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Outlook: Shareholders make their point, but Murdoch isn't listening

CBI angst

Jeremy Warner
Saturday 15 November 2003 01:00 GMT
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Rupert Murdoch was on vintage form for the BSkyB annual general meeting yesterday, which he described as the best ticket in town. One shareholder, who dared to suggest that Mr Murdoch had treated his investors with contempt by appointing his son as chief executive, was told to sell his shares if he didn't like it. Another, who said he would cast his 0.7 per cent of the votes against the re-election of James Murdoch unless he received assurances that a new independent chairman would be appointed, was simply instructed to do his damnedest.

After the meeting, Mr Murdoch senior was in equally intransigent mood. If he had one criticism of James's predecessors as chief executive, it was that they spent too much time going round the City talking to shareholders and not enough of it running the company. Yet beneath the bombast, Mr Murdoch seemed rattled. In the melange afterwards, he was heard to remark to his wife that the behaviour of some shareholders had been "bloody insulting". Some of them were "seriously nasty... They were saying we are thieves". Victims of his popular newspapers will know the feeling.

Personally, I left the meeting not knowing whether we had just witnessed a step change in shareholder activism or another example of lily livered City institutions jumping on high horses and then failing to ram home the charge. The size of the protest vote by institutional investors was virtually unprecedented for a FTSE100 company, as was the noise it generated.

The representatives of five leading institutional shareholders - the Universities Superannuation Fund, Calpers, Morley Asset Management, Deutsche Asset Management, and Legal & General - spoke out against Sky's supposed failings in corporate governance, and the vote on two of the resolutions - the remuneration report and the re-election of Lord St John of Fawsley - was overwhelmingly against the board once News Corp's 35.4 per cent stake is stripped. That shareholding ensured the outcome was never in any doubt, but it is none the less rare to the point of being virtually unheard of for so many big City names to stand up and be counted.

Even Mr Murdoch, who is too long in the tooth and secure in his achievements to care what the City thinks of him, is going to have to take notice. Yesterday's promise to set up a couple of committees to examine Sky's compliance with corporate governance codes and remuneration policies falls a long way short of the required reform. That said, when it came to the really important issue, the appointment by Mr Murdoch of his 30-year-old son to the post of chief executive, the institutions pulled their punches. Less than 25 per cent of the vote was cast against James Murdoch. He would have survived even without the support of the News Corps stake. Instead, the City's anger was taken out on poor old Lord St John of Fawsley, whose only contribution to the meeting was to say he didn't so much care about being thought too long on the board to be independent, as that people kept getting his name wrong. So pay attention, Rupert and anyone else who falls into the trap. It's Lord St John, not Lord Fawsley.

Back in the real world, Mr Murdoch wants it known that he and James will disagree on all manner of things, father and son though they are. They had spent 90 per cent of Thursday's board meeting quarrelling over something he won't tell us about, and they even seemed to have a minor squabble in public yesterday on whether the group's ambitious targets for average revenue per subscriber can be met given the company's equally ambitious targets for subscriber growth. Mr Murdoch is hugely proud of Sky, which as he pointed out is the only major British company other than perhaps Vodafone to have been built from scratch in the past 30 years - this in the face of enormous hostility all round. What he didn't point out is that the BSkyB share price is still roughly the same as it was six years ago. In the meantime, there's been virtually nothing in the way of dividends. Shareholder value is becalmed. Never mind corporate governance. To vanquish their critics, the Murdochs are going to have to do something about it.

CBI angst

Both the Prime Minister, Tony Blair, and the Chancellor, Gordon Brown, are planning to speak at the Confederation of British Industry annual conference in Birmingham next week. They are unlikely to get as warm a welcome as they've had in the past. The CBI and its big business members have no complaint about the Government's handling of the macro-economy - how could they when Britain is one of the few advanced economies in the world to have carried on growing right through the downturn? - but there is growing alarm at the micro level over the rising burden of regulation and tax.

Last month, the CBI published an analysis which showed that out of our top five trading partners, only France now placed a bigger tax burden on business than Britain. According to the CBI, our relative advantage as a low tax country has disappeared under Labour. The analysis is hotly contested by the Treasury, which insists that business's share of the tax cake is no greater now than when Labour came to power. It also disputes the claim that Britain now taxes business more heavily than Germany. What is not in doubt is that the tax burden as a whole has been rising steadily, from 33 per cent of GDP in 1993-94 to a projected 36.3 per cent this year and 38.2 per cent by 2007-08. These are Treasury estimates, so they almost certainly understate the likely outcome. Barring an economic miracle, the Chancellor will have to raise tax further than presently planned if he is to keep the public finances in order.

Almost everywhere else, including the Continent, the trend is the other way, with governments attempting to cut taxes, in so far as already mountainous budget deficits allow, in an attempt to stimulate demand. Too much tax, and business won't invest, or it will turn to lower tax regimes instead. The problem the Government has got is that whether or not the tax burden on business is rising, that's certainly what most business leaders think is happening. Once that psychology sets in, it's hard to reverse.

The same is true of regulation. Most of the red tape business complains so loudly about is coming from Brussels, but quite a lot of it is generated by the Government, for instance on pensions, health and safety and in the tax system itself, which through its growing complexity alone places severe costs on business. From Michael Heseltine onwards, governments have promised a bonfire of red tape, but somehow or other the unlit mound just keeps growing, clogging up the wheels of business and stifling economic activity.

The damage is particularly acute among small businesses and sole traders. The truth of the matter is that though they complain like billio, the big battalions of business represented by the CBI are much better able to cope with the rising tide of red tape and taxes than the little guy. They may even benefit from it, as the effect is to stunt innovation and competition. Yet it is to small, growing businesses that the Government must look for the next generation of taxpayers and job creators. Most big companies don't create jobs, they only downsize. Interestingly, one of the biggest areas of employment growth is in micro-services. Many of these people don't pay any taxes at all, nor are they regulated. Primarily, they are black or grey economy.

The Government ignores these trends at its peril. Too much tax and regulation, and the Government ends up undermining the tax base altogether. Britain's still-poor productivity record set against our international competitors will no doubt again be the Chancellor's theme when in speaks to members of the CBI next week. But in the end, higher levels of productivity are driven by higher levels of competition. More regulation and tax does nothing to encourage the competitive landscape we all want to see.

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