07/11/2011 Inside Out North East and Cumbria

collapse of Britain's biggest care home business. Just who paid the

real price of the Southern Cross failure? Insiders speak out. They

cared about their profit but they had forgotten the very heart of it

is the residents. An inspector tells us why he took on the home

care giant. People were sitting around for weeks and weeks with no

effective heating, literally sitting in their chairs wrapped and

swaddled in blankets. And the Government and relatives say it

must never happen again. That is people's lives they are supposed to

be looking after. To me, care should come before profit.

Stories from the heart of North- East and Cumbria, this is Inside

The Southern Cross, a beautiful constellation of stars seen in the

Southern Hemisphere and the inspiration behind the Darlington-

based company that has come to dominate the care sector in the

last decade. Like any story told under the night time sky, this tale

was the stuff of dreams, and They may not have sold their own

grandmothers for a fast buck, but they certainly sold yours.

Southern Cross has become a political hot potato. Tonight we

turn our spotlight on how handful of people made millions from the

from at a time when some, including inspectors, patients and Southern

Cross staff, were raising questions about the quality of care of

For years, managers have stayed quiet about the company's problems.

Now in the wake of its collapse, the real story is emerging. Jude

Goode have managed five homes for Southern Cross. It was a 60-bed

unit and we only had one bath working for 60 residents. The

requirement is to have one bath for every 80 residents. And Southern

Cross knew that I only had one bath working. They continually failed to

put the money in to get the baths going. In 2008, when she wrote her

Christmas list, Jude was at the end of her tether. I would write e-

mails. I would speak with people. It kept being pushed back, to the

extent that eventually I wrote a Christmas Carol called, 'All We

Want For Christmas Is A Few New Baths'. We did, the following year,

finally get some new baths. Relatives have told us it was their

loved ones feeling the impact. Hi, George? How you doing? George's mum,

Kathleen, lived in a Southern Cross home in Newcastle. She had to go

into hospital once, and the hospital pointed out that she

hadn't been cleaned properly after she had been to the toilet. That

apparently had been going on for a while. Buzzers - she'd be buzzing

and buzzing and buzzing until eventually somebody came. But it

She'd do anything for anybody. The grandchildren, especially, she

lived for. Initially Marie Marsh's family thought she was just

homesick after she moved into the Southern Cross home. But then when

you observe properly and see what's going on, alarm bells started

ringing. Marie had pressure sores on her feet and legs. Staff

promised Brenda they were being treated. But in May 2008, Marie was

admitted to hospital in agony. were called in on the Thursday to

say that my mum had septicaemia poisoning, and that her organs were

shutting down. A few days later, Marie died. You feel really guilty.

I feel responsible for putting my mum in there. I feel like it's my

fault that she passed away. investigation into Marie's care was

launched by the police and the regulator, who inspected the home

and asked for an immediate improvement. Southern Cross paid

Brenda �7,500 but did not accept responsibility. It has taken me

three years of fighting to get this far with Southern Cross, who we

still will not admit liability for what they have done. Even though

they paid out without prejudice, they won't admit that they were at

So what has gone wrong for Southern Cross? Its beginnings were

promising. It was set up by this man, John Moreton, in 1996. Within

six years, he was running 140 homes. For industry watchers, it was a

business of which he could be proud. Within the industry he had a

reputation for being a very honest man and also a very caring man.

Most people who go into this business do so because they have a

desire to care for people. The big businesses, unfortunately, have

lost that along the way. But John was certainly one of the earlier

entrepreneurs who believed that care was as important as profit.

