§ 5.40 p.m.
§ Lord Hoffmann rose to move, That this House takes note of the Report of the European Communities Committee on Takeover Bids (13th Report, Session 1995-96, HL Paper 100).
§ The noble and learned Lord said: My Lords, the report which I draw to the attention of the House concerns a matter of great importance to the City of London. The economic and legal conditions which exist in the United Kingdom are, on the whole, favourable to takeover bids. Shares in publicly listed companies tend to be fairly widely held. The law encourages transparency in share ownership. It discourages devices by which management sometimes tries to entrench itself. It regards the possibility of a takeover bid as a healthy market discipline. In those respects, the United Kingdom differs from almost all other member states of the European Union, which on the whole tend to be far more protective of the established management. The result is that the annual number of takeover bids for companies listed in the United Kingdom greatly exceeds those in all the other member states put together.147
§ The fact that we have so many takeovers means that it is essential to have an effective system of regulation which will protect the interests of shareholders and ensure the integrity of the London securities market. A contested takeover is a battle fought for very high stakes and with every incentive to the parties on both sides to go to the limit in trying to win. Nothing would be more destructive of London's high reputation as a securities market than to allow unscrupulous bidders or defenders to be able to gain an advantage at the expense of ordinary shareholders.
§ For that purpose, London has evolved a remarkable system of self-regulation. The Takeover Panel, which was established in 1968, is an entirely voluntary body on which are represented all the bodies interested in the London securities market, whether as investors, as companies whose shares are traded there or as professionals. The panel is responsible for both the drafting and enforcement of the City code on takeovers and mergers. It is there to offer advice to parties involved in takeovers, it decides disputes and it imposes discipline. But—and this is perhaps the most remarkable feature of the London system—the panel has no legal status whatever. It exists simply because it is voluntarily accepted as a regulator by the London market. The ultimate sanction which it can impose is exclusion from that market; it can direct to its members that they should not deal with someone who has refused to accept the panel's authority. Since the panel's inception under the chairmanship, first, of Lord Shawcross, then the noble Lord, Lord Alexander of Weedon, and now Sir David Calcutt, it has gained very considerable experience and respect.
§ The fact that the panel operates outside the law gives it considerable advantages. It is not bound by the letter. It can interpret its own code according to its spirit and general principles. It can act swiftly and decisively. In a fast-moving takeover struggle those are very important matters. It also means that, unlike the position in the United States where takeover regulation is governed by the rules of law, there is very little scope for tactical litigation. By tactical litigation I mean legal proceedings which can have an effect merely by creating uncertainty and delay, irrespective of how the case is ultimately decided. Unfortunately, that is a feature of takeovers in the United States. There has been a suggestion that Americans are naturally more litigious, and that explanation has also been extended towards Australians. But I very much doubt whether national temperament makes much difference. What matters is that a lot of money is involved, and any businessman playing for high stakes who is told by his lawyers that he has nothing to lose and possibly something to gain by issuing a writ is going to go ahead and do so.
§ The draft directive which is the subject of the Select Committee's report springs from the entirely laudable desire on the part of the Commission to give other member states so far as possible the benefit of the system that they see operating in London. The representatives of the Commission who gave evidence to the committee were unstinting in their praise of the London Takeover Panel. In principle, it is not unreasonable to take the view that if similar rules were 148 applied to takeover bids in all member states, that would encourage capital movements between the states of the Union.
§ Unfortunately, the position is rather more complicated. For one thing, the other member states did not want to be told to adopt the London principles. For example, one of the most important rules applied by the panel for the protection of shareholders is the mandatory bid. If someone has acquired more than 30 per cent. of the shares in a listed company, which is treated as moving control to him, the City code requires that he should make an offer for all the remaining shares at the highest price that he has paid during the past 12 months. That enables the other shareholders to decide that they will get out rather than stay under the new regime.
§ The Germans, for one, wanted none of that. They have their own complicated rules which they regard as sufficient in the economic culture of Germany for the protection of minority shareholders. So the Commission's first attempt at a draft in 1989 was regarded by other member states as being over-prescriptive and has since been watered down. Now it has come back with a very milk and water version which does no more than state some general principles about fairness to shareholders and, on the whole, leaves their implementation to the member states. To the satisfaction of the Germans, the mandatory bid, for example, has been dropped and member states can choose whatever they believe to be fair to minority shareholders in the circumstances of a change in control.
§ The result of those changes in the nature of the directive is that, in the opinion of the Select Committee, the directive is not likely to have much positive effect on improving the possibility of capital movements within the Community. The nature of the directive was such that it was not likely to produce much uniformity in the rules for takeover bids; so much was left to the choice of member states. But perhaps more important, the main reason why there is stickiness in the movement of capital between member states is not the difference in the takeover rules of those states but the structural institutional differences between them. It is because of the way in which, for example, shares in Germany are held by banks as compared to the way in which shares are held in this country. Those are the kind of issues which make the difference and they are not addressed by the draft directive at all.
§ On the other hand, from the point of view of the London system, the great change which the directive would bring about is that at least to some extent takeover control would have to become a matter of law. It would have to adhere to the principles laid down in the directive, and the interpretation of those principles and the question of whether our system complied with them would in the end be a matter for the European Court. The view of those who gave evidence to us and the view which was shared by the committee is that that is bound to increase the chances of tactical litigation and to destroy what is seen as one of the great advantages of the London system.
§ We had evidence from the Financial Law Panel. That is chaired by my noble and learned friend Lord Donaldson of Lymington. My noble and learned friend 149 was sitting in the Court of Appeal when, in the leading case on the matter, he laid down the extent to which the courts would exercise any control over the activities of the Takeover Panel. My noble and learned friend takes the view, which is a very likely outcome, that English courts would, even if a new regime were instituted in compliance with the directive, endeavour as far as possible to leave the panel operating exactly as it is. I dare say that that is a result which an English court would strive to reach. But that does not take into account, first, the possibility that the way in which it is formulated to comply with the directive may not permit it; and, secondly and perhaps more importantly, that there is always the question of the European Court being the ultimate decision maker as to whether our rules comply with the directive.
§ Therefore, one has to balance, on the one hand, the advantages which are seen to be gained not only for this country but for the Community as a whole by such uniformity as the director will produce against the possible disadvantages which we see to our own system. It appeared to the committee that there was virtually nothing to be put in the balance on the positive side and the possibility of detriment on the negative side. For those reasons, the committee recommended that Her Majesty's Government should make whatever efforts they could in order to persuade other member states that the directive should not be adopted.
§ The present position, as I understand it, is that the matter is before the European Parliament for report but nothing yet has emerged and the matter is going rather slowly. I am not familiar with the rather Byzantine way that negotiations in the European Parliament seem to proceed in these matters, but I have the impression that that is a situation in which the other member states have very little to gain or lose one way or the other by the adoption of this directive. For example, the Germans indicated that they were extremely satisfied with it because it required them to do nothing at all.
§ The Irish legislature has decided that it will institute its own system of takeover control. Until now, it has allowed the London panel to regulate takeovers on the Irish market. That system of control will be statutory. I can quite understand why it will be statutory because with such a small market, the great sanction of the London panel—namely, being excluded from the facilities of the market—simply would not operate. It is only because we have the largest capital market in the Community that we are able to operate a system in the way in which we do.
§ Therefore, it seems to us that for London there is nothing to be gained and quite a lot to be lost. It would be ironic and tragic if the well-meaning efforts of the Commission to extend to others the benefits of the system which it sees operating in this country end only in damaging a system which it professes to admire. I beg to move.
§ Moved, That this House takes note of the Report of the European Communities Committee on Takeover Bids (13th Report, Session 1995-96, HL Paper 100).— (Lord Hoffmann.)150
§ 5.54 p.m.
§ Lord Haskel
My Lords, I read this report with great interest and I congratulate the committee on its work. But I must say that after reading the report, I was left with some concerns. Perhaps my concerns are shared partly by the committee but the report does not make that entirely clear.
My first concern is that the report seems to be written from the point of view of the City. The takeover code smoothly, efficiently and fairly facilitates the process of takeover but is it in the interests of our overall economy that takeovers should be quick and easy?
My second concern is that although the Takeover Panel is fine for London and suits the London share market, circumstances are different in other European financial centres. Bearing in mind those differences, is our system suitable for them?
I agree with the committee that it is obviously important that we have an efficient system by which companies are bought and sold. The noble and learned Lord, Lord Hoffmann, explained that in the Takeover Panel we have a system which ensures fair treatment for all shareholders, reasonable openness and transparency and a predictable timetable. There is the assurance that firms are not in play indefinitely so that their business suffers.
Looked at from the point of view of the City, that is absolutely right. But those outside the City have additional concerns. A system which is too easy attracts speculative bids. A quick takeover system requires short-term money only. Speed and efficiency are not the only considerations. The right balance is needed between making takeovers easy and fair and having enough sand in the system to encourage only serious bids and perhaps more agreed bids which is the practice in the rest of Europe.
I am sure that we can all think of examples of unnecessary and frivolous takeovers financed by short-term money which bring no benefit to anybody except those earning fees and commissions. We can also think of takeovers facilitated by the panel where the target company is left with such huge debts because of the short-term money that the business is unable to develop.
That brings me to my concern about contested bids. The reason that things are different in London from elsewhere is that, as the noble and learned Lord, Lord Hoffmann, told us, we have far more contested bids here. I believe that that is because on the Continent there are many major shareholders who are active in corporate governance. As a result, when mergers and takeovers are necessary, they are agreed between the parties. That is why, if we are to ask Europe to accept our code, there are changes which should be made to make it more acceptable to European circumstances.
