UK minister announcing review of corporate governance, takeovers and short-termism

UK minister attacks pursuit of quick profits

LONDON — Pursuit of the quick buck is undermining Britain’s economy, a government minister said Wednesday as he announced a review of corporate governance, executive pay and takeovers.

Vince Cable, who heads the Department for Business, Innovation and Skills, spoke at the annual conference of the Liberal Democrats, the junior partner in Prime Minister David Cameron’s Conservative-led coalition government.

“The government’s agenda is not one of laissez-faire. Markets are often irrational or rigged,” Cable told party members. “So I am shining a harsh light onto the murky world of corporate behavior.”

Richard Lambert, director-general of the Confederation of British Industry, was disturbed by Cable’s tone. “It’s odd that he thinks it sensible to use such emotional language,” Lambert said.

Banks, who have been accused of withholding credit needed to support industrial recovery, loomed as a key target.

“There is a real danger that our recovery could be certainly choked off by the behavior of the banking sector,” Cable said in an interview on British Broadcasting Corp. television.

“It’s not entirely the fault of the banks because they are having to comply with regulations to hold more capital. But it’s absolutely vital for our recovery that the banking system works properly and supports business as we recover from recession,” Cable said, adding that the government is “looking at all options.”

Cable, like many other critics of British banks, contends that they all benefited from the government’s costly bailouts of the weakest. The public still owns 41 percent of Halifax/Bank of Scotland, 83 percent of Royal Bank of Scotland and 100 percent of mortgage lenders Northern Rock and Bradford & Bingley.

Cable’s announcement highlights tensions within the coalition between the Liberal Democrats and Cameron’s traditionally business-friendly Conservative Party.

He has forcefully advocated the separation of investment banking from retail banking, which has led some bank executives to suggest they might move their headquarters to friendlier shores.

Cable recently attacked the government’s curbs on immigration, saying they were starving some businesses of skilled workers.

Earlier Wednesday, his department announced plans for a review of corporate governance and short-term thinking.

“Short-termism and shareholder disengagement are an increasing problem for our economy. Short-term investors and financial gamblers value a quick buck above all else, for example, by driving company boards into accepting takeover bids that make no economic sense,” Cable said.

“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.”

Concern about takeovers has risen since U.S. giant Kraft Foods took over Cadbury, the 192-year-old British chocolate and candy company, earlier this year. Kraft caused great offense by promising to keep a Cadbury factory in southwest England open, a decision reversed once the takeover was secured.

The Takeover Panel, which sets the rules for acquisitions in Britain, began its own review of regulation in the wake of the Cadbury deal. It is investigating whether predators should face a higher level of shareholder backing to clinch a deal; whether there should be fuller disclosure of financing, and whether voting rights should be taken away from shares purchased during the offer period.

Cable’s blast at capitalism came a day after Adair Turner, the chairman of the Financial Services Authority, called for an end to the “demonization of overpaid traders.”

“In finance and economics, ill-designed policy is a more powerful force for harm than individual greet or error,” Turner said.

However, he didn’t let the industry off the hook.

“There were some absurd bonuses for excessive risk taking: there was an explosion of exotic product development which last year I labeled as socially useless, a phrase from which I in no way draw back,” Turner said.