensively-acquired network and customers? Is the optimum corporate strategy the abdication of strategy?

One is led to the conclusion that there’s something systemic amiss, particularly as these strategic miscues fail to plumb the full depths of Cable & Wireless mismanagement. To illustrate this broader malaise, let’s cast an eye over two mishandled strategic transactions which stand out as paradigms of the comic and tragic in corporate finance at Cable & Wireless.

The first was PLD. Petersburgh Long-Distance – no, not St Petersburg, Florida, the other one – was the child of the addled brain of a C&W lawyer called James Hatt. Like C&W itself, PLD comprised minority stakes in unrelated, second-tier telephone businesses in non-contiguous parts of Russia and Kazakhstan. When the investment community declined to subscribe PLD’s initial public offering in November 1994, Lord Young gallantly stepped into the breech and wrote a cheque for the unsold portion—using Cable & Wireless as his bank. He presumably took the view that the happy coincidence of his sitting on both Salomon Brothers’ and C&W’s boards was a case of synergy rather than conflict of interest.

With Dick Brown’s strategic u-turn, C&W decided to unload the PLD stake, which it did in 1998 to a Russian gangster, fortunately prior to the enactment of the UK’s version of the US Foreign Corrupt Practices Act but still requiring considerable juristic legerdemain to avoid breaching money laundering statutes.

If PLD was comedy, Hong Kong Telecom was an egregious sin against shareholder value. C&W’s divestiture of its majority stake in HKT was consummated by the Wallace/Robbins dynamo, with the gracious assistance of two ex-Baring bankers forming the London office of Greenhill & Co. You heard me right: C&W was and is happy to take very highly-remunerated advice about issues affecting its corporate survival from men who were directors of the company that spawned, encouraged and protected Nick Leeson.

If l’affaire PLD was petty larceny disguised by city cronyism, Hong Kong Telecom was grand theft of shareholders’ money. In August 2000 C&W sold its 54% controlling interest in HKT to the grandiosely-styled Pacific Century Cyberworks for stock. Let me repeat that: C&W divested its share of the leading operator in one of the fastest-growing markets in the world for paper in an internet huckster’s personal corporate plaything. And that’s not all. Singapore Telecom had offered cash. When the sale closed C&W received US$6.5 billion in cash and shares in PCCW which at the time had a market value of US$9.2 billion. The tech bubble burst almost immediately following the HKT sale and PCCW’s share price collapsed with it. Over the following nearly 3 years C&W tried everything to dump the PCCW shares. It exchanged part of them for stock in CMGI, a somewhat better-architected internet ponzi pyramid in the US, whose share price has since declined by 95%; it sold over a billion shares in a block trade in September 2000; it issued $1.5 billion of exchangeable bonds in April 2001, and finally sold its last holdings last month, the proceeds of which sale went partly to repay the bonds, which had failed to exchange. Over this period, the PCCW share price had declined by 70% and C&W netted roughly US$ 1.7 billion, taking a grand total of US$7.5 billion (not counting the CMGI stake, which today would be worth less than $20 million) out of shareholders’ pockets. Let’s put this in perspective. As of this writing, Cable & Wireless’s total market capitalization was US$4.1 billion.

What are we to make of this extraordinary concatenation of events? How are we to understand and explain the tumultuous, at times inept or even larcenous, behaviour of Cable & Wireless over the past ten years? What lessons can we draw about the structure of British companies and its financial markets? Where was the City and Fleet Street when C&W regimes were squandering shareholders’ money on misconceived strategic and financial transactions?

The truth is that Britain’s capital markets, investment institutions, corporate governance practices and regulatory superstructure are all gravely inadequate to nurture world-class companies. The equity market has shallow pockets; there is no corporate debt market worthy of the name. City institutional investors are unrealistically risk-averse and prefer to believe that high-dividend ‘utility’ returns are possible in the turbulent conditions of the early 21^st century. A prominent trans-Atlantic investment banker of my acquaintance believes that the Lapthorne/Caio retreat was necessary, if not justified, by the failure of the British capital markets to support the aggressive internet roll-up strategy upon which Cable & Wireless had embarked.

But don’t take my word for it. Competitiveness guru Michael Porter has recently published a report commissioned by the DTI on reasons for England’s lack of global competitiveness. Tactful to the marrow, he declines to lay the blame on antiquated attitudes and practices on the part of management and institutional investors, though plenty of hints in that direction are scattered throughout the text. The preamble notes:

What is needed is ‘upgrading of company strategies’ and in particular

Porter might have been speaking directly of Cable & Wireless’s Napoleonic retreat from the future. Like Napoleon’s Grande Armée, having failed to capture Moscow Cable & Wireless has been transformed from the envy of the world into a bedraggled wretch. The pity is, it didn’t have to turn out this way. Short-sighted lack of imagination, flair and calculated daring on the part of the City and of hidebound management, has cost England a third national champion.

The King is dead, dead without issue.