First, there is obviously a conflict of interest where a company's advisers buy shares in that company during a bid. That is probably unnecessary during an agreed bid but in a contested bid it that can give rise to sharp practice and should be stopped. Secondly, advisers' fees 151 should be disclosed. Again, that is an important factor during contested bids because the fees are often vastly inflated as a reward for success.
Another element which should make the takeover code more acceptable to European companies is the requirement to inform employees. Technically, employees in the UK have rights to information but those are sometimes overruled by Stock Exchange regulations which are designed to prevent insider trading. A way must be found to inform employees or their representatives of what is going on during a takeover.
I agree that the directive as drafted is perhaps too prescriptive for the UK. Here, statements such as "the board of an offeree company is to act in the interests of the company as a whole" are meaningless. In most European countries the directors have that responsibility in any event by virtue of company law. But under the European tradition, statements such as that are important as they lay down the principles to which law-abiding company directors try to keep. Perhaps we need to learn from each other.
I agree with the committee that there are advantages in a voluntary code. But a voluntary code has problems which need to be addressed. The difficulty with a voluntary code is that the sanctions are not necessarily on the quoted companies which are taking over or being taken over. They may be offshore and can ignore the code. As the noble and learned Lord, Lord Hoffmann, told us, the sanctions are on the financial institutions trading in London and on the individual shareholders. The threat of suspending an institution from the market is a sufficient sanction to make it toe the line. However, I cannot think of any recent suspension. It is more difficult to bring pressure to bear on the quoted company. The only sanction is to suspend its share quotations, but that only punishes individual shareholders who are in fact the innocent party whom we are trying to protect. Is that reasonable? Are they not entitled to some protection in law?
However, business must have something that works and, broadly, I think that our Takeover Panel works reasonably well. But I do not think that that means that we should impose it on everyone else. Indeed, I question the need to harmonise detailed takeover rules. Certainly there is a clear case for harmonising some basic principles such as the protection of minority shareholders and the creation of false markets. But different jurisdictions can take care of that in their own way. Takeover bids are a small part of the overall business picture, and how well a jurisdiction manages takeover bids is but one factor which a company takes into consideration when deciding where to raise capital and have its shares quoted.
Why should there not be competition between different regimes? Part of that competition will be the rules and the efficiency with which they operate. It is the service provided which will attract customers, plus the liquidity, the sources of capital, the variety of instruments, the underwriting and the protection of shareholders both large and small. In all these things London should do very well. However, London's charges are very high and a jurisdiction elsewhere in, say, Edinburgh or Amsterdam may provide the same service much more cheaply. Why should that not happen?
152 It seems to me a logical extension of the activities of different parts of the Community to encourage investment in their own region by having local regimes. Those jurisdictions will have the advantage of local knowledge and local contacts and a deeper understanding of local businesses. Trading is now virtually screen based and paperless which should assist regional jurisdictions to develop.
The noble and learned Lord, Lord Hoffmann, mentioned Germany. The need for different jurisdictions may become apparent with the privatisation of Deutsche Telecom. It means that, for the first time, many people in Germany will become small shareholders and realise the need for the protection that they require as minority shareholders. On the other hand, trading in London is dominated by the big institutions. In fact, they could virtually do without an exchange. They can, and often do, trade among themselves because they have sufficient critical mass and liquidity to do so.
I see from press reports that proposals for a compulsory European directive are to be put forward to the Legal Affairs Committee on 27th and 28th January. Although we have in Britain developed a mature, efficient, transparent and effective system of dealing with takeover bids, I hope that the Minister will suggest some modifications to the code which will make contested bids more transparent and that he will be flexible enough to realise that "shareholder value" and financial engineering are not the only criteria and that there are disadvantages to voluntary codes.
Of course, it is important to move towards completing the single market, as this directive attempts to do, but I hope that the Minister will argue that the details of takeovers can be left to member states.
§ 6.3 p.m.
§ Lord Bridges
My Lords, in speaking in this debate I should make it clear at the outset that I do so as an individual and not as a member of the Select Committee which prepared the report. I speak rather as someone who happens to have had several encounters with the takeover and merger of companies, both as an official of the Government dealing with international economic matters in the past and, more recently, as a non-executive director of companies which were the target of hostile bids.
The general point that I seek to make is that there is, or I think should be, a close relationship between the policy and law relating to mergers on the one hand and, on the other, competition policy. That is not the case in this country, as is correctly observed in the first paragraph of the report which we are debating.
The report also makes clear that we do not have much law on the takeover of companies. What we do have is an umpire, presiding over the Takeover Panel, operating from the Stock Exchange building, whose activities are governed by a set of informal rules. Indeed, I have heard it said—although I do not know with what truth—that one of the purposes of the establishment of the panel in the first instance was to exclude the operation of law from this area so far as possible, and to enable bids for companies to be handled in a clear, speedy and 153 straightforward manner. The procedures are certainly operated informally, on the basis of the experience, honesty and common sense of the investment banking community of London which makes its living out of bids and mergers. By contrast, we do have a statute governing competition policy, in the Restrictive Trade Practices Act 1976 and a statutory body in the Monopolies and Mergers Commission which advises the Secretary of State, who takes the final decisions on such matters.
I believe that it is instructive to look for a moment at what other countries do. There are two important industrialised countries which have coherent systems in this area: the United States and Germany. The American system is based on statute law, supervised by the Anti-Trust Division of the Department of Justice. It covers both domestic economic activity and, in the well-known American constitutional phrase:
The Foreign commerce of the United States".This phrase is broadly interpreted by the Department of Justice and the American courts. Prima facie, any concentration of economic activity which leads to domination of a particular market sector (interpreted as a 30 per cent. share of the market sector in question), requires investigation. Private interests damaged by such domination may sue for damages, with penalties up to three times the level of the damage suffered. These provisions of American law have in the past caused difficulties for other states, including our own, and led to the Protection of Trading Interests Act 1980, recently invoked for quite different reasons in defence of our commercial interests threatened by the Helms-Burton law.
The point that I seek to make here is that the American practice does have the merit of looking at all aspects of competition policy, and that it does so on the basis of statute law available to all who seek a remedy from the abuse of the market. In particular, it enables recourse to the courts to determine the delineation and definition of the market sector to ensure that this has been accurately determined. I believe that that is a crucial point in disputes about competition policy. I personally prefer a procedure which is readily subject to judicial review, rather than determination by a Minister for political reasons.
The German position is similar to the American; and, indeed, derives from it. Germany has in the Bundeskartellamt an official agency which acts to defend the economy from monopolies and anti-competitive practices generally. It is relevant that the Bundeskartellamt, and the Bundesbank, are the fruits of American policy in the era of the Allied High Commission for Germany, in the years leading up to the establishment of the Federal German Republic.
The European Commission has not yet decided what definitive form its competition policy should take. Germany would like to see a European body, like the Kartellamt, presumably located within the Commission and operating under its auspices. There is some opposition to this idea, and we in this country are not enthusiastic about it. We point to the success of our 154 informal arrangements with the Takeover Panel in the City, and we are reluctant to transfer power on monopolies from the Department of Trade to the Commission. So instead, Commission initiatives are intended to enlarge their competence in this area gradually, perhaps by specifying a level of turnover of a combined enterprise following a merger which would require prior scrutiny. British Governments have not been supportive of such proposals in the past.
I suggest that we need to take a wider view and should try to look at mergers and competition policy together, rather than separate them deliberately as we do at present. We should also be a little more self-critical. In spite of what the Minister's brief might say, not everything in our garden is lovely. The informal rules of the Takeover Panel may work reasonably well for much of the time, but the system is not always fair. A sharp predator can sometimes outwit the gentlemen on the panel, and shareholders in the target company cannot rely on law to defend their rights and interests; the law may be silent, slow or even ineffective. I refer to an example based on experience. A company watching the transfer of its shares on its register may well suspect that a concert party is privily building up a stake. So the company secretary is invited to send off a raft of letters using the provisions of the Companies Act requiring disclosure of the beneficial owner. The concert party may well be successful in delaying the reply of such letters beyond the crucial phases of the financial battle, for example by registering shares in the name of nominee holdings in branches of foreign banks effectively outside the reach of our jurisdiction. This is an area where we have a law, but it may be readily circumvented.
Also, we must bear in mind—this is a rather more controversial observation—the powers in the hands of the Minister in charge of the Department of Trade at any given time in taking decisions on the advice tendered by the Director of Fair Trading or by the Monopolies and Mergers Commission. I am sure I shall defer to the advice of the noble Lord, Lord Borrie, who speaks on these matters with much greater authority than I, but it is at least questionable whether political control in the last phase of a competition policy case is always in the interests of the national economy.
I hope these remarks will illustrate that the Commission's proposals discussed in the report are only one phase in a longer story with a wider setting. It may be of interest to mention one current case. This concerns the future of the platinum mining interests owned by the British company Lonrho, which intends to sell them to a South African company, the Anglo-American Corporation. The consequence would be that the latter company would control, I believe, as much as 30 per cent. of the world's supply of platinum. As this material is now used extensively in Europe and elsewhere as the essential ingredient in controlling car exhausts, it is not surprising that Commissioner van Miert wishes to investigate the consequences of this merger. It seems to me that he is justified in looking into this matter which recognises the point I made at the outset; namely, the essential link between mergers and 155 competition policy. I hope that the Government will be even-handed in regarding the Commission's attitude on this particular matter.
In the longer term I hope that European policy may be encouraged to develop gradually on the basis of common principles—the approach it has adopted in this draft directive—and that this aspect, at least, of what it has proposed to us may be given a cautious welcome.
