Scrutiny of foreign takeovers is prudent not protectionist


The principal reason why careful, sometimes even rigorous, scrutiny of foreign takeovers is prudent rather than protectionist is that what happens at headquarters matters.

Last week, Alan Johnson, Britain’s industry secretary, attacked what he called protectionism. He was not talking about trade barriers. The context was the political opposition in Paris and Luxembourg to the offer for Arcelor by Mittal Steel.

Less than 24 hours later, rumours spread that Gazprom was planning a bid for Centrica, Britain’s principal gas supplier. Mr Johnson’s department assured the public that such a proposal would receive “robust scrutiny”. Overseas readers unfamiliar with the elegant language of the British civil service should know that “robust scrutiny” is a rigorous process: one likely to continue until the Siberian permafrost melts.

Different countries have different attitudes to foreign investment. France is, in Mr Johnson’s terms, protectionist, but almost everything in New Zealand is for sale, and much of it has been sold. Among larger countries, Britain is probably the most open to foreign investment. The Rolls-Royce car business was bought by Germans, Glenmorangie by the French, Harrods by an Egyptian and Manchester United by an American. The US is also open to offers: Brooks Bros is Italian, Jeep is German and Ben & Jerry’s Anglo-Dutch. But everywhere a line is drawn somewhere. The Chinese bid for Unocal crossed it, and so would a Russian offer for British Gas.

Strategic arguments for local ownership of national infrastructure are spurious. Could the French government resolve a diplomatic wrangle by ordering London Electricity, a subsidiary of Electricité de France, to cut off power to 10 Downing Street? The instruction is unthinkable, the order ineffective. The people who flick the switches sit in London, not Paris.

Such leverage over British power supplies as the French government has – and it is not much – comes from the supply of electricity through the interconnection across the English Channel. When the Russians disrupted gas supplies to Ukraine, they were attempting, rather dangerously, to use international trade to exert political influence. But ownership links have no comparable effect. In past wars, enemy assets have been easily and quickly expropriated.

But there are legitimate reasons for public and political concern over the location of ownership and control. Manchester United soccer fans believe the club is theirs not Malcolm Glazer’s; and they are right. Iconic companies belong to their customers as well as their shareholders. London shoppers who turn their backs on Harrods in favour of Harvey Nichols or Selfridges relinquish something that matters to them.

It is difficult to be certain of the competence and integrity of people who run public companies. It is more difficult when they are nationals of countries in which standards of competence and integrity are low, and when the origins of the money that buys control are opaque. Chelsea fans may not care where the largesse that has propelled their club to league success has come from. But the governments of countries that value transparency should. Like any other market, the market for corporate control works best if appropriately regulated.

The principal reason why careful, sometimes even rigorous, scrutiny of foreign takeovers is prudent rather than protectionist is that what happens at the headquarters matters. In any organisation, the ablest people gravitate to power. Head office is the place where political influence is exerted, and on which political pressure is exerted. Modern business is multinational but the companies that take part in it retain an identifiable nationality.

Mr Johnson’s sentiments were contradictory. He was protecting the interests of British companies. That is his role, just as the role of his counterparts in France and Luxembourg is to protect the interests of theirs. And yet there was a curious aspect to his advocacy. Mittal Steel is not registered in Britain and has few operations there. But its chief executive reputedly lives in London’s most expensive house and it is with the British government that he has close connections. Whenever you hear a public affirmation of the virtues of free markets, there is generally politics behind it.

Print Friendly, PDF & Email