Martin Stanley: This watchdog bit the postman, and he'll sniff out mergers that fail the 'smell test'

The new Competition Commission chief will never be Mr Popular in the City. But he has the experience to cope with that, he tells Tim Webb
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The Independent Online

Martin Stanley is the judge, jury and executioner of mergers and acquisitions in Britain.

Martin Stanley is the judge, jury and executioner of mergers and acquisitions in Britain.

Since the introduction of the Enterprise Act, 18 months ago, the chief executive of the Competition Commission has had the final say over whether contentious deals will be blocked or allowed. Under the previous regime, the Commission could only make a recommendation to ministers. Since politics was taken out of the process, billions of pounds' worth of deals - as well as millions of pounds in bankers' fees and the empire-building dreams of many a company chief executive - now rest on his say-so. The former civil servant is still getting used to it. "We're like the supreme court," he acknowledges. "It's a bit of power and responsibility. But also it's a case of 'God, this is me. I have to stand up for this.'"

Stanley likens the extended power of the Commission, granted under the Enterprise Act, to the Government giving the Bank of England independence over interest rate decisions in 1997. "There is a trend in government over many years to give some of the politically difficult decisions to regulators," he says.

As a result of the heavier workload, staff levels at the Commission have doubled to 180 in the past four years. The Office of Fair Trading (OFT) must refer a proposed merger if it threatens to cause "a substantial lessening of competition". Or, in the words of the straight-talking Stanley, if the proposed deal "does not pass the smell test".

Last year, the OFT referred 16 cases to the Commission, of which, so far, five have been either blocked or withdrawn after the six-month review period. Many other potential deals never even reach the Commission's in-tray and are scrapped because of competition concerns. (One such case was last summer's decision by HBOS to pull out of a £10bn bid for Abbey National, leaving the way clear for the Spanish bank Santander Central Hispano. HBOS was no doubt discouraged by Lloyds TSB's takeover bid for Abbey in 2001, which was blocked on competition grounds.)

Stanley only joined the Commission in October last year, so no final ruling has yet been made in a case conducted from start to finish on his watch. Does it bother him that he will soon be having to put his name to decisions that could seriously upset some companies and their shareholders?

"There is a chance that if the decision goes against them, companies will be angry." But he says the risk of flak is nothing compared to his previous job - setting up and running Postcomm, the regulator that has tried to introduce competition in the postal market, to the chagrin of the monopoly operator, Royal Mail.

"At Postcomm I used to have sleepless nights for all sorts of reasons," he admits. "I've not had a sleepless night yet here because the systems are so strong. This is such a beautifully honed machine. You know at the end of the inquiry everyone will have had their say, every effort will have been made. I am not saying you can't make a mistake, but it's damned difficult."

He admits that the Commission's increased powers mean it now has a greater responsibility to explain its decisions. But his job has not been made easier by a Competition Appeal Tribunal ruling last year that heightened the uncertainty surrounding competition policy. The CAT overturned the green light given by the OFT to a merger between two software companies, iSoft and Torex, after a complaint by a competitor. The CAT said it was not satisfied that the OFT had properly explained its decision and, more significantly, that it should have examined the likelihood of the Commission blocking the deal before deciding not to refer it.

The implications for the competition regime - and for mergers and acquisitions - were huge. If the OFT had to second guess what the Commission might think, referrals to the Commission - and the six-month delay and extra costs incurred - could become standard. In the end, the Court of Appeal quashed the CAT ruling, and the iSoft-Torex merger went through without being referred.

The first challenge to the new competition regime has nevertheless lowered the bar for suitable grounds for reference by the OFT to the Commission. Stanley insists his team has not seen a big increase in referrals from the OFT since the dispute. But he admits: "The OFT must now explain more clearly why they are not referring. It's not enough for the OFT to say it's not appropriate. It's a transparency issue."

One criticism levelled at the Commission is that it is anti-profit. Stanley dismisses this as a "ridiculous suggestion", yet the interests of a company (and its shareholders) and those of consumers can clearly conflict. He says British governments are right not to create "national champions", or strong monopolistic companies - such as those in France and Germany, whose governments are more protective of their domestic markets - even if it means British household names like Abbey increasingly end up in foreign hands.

"It does not seem to have done the economy any harm," he says, going back to the example of the liberalisation of the postal market when he was at Postcomm. "No one is saying to the British consumer, 'You have to leave Royal Mail.' If they want to switch to another supplier, who cares if it's German? The most important thing is to put the consumer first. On the whole, British markets work better."

As well as investigating specific mergers, the Commission reviews industry-wide issues, such as whether supermarkets are ripping off consumers by charging high rates of interest on store cards. He is giving little away on the likely outcome of this review, or of the investigation into mergers between water companies, which should be made easier under new competition rules governing the water industry. All he will say is: "Each case will get a good hearing."

If ever he needs advice on impartiality, Stanley can always turn to How to Be a Civil Servant, a paperback guide he wrote after his long career in Whitehall. On his accompanying light-hearted website (www.civilservant.org.uk), he lauds, as the first advocate of the Civil Service, the father-in-law of Moses. In the Bible, the old man tells his son-in-law: "Select capable men from all the people ... and appoint them as officials over thousands, hundreds, fifties and tens. Have them serve as judges for the people at all times, but have them bring every difficult case to you."

Acquisition-hungry bankers and executives take note. Next time you plot a deal, don't try to get one over on Stanley and his Commission - their laws are set in tablets of stone.

BIOGRAPHY

Born: 1 November 1948.

Education: Royal Grammar School, Newcastle upon Tyne; Oxford University.

Career:

1971: joined Inland Revenue, initially as a tax inspector.

1978: moved to Department of Trade and Industry; became principal private secretary in 1990.

1998: director of the Regulatory Impact Unit at the Cabinet Office.

2000: chief executive of the new postal regulator, Postcomm, overseeing the opening of the UK market to competition.

2004: chief executive of the Competition Commission.

Author of How to be a Civil Servant (Politico's Publishing).

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