§ 6.13 p.m.
§ Lord Stoddart of Swindon
My Lords, I wish first to congratulate the noble and learned Lord, Lord Hoffmann, not only upon his thorough introduction of the report tonight but also upon the expertise he brought to Sub-Committee E's inquiry and the skill with which he guided it. I think it is the first investigation conducted by Sub-Committee E that I have sat through as a full member. Having heard all the evidence, I believe that the Sub-Committee, and indeed the Select Committee, reached the one possible conclusion in the light of that evidence.
What I wondered was why on earth the Commission felt the need to bring forward any directive at all in the first place. As far as I could see, there was no real demand from any country for a directive on takeover bids, certainly not from this country. As far as I could see, no serious problems had arisen or had been reported from any other country. We also discovered that the great majority of takeovers took place in the United Kingdom. In any event we were expert in the matter and the problem, if any existed at all, was bound to exist in this country because most takeover activity—more than in all the other member states put together—occurs in the United Kingdom.
As the noble and learned Lord, Lord Hoffmann, said, the Commission praised the British system and said it was a marvellous system and such a good system that it wished to impose it on every other member state in the Community. That was flattering. Good old Britain has something we can boast about and that we can impose on other people. But of course there was a flaw because if that was done through this proposed directive, the British system, which is non-statutory at present, would become statutory and could therefore become subject to litigation in British courts and, ultimately, the European Court of Justice.
Therefore the British system, which has worked well for over 25 years, will, under this directive, be altered in a way that could destroy it. Neither I nor the committee thought that was a good thing. For no reason at all, except, as far as I can see—I speak only for myself on this matter—the insane drive towards harmonisation, our system of dealing with takeovers will be under extreme threat. Because of that drive towards harmonisation, we are in danger of destroying something which has worked well over a long period of time. Will this directive be the end of the matter—that is the question we must ask ourselves—or will it be built upon? Is there more to come?
During the questioning of the Commission witnesses I referred to possible trade union interest in the matter. I have been a trade unionist all my life and therefore 156 I was almost bound to refer to that matter. The witnesses seemed a little coy about my questions but I now understand that MEPs are already set to graft onto the draft directive before us legally enforceable rights for employees which might well destroy the takeover ethos in the United Kingdom, as well as the system of control. I have not examined that point and therefore I do not know whether or not it would be a good thing. What I seek to indicate is that the directive which we have before us may not be the end of the matter.
According to the committee, the directive is not a good one and was not a good idea in the first place. Therefore we should be extremely careful. Under the circumstances we must ask whether the proposed directive is merely a cloak for some more far-reaching policy to be revealed later, a case once again of European Union creeping competence. If the matter were to be decided by unanimity, it might not matter so much. I understand that the Government gave evidence to the effect that they are against the directive. But unfortunately the matter will be decided not by unanimity but by qualified majority. Whether or not we have a directive depends not on what the Government, Parliament or the Opposition think but on whether the Government can muster a blocking minority of 26 votes in the Council. If they cannot, then it does not matter what the Government believe, what the Select Committee recommends, or whether the House accepts the recommendation. The Commons could declare that it was unanimously opposed to it but it would make no difference. The directive would have to be implemented. The Government could refuse to put a Bill before Parliament; and indeed I would recommend that course to them. Whether they will accept that recommendation is another matter. If they put such a Bill forward, Parliament could reject it. But then we should be taken to the European Court of Justice, which would then tell Parliament that it was in breach of Community law, impose a fine, and insist on the legislation being enacted.
That is the nonsensical and completely unacceptable and undemocratic state of affairs which exists in this country at present. When we see things of this sort, I wonder how much longer people will put up with them. What on earth is the use of electing MPs who are told what they cannot do or must do by a supranational junta over which they have no control and indeed cannot sack?
My views on the European Union are well known. But the Select Committee and Sub-committee E on which I have the honour and privilege to serve have examined the problem of takeovers and the directive very thoroughly. The committee has brought forward an excellent report and recommendation which I sincerely hope that the Government will take seriously. I hope that they will accept that recommendation and will fight for it.
§ 6.22 p.m.
§ Baroness Turner of Camden
My Lords, I welcome the opportunity to participate in the debate on the report by the Select Committee on the European Communities.
157 It is a very comprehensive report and makes reference to previous attempts at a directive—attempts which apparently failed to find an acceptable formula.
As has been said, the original draft did not give sufficient protection to minority shareholders, among other things. However, it is clear that the present draft has attempted to take full account of UK practice and procedures of which the Commission apparently approves, as we have heard tonight. But it would seem that the committee still does not view the present draft with favour and does not think that the proposals in regard to the protection of minority shareholders are adequate. It has a number of other criticisms which have been made today. It does not favour a directive at all, preferring to rely on present UK practice.
I am not happy about the draft directive for other reasons—reasons which only the TUC seems to have emphasised among those who gave evidence to the committee. However, I believe that there is a good basis and a reason for having a directive. I believe very strongly that the interests of employees should have some attention when mergers and takeovers are under consideration. It is true that the present UK code makes reference to such interests but, as we know, the code is not legally enforceable.
I am reminded of the fact that when I first came to your Lordships' House some 10 years' ago I attempted to introduce a Private Member's Bill entitled the Takeovers and Mergers Employee Protection Bill. The Bill made no progress, although a number of noble Lords, including the noble and learned Lord, Lord Denning, spoke in favour of it. I was prompted by the fact that 1986 had been a record year for takeovers. Indeed, there had been reference to what was described as "merger mania". The livelihoods of about 500,000 employees had been bound up in such deals. My intention at the time was not to raise the whole matter of mergers and takeovers—sometimes they may have been beneficial but at other times not—but to try to ensure that there was some protection for those involved.
I drew attention to the fact that in many other EU countries there was at least some provision for consultative rights of employees and their unions. My Bill provided for the consideration of other factors rather than simply that of competitive advantage. It wrote in a requirement to consider the interests of employees. As indicated in the current report, the TUPE regulations, introduced in 1981, do not give very much by way of protection for employees in takeover and merger situations in the UK. It is true that some time after 1987 merger and takeover activity seemed to diminish. However, more recently there has been a revival of such activity. In 1987 it was largely manufacturing, retailing and food and drink industries that were affected. Now we are seeing a great deal of activity in the financial services industries.
Last year there were several major mergers including one which was aimed at creating an insurance giant capable of competing effectively with major players in the EU. However, the first the employees heard of this major development was an announcement on the radio 158 at breakfast time, accompanied by the kind of statement that has become almost obligatory when any merger or takeover is announced—the loss of about 5,000 jobs. One can imagine the effect that that had on the employees who heard it.
When the unions concern raised the matter sharply with management, they were told that Stock Exchange rules prevented disclosure. My noble friend Lord Haskel made reference to that. I have examined the rules and, frankly, I do not read them in that way. The company involved must of course be satisfied that the recipients of advance information will not deal in the company's securities before the relevant information has been made available to the public. But I cannot see that some consultation with the representatives of employees is ruled out. I have had discussions with senior management in the company concerned and it is clear that it sincerely believes that Stock Exchange rules prevented it from having any prior consultation with the employees or their representatives. However, if a directive made it clear that there should be appropriate advance consultation, this would presumably override the Stock Exchange rules.
The TUC complained that the 1989 directive contained no provision for effective procedures for informing and consulting employees. The present draft is even weaker. There seems to be no reference to employees at all, it apparently being thought sufficient to leave their rights on consultation and information to individual member states' arrangements. I do not believe that this is acceptable or sufficient. As I indicated, employees are deeply affected by mergers and takeovers. Whole lives can be disrupted. We have already seen how changes in the labour market resulting in greater insecurity have had an unfortunate spin-off into society generally. These are serious considerations and should not be overlooked in a directive concerned with an issue as important as takeover bids which can have cross-border implications.
The TUC has already drawn attention to the European works councils directive which gives legal rights to information and consultation for employees in countries which have signed up to the social chapter. Increasingly, companies in the UK which trade across the EU have realised that irrespective of the UK opt-out they cannot stand aside and must therefore apply the works council directive to employees in the UK since they are having to do so for employees elsewhere in the EU.
In the circumstances I am disappointed that the report of the committee pays relatively little attention to the position of employees in takeover situations although I note that my noble friend Lord Stoddart raised the issue on a number of occasions during sessions when the committee took oral evidence.
§ 6.29 p.m.
§ Lord Spens
My Lords, it is a pleasure to talk about a subject that has been my living for the past 30 years or so. Last weekend I did a quick run through my books to see how many takeovers I had been involved in. The number was a staggering 370 plus, mostly for very large companies, sometimes for very small ones. Sometimes 159 I was on the receiving end, but mostly I was on the hostile or bidder's end. During those 370 takeover bids I went in front of a full panel some 30 times and in front of a panel executive probably over 100 times. In the early 1970s I was responsible for drafting some of the takeover code. I have changed the takeover code; I have worked with people who developed the takeover code in its history. I therefore know a considerable amount about it.
Bearing in mind how little the noble Lord, Lord Bridges, said, I would point out that the objective of the Takeover Panel has very little to do with the equality of shareholders. It has absolutely everything to do with keeping the money out of the lawyers' hands and in the hands of the City institutions. Last year's fees alone amounted to £1.1 billion for the banks and institutions. One takeover bid, to quote from memory, namely the Granada-Forte bid, cost £200 million in fees. That is what the Takeover Panel is about: protecting that money.
