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Regulation hang-up

No one could have failed to notice the government’s effort to roll back regulation in an attempt to promote economic growth.

It is not alone in the belief that the burdens of compliance on business is a cage constraining the UK’s ‘animal spirits’ that would otherwise save the London Stock Exchange from long-term decline. The Capital Markets Industry Taskforce, led by LSE chief Julia Hoggett, not so long ago called for a governance “reset” to persuade more companies to list in London or, at least, to stay where they were.

Indeed, the government has already backed measures that reduce shareholder rights and soften the rule on dual-class shares , changes that shareholders condemned.

However, an academic at another LSE—the London School of Economics—this week argues that rules and regs are not what’s slowly killing the stock market’s success.

Alperen Gözlügöl, a legal prof over at Houghton Street, argues that there is little evidence for the sheer weight of rules being the problem forcing companies to delist and head to the US.

First, Gözlügöl points out that the US regulatory regime is (currently) a “functionally equivalent strict regime”. It’s just as bad, in other words.

Second, analysis shows that the UK has “deficiencies” in its regulatory regime—some important stuff is missing—which “strengthens the point that (over) regulation was not a root cause and deregulation will not be a fix unless [the deficiencies] are addressed.”

The problem, Gözlügöl empahsises, is: “UK markets do not offer as deep and liquid markets as the US ones.” In other words, the London Stock Exchange needs more capital thrown at it. UK investors have reduced their interest in UK listed companies vastly and it needs to come back.

Gözlügöl’s brutal conclusion: “Overall, the UK’s latest and dramatic changes to its legal regime concerning capital markets grounded upon a mission of saving the LSE in a regulatory competition (toward top or bottom?) provides a cautionary tale that a powerful narrative—in this case, that regulation and certain market factors play a significant role in the travails of the LSE—is more compelling that the underlying evidence and can lead policymakers astray.”

Something substantial to think about as the government considers ditching rules.

Fair play

So, the technical term for the US and its approach to diversity and inclusion policies is: gone nuts.

Since Donald Trump re-entered the White House, efforts have been made to eradicate any mention of DEI from government websites while numerous corporates have, in an obsequious effort to stay in with the Trump crowd, also binned their DEI efforts.

Over here in the UK, companies have been advised to continue their support for DEI.

This week, telecoms giant BT has “reaffirmed its ‘commitment to inclusion’,” according to The Times.

A memo to staff from chief executive Allison Kirkby said: “It’s been hard lately to see companies and governments stepping back from their commitment to inclusion, equity and diversity. For many of you watching this unfold, I imagine it feels worrying and upsetting.

“It sends the message that these things are optional, temporary or not worth prioritising. I want to be absolutely clear: that’s not what we believe at BT.”

Hats off to Kirkby for staying connected to what’s important.

Don’t underestimate oversight

More legal profs, this time from Oxford, are warning US companies that the EU’s new non-financial reporting rules, the Corporate Sustainability Due Diligence Directive (CSDDD), could have a big impact.

Now, a warning here: we already know that the Republicans and business interests in the US want Trump to push back CSDDD. So, in the end, CSDDD’s effect may be very different.

But Luca Enriques, Matteo Gatti and Roy Shapira still have a warning on the new EU rules.

Their point is that CSDDD interacts with the US’s own “oversight duty doctrine”, which has recently developed to make human rights and sustainability major issues for directors.

They write that the combination of the “oversight duty” and CSDDD is likely to “catapult human rights and environmental issues to the top of corporate boards’ agendas.”

Both now become “central legal risks” for US firms. “As a result, courts are more likely to fault directors not just for what they knew about adverse human rights and environmental effects but also for what they did not know.” So, less room for cosmetic box ticking.

CSDDD has to be taken seriously by US companies as well. Which is very likely to feed Republican ire.

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