We need Community preference. The political, diplomatic and legal battle raging over industrial nationalism, hostile takeover bids (and related defence measures), “European” or “national” champions requires renewed reflection on Community preference. EU institutions and our governments neglect this issue for fear of international repercussions or simply out of lack of knowledge. And yet, behaviour which discomfits would be different if the rules were not identical at Community level and at world level and it would be possible, with greater legitimacy (and more chance of success) to call for behaviour that is more “European”. In London and some other EU capitals, in New York and in tax havens, this is heresy or even blasphemy. But reflection on the very notion of Community preference cannot be avoided for ever.
On the commercial level, I have alluded to this several times, going as far as suggesting that, in the agricultural sector, consideration be given to the withdrawal of the United Kingdom from the common agricultural policy (which would resolve the problem of the British rebate at its root). Apart from agriculture, the growing opening of borders to goods from non-EU countries will have increasingly to be subordinated to binding standards in the environmental and social fields, as well as real respect for intellectual property and competition rules. These ideas are making their way with regard to trade (see, for example, this column in EUROPE 9086), but in the financial sector, there is still a long way to go. Here is a recent statement from Michel Rocard: “The European Union must ban hostile takeover bids on its territory from any group more than 20% of whose activity comes from elsewhere. It is a question of survival.” This is only an opinion, and it is maybe a bit over the top, but Michel Rocard is not just anybody. And a well-informed commentator has just written: “It is not so much national champions as European champions that Europe needs. They have to be encouraged and defended, no matter what the European Commission may think.”
The real weak point of European companies. I am convinced that the fears and difficulties caused by some hostile takeover bids in the steel and energy fields do not spring from the relatively elastic Community directive governing the area nor from the sometimes different transpositions into national law, but from the dissipation of shareholders. The resulting weakness for large companies in the face of a hostile takeover bid has long been neglected. But Mittal's bid for Arcelor has opened people's eyes. While Mittal cannot be touched since 80% of its capital is in the hands of one family, Arcelor's major shareholder - the Luxemburg government - holds only 5% of shares. Arcelor's real owners are the American pensions funds and the required reserves of some insurance companies. There is no reference shareholder because, for pensions funds and insurance companies, the shares are only an investment which has to have the highest possible return, regardless of any industrial, regional or social concerns, and which can be passed on with no qualms to the highest bidder. Their goal is the famous “15% return on the investment”, which leads companies to give priority to remunerating shareholders rather than jobs or investment.
It is true that even those who make hostile bids are beginning to realise that this situation is dangerous and untenable, and they are stressing increasingly (out of self-interest or conviction, depending on the case) on their industrial, or even social, plan beyond immediate profitability. At the same time, some governments are adopting, or thinking about, measures to consolidate shareholding in large companies, by encouraging employee shareholding or calling on public savings organisations and retirement reserve funds to increase their investments in shares. These developments recognise that the way financial markets are working at present is not contributing to a fair sharing of the fruits of growth, or company profits (which are higher than ever) between employees and shareholders.
Initiatives to correct this imbalance without damaging the law of the market and in line with European rules must not be dismissed out of hand as illicit nationalist ploys. The EU should (see the issues considered in this column in EUROPE 9127, 9128 and 9129) be concerned about the gaps between the rules on corporate governance and the weakness of the sanctions against cheats.