The panel's strengths come from two accidents. One is a structural accident in that, in most cases, overseas countries do not have registered shares—most of their shares are bearer shares. If you do not know who your shareholders are, it is almost impossible to protect them. In this country virtually every share is registered; therefore control can be exercised. The second point is that, today, the panel operates on the basis of what in real terms may be termed "hidden precedent". Up until "Big Bang", the Takeover Panel was supported by patrician partnerships in the City which made sure that it worked. When Big Bang came along, people felt that that would be the end of the Takeover Panel because the big battalions, the large American, German and Swiss banks, could run rings round it simply through muscle. But it had developed its doctrine of hidden precedent. Over the years it had made many rulings that had not been divulged to the general public. As time went on, that approach became stronger and stronger. Nowadays, a takeover cannot take place without consultation with the Takeover Panel on virtually every aspect and every day of your life in that business. It gives it enormous strength if you do not know what the goalposts are through which you are trying to shoot the ball.
Perhaps I may illustrate my first point about the role of the Takeover Panel and the purpose for which it was set up. My example concerns a Takeover Panel meeting which took place in the summer of 1985, when Big Bang had just occurred and we could see how it happened. It was the takeover of Arthur Bell and Sons, the Scottish whisky company, by a company called Guinness. There was nothing unusual about it, except that it was the second largest hostile takeover ever to have taken place. What was unusual was that the merchant bank involved, Morgan Grenfell, was, or so Arthur Bell thought, adviser to Arthur Bell. One day the company woke up to find on its doorstep the hostile bid from a merchant bank which, up until that morning, the company had thought was acting on its behalf.
160 I told the company that there were two alternatives: it could go to law to sort the matter out, or it could go to the Takeover Panel. The company listened to my advice; and I was leant on considerably by the Takeover Panel. Eventually it went to the Takeover Panel. It was arguably the worst decision that I have ever made in my life.
What happened in the Takeover Panel was this. Once the arguments had been put forward and it became clear that on one side of the fence was £6 million in fees to underwriters, which was likely to be repeated in a second offer (£12 million in total) and on the other side a mere £20,000 of annual fees from Bells to Morgan Grenfell, the decision was taken that Morgan Grenfell would be allowed to stay in its position as adviser to Guinness.
That decision was announced in front of Ernest Saunders by Sir Jasper Hollom, the deputy governor of the Bank of England (it was given that sort of weight) and was arguably the reason why Ernest Saunders thought that he could walk on water. He won that battle so convincingly that I do not believe there is any argument that from then onwards he believed he could go on to do what he did in Distillers. In fact, as we now know, that was practised in Bells. He won the takeover bid. Despite my repeated visits, the panel would do nothing about his indemnities, etc. It bears out what I said: the Takeover Panel is all about fees and very little about anything else. It happens to be expedient to make sure that, on the whole, shareholders are kept quiet and happy.
I also have considerable experience, not surprisingly given what I just said, in how the Takeover Panel is interpreted by the criminal law. The Guinness-Distillers battle ended up in the courts. It was largely the breach of the takeover code, leading to a false market, which formed the basis of the trials for all the defendants.
In the first Guinness trial, in which I was not involved, the trial judge ruled that the Takeover Panel code was for interpretation by the trial judge not for interpretation by the jury or by experts. That was a very surprising ruling. It enabled him to go on to rule on what was meant by "acting in concert". That was a very important part of the Guinness trials.
The judge ruled as follows: anyone who receives the success fee, whether disclosed or undisclosed, is deemed to be acting in concert with either the bidder or the offeree and must therefore disclose his share transactions. It was an astonishing ruling. By that ruling the judge put all those core underwriters who had success fees on the outcome of the bid into concert, which the Takeover Panel had been designed to exclude.
The law of the land today, as I understand it, is that anyone acting in concert who fails to disclose his transactions effectively creates a criminal offence. As underwriters move more and more under pressure from this Government into reducing their fees and increasing the success element of those fees, it is clear that most underwriters should by law disclose all their transactions. Of course that does not happen—the City is more sensible—but it is the law at present.
161 The second point that had to be made in order to bring about the convictions was the rule that the "false market" definition in the Stock Exchange rule book was wrong. The Stock Exchange definition is very easy. It is:A 'false market' is defined as a market in which a movement of the price of a share is brought about or sought to be brought about by contrived factors, whether by the operation of buyers and sellers acting in collaboration with each other or otherwise, calculated to create a movement of price which is not justified by assets, earnings or prospects".That is the only definition that exists of a false market, apart from the 1987 definition from the Financial Services Act which is equally bad. It is the only definition which people such as Anthony Parnes, who was sent to gaol, had to go on. This is how the judge dealt with it. On day 91 of the first Guinness trial, he said:If it [the definition] stopped after the third line, it would seem to me to be quite a good definition. The whole seven lines seem to me to be rather a bad definition".He went on:Well, I have been circumspect, and it seems to me to be, as a definition of a false market, a nonsense".That is the existing and present definition. It is still in the Stock Exchange rule book. Yet a trial judge has ruled that it is nonsense. He went on to rule that a false market is indeed something else.
In the second trial we thought that we would challenge that decision by an interlocutory appeal. That can be done in cases of serious fraud. We went to the Court of Appeal Criminal Division. That was a foolish thing to do because four men were already in gaol, three were in gaol at the time of the interlocutory appeal. If the ruling had gone in our favour then the whole of the first trial would have been a sham. The Deputy Lord Chief Justice, Lord Justice Watkins VC, ruled as follows:As to the present case, our view is that the Code sufficiently resembles legislation as to be likewise regarded as demanding construction of its provisions by a judge. Moreover, the Code is a consensual agreement between affected parties with penal consequences".So far as I can see, the judge effectively put the rules of cricket, the Football Association and the rules of virtually every club where penalties are attached to the breaking of rules into the position of having to be interpreted by a judge. We cannot do that. However, once the takeover code rules get onto the statute book in any form, they will be interpreted by a judge far outside the market. Before we go down that route, we should think carefully because that is not what it is all about.
A parallel exists with English law which people do not talk about. It is the European Convention on Human Rights. That is not included in our law but it comes up time and time again. We need to include it in some form or another, or at least accept that it exists. Not surprisingly, the decision of the European Court of Human Rights on the DTI transcripts regarding Mr. Ernest Saunders has had its result and the first Guinness trial was declared to be unfair.
162 That case also went to the Court of Appeal in a case brought by my co-defendant. The judge, the same Lord Justice Watkins, said:The present case is, as we have said, concerned with extremely astute, professional men who have been advised at one time or another by very experienced City solicitors. There was, in our judgment, sound reason for admitting the so-called confessions having regard to the relevant legislation which Parliament has deliberately enacted, albeit that that may appear to tend towards unfairness especially when set against the relevant proceedings in the 1984 Act".Lord Justice Watkins was talking about the Police and Criminal Evidence Act 1984, under which the matters would have been excluded, as they would have been excluded under Section 2 of the Criminal Justice Act 1987. But if the transcripts were DTI transcripts, they could be entered.
That is the problem we have when senior judges become involved in the interpretation of commercial transactions on a daily basis. At the moment the Stock Exchange rule book has not been altered to reflect what I think is the law—that the rule book is nonsense and that the stock market operates on a basis for which the goal posts may well one day, if the matter goes to a criminal court, be found to be different from the rules with which the market has been living. I believe that we should leave the Takeover Panel. It has been stunningly successful.
§ 6.43 p.m.
§ Lord Borrie
My Lords, this report was published last July. I was not then a member of the appropriate sub-committee of the Select Committee on the European Communities, therefore it is entirely proper for me to congratulate not only the noble and learned chairman but also all the members on the excellence, clarity and thoroughness of the report.
I began to get to know the work of the City Takeover Panel some 20 years ago when I became Director General of Fair Trading. We had a close working relationship because the panel and the Office of Fair Trading had then and have today complementary roles in relation to both friendly and hostile bids for United Kingdom companies. The Office of Fair Trading is concerned to advise Ministers, after due inquiry, whether a bid should be referred to the Monopolies and Mergers Commission for a more thorough inquiry. It would ascertain whether the bid, if successful, would adversely affect competition or the public interest in some other way.
The panel, however, is concerned with fairness between shareholders, with transparency and information to be provided to shareholders and with the maintenance of orderly markets in the shares of the companies involved. In other words, the panel is concerned not with whether takeovers and mergers are a good thing, either in general or in particular, but simply with the mechanics, the ways and means.
Important though they are, the OFT and the panel do two separate jobs. With respect to the noble Lord, Lord Bridges, who spoke earlier, I think that those jobs are separate. For reasons that I wish to develop, I do not believe that it would be a good idea if they were brought 163 together in one body on a statutory basis. At present, the Office of Fair Trading and the panel are entirely different constitutionally because the Office of Fair Trading is a creature of statute and, as the noble and learned Lord, Lord Hoffmann, said, the panel is an entirely voluntary and self-regulatory body, created by the City's financial institutions. In the graphic words of the noble and learned Lord, Lord Donaldson of Lymington, when he was sitting in a judicial capacity in the leading case to which the noble and learned Lord, Lord Hoffmann, referred—the Datafin case—the panel performs its vital functions,without visible means of legal support".On the face of it, looking at such matters, many of us may think that self-regulation suggests a soft option. One often believes that because it seems to be a device or protection against outside involvement. State regulation, with stronger penalties and sanctions, is perceived as more effective. But it seems to me sensible in this field, as in others, to be pragmatic. When we have a body which has been operating for nearly 30 years, as in the case of the City Takeover Panel and its code, we ought to consider whether the two function in a way which has been effective and successful. As the Select Committee report indicates, they have performed extremely effectively, expeditiously and decisively in individual cases, so that the management of companies is not left in a state of limbo and uncertainty for any length of time. That would be undesirable for the customers and for the company and, I say to noble Lords who spoke earlier, to the employees of the companies concerned. It is not desirable that there should be uncertainty for any period.
