Keith Hann column

Feb 7 2007 By Keith Hann, The Journal

I started work (if you can call it work) in financial PR in 1983, the year of Mrs Thatcher's post-Falklands electoral landslide. There followed three years of absolutely frenetic activity helping to bring companies to the stock market.

Big ones, small ones; Government privatisations, old family firms and entrepreneurs' bright ideas; high quality household names and businesses massaged to an artificial peak of saleability by men you would not have bought a used road atlas from, never mind a car.

We used to love working for one merchant bank in particular, because they consistently under-priced their offers for sale. It was a real treat to escort the vendors into the public gallery of the Stock Exchange on the first day of dealings in their shares, and watch their faces as the price rocketed upwards. Delight at the sharp rise in the value of their remaining holdings nicely counterbalanced by regret that they'd sold some far too cheaply. A textbook case of mixed feelings, like watching the mother-in-law drive your new Ferrari off a cliff.

Those years were huge fun, but one could also kid oneself that one was taking part in a worthwhile project: creating a share-owning democracy in which many thousands of people made nice little windfalls from privatisations like BT and British Gas.

Then realisation dawned: small shareholders were actually a ruddy nuisance.

Today the stock market traffic seems to be all the other way, with hungry private equity sharks circling every quoted company, probing for signs of weakness. Sainsbury's is the latest to feel their bite, and is unusual only for its size and the fact that its recovery already seems to be well in hand.

There is undoubtedly a case to be made for sorting out persistently under-performing companies away from stock market scrutiny, bad news though that may be for their staff and other `stakeholders'.

But I think the private equity craze has gone too far. How are public company boards supposed to manage effectively if they are constantly having to look over their shoulders while trying to maintain eye contact with investors who demand consistent performance? It may be in the best long-term interests of a company to adopt strategies that will lead to short- term profit slippage; `reculer pour mieux sauter' as the French like to say, though in practice they tend to major on the retreating, followed by a big lunch and nap. It's a very brave chief executive who'd dare try that in 2007; and probably a short-lived one too.