COMMENT : Autonomy proves an elusive goal for the Bank

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The Independent Online
If there was any doubt about whether the inflation target was eased in the Chancellor's Mansion House speech, the publication of the minutes of the May 5th meeting between Kenneth Clarke and Eddie George will have dispelled it. The Governor's warning that on unchanged policy, underlying inflation would still be "in the upper half of the target range by the spring of 1997"- 2.5 to 4.0 per cent - could hardly have been more explicit. Yet the Chancellor chose to override his advice to offset that "substantial" inflationary risk with a rise in interest rates.

How convenient, then, that Mr Clarke now has his let-out clause; inflation may now rise to 4 per cent even allowing for interest rates set "consistently" at the level judged necessary to achieve the inflation target of 2.5 per cent or less. As to what that level of interest rates should be, there is more than enough scope for disagreement on the part of any two man show, let alone the Ken and Eddie show.

Since the Chancellor's decision to keep interest rates on hold six weeks ago, much has been made of the Bank's tendency to cry wolf on inflation.The adverse market reaction about which the Governor warned has failed to materialise.And most of the economic indicators have gone the Chancellor's way, such as the downward revision to first quarter GDP and a further decline in the housing market.

None of this should distract attention from what has happened, however. As the electoral cycle turns from mid-term toughness to end-term tenderness, so the tough new structure of enhancing the power of the Bank of England has developed dry rot. The Bank appears to be as much the creature of Mr Clarke as that of any postwar Chancellor.

This view of the underlying balance of power will gain all the more currency from the stark warning Eddie George gave the Chancellor about the potential damage to "the credibility of the policy approach." By overruling his advice, Mr Clarke showed what value he place upon that.

In the event, the loss of credibility may have been more limited than the Governor expected, if only because no one in the City was willing to bet serious money on the supposed enhancement of the Bank's autonomy - witness the continuing gap between yields on conventional and index- linked gilts. Striking a balance between an over-cautious Bank which is too much the reflecting board of the markets and a Treasury that responds to legitimate political pressures will never be easy. But the present arrangements fall far short of a lasting settlement that will move us towards the holy grail of non-inflationary growth.

Brent Spar decision is a corporate disaster

It beggars belief that a company of the size and sophistication of Shell could have been so wrongfooted by the Brent Spar fiasco. Not only did Shell fail to pick up the power of the groundswell of opinion in Germany and the Netherlands against sea dumping, it also made a complete ass of itself by panicking at the last moment. The writing was on the wall nearly a week ago when Chancellor Kohl came out publicly against the disposal strategy.

The machinery of Shell, celebrated for the painstaking way it grinds through the decision-making processes by consensus and debate, took until Tuesday afternoon to snap into action. Most extraordinary of all, the board chose the very moment - around 2.45pm - that John Major was standing up in the Commons to deliver his homily in favour of the company's previous strategy, to decide on its U turn. Whatever happened to Shell's famously sensitive political antennae?

There are several ways of looking at this corporate disaster. Short term, the extra cost of disposing of Brent Spar on land is negligible. The share price fell only 9 p to 750p yesterday. Long term, there could be substantial extra costs for the industry as a whole if the affair leads to a rewriting of disposal conventions to impose a clean sea policy. But again the financial consequences for Shell itself are relatively small.

By acting as it did, Shell may also have defused the consumer pressure building up in its retail markets. Though it dismissed these as a reason for the change of heart, consumer resistance to Shell products could have grown over the coming months to devastating levels if it had stuck subbornly to its previous course. So where is the long term damage? It is almost certainly to that ill defined but vital part of a company's life support system, the confidence of its managers. Shell has never had to face such humiliation, and adjusting to it will be painful.

With Shell already in the throes of reorganising its dual headquarters in a way expected to lead to a substantial number of senior departures, some of those in the front line of the Brent Spar affair are almost bound to disappear in the coming months. There was never any love lost between Shell UK and its Dutch partner. Though the Dutch board approved the dumping of the Brent Spar, it is Shell UK that will get the long term blame for this fiasco.

Ironically, the present reorganisation is designed to address some of the deficiencies in management structure, that contributed to the debacle. The Brent Spar decision was taken under the old regime, and is the strongest possible confirmation that change is needed. The new Shell is to be organised on functional lines that eat into the autonomy of some of the national baronies. It is obviously a long overdue reform.

Sir Richard's poisoned chalice

If Sir Richard Greenbury didn't realise when he agreed to head the Government sponsored review panel on executive pay that he was taking up something of a poisoned chalice, he knows it now. Privately, he curses his ill judgement on agreeing the post; as a committee made up of businessmen, it cannot but help disappoint public expectations, whatever it says. The last thing Sir Richard wants is for the good name of Marks & Spencer to be associated with something that becomes the object of public ridicule. Now a further embarrassment arises. An increase in pay which would probably merit in normal circumstances no more than a minor item on the business pages has become headline news courtesy of his chairmanship of the Greenbury Committee.

Few shareholders would begrudge Sir Richard his 17 per cent rise in salary, though they might quarrel with a 20 per cent bonus in a year when profits went up only 8.3 per cent. But as Shell has found to its cost, it is no longer as simple as that. Public opinion matters too. While it seems unlikely that an issue such as the chairman's pay would seriously alienate public opinion against M&S, Sir Richard would have to admit that for the head of the committee looking at how to curtail executive excess to receive a 17 per cent hike in salary to more than pounds 800,000, is something of a story. Furthermore, one of his co directors made around pounds 600,000 out of share options last year, an aspect of the executive gravy train that the committee wants to see banned. Because it makes both Sir Richard and the committee look silly in the extreme, it reflects on M & S too.