There are three reasons why the Takeover Panel and its code have been successful. The first is the strength and authority of its successive chairmen and directors general. Secondly, the effectiveness of its rulings has been underpinned by a widely based membership who provide the financial services in the City. The third reason is the flexibility and freedom from judicial intervention, at any rate during the course of the bid. Perhaps I may say a little more about each of those.
As the noble and learned Lord, Lord Hoffmann, mentioned, Lord Shawcross was chairman of the panel for some 10 years during the 1970s. Those who came before him were as much in awe of him as the Nazi leaders who had to face his cross-examination at Nuremberg some years earlier. Among later chairmen have been the noble Lord, Lord Alexander of Weedon, and the present chairman, Sir David Calcutt. They have maintained that authority and respect which was created in the early years. It has not been mentioned so far this evening but most valuable is that the directors general who have the more day-to-day executive responsibility have been men and, in one case, a woman from merchant banks, usually for two years at a time. They were people with current experience in the tactics and manoeuvrings of takeover battles or, in the phrase used in an editorial in the Financial Times today,the frequently poisonous sport of bids and deals".That is the way the newspaper chose to put it this morning.
164 As to the effectiveness of panel rulings, it is essentially based on ostracism by City institutions of those who disobey. Since the Financial Services Act 1986, panel rulings have become legally effective because the Securities and Investments Board has imposed a "cold shoulder" rule whereby any authorised provider of financial services is barred from acting for anyone who does not comply with the takeover code.
The third reason for the success of the panel over nearly 30 years is its flexibility and freedom from judicial intervention. The code has been amended many times. The noble Lord, Lord Spens, mentioned that he had had a hand in that. But, in any case, the panel is more concerned with the spirit of the code than the letter, and can freely relax the full requirements of the code.
The panel's rulings are that much more effective and certain because, since the Court of Appeal's decision in the Datafin case 10 years ago, the courts will not interfere during the course of a takeover bid. The Court of Appeal accepted that the panel is subject to judicial review but, recognising the risks, the inconvenience and the undesirability of tactical litigation, it ruled that contemporary decisions of the panel should be effective and any court order against the panel should apply only to future cases coming before it.
In the recent case, about which some of your Lordships may have read, of the bid by the US company Cal Energy for Northern Electric, the panel's decisions to allow the purchase by Northern Electric's advisers of shares in the company, but then to extend the closing date for the bid, were highly controversial. My noble friend Lord Haskel is worried about the first aspect of that part of the ruling. But the speed of the panel's decision-making and of the operation of its internal appeal mechanism ensured a minimum period of uncertainty. If litigation in the courts had been feasible, a few days of uncertainty would have turned into weeks, if not months. And as the noble and learned Lord, Lord Hoffman, said, a principal objection of the Select Committee to the EU's proposals to put the panel and its code on to a statutory footing is that it carries the risk of increased litigation.
In the 1980s, litigation in the course of a contested takeover bid became quite common. It was not litigation which affected the Takeover Panel, but there were several occasions when the Office of Fair Trading, the Monopolies and Mergers Commission and the Secretary of State for Trade and Industry, all acting under statutory powers, were the subject of applications for judicial review. As judicial review was developing at that time, it is hardly surprising because, in a keenly fought battle for a company, an application for judicial review was simply another battlefield on which it seemed worth while to fight. I recall that none of the applications actually succeeded. They had little merit, particularly because of the very wide discretion given to the statutory bodies concerned. Admittedly, I might be biased in that view, but they could create a good deal of delay and uncertainty as to the outcome of the bid. That was highly undesirable.
165 It surely cannot be doubted that, if the non-statutory self-regulatory system currently run by the City Takeover Panel is replaced by a system in which the panel owes its authority to statute, litigation on a whole range of grounds would be a tactic worth pursuing, not only in the UK courts but also, on reference from the UK courts to the European Court of Justice in Luxembourg.
Article 4(5) of the directive enables the courts of a member state to continue not to intervene during the course of a takeover bid. However, it also says that any injured party must enjoy "adequate remedies" and the Select Committee is rightly anxious that it is not at all clear whether the remedy of an appeal and the remedy of compensation are alternative options that a member state may provide.
I am, in any case, anxious that Article 4(5) would not effectively ensure no judicial intervention during the course of the bid. I say that because the Court of Appeal in Datafin placed much stress on the panel presently combining the roles of legislator, interpreter of its own rules and investigator of alleged breaches. In those circumstances, there was little scope for a court to say that rules had been made that were ultra vires or that the panel had misconstrued the rules. A court may take a different attitude, even during the course of a bid, if rules for takeovers are put on a statutory footing and they become legal rules; and if, for example, an argument is raised that a rule is incompatible with a provision in the directive. Indeed, a UK court may feel obliged to refer the matter to the European Court of Justice for a final view.
The conclusion of the Select Committee's report is that,The UK has an effective and efficient system for the regulation of takeovers. That should not be put at risk without substantial and clearly identifiable benefits. We do not believe that the Commission has made out its case".It could not be put more clearly than that.
§ 6.56 p.m.
§ Viscount Chandos
My Lords, I join other noble Lords in thanking the noble and learned Lord, Lord Hoffmann, for his interesting and penetrating introduction to the debate today and for his chairmanship of the sub-committee that produced the report. The noble and learned Lord retired from the board of an arts organisation shortly before I was invited to join it a year or two ago. Just the other day it was suggested by Mr. David Mellor that it was an arts organisation whose board had eyes larger than its brains. I suspect that if the noble and learned Lord had remained a member of that board, then even Mr. Mellor would not have had the temerity to suggest that.
I should declare an interest as a director of a small investment banking firm regulated by the Securities and Futures Authority and an occasional practitioner of the art of takeovers. I regard myself very much as a general practitioner rather than a specialist or even a professor of medicine in this field and I rely often on the advice of my colleagues and other professional advisers.
166 I am struck by the fact that many of the people I regard as specialists, even professors of medicine, in this field are, like myself, hereditary Members of your Lordships' House. I regret that there are not more of them from the Benches opposite available tonight to give us the benefit of their wisdom and experience and to support the arguments advanced by the Front Bench of the Government that the hereditary component in this House is a useful and constructive part of it.
Like my noble friend Lord Haskel, I came away from reading the report—notwithstanding my admiration for the noble and learned Lord, the chairman—a little uneasy with the tone of smugness on the part of the UK institutions that gave evidence about the workings of the system. Of course, the equity markets in the United Kingdom are significantly larger and more highly developed than those of the other European countries. It is not surprising therefore that the development of the Takeover Panel since its establishment in 1968 and the evolution of a sophisticated and wide-ranging code of rules should have occurred in this country a decade or two in advance, in many cases, of the practice in other European countries. However, we should be careful to guard against complacency, in the way that my noble friend Lord Haskel described so clearly. One sentence in particular of the brief provided by the Takeover Panel might surprise any layman. It states:In particular, it is vital that in the interests of shareholders our flexibility in applying or disapplying rules and principles must be preserved without risk of challenge in the courts".In declaring my interest as a practitioner, I could perhaps have declared my interest that I am not a lawyer. While very often I regret that, I find it helpful when I feel, as I do, that the evils of litigation and the law are sometimes overstated. I feel at least that I do not have an interest in that respect.
Over the past few years, since the enactment of the Financial Services Act, the question marks about the appropriateness of a fundamentally self-regulatory, or at least semi self-regulatory, system of financial regulation have grown. The Takeover Panel, notwithstanding some of my comments, currently represents the best continuing example of financial self-regulation. Like other noble Lords, I am loath to do anything that would jeopardise that position. On the other hand, I still do not believe that the evidence presented to the committee and some of the conclusions of the committee necessarily prove that the balance of cost and benefit of accepting a directive of the kind proposed by the European Commission, amended in the way a number of noble Lords have suggested today, would seriously jeopardise the workings of the Takeover Panel as it operates at the moment.
For instance, I found the evidence of the Financial Law Panel very striking. Of all the bodies that gave evidence, it was the one that was most cogent and positive in support of the proposed directive. There are 167 two useful quotations from its evidence. In paragraph 8 the panel suggests:The question is not whether the matters dealt with in the Directive are capable of being dealt with at a domestic level. Clearly, they are. The issue is whether it is more efficient to address the questions at Community level, as part of the move to create a consistent and open market".It goes on to say in a subsequent paragraph:Nevertheless, we believe that the adoption of a common statement of principles applicable to takeover procedures throughout the European Union, which emphasises aspects consistent with, and already enshrined in, UK practice is a development to be welcomed".The question has to be the relative costs and benefits of having the proposed directive apply as an umbrella over the operations of the Takeover Panel in the United Kingdom. I was struck that many of the critics of the directive appeared unable to decide whether they dislike the directive because it seems likely to interfere with the principles of subsidiarity and the national regulation of takeovers or because it does not achieve any significant harmonisation across the different member states of the European Union. At the heart of the potential costs regularly comes up the question of tactical litigation. I listened with interest to my noble friend Lord Borrie on that subject and remain unconvinced that the view of the Financial Law Panel, which clearly differs from that of the Takeover Panel itself, is wrong. It seems to me that the cultural and other differences between the United Kingdom and other countries such as the US are at least as much factors in determining the incidence of tactical litigation in such matters.
