Risky busi­ness

Gor­don Brown will fo­cus on pru­dence in his Bud­get but com­pa­nies should con­cen­trate on tak­ing more chances

The Herald Business - - Front Page -

THE Chan­cel­lor of the Ex­che­quer is un­likely to be able to re­sist us­ing one of his favourite words – pru­dence – when he presents his Bud­get this month. To be fair to Gor­don Brown, he has helped en­sure a stable f is­cal and eco­nomic back­drop for UK-based busi­nesses in the last decade so he is prob­a­bly en­ti­tled to hold forth on the sub­ject

The fact of the mat­ter is, how­ever, that what a UK Chan­cel­lor says in his Bud­get is ever less likely to af­fect fi­nan­cial mar­kets and share prices, bar­ring some kind of lapse into the kind of eco­nomic may­hem seen in the late 1980s and early 1990s.

That said, pru­dence at home has never been more es­sen­tial given the in­creas­ing risks UK cor­po­ra­tions face in a glob­al­is­ing world. If they can rely on sound reg­u­la­tory and tax sys­tems at home, they are freed up to ex­ploit the op­por­tu­ni­ties of glob­al­i­sa­tion.

For all the blus­ter which ac­com­pa­nied the last in­crease in North Sea tax­a­tion, big risks are not re­sid­ing at 11 Down­ing Street.

Look, af­ter all, at the shenani­gans of the Rus­sian gov­ern­ment over BP and Royal Dutch Shell’s in­ter­ests in a coun­try with mas­sive oil re­serves but a whole dif­fer­ent busi­ness ball­park. This is not to say th­ese op­por­tu­ni­ties are not worth pur­su­ing just be­cause they carry a higher risk.

Lord Steven­son, chair­man of Bank of Scot­land par­ent HBOS, at the re­cent “New En­light­en­ment” gath­er­ing or­gan­ised by Sir Tom Hunter in Glas­gow, dwelled on risk man­age­ment.

He even set aside ri­val­ries to de­scribe Sir Fred Good­win, chief ex­ec­u­tive of Royal Bank of Scot­land, as a “bril­liant risk man­ager” in ne­go­ti­at­ing the pur­chase of a stake in Bank of China in 2005 which would have given him his money back if the Chi­nese flota­tion had bombed. In fact, the value of the RBS stake has roughly quadru­pled as Bank of China surged.

And it is not just de­vel­op­ing coun­tries where the big risks lie.

RBS was among the banks hood­winked by fraud at US en­ergy gi­ant En­ron, al­though it could be ar­gued the turn­coat Tex­ans were not hin­dered by Amer­ica’s twin ob­ses­sions with con­tin­u­ous quar­terly earn­ings growth and the lit­eral mean­ing of the rules rather than a prin­ci­ples-based sys­tem.

Even the more con­tro­ver­sial ac­tions of Gor­don Brown pale into in­signif­i­cance for big busi­nesses op­er­at­ing in the UK rel­a­tive to the myr­iad in­ter­na­tional risks.

While the re­cent en­vi­ron­men­tal tax on flights caused much rant­ing by Ryanair chief ex­ec­u­tive Michael O’Leary, his air­line’s shares have still been hit­ting record lev­els.

Bri­tish Air­ways shares are largely un­touched by this tax. In stark con­trast, it and its peers around the world were laid low by the Septem­ber 11 ter­ror­ist at­tacks.

Back in the oil sec­tor, it was not North Sea tax which brought Aberdeen-based Ramco En­ergy to the brink but rather the crys­talli­sa­tion of ge­o­log­i­cal risks at its Seven Heads ven­ture off Ire­land.

And look at the North Sea regime comapred to Venezuela, where pres­i­dent Hugo Chavez is in­tent on na­tion­al­i­sa­tion of oil and other in­dus­tries.

So we’ll al­low Brown his ref­er­ences to pru­dence, and hope he en­sures the main fo­cus of com­pa­nies’ grow­ing risk man­age­ment abil­i­ties re­main over­seas.

Ian McCon­nell is Busi­ness Ed­i­tor of The Her­ald


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