The MT Diary: Howard Davies

Redwood at large; old familiar China; the Abbey bellwether; an OFR firms can't refuse.

by Howard Davies, the director of the London School of Economics

The double reshuffles in September did not shift the tectonic plates of British politics. Alan Milburn's return, to spend more time with the government, was widely predicted. As was Alan Johnson's promotion - a prize for pushing through top-up fees.

By contrast, John Redwood's reappearance was unexpected. The notion of a shadow minister for deregulation is an odd one - a kind of double-negative vocation. But no doubt he will put himself about and take up the cudgels against the regulators. I'm glad I am no longer in line to be scourged.

He will need to exercise some care, though, as the continuing Conrad Black revelations in the Hollinger reports show that someone will need to keep an eye on the animal spirits of supposed entrepreneurs.

I doubt if there would be any similar reports written about Chinese entrepreneurs, at least not yet awhile.

The China Daily, which was my only newspaper for most of August, is a little tame on the business pages. It's about the only serious drawback to holidaying in China these days. With the renminbi linked to the dollar, the price is right. The food is outstanding, and it is now quite an easy place to get around.

I have an aversion to package tours, preferring to cobble together family holidays myself - which has left us in one or two tight corners over the years in Ecuador and Cuba. But in China it is possible to sort out everything through splendidly efficient websites, and cheerful e-mail strings conducted with women called Cheryl Chen or Vicky Pu. One of my correspondents was called Minimouse. I asked what she did in China for cheese, but the joke seemed to get lost over 6,000 miles.

We visited the Three Gorges dam, which is too monstrous to describe.

We cycled round Beijing, and tried to navigate the City of Shanghai using a map of the French and International Concessions dated around 1937. Oddly, although the names have changed, it is quite possible to do so. The Avenue Marechal Joffre is no more, but the houses in which Sun Yat-sen and Chou En Lai lived have been lovingly preserved. They are British-style half-timbered suburban villas with lawns and flowerbeds.

The most interesting is Madam Sun Yat-sen's house, whose front room - straight out of Acacia Avenue - houses an enormous radiogram and a large photograph of herself in front of the mantelpiece with Chairman Mao. She and Madam Chiang Kai-Shek were sisters, and both were educated, primarily in English, at a Shanghai school called St. Mary's.

We were shown around by a recent London School of Econonomics graduate, who dropped into the conversation that she had been to the same school herself, and that the headmistress was always banging on about Madam Sun Yat-sen's example to the girls. The only difference is that the school is now called Shanghai Middle School for Girls No.3.

There is more continuity in Chinese society in the 20th century than one might think.

Back home, the consolidation of the banking industry, which I forecast a couple of months ago, is now under way. The Abbey will clearly end up under a different mother superior, not Lord Terry Burns of QPR.

It's odd that Abbey should be the institution whose future is testing the competition regime for British banking. Its destination will have an important influence on the shape of the British financial sector for decades, so it will certainly now merit a footnote in history for this reason, if no other.

The AGM season is getting under way, with the usual focus on the Remuneration Report above all else. But perhaps next year even the Financial Times, which is obsessed with executive pay, might devote a little attention to the new Operating and Financial Review (OFR), which companies will be obliged to publish. Many boards are now thinking hard about what should be in it. Will it be a useful additional spur to effective corporate governance or a waste of space?

As with most such reforms, it will probably not make much difference for well-run companies, but for others it may be a challenge, although it may encourage some of them to think harder about the risks they are running, and how to mitigate them. That behind-the-scenes activity will be more significant than the precise drafting in the annual report.

Will companies be able to identify their risks properly? Had it been obliged to produce an OFR, would Hollinger have identified the risk that a large proportion of its cashflow might end up in the form of rapidly depreciating assets in the chairman's wife's clothing closets?

Maybe the Government should also be obliged to write an OFR. One risk that ought to be included is that President Kerry may no longer answer the phone to George W's number one fan.

What probability should be attached to this risk materialising? Low to medium, I think - but it should be an exciting month. I'm looking forward to a couple of trips to New York and Washington in the run-up to the election. Which reminds me - I must buy a couple of hundred pairs of shoes if I want to be properly turned out in Manhattan.

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