In thinking about the benefits that might be achieved through the introduction of the directive I was struck again by evidence given by the Institutional Fund Managers' Association, which reads as follows:With our eyes open, we have chosen to invest nearly 10 per cent, of our customers' pension assets in countries where the writ of the UK Takeover Code does not run. But we also have invested more than half of their investments in the UK, where it does. We are very loath to allow any interference with a system we know works well, just for the sake of European harmony. If individual European countries wish to introduce their own codes, statutory or voluntary, so be it".I do not agree with that conclusion, but I believe that the potential benefits are clear to see.
We are used to being caught unawares by a financial crisis or scandal. We are used to believing that the self-regulatory system in the UK is the best possible protection and waking up the following morning to find that there has been another major problem. As investment by institutions and individuals increases in the European equity markets, there has to be a very strong case for being willing to trade off a degree of the apparent autonomy of the UK Takeover Panel in exchange for our contribution to a European initiative to achieve minimum standards throughout Europe.
Reading the evidence, therefore, and trying to weigh the quality in some cases and not just the quantity, I still cannot but help feel surprised that the Select Committee's report felt the issue was quite so black and white. The proposed directive is clearly not perfect but I believe that there is a stronger case for the involvement of the European Commission in creating a framework for 168 European takeover regulation. I feel also that fashionable Euro-scepticism may have been a factor in influencing the tone and weight of some of the evidence, although I am sure it did not affect the deliberations of the committee.
§ 7.8 p.m.
§ Lord Pearson of Rannoch
My Lords, I join other noble Lords in congratulating the noble and learned Lord, Lord Hoffmann, and his committee on this excellent report and on the lucidity with which he introduced it this evening. I was interested to hear the noble and learned Lord say that the Germans do not mind this directive because they do not feel they need to do anything. I could not help wondering when he said that whether perhaps there was another reason for German acquiescence in this directive, which might be that much of the business which is at the moment handled by the City of London might, I suppose, find its way to Frankfurt and other German cities if the directive comes into being.
I wish to take issue with only two inferences in this excellent report. These are, first, that the draft directive does not meet the Edinburgh guidelines on subsidiarity; and, secondly, that those guidelines might in some way protect us from this draft directive. Your Lordships will remember that at the time of our debates on the Maastricht Treaty in 1993, a number of us felt that Article 3b of that treaty, which is the subsidiarity clause, was unlikely to meet the Government's aim of preventing the further erosion of our sovereignty to Brussels and the Luxembourg court. The Government, on the other hand, held out subsidiarity as the shining shield against such erosion and the Benches opposite largely agreed. Since the report appears to share this vision, I fear that it is worth repeating for the record what Article 3b actually says and how the Edinburgh guidelines do not appear to modify its frightening disadvantages. I apologise for the Eurospeak, but here it is:The Community shall act within the limits of the powers conferred upon it by this Treaty and of the objectives assigned to it therein. In areas which do not fall within its exclusive competence, the Community shall take action, in accordance with the principle of subsidiarity, only if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale or effects of proposed action, be better achieved by the Community. Any action by the Community shall not go beyond what is necessary to achieve the objectives of this Treaty".Noble Lords will be relieved to hear that that is the end of the quote.
But the key phrase always was, and still is,in areas which do not fall within its exclusive competence".That begs the obvious question: who decides what those areas are? Those of us who continue to regard subsidiarity as a sham have always believed that the answer must be that the Community itself decides, being the Commission, the Council and ultimately the court of so-called justice in Luxembourg. I say "so-called" because we do not regard it as a proper court of justice but rather as the engine of the Treaty of Rome committed to that ever-closer union of the peoples of Europe which the treaty requires.
169 But this report says that the directive falls foul of the Edinburgh guidelines on subsidiarity rather than of the article itself. But I am not sure that those guidelines can help us much either. I quote from Clause 1.4 of the basic principles of the guidelines, which state as follows:The principle of subsidiarity does not relate to, and cannot call into question, the powers conferred on the European Community by the treaty as interpreted by the court. It provides a guide as to how those powers are to be exercised at the Community level including any application of Article 235. The application of the principle should respect the general provisions of the Maastricht Treaty including the maintaining in full of the acquis communautaire and it shall not affect the primacy of Community law".Noble Lords will recall that the acquis communautaire is the mechanism in the treaty whereby when the Community has acquired a power or area of sovereignty, it never lets it go.
If we then go on to the second paragraph of the guidelines, which is under the heading, "Should the Community Act?", the answer is very simple:This paragraph does not apply to matters falling within the Community's exclusive competence".So that brings us back to the difficulty of deciding who decides the competence.
My first question to my noble friend on the Front Bench is whether the Government still believe that subsidiarity can save us from this sort of damaging directive from Brussels. My second question echoes a question put by the noble Lord, Lord Stoddart of Swindon, this evening. That is, if subsidiarity cannot save us—and I have to submit that it cannot—how do we expect to fare under the eventual qualified majority vote to which this directive is presumably subject? As your Lordships will recall, there are 87 such votes among the 15 member nations: 62 votes are required to carry a motion and 26 to block one. The United Kingdom has 10 votes. So is my noble friend confident that we shall be able to get 16 other votes to support us against this directive and, if so, from which nations will those votes come?
In many ways this debate has been reminiscent of our debate on 14th December on the impending destruction of the United Kingdom art market by two European directives. Indeed, my noble and learned friend Lord Fraser of Carmyllie has again drawn the short straw to answer for the Government this evening. I fear that he did not answer my similar questions then as to how the Government propose to escape from the terms of the Treaty of Rome to which I have referred. I wonder whether he will be able to give us the answer tonight. If he cannot, does he not agree that it is time to start thinking of revising the terms of that treaty itself?
§ 7.15 p.m.
§ Lord Peston
My Lords, I shall leave certain of those questions to the noble and learned Lord the Minister. I am not foolhardy enough or paid enough to get into those areas of discourse. I thank the noble and learned Lord, Lord Hoffmann, for introducing the debate and I congratulate him both on the report and the quality of his introduction. It is a fascinating report, full of the 170 most interesting material. It is very much a lawyer's report. I note that there are seven lawyers among the 11 members of the committee. I hope that I may be forgiven if I say that many of the technicalities are beyond me and I am not qualified to comment on them. But I cannot resist noting, somewhat cynically perhaps, that the lawyers take the view that they do not want a statutory foundation for the Takeover Panel. They throw up their hands in horror at the possibility of judicial intervention in these matters. That is something well worth reflecting on.
I turn specifically to the main report. I agree with many of its conclusions. I say immediately that I can see little in favour of this particular directive, but I disagree with your Lordships' sub-committee in two ways. It is not as clear to me as it is to its members that there should not be a directive at all. Some of my reasons for criticising the directive are different from theirs.
I am somewhat following my noble friend Lord Haskel. I do not doubt that we need an efficient system of takeovers and takeover regulations. I also agree that the threat of takeovers may be an incentive to efficiency, but I must emphasise the word "may".
If we look at comparative economic efficiency, comparing UK firms with those in Europe, the United States and Japan, it cannot be demonstrated that there is a positive correlation between the ease of takeovers or the extent of takeover activity and productivity and productivity growth. Incidentally, that is not a matter that the committee looked at even remotely or on which it took any evidence. I did not have time to look at the matter in detail but my own judgment is that there is a negative correlation for a country like ours which is not at the forefront of productivity, efficiency and economic growth. To put it mildly, it is at least worth considering that our concern with matters like takeovers and similar matters which the City is interested in may be deleterious to our economic welfare rather than the reverse. I put it to your Lordships that we should think about that.
There are some logical points that need to be made. The Takeover Panel, the Commission, your Lordships' sub-committee, and also my noble friend Lord Borrie, believe that it is possible logically to separate shareholder questions and the behaviour of securities' markets from effects on the public interest, notably competition. I have to say that that is not at all clear to me.
If one accepts, as I do, that the ultimate test of any economic policy is its impact on the real economy, notably the welfare of consumers, and if one also accepts, as I do, that most takeovers fail that test, speeding up the ability to accomplish takeovers is not prima facie a good thing, as my noble friend Lord Haskel pointed out. But most of those who gave evidence, and your Lordships' committee itself, regard speed as good and slowing down as bad. Therefore, they must believe as a general case that takeovers are themselves intrinsically good and they cannot duck that question logically even though the report tries to do precisely that.
171 The same point applies to discussion on litigation and all related matters, as shown in paragraphs 84 and 123 of the report. The ability to go more easily to law may discourage takeover activity, but since no one has demonstrated that such discouragement is deleterious to the real economy one has to say, "So what?"
The second problem concerns our old friend, the correct unit for subsidiarity. That was raised by my old friend, my noble friend Lord Stoddart of Swindon, and by the noble Lord, Lord Pearson of Rannoch. Central to the Treaty of Rome and to subsequent legislation is the single market and the ending of artificial and arbitrary restrictions on pan-European trade. Those people who use the old cliche and say that they are "Eurosceptics" say that what they want is free trade in a free trade area. However, that implies that just as there have to be special arguments to justify limitations on what can be bought and sold across the Community—mostly, such arguments are not valid—the same applies to the purchase and sale of shares and, above all, to the purchase and sale of whole companies. Therefore, if you believe in the free trade area approach, there is prima facie an argument for doing it in the same way throughout the Community, which is quite the reverse of what some people who occasionally criticise the Community want to argue when it suits them.
