Government should not promote national champions by protecting weak companies from the product market. But there is a case for protecting strong companies from the capital market – the commercial life of a city, region and country is diminished if control of its succesful businesses is transferred elsewhere.
Should patriotic Scots, like myself, care that control of Glenmorangie whisky is passing into the hands of the French conglomerate LVMH, a company better known for such effete foreign confections as Louis Vuitton luggage, Moët et Chandon champagne, and Hennessy cognac? Or does our concern reflect that maudlin sentimentality which often overtakes devotees of Robert Burns and Sir Walter Scott after a dram of the national beverage?
The sober-minded point out that modern business is international and the location of ownership is no longer important. Global capital markets transcend national boundaries. For these reasons the British government will not intervene to keep Glenmorangie Scottish, and it has imposed no obstacles to the takeover of the Abbey financial services group by the Spanish Banco Santander.
But not everyone shares this view. Small shareholders in Abbey made this clear as they abused their chairman at last week’s meeting. Nicolas Sarkozy, France’s finance minister, distinguishes himself from other French politicians by his free-market credentials, but intervened to prevent Aventis falling into Swiss hands. And the German government is defending its right to keep Volkswagen German.
The argument that foreign ownership is irrelevant because business is multinational contains an inherent contradiction. If business really transcended boundaries, the concept of foreign ownership would have no significance. But it clearly does matter. Although Glenmorangie and LVMH operate all round the world, Glenmorangie is a Scottish company and LVMH a French one.
Almost all companies have identifiable nationality. Despite the ubiquity of their operations, Coca-Cola is American and Nestlé Swiss. Corporate nationality is reflected not just in the location of the company’s head office and the citizenship of its most senior executives, but also in its style of business. At best, the senior management team will include members from several countries. But even if Ford and L’Oréal both recently had British chief executives, their cultures remained distinctively American and distinctively French.
There are few examples of companies genuinely shedding nationality. The two great Anglo-Dutch companies, Royal Dutch/Shell and Unilever, have successfully maintained dual citizenship. ABB, a Swiss/Swedish combination which conducted its affairs in English, was for a time a true citizen of the world. But its business performance has disappointed.
Corporate nationality influences corporate behaviour. Decision-making is influenced by the culture in which the executives were educated, work and live. A vibrant local community needs successful business leaders – and suffers if their authority is drained away. Talent goes where the action is, and the action is at head office.
These arguments have been heard in Scotland before. In 1982 the Monopolies and Mergers Commission rejected two bids for the Royal Bank of Scotland by banks based overseas. The principal grounds were that “the proposed mergers would have had adverse effects on career prospects, initiative and business enterprise in Scotland which would be damaging to the UK public interest”. The verdict caused surprise, and British law has subsequently been amended so a decision to block a merger could not be made on these grounds.
But the commission was proved right by events. The Royal Bank of Scotland, still with a predominance of Scots in its senior management, innovated and grew as an independent business and is today itself Scotland’s leading multinational company.
Government should not promote national champions by protecting weak companies from the product market. There should be no subsidies for failing car groups, hopeless airlines and technological leaps of faith. But there is a case for sustaining national champions by protecting strong companies from the capital market. The commercial life of a city, a region, a country, is diminished if control of its successful businesses is transferred elsewhere. The warm glow induced by Glenmorangie and the cold facts of business experience lead to the same conclusion.
Everlasting Light Bulbs, a collection of John Kay’s columns, has just been published by The Erasmus Press