Business View: Why Britain may say thanks a lot to the Sans-Culottes

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The Independent Online

Walking, shell-shocked, away from Wednesday's Eurotunnel shareholders' meeting, one investment banker was heard to misquote Lord Cardigan's comment about the battle of Balaclava: "C'est magnifique, mais ce n'est pas capitalism." You can say what you want about the implications of the ousting of the Chunnel group's board by the French Sans-Culottes, (and we do on page 7). But like Balaclava, or indeed the French revolution, this fight was lost well before the actual scrap.

Walking, shell-shocked, away from Wednesday's Eurotunnel shareholders' meeting, one investment banker was heard to misquote Lord Cardigan's comment about the battle of Balaclava: "C'est magnifique, mais ce n'est pas capitalism." You can say what you want about the implications of the ousting of the Chunnel group's board by the French Sans-Culottes, (and we do on page 7). But like Balaclava, or indeed the French revolution, this fight was lost well before the actual scrap.

Many things that the Eurotunnel management said prior to the AGM were correct. It was not their fault that the company was in this mess; blame could be placed at the French and British governments, the contractors, the banks, the former managers, even the public. But they knew how bad things were before they took over; you can only play the cards you are dealt. So throwing your hands up in despair is not going to inspire confidence.

Similarly, attacking the French nominees was hardly wise. Eurotunnel's chief executive, Richard Shirrefs, egged on by some very expensive financial public relations advisers, mocked the rebels, calling their leader, Nicolas Miguet, a fraudster at every opportunity. This may be technically correct, but diplomatically it had all the subtlety of Ariel Sharon's assassination of Hamas leader Sheikh Ahmed Yassin. To the small French shareholder, Mr Shirrefs came across as a superior Brit, telling the French they were being silly.

While on this side of the Channel there has been a lot of mutterings about the suicidal tendencies shown in this shareholder vote - along with mutterings about how the banks won't wear it and how the new bosses lack a strategy - there is a serious lesson to be learnt about communication with shareholders.

Eurotunnel is an unusual beast because it has a large number of small shareholders who own a significant part of the company's stock. No other company on the UK stock market has quite the same dynamics. HBOS and BT have the large shareholder base, but neither have small investors owning such an influential percentage of the shares. In the US, Disney comes close, with millions of Mom and Pop shareholders who hold over a third of its capital.

Companies are very bad at communicating effectively with these investors, largely because they don't have to. Small shareholders tend not to exercise their voting rights, and if they do, they fail to act in a concerted way. In the battle to oust Michael Eisner at Disney, a majority of institutional shareholders voted for him to go, but the small investors allowed their proxies to be voted by the company, which saved his neck (for now).

A merchant banker I know was defending a company against a hostile bid. It was on a knife-edge, and he argued against running adverts to persuade investors to vote to save the company. "We'll only remind people they have to vote," he said. He was overruled and the group was taken over by the narrowest of margins.

Communication with shareholders in Anglo-Saxon capitalism largely consists of keeping the big investors happy. This is a tricky thing to do. The volume of, sometimes conflicting, corporate governance demands has angered managers and led to so-called summits to try to find a middle ground. Companies are spending more time dealing with these demands and the little investor is being ignored.

The effect is that the average person has an unhealthy distrust of the City. He or she feels it is populated with arrogant fat cats who cannot be trusted with the stewardship of hard-earned savings. Many who felt tempted in during the dot-com boom will have had their fingers burnt. Mrs Thatcher's dream of a shareholding democracy is just that: people feel more inclined to put their money in a box under the bed than invest in shares.

So will the Eurotunnel coup help this? If the banks round on the company and force it into receivership, then no. But I suspect they will not, unless new managers show themselves to be particularly silly.

However, if it does persuade large companies to show a bit more humility when dealing with the great unwashed of their shareholder register, then the bolshie French will have done us a favour.

j.nisse@independent.co.uk

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