Examination of Witnesses (Questions 69-118)
IAN LUCAS
MP
12 JANUARY 2010
Q69 Chairman: Welcome to the Committee.
I know that you have sat through the other evidence sessions and
you want to make a short opening statement, with the emphasis
on "short".
Ian Lucas: Indeed, and I undertake
so to do. The Government believes that long-term investment provides
the best basis for progress by a successful company and that shareholders
should take a long-term view of a company's prospects when making
investment decisions. We believe such decisions should have regard
to the interests of employees and the tradition and reputation
of the company or business concerned. In a takeover companies
should be transparent in setting out their vision and long-term
plans and shareholders should make their decisions on the basis
of those plans. The culture of long-termism predated the discussions
we are now having concerning Kraft and Cadbury; indeed, it formed
the foundation of the Companies Act 2006 and the reviews undertaken
by Sir David Walker and Sir Christopher Hogg which have raised
important issues relating to the opportunities for institutional
investor engagement in the long-term interests of UK companies.
Government has initiated consultation by the Financial Reporting
Council on the new investor security code. Tomorrow Lord Mandelson
will be hosting a round table of investors, fund managers and
companies to consider these important issues. I shall also attend.
Q70 Ian Stewart: In our briefings
it has been pointed out to the Committee that the terms "mergers",
"acquisitions" and "takeovers" are sometimes
used interchangeably but there are slight differences between
them. In this session we have been briefed on the role of the
Competition Commission, the Office of Fair Trading et cetera.
What we are keen to know now is the role of the Department and
the Secretary of State. For the record, can you give a brief explanation
of the role that your Department and the Secretary of State in
particular play in overseeing mergers and takeovers? In addition,
what powers does the Secretary of State have?
Ian Lucas: The overriding principle
is that these matters are dealt with at arm's length. The Takeovers
and Mergers Panel deals with the mechanics of the takeover process
and monitors and supervises it. If competition issues arise from
that the Office of Fair Trading and Competition Commission will
investigate and make recommendations arising from it. It is only
in limited circumstances that the Secretary of State for Business,
Innovation and Skills will intervene. At present those circumstances
are limited to national security, issues relating to media ownership
and also those cases where the functioning of the economy is severely
prejudiced. The position of the Secretary of State is limited.
Q71 Ian Stewart: Would "national
security" include the circumstances described earlier by
Professor Bones? In his evidence, which I believe you heard, he
said that issues such as the skills base are a matter of national
interest and therefore national security.
Ian Lucas: I believe there is
a distinction between national security, which is quite narrowly
defined, and the national interest or the strategic interest of
the economy about which Professor Bones was speaking. Everyone
would accept that if what Professor Bones suggested was implemented
it would be a change to existing policy.
Q72 Ian Stewart: Perhaps some would
wish that change to take place. What do you say about the role
of the Secretary of State?
Ian Lucas: The role of the Secretary
of State is limited at the present time. Clearly, in the present
case there has been a very vigorous debate which has been heightened
in the public appreciation by the existence of the Cadbury/Kraft
issue; in other words, this was happening before November last
when Kraft made its bid. Since my appointment in June I have had
meetings relating to long-termism in the economy. It is something
that we are very interested in promoting in the context of investment
decisions. Part of that is the key relationship as between shareholders
and investment managers and the business. We have been working
with bodies like the Institutional Shareholders Committee on its
code of practice to try to promote a more long-term approach.
It is against that backcloth that the present bid has come to
public notice.
Q73 Ian Stewart: As I understand
it, there are certain tests in relation to turnover and share
of supply that would automatically kick in given the normal structure
you describe but that the Secretary of State has powers to intervene
should there be a concern about certain processes that do not
meet those tests. What powers does the Secretary of State have?
Ian Lucas: My understanding is
that the competition issues would be investigated by the Competition
Commission on the recommendation of the Office of Fair Trading.
