Last year the French conglomerate LVMH, known for its Louis Vuitton luggage, Moët et Chandon champagne, and Hennessy cognac, acquired the company that produces and markets Glenmorangie whisky.  Scottish complaints about the passage of this national icon into foreign hands were brushed aside.  Nationalist sentiment, however, blocked plans for a Chinese takeover of the American oil company Unocal and the acquisition of the French pharmaceutical business of Aventis by a Swiss predator.

       The French government is drawing up a list of industries of strategic significance which must remain under French control.  Will yoghurt be a strategic product?  Must Volkswagen stay German?  Others argue that modern business knows no boundaries, that capital now has no home, that the location of ownership no longer matters:  For Thomas Friedman The World is Flat.

       Both arguments are exaggerated.  The British economy is completely dependent on the supply of electricity to London.  That supply is today managed by a French company – indeed, by a company owned by the French state.  But the French government does not derive even the slightest advantage in international political negotiations from EDF’s ownership of London Electricity: a threat to interrupt supplies is no more imaginable than a threat to invade  The success of the European Union is a demonstration that economic interdependence does more to guarantee security of supplies than to undermine it.

       But the notion that multinational companies operate in a borderless world is also exaggerated.  Almost all successful large companies have identifiable nationality.  Indeed, 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 both Glenmorangie and LVMH operate all round the world, Glenmorangie is a Scottish company and LVMH is a French one. 

Most 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.  Increasingly frequently, the senior management team will include members from several countries.  But even if Ford and L’Oréal both recently had British chief executives, the cultures of these organisations remained distinctively American and distinctively French.

       The record of true mergers between companies – as distinct from the acquisition of one company by another – is generally disappointing even when the two businesses have the same nationality.  The attempt to blend two corporate cultures rarely succeeds.  The difficulties are all the greater when the corporate cultures to be blended use different languages and employ different national cultures.  The two great Anglo-Dutch companies, Royal Dutch Shell and Unilever, have been the major counter examples for decades, but in recent years even their corporate structures have come under strain.

       For a time, ABB was the classic business school case of a borderless business:  a Swiss-Swedish combination which conducted its affairs in English, a true corporate citizen of the world.  But its business performance disappointed.  Daimler/Chrysler worked badly as a merger, and not much less badly when it became apparent that it was a German takeover of a US corporation.

       So successful companies continue to be French or German, American or British.  And if they are, then France and Germany, the US and Britain are right to be anxious that French, German, American and British companies should be successful, and that their successful companies should remain French, German, American and British. 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 it suffers if their authority is drained away.  Talent goes where the action is, and the action is at head office. This headquarters effect matters as much – perhaps more – for regions than for countries.  Barcelona and Toulouse, Milan and Munich – none of them national capitals with seats of political authority – are nevertheless important cities because of the businesses which are directed from them.  A commercial centre is a vigorous community.

       These arguments were heard in Scotland long before Glenmorangie.  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 at the time, and British law has subsequently been amended so that 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.  It took that leadership position over from the Distillers company. That business was acquired in 1986 by Guinness: the bidder promised to locate the combined head office in Edinburgh, but reneged on that commitment, and today only lower level corporate functions are performed from Scotland.

       Government should not promote national champions by protecting weak firms from the product market.  There should be no subsidies for failing car groups, hopeless airlines, and technological leaps of faith.  Strategic arguments for protecting domestic businesses are largely spurious.  But the commercial life of a city, a region, a country, is diminished if control of its successful businesses is transferred elsewhere.  In this respect, nationality and ownership matter, and continue to matter.