Boards need to get a grip on the concept of hedging

From Mr Michael MacCallan.

Sir, In light of the damage done to Mitchells & Butler's by interest rate and inflation hedges ("M&B's property ambitions turn sour", January 30) I was dismayed to see the statement that "the partners were persuaded to retain the hedges in the expectation of calmer times ahead".

When will corporate managements get a grip on, and understand, the concept of hedging? Hedging is used to manage risk of a specific or highly likely exposure; different products can be used for either eventuality. Where that risk exposure no longer exists, the underlying hedges must be closed out immediately; failure to do so means that management is effectively "taking a punt" and speculating on the results of an unhedged position. The consequences of this latter approach have, yet again, been clearly demonstrated.

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