Being slightly more philosophical and looking again at the whole subject—this is not something that I want to dwell on for too long—why is the nation state, in this case the United Kingdom, the relevant unit for subsidiarity? If subsidiarity is such a good thing, why do we not have a different takeover panel for each of the English regions, and one for Scotland and one for Wales? There is a very good answer to that question; namely, that such a degree of sub-division would be economically inefficient in which case it follows that it needs to be demonstrated that the nation state is the correct degree of sub-division. It is completely beyond me how one could demonstrate that even remotely—
§ Lord Pearson of Rannoch
My Lords, my point was that at the moment the application of subsidiarity in takeovers and everything else is decided by the British Government. In following the European interpretation of "subsidiarity" this directive intends to make it subject to the government in Brussels.
§ Lord Peston
My Lords, I was not really dealing with that point although I understand what the noble Lord is saying. I am simply asking him to reflect on the more general question of what the relevant unit for subsidiarity ought to be prima facie if he believes in the free trade area. Of course, the noble Lord may not believe in that either, but I do not see how he can go quite that far.
In other words, there is a prima facie case for uniformity here if you believe in the single market. Following what the noble and learned Lord, Lord Hoffmann, said, I would have thought that it is on political grounds that the Commission does not press that point. Having had its fingers burnt once, it is now willing to accept national procedural differences. However, as far as I can see from the evidence, it is 172 hoped that the outcome will be much the same. I must emphasise the word "hope" although I cannot see any grounds for such hope. Paragraph 33 of the report is vital in this regard, as is the report made by the FLP in paragraph 34.
However, that does not cause me to disagree even to one degree with the view of the DTI that this directive as formulated does not deal with the problem. The one thing that the directive does not yield is uniformity. Indeed, if we were to go ahead with the directive, in my judgment it would increase differences and distort markets by applying in practice different regulatory regimes. Therefore, I strongly agree with the comments made by the Law Society, as quoted in paragraphs 61 and 63.
That leads me to a third question. Let us assume that we have a strong and effective regime encouraging competition. I look at my noble friend Lord Borrie when I say that we should "assume" that we have that. I assume that that question ought to precede the takeover question in the form in which it is now being discussed. Naive though I may be in saying this, we should have an effective regime encouraging competition—and I assume that that would take precedence over the takeover question. It follows that the principles set out in paragraph 26 are broadly acceptable, but that will not stop interested parties nitpicking, as is reported in paragraphs 70 to 75. However, those are points of detail.
The validity of those principles depends on their applicability across the European Union. With separate national approaches within the framework of the directive, one has to ask: if we were to go ahead— I repeat that I hope that we do not—who will monitor the principles and see that they are applied in practice? That does not seem to have emerged from the Commission's evidence or from that from anybody else. Again I ask—this is relevant to what the noble Lord, Lord Pearson of Rannoch, said—if the directive were to be introduced by qualified majority voting, would that represent a sustainable position? My judgment is that it would not. Therefore, I think that the noble Lord is right in saying that if it goes ahead it must be interpreted as simply an interim stage to complete uniformity with a statutory foundation. I do not see how there could be a half-way house. Therefore, I agree entirely with the sub-committee in paragraph 98 where it states that essentially the directive falls between two stools. It produces neither uniformity nor a sustainable separate position.
I must say a few words on the position of employees to follow what was said by my noble friend Lady Turner of Camden. Clearly, the TUC is right to express concern. Perhaps I may put it this way. Either a takeover limits competition and does nothing else, in which case it should not be facilitated, or it limits competition but also generates efficiency gains, in which case it is worth considering. Efficiency gains mean in the first place and overwhelmingly a reduction in employment. It is theoretically just about possible that demand could expand sufficiently to offset that but, in practice, that occurs only rarely, if at all. I can think of hardly any examples. Therefore, my conclusion, along with my 173 noble friend, is that there should be an obligation to inform and consult employees as early as possible. I disagree with the Law Society's evidence that this is not the place to raise the matter.
Perhaps I should say also that I regard the opinion of the DTI, as quoted in paragraph 79, as wishy-washy. I should have liked your Lordships' sub-committee to have expressed a stronger opinion on that, but I am happy with the last sentence of paragraph 119, with which I shall burden your Lordships. It states:The importance of employees being informed and consulted should be expressly recognised by appropriate reference in the preamble to the Directive".Finally, I am doubtful about the directive, but I am not convinced that there is no problem. After all, paragraph 84 of the report refers to real obstacles to takeovers in other member states. I have already referred to the DTI's evidence on that. Therefore, I do not see how your Lordships' sub-committee can reach the conclusion that it does in paragraph 96 on what it calls "soft harmonisation". Equally, I do not see why it is so optimistic about market forces leading to the appropriate outcome.
In summary, there are a number of problems to be solved. Although this directive is full of flaws and I hope that it will die, I do not believe that Her Majesty's Government's task can be solely to try to maintain the status quo complacently, as my noble friend Lord Chandos said. We need to find some allies. We need to find a way to produce a better directive or a better European approach.
§ 7.28 p.m.
§ The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)
My Lords, we are grateful to the noble and learned Lord, Lord Hoffmann, and his sub-committee for preparing such a detailed and thorough report. It is obvious that considerable time and effort have been expended and I am particularly grateful to the noble and learned Lord for having set out so lucidly the sub-committee's views on the proposed directive. I am now pleased to have the opportunity to outline the Government's response.
In an interesting set of observations on both competition and merger policy, the noble Lord, Lord Bridges, sought to draw the two matters together. I agree with the noble Lord, Lord Borrie, that those matters can reasonably be separated. I disagree with the noble Lord, Lord Peston, for the same reason. It is not a matter of whether takeovers are good or bad. If a bid is allowed to proceed, it seems to me that it must be in everyone's interest that it should go forward quickly and be efficiently and effectively overseen. I certainly do not agree with the noble Lord, Lord Haskel, that we want somehow to slow down the process by putting, to adopt the noble Lord's phrase, sand in the system when the particular sand that would be put into the system by the operation of this directive would allow for an excessive degree of tactical litigation. Other than lawyers, who may wish to secure their fees, I do not believe that there is anyone who considers that to be a desirable way forward.
174 It will come as no surprise when I say that the Government endorse the views of the committee. Like the committee, the Government are opposed to the directive and will strive to achieve the committee's principal recommendations that it should not be adopted and that the position of the Takeover Panel and the City code should be protected. The Government's principal concern is the same as the Committee's; namely, the effect that adoption of the directive would have on the UK's present non-statutory system of takeovers. The Government believe that one of the strengths of the UK's present system of takeover regulation is that it offers speed and certainty of decision making. The panel's decisions are in principle subject to judicial review. But the scope for tactical litigation whose sole purpose is to hold up a bid and thereby make it lapse is extremely limited.
The Government believe that an efficient system of takeover regulation is in the interest of UK companies and investors and of the wider economy. Once a bid is launched it is in the interests of all concerned that it should be determined swiftly. Whatever the merits of a bid, it is in no one's interest that it should become the subject of lengthy litigation. The adoption of the directive would necessarily entail a change in the legal status of takeover regulation in the United Kingdom. The panel as a regulatory authority would be placed on a statutory footing and the City code would have to be consistent with the directive. While it is difficult to predict what impact such a change would have, there is a realistic prospect that it would put at risk the advantages of our present system. In particular, it might become easier for parties to challenge decisions through the courts and to engage in tactical litigation.
The noble Viscount, Lord Chandos, expressed doubt about the risk of such resort to tactical litigation. Quite fairly, he pointed to the evidence of the Financial Law Panel. I invite him to look also at the rather briefer evidence which was submitted by Professor Len Sealy of the University of Cambridge. He indicated that, based on Australian and United States experience, there was not just a risk of tactical litigation inter partes but also that the regulatory authority might well be drawn into that litigation. I accept that Article 4.5 seeks to limit the scope for litigation. However, the Government share the committee's view that this article does not sufficiently safeguard the position.
As the noble and learned Lord, Lord Hoffmann, pointed out, the curious paradox is that this directive is allegedly in large part modelled on the City code. Commission officials themselves acknowledged in their evidence to the committee that our system provided the model for the directive and they had no desire to change our present system of regulation. It is ironic that the directive may inadvertently destroy the foundation on which that system is based and from which it derives much of its strength; that is, its non-statutory nature, its ability to resolve disputes without recourse to litigation and its flexibility to react to new or changing circumstances.
I should say something about those articles of the directive with which the Government are particularly unhappy and which they consider are in need of 175 amendment. I do not intend to mention each and every change that the Government believe needs to be made, but simply the principal ones. I believe that these reflect the concerns of the committee. First, I refer to Articles 3 and 10, which deal with the protection of minority shareholders and mandatory bids.
The City code includes a mandatory bid requirement. Where someone acquires a specified proportion of a company's shares, he is obliged to offer to buy all the remaining shares in the company. Under the City code, the price offered for the shares must not be less than the price paid for shares acquired during the previous year. The Government regard this as the best means of safeguarding minority shareholder interests in the event of a takeover. A mandatory bid requirement ensures that all shareholders have the opportunity to share in any premium paid by the bidder for control of the company. It also allows shareholders to quit the company if they so wish because of the new owners. The proposed directive does not include a mandatory bid requirement as such. It allows member states to choose between a mandatory bid requirement and measures which "offer other appropriate and at least equivalent means in order to protect the minority shareholders of that company". It is not clear to the Government—it would also appear from paragraph 116 of the report that it is not clear to the Select Committee—or indeed any organisation that has been consulted, what would constitute equivalent protection to a mandatory bid.
The directive also allows for partial mandatory bids. As a consequence, a bidder might be required to buy only a proportion of the remaining shares rather than all of them. This would have the extremely unfortunate consequence of leaving an even smaller minority of shareholders within the company. It is difficult to see what protection such an arrangement would afford these shareholders.
