:00:03. > :00:09.collapse of Britain's biggest care home business. Just who paid the
:00:09. > :00:12.real price of the Southern Cross failure? Insiders speak out. They
:00:12. > :00:19.cared about their profit but they had forgotten the very heart of it
:00:19. > :00:24.is the residents. An inspector tells us why he took on the home
:00:24. > :00:26.care giant. People were sitting around for weeks and weeks with no
:00:26. > :00:32.effective heating, literally sitting in their chairs wrapped and
:00:32. > :00:38.swaddled in blankets. And the Government and relatives say it
:00:38. > :00:43.must never happen again. That is people's lives they are supposed to
:00:43. > :00:46.be looking after. To me, care should come before profit.
:00:46. > :00:56.Stories from the heart of North- East and Cumbria, this is Inside
:00:56. > :01:05.
:01:05. > :01:07.The Southern Cross, a beautiful constellation of stars seen in the
:01:07. > :01:10.Southern Hemisphere and the inspiration behind the Darlington-
:01:10. > :01:18.based company that has come to dominate the care sector in the
:01:18. > :01:28.last decade. Like any story told under the night time sky, this tale
:01:28. > :01:29.
:01:29. > :01:35.was the stuff of dreams, and They may not have sold their own
:01:35. > :01:38.grandmothers for a fast buck, but they certainly sold yours.
:01:38. > :01:41.Southern Cross has become a political hot potato. Tonight we
:01:41. > :01:43.turn our spotlight on how handful of people made millions from the
:01:43. > :01:46.from at a time when some, including inspectors, patients and Southern
:01:46. > :01:56.Cross staff, were raising questions about the quality of care of
:01:56. > :02:00.
:02:00. > :02:05.For years, managers have stayed quiet about the company's problems.
:02:05. > :02:09.Now in the wake of its collapse, the real story is emerging. Jude
:02:09. > :02:15.Goode have managed five homes for Southern Cross. It was a 60-bed
:02:15. > :02:20.unit and we only had one bath working for 60 residents. The
:02:20. > :02:23.requirement is to have one bath for every 80 residents. And Southern
:02:23. > :02:32.Cross knew that I only had one bath working. They continually failed to
:02:32. > :02:37.put the money in to get the baths going. In 2008, when she wrote her
:02:37. > :02:43.Christmas list, Jude was at the end of her tether. I would write e-
:02:43. > :02:45.mails. I would speak with people. It kept being pushed back, to the
:02:45. > :02:51.extent that eventually I wrote a Christmas Carol called, 'All We
:02:51. > :02:56.Want For Christmas Is A Few New Baths'. We did, the following year,
:02:56. > :03:01.finally get some new baths. Relatives have told us it was their
:03:01. > :03:07.loved ones feeling the impact. Hi, George? How you doing? George's mum,
:03:07. > :03:10.Kathleen, lived in a Southern Cross home in Newcastle. She had to go
:03:10. > :03:17.into hospital once, and the hospital pointed out that she
:03:17. > :03:21.hadn't been cleaned properly after she had been to the toilet. That
:03:21. > :03:26.apparently had been going on for a while. Buzzers - she'd be buzzing
:03:26. > :03:36.and buzzing and buzzing until eventually somebody came. But it
:03:36. > :03:37.
:03:37. > :03:41.She'd do anything for anybody. The grandchildren, especially, she
:03:41. > :03:47.lived for. Initially Marie Marsh's family thought she was just
:03:47. > :03:50.homesick after she moved into the Southern Cross home. But then when
:03:50. > :03:57.you observe properly and see what's going on, alarm bells started
:03:57. > :04:01.ringing. Marie had pressure sores on her feet and legs. Staff
:04:01. > :04:06.promised Brenda they were being treated. But in May 2008, Marie was
:04:06. > :04:09.admitted to hospital in agony. were called in on the Thursday to
:04:09. > :04:17.say that my mum had septicaemia poisoning, and that her organs were
:04:17. > :04:21.shutting down. A few days later, Marie died. You feel really guilty.
