CITY RULES OK? POLICY COMMUNITY, POLICY NETWORK AND TAKEOVER BIDS

Date01 December 1988
DOIhttp://doi.org/10.1111/j.1467-9299.1988.tb00702.x
Published date01 December 1988
CITY
RULES
OK?
POLICY
COMMUNITY,
POLICY
NETWORK
AND
TAKEOVER
BIDS
MAURICE WRIGHT
This paper uses the concepts of policy community and policy network to analyse the
particular set
of
industrial policy issues related to the conduct
of
takeover and merger
bids. Within the general context of the law, the regulatory climate is governed by the
principle
of
voluntary self-regulation, which since
1968
has been partly articulated
in
a
written code whose rules are interpreted and enforced by a non-statutory body, the City
Takeover Panel. The panel is one of several ’insider’ organizations identified and
categorized
in
terms of policy community. Relationships between it and other ’insiders’ in the policy
processes are analysed in terms of policy network and ’rules
of
the game’. It is argued
that the stability of that network is increasingly threatened by the environmental turbulence
provoked by the Guinness affair and the passage of the
1986
Financial Services Act.
Scandal in the City is not new. What is different about the recent, and continuing,
scandal associated with the Guinness Company’s contested bid for Distillers in 1986
is
the extent to which members of ‘blue-blooded firms in the City (and
in
other
countries) participated in dubiously legal sharedealing,
and
at the same time
behaved
in
ways which transgressed their acceptance
of
voluntary codes of conduct.
Guinness
served
also to refresh the protagonists
in
the long-running debate about
the efficacy of self-regulation, a principle deeply entrenched in City
mores.
In
the
deregulation of financial services which preceded ’Big Bang’ in October 1987, and
in
the statutory re-regulation of the more competitive environment thus created,
the principle of seU-regulation remained virtually intact. However, as the events
surrounding the Guinness bid unfolded in early 1987, public confidence in the
willingness and ability of the City to regulate effectively its
own
activities began
to wane.
The principle of voluntary self-regulation
in
the activities of those engaged in
the provision
of
financial services is deeply entrenched. Sir Nicholas Goodison
(1987), Chairman of the Stock Exchange Council, writing in the wake of the
Guinness affair, defined self-regulation somewhat idealistically as behaviour
of
a
high
moral standard which in itself implies restraint and voluntary submission
to codes of practice. Behaviour which is permitted by the law is not necessarily
Maurice Wright
is
Professor
of
Government at the University
of
Manchester.
Public Administration
VoI.
66
Winter
1988 (389-410)
0
1988
Royal Institute of Public Administration
ISSN
0033-3298 $3.00
390
MAURICE
WRIGHT
moral. Moral standards frequently exceed the requirement of the law’.
In
practice
self-regulation has operated in the past at three levels: first, by prescribing standards
of personal conduct for the players in the market; secondly, by firms and com-
panies imposing those and other standards of behaviour and practice on their
members; and thirdly, by obliging all firms in the markets to acknowledge a
collective interest and responsibility in policing the behaviour of members through
institutions such as the Stock Exchange.
The reform of the securities industry which led to the Financial Services Act
in 1986 confirmed the principle of self-regulation, although the provision of reserve
powers for the new supervisory body, the Securities and Investment Board
(SIB),
meant that the context in which sell-regulation would take place was itself more
tightly regulated. A similar tightening of the regulatory environment was recom-
mended in
Sir
Patrick Neill’s (1987) report on Lloyds, while affirming the efficacy
of the principle of self-regulation in general.
Despite
these
re-affirmations, the conduct of the city, and the institutions to
regulate and control the behaviour of its members, has (contrary to the assumption
underlying self-regulation) become a political issue.
It
is
not certain whether govern-
ment
will
be able indefinitely to resist demands for statutory controls despite the
recent passage of the act.
Within the wider debate about the efficacy of voluntary self-regulation, and the
adequacy of the legal framework within which it operates, particular concern has
been expressed about the role, functions and powers of the City Takeover Panel, a
non-statutory regulatory body, and its interpretation and administration of the
voluntary Code of Practice by which the conduct of parties engaged in takeovers
and mergers is regulated. While the sharedealing and related activities of those
connected with the Guinness bid were allegedly illegal, nevertheless the Takeover
Panel was criticized (perhaps unfairly) for its failure to deter and later detect such
behaviour and infractions of the code. Public unease with the failure of the voluntary
code to deter unethical and illegal behaviour led to pressure for a review of the func-
tions and powers of the panel. Despite strong pressure from the Treasury, the Labour
Party, and some financial commentators, the Department of Trade and Industry
(Dn)
and the City resisted demands to introduce statutory controls,
or
to incorporate
the panel into the new regulatory structure established by the Financial Services Act.
This article looks at the origins and evolution of the takeover panel, and its
role in the initiation, formulation and revision of public policy for the regulation
of
the conduct of parties to takeover and merger bids. It deals also with the inter-
pretation and administration of the code, and the means by which compliance
with its provisions are normally secured, and sanctions for their transgression
enforced.
It
is a study of the processes for initiating, malung and canying out public
policy, and is concerned to demonstrate the potentiality of the concepts of policy
community and policy network for the analysis of those processes.
These
concepts
are now familiar enough to students of public policy from the work
of
Benson
(1986), Rhodes (1988) and others to require no rehearsal here. Their adaptation
for the analysis of industrial policy is perhaps less
so,
but is dealt with
in
detail
elsewhere (Wright 1987, 1988; Wilks and Wright 1987).

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