“It’s a decision that’s too important to be left to shareholders”.
These are the words of former City minister Lord Myners talking about the American drug giant Pfizer’s bid for AstraZeneca. We’re all entitled to an opinion, of course, but I think he’s dead wrong.
Myners spent his business career as chairman of institutional fund manager Gartmore. He had a duty to represent the interests of company owners – the shareholders, who were his clients.
So why is he now arguing that shareholders should give up their rights, not exercise them?
Well, things can get emotional when big, foreign takeovers appear on the horizon. We have to ask questions about how the ‘national interest’ is best served, and what role investors should play. Everyone wants to step in and voice their opinion.
Me, I strongly believe that we should let the market pick its own winners and losers. And I think Lord Myners has got it wrong – the people best-placed to decide on Pfizer’s bid are AstraZeneca’s shareholders themselves. Not politicians in Westminster. Let me tell you why.
What do civil servants know about the markets?
I’ll lay my cards on the table straight away. I’m a firm believer in the capitalist system.
What that means is that I think scarce economic resources are best allocated by the ‘invisible hand’ of the market. Lots of people seeking to make money is the how we ensure we don’t waste our financial, physical and intellectual capital. It’s how we produce the things that people really want and will pay for.
The alternative is to let a civil servant, or even worse, a politician, decide for us. And there are plenty of examples which show the folly of letting the state take on this role. The most extreme is Soviet Russia. A more recent example could be post-Soviet Russia!
Closer to home, British Leyland should be a warning to any government promoting ‘national champions’. Political interference in the sale of what was left of Rover Cars also ended in disaster.
Have you got the picture yet? Time and again, governments have made lousy investment decisions when they act in what they think is the national interest.
AstraZeneca doesn’t have to be independent to benefit Britain
The media finds it very easy to play on nationalistic sentiment – the idea that we should keep great British institutions safe in domestic hands. Ironically, AstraZeneca has actually been cutting British research and development jobs for years! In fact, it’s in the middle of a cost-cutting programme which aims to lose about a tenth of its workforce.
And like all major pharmaceutical companies, it’s really a global business. It can’t be tied down to one country. After all, even its current incarnation is the result of a cross-border merger with Sweden’s Astra.
At the end of the day, we have a vibrant life sciences industry here in Britain, built on the success of our world-class universities. AstraZeneca is only a part of it. In the world’s top four universities for Clinical and Health, we have three: Oxford, Cambridge and Imperial London (the fourth is Harvard).
This is the bedrock of our scientific expertise – not whether AstraZeneca remains independent.
Shareholders must stand up and be counted
So this is when investors need to take a stand. We need to take a hard look at AstraZeneca’s long-term prospects, and compare them with the value offered by Pfizer. This decision has to be driven by commercial considerations and by the terms offered to shareholders.
And that’s why the best placed people to make this decision are AstraZeneca’s owners themselves.
If not, we end up protecting management from the ultimate sanction – the threat of takeover. Takeovers are capitalism’s way of getting rid of bad company management. If shareholders do their jobs and seek involvement, then this mechanism won’t be needed.
But like a nuclear weapon, it’s useful to have as a last resort. Take this power away from shareholders and we’re on the road to the mediocrity of dirigisme, and politicians picking winners.
That’s why we must let the market pick its winners and losers. Our true national interest lies in making sure our companies are managed well and are as productive and efficient as possible, not in protecting one company or another from the market.
That means shareholders have to exercise their ownership rights and take company boards to task. These decisions are too important to be left to Westminster or Whitehall.