Guinness assigns Panel to the dustbin of history

Jeremy Warner on why the Takeover Panel may find it difficult to survive the Guinness report

Everybody else seems to have emerged from the wreckage of the Guinness affair largely unscathed, so why not the poor old Takeover Panel too? The Panel doesn't get it in the neck quite as badly as Ernest Saunders in the Government's long awaited report on the affair published this week, but the inspectors do reserve some of their fiercest strictures for this remaining monument to the principles of self regulation in the City.

The Panel is already under attack from Brussels, which wants to harmonise takeover regulation throughout Europe on a statutory basis. Could it be that the Guinness report will prove the final nail in the Panel's coffin? The timing could hardly be worse. The Council of Ministers is due to review the Commission's proposed directive next Monday. The inspectors' findings don't exactly bolster the Panel's case for preserving Britain's unique system of non statutory takeover regulation.

In some respects the inspectors' conclusions about the Panel are unfair. No system of regulation, statutory or not, can ever be foolproof against those prepared to take the risk of breaking the rules and then lie about it. If there were such a system, we would live in a perfect world in which there would be no crime or amoral practice.

Even the Guinness inspectors, armed with the most intrusive and daunting powers available in the jurisdiction, were confronted by non cooperation and lies on a massive scale, to the extent that eleven years after the event, they are forced to admit to not being unable to get to the bottom of some matters.

All the same, the underlying premise behind the inspectors' criticism is a reasonable one - it is that all financial scandals are to a greater or lesser extent about a failure in regulation. If the responsible regulator is unable to prevent a scandal as momentous as the Guinness affair, then it is plainly culpable to some degree.

There were obvious signs in the years that preceded the Guinness affair of cavalier and questionable practice on a growing scale in the City. Before the fall, Roger Seelig, Guinness's merchant bank adviser, boasted in an interview that he didn't play by the rules, he made them.

His corporate finance colleague at Morgan Grenfell, George Magan, talked of using every available inch of the playing field in serving the perceived interests of clients. Even an organisation as apparently asleep at the wheel as the Panel could not have helped but notice the the arrogance of these remarks and be warned by them that things were seriously out of control. The Panel should have done something, but it didn't.

Strangely, however, this is not the main thrust of the criticism levelled at the Panel. Rather the inspectors concentrate on some specific failings in the the Takeover Code and the manner in which the Panel dealt with the Distillers bid and its aftermath.

For instance, the inspectors observe that the absence of a specific ban on the use of indemnified purchases of shares made it at least possible to claim that this practice was not disallowed by the Code. The inspectors also criticise the way in which the Panel ordered Guinness to pay compensation to Distillers shareholders of pounds 85m in the aftermath of the affair as "based on an unreal premise".

Further, the pounds 85m together with the pounds 54m Guinness paid to Argyll, the rival bidder, in settlement of litigation, would have been regarded by Mr Saunders and others as a reasonable additional expense to secure the prize of Distillers. In other words, the Panel allowed Guinness to get away with it. Despite having broken virtually every rule in the book, the retribution was tiny compared with the size of the reward.

"Once consummated, a takeover cannot realistically be reversed and the present case illustrates the difficulty of providing ex post facto justice for either a losing contestant or accepting shareholders", the inspectors remark in a statement of the blindingly obvious.

The report moves closer to the heart of the matter when it observes that the Panel's powers of investigation depended on a shared ethic of truthfulness which the inspectors found during the course of their investigation belonged at best to a byegone age. "In the face of a party prepared not only to break the rules in secret but then lie in response to the investigator's questions, the Panel executive was confronted by a task which its founders never contemplated."

Here again, however, the inspectors largely miss the point. The Takeover Panel is in fact as diligent and thorough a regulator as it is possible to find. Anyone who has dug into the archives, as I have, to discover how the Panel dealt on an hourly basis with the allegation and counter allegation that went on during the course of the Distillers takeover battle, cannot help but be impressed by the professionalism and thoroughness of its approach.

Unfortunately, this is not enough. An effective regulator also needs to hold a presumption of guilt, and its approach to the task in hand must be that of the crusader. Most important of all, it needs to be the outsider peering in. The Panel makes a valiant attempt at being these things, but because it is an organisation set up by takeover practitioners essentially for the benefit of takeover practitioners, it cannot ever truly provide this function.

Like all forms of self regulation, the Panel's main purpose is to adjudicate between members of the club, not that of providing a wider public interest sanction. Its natural inclination is to trust its members and it is bound to hold a strong presumption of innocence. This is what seems to have happened in the Guinness affair. Since then the Panel has considerable tightened up its procedures and it may well be that the awful nemesis of the Guinness affair is sufficient deterrent in itself to the City's wilder flights of excess.

Don't count on it, though. As we approach the top of the cycle once more, the instances of questionable practice, both in takeover activity and elsewhere in the City, are again multiplying. When there's a fast buck to be made, there are always those prepared to bend the rules if they think they can get away with it. The uncomfortable truth is that the Panel's old fashioned combination of poacher and gamekeeper roles continues to make this endeavour that much easier. The lessons of the Guinness scandal are clear; takeover regulation, like other forms of City regulation, should be put on a full statutory footing

Start your day with The Independent, sign up for daily news emails
News
The guide, since withdrawn, used illustrations and text to help people understand the court process (Getty)
newsMinistry of Justice gets law 'terribly wrong' in its guide to courts
News
Bobbi Kristina Brown with her mother Whitney Houston in 2011
people
News
Starting the day with a three-egg omelette could make people more charitable, according to new research
scienceFeed someone a big omelette, and they may give twice as much, thanks to a compound in the eggs
News
Top Gun actor Val Kilmer lost his small claims court battle in Van Nuys with the landlord of his Malibu mansion to get back his deposit after wallpapering over the kitchen cabinets
people
PROMOTED VIDEO
News
The actress Geraldine McEwan was perhaps best known for playing Agatha Christie's detective, Miss Marple (Rex)
peopleShe won a Bafta in 1991 for her role in Oranges Are Not The Only Fruit
News
newsPatrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
News
Robert Fraser, aka Groovy Bob
peopleA new show honours Robert Fraser, one of the era's forgotten players
Life and Style
Torsten Sherwood's Noook is a simple construction toy for creating mini-architecture
tech
Sport
David Silva celebrates with Sergio Aguero after equalising against Chelsea
footballChelsea 1 Manchester City 1
News
i100
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links