That is as far as possible dealt with at arm's length in order
to facilitate transparency and a process that is not subject to
political whim. The Secretary of State has said that Cadbury is
dear to our hearts and is a great British institution but it is
an individual case. When we talk about the rules we must understand
that they will affect not just this individual case but all other
investment decisions, including inward investment decisions by
companies from outside the UK. We must also recognise that there
are occasions when inward investment is of great benefit to the
UK economy. In short, we must not throw the baby out with the
bathwater. There is a very important issue here about long-term
investment and investment in the future of British industry. It
is important that we have a debate about that in the present context,
but we need to look at the full picture.
Q74 Ian Stewart: Is it right that
if the Secretary of State considers there is a finding of an adverse
public interest he can issue special intervention notices to enable
those structural bodies to address an issue like this?
Ian Lucas: I am not clear what
specific intervention notices you are talking about. I spoke about
the three categories that would justify intervention, two being
national security and media ownership. To broaden it would involve
a change in policy. One would need a resolution of the House and
also, as I understand it, a reference to the European Commission.
It would be a big step but it would be one that obviously the
Government could take.
Q75 Mr Hoyle: That is the key, is
it not? Is the ministerial team frustrated that it does not have
those powers or happy not to have them?
Ian Lucas: The ministerial team
is very conscious that there is an issue relating to long-termism
and investment. That is why the debate with institutional investors
has been initiated and we believe it is very important that shareholders
engage much more closely than they have done to date with business
and industry when they make decisions about whether to support
the Kraft bid or the line taken by Cadbury's management. We are
concerned to address whether we can improve the process so that
the long-term interests of the UK economy can be better served
than at the present time.
Q76 Chairman: I do not want to be
critical but the form of words you used perhaps did not quite
express the point as you intended. To make it clear, you said
that the Secretary of State would intervene when the functioning
of the economy was severely prejudiced. That probably implies
the financial system itself rather than other aspects of the economy.
Is that right?
Ian Lucas: The grounds for intervention
relate to the operation of the financial system, not the broader
functioning of the economy.
Q77 Chairman: You heard what Professor
Bones said earlier about the importance of research and development
in food manufacture in the UK but that food security could be
a ground for national security interest. Does the legislation
currently allow food security to fall within the definition of
national security?
Ian Lucas: That suggestion has
not been made to me before and I believe would go beyond the current
understanding.
Q78 Chairman: The reason I ask is
that last week one of your colleagues in the Cabinet, Hilary Benn,
said that we had to pay greater attention to food security. I
happen to agree with him very strongly and welcome what he said.
Although I accept that Cadbury's chocolate may not be seen as
an essential part of our food security there are lots of other
things as well and research and development and support for the
agricultural base provided by Cadbury is also part of the food
security question. I fully accept that you cannot give me an answer
to that question at present, but do you believe that the "national
security" test as the law currently stands could be stretched
to encompass food security or would it require legislative change?
Ian Lucas: I am not sure it would
require legislative change. I certainly believe that it would
be a step which would have to be considered by resolution. If
by "legislative change" you mean secondary legislation
then it would certainly be a novel step and an extension of policy.
Q79 Chairman: It would be helpful
if when you have talked to your officials after this session you
could seek further clarification. I was interested by what Professor
Bones said. I had not previously considered that helpful comment.
If after this session you believe that your words are not sufficiently
precise or there is more you want to add we would welcome a letter
just to clarify the situation on this narrow question.
Ian Lucas: I will certainly do
that.
Q80 Chairman: I just want to push
you a bit on where the Government stands. We have been debating
long-termism and short-termism for decades; it is one of the oldest
debates in the British economy and so there is nothing new about
it. I highlighted some bids back in 2006 where long-termism and
short-termism played a part. Cadbury is only the latest example
of cases on which this debate focuses. When the Secretary of State
said in September in his interview with the Wall Street Journal
that he was concerned about the impact of these decisions on manufacturing
and told the FT in December, "If you think that you
can come here and make a fast buck you will find that you face
huge opposition from the local population ... and from the British
Government", what did he mean specifically? What form would
that opposition take because it looks to me like a short-term
decision?