:04:21. > :04:26.I feel responsible for putting my mum in there. I feel like it's my
:04:26. > :04:29.fault that she passed away. investigation into Marie's care was
:04:29. > :04:32.launched by the police and the regulator, who inspected the home
:04:32. > :04:40.and asked for an immediate improvement. Southern Cross paid
:04:40. > :04:43.Brenda �7,500 but did not accept responsibility. It has taken me
:04:43. > :04:47.three years of fighting to get this far with Southern Cross, who we
:04:47. > :04:50.still will not admit liability for what they have done. Even though
:04:50. > :04:56.they paid out without prejudice, they won't admit that they were at
:04:56. > :05:02.So what has gone wrong for Southern Cross? Its beginnings were
:05:02. > :05:07.promising. It was set up by this man, John Moreton, in 1996. Within
:05:07. > :05:17.six years, he was running 140 homes. For industry watchers, it was a
:05:17. > :05:18.
:05:18. > :05:25.business of which he could be proud. Within the industry he had a
:05:25. > :05:28.reputation for being a very honest man and also a very caring man.
:05:28. > :05:33.Most people who go into this business do so because they have a
:05:33. > :05:39.desire to care for people. The big businesses, unfortunately, have
:05:39. > :05:46.lost that along the way. But John was certainly one of the earlier
:05:46. > :05:49.entrepreneurs who believed that care was as important as profit.
:05:50. > :05:54.With testimony like that, you would think Mr Moreton would be keen to
:05:54. > :05:57.tell us more about his successful firm. But even though we fixed up
:05:58. > :06:01.to talk to him twice, each time he has had had last minute change of
:06:01. > :06:08.heart. In fact, no one who has been in charge of this ill-fated company
:06:08. > :06:11.for the last 15 years, seems to want to talk about it. Perhaps that
:06:11. > :06:18.is because of the controversial with the company grew, making some
:06:18. > :06:21.people very rich. This is how it worked. Southern Cross made a
:06:21. > :06:26.profit from selling many of the care home buildings as property
:06:26. > :06:29.prices rose. It paid rent to the new owners. With the profit from
:06:29. > :06:33.the sales, Southern Cross bought more homes, but continued to
:06:33. > :06:36.operate the care side of the business. It's known in the trade
:06:36. > :06:41.as sale and leaseback, and initially it seemed the sky was the
:06:41. > :06:46.limit. Seven years after seizing the opportunity, Mr Moreton decided
:06:46. > :06:53.it was time to move on. He sold Southern Cross, the asking price,
:06:53. > :06:56.�80 million, of which he netted 25 million. You may think it was
:06:56. > :07:01.written in the stars. Southern Cross had created its first multi-
:07:01. > :07:11.millionaire. Mr Moreton told me his company was profitable and its
:07:11. > :07:12.
:07:12. > :07:17.The next chapter in the Southern Cross story may be familiar to
:07:17. > :07:22.football fans. Philip Scott led a management buyout backed by a
:07:22. > :07:25.German bank. He and another director, Graham Sizer, would go on
:07:25. > :07:32.to make so much money from Southern Cross, they bought a football
:07:32. > :07:39.stadium. This one. Unlike Darlington FC, theirs was to be a
:07:39. > :07:42.winning formula. For the next two years, Mr Scott, a
:07:42. > :07:44.former psychiatric nurse, Mr Sizer and the German bank, followed the
:07:44. > :07:47.same plan, buying more homes, selling them as property prices
:07:48. > :07:57.rose, and then paying rent while they ran the care side of the
:07:58. > :07:58.
:07:58. > :08:03.business. An ageing population meant there was a demand for their
:08:03. > :08:12.services. But analysts say they could detect a shift in the way the
:08:12. > :08:15.company was being run. They changed the face of the business. When John
:08:15. > :08:18.Moreton ran it, he ran it as a care business. When the new investors
:08:18. > :08:21.came in, the equity providers, they ran it as a business which regarded
:08:21. > :08:25.the clients as simply factors of production. You have to run it
:08:25. > :08:32.efficiently in order to be able to provide the end service to your
:08:32. > :08:35.client group. However, I am a little more old fashioned than that.
:08:35. > :08:38.I believe that any care business should concentrate on care first,
:08:38. > :08:45.and then look at the profitability second. Unfortunately, that did not
:08:45. > :08:49.happen. Strong words. Are they borne out by the residents'
:08:49. > :08:54.experience? My research has thrown up some worrying cases from this
:08:54. > :08:59.time, as the Southern Cross empire extended across the country.
