Purplebricks, PURP, Hiring Discharged Bankrupt As CEO Might Not Be Popular Idea

Purplebricks (LON: PURP) shares haven’t done well for anyone other than short sellers in some time now. Too many different things have hit the company over recent months and years. This latest problem appears not to have moved the Purplebricks share price, but it’s not obviously a good sign either.

Purplebricks is on AIM, which means that all board appointments must be approved by the Nomad advisor. OK, but the problem here is that the new CEO, Helena Marston, is a discharged bankrupt. This is what is causing the delays to the due diligence checks as required. There’s nothing wrong with hiring a discharged bankrupt as CEO, of course, in certain more entrepreneurial climes it might even be seen as a badge of honour. But it might not be taken as an entirely good look on the London Stock Market.

This just being the latest addition to the varied problems that have been facing Purplebricks. One was getting the paperwork wrong on lettings. Trivial in and of itself, but the way the law is written it leads to potentially vast compensation payments. Quite how much that is all going to be is a matter of conjecture – Purplebricks has been saying it’s rather lower than the Daily Telegraph has been saying it might be.

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But aside from errors like that, there’s also the entire structure of the company to ponder. The essay into the American market didn’t work, which was something of a surprise to many. The commission rate there is so vast (6% is normal enough) that a fixed price agency might have been thought to do well. It didn’t.

Then there was also that idea of the last CEO. Which was to take an agency entirely staffed by commission only people and change over to a salaried basis. That might be a good decision, the jury’s still out there, but it’ll mean, over time, an almost complete turnover of staff. Those attracted to commission-only employment tend not to be those interested in salaried and vice versa too.

Which is really what is perceived as being the Purplebricks problem. Yes, the idea of fixed-price agency has its merits. But so much has been done to change the structure underneath that model that we’re best off thinking about it as an entirely new company. One that, of course, needs to prove itself and its structure all over again.

On the assumption that this model is in fact worthwhile – many models illuminate a part of reality of course, few all of it – as a method of analysis, then this gives us our metric for judging the future. Purplebricks chares will start to move once the company manages to prove that its new structure goes back to delivering the old results of growth and profits.