Ian Lucas: I think the form of
the opposition would be that we consider any decision not being
made in the long-term interests of the UK is one that we would
not support.
Q81 Chairman: What does that mean?
What would be the manifestation of that support?
Ian Lucas: We have to be clear
about the fact that the Government has taken the very broad policy
decision not to intervene in individual takeover bids unless there
are very specific grounds, on which we have already touched, to
justify it. That is why it is important to emphasise that we cannot
base our general policy on individual cases. Hard cases make bad
law.
Q82 Chairman: But the quote by Lord
Mandelson in December was specifically about this takeover. He
also said last week that "investors should expect to brave
the court of public opinion if they are motivated only by short-term
profit." All of these are great words for which I have a
good deal of sympathy. You said in your opening statement that
there was to be a round table session tomorrow. Is that the public
manifestation of what Lord Mandelson said in September and December
and last week or was it already planned?
Ian Lucas: The project relating
to long-termism may be something that has been established for
some time, but the initiatives to which I referred was the decision
by the Institutional Shareholders Committee to have a new code
of practice relating to engagement between shareholders, fund
managers and business. That and the decision to refer to the Financial
Reporting Council the terms of the new code of practice are novel
decisions taken in the past few months. They predate this particular
issue but reflect the view that where the Department sees market
failure it may take steps to intervene. That is part of what the
process is all about. We consider this may be a case where there
is market failure and we want more long-termism and we are taking
specific actions to develop that.
Q83 Chairman: This is a case or issue
where you may see market failure?
Ian Lucas: The issue is one of
market failure. Insufficient long-termism may in our view be a
characteristic of market failure.
Q84 Chairman: I do not want to put
words into your mouth. I understand you are constrained as to
what you can say about this particular bid, but are you saying
that this particular bid may represent market failure?
Ian Lucas: I make very clear that
because of my ministerial position I cannot talk about this specific
case, but if a decision is made on the basis of short-termism
alone and that is clearly at variance to the long-term interests
of a company and industry that could be a market failure.
Q85 Chairman: To be clear, the comments
by Lord Mandelson that I quoted earlier suggested he was considering
a review of the law governing takeovers and looking at shareholder
and other issues as well. Is a formal review going on?
Ian Lucas: No, but one of the
phrases Lord Mandelson has used is that he is initiating a debate
on the matter. That is not something we have had just as a result
of his comments but it has been spurred on by those comments.
I believe that across the political spectrum and indeed into other
areas there is an appetite for this debate to take place. It is
an important debate for the future of UK industry.
Q86 Chairman: We have been having
this debate for two or three decades; it has peaks and troughs.
Ian Lucas: I believe this is a
peak.
Q87 Chairman: You heard what Professor
Bones said about the possibility of attaching conditions to takeovers
relating to, for example, the relocation of manufacturing, research
and development and training. Is that an issue you are looking
at or is it a new idea?
Ian Lucas: Professor Bones did
refer in general terms to a number of proposals. The issue is:
what specifically would be workable if one decided that that was
an avenue down which we wanted to go? I have had discussions with
investment managers on issues such as this and they talk to me
about the deterrent effect that specific proposals would have.
Let us not run away from the fact that this is a difficult issue.
If there were an easy solution all of us would have come up with
it.
Q88 Chairman: You heard Mr Dromey
talk earlier about what European competitors or colleagues were
doing to protect their industries. I was interested in that and
meant to ask him for a more formal note on it. It struck me that
he might have done some research on it and I could have informed
myself of it. It suggests that there are European countries doing
things in this area and possibly we could do things ourselves.
Ian Lucas: We could indeed do
things ourselves. Many of the things that have been done in terms
of giving preferential status to long-term shareholders could
take place now in the UK under the Companies Act 2006, but the
situation is that companies decide not to introduce that form
of provision within their articles of association. The powers
are there already. The issue is not so much to do with whether
the legislative framework exists; it is more a matter of culture.
One of the interesting aspects of UK businesses is that we tend
to have a broader shareholder base than, say, companies in Germany.