:08:59. > :09:04.I got a phone call to say that she had a bleeding nose, and I went up.
:09:04. > :09:08.Then I went in a room. She had two black eyes. I did not even
:09:08. > :09:14.recognise her, her face was so swollen. Her arm was swollen to
:09:14. > :09:19.about three times the size. So I asked them, "What did the doctor
:09:19. > :09:23.say?" They had not even phoned the doctor. So I lifted my mum and took
:09:23. > :09:30.her to my car and took her to the local hospital. She had 36 bed
:09:30. > :09:34.sores. She had a fractured cheekbone. Looked like she had been
:09:34. > :09:38.hit by a car or something like that. I could not stop crying. Still yet
:09:38. > :09:44.to this day, I can't bear to look at the pictures. It is just so
:09:44. > :09:47.upsetting. Charlene's mum, Margaret, was in hospital for two months.
:09:47. > :09:53.Charlene asked the regulator to investigate the fall from her
:09:53. > :09:57.wheelchair that left her so badly injured. I have never once had an
:09:57. > :10:00.apology, not a phone call, nothing. Private care, there is no care
:10:00. > :10:07.there whatsoever. I think they're just interested in the money and
:10:07. > :10:11.that's it. It's a money-making business. The Care Commission
:10:11. > :10:14.upheld a complaint of negligence. And there are other cases. Southern
:10:14. > :10:20.Cross fined �200,000, 83-year-old Nikki Jones had died after falling
:10:20. > :10:23.out of a window in Oxford. In another case, an �80,000 fine after
:10:23. > :10:31.an elderly man left unattended, slipped in his seat and was
:10:31. > :10:39.strangled by his lap belt. But financially, the company was still
:10:39. > :10:46.sparkling. And attracting international interest. This man is
:10:46. > :10:50.rich, very rich. In 2007, he was earning a reported $1 million a day.
:10:50. > :10:55.Rod Stewart was booked to sing at his birthday party. Newspapers tell
:10:55. > :11:02.us he paid $20 million for his home in Manhattan, New York. And he was
:11:02. > :11:05.to be the next owner of Southern Cross. So how did New York
:11:05. > :11:10.billionaire Stephen Schwarzman come to control the destiny of a company
:11:10. > :11:12.that has its home in Darlington? In 2004, Southern Cross caught the eye
:11:12. > :11:18.of Mr Schwarzman and and his American venture capital firm,
:11:18. > :11:22.Blackstone. It has a reputation for snapping up good deals. The company
:11:23. > :11:27.bought the London Eye. When it comes to care homes, it had
:11:27. > :11:30.ambitions that stretched well beyond what even the eye can see.
:11:30. > :11:34.Over the next two years, Southern Cross's new owners bought up
:11:34. > :11:41.hundreds more care homes. Hardly any part of the country was
:11:41. > :11:47.unvisited by the company. They quickly decided, looking at the
:11:47. > :11:51.demographics of the industry, that there was huge scope for expansion.
:11:51. > :11:54.To them it looked like the bottomless well of demand. All they
:11:54. > :12:00.had to do was create the actual number of bed spaces to take
:12:00. > :12:03.advantage of it. As the firm grew, some were increasingly worried.
:12:03. > :12:08.Kevin Mansell was in charge of inspectors assessing care homes in
:12:08. > :12:12.East Anglia. One was where inspectors for a year or two had
:12:12. > :12:15.been saying something about how they ought to replace a boiler.
:12:15. > :12:17.boiler conked out in the middle of winter and people were sitting
:12:17. > :12:20.around for weeks and weeks with no effective heating, literally
:12:20. > :12:22.sitting in their chairs wrapped and swaddled in blankets. There were
:12:22. > :12:25.lots of individually very distressing failures. Obvious signs
:12:25. > :12:29.that this company was not well managed, did not invest. Yet their
:12:29. > :12:39.reputation in terms of the market, if you want to call it that, was
:12:39. > :12:53.
