City & Business : The City's problem, not the Co-op's

The abortive bid for the Co-operative Wholesale Society from Andrew Regan's Lanica Trust has provided a marvellous diversion from the tedium of the general election. Were it not for the apparent absence of a sex scandal it would make the basis for a great film script. It is a tale which pitched the young tiger against the old dinosaur. One epitomised the new South, the other the old North. It was a battle fought in the courts and in hotel car parks and combined murky intrigue with high finance. It has featured mystery payments to offshore companies, clandestine meetings and private detectives galore. Only the skeletons in the cupboard were allegorical.

Now, unfortunately, the saga - like the election, thankfully - is coming to a close. Mr Regan has admitted defeat and has retired hurt. The CWS, however, appears to be hell-bent on pursuing him and some of his collaborators through the courts. It has launched a barrage of legal actions including private criminal proceedings against Mr Regan.

Much as the press might like the show to go on, it is unfortunately not the role of the CWS to keep the fourth estate entertained. The legal assault proved to be an extremely effective defence against the takeover bid. However, the CWS has accomplished its mission and now it must move on to more important matters. For while it may feel aggrieved that Mr Regan and some of his advisers had no compunction in treating with a disloyal senior CWS executive, there is no justification for the CWS to assume the role of guardian of City morality.

If there are prosecutions to be brought as a result of the conduct of this bid, then let them be brought by the authorities. If there is a view in the City that the acceptable standards of behaviour have been breached, it is essential that the offenders are brought to book. Any such condemnation must carry the full endorsement of the Crown.

There is much huffing and puffing in the CWS camp about unacceptable behaviour. Unfortunately takeover battles are rarely fought by those who learned their trade at the feet of Mother Theresa. At some point harsh reality must balance the pious morality that the CWS camp is laying on with a trowel.

Rules being bent or contorted is the price we pay for having the most creative and vibrant financial centre in the world. However, that vitality can only be encouraged where it is clearly kept in check by a broader oversight, which ensures that the City's essential integrity is not undermined.

The Guinness trial, which had its roots in corporate aggression of the late 1980s, was an example of the restraint that can be applied when it is deemed that creativity has gone too far.

Now the City must decide again whether it is time to revisit its own standards of behaviour. The question is whether the conduct of the bid for the CWS represents a wider malaise and lowering of standards or whether it was merely the corporate equivalent of the "rogue trader".

If there is a consensus that there is wider malaise then it is incumbent upon all the City regulators, be it Bank of England, Stock Exchange or whoever, to make collective representations to the authorities to ensure that the bid and all those connected with it are thoroughly investigated. If, however, we are faced with a "rogue bid", then those same regulators must press the authorities to pursue those men who have behaved badly.

The key here is for the City to accept that its reputation has been challenged. That reputation must now be defended. Quickly and quietly the City regulators should sit down and decide which course of action they are going to pursue.

The CWS is understandably a little mistrustful of the City at the moment. Let it, and the public at large, be reassured of the City's bona fides by clear evidence that the issue of standards of conduct is taken seriously.

A clear statement of commitment from the City regulators to support the authorities in their necessary investigations will send a clear signal to others that those who appear to deviate from accepted practice will be pursued.

It will also relieve the CWS of the need to pursue its private actions and allow it to concentrate on the - more important - issue of positioning itself for the future.

T for two

BAA's announcement that its new Terminal 5 would be occupied by British Airways may turn out to be the opposite of a self-fulfilling prophesy. By stating so openly and so soon that BA and its alliance partners would have pride of place at T5, BAA may have inadvertently undermined the very alliance which has been earmarked to reside in the world's most modern terminal.

Crucial to BA's ambitions is the proposed partnership with American Airlines, which has been stacked over the Department of Trade and Industry. The deal has still to be approved by the British and US governments. BA's cause will not have been helped by BAA's confirmation that if the alliance was ratified it would be the prime occupant of T5 with all its advantages.

The Office of Fair Trading's musings on the BA-American deal have made it clear that access to terminals is a key consideration in judging the competition implications of the partnership. At the same time , US Senate hearings last week confirmed that facilities would feature prominently in the US verdict on the proposed alliance. Superimposed on this is Virgin Atlantic's anti-trust action against BA in the US, which will now be adjusted to reflect the tightening of BA's grip on Heathrow that T5 suprem-acy would represent.

In the face of this, the temptation for an incoming Labour government to refer the BA-American alliance to the Monopolies and Mergers Commission grows stronger. It would be a neat way to avoid conflict with the airlines and a potential run-in with the EC and the US. That may cost BA its alliance with American, but at least BAA will take comfort from the fact that there is no shortage of prospective T5 occupants.