Three massive Russian businesses have recently declared their intention to seek a listing in London. Polyus Gold, Polymetal and now Evraz. Instead of rolling out the red carpet, the reaction has been bluster and xenophobia.
Grumpy fund managers have demanded irrelevant regulatory interventions, railing against the size of the companies’ planned free floats (the proportion of shares held by non-strategic shareholders and hence reasonably liquid) and exhibiting little Englander personas by arguing that the hallowed FTSE index should be reserved for great British companies.
This all misses the point. The UK depends on the City’s fee pool. Professional and financial services accounts for 14 per cent of GDP; the sector (the UK’s largest) pays enough tax to fund the Department of Education.
So what has driven so many to reject so much? The answer is the recent experience at ENRC and the brutal non-executive director (Ned) ousting which, as a victim, I described as being “more Soviet than City”.
ENRC, while providing some salutary lessons for us all, is far from being a reason to pull up the drawbridge and to repel boarders.
ENRC’s dysfunctional board was unable to act independently of the founding 80 per cent shareholders. Despite solemn commitments to the contrary, ENRC was run as a private company with a public listing. But the ENRC experience is not a reason to ban the listing of entities from the former Soviet Union. It is a reason to ensure that public companies have functional boards. It is also a reason to see that undertakings given to the UK listing authority at IPO are adhered to. Such governance conditions should be applied to all FTSE companies and policed by the minority shareholders.
The size of the free float is irrelevant because the liquid minority can affect the share price whereas the illiquid majority cannot. Paradoxically, the smaller the free float the greater the minority’s power to drive the share price. Automatic membership of the FTSE is also irrelevant. The argument for keeping foreigners out is to protect tracker funds from having to invest in them. The fault here lies with blind investment rather than on the quality of the underlying investment.
Rather than calling on regulators to become even more interventionist, institutional shareholders should engage with the Neds who represent their interests and hold their investee boards to account. For example, ENRC’s institutional holders could demand sight of the independent report into board performance by ICSA – and an explanation of how the recent non-reorganisation met its recommendations.
It is conformance to the UK Governance Code that should differentiate acceptable companies from the rest – not geographic origins or ownership structures. Far from rejecting enthusiastic new customers, we should embrace them: put simply, we need more Soviets in the City.
Ken Olisa is the chairman of Restoration Partners.