David Conn: Shepherd and Hall prosper in spite of club's losses

Sir John Hall, the property developer who bought Newcastle United for around £3m between 1989 and 1992, promising to build it into a rallying point for the North-east, said at the peak of the hype: "The Geordie nation – that's what we're fighting for! London's the enemy! You exploit us, you use us."

So, with qualification for the second stage of the Champions' League thrillingly secured via a victory over Feyenoord this week, what more appropriate venue for Newcastle's Annual General Meeting on Monday than Merchant Taylors Hall, Threadneedle Street, London EC2? Newcastle's current chairman, Freddy Shepherd, will stand in the quintessential City of London venue, aglow with Euro-triumph, to list the club's achievements: finishing fourth in the Premiership last season, backing the manager, Bobby Robson, with cash for players, completing a new first-team training complex and nearing completion of an academy.

The club increased income by nearly a third to £70.9m but after player trading announced an overall loss of £3.1m. Newcastle are also involved in a project no self-respecting Premier League club is currently without: commercial expansion into China and the Far East. "A year of notable progress both on and off the pitch," Shepherd said in Newcastle's annual report. A Newcastle spokesman said most AGMs are held in Newcastle but this one is being held in London "for the benefit of institutional shareholders and to stimulate interest in Newcastle's shares". However, the 9.30 London start is likely to mean that few Geordie fans and small shareholders will be there to query some curious nuggets in the report's small print.

Shepherd himself enjoyed a year of "notable progress" in his own pay packet: his basic salary swelled from £75,000 the previous year to £330,000, an increase of 440 per cent. He was also paid a bonus of £250,000, awarded by the board – which he chaired. With other benefits, his overall package totalled £591,639. A spokesman for Newcastle said this could be justified because it was "on a par" with senior directors at Manchester United, Liverpool and Arsenal. This is sadly true, but Shepherd is also an executive director of Shepherd Offshore, the company he owns and runs with his brother, Bruce, which, according to the latest accounts, paid him £389,000.

The Shepherds, who own 21 per cent of Newcastle mostly through their company, made a further £900,000 out of Newcastle as their share of a £4.5m dividend which has been declared, controversially because Newcastle made a loss. Nearly £2m of this dividend will be paid to the Hall family, who still own 43.6 per cent of Newcastle, held by Sir John and the target of many Geordie fans' odium, his son, Douglas. Top of the list of questions fans would like to ask if they could get to Threadneedle Street concerns the payment to Douglas Hall of £524,257 last year, including a £200,000 bonus. This, according to the accounts, was for work done for a subsidiary company, Newcastle United Football Club (International), which has been registered in the offshore tax haven of Gibraltar.

The club has said that this subsidiary is involved in expanding Newcastle's "brand" overseas, but it is difficult to see why Newcastle need to do that through Gibraltar. Hall has told journalists he has become a tax exile from the UK, allowed to spend only 90 nights in the country. Salaries paid by UK companies are subject to tax wherever an employee lives, but here Newcastle United Football Club (International) are paying Hall via Gibraltar, a tax haven used by many British expats living in luxury on the costas of southern Spain.

The bonuses, like the salaries, were awarded by the board – which comprises the two Shepherd brothers themselves, Douglas Hall and Russell Jones, a long-term director of the Hall family's property company, Cameron Hall Developments. The only other director, appointed in July and named in the annual report as the sole independent director, is Timothy Revill, a tax accountant based in Gibraltar, who has been described in Gibraltar press reports as Hall's local "financial assessor".

Newcastle admit in their annual report that the lack of independence on their board fails to comply with the Financial Services Authority's Code of Best Practice for Stock Market companies, as does the absence of an independent remuneration committee to decide directors' salaries. They are also failing to follow best practice relating to directors' bonuses. The FSA's rule 12.43(a) requires a company which has not complied with the Code to "give reasons for any non-compliance", but Newcastle's annual report fails to explain these deficiencies.

Colin Whittle, a Newcastle supporter and shareholder, solicitor and contributor to the True Faith fanzine, said fans are "on an absolute high" after Wednesday's heroics in Rotterdam, but still have serious concerns about the running of the club: "The directors' pay packets simply look excessive, and it's very difficult to see how they can justify paying a dividend. But I can reluctantly accept the money Shepherd is making, because he's clearly there running the club, which is steadily improving. But the salary and bonus to Hall are mysteries. I cannot see what he has done to justify it."

Sir John Hall came to the bitter battle to buy Newcastle from its former patrician owner, Gordon McKeag, over a decade ago, fresh from making his fortune and name building the Gateshead MetroCentre, half of which he sold off to the Church of England in 1987. Sir John, who constantly professed himself an "arch Thatcherite", was knighted under the Tories in 1991 and later appointed a Millennium Commissioner and Governor of the Bank of England.

His rhetoric for Newcastle United promised to make the club a sporting focus for regeneration of the North-east, "marketing the region to the world". Fired by Kevin Keegan's charismatic management, the club captured the Geordie imagination and roared up football's hierarchy. Then in 1997, the Halls floated Newcastle on the Stock Exchange, mushrooming their £3m investment to, on paper, £102m. At the time, Sir John told Total Football magazine: "We chairmen have to be responsible. We take money out of our communities; we've got to put something back. I hope that pure greed does not take over and ruin everything."

Sir John retired soon afterwards and now reportedly spends most of his time in Marbella. He passed his interests in both Cameron Hall and Newcastle to Douglas Hall. In 1998 Douglas and Freddy Shepherd resigned as Newcastle directors after they were exposed by the News of the World in a Spanish lap-dancing bar making derogatory remarks about Newcastle fans and women. Shepherd later returned as a director, Hall as a non-executive director.

More recently, Douglas Hall has presided over a calamitous plunge in Cameron Hall's fortunes. The company was late filing its accounts for 2000, finally doing so only in July this year. The once mighty company announced a loss of £91.4m and stated they were selling properties to reduce debts. Hall was nevertheless paid £327,000 as a director and £250,000 in rent for a property. He also bought five cars from Cameron Hall for a total of £125,000, while selling one to the company for £200,000. "These were independently valued prior to the transactions," the company stated.

The Halls did sell 9.8 per cent of their Newcastle shares, for £16m to ntl in 1998-99, but Douglas Hall's Gibraltar connection has come as something of a surprise. In January, the Gibraltar Chronicle reported that Hall, accompanied by Timothy Revill, his "locally based financial assessor", had visited La Linea, a scruffy Spanish frontier town close to Gibraltar, and that Newcastle were considering buying the struggling local Third Division club, Balompedica Linense. Nothing came of that. Then Newcastle's accounts revealed the £524,257 payment made to Hall through the Gibraltar-based subsidiary.

Nobody from Newcastle was prepared to respond before the AGM to my questions about the Gibraltar company: why it is registered on the Rock and what Douglas Hall does for it. Shepherd, Hall and Timothy Revill all declined to comment.

Colin Whittle said supporters wanted answers: "We want to know what on earth this Gibraltar company is for, what work Douglas Hall is doing for his half a million pounds. We want the directors to justify their salaries and bonuses and the payment of dividends. Like many fans who are shareholders, I didn't buy shares wanting to make money and I've never cashed any dividend cheque I've been sent because I want the money to stay in the club. I also want to know why we don't comply with codes of best practice, which are there to ensure clubs are well run."

He will not be there, though, to put his questions, and at 9:30 on Monday 18 Nov few others are expected at Threadneedle Street, EC2, to listen to the football bosses of the "Geordie Nation".

davidconn@independent.co.uk

Additional reporting by Elizabeth Nash