Q89 Chairman: Is the Government prepared
to consider the idea of attaching conditions to the relocation
of manufacturing, R&D and so on?
Ian Lucas: That is part of the
debate we are talking about.
Q90 Chairman: When will this debate
be concluded? An election is coming up and that gets in the way
of a lot of things at present.
Ian Lucas: We have a meeting tomorrow
when we shall discuss issues. I have been talking about these
sorts of issues with institutional investors for the past two
to three months, so it is happening at this time.
Q91 Chairman: Will the Government
make a formal statement about its conclusions on this debate?
Ian Lucas: We will keep the Committee
informed as to the progress of the discussions.
Chairman: I think that is a "no".
Q92 Mr Clapham: When we look at the
aspect of research and development we see that Cadbury has developed
a very successful research arm. It employs 200 workers. The Chairman
asked what we might be able to do to ensure that continues. One
consequence of the movement of research and development tends
to be the loss of the anchor. R&D tends to anchor down industry.
Is there anything we can do to ensure that the research and development
facility developed by Cadbury remains here?
Ian Lucas: One thing we can do
related to the supply side is ensure that the nature of the research
and development that takes place in the UK, and the reason why
Cadbury is the successful company it is, remains because of the
quality of the research and development that we offer at the present
time. In certain cases that is the reason why companies come to
the UK and make inward investment. They want to benefit from our
research and development. It is very often a reason why British
companies are more attractive than others. We want to make sure
that those skills and capabilities within a company are not transferable
because we want the quality of the research here to be better
than anywhere else. That is why the Department focuses heavily
on sustaining and developing strong science and research within
our universities. In my role I should like to do more to develop
links between universities and business to anchor that research
and development within the UK.
Q93 Mr Clapham: In the debate that
is to take place how we can keep research and development in the
UK will be a crucial part of the discussions. Currently, we face
a situation where if this takeover comes about that R&D facility
could easily move so that all the benefits from research and development
you have just explained are lost. There may be little we can do
about that in this particular takeover bid, but for the future
is it something that you are looking at very seriously in the
sense of having some kind of regulation of or guarantee by overseas
companies that takeover UK companies to ensure we retain research
and development facilities?
Ian Lucas: I think it is very
difficult for Government to impose conditions on companies that
invest as to the future conduct of their business in the UK. We
have talked about investment by companies from overseas which
may be very negative as far as the UK is concerned, but we should
also recognise that there are other examples in the automotive
sector. BMW Mini is an inward investment into a British company
that has had very positive benefits for the company and the product
and has led to a positive outcome. We are having this debate because
these are difficult issues. I believe we must look at both sides
of the coin and recognise that if we constrain an outside investor
in the decision he makes about the long-term future of the business
in which he is investing that may be a deterrent to investment
in the UK. When we weigh whether we want to impose the type of
constraints you have indicated we have to think about what the
consequences might be.
Q94 Mr Clapham: I appreciate that
it is a difficult situation, but one hears that our competitors,
the Dutch, Germans and Belgians, are already looking at how they
might make their market mechanisms work better. If there were
to be developments that we did not adopt it could affect competitiveness,
could it not? Is this likely to be part of the debate so that
we move from over-indulgence of the financial market to the manufacturing
market but do so in the context of making it work better?
Ian Lucas: This takes us back
to the issue of shareholder engagement. I think that individual
shareholders and institutional shareholders need to look at things
in the longer term.
Q95 Mr Hoyle: Obviously, what we
are seeing is protectionism by European competitors to look after
their industry, so it is important that the debate you are now
having comes to fruition very quickly if we are to save what is
left of British UK manufacturing. To go on to R&D, what discussions
have taken place between your Department and Defra, because this
could have a major implication for agricultural science and where
we need it to be in future? At the same time, the big debate is
about the security of food supply within the UK.
Ian Lucas: Do you mean as it relates
to this particular bid?
Q96 Mr Hoyle: To Cadbury.
Ian Lucas: I cannot give you that
information now.