With testimony like that, you would think Mr Moreton would be keen to

tell us more about his successful firm. But even though we fixed up

to talk to him twice, each time he has had had last minute change of

heart. In fact, no one who has been in charge of this ill-fated company

for the last 15 years, seems to want to talk about it. Perhaps that

is because of the controversial with the company grew, making some

people very rich. This is how it worked. Southern Cross made a

profit from selling many of the care home buildings as property

prices rose. It paid rent to the new owners. With the profit from

the sales, Southern Cross bought more homes, but continued to

operate the care side of the business. It's known in the trade

as sale and leaseback, and initially it seemed the sky was the

limit. Seven years after seizing the opportunity, Mr Moreton decided

it was time to move on. He sold Southern Cross, the asking price,

�80 million, of which he netted 25 million. You may think it was

written in the stars. Southern Cross had created its first multi-

millionaire. Mr Moreton told me his company was profitable and its

The next chapter in the Southern Cross story may be familiar to

football fans. Philip Scott led a management buyout backed by a

German bank. He and another director, Graham Sizer, would go on

to make so much money from Southern Cross, they bought a football

stadium. This one. Unlike Darlington FC, theirs was to be a

winning formula. For the next two years, Mr Scott, a

former psychiatric nurse, Mr Sizer and the German bank, followed the

same plan, buying more homes, selling them as property prices

rose, and then paying rent while they ran the care side of the

business. An ageing population meant there was a demand for their

services. But analysts say they could detect a shift in the way the

company was being run. They changed the face of the business. When John

Moreton ran it, he ran it as a care business. When the new investors

came in, the equity providers, they ran it as a business which regarded

the clients as simply factors of production. You have to run it

efficiently in order to be able to provide the end service to your

client group. However, I am a little more old fashioned than that.

I believe that any care business should concentrate on care first,

and then look at the profitability second. Unfortunately, that did not

happen. Strong words. Are they borne out by the residents'

experience? My research has thrown up some worrying cases from this

time, as the Southern Cross empire extended across the country.

I got a phone call to say that she had a bleeding nose, and I went up.

Then I went in a room. She had two black eyes. I did not even

recognise her, her face was so swollen. Her arm was swollen to

about three times the size. So I asked them, "What did the doctor

say?" They had not even phoned the doctor. So I lifted my mum and took

her to my car and took her to the local hospital. She had 36 bed

sores. She had a fractured cheekbone. Looked like she had been

hit by a car or something like that. I could not stop crying. Still yet

to this day, I can't bear to look at the pictures. It is just so

upsetting. Charlene's mum, Margaret, was in hospital for two months.

Charlene asked the regulator to investigate the fall from her

wheelchair that left her so badly injured. I have never once had an

apology, not a phone call, nothing. Private care, there is no care

there whatsoever. I think they're just interested in the money and

that's it. It's a money-making business. The Care Commission

upheld a complaint of negligence. And there are other cases. Southern

Cross fined �200,000, 83-year-old Nikki Jones had died after falling

out of a window in Oxford. In another case, an �80,000 fine after

an elderly man left unattended, slipped in his seat and was

strangled by his lap belt. But financially, the company was still

sparkling. And attracting international interest. This man is

rich, very rich. In 2007, he was earning a reported $1 million a day.

Rod Stewart was booked to sing at his birthday party. Newspapers tell

us he paid $20 million for his home in Manhattan, New York. And he was

to be the next owner of Southern Cross. So how did New York

billionaire Stephen Schwarzman come to control the destiny of a company

that has its home in Darlington? In 2004, Southern Cross caught the eye

of Mr Schwarzman and and his American venture capital firm,

Blackstone. It has a reputation for snapping up good deals. The company

bought the London Eye. When it comes to care homes, it had

ambitions that stretched well beyond what even the eye can see.

Over the next two years, Southern Cross's new owners bought up

hundreds more care homes. Hardly any part of the country was

unvisited by the company. They quickly decided, looking at the

demographics of the industry, that there was huge scope for expansion.

To them it looked like the bottomless well of demand. All they

had to do was create the actual number of bed spaces to take

advantage of it. As the firm grew, some were increasingly worried.