:12:53. > :12:55.Other inspectors were equally worried. We have obtained these
:12:55. > :13:00.hitherto undisclosed reports which bring together the concerns of
:13:00. > :13:04.inspectors from across the country. In effect, an annual health check
:13:04. > :13:12.on the Southern Cross empire. For three years, these reports
:13:13. > :13:18.highlight the same problems. "People who have dementia were
:13:18. > :13:20.generally poorly served." "While many care homes did meet the
:13:21. > :13:23.national minimum standards, there were those where inadequate numbers
:13:23. > :13:26.of toilet and bathroom facilities were available, not all call bells
:13:26. > :13:31.were functioning, and staff were carrying jugs of hot water to
:13:31. > :13:34.rooms." "There were discrepancies in the recording of administered
:13:34. > :13:39.medication, and medication running out, which may have put people at
:13:39. > :13:43.risk." "One service had a substantially higher number of
:13:43. > :13:49.service users falling. In one, service users were experiencing a
:13:49. > :13:55.shave from the same razor." And one recurring theme was very familiar
:13:55. > :14:02.to Kevin. We were aware of the chronic turnover of managers of
:14:02. > :14:09.homes, way above anybody else. We were aware of the external support
:14:09. > :14:15.to homes, the sort of managers one tier up, also being very unstable.
:14:15. > :14:19.Just a lot of unhappiness about the way the company was run. By now,
:14:19. > :14:23.Southern Cross was on a roll. Mr Scott and Mr Sizer were heading the
:14:23. > :14:27.board, answering now to the Americans. They were about to be
:14:27. > :14:31.joined by another player in the Southern Cross winners' row.
:14:31. > :14:37.William Colvin was well known to the Southern Cross team. He had
:14:37. > :14:40.been one of their major landlords. Southern Cross bought the business
:14:40. > :14:44.run by William Colvin. So in one move, Southern Cross expanded the
:14:44. > :14:51.number of homes it ran. In lots of cases it became its own landlord -
:14:51. > :14:56.what you might call a win win situation.
:14:56. > :15:04.In just a couple of years, Southern Cross had become the UK's biggest
:15:04. > :15:08.care provider. The model which they had adopted, particularly the
:15:08. > :15:12.concentration on the sale and leaseback, was being done in a
:15:12. > :15:18.fashion which was contrary to the recommendations of the Royal
:15:18. > :15:21.Institution of Chartered Surveyors and Government. It was a short
:15:21. > :15:26.sighted failure on the part of Government and wider society to
:15:26. > :15:28.realise that what they were doing was putting in place models that
:15:28. > :15:34.maximised their profit at the expense of the people who should
:15:35. > :15:39.have been cared for. Put simply, proffered came before people.
:15:39. > :15:43.wanted to talk to the American company watching Southern Cross
:15:44. > :15:49.expand whilst regulators were expressing concerns. But nobody
:15:49. > :15:59.from Blackstone would talk to was Taoiseach. It insisted the company
:15:59. > :16:10.
:16:10. > :16:15.was acutely focused on quality of Even as concerns grew for the
:16:15. > :16:23.inspectors, for the man at the top, the financial sparkles showed no
:16:23. > :16:27.sign of waning. Blackstone sold on the landlords side of the business.
:16:27. > :16:35.Effectively it lost on a ship of hundreds of care homes. The new
:16:35. > :16:39.landlords, the people who own this place, Harrods. And so plans were
:16:39. > :16:45.said in train for the biggest bonanza of them all. At flotation
:16:45. > :16:50.of Southern Cross on the stock market. Every company has to set
:16:50. > :16:55.out the risks to its business before flotation. This prospectus
:16:55. > :17:02.tells shareholders they stand to lose their money if fixed costs and
:17:02. > :17:08.rents rise faster than they can increase their fees. When Southern
:17:08. > :17:14.Cross was floated on the London Stock Exchange in 2006, it was
:17:14. > :17:19.valued at �425 million. That made overnight paper millionaires of its
:17:19. > :17:26.directors. 12 months later, Stephen Schwartz man and Blackstone sold
:17:26. > :17:30.the rest of its shares for �600 million, putting the American in
:17:30. > :17:40.poll position on Southern Cross's winners role. Blackstone told us it
:17:40. > :17:41.
