A rift calling out for an independent inquiry

It is not every day that an apparently successful company calls a shareholders' meeting to sack two of its non-executive directors. Normally this sort of thing is reserved for tin-pot little enterprises where there is at least a suspicion of fingers in the till. Emap, Britain's 117th- largest company by market capitalisation, hardly falls into that category. Yet there is plainly something very wrong in a company that suffers such a deep and apparently irreconcilable boardroom rift.

From the outside, and the various off-the-record leaks that parties on both sides of the fence have engaging in, it is virtually impossible to fathom precisely what's happened here.

What is clear is that this is a company with a history of personality clashes at boardroom level. Running in tandem is an equally long history of quite serious corporate governance concerns - the usual sort of thing, directors not being properly informed, instructions ignored, and the like. Astonishingly this does not thus far seem to have affected the company's performance or, until very recently, its relatively high stock market rating.

None the less, given this background of simmering discontent just beneath the surface, it seems absolutely right that Professor Ken Simmonds and Joe Cooke should have wanted to stop the board voting itself powers to remove any director whose face didn't fit. Those powers are now in place, but the two rebels have refused to take it lying down. Ironically Sir John Hoskyns, the chairman, could have used those new powers to remove them without going through the formality of a full shareholders' meeting. Wisely he's chosen not to exercise them and the matter is now to be put to a vote. But before any shareholder can make up his mind on this, there has to be a much more open expose and discussion of the facts behind this case. Given the seriousness of the rift, shareholders cannot rely solely on what the board chooses to tell them. Something approaching an independent inquiry is required.

Door closing on new hotel issues

It was never going to be easy for Morgan Grenfell and James Capel to get Principal Hotels away only weeks after Thistle, which also struggled badly to find takers even though it was arguably a much more attractive offering. Having shelled out pounds 400m on that issue, not to mention Millennium & Copthorne, Jarvis, Macdonald and Cliveden earlier in the year, investors wanted some pretty compelling reasons to find a further pounds 50m for yet another hotels company.

They weren't given them. Principal's mid-market hotels are slugging it out in the most competitive corner of the market. Moreover, they are doing so in the provinces, where the supply/demand imbalance that is buoying the London market so nicely is less noticeable. Worse, the hotels are in less than brilliant locations and are too old. It was hardly a recipe for success.

The rush to float by the hotels sector this year bears many of the hallmarks of previous new-issue booms. A couple of years back it was the turn of the property industry to exhaust the patience of the institutions and by the fag end of that cycle even quite good companies were being shown the door by increasingly picky investors.

But in one important way it is different this time. The builders were riding what turned out to be a blip in the construction sector's otherwise depressing progress during the 1990s. The hotel business, by contrast, is thought to be riding a much more sustainable wave.

Such is the rise in demand for hotel rooms, especially in the capital, that the existing stock is bursting at the seams. Thanks to the severity of the last slump there has been next to no new building of hotels for years, and that imbalance has had a predictable impact on occupancy and room rates.

For the big players with London exposure and economies of scale, conditions could hardly be more propitious. But for others of more questionable quality and location, it may not be quite the same story. Certainly, the poorer quality hotel is likely to be hit hard during the next downturn.

It is hardly surprising against that backdrop, and with the market looking so nervous above 4,000, that investors should be turning their backs on any but the surest bets.

CBI report on utility regulation lacks bite

Anyone expecting the CBI to drive forward the debate on utility regulation in its consultation paper published today will be disappointed. There is so little of any substance in the document that the CBI might as well not have bothered. Reading between the lines the paper is in effect saying that regulation has been a success, the only problem being that individual regulators have failed to get their message across. The answer is therefore to make decisions more transparent by backing up regulators with boards of what amount to non-executive directors.

This is a very old chestnut, so you might have thought the CBI would have more to say about what the responsibilities of the non-executives would be. But no. Worse, there is no clear analysis of how the utilities failed in the first place. The CBI seems to be offering solutions to problems it is unable to define.

If regulation is all about transparency then how about some from the CBI? Why not admit that the real concern its members have at the moment is not with regulation, but with Labour's planned windfall tax? Leaving the criticism of the tax to a small paragraph at the end of the paper did not fool anyone. The CBI, after all, represents big business, and a very large chunk of big business these days is made up of the privatised utilities. Transparency works both ways.

No telling what the VAT ruling will cost

The Treasury was doing a sterling job last night of pooh-poohing some of the more alarmist estimates of the cost to the Exchequer of yesterday's VAT ruling in the European Court. It would cost only pounds 200m, was the Treasury's line, and if last summer's attempt to limit back claims to just three years sticks, it would be just pounds 70m. That's not what independent accountants think.

If you take the judgment as applying only to schemes that exactly replicate those of Argos and Elida Gibbs, then the Treasury is probably right. But if you assume that it applies to discounts of every variety, and backdates for the 23 years VAT has been in existence, the figures are much larger. The pounds 40bn talked of in some quarters is an exaggeration, but the Exchequer could be thinking in terms of billions and the difference between a tax- cutting and a fiscally neutral budget.

Not that these bigger estimates will be included in the Budget Red Book. The minimalist approach can be guaranteed when it comes to that annual Budget event - cooking the books. It will be the next government that has to pick up the pieces if the Treasury is shown to have erred on the optimistic side.