Bang!: A History of Britain in the 1980s (78 page)

Integration and adaptation on this scale were never likely to be a seamless process, especially given the unabashed self-confidence of some of the personalities involved. The clash of cultures
was strongest where traditional City firms were bought by predatory American investment banks. When, in 1985, the American bond seller Michael Lewis was transferred from Salomon Brothers’ New
York office to its London outpost, he was astonished by the socially exclusive but professionally relaxed atmosphere permeating the British old guard. Emblematic of this fading establishment was
one senior partner in a brokerage wearing ‘an ill-fitted suit, scuffed black shoes and the sort of sagging thin black socks I came to recognize as a symbol of Britain’s long economic
decline’, who assured Lewis over a two-hour lunch that working more than eight hours per day was counterproductive. The American was surprised that the boss of an operation employing several
hundred people could look ‘as if he had just awakened from a long nap’, and amazed when the gent not only interrupted their discussion about the bond market to place a bet on a horse
but proudly boasted that the two activities were closely aligned. Even more bewildering was the partner’s effortless sense of superiority, particularly his insistence ‘about how his
small firm was going to cope with giants like Salomon invading the City of London’. The sober, hard-working, meritocratic values of the American investment banking community, in which the
size of their salaries secured the loyalty of otherwise disparate individuals, could scarcely have differed more from the collegiate spirit that had helped keep generations of stockbrokers wedded
to the same firm throughout their adult lives, and which helped ensure that an ever expanding salary was not the only test of corporate loyalty. The strong ex-public school predominance, cronyism,
nepotism and admiration for those who could drink heavily at lunchtime and still conduct business sensibly in the afternoon were among the obvious manifestations of a native culture suddenly
threatened by New World attitudes. What followed underlined the failings of the former way of doing business as well as its too easily concealed strengths: for all the conscious exclusiveness and
periodic absurdity of the old City, its relative social homogeneity made it difficult for potential miscreants to break the ‘my word is my bond’ code without being shunned socially (and
thus professionally as well). In that sense at least, the
world that Big Bang destroyed possibly operated self-regulation more successfully than did the cut-throat culture
that followed. Yet – unlike for so many whose socio-economic roles were undermined by the deregulations of the eighties – the change from the old world to the new was not without its
consolations. Even the old-timer who had taken Michael Lewis to lunch recognized opportunity when he saw it. ‘His firm, like so many small English financial firms,’ noted Lewis with
bemused incomprehension, ‘was bought by an American bank for an enviable sum of money. He bailed out at just the right time, and floated the short distance to earth in a golden
parachute.’
³⁵

The Predators’ Ball

When dawn broke on 27 October 1986, the mergers and acquisitions necessary to create the integrated investment banks were all in place. In that sense, Big Bang was achieved
before the moment assigned to it in the calendar. The Big Bang that was ignited on the allotted day was rather the computerized system that transformed how the securities markets operated
thereafter. SEAQ (Stock Exchange Automated Quotations) provided an electronic share monitoring service based on the technology used in New York by the NASDAQ exchange, which was now linked up to
London by satellite. Where previously brokers wanting to acquire or offload shares had to approach a jobber on the Stock Exchange floor, henceforth dealing could be done without leaving the office
by market-makers watching price movements on a computer screen and making a telephone call (internet-based communications being not yet available). At the time, some bankers still believed that the
new technology would operate alongside rather than instead of ‘open outcry’ (face-to-face) dealing on the Stock Exchange floor. Others suspected that it spelt the end of the old ways
and that the floor would soon be gone for good. They were right; a tradition that, in one form or another, stretched back three hundred years was about to fall silent. As the market closed on the
afternoon of Friday, 24 October, the contrasting moods of partying and pathos certainly suggested an era was coming to an end: a pantomime horse meandered erratically between the exchange’s
hexagonal kiosks while the remaining traders bade each other farewell, linked arms and struck up ‘Auld Lang Syne’.