:17:41. > :17:46.did not profit from stripping There was one shareholder was not
:17:46. > :17:50.quite so pleased. After watching declining standards in local care
:17:50. > :17:56.homes, Kevin's fellow inspectors bought him a surprise retirement
:17:56. > :18:01.gift, a share in Southern Cross. Once they had done it I was morally
:18:01. > :18:06.obliged to do something. He wrote to the team at the top of Southern
:18:06. > :18:14.Cross. Southern Cross is in the business of providing personal care
:18:14. > :18:19.to vulnerable people, not shipping on transport, choir macro or gas.
:18:19. > :18:23.They were congratulating themselves on all sorts of financial
:18:24. > :18:27.objectives. They were making claims to be providing good quality
:18:27. > :18:32.services, but there was hardly any serious mention of how they would
:18:32. > :18:37.achieve quality. Kevin's next move was to attend the annual
:18:37. > :18:44.shareholders' meeting at his plush London Office. He got a very
:18:45. > :18:52.personal welcome. They made a beeline for me. They told me
:18:52. > :18:55.everything was under control. the meantime, there was a big
:18:55. > :19:05.payout in line for the men at the top when they cashed in their
:19:05. > :19:12.shares. Philip Scott became chief executive. He hit the jackpot, and
:19:12. > :19:18.making �11.1 million. William Colvin held the position of chief
:19:18. > :19:24.executive for nine months. He sold his shares for �6.6 million. Graham
:19:24. > :19:30.Sizer made at cool �7.8 million. And group operations director John
:19:30. > :19:35.Murphy made �10.1 million. Some analysts wonder why the men chose
:19:35. > :19:39.to sell large amounts of their shares as soon as Stock Exchange
:19:39. > :19:44.rules permitted after the flotation. Did they realise that Southern
:19:44. > :19:49.Cross was facing a nasty problem? Legally-binding rising rents and a
:19:49. > :19:55.declining income from local authorities. He usually it's one of
:19:55. > :20:00.the danger signs when directors start selling substantial portions
:20:00. > :20:05.of share holdings. A month after casting end, it Phillips got and
:20:05. > :20:10.Graham Sizer left the company. For them, perfect timing. Six months
:20:10. > :20:18.later, the company issued a profit warning, saying it had breached its
:20:18. > :20:23.banking covenants. Its share price tumbled by 85%. Within months,
:20:23. > :20:29.William Holden was gone, too. Those deals have left the nasty taste for
:20:29. > :20:36.some. Look at what private equity from Southern Cross did to our care
:20:36. > :20:42.homes. Stripping assets for a quick buck. Putting tens of thousands of
:20:42. > :20:46.elderly people like they were commodities. -- treating. I wanted
:20:46. > :20:52.to talk to the directors who had done so well out of Southern Cross.
:20:52. > :21:02.But they did not want to talk to me. A spokesman for Philip Scott said
:21:02. > :21:20.
:21:20. > :21:30.Mr Scott's spokesman said he had sold his share -- shares as a
:21:30. > :21:31.
:21:31. > :21:35.result of changes in the law. William Colvin, one-time chairman
:21:35. > :21:45.and chief executive, and former or group operations director John
:21:45. > :21:58.
:21:58. > :22:01.Murphy refused to answer my He said Southern Cross would have
:22:01. > :22:11.faced problems in an economic downturn however it had been
:22:11. > :22:16.
:22:16. > :22:20.financed. He insisted care was It was left to a new group of
:22:20. > :22:25.directors to manage the company as it faced financial crisis. When
:22:25. > :22:31.Inside Out reported on cases of but let, a senior manager denied
:22:31. > :22:36.patients were paying the price. homes are not understand it. We
:22:36. > :22:39.have staffing in all of our care homes. They are all resourced in a
:22:39. > :22:46.way they can deliver appropriate care to the people who live there.
:22:46. > :22:50.The vast majority of them do that. We have �8 million in the fabric of
:22:50. > :22:57.our buildings in the north-east of England.
