ALEX BRUMMER: Folly of board sell-outs

The amazing test results for Pfizer’s Covid-19 vaccine is a game changer, not just for curbing the disease but ending consequential economic, fiscal and social damage.

When quests for a vaccine began on both sides of the Atlantic, there was tremendous scepticism about the likelihood of anything emerging soon.

The idea that immunisation with a 90 per cent-plus success rate could gain approval from regulatory agencies in just nine months seemed impossible.

On the markets the impact of Pfizer’s vaccine announcement was immediate with the bombed out FTSE 100 surging 4.7 per cent and the Dow Jones and S&P 500 hitting record highs

Other vaccines, including a treatment from Moderna and another from Astrazeneca, could be with us by year end.

Life sciences, in which the UK is genuine global player, will be a big winner from the pandemic leaving jejune politicians and public health officials looking clunky in Covid responses.

On the markets the impact was immediate with the bombed out FTSE 100 surging 4.7 per cent and the Dow Jones and S&P 500 hitting record highs. 

Stocks regarded as losers, such as UK engineer Rolls-Royce, with a high dependence on civilian aerospace, soared. 

Rolls stock jumped 44 per cent from an admittedly ridiculously low post-rights issue level. Among the big winners are the UK’s hospitality champions such as Whitbread up 16 per cent.

The pattern was repeated on both sides of the Atlantic with enfeebled industrial and hospitality stocks on the rise and tech, from Zoom to Netflix and Ocado, in retreat.

The sharp moves reflect a combination of the huge amount of liquidity – the Bank of England revealed an extra £150billion of bond buying last week – and the view among investors that with a vaccine the global economy will be free.

The change in mood ought to be a moment for reflection in Britain’s boardrooms. A combination of Brexit-talks gloom and Covid panic turned London stocks into a financial graveyard. 

That opened the door to overseas bargain hunters buying up Britain on the cheap. It is too late to do much about Cobham, Inmarsat, Laird and many other firms taken out at sub-octane prices and undefended by puny boards with no concept of broader public interest.

One is reminded of the determination of the Astrazeneca board when chief executive Pascal Soriot, bolstered by City heavyweight directors Shriti Vadera and former Barclays boss John Varley, stood firm against Pfizer in 2014.

Now it is time to see robust responses from other company boards under siege who have a fiduciary duty not to sell businesses – even with what looks like a decent premium – without debate.

There is absolutely no reason why the board of RSA should bend in the face of the £7.2billion bid from Canada’s Intact Financial and Denmark’s Tryg.

It maybe what chief executive Stephen Hester wants, having done a skilful restructuring, but it would be disgraceful if a pillar of the UK insurance were to be dismembered and sold after 300 years.

RSA has the misfortune of a board dominated by directors with weak ties to Britain. Given recent under-performance of the FTSE they have a duty not to sell on the first smell of cordite.

Chairman Martin Scicluna, a refugee from Deloitte, is viewed by critics in the Square Mile as lacking the mojo to stand up against the predator or a dominant chief executive. 

He has good reason to rethink a flaccid response given the 10 per cent rise in rival Aviva’s share price.

At least John Connolly, chairman at G4S, is backing chief executive Ashley Almanza in the fight against Canada’s Garda World backed by private equity opportunists BC Partners. 

Selling the UK’s dominant supplier of security should not be an option. Similarly, directors of mutual insurer LV should be condemned for selling to private equity group Bain Capital when there was a more governance friendly offer on the table.

If a UK-Europe trade deal and Covid vaccine unlock the untapped value on the London Stock Exchange, boards of the target companies will be seen as having done a terrible job.

Finance charge

So the financial sector has not been forgotten by HM Treasury after all. Green gilts, climate change resilience tests for banks and insurers and less onerous listing rules for tech firms are all desirable. 

However, one has to be wary of anything which weakens governance for quoted firms.

Rishi Sunak, who is usually quick off the mark, left it a bit late to jump up and down about ‘equivalence’ for UK financial groups in Europe.

That horse bolted some time ago.

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