Only the Great Fire of London and the Blitz had brought swifter and more comprehensive change to the City’s appearance than Big Bang. If the banks’ market-makers were going to trade
from behind batteries of computer screens and telephone extensions then each firm needed its own dealing floor. This required not only a large open-plan area but also sufficient space between walls
and ceilings to run miles of telephone and computer
cabling. Many of the old Victorian and Edwardian counting-houses could not be easily adapted, though Citibank did
(admittedly unsuccessfully) attempt to create Europe’s largest dealing room (28,000 square feet) within the ornate Victoriana of the disused Billingsgate fish market building; Richard Rogers
provided the structural solution, though not how to combat the lingering aroma of haddock. In particular, the need for expansive dealing floors hastened the demolition of the City’s
collection of dismal post-war office blocks. Every bit as speculative as any activity that went on inside them, the 1950s and 1960s blocks proved to be mostly unfit for the technological
requirements of the eighties. They were either demolished or transformed out of recognition. The new trading-floor requirements also helped drive forward the vast new developments at Broadgate and
Canary Wharf, which got underway in 1985 and 1988, respectively.
^EN34
Arriving on the new dealing floors could be an unnerving experience: ‘It
was the size of a football pitch with no natural daylight in my bit,’ complained one veteran, who was used to sitting next to a window in a room sufficiently small that he could talk with
ease to anyone in it. ‘We had to use microphones to make ourselves heard. There were security guards on the front desk and machines, not tea ladies. It was like moving to another
age.’
³⁶

That modern age formally began at 9 a.m., Monday, 27 October 1986, not with a big bang but a computer crash. In their curiosity to test out the new technology’s capabilities, the traders
overloaded the system, rendering it inoperable for an hour. It was not the best start, but the hiccup was soon forgotten in the ensuing months as the FTSE 100 index continued its seemingly
irreversible rise. In 1986 alone, the turnover in equities rose by 72 per cent, to £181 billion. It surged again during the first three quarters of 1987, taking the total to £283
billion. Such was the competition that more than forty firms traded in a market that prior to Big Bang had been dominated by just five of the twelve jobbing firms. Such expansion made the fears of
those long resistant to change appear fanciful. Despite the halving of the commission rate on share deals because of the abolition of the fixed minimum, the loss of income was more than compensated
for by the increase in turnover, and revenue from state privatizations was proving particularly lucrative. The same was true for institutions advising on and organizing another City money-spinner,
‘merger mania’.

By the twentieth century’s end, aggressive corporate takeovers were routinely identified as among the central and distinguishing components of the ‘Anglo-Saxon model’. Such
tussles for control had become frequent in the seventies, but it was the feverish deal-making of the eighties that made them a principal characteristic of the British way of doing business. But the
historic
roots of this development were extraordinarily shallow – the first hostile takeover had only taken place in 1958, when stealthy share purchases by
Warburg’s secured Tube Investments’ acquisition of British Aluminium. At the time, Warburg’s tactics were widely condemned as ungentlemanly within the Square Mile. By the
mid-eighties, such behaviour was not only deemed acceptable but defended as one of the beneficial roles that City institutions performed. The accelerating trend could be monitored by the value of
UK companies involved in takeover bids of all kinds, which rose from £1.1 billion in 1981, to £2.3 billion in 1983, £15.4 billion in 1986 and £27.3 billion in
1989.
³⁷
Prior to Big Bang, the Burton Group’s £579 million hostile takeover of Debenhams in 1985 had set a record price tag.
Thereafter, stakes were raised dramatically with, in particular, the food, drink and tobacco industries an open prairie enticing predatory salivations. Fear prompted an eat-or-be-eaten attitude
which posited attack as the best form of defence. The drinks firm Allied Lyons saw off a £1.7 billion takeover attempt by the Australian conglomerate Elders IXL. Argyll Group bid for
Distillers, only for Distillers to be bought – in questionable circumstances, as it later emerged – by Guinness. Imperial Group bid for United Biscuits, only for United Biscuits to
launch a counter-bid for Imperial Group. This last battle in particular was fought in an especially uninhibited fashion – with the rival suitors taking out full-page newspaper advertisements
setting out their claims, while investors were invited to ring premium-rate telephone numbers where they could hear minute-by-minute updates from City analysts on the latest odds. The contest ended
with neither Imperial nor United Biscuits taking control of the other because Imperial, having exposed its flank, was instead taken over by Hanson Trust. Among Imperial’s assets was the
brewing firm Courage, which Hanson then sold to Elders IXL, whose original bid for Allied Lyons had kick-started the season of acquisitions.