Q97 Mr Hoyle: To generalise it, have
discussions taken place with Defra?
Ian Lucas: I cannot give you an
answer to that now; I will have to let you know. I would be surprised
if there had not been discussions but I am not personally aware
of them.
Q98 Mr Hoyle: It is not that you
are constrained from speaking about it; you just do not know?
Ian Lucas: I am not aware.
Q99 Mr Hoyle: Obviously, food security
and R&D are very important in agriculture. We could end up
losing this as part of the takeover by Kraft. Do you share my
concerns on that?
Ian Lucas: Clearly, both R&D
and food security are important issues. This is an aspect that
has been raised by the Chairman and is an interesting one that
I shall look into after this session.
Q100 Mr Wright: Turning to shareholders'
rights, you have said that shareholders should take a longer-term
view when investing. The reality is that when offers such as that
from Kraft are on the table it is out of the hands of the shareholders;
it is the fund managers who will take the decision. Do you agree
with Professor Bones' argument that shareholders and fund managers
have different objectives?
Ian Lucas: They should not have
because the fund manager works for the shareholder. I believe
that the shareholder should make that relationship clear.
Q101 Mr Wright: Surely, the fund
manager will take a view on the value of the offer rather than
the long-term prospects of the company?
Ian Lucas: Not necessarily, because
it may be that the long-term return on shares is better if the
fund manager takes a long-term view. The issue of long-termism
is related to the period over which one looks at value. There
may be a short-term benefit in selling at a particular time, but
it may be that over a longer period the benefit is to retain the
shareholding. It is important that the shareholder who owns the
shares makes clear his or her wishes relating to the role of the
fund manager.
Q102 Mr Wright: The chairman of Cadbury
has said that the offer by Kraft undervalued the company. If Kraft
came back with another offer, say an increase of 20% or 30%, fund
managers and probably the chairman of Cadbury might well say that
it is in their interests to accept it because it is a financial
incentive rather than a longer-term commitment by shareholders
who may well take the view that it is far better to invest in
what is a profitable company?
Ian Lucas: The fund manager should
act in the financial interests of the shareholder rather than
his own personal interest. I am a solicitor, albeit I do not practise.
If I acted on behalf of a client I would not act in my own personal
interest. It is important that the shareholder makes clear that
it is his or her interest that is taken into account. In the particular
example of Cadbury there will always be a level at which a bid
will be accepted as I believe Professor Bones says in his written
evidence to the Committee, so in his mind it is a question of
price, not principle.
Q103 Mr Wright: There are obviously
two areas of interest here: BIS and the Treasury. What discussions
have you had with the Treasury on these issues?
Ian Lucas: There have certainly
been discussions with the Treasury. The Walker review is Treasury-led
but clearly is closely linked to this debate and formed part of
the discussion I had with institutional shareholders recently.
It is very much an issue that we need to deal with in conjunction
with the Treasury.
Q104 Mr Wright: Will that form part
of the round table discussions tomorrow?
Ian Lucas: Yes, it will.
Q105 Mr Wright: In terms of the Government's
responsibility do you believe it has a role to play in standing
up for shareholders against large fund managers, or is that something
we should leave well alone?
Ian Lucas: I believe Government
needs to make clear to shareholders that they should be running
the show. In the context of this particular bid, which is a very
high profile, controversial one, it can only be in the interests
of us all that shareholders take an active interest in the bid
and the instructions they give to the fund managers.
Q106 Mr Wright: Last month in a press
statement Lord Mandelson stated that "he would continue to
take a very close interest in whether shareholders played a full
part in corporate governance, and whether they took a long-term
view of their responsibilities as shareholders." I take a
very close interest in Norwich City but I do not turn up to every
match. What do you think he meant by "take a very close interest"?
Ian Lucas: I think it means making
clear the role of the shareholders and its importance and the
level of control they have in terms of indicating to the people
they have asked to deal with their shareholdings what they want.
The more we promote that with shareholders and encourage them
to take a longer-term view the better it will be not just for
UK Plc but shareholders themselves.
