Outlook: King's bold opening move may yet have to be bolder still

Ojjeh/Sorrell; Higgs ahoy
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The Independent Online

We'll have to await the minutes of the latest Monetary Policy Committee meeting to know whether Mervyn King, arch hawk and the new Governor of the Bank of England, voted in favour of yesterday's quarter point cut in interest rates, but it is hard to believe he did not. The job of Governor is as much to achieve consensus as ensure the right decisions are made, and he would not have wanted to be in the minority for his first meeting at the helm, however much his instincts might have told him to leave rates unchanged.

As it is, the case for a further easing of policy was always a powerful one, and with the benefit of hindsight it is hard to understand why the decision caught the City so much by surprise. Perhaps it was because everyone assumed that, as Governor, Mr King would attempt to make his hawkish views dominant. In fact the very reverse was always likely to be true. Mr King is highly likely to follow the example of his predecessor and vote with the consensus wherever possible. He may occasionally sway the argument one way or the other, but he will be keen to avoid the outward appearance of undue discord or conflict, which doesn't make for credible policy.

All the same, Mr King would not have found yesterday's decision at all easy. House price inflation and consumption is abating, but it is still quite strong, and although a quarter point off interest rates is neither here nor there when they are already so low, Mr King worries that the longer the house price bubble is allowed to continue, the bigger the chances of a nasty demand shock down the road when interest rates have to rise again.

On the other hand, the international economy continues to look dire, and the pound, having weakened, is now strengthening again, driving down prices and damaging manufacturers. Yesterday's rate cut was the right thing to do, but the economy cannot forever be kept going on a drip feed of debt-fuelled consumption, public spending and rising house prices. Eventually the productive part of the economy has to start growing again if Britain is to achieve the long-term prosperity the Government aspires to. The Bank of England is convinced that all the preconditions are already in place for recovery, but external demand remains as weak as can be.

Still, at least Mr King can comfort himself with the thought that unlike the Federal Reserve, the Bank of Japan and the European Central Bank, he's still got quite a bit of scope for cutting interest rates even further should the world economy fail to revive. The others are almost out of ammunition. Mr King discounts deflation. He may yet need to think again.


The soap opera being played out over the future of the struggling advertising group Cordiant is reaching a critical phase. Nahed Ojjeh, a Syrian-born billionairess and self-styled chess promoter, has broken the disclosure rules of both the Takeover Panel and the Companies Act in building up a substantial share stake in Cordiant. In yesterday's episode, the Takeover Panel widened its investigations to include whether a concert party exists with either Publicis, the French advertising group, and/or Active Value, a fund manager that has built up a near 25 per cent stake in Cordiant.

A conspiracy seems at least possible. The circumstantial evidence of a connection certainly looks strong, though at this stage that's all it is. Maurice Levy, chairman of Publicis, is still spitting tacks over being outmanoeuvred by WPP in the battle for control of Cordiant, but he still has the opportunity to go out with a bang, thereby inflicting maximum damage on Sir Martin Sorrell, his old sparring partner at WPP.

This is because he has a call option over Cordiant's 25 per cent stake in Zenith Optimedia. On a change of control at Cordiant, he can automatically buy this stake either for £75m or for a sum equivalent to 25 per cent of Cordiant's market capitalisation, whichever is the lower. Cordiant is virtually bust and its market value is therefore tiny. Ergo, it suits Publicis to bring about a change of control at Cordiant before WPP can delist the shares and declare the call option null and void.

So here's what the cunning plan might be. Mrs Ojjeh and Active Value buy enough shares between them to bring about a change of control, the former hiding behind nominees, allowing Publicis to charge back on to the scene and call its option. Sir Martin is thus forced to part with one of Cordiant's most valuable assets for next to nothing. It's not exactly checkmate on M. Levy's part, but he could at least declare a stalemate.

Only it's not the plan at all. No siree. Publicis says it is not aware of any plan, Active Value says it has had no contact with Mrs Ojjeh and apparently Mrs Ojjeh has had no contact with Active Value. So why have both of them been buying shares in Cordiant at a price which is bound, on the face of it, to involve them in a loss?

Mrs Ojjeh is a friend of Elisabeth Badinter, chairwoman of the Publicis advisory board, daughter of the company's founder and the company's largest shareholder with 35 per cent of the shares. Mrs Ojjeh's lawyer, Jean Veil of Veil Armfelt Jourde La Garanderie, is connected with Publicis, having advised the company on its acquisition of Saatchi & Saatchi a few years back. Mrs Ojjeh knows Mr Levy and owns shares in Publicis.

None of this necessarily means anything untoward is going on, but it is easy to see why the Takeover Panel is asking questions. Is Mrs Ojjeh a queen or a pawn in a wider game? What's Active Value up to? What's the Takeover Panel going to do about such a public flouting of its rules? And just where does Jean-Marie Messier, former boss of Vivendi Universal, fit into all this? Find out the answers in tomorrow's episode of Soap ­ an everyday tale of City and advertising folk.

Higgs ahoy

Derek Higgs is having to accept a slight watering down of his proposals for boardroom reform after heavy lobbying from the big batallions of British industry and commerce, but the guts of them will survive the mangle of the Financial Reporting Council, the panel of City and business grandees charged with drafting a code for incorporation into the listing requirements. A final decision won't be taken until the FRC meets on 23 July, but already there have been some important behind the scenes concessions.

Mr Higgs was never that keen on the initial code drafted from his proposals by the Treasury. The draft always did seem unduly officious and prescriptive. Crucially it omitted one of his key principles ­that companies should be allowed to explain if they fail to comply. This is now to be built into the code, admittedly not in the form favoured by the CBI ­ "to explain is to conform"­ but beggars can't be choosers and the inclusion is a big improvement on what went before when the code seemed to imply that companies had no option but to comply.

The other main concession is likely to be the removal of the requirement that the head of the nominations committee be someone other than the chairman. This had caused something close to apoplexy among the great and the good of the FTSE 100. If the chairman cannot even appoint the board, what on earth was the point of him, it was said with some justification. As for the notion that a separate independent non-executive director would meet shareholders separately from the chairman, that too has been toned down to remove offence.

None the less, the basics have survived. Personally I've always thought the furore over Higgs a storm in a teacup. There were some legitimate concerns, which are now being largely addressed, but in the round, the new code is unlikely to do much damage to business, and by setting minimum standards, and forcing companies to think seriously about the composition of their boards, it might actually do some good.