Government indignation at dodgy corporate balance sheets is undermined by its own new off-balance sheet borrowing scheme, writes Sheila O'Flanagan

When is a multi-billion dollar, profitable company not a multi-billion, dollar profitable company? When the off-balance sheet items get reported, of course.

When is government debt not government debt? When it's issued by the proposed National Development Finance Agency (NDFA). Money borrowed directly by the Exchequer is considered to be government debt. Money borrowed by the NDFA isn't.

So if you don't want government borrowing to exceed 3 per cent of GDP, then the obvious solution is to set up an agency and borrow that way instead. Perfectly OK, perfectly within the rules. And a perfect example of do what I say and not what I do as far as government indignation in relation to corporate balance-sheet window-dressing is concerned.

I have to confess that politics and politicians are on my "have to know about but really would rather not give a damn" list. During election time local politicians focus on trivial issues like a speed bump on your residential road or changing the day of the bin collection or something equally mind-blowing. I don't elect TDs to worry about speed bumps. I elect them because I want them to look at the big picture. Unfortunately too many of them don't even know (or care) where the big picture is.

It's like having board members of a large corporation getting into a complete tizzy because the workers on the fourth floor have a water-fountain beside the lift while the poor sods on the third only have a tired-looking rubber plant. But will it ever change?

I doubt it. Some people get into politics in the first place because of local issues. Next thing you know they're in charge of the national finances and a budget of billions. It's quite frightening if you think about it for too long. Just as frightening as the fact that retired politicians often seem to end up as non-executive directors on the boards of public companies.

Public companies, of course, are trying to clean up their image and their acts in the wake of the recent off-balance sheet debacles. But there are still a few acts that are centre-stage and taking a hold of people's imaginations. The HP/Compaq merger rumbles on, with Carly Fiorina taking the stand in the fight between herself and Walter Hewlett.

The biggest belly-laugh of the proceedings surely must have come when Carly indignantly told Hewlett's lawyer that he was "accusing the chief executive of a public company of lying". After the revelations of the last few months it's almost impossible to believe the word of any chief executive, let alone one who - rather unfortunately - left a voice-mail message telling a colleague that something "extraordinary" had to be done to persuade two investors to back the merger.

Since one of the investors, Deutsche Bank, was already a client of HP, the something extraordinary consisted of Carly pointing out how important Deutsche Bank's backing was to its ongoing relationship with the company. The bank was then given a $4 billion contract and a fee to do some work on the case against Hewlett. Extraordinary enough for Deutsche Bank to vote its 17 million shares for the merger. Carly and her chief financial officer, Bob Wayman, said that they took action to persuade Deutsche to vote in their favour but vehemently deny coercing the bank. $4 billion is a lot of persuasion.

Of course what the case doesn't address is whether the deal is a good one, which is ultimately what matters to all the shareholders, including Deutsche. Fiorina thinks it is. Walter Hewlett doesn't, which is why he's trying so hard to stop her.

For many unbiased spectators the question is whether the HP people were acting more in their own interests than those of the companies. If deals are structured so that the management teams receive huge payments any time a merger or acquisition occurs (though Fiorina and Michael Cappellas at Compaq vehemently deny Hewlett's assertions that its worth $115 million between them over two years), is it surprising that shareholders become cynical?

Management mayhem, too, at French company Vivendi, which will have to have another annual meeting since its previous one (in itself a steamy hotbed of accusation and innuendo) was apparently a victim of manipulation of the electronic voting system. Things were bad enough at Vivendi when Pierre Lescure, the co-founder of its Canal Plus subsidiary, was fired by the Vivendi chief, Jean-Marie Messier. Lescure's sacking resulted in a wave of protests (the French are getting good at this) by his supporters. Now accusations of hacking into the voting system means that the votes are voided. Including the vote of a stock option plan worth about €2 billion to the company's management . . .

Meanwhile, in the UK, the Big Food Group (formerly the food retailer, Iceland) was the subject of censure by the Financial Services Authority.

Most of the Big Food Group's management have now left, but the action stems back to the end of 2000, when the then chairman, Malcolm Walker, sold most of his shares for £13.5 million. At the time, the company was looking at a significant deterioration of sales, even though it actually issued a positive trading statement.

But in January the company issued two profit warnings and the shares slid down the slippery slope. By the end of January, Malcolm and the rest of the executive directors had left. So the Big Food Group is censured, Malcolm has his £13.5 million sterling and the shareholders - oh, well, the shareholders are looking at about a 40 per cent drop in the value of their holdings.

Anyway, Malcolm - when asked about the positive trading statement - is quoted as saying: "it is a statement I was happy with at the time and I'm happy with it now." £13.5 million worth of happiness, I guess. Knowing that the company has been censured won't make the shareholders feel any happier though.

I've been to lots of feisty shareholders' meetings in the past but usually - no matter how exercised the shareholders actually get - the management structure stays in place, the share-option packages are agreed and the chief executive thanks them all for coming. Private investors never have the clout to get rid of the management completely and install a new lot. Which is where general elections should have the upper hand over a shareholders' meeting.