I have already mentioned Article 4.5 and its attempt to deal with the problem of tactical litigation. We acknowledge the Commission's attempt to anticipate UK objections by stipulating that courts need not as a consequence of the directive change their stance of not intervening during the course of a bid. But the Government are concerned that the wording would not be effective in preventing parties from bypassing or challenging the panel's procedures and seeking judicial review by the courts. I believe that that concern was also reflected by the noble Lord, Lord Borrie.
There is a further problem with this article. It requires that injured parties must enjoy adequate remedies. This can be through an appeals procedure operated through the supervisory authority or through the right to take proceedings before the courts to claim compensation. The wording of Article 4.5 needs to be amended to make clear that the two options of an appeals procedure or compensation are genuine alternatives and that a member state may adopt one of these two options. We would opt for the appeals procedure route. Compensation is most unlikely to provide an appropriate remedy. Actual or potential breaches are likely to be best remedied by prompt action of the supervisory authority during a bid.
176 Article 5.1 also causes problems. This article sets out a number of general principles with which the more detailed regulatory requirements must comply. On the face of it, this is an approach similar to that of the City code. But if the principles are set out in a directive and subsequently implemented by statute there must be doubt as to whether the supervisory authorities can continue to apply the principles of flexibility or approach those principles in a purposive fashion as they can at present. I believe that the noble Lords, Lord Spens and Lord Borrie, considered it desirable that such flexibility should be maintained. The position would instead be that the principles in the directive would be subject to interpretation not only by the domestic courts but also by the European Court of Justice. The resulting case law could constrain the Takeover Panel's interpretation of the City code.
Article 8 seeks to constrain frustrating action by companies which are the subject of a bid. We agree with the committee that it could be interpreted in a number of ways and needs to be amended if it is to be effective in preventing boards from shielding themselves from takeovers without the informed consent of their shareholders.
I have concentrated on our main concerns about the drafting of the directive. I have not mentioned all our concerns on drafting or our other objections. For example, we agree with the committee's conclusion that the directive does not meet the criteria for subsidiarity— I hope that my noble friend Lord Pearson will allow me to say it—set out in the guidelines adopted at the European Council in Edinburgh in 1992. Our position on this matter is fully stated in the memorandum responding to the committee's report, which is available in the Library. I do not propose to detain your Lordships with that now. However, I thought that there was a particularly telling point within the committee's report at paragraph 95. The noble Lord, Lord Peston, thinks that one day we must go to some uniform set of procedures across Europe, and it seems to me that the observation here is particularly telling, where:The Commission could not point to any transnational problems which the Directive would in practice help to solve".If it could not point to any particular circumstance in practice where this directive would be of value, nothing could more clearly indicate that the principle of subsidiarity should apply in relation to this type of control.
§ Lord Peston
My Lords, I noted that, and I was extremely impressed by it. What puzzled me, and the reason I did not press it any further, was his own department's evidence which said that it was concerned essentially about restrictions on possible bidders in this country engaged in cross-European purchases of firms elsewhere in the market; in other words, what puzzles me—the Minister might like to reflect upon it—is that the Commission could not point to any transnational problems but his department was bellyaching like mad about precisely that matter. I thought that I would leave well alone for the moment, but it is not a minor point. My view is that the halfway house position is unacceptable. I can go for complete subsidiarity or 177 complete uniformity. So I do not believe that there is a great deal between us, or certainly in this case not between me and the committee. It is the middle position of the directive which, I agree with everyone, is impossible.
§ Lord Fraser of Carmyllie
My Lords, there are some real problems, which my department is right to point out, if the directive is adopted. Not least, as I was pointing out—I was trying to deal with matters as briefly as possible earlier—if case law should develop, for example (that would be case law coming from the ECJ) it might come up in relation to all manner of takeovers and issues in other countries which would, in turn, necessarily have to be reflected in the way the Takeover Panel's activities were governed in the UK. I do not consider that there is in any sense a contradiction between what is included in that passage by the committee and what my department has indicated.
I shall pass now to the consultation exercise undertaken by the DTI. We consulted a wide range of interests. The overwhelming view of those who responded was that the adoption of the directive would be a retrograde step. The reasons cited were, almost without exception, the ones which both the committee and the Government have identified.
We have also received a number of letters from major companies listed on the Stock Exchange. Those companies would be subject to the directive's requirements if it were adopted. Without exception, all were opposed to the directive and have asked that the Government should oppose its adoption in negotiations in Brussels.
The noble Baroness, Lady Turner, referred to the protection of employees in takeovers. The noble Lord, Lord Peston, thought our response to that was wishy-washy. Advanced consultation with employees before a bid was announced would provide opportunities for insider dealing. The noble Lord, Lord Haskel, said that there must be a way to get round that. With the greatest of respect, I do not believe that there is such an opportunity. For that reason, we agree with the committee that it would not be feasible to require consultation in advance of information being made publicly available. Of course we understand why the noble Baroness would like to see such consultation, but there is another set of interests here. We just do not see any compatibility in achieving the two.
I should say a few words about future discussions on the directive. At present the directive is being considered by the Legal Affairs and Citizens' Rights Committee of the European Parliament. It may be on the dates to which the noble Lord, Lord Haskel, referred, but I am not sure. In any event, it will have to make its recommendations which will then have to be considered by the full parliament. So far as I am aware no date has been set for that debate. There have as yet been no discussions over the draft directive in the Council. None has been scheduled so far by the present Dutch presidency.
178 My noble friend Lord Pearson chided me for failing to respond to him when we last discussed a similar draft directive of which I disapproved before Christmas. At present, in looking to our future action we cannot be sure how other member states will react until negotiations in Brussels commence. It is too soon to judge whether we can muster a blocking minority. I regard the subsidiarity point as being one of such general application that even if there are other countries which are not particularly concerned one way or another about this directive, they should be concerned about the subsidiarity point. We shall voice our fundamental concerns on the effect of the directive and the limited justification for the proposal, but we shall also seek— that is why I have taken some time to spell it out—in negotiations to obtain changes to the text which would minimise the effect on our takeover regime were it to be introduced. We shall try to ensure also that the weaknesses in the text are put right.
In conclusion, I should say that there is almost unanimous opposition to the directive from business, from those who advise on takeover bids, and from the regulators. Those concerns have been explored in detail and subjected to rigorous analysis by the committee chaired by the noble and learned Lord. The committee has come out clearly against the directive. For the reasons I have given, the Government share that view, and we shall continue to argue the case against the directive as vigorously as we can.
§ 7.47 p.m.
§ Lord Hoffmann
My Lords, I am most grateful to noble Lords for the thoughtful contributions that have been made to the debate, as I am sure are the members of the committee who took part in the preparation of the report. My noble friend Lord Chandos commented upon the thinness of attendance on the Benches opposite, so I should say that I know that there are noble Lords who would have wished to contribute to the debate but they were attending a memorial service for a late Member of this House and were unable to be present here.
A number of noble Lords raised questions which are of great importance in connection with takeovers but which go beyond the scope of the system of regulation with which we are here concerned. My noble friend Lord Haskel said that the report did not deal with whether takeovers were a good thing. My noble friend Lord Peston returned to the same theme. He said that if one were concerned with making the machinery of takeovers work better, it followed that one was in favour of takeovers. He said that one could not duck that question. I do not propose to duck it. I shall meet the matter head on.
The system of regulation takes as given the legal structure and the economic structures of this country, which are, as I said, encouraging to takeovers. That may be a good thing; it may be a bad thing. If it is thought to be a bad thing on competition grounds, the answer is to strengthen the competition laws. If it is thought to be insufficiently protective of the rights of employees— something I perfectly understand—the answer is to take precautions that the takeover shall not go through unless the rights of employees have been properly safeguarded.
179 But it is arbitrary and eccentric to discourage takeovers, if you think they are a bad thing, by encouraging tactical litigation and creating unfairness to shareholders. That is the matter with which this system of regulation is concerned, and that is all it is concerned with.
Likewise, the question of competition policy: we are dealing here with a self-regulatory system. It is wholly inappropriate for competition policy to be the subject matter of a self-regulatory system. Competition policy represents the economic policy of the state, to be enforced by the state. It is not a matter to be enforced by gentlemen who have been brought together for self-regulation in the City of London.
Likewise, the question of employees: the position of employees on a takeover is serious and important. When the Acquired Rights Directive was being discussed by the Select Committee strong arguments were put forward that the rights given to employees when there is a takeover of a business—the right to be consulted and the right to have their jobs carried forward as against the new employer—should also be extended to a case in which there is a change of control in the shareholding by means of a takeover bid. From an economic point of view, if you are the employee of a company which has been taken over it does not make a great deal of difference whether what has been taken over are the assets and undertaking or the shares. That is the appropriate place in which to deal with the protection of employees on that matter. If that is going to be done, that is where it should be done. It is not a matter to be introduced into a system of self-regulation by the City.
I do not propose to pursue the noble Lord, Lord Pearson of Rannoch, into the arcane doctrine of subsidiarity. It is sufficient that he appears to regard the directive as being inappropriate, as does the committee, and I propose to leave it at that. It may be surprising to noble Lords to hear that when I practised as a lawyer I regarded it as part of my duty to keep my clients out 180 of the courts. That is the objective which the Takeover Panel has sought to pursue over the years and, though I am a lawyer, it remains a wholly laudable one.
Finally, I thank the Minister for what appears to be the close agreement between the views of his department and those of the committee. That is an unusual position for the committee to find itself in. I conclude by wishing him every strength in the endeavours of his department to resist the implementation of this directive.