Outlook: Realpolitik dictated that James would always be Sky's CEO

Controlling credit
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The Independent Online

Picture the scene. Will Rupert and son James kindly absent themselves from the room while the board discusses whether to appoint James Murdoch, James Murdoch, or James Murdoch as BSkyB's chief executive. By the end, the choice facing the board was as ludicrous as that. Sky's independent non executive directors will be accused of disregarding the will of outside shareholders in appointing James Murdoch to the post, but the truth of the matter is that the die was cast long ago from the moment Mr Murdoch senior began to consider his son ready for the job.

There's been a lot of wasted time, effort and due process since, and the whole affair has undoubtedly been badly mishandled, but there never was going to be any other decision. Of course James Murdoch would not be getting the job if he were not his father's son, and he certainly wouldn't be getting it at the tender age of 30 but for that fact.

Yet that doesn't mean that he's a bad choice. Actually, I think we have to believe Allan Leighton, the most obviously independent of Sky's non executive directors, when he insists that James was the best for the job out of the seven candidates the nominations committee eventually considered. If you had to draw up a list of the top five pay TV executives in the world, James, courtesy of his position at Star in the Far East, would be among them.

The TUC rushed out a statement last night saying that the chances of the hereditary principle producing the right man for the job were a billion to one. Even allowing for exaggeration, it's not actually true. If James turns out to be even half his father's son, then shareholders will do very well out of the appointment.

All of Sky's CEOs have been virtual unknowns in the City at the time they were appointed, including Tony Ball, the present incumbent. Yet in nearly all cases, they've turned out to be outstanding. Mr Murdoch's judgement would plainly have been clouded in this case, so the non-executives are laying their reputations on the line by going along with it.

However, even if they had considered James not the best candidate, it's hard to see how they could have done anything else. Sky is an entrepreneurial creation of barely more than 20 years existence. The really big, important decisions have always been taken, not by the CEO, but by Mr Murdoch senior himself, and so long as he remains compos mentis that will continue to be the case. Through News Corp's 35.4 per cent shareholding, he has as near control as makes no difference without actually owning a majority of the shares. Mr Murdoch was always bound to get his way, and in a sense it is important that he does, for there is nothing more damaging to a company than a stand-off between the chairman and his chief executive.

Lord Rothschild moves in very much the same circles as Mr Murdoch, but he's nobody's poodle, and in conjunction with Allan Leighton as head of the audit committee, he ought to provide the necessary counterweight to the father and son team. None the less, the appointment of an independent deputy chairman will be seen as a sop in some quarters of the City for whom James as CEO while his father remains chairman will always be unacceptable. Mr Murdoch has enjoyed the privileges of the capital markets but he seems to have run rings around their disciplines, in the same way as he has the country's media laws.

Some shareholders will vote with their feet, and sell the stock in disgust. Yet those who bought into Sky thinking the Murdoch factor might eventually be exorcised are not only living on another planet, they also misunderstand the nature of the beast. Sky, its success and Rupert Murdoch are inextricably linked. The Murdoch factor comes with the territory.

Controlling credit

It seems unlikely that members of the Monetary Policy Committee are regular readers of The Sun, but if they were they would have found no fewer that six of the newspaper's 52 pages yesterday devoted to advertisements for loans, mortgages and other forms of credit. We are in the midst of what is probably the biggest consumer credit boom of all time.

Never has credit been easier to obtain or cheaper for the ordinary, working Briton and, as a matter of almost patriotic duty to keep the British economy going through one of the most severe business downturns in living memory, there's been every encouragement to use it.

Later this week the MPC will take its first, tentative step towards putting the lid on the boom. Whether merely reversing July's quarter-point cut in interest rates is any longer enough is questionable. Most people will regard a quarter point as neither here nor there. To send a clear and powerful message, the Bank of England needs to be thinking about the full half point, not withstanding the outcry such a squeeze less than two months before Christmas would prompt.

Yet to do so risks nipping the still nascent recovery in business confidence in the bud. For many companies, the low interest rate environment of recent years hasn't applied, so poor have lenders judged their credit risk to be. To raise interest rates now will increase business costs just as investment is recovering. It would also raise the value of the pound, again tilting the balance of trade against British industry just as it was starting to recover its advantage.

The Bank of England must begin to wish there were other policy remedies available besides rates. Part of the downside of stripping the Bank of responsibility for banking supervision, and vesting the function with the Financial Services Authority, is that it has removed the scope for micro-management of credit.

Fast back 25 years to the 1970s, and there used to be something known as the corset to control credit. Credit conditions could be expanded or tightened according to need - or sometimes the call of the ballot box - by adjusting the capital requirements of the major private sector banks. Admittedly this was a crude mechanism that few would advocate re-introducing. Furthermore, it is debatable whether it could be made to work in today's more global and open capital markets, where great tidal waves of credit can easily wash across frontiers, or whether in the modern age of democratised credit it is entirely appropriate to ration the stuff.

Vincent Cable, the Liberal Democrat spokesman on Treasury affairs, has none the less been raising the issue afresh of whether interest rates should be the only mechanism by which credit is controlled. Other monetary authorities have applied more direct controls on the market, most notably in Hong Kong, where homeowners and lenders have been saved from the worst consequences of the property crash by the existence of a long standing and rigidly enforced loan to value cap of 70 per cent.

As things stand, the Bank of England has no powers to impose anything similar, or indeed to become involved in any aspect of the minutiae of credit control. Furthermore, the MPC's mandate is confined to keeping inflation on target commensurate with reasonable levels of growth. Mervyn King, the Governor of the Bank of England, and other members of the MPC have had to put themselves through a series of intellectual contortions to argue that it is any part of the Bank's role even to control asset price bubbles, let alone the extent of consumer credit.

The FSA, meanwhile, probably would have the power to impose credit controls but again has no mandate to interfere in macroeconomic policy. By divesting authority in these matters to two independent bodies, with necessarily rigid boundaries of operation, the Government has dangerously deprived itself of an important policy tool. The Chancellor has said very little about the dangers of the credit boom, preferring instead to bask in the glory of Britain's superior growth rate when set against the eurozone. Nigel Lawson was similarly silent about the credit boom of the late 1980s, and look how that one ended.

jeremy.warner@independent.co.uk

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