Britain's High Priest of Shareholder Value

Sir Ernest Harrison has risen from a humble £650-a-year accountant with Racal to become its multi-millionaire chairman.

by Jim Levi

Sir Ernest Harrison's origins were humble enough. The man who built Racal, the only big British electronics group founded since the war, was born in Hackney's Salvation Army Hospital in 1926.

eth.jpgHis father was a docker who worked for years under the notorious casual labour scheme and his mother, today still going strong at 93, supplemented this precarious income by making ties in a nearby "sweat shop" or, when Harrison and his sister were young - at a sewing machine at home.

Harrison remembers the family "moving up market to Holloway and then even more up market to Wood Green" where in 1942 he finished his grammar school education at 16.

A bit of a tearaway when evacuated at the start of the war, he was moved from family to family until he came under the charge of one lady, who said : "If I sorted myself out I could be a foreman when I grew up."

His parents wanted their only son to have a secure career as a civil servant but after consulting his headmaster Harrison chose accountancy. Service as a Fleet Air Arm pilot in Canada towards the end of the war interrupted training but he came home in 1947 and qualified three years later.

I wanted to get into industry but was turned down for a job with Smiths Industries in Cricklewood." he says. So he sought to broaden his experience at Touche Ross.

Within a year the partners of his old firm were in touch. One of their clients, a new consultancy founded by two ex-Plessey men, Ray Brown (later Sir Ray) and Calder Cunningham, was planning to move into manufacturing. It needed a qualified accountant to keep an eye on the costs. They offered Harrison £650 a year to start.

That was 41 years ago. Today he earns more than £400,000 as chairman and has made a £10 million personal fortune through his shares in Racal and Vodafone, the mobile phones company he demerged last year.

Few investors will resent his good fortune. He is Britain's high priest of shareholder value. Anyone who invested £1,000 in Racal when it went public in 1961 and then supported the two subsequent rights issues now has shares worth more that £1 million and has received nearly £100,000 in dividends over the years.

Last year's demerger of Vodafone, sparked originally by a threatened bid from Cable & Wireless, proved effective in unlocking shareholder value.

Now Harrison is preparing a repeat performance with the coming spin-off of Chubb Security. The demerger plan helped scotch last year's hostile bid from Williams Holdings.

Harrison enjoys his good fortune. He owns and breeds racehorses, and is a member of the Jockey Club. His best known horse, Cacoethes (Greek for "itch"), came third in the Derby three years ago. He lives with his second wife, Janie, on an exotic 15-acre spread in Surrey. The house is built in the style of a Spanish nobleman's hacienda.

He loves entertaining and the banqueting suite in his home can easily accommodate 70 guests. On winter Sundays the snooker room is the venue for an endless series of grudge contests between Harrison and his partner, Sir Eric Parker of Trafalgar House, against former Touche Ross senior partner Michael Blackburn and food broker Desmond Cracknell.

He is a fanatical gardener and the Harrison estate is rich in tropical vegetation. He even grows bananas.

Despite the honours, the wealth and success, Harrison remains a typical Cockney: shrewd, tough and abrasive but generous of spirit - a type you meet on every taxi rank, in every street market and on every football ground in London. If he were not busy with other commitments, his daughter, Deborah, who works on light entertainment programmes at the BBC, could probably fix him up with a bit part in East Enders.

Adviser Sir Michael Richardson of Smith New Court, says: "He has not been spoilt by his achievements and remains an intensely likeable man. When the bid from Williams came out last year he looked like a loser at the beginning. But his leadership turned the whole thing round. In another war I would love to serve in his battalion."

Tom O'Connell of Guardian Royal Exchange, which has been a backer since the start, says: "What I particularly like is his openness. If he is doing well he will tell you. If he is doing badly he will also tell you. He is a genuine industrialist, not an asset stripper and he is not afraid to spend money on technology where others only pay lip service to the idea."

