Michael Harrison's Outlook: Porsche purrs, VW circles the wagons, but Germany's national solution isn't the answer

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The Independent Online

The rationale behind this "German solution" is that the country's biggest car maker must be kept free from foreign takeover at all costs when the "VW law", which prevents any single shareholder owning more than 20 per cent of the company, is declared illegal by the European Court of Justice next year. Already there is panic in Wolfsburg that the legendary corporate raider Kirk Kerkorian or, worse still, some "locust" US value funds will pounce on poor little VW.

Porsche has ridden to the rescue because it relies upon VW to supply the body shells for one-third of all the cars it makes. Buying a 20 per cent stake secures this relationship. When combined with the 18 per cent of VW owned by the state of Lower Saxony and the 13 per cent VW owns of itself, it also makes the company impregnable to any hostile bid.

Porsche knows all about being takeover-proof, of course, because the voting shares in the company are controlled by the Porsche and Piëch families. Ordinary shareholders can complain about the VW deal as much as they want but they are powerless to block it. The only way to protest is to vote with their feet, as many did yesterday at the thought of so much money being spent simply to maintain the status quo rather than being returned to them or invested in new models.

Whether Porsche makes a return on its investment above and beyond this is anyone's guess, but guaranteeing a company that it can never be taken over is rarely the best way of incentivising its management to perform. The man that Porsche shareholders have to thank for the VW deal is Ferdinand Piëch. He is not only chairman of VW's supervisory board but also the grandson of Porsche's founder Ferdinand Porsche and one of the company's largest shareholders.

In his previous job as head of VW's management board, the younger Ferdinand persuaded the company to spend £430m buying Rolls-Royce, only to discover that the deal did not include the rights to the marque, which were subsequently bought by BMW for a song.

The new man behind the wheel at VW is Bernd Pischetsrieder, who was booted out of BMW after he very nearly crashed the ultimate driving machine by persuading the board it was a good idea to buy Rover. Since arriving at VW he has presided over a disastrous relaunch of the Golf, a bribery scandal and mounting losses within its core business.

With this kind of track record, VW's shareholders ought to be begging for an outsider to come in and shake up the company rather than manning the barricades. If the VW episode is any guide, then the reform of Germany's economy and the revival of its corporate sector still has a long way to go.

Regulating hedge funds

Policing hedge funds has been one of the least scientific areas of the international financial community in recent years as the regulators cheerfully admit that they, like the rest of us, have a hard time grappling with what these exotic beasts actually do.

That is changing, albeit slowly. Compulsory registration of hedge fund managers is being introduced in America and the UK's Financial Services Authority (FSA) has published discussion papers on the subject. It has formed a hedge fund supervisory team with 25 "high impact" managers under close scrutiny. A meeting on the topic held yesterday by the Centre for the Study of Financial Innovation was standing-room only, testimony to the growing importance of the issue.

Hedge funds always spark strong emotions. Run by largely anonymous managers earning mind-boggling fees, their enormous pools of capital roam unrestricted across the world's markets, trading anything that can be bought or sold.

Whether you view this as good or bad, it is hard not to agree that the funds are integral to modern capital markets. The funds themselves often force companies in which they invest to take a short-term view but they also provide liquidity and create wealth for the economy.

Unsurprisingly, most hedge fund managers believe there is little need for intrusive regulation. In the UK, for instance, managers already have to be authorised by the FSA. Their funds have independent auditors and most have an independent administrator checking that prices and valuations are accurate. Even more detailed scrutiny comes from the "fund of funds" - investment funds also authorised by the FSA that buy into a range of hedge funds and insist on being allowed to conduct onsite visits, hold conference calls and have access to the administrators.

However, like any financial institution, hedge funds may harbour fraud. They risk losing money through incompetence or end up being the victim of someone else's fraud or incompetence. They can borrow money to invest and may overindulge, risking their banks' creditworthiness. Their sheer scale means that if any, or all, of the above occur then a hedge fund collapse will have serious knock-on effects to confidence in markets and their orderly operation, suggesting regulators ought to be allowed to exercise some control.

In reality investors and lenders already hold huge amounts of information on hedge funds - it just isn't disclosed to regulators. If there was a lot more sharing of data, possibly as a requirement of FSA authorisation, then the hedge funds could still get the light touch regulation they would like.

Now BA's co-pilot ejects

Another day, and another British Airways executive presses the ejector button. This time it is John Rishton, the airline's highly rated finance director, who is following the chief executive Sir Rod Eddington out of the cockpit.

Sir Rod steps down at the end of this week to be replaced by Willie Walsh, and Mr Rishton goes at the end of the year to join the Dutch supermarket group Ahold, which hit the headlines a couple of years ago over an accounting scandal.

He denies that he is quitting after being passed over for the top job or that he has had a falling out with Mr Walsh. So if he is not walking out of BA in disgust, why is he walking into Ahold with such relish, now that it has gone back to being a dull old retailer? Well, because it's a big business and it's a new industry and supermarket retailing does have its challenges you know, even if they don't quite rank in the same league as keeping BA aloft during four of the worst years the world airline industry has ever encountered. And there are worse places in the world to live than Amsterdam. And there's the question of the money. Ahold may sound dreary but it clearly pays very well.

Whatever the motivation for Mr Rishton's departure, it leaves BA with an entirely new team at the top, if you include the recently arrived chairman Martin Broughton. The workforce should brace itself for more turbulence.