Shining light on a murky regulatory review

Marc Sidwell
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WHEN Vince Cable told the Liberal Democrat conference, “I am shining a harsh light into the murky world of corporate behaviour,” that was his cryptic way of announcing to the nation a comprehensive regulatory review. With potentially far-reaching impact, this rather shadowy proposal deserves more light than Cable gave it in his remarks.

The detailed announcement says: “We will look at the economic impact of takeovers, shareholder responsibility, corporate incentives and pay – all the factors that can help us build a framework founded on long-term economic logic.” But what does it mean?

Some of this is old news – the Takeover Panel has been running its review of M&A rules since the summer – but Cable is by no means just reheating political announcements. His detailed statement makes this plain: “My department is complementing this work with a comprehensive review that will ask fundamental questions about corporate governance and short-termism.”

In translation, that seems to indicate that Cable wants the popular outrage against the Cadbury takeover reflected in changes to the rules around shareholder power. Cable goes on to say, “we aim to put responsible shareholders back in the driving seat of the economy”. Responsibility here is redefined solely in his terms, putting Cable in that driving seat: he is supremely confident in his own judgement. Yet his highhanded assumption that shareholders have been irresponsible is as questionable as his belief that the financial crisis can be laid squarely at the feet of “financial gamblers who value a quick buck above all else”.

The Cadbury bid may have been a blow for British pride but it was a reflection of problems with Cadbury that had been evident in sluggish performance over much of the past decade. Economic nationalism showed little hope of solving these fundamental weaknesses. The takeover premium was 50 per cent up on Cadbury’s share price the August before, scarcely a derisory offer.

It would be less troubling if Cable were a cynic, playing the mystic chords of economic populism only so long as they bring him power. But it seems he really does believe that “shareholders that act like long-term owners” will be better for the economy than those who seek to move capital to its most productive uses.

A consultation on Cable’s plan will launch this autumn. Business must be ready to put its case firmly if it is not to find itself carrying a regulatory burden based on questionable assumptions and tabloid pandering.