Comment: City culture means there’s no value to extract

By ERIKKA ASKELAND
Published on 07/08/2012 01:15

IT IS that time again, time for the wringing of hands and gnashing of teeth – another Scottish plc has announced plans to abandon its listing, reducing further the stock of investment-grade companies north of the Border.

The times are desperate. Dental tech company 3D Diagnostics is just one of a number of Scottish companies planning an exit from the public markets – the firm failed to persuade investors to cough up a little cash after a string of profit warnings.

Others which have recently joined or are set to join the ranks of the formerly-known-as-listed are five-a-side football pitch company Goals Soccer Centres, macaroon maker Lees Foods and, quite probably, luxury textiles firm Dawson International, which is facing administration under the burden of its pension fund.

When it comes to the leaching of listed firms from Scotland, the perennial question is does it really matter? And, following the publication of John Kay’s report into the functioning of the markets, who in their right mind would want to submit to the expensive, ill-functioning mangle that is the Alternative Investment Market and the London Stock Exchange, anyway?

Increasingly for many companies, the stock markets are no longer fit for purpose. Listing is meant to link the ambitions of businesses with the wealth of investors in a virtuous circle. Instead, as chronicled by Kay, the denizens of the City have turned the investment machine into one that produces fat payouts for the operators and little for anyone else – unless you are one of the big fish with billion dollar bait like Mark Zuckerberg and Facebook, or Malcolm Glazer and Manchester United, whose listings have been accused of running roughshod over best practice and the interests of stakeholders and investors.

No wonder equities are considered such dud investments. As Otto Thoresen of the Association of British Insurers pointed out in a speech earlier this year, in the 1990s, UK insurers owned 50 per cent of the UK equity market. Now it is less than 25 per cent, as the institutional investors shift their focus to perceived better bets in sovereign and corporate debt markets.

Likewise, if you go to many listed companies’ AGMs, these now look more like drop-in centres for the elderly as retail investors playing the stock markets get older and aren’t replaced by younger souls who see investing in companies and speaking to their board members as a way of increasing and protecting their wealth.

Not that plc boards and their smugly unresponsive remuneration committees, which have single-handedly overfed the UK fat cat culture, have done themselves any favours.

Perhaps it is a sign of the times – and none too soon – that the board of 3D has opted to take massive pay cuts in an effort to shore-up the company’s balance sheet rather than go cap in hand to investors.

But the desertion of the stock markets by small companies with growth potential is another telling sign. If the City is the organ grinder, its plc monkey is being ritually beaten and starved nearly to death. Its culture and its way of doing business must change now.

It looks like the super rich don’t do irony

Another warning has been delivered to UK policy makers – high taxes and crime are driving wealthy Brits to live elsewhere.

I am a sceptic when it comes to such claims. If the wealthy bankers, corporate executives and yacht-owning retirees fancy taking their chances elsewhere, so be it. We hear constantly about how the UK needs to retain its rainmakers by any means necessary, even if it means allowing them to pay less tax than their cleaners.

Never mind that the latest warning comes from a wealth advisory firm, de Vere, which specialises in advising British expats and can only benefit if more join their ranks.

So where are all these moneyed Brits going? Apparently, they are setting their sights on sunny Dubai and Abu Dhabi, Cyprus and Malaysia.

Sure, all of these places get more sun, but people thinking of moving abroad should consider very carefully that the UAE is in effect a benign dictatorship, while Cyprus is the land of dodgy property deals.

It is ironic that expats should bitch about high taxes and crime rates in the UK only to flee to where the rule of law can be both more capricious and harsh.