What can we learn about investment from the ‘forced hugging scandal’ of Ted Baker?

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What can we learn about investment from the ‘forced hugging scandal’ of Ted Baker?

Cong Minh Nguyen



On Monday, Ted Baker’s share price dropped significantly by 13 percent as the City was digesting the luxury retail company’s harassment allegations around Ray Kelvin, the CEO. Such scenario highlighted the risk of investing in companies being strongly associated with one person regardless of his or her talents.

“… a car journey from the office near Oxford Street to the Tottenham Hotspur ground on White Hart Lane. Ray and I were both going to the match (with different people) so he offered me a lift. For much of the journey he talked to me in detail about his sex life. It was one of the most uncomfortable experiences of my career, but it was just “Ray’s way” and as such I didn’t tell any senior management about it.”1

(The Guardian)

This is a true story shared by a PR student working for Ray Kelvin at Ted Baker. The public outrage of the CEO’s sexual innuendos has been such a hot potato in the retail industry this week. Accordingly, the website ‘organise.org.uk’ published a petition being signed by more than 2,500 people to call Ted Baker to “put an end to the awkward ‘hugging’ policy’” being implemented by its scandalous CEO2. In particular, 50 incidents of harassment were recorded that Mr. Kevin had asked female staffs to sit on his knee and massage necks or even ears. Such behaviour has been remained unchallenged by the company’s human resources department2.

Initially, the company attempted to justify its CEO’s actions, saying: “Ray greets many people he meets with a hug – be it a shareholder, investor, supplier, partner, customer or colleague.” as if it were a part of the company’s friendly culture but “absolutely not insisted upon”. Clearly, this is in no way a satisfying answer for its customers, whose loyalties to the brand are being severely harmed. Such worries are also of investors, whose confidence in the company is damaged. This is signalled by the 13% drop in share prices of Ted Baker Co. by midday on Sunday2.

Following this, the company then issued a statement to confirm that an independent committee of non-executive directors, including two males and two females, had been appointed to give appropriate response after a report of an external investigator on the allegations being conducted. In the meantime, Mr Kelvin will not step down as CEO while the claim is being investigated2.  This fact is important at least in the short-run to calm down investors, who are concerning about the possibility of Mr Kelvin being forced to quit his own company. This is because Ted Baker is such a special case that “Ray Kelvin is not a hired hand but he created this business from scratch”, said John Stevenson, analyst at Peel Hunt2. Even Kelvin did regard to himself as “the closest man to Ted”2. Importantly, the CEO still owns a third of the company’s share. All of this can be interpreted that dismissing him implies losing “the man who built the company into the success it is – and you have a potentially big seller of the shares, which will impact the share price”3.

Tom Stevenson, an investment director at Fidelity Personal Investing’s share dealing service, said Ted Baker illustrates the risks of investing in companies that are so closely associated with one person, however talented, especially when they own a third of the company. The shares have fallen so far so fast because investors fear that without Kelvin the company will be less able to counter the headwinds blowing through the beleaguered high street” .4 The BBC has shown that Ted Baker is not a peculiar case. Superdry suffered from a 50% collapse in its shares’ prices when its founder and also major shareholder Julian Dunkerton left the company and sold his holding.3 The same thing happened to the advertising giant WPP whose shares fell by 20% because the founder, Sir Martin Sorrell, exited. The lesson is that with these kind of companies, the institutional identity cannot be distinct from its founder3. Therefore, investing into these companies requires significant consideration about the individual as a qualitative analysis of characteristics rather than simply quantitative data of the company’s performance.



[1]Roffe, E. (2018). I worked for Ray Kelvin at Ted Baker. I wish I’d stood up to him | Erica Roffe. [online] the Guardian. Available at: https://www.theguardian.com/commentisfree/2018/dec/06/ray-kelvin-ted-baker-employees [Accessed 6 Dec. 2018].

[2]Ft.com. (2018). Ted Baker falls 13% after ‘hugging’ claims | Financial Times. [online] Available at: https://www.ft.com/content/1a96f840-f6df-11e8-8b7c-6fa24bd5409c [Accessed 6 Dec. 2018].

[3]BBC News. (2018). Ted Baker reveals details of hugging probe. [online] Available at: https://www.bbc.co.uk/news/business-46454307 [Accessed 6 Dec. 2018].

[4]Butler, S. and Kollewe, J. (2018). Ted Baker boss to stay on as law firm starts ‘forced hugging’ inquiry. [online] the Guardian. Available at: https://www.theguardian.com/business/2018/dec/06/ted-baker-law-firm-investigate-forced-hugging-allegations-ray-kelvin [Accessed 6 Dec. 2018].

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