Is nothing sacred in corporate world?

By William Keegan

LONDON: Corporations are not what they were. National boundaries are not what they were. Nowadays, in international business, anything goes, usually by telephone. It may be an announcement of a hitherto unimaginable takeover bid, the collapse of shares of a proud household name. Or just a bid by one telephone company for another, forming a company whose market valuation rivals the size of the gross domestic product of Denmark.

The bid by British mobile phone upstart Vodafone for the mighty German Mannesmann telecommunications group was at first considered cheeky, then daring, then ambitious and then successful.

Given the market power the combined group would have in Europe, the bid is still subject to the approval of the Brussels Commission. A Single Market is all very well, but the thought of a single corporation dominating that market revives memories of why anti-monopoly or anti- trust legislation was introduced in the first place.

Vodafone's was a hostile bid, across a national boundary into an economy, Germany, which has for years been run by a coalition of banks, corporations and government officials with interlocking shareholdings and many a tacit "understanding".

Before Southeast Asia brought us the concept of "crony capitalism" the Germans had developed another model, cosy capitalism, to a fine art.

Indeed there were many observers outside Germany who liked the look of the paternalistic "Rhine Model" and wished to import it to Britain and elsewhere. U.S. and British practice in these matters is conventionally described as "Anglo-Saxon" capitalism, although this is a misnomer if ever there was one, because both upper and lower Saxony happen to be a lot nearer to the Rhine than to the U.S. or British economies.

If Vodafone's "hostile" bid for Mannessmann tells us anything, it is that "shareholder" rather than "cosy" capitalism has now crossed the English channel. The German government was uneasy about the bid, but did not formally block it.

No doubt Germany will make its views known to the European Commission during the formal examination of the bid. But most observers conclude that it is now a case of "anything goes" in Continental Europe too.

Way back in the 1970s, the Financial Times columnist Sir Samuel Brittan suggested it was no accident that West Germany was the most impressive West European economy and East Germany the star of the Eastern bloc. The thought occurs that if Germany sets its mind to "shareholder capitalism" then the critics of that country's putative "structural rigidities" may live to rue the day they told Germany it "had to change".

The rise to dominance of Vodafone and other "new economy" corporations is also a salutary reminder of the economist Joseph Schumpeter's analysis that the essence of capitalism is "creative destruction".

In the 1950s and 1960s it was fashionable to assume that the world was run by large corporations that held an oligopolistic stranglehold on society. As JK Galbraith pointed out in The New Industrial State, the automobile corporations managed to confine their "innovative" and competitive instincts to the size of an automobile's "fins" (younger readers may not even be aware that "fins" existed in this context).

What is known in shorthand as "globalization" has brought intense competition. The American auto industry in the 1980s suddenly realized it had to wake up to the "Japanese threat", and shamelessly imported ideas from Japan, as did the UK.

In this frenetic competitive atmosphere, household names are no longer sacred. In Britain the retail chain store Marks & Spencer was for many years considered invulnerable. The Thatcher Government could think of no greater way to improve the efficiency of government than to import advisers from "M&S". But the firm made a number of misjudged decisions and has been badly hit by younger and more vigorous competition.

"Hit" is not a metaphor one would want to use about an airline, but the fact of the matter is that British Airways under its chief executive Bob "ailing" Ayling has made a number of poor management decisions, and is now desperately fighting back. At one stage it courted a lot of bad publicity by, for no good reason, abandoning a perfectly good logo and painting weird designs on the rear of its aircraft -- a classic case of chasing its tail.

BA's Ayling is also chairman of London's Millennium Dome, which has been a public relations disaster. A man from Disneyland has been brought in to help. As I say, these days anything goes ...

-- Observer News Service