How people power is changing business: Gottliebsen

News Corporation and BHP Billiton global lawyers and executives have been completely wrong-footed in Europe and North America by the decisions of politicians and regulators to abandon precedent and make decisions based on community views.

Those community views are now usually anti-capital.

And here in Australia our Conversation pages show a similar community attitude change is taking place. The majors should look out – particularly Australia’s largest banks, which have made the same mistakes as BHP and News Corp.

Part of the reason for this global phenomenon is that a number of parliaments around the world are now much more finely balanced, but the reasons go much further.

I discovered deep concern about this global change by talking to people close to BHP and News Corp.

Let’s start with News Corp. Rupert Murdoch’s son James has done a first-class job at BSkyB in the UK. Rupert should have bought out the outside BSkyB shareholders years ago. In 2010 it was deemed that the time had come, and News Corp obtained the best legal advice possible which declared that there would be no legal problems facing News Corp if it did bid for the 61 per cent of BSkyB it did not own.

The minority directors of BSkyB declared Rupert Murdoch’s bid too low – but that’s simply an issue of price and could have been anticipated.

What News Corp and its advisors never contemplated was that News Corp’s unpopularity in the UK would cause the British parliament to respond to community pressure and set up an inquiry that virtually requires that News Corp show that the bid is in the public interest given that it will increase News Corp’s stake in British media, albeit by a small amount.

The public is unhappy, so politicians respond irrespective of the legal situation. News Corporation is suddenly on the back foot. Its original legal advice, based on established legal precedents, has limited value.

Now we go to Canada where once again BHP obtained the best legal advice and worked closely with the Canadian government in Ottawa in its planned bid for PotashCorp. The Canadian public servants and BHP were putting the final touches to the approval announcement when the whole exercise went pear-shaped. Community opposition in Saskatchewan was strong and it became apparent that five seats in Saskatchewan could be lost if the government allowed the deal to proceed. The power of that community was such that the Ottawa government changed its mind and BHP was wrong footed.

BHP needed to have spent much more time in the local Saskatchewan community in the same way as News Corporation has to do much more work on the UK community.

Although the circumstances were different, BHP was actually hit twice by the same movement.

The terms of the proposed iron ore joint venture with Rio Tinto were basically agreed with European regulators in Brussels. But German anti-cartel regulators did not want the joint venture to go ahead and Brussels buckled. BHP should have spent less time in Brussels and more in Berlin.

Accordingly, the set of central rules and precedents which governed business now cannot be relied upon if they are pitted against what communities see as their interests. Governing bodies are now much more attuned to their constituencies.

In other words, to be relied on, the law must coincide with community opinion.

Here in Australia it was fascinating to read 40-odd Business Spectator conversation contributions on the housing market. We all know that banks keep the price of houses high by being generous in their consumer loan criteria and thereby lifting dwelling demand. But they restrain supply by being tough with land and property developers. However, Business Spectator readers pointed out that government also has a big role in the higher house prices.

Overwhelmingly, although our readers may have been beneficiaries of the higher house price process, they don’t like it. Many want governments to tax expensive houses’ capital gains, curb negative gearing, be tougher on first home buyers grants, and so on.

So suddenly the Greens produce a policy that attacks banks and endangers house prices. When this is pointed out in Business Spectator, instead of there being outrage against the Greens there is support for them.

BHP has suffered because it did not pick the change. In the UK, News Corporation is in danger of suffering the same fate.

Banks and governments in Australia need to watch out because the Greens may ride a similar wave. And if the power of populism gathers pace it will make global lenders feel less secure and they will demand greater risk premiums.

This article first appeared on Business Spectator.

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