Kevin Mansell was in charge of inspectors assessing care homes in

East Anglia. One was where inspectors for a year or two had

been saying something about how they ought to replace a boiler.

boiler conked out in the middle of winter and people were sitting

around for weeks and weeks with no effective heating, literally

sitting in their chairs wrapped and swaddled in blankets. There were

lots of individually very distressing failures. Obvious signs

that this company was not well managed, did not invest. Yet their

reputation in terms of the market, if you want to call it that, was

Other inspectors were equally worried. We have obtained these

hitherto undisclosed reports which bring together the concerns of

inspectors from across the country. In effect, an annual health check

on the Southern Cross empire. For three years, these reports

highlight the same problems. "People who have dementia were

generally poorly served." "While many care homes did meet the

national minimum standards, there were those where inadequate numbers

of toilet and bathroom facilities were available, not all call bells

were functioning, and staff were carrying jugs of hot water to

rooms." "There were discrepancies in the recording of administered

medication, and medication running out, which may have put people at

risk." "One service had a substantially higher number of

service users falling. In one, service users were experiencing a

shave from the same razor." And one recurring theme was very familiar

to Kevin. We were aware of the chronic turnover of managers of

homes, way above anybody else. We were aware of the external support

to homes, the sort of managers one tier up, also being very unstable.

Just a lot of unhappiness about the way the company was run. By now,

Southern Cross was on a roll. Mr Scott and Mr Sizer were heading the

board, answering now to the Americans. They were about to be

joined by another player in the Southern Cross winners' row.

William Colvin was well known to the Southern Cross team. He had

been one of their major landlords. Southern Cross bought the business

run by William Colvin. So in one move, Southern Cross expanded the

number of homes it ran. In lots of cases it became its own landlord -

what you might call a win win situation.

In just a couple of years, Southern Cross had become the UK's biggest

care provider. The model which they had adopted, particularly the

concentration on the sale and leaseback, was being done in a

fashion which was contrary to the recommendations of the Royal

Institution of Chartered Surveyors and Government. It was a short

sighted failure on the part of Government and wider society to

realise that what they were doing was putting in place models that

maximised their profit at the expense of the people who should

have been cared for. Put simply, proffered came before people.

wanted to talk to the American company watching Southern Cross

expand whilst regulators were expressing concerns. But nobody

from Blackstone would talk to was Taoiseach. It insisted the company

was acutely focused on quality of Even as concerns grew for the

inspectors, for the man at the top, the financial sparkles showed no

sign of waning. Blackstone sold on the landlords side of the business.

Effectively it lost on a ship of hundreds of care homes. The new

landlords, the people who own this place, Harrods. And so plans were

said in train for the biggest bonanza of them all. At flotation

of Southern Cross on the stock market. Every company has to set

out the risks to its business before flotation. This prospectus

tells shareholders they stand to lose their money if fixed costs and

rents rise faster than they can increase their fees. When Southern

Cross was floated on the London Stock Exchange in 2006, it was

valued at �425 million. That made overnight paper millionaires of its

directors. 12 months later, Stephen Schwartz man and Blackstone sold

the rest of its shares for �600 million, putting the American in

poll position on Southern Cross's winners role. Blackstone told us it

did not profit from stripping There was one shareholder was not

quite so pleased. After watching declining standards in local care

homes, Kevin's fellow inspectors bought him a surprise retirement

gift, a share in Southern Cross. Once they had done it I was morally

obliged to do something. He wrote to the team at the top of Southern

Cross. Southern Cross is in the business of providing personal care

to vulnerable people, not shipping on transport, choir macro or gas.

They were congratulating themselves on all sorts of financial

objectives. They were making claims to be providing good quality

services, but there was hardly any serious mention of how they would

achieve quality. Kevin's next move was to attend the annual

shareholders' meeting at his plush London Office. He got a very

personal welcome. They made a beeline for me. They told me

everything was under control. the meantime, there was a big

payout in line for the men at the top when they cashed in their

shares. Philip Scott became chief executive. He hit the jackpot, and

making �11.1 million. William Colvin held the position of chief

executive for nine months. He sold his shares for �6.6 million. Graham

Sizer made at cool �7.8 million. And group operations director John

Murphy made �10.1 million. Some analysts wonder why the men chose

to sell large amounts of their shares as soon as Stock Exchange

rules permitted after the flotation. Did they realise that Southern

Cross was facing a nasty problem? Legally-binding rising rents and a

declining income from local authorities. He usually it's one of

the danger signs when directors start selling substantial portions

of share holdings. A month after casting end, it Phillips got and

Graham Sizer left the company. For them, perfect timing. Six months

later, the company issued a profit warning, saying it had breached its

banking covenants. Its share price tumbled by 85%. Within months,

William Holden was gone, too. Those deals have left the nasty taste for

some. Look at what private equity from Southern Cross did to our care

homes. Stripping assets for a quick buck. Putting tens of thousands of

elderly people like they were commodities. -- treating. I wanted

to talk to the directors who had done so well out of Southern Cross.

