Wednesday, February 22, 2006

Do You Know Who Owns Your Company?
Globalization and the Law of Unintended Consequences

The acquisition of a British company by a Dubai-based company this month has US lawmakers in a tizzy. Why?

The British company is the Peninsular and Oriental Steam Navigation Company (better known as P&O), which is being acquired by Dubai Ports World for $6.8 Billion. And no, the brouhaha has nothing to do with sentiment, although P&O is a hoary old company and one of the great names in shipping. It is because this acquisition will give DP World control over significant operations at six major US ports.

A similar lather resulted when a Chinese company tried to buy the US company Unocal recently. These are however cases where tracing true ownership was fairly straightforward. As globalization goes deeper, this is likely to change.

This brings home the sobering lesson: In an increasingly globalized world, corporate ownership will get more and more opaque. Who knows who owns the company which is headquartered in a tax haven, and that just bought 3% of your equity?

This is one more big challenge (not that they needed any more) for company promoters, regulators, shareholders, and anyone with a stake in good corporate governance.