Q107 Roger Berry: Why should what
is in the interests of shareholders necessarily be the long term?
Ian Lucas: It is difficult not
to touch on Cadbury but that company has particular characteristics,
culture and history within the UK and it is a long-term project.
We need to look as a whole at the UK economy and recognise that
any business requires sustainable investment.
Q108 Roger Berry: There is a strong
case for looking at the long term from the point of view of the
economy. My question was: why should shareholders look at the
long-term view? I do not have any shareholdings but if I did I
would be looking at making as much money as possible. I assume
that is what people who buy bits of paper try to do. There is
absolutely no reason on earth why they should be committed to
the long term. Getting fund managers to do what shareholders want
them to do is not the same as ensuring there is investment in
the long-term interests of the British economy.
Ian Lucas: But if every individual
shareholder took a short-term view overall the long-term functioning
of the economy would suffer because there would be a lack of long-termism.
Q109 Roger Berry: Exactly! The financial
crisis is an example of that. I genuinely do not understand the
idea that the long-term interests of the economy are guaranteed
by focusing on what shareholders want to do because they, like
everybody else, will look at the short, medium and long-term.
If it is in their interests to make more money by focusing on
the short term they will make decisions based on that, will they
not? Therefore, it is not a solution to the problem simply to
say, "All power to shareholders!"
Ian Lucas: The present capitalist
system in the UK operates on the basis that shareholders are given
the prime role in making decisions relating to share investment
in companies. That is the position as set out under the Companies
Act 2006. That is the capitalist system which has been broadly
accepted as the basis upon which companies should operate. Even
though you may not hold shares—we do not pry too much into
Members' finances—clearly any investment, whether it be
in pensions and issues of that nature, is part of the broader
economy. I would encourage any individual to be interventionist,
if you like, in the way his or her money is invested in terms
of linking into the UK economy. It may not be precisely in the
form of shares; it may be an investment in some other form, but
I think that to make clear to fund managers what one wants to
see in terms of the investment of one's own money is a very healthy
development.
Q110 Roger Berry: I think the Government
is right to say that an example of market failure is one where
there is failure to address the long-term interests of the economy
or business, but I do not understand and you have not yet explained
to me how giving greater power to shareholders will secure that
outcome. If the solution of the problem of short-termism is more
shareholder power I simply ask: how does that greater power address
the problem? I genuinely do not understand how it does so.
Ian Lucas: If everyone operated
on a short-term basis then the performance of those shares as
part of the broader economy would be less good than if everyone
acted on a long-term basis.
Roger Berry: That is the way markets
work and that is an example of market failure.
Chairman: Encouragingly, I disagree with
Roger Berry on this point. Different shareholders take different
views. In the case of one shareholder perhaps his daughter is
getting married next month and he would not mind maximising the
capital value of his shares so he can get out when he is ahead
and fund the wedding. Others will save for the long term and want
investment income over a longer period. They are not interested
in an instant capital gain but want a steady dividend flow. We
are speaking now indirectly about shareholders in Cadbury. I am
sure the MPs' pension fund invests in Cadbury's shares. I would
like it if the trustees of the fund wrote to whoever manages the
fund and told them not to sell the shares to Kraft and that to
secure the long term we should stick with Cadbury. Our pension
scheme is a funded one which often people do not recognise. For
me the long-term interest is served by not selling those shares.
How far down can you drive that? You talk all the time about the
shareholder, but as we have heard from Professor Bones the vast
majority of shares are held by a handful of institutions that
never ask the individuals whose money is being used by them what
their interests are. Quite often in the short term they maximise
performance to get a good rating and league table next year in
the Sunday Times or whatever it is. There is always short-term
pressure on the managers of these funds and, unlike Roger Berry,
I believe that if you give the shareholders as best you can a
greater say the result may be imperfect but it will be better
than the current arrangement. Is that the kind of issue that the
Government is looking at?
Q111 Ian Stewart: In line with the
Chairman's comments, with which I agree, are you not also arguing
that if shareholders are more active in the decision-making process
informed decisions are better than ill-informed ones?