But they did not want to talk to me. A spokesman for Philip Scott said

Mr Scott's spokesman said he had sold his share -- shares as a

result of changes in the law. William Colvin, one-time chairman

and chief executive, and former or group operations director John

Murphy refused to answer my He said Southern Cross would have

faced problems in an economic downturn however it had been

financed. He insisted care was It was left to a new group of

directors to manage the company as it faced financial crisis. When

Inside Out reported on cases of but let, a senior manager denied

patients were paying the price. homes are not understand it. We

have staffing in all of our care homes. They are all resourced in a

way they can deliver appropriate care to the people who live there.

The vast majority of them do that. We have �8 million in the fabric of

our buildings in the north-east of England.

At one of our management meetings, a senior management said they

wanted us to be the most profitable region of Southern Cross. That

clearly divorce might at clue as to what the agenda was. The agenda was

to make as much profit as possible. The firm was trying to get its

costs down with rents are rising. We used to get biscuits with 30 in

the morning and afternoon. They would come around with a box. Then

we could only have two biscuits. On the floor where there were 20 rooms,

they would put 40 biscuits on a plate. With little money, important

maintenance was ignored. I have obtained this paperwork. Repeatedly

it shows problems with the heating and hot water. In one room the

boiler was reported as 49 times in eight months. Managers say the

pressure became intolerable. were seen as, disease you could

move about. -- commodities you could just move about. They did not

want the local authority on their back. Things will go wrong. We're

dealing with human beings. Sometimes things do not go

according to as we would like them too. That should not result in a

home being in crisis. Within a Southern Cross it seemed to be

quite frequent. George was determined to improve standards at

his mother's home. He wrote to the new chief executive. What was the

reaction when you send the letter? I did not get a reply. That was

Southern Cross. It brought it home to me that it was a total waste of

time. If you write to the very head man, at least you expect a letter

thanking you for your letter. Even if he then turns around and says,

get lost. Mr Bock and declined to Southern Cross... Southern Cross

may need to polite of running its homes. -- may need to pull out of

running. Finally this summer, after begging for more time to pay the

rent, Southern Cross were forced to throw in the towel. The company

which had been allowed to become the biggest care home operator, was

forced to hand over the running of the homes to landlords. Effectively

this marks the end of Southern The question many people will be

asking is, how could something so important as the care of vulnerable

people implode like this? Who is to blame? Should the company have been

based on the sale and leaseback model? And why did nobody

intervened to ask whether this company was simply becoming too

What lessons have been learnt? thing about the business model

chosen is that it was a business model only ever fit for a boom

times. There was always going to be a bust. That should have been

anticipated. This model should never have been accepted in the

first place. We need to make sure we learn the lessons. I am

determined we do. I have said these lessons out in the white paper on

social care. Where are the men for whom Southern Cross was far from a

financial disaster? Stephen Schwartz man, they had a Blackstone,

is reportedly considering moving to London to boost his firm's

investment in Europe and Asia. We Ian Colvin, who made �6.6 million,

is now the trustee of a charity. -- William. John Murphy has retired.

Graham Sizer is still involved with the firm. He owns the leases on

five Southern Cross properties. He is now running the care homes

himself. And Philip Scott is also still in the care business. He

works as chief executive of the Priory group. They saw it as a

never ending gravy-train. But they were sufficiently astute to realise

that never ending Grady trains do end. They therefore had a programme

of disposal which they would target. As soon as they could achieve their

desired level of profitability, they would exit. Which is what they

did. That is people's lives there are

supposed to be looking after. To me, care should come before profit.

These places are called care homes. Care? No way. They cared about

their profits but they had forgotten that at the very heart of

it is the residents. If we do not care about the residents, how can