Thursday 15 May 2014

Wortless guarantees

Politicians have been taking turns to express their concerns about the proposed take-over of Astra Zeneca by American firm Pfizer.  They’re concentrating on the potential negative impact on jobs and research in the UK, and on the possible tax implications, naturally – but they’re missing the point.
One classic example was the MP grilling the Chief Executive of Pfizer and demanding guarantees about how many people would be employed in a specific location in five years’ time. The Chief Exec looked and sounded evasive; but in reality, how many companies, whether a take-over was in the offing or not, would be able to give that sort of guarantee anyway?  The underlying assumption seemed to be that without a take-over, everything would be certain to carry on as it is at present – but that’s a hopelessly invalid assumption.
Any demand for guarantees and binding promises from a multinatiional company will ultimately be next to worthless, and I’m not at all convinced that attempting to make them ‘legally-binding’ will really make much of a difference. Under the system of company law which all the politicians support, and which none of them show any predilection to change, both Pfizer’s and Astra Zeneca’s prime legal obligation is to maximise value for the shareholders. If legally cutting their tax bill, reducing the number of employees, or shifting activity from one part of the world to another helps, then not only are they free to do that, they are more-or-less obliged to do so.
It’s not an approach which I support, but it’s the inevitable result of a legal system whose objective is to support and protect capitalism.  The politicians could promise to change the law to give other stakeholders – such as employees, customers, and governments – more rights.  But they won’t; indeed, most of them would happily dismiss such changes as ‘more red tape’ – government regulations standing in the way of ‘free enterprise’ and the ‘right’ to make profits.  But unless they’re prepared to tackle that question, all the hand-wringing and pleading is ultimately just grandstanding.

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