Ian Lucas: As a general rule,
informed decisions are better than ill-informed ones. We are engaging
with institutional investors and fund managers in the process
I described earlier to try to find a way to make UK fund managers
invest more on a long-term basis.
Q112 Chairman: Will you look at Professor
Bones' specific suggestion that they should consult with the people
on whose behalf they hold and vote those shares, that is, a block
for, a block against or a block abstention depending on the wishes
of the shareholders? Is that an interesting idea to explore?
Ian Lucas: It is an idea. If the
company decided that that was what it wanted to do it could do
that already; it is not prohibited by present legislation.
Q113 Chairman: Could we not oblige
fund holders to consult with those on whose behalf they act? As
a holder of a PEP and ISA at present I have no way to express
my view and tell the manager of those how to behave.
Ian Lucas: If we were to oblige
companies to do that it would be a policy change that would probably
require legislation. I believe that 40% of stock exchange investment
comes from overseas companies which is a relevant matter that
also needs to be considered.
Q114 Roger Berry: You said that the
role of the Secretary of State in all this was somewhat limited.
One thing he could do on behalf of the taxpayer is pick up the
phone to RBS which is owned by the state and say he does not wish
the bank to be engaged in helping with a takeover bid. That would
be simple and straightforward, would it not, so why not do it?
Ian Lucas: When RBS was in receipt
of taxpayer funding it was made absolutely clear that the business
was to operate at arm's length from Government and that was the
basis on which it was operated. I understand that Kraft has had
a long-term relationship with the Royal Bank of Scotland. If the
Secretary of State were to do that not only would he contradict
the policy outlined previously in general terms for one individual
case but also interfere in a previous relationship between RBS
and Kraft. Arguably it could also be said that in doing that he
would be making a judgment on the merits or otherwise of the bid.
I think that would be a very difficult course for any Secretary
of State to take.
Q115 Roger Berry: All Governments
have their stated policies including dealing with matters at arm's
length. They appear to spend a lot of time in meetings with chief
executives of companies and people like that. What do they talk
about if they are not saying what they believe it would be a good
thing for those companies to do? Surely, there could be a nod
and wink in the direction of RBS that this is frowned upon. Is
that not possible?
Ian Lucas: I do not think a nod
and a wink is an appropriate way to deal with it. I talked earlier
about the importance of transparency in these arrangements and
the need for a structured procedure to be followed in what is
a very intense period when takeover proposals are put forward.
It is important we have rules, that everyone is clear what those
rules are and that when the position becomes difficult we do not
immediately veer away from them. If we have a very uncertain system
it may lead to less investment in UK business.
Q116 Roger Berry: I appreciate that
present policy is that Government would not use its shareholding
in a bank to elicit a particular response to a hostile takeover
of a UK company, but is that an area of policy that the Government
might consider revisiting?
Ian Lucas: I do not think our
policy would be determined on the basis that the company was not
a UK business in the way you have described it. We do not want
to intervene in specific instances and cases unless there is a
reason for doing it in line with pre-existing policy.
Q117 Roger Berry: Are you saying
that you would not want a publicly-owned financial company to
be one of the instruments of intervention but you would do it
in some other way?
Ian Lucas: If we wanted to intervene
then it would not be appropriate to do so in contradiction of
Government policy by using the method you have described.
Q118 Chairman: I know it is a difficult
time for ministers in terms of what they can say when a controversial
bid is in process. I have a note that you want to refer to a particular
matter. If that is the case I happily give you the opportunity
to do so.
Ian Lucas: I want to make clear
that I have made an error. The round table meeting of investors
is on Thursday, not tomorrow.
Chairman: It makes all the difference!
I cannot help noting there is a certain irony in the fact that
whilst RBS may be paying for Kraft's acquisition Cadbury is being
advised by Goldman Sachs, Morgan Stanley and Union Bank of Switzerland.
There seem to be rather different criteria in operation in this
bid. Thank you, Minister. We look forward to seeing what happens.
| 