Racal very nearly was not a success story. In the mid-1950's, it "nearly went bust" spending £40,000 to iron out the bugs in its first proprietary product a high frequency radio receiver.

Before then Racal had worked only as a subcontractor for the Government or for bigger companies such as Marconi.

It only survived, Harrison says, because the Government cancelled an order from its own agency and switched to Racal. The gamble on new technology paid off again and again in subsequent years.

Harrison is a sentimental man with vivid recollections of those early years. Appropriately, our interview took place at the Bracknell office to which Racal moved in 1954, enticed by a 99 year lease at four shillings and sixpence per sq ft - and no rent reviews. The plain panelled room with its robust and unfashionable furniture can have altered little in the intervening years.

"There were just 12 employees when I joined. I was lucky because Ray Brown trained me in so many jobs. I was the accountant, personnel director, the chief buyer and I also negotiated contracts." he says.

At the time he was between marriages and often did a seven-day week. He once worked three days continuously without sleep, keeping himself awake by chain smoking.

These days that astonishing stamina is applied as much to leisure as to business. It is said he once flew to Australia to watch a horse race and then flew straight back in time to watch the Cup Final. He is a dedicated Arsenal fan.

In the early hothouse atmosphere at Racal, Harrison honed the ideas he was to put into practice as boss. "The reason that first radio was so successful was because we were a small team working together," he says. "All of us knew the product inside out. There was close supervision and that critical factor - intensity of effort."

(This first radio Racal manufactured was the famous RA17 "Wadley High Frequency Radio Receiver" made under license to the South African Council for Scientific and Industrial Research - The RA17 was based on a "prototype" developed in Pinetown Natal by SMD later to become RACAL-SMD.)

As his business empire burgeoned Harrison strived to retain that small company culture. "If development activity becomes too large it becomes difficult to supervise," he says. "But if you assemble one team of engineers and give them just one product to work on they become one family. Do it that way and it will come out near enough on time and to cost. Try to develope 10 or 12 products at the same time and you can guarantee they will all run late and over budget."

"That is really why small companies start. They live, eat and sleep the one product and when it comes out it is super."

As Racal evolved so more and more autonomous units were set up. That structure enabled Harrison to respond quickly when new opportunities arose. Its logical out come should be yet more demergers from the mother ship in the years ahead.

A South African offshoot (RACAL-SMD) gave him the tactical radio which was to make Racal a byword of organic growth in the 1960's and 1970's.

When the cellular radio opportunity came in the early 1980's it was prompted by a former worker whom Harrison had "let go" on generous terms and set up as a consultant.

At 66 he shows no inclination to retire. "I think he will go on and on because he enjoys himself so much," predicts Parker.

Whatever he decides, the reins of power are already being passed to others. As at Vodafone, he will have no executive role at Chubb, and he has groomed David Elsbury to succeed him at Racal.

At the top of the organisation is a spirit of brotherhood and loyalty Harrison has fostered. When directors meet they invariably embrace in the continental manner.

Paradoxically Racal can never be a family company. The rule is no directors' children can join it. Two of Harrison's sons run their own companies and a third works for S G Warburg in Holland.

The rule begun by Ray Brown is good for the company and probably good for the children as well." he says. "It means everyone here knows they can get to the top of the organisation. David Elsbury used to come to work on a pushbike and started here straight from the RAF as a tester on a production line. What he has done anyone in Racal can do." Elsbury, incidentally, is another Racal millionaire.

Harrison is serious about business. He fixes you with penetrating eyes the colour of Courage bitter as he re-runs the arguments in his defence against Williams.

But humour is never far from the surface. When his veteran PR man, Ken Ward, invited him to a birthday party at his home, Harrison turned up with several hairy gatecrashers: the chimps from the Brooke Bond TV ads. It was an echo of an earlier zoological incident when Harrison had phoned Ward in the middle of the night and addressed him with the immortal words: "Ken, find me an elephant."

Note: All as per the original article in the newspaper but the " ETH Image" and "green highlighted" text and the "link" was added by DVL.