James Moore: Bumi affair reflects appallingly on London, so give the box tickers more bite


Outlook One consequence of Nat Rothschild's abrupt resignation from the board of Bumi is that it finally complies with a key provision of the Combined Code on Corporate Governance: independent (at least by the company's definition) non-executive directors are now in the majority.

Not that this makes the slightest bit of difference to the group's long-suffering, independent shareholders. They now face something of a Hobson's choice. They can either sell the Indonesian mining assets that the group was set up to buy back to the Bakrie family on the cheap. Or they can sit and watch as shares floated at £10 are dragged down towards 10p as the company is engulfed by scandal.

The simmering conflict between the family and its erstwhile partner, Mr Rothschild, erupted into open warfare on Monday night as he walked out, levelling various accusations against the Bakries and Samin Tan, the company's current chairman. The latter is a Bakrie associate (he helped them with a spot of financial bother) so isn't exactly an independent party in this affair as the code says he ought to be.

If you thought the goings on at the "more Soviet than City" ENRC, another mining company, hadn't once and for all put to bed the notion that Britain's corporate governance lobby was made up of a bunch of box tickers, then a cursory look at what's been going on at Bumi ought to do the trick.

Bumi was originally known as Vallar, which was a cash shell (never a good sign) set up by Mr Rothschild into which various Bakrie-linked mining assets were reversed. It was brought to market by JP Morgan Cazenove's Ian Hannam, who also advised on the Bumi deal.

All seemed to be going swimmingly until the partners fell out amid accusations of impropriety. As for Mr Hannam, he is now advising the Bakrie family, having quit JP to fight an attempt by the Financial Services Authority to fine him for alleged market abuse. Convenient, that, at least for him.

Well, it was always going to be hard trying to marry a family-run, Indonesian concern with UK standards of corporate governance.

But, then, Bumi never really tried all that hard. There might be a few independent directors, but, as I've said, until Mr Rothschild's resignation they weren't in the majority and there has never been an independent chairman.

To allow "flexibility", the UK's corporate governance rules have always worked on the basis of comply or explain to investors why you don't. It's hardly a great surprise that so many problems seem to emanate from those that don't.

Mr Rothschild, in his resignation letter, argued that the affair would reflect badly on Indonesia. It actually reflects appallingly on London.

With the help of JP, Vallar/Bumi was able to secure a premium listing and a place in the FTSE 250 index of mid-tier stocks, securing access to tracker funds and pensions, despite the fact that (as we now see) the whole thing was and is a house made of straw that has been knocked over with embarrassing speed.

Comply or explain? If the Bumi affair demonstrates anything it is that the box tickers need more bite. To prevent a repeat of this sort of thing it really ought to be comply or else.