CEO wanted, English not required

CEO wanted, English not required Mar 19th 2008 From The Economist print edition The last bastion of corporate nationalism may finally be crumbling FROM the Afrikaans accent of the doormen at its smart hotels to the east European lilt of waiters in its restaurants London's workforce is unmistakably global. Yet one unlikely pocket of discrimination remains. The jobs of running Rolls-Royce and BAE Systems—Britain's biggest aerospace and defence firms—are reserved for British citizens, an anomaly that both firms are lobbying hard to end. The two argue that they should be allowed to scour the world for talent, as other firms do. Only 64 of the bosses of the 100 biggest firms on the FTSE share index are British, reckons Odgers, Ray & Berndtson, a headhunting firm. Rolls-Royce is not anxious to see the back of its boss, Sir John Rose. But BAE wants to replace Mike Turner by August, and it has some able Americans, along with a couple of Britons and a continental European, in mind. The firms' hands are tied by the terms of their privatisation two decades ago. The government hung on to a single special share in each of them that conveys particular powers. Both companies may hire only British chief executives or executive chairmen (and most of their directors must be British too) unless the government agrees otherwise. And government approval is needed before a foreign shareholder may own more than 15% of the company. Such “golden” shares were once common in privatised industries such as water and electricity utilities. Yet most have been allowed to expire or have been removed. The government quickly scrapped its golden share in Jaguar, a carmaker with a glamorous name but a prodigious spending habit, when it fell into the loving embrace of Ford in 1989. In 2003 the European Court of Justice forced Britain to shred its golden share in BAA after deciding that it inhibited the free movement of capital. The airports operator was later sold to Ferrovial, a Spanish construction firm. That the government has kept its golden shares in BAE and Rolls-Royce despite abandoning them in so many other businesses is hardly surprising. Both are intimately involved in Britain's defence. Rolls-Royce makes the nuclear reactors that power its submarines. BAE has played a role in making just about all the triggers that military fingers rest on, from jet fighters and tanks to dusty rifles. Nor is it unusual. Most countries limit the ownership of big defence firms and insist that only their own citizens can be trusted with their deepest military secrets. The American subsidiaries of British defence companies, for instance, are managed by American boards whose directors have been approved by the Pentagon. Proponents of golden shares argue that they are needed in crucial areas so that Britain will be beholden to no one. Yet believing that this is possible reflects an outdated view of defence and the industry needed to support it. Most weapons now have parts from all over the world. They are so expensive and complicated that few countries can make more than a bit of what they need. Even America, which spends as much on defence as the rest of the world combined, is buying tanker aircraft designed and partly made in Europe. Because Britain has already gone further than most in opening its defence market to foreign competition, it would be hard pressed ever to fight a war without the support of its allies. An American firm produces the radios carried by British soldiers in Afghanistan and a French one provides the unmanned drones that keep an eye on them from the air. The country's national champions, meanwhile, do more business outside Britain than in it. BAE's biggest customer is not the British Ministry of Defence but the Pentagon. Letting the firms choose their own chiefs would be good not just for them and their shareholders but for taxpayers too, many argue. Defence firms are notorious for extracting handouts from governments in the name of national interest. The more they look like any other firm operating in a competitive market, the easier it will be to turn a deaf ear to special pleading.