:22:57. > :23:03.At one of our management meetings, a senior management said they
:23:03. > :23:07.wanted us to be the most profitable region of Southern Cross. That
:23:07. > :23:12.clearly divorce might at clue as to what the agenda was. The agenda was
:23:12. > :23:18.to make as much profit as possible. The firm was trying to get its
:23:18. > :23:26.costs down with rents are rising. We used to get biscuits with 30 in
:23:26. > :23:33.the morning and afternoon. They would come around with a box. Then
:23:33. > :23:41.we could only have two biscuits. On the floor where there were 20 rooms,
:23:41. > :23:45.they would put 40 biscuits on a plate. With little money, important
:23:45. > :23:50.maintenance was ignored. I have obtained this paperwork. Repeatedly
:23:50. > :23:55.it shows problems with the heating and hot water. In one room the
:23:55. > :24:00.boiler was reported as 49 times in eight months. Managers say the
:24:01. > :24:09.pressure became intolerable. were seen as, disease you could
:24:09. > :24:13.move about. -- commodities you could just move about. They did not
:24:13. > :24:17.want the local authority on their back. Things will go wrong. We're
:24:17. > :24:22.dealing with human beings. Sometimes things do not go
:24:22. > :24:25.according to as we would like them too. That should not result in a
:24:25. > :24:31.home being in crisis. Within a Southern Cross it seemed to be
:24:31. > :24:36.quite frequent. George was determined to improve standards at
:24:36. > :24:44.his mother's home. He wrote to the new chief executive. What was the
:24:44. > :24:48.reaction when you send the letter? I did not get a reply. That was
:24:48. > :24:55.Southern Cross. It brought it home to me that it was a total waste of
:24:55. > :24:59.time. If you write to the very head man, at least you expect a letter
:24:59. > :25:09.thanking you for your letter. Even if he then turns around and says,
:25:09. > :25:24.
:25:24. > :25:30.get lost. Mr Bock and declined to Southern Cross... Southern Cross
:25:30. > :25:35.may need to polite of running its homes. -- may need to pull out of
:25:35. > :25:39.running. Finally this summer, after begging for more time to pay the
:25:39. > :25:45.rent, Southern Cross were forced to throw in the towel. The company
:25:45. > :25:51.which had been allowed to become the biggest care home operator, was
:25:51. > :26:00.forced to hand over the running of the homes to landlords. Effectively
:26:00. > :26:04.this marks the end of Southern The question many people will be
:26:04. > :26:10.asking is, how could something so important as the care of vulnerable
:26:10. > :26:15.people implode like this? Who is to blame? Should the company have been
:26:15. > :26:18.based on the sale and leaseback model? And why did nobody
:26:19. > :26:28.intervened to ask whether this company was simply becoming too
:26:29. > :26:32.
:26:32. > :26:36.What lessons have been learnt? thing about the business model
:26:36. > :26:40.chosen is that it was a business model only ever fit for a boom
:26:40. > :26:43.times. There was always going to be a bust. That should have been
:26:43. > :26:47.anticipated. This model should never have been accepted in the
:26:48. > :26:52.first place. We need to make sure we learn the lessons. I am
:26:52. > :26:57.determined we do. I have said these lessons out in the white paper on
:26:57. > :27:03.social care. Where are the men for whom Southern Cross was far from a
:27:03. > :27:07.financial disaster? Stephen Schwartz man, they had a Blackstone,
:27:07. > :27:13.is reportedly considering moving to London to boost his firm's
:27:13. > :27:22.investment in Europe and Asia. We Ian Colvin, who made �6.6 million,
:27:22. > :27:29.is now the trustee of a charity. -- William. John Murphy has retired.
:27:29. > :27:33.Graham Sizer is still involved with the firm. He owns the leases on
:27:33. > :27:39.five Southern Cross properties. He is now running the care homes
:27:39. > :27:47.himself. And Philip Scott is also still in the care business. He
:27:47. > :27:51.works as chief executive of the Priory group. They saw it as a
:27:51. > :27:57.never ending gravy-train. But they were sufficiently astute to realise
:27:57. > :28:02.that never ending Grady trains do end. They therefore had a programme
:28:02. > :28:05.of disposal which they would target. As soon as they could achieve their
:28:05. > :28:11.desired level of profitability, they would exit. Which is what they
:28:11. > :28:19.did. That is people's lives there are
:28:19. > :28:27.supposed to be looking after. To me, care should come before profit.
:28:27. > :28:31.These places are called care homes. Care? No way. They cared about
:28:31. > :28:35.their profits but they had forgotten that at the very heart of
:28:35. > :28:40.it is the residents. If we do not care about the residents, how can