Hanson was the most easily identifiable of the period’s ‘corporate raiders’. The term was used pejoratively by detractors not only on the political left but among
industrialists who despaired at the manner in which business empires carefully built up over generations could suddenly be bought, decapitated and sold on by financiers who had never worked in the
business sectors they intruded into nor seemed interested in learning from the experience of the management teams they could not wait to sack. The sight of James Hanson turning up at his new office
and personally, dismissively, removing from its walls the historic portraits of the Courage family, who had created the brewing firm he had fleetingly bought as a means to securing a greater prize,
symbolized a rapacious and unsentimental approach.
³⁸
It suggested that corporate raiders were indifferent to custodianship and were merely
asset-strippers, pocketing for themselves and their shareholders
whatever sums could be extracted from companies they were content to reduce to a carcass or to sell on,
without regard for the workforce. In providing the means through which the raiders’ ambitions could be realized, the City stood accused of aiding and abetting a short-term vision which
enriched the financial sector at the cost of wrecking the longer-term strategic objectives of British industry. ‘If you create a company from scratch,’ complained one of the
decade’s most publicly recognizable entrepreneurs, the boss of Virgin Group, Richard Branson, ‘you get very little credit for it in the City. Whereas if you buy and sell companies and
lay off people, the City thinks that is exciting.’
³⁹
That James Hanson and his business partner, Gordon White, contributed large sums to the
Conservative Party and were unabashed admirers of the prime minister – who responded by bestowing peerages upon them both – suggested that for all Thatcherism’s exaltation of the
entrepreneur, its greatest admiration was for the ‘City slickers’.

Such was the caricature. Yet if Lord Hanson was a wheeler-dealer, he was also
The Times
’s ‘Capitalist of the Year’ for 1986 and acclaimed as the country’s most
impressive industrialist four years running, between 1988 and 1992, by company directors polled by MORI. It was hardly surprising that Margaret Thatcher and he admired one another. A grammar
school-educated Yorkshireman, dapper, 6 ft 4 in, with a passable resemblance to a 1940s matinee idol, Hanson would have inherited the family haulage business if it had not been nationalized by the
Attlee government. Instead, he teamed up with White, who had been a wartime Special Operations Executive agent behind enemy lines in the Far East, for a succession of buccaneering raids into
hostile territory. Prior to his marriage this was supplemented by acquiring film-star girlfriends (Hanson was engaged to Audrey Hepburn, though he failed to close the deal), as well as bidding for
more diverse if seemingly lower-yielding corporate entities whose true potential Hanson and White saw a means of unlocking. Profits were found by identifying where costs could be cut, often by
divesting companies of their marginal operations and forcing them to concentrate on the core activities that had propelled them to prominence in the first place. The impressive returns for
shareholders that this fat-trimming approach brought ensured money was readily forthcoming to fund ever larger acquisitions. Not content with paying £2.5 billion for Imperial in 1986, two
years later Hanson stumped up £3.5 billion for Consolidated Gold Fields. By then, the company had become Hanson plc, a British success story on both sides of the Atlantic whose corporate logo
drew together the Union Jack and the Stars and Stripes alongside the
nearly
self-effacing boast, ‘a company from over here that’s doing rather well over there’.

Hanson plc’s commitment to shareholder value went so far as ensuring that it was structured in a way that minimized the taxes it paid over here and
over there. Yet
for all this, the company was far from being the best example for the critics of corporate raiding to attack. Neither Hanson nor White demonstrated – or even pretended to demonstrate –
the long-term strategic direction and feel for product development that traditional captains of industry professed to possess, but their ability to take flabby companies and make them lean was not
necessarily a bad place to start. The rationale of the takeover, after all, was to secure the most efficient allocation of capital. By returning Imperial Group’s focus to its core tobacco
business, Hanson increased the company’s operating profits from £74 million in 1987 to £328 million in 1994.
⁴⁰
By the time of
Lord Hanson’s death in 2004, Imperial Tobacco was worth £9.43 billion.
⁴¹
If this was short-termism, then there was much to be said for
it. What took place in the meantime was also instructive. Enough of a realist to practise what he preached, Lord Hanson bowed to the power of his own logic by concluding that the conglomerate White
and he had created was ultimately becoming too big for its own good. In 1997, he chose to break it up into its component parts before a hostile raider did it for him. Having acquired everything
from Eveready batteries to precision golf clubs, Hanson plc was purposefully reduced to its bare essentials as a specialist in building materials. In 2007, its reward was to be bought by a German
cement maker. Thus it shared the fate that the ‘Anglo-Saxon model’ had determined for so many other British firms – becoming a company that continued to do well over here by being
owned over there.