Global business needs hard rules to combat regulatory impotence

I asked this question last week in respect of the proposed 75bn merger of pharmaceutical conglomerates SmithKline Beecham and American Home Products: “If a 75bn deal can be struck, then why not a 150bn merger of SB/AHP with Merck?”

Well, whaddya know? In the event, the imperialist ambitions of SB’s chief executive, Jan Leschly, led him to dump AHP in favour of a plumper bride in the shape of Glaxo

Wellcome. This merger will be worth in the order of 100bn, but who knows whether Merck or Novartis will catch Leschly’s eye next week.

Clearly, consolidation in the international pharmaceuticals industry has become a question of terminal, rather than critical, mass. By that, I mean that my somewhat alarmist vision of a single drugs conglomerate dominating the global market sometime early in the new millennium may not be too wide of the mark.

The best one can say about SB and Glaxo is that at least the new force in world drugs is going to be centred on Britain, rather than Philadelphia, which is where the AHP deal would have taken it. My concerns persist that the desire to create research and development stability in pharmaceuticals and to establish some form of protection against the expiry of drug patents may eclipse broader industrial and political concerns about competition and the regulation of it.

There is, of course, a much broader issue than what is happening in the pharmaceuticals industry, though that is certainly symptomatic of the competitive and regulatory challenges that globalisation brings. A cursory glance at the number of commercial areas in which there is said to be no regulatory control – or indeed where regulation is impossible – is illuminating.

The most blindingly obvious commercial arena for this inertia is the Internet. We are told simultaneously that it is ownerless and consequently beyond control and that it is the future of international business. Furthermore, that within five years most, if not all, retail transactions will be largely conducted on the Net.

I find that hard to comprehend. Not because I think I’m disbelieving of the potential of the Web, but because I’m disbelieving that those with the opportunity to develop it have the ability to do so. Net anoraks are a bunch of klutzes. Bill Gates and Microsoft will undoubtedly develop user-friendly Net access, but I have to say that an industry which can deliver the prospect of international computer meltdown with the Millennium Bug does not fill me with confidence.

Did it really not occur to the giants of computer development that the year was likely to change at the end of the millennium? Meanwhile, we have the worldwide IT industry developing through the Net with no sense of ownership, let alone regulation.

In those media industries in which there is discernible ownership, there is no less of a regulatory conundrum. It is now an old chestnut to question in which jurisdiction Rupert Murdoch’s media interest should be regulated. Digital satellite delivery across borders is unlikely to do anything other than extend regulatory impotence.

Then there are financial services. The prospect of national regulators, who have proved quite incapable of investor protection at a domestic level, being charged with financial policing at an international level is truly alarming. From the Maxwell pensioners, Barlow Clowes or BCCI at home, through to Yamaichi Bank in Japan or Barings’ stewardship of its operations in the Far East, financial services industries have demonstrated a spectacular lack of control that cannot be explained away in terms of “the odd crook”.

The fact is that financial derivatives instruments are far smarter than the people who use them. Nor is the danger confined to banks and investment houses – companies such as Allied-Lyons, as it then was, have demonstrated a willingness to squander shareholder funds through investment vehicles that were beyond them.

I shudder to think what might happen with the global link-ups of the worldwide accountancy firms. Apart from the odd glitsch – Polly Peck springs to mind – accountancy firms have largely had a respectable background in their domestic jurisdictions.

Globalisation could, by contrast, provide the potential for some auditing cock-ups of a monumental scale. And in what jurisdiction will they be accountable?

Then there are the pharmaceutical megaliths. I have made my points about SB’s world domination tendencies, but I suppose a case can be made for the required focus on research and development and patents expiry. It is harder to justify conglomeration without that kind of focus. The way in which combines such as BTR develop leads one to suppose that some companies become unmanageable beyond a certain size. My point is that it is virtually impossible to regulate them on a global scale.

What is to be done? My view is that there should be an end to the rather wet solipsism that global markets are uncontrollable globally. This is the talk of someone with a low forehead and an anorak. In a week when the United Nations stands poised to “regulate” Saddam Hussein in the Gulf, it is perhaps timely to call for a UN for business. In looking at the civilised world, we should recognise that there is more that unites than divides us. It is perfectly possible to compete while regulating collectively, as the UN demonstrates.We just have to decide that we have the will to do so.

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