Britain's supposedly open economy can't afford this Pfizer political inquisition

Simon Walker

THERE was something quite uncomfortable about watching MPs do their best to trip up the boss of a major multinational that has expressed an interest in investing in the UK economy. At yesterday’s Business Committee hearing into his firm’s proposed bid for Astrazeneca, Pfizer chief executive Ian Read was treated no differently to Rupert Murdoch during the phone hacking scandal, or the notorious Plebgate officers.

It seems MPs can’t resist lining up their soundbites for the cameras, all hoping to be included in the Ten O’Clock News. Yet while we expect the bosses of major companies to have a thick skin, we should be alive to the consequences of mounting a “British Inquisition” for those who wish to do business in what is supposed to be an open economy.

If our politicians really want to whip up a storm around this issue, they’d be better off scrutinising the role of institutional investors in the whole process. In particular, the asset managers and asset owners that control so many of Astrazeneca’s shares – like BlackRock, Invesco, Axa and Capital Group – should be reminded in no uncertain terms of their responsibility to favour long-term value creation rather turning a fast buck.

Equally, Astrazeneca’s directors also have a key role to play in demonstrating that they are still the right people to take forward the company over the longer term. If the answer is no, they should hand over the reins to Read. But if they are worth their salt as directors, they should be able to persuade shareholders of the business case for continued independence without any need for dirigiste meddling by lawmakers.

The problem with the growing politicisation of this bid is that it undermines the fundamental role played by shareholders and directors, who are better placed to make the right economic decisions in private sector companies. And there’s a certain irony in MPs accusing Pfizer of acting for short-term gain. These would be the same MPs polishing their press releases in time for imminent elections.

The central role of shareholders in key company decisions is compelling. First, they supply genuine risk capital to the firm. There is no contractual obligation for the company to repay that capital or pay a dividend. This makes it an incredibly valuable form of financing for companies. But it also places investors in a highly vulnerable position. The quid pro quo for accepting such risks is that shareholders can exercise a high degree of influence over key decisions. Secondly, shareholders are focused on growth. They want the firm to flourish, not just survive. In contrast, politicians are often focused on the downside risks that might bring them bad headlines. This is hardly conducive to wealth creation.

The UK has done a great job in attracting pharma R&D in recent years. But this has not been achieved by compelling firms to sign “legally binding” commitments. Foreign investors are here because they want to be. Astrazeneca itself has benefited from a series of acquisitions around the world. The UK government should continue to enhance the attractiveness of UK Plc as a place to do business, and politicians should suppress their flirtation with “the public interest”, whatever they conceive that as meaning.

Simon Walker is director general of the Institute of Directors.

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