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In pursuit of better regulation24/05/2006. Source: SJ Berwin. Simon Whitney 
The regulatory environment in which business operates has a major effect on competitiveness, performance and growth, says SJ Berwin. But it's getting simpler, and that is good news for the private equity industry, which itself suffers from an over-burdensome regulatory environment. Across Europe, both national governments and the European Commission have introduced various initiatives to simplify, improve or abolish regulations that are thought to hamper enterprise. Most of these initiatives are welcome responses to calls from business people, who have long felt that over zealous rule-makers make their lives miserable.
The UK Government is often said to be one of the main culprits when it comes to launching reviews and bringing forward new rules. It has recently been busy doing just that, but this time with the avowed goal of improving the regulatory environment. Both the Prime Minister and the Chancellor of the Exchequer have commissioned reviews, and the Department of Trade and Industry has issued a "Simplification Plan" with a list of suggested actions to make life less miserable.
There are a number of Government web-sites devoted to Better Regulation, or "cutting red tape", and last month a document on measures to raise productivity was published, which included a large section on the same topic.
A "better" (more appropriate) regulatory environment has been identified as one of the key ways to maintain the UK's position as a leading centre for financial services - a goal much trumpeted in recent months. And reducing burdens on small businesses has been one of the main themes of the radical reform of company law - central to the implementation of the DTI's Simplification Plan - that is expected to come into effect next year. So a lot of time and money is being dedicated to this drive.
That is good news for the private equity industry, which itself suffers from an over-burdensome regulatory environment, and for its portfolio companies - mostly small and medium sized business, which are often ill-equipped to cope with complex rules. Of course, the sceptics are right to question just how much will be achieved, but some improvements will surely follow and Government agencies are at least willing to listen to ideas.
But one aspect of the Government's plans does seem to be in for a rough ride. As part of its reform of UK company law, the Government wanted to give itself the power to amend the law in future to adapt it to a changing environment, without going through the usual Parliamentary processes. This was a well-intentioned response to businesses' frustration that changes to company law take years to effect - arguably, better regulation requires a faster response.
But for many it went too far - the proposal was seen not only by the opposition parties, but also by commentators, as giving too much power to the executive - and the Government has announced that it will withdraw that section of the new law (although it will make some specific proposals for certain parts of the rules to be more flexible).
But the battle has only just begun. In part, the Government withdrew the proposal because it has now introduced a much wider ranging piece of legislation that will enable it to avoid the normal legislative procedures in a very wide variety of areas, not just in relation to company law. That proposal is a key part of the drive to improve regulation, but it raises fundamental constitutional issues - and it won't be easy to convince Parliament to loosen its grip on the rule-making process.
Simon Witney
NB: Publisher's Note: This article originally appeared as a Private Equity Comment article on April 28th 2006.
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on our services to the private equity industry please contact Simon Witney in our London office 020 7533 2222 or visit our website at www.sjberwin.com
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