Outlook: Hewitt grabs a tiger by the tail and hopes to make it pay-off

Defence spending; S&N/Bulmers

William F Aldinger III may never become a Household name over here, unlike the finance company he ran in the United States until HSBC took it over. And yet when we look back on it, the £36m pay deal he has pocketed from his new employer may be remembered as the high water mark in the latest row over fat cat excess to grip Britain's boardrooms. Mr Aldinger's enormous package of pay and perks (including free dental care for life for him and his wife) would barely pass comment in his native America where Household is better remembered for the aggressive way in which it sold loans to what is politely termed the "sub-prime" market. And yet on this side of the Atlantic his contemporaries such as Barclays' Matt Barratt are pilloried and worse for pay deals which are worth a fraction of what Mr Aldinger has trousered. Were he to be asked to leave Barclays, Mr Barratt's £5m pay-off, for instance, would be a third of the "termination payment" Mr Aldinger received for selling out to HSBC.

Even so, £5m is an awful lot of money and it caused an awful stink at Barclays annual meeting where shareholders, thanks to legislation passed by the Labour government, were able register their displeasure by voting in large numbers against the bank's remuneration report. Shell has received a pasting too for what it pays its chief executive Sir Philip Watts and today it is the turn of Corus and BAE Systems.

Attention is now turning from what directors pay themselves to the even more vexed question of payments for failure when they mess up and in the next few weeks we can expect a consultation paper from Patricia Hewitt setting out what the Government proposes to do about it. Three months ago, Archie Norman came up the simple idea of empowering company boards to take performance into account when determining the size of pay-offs. His Private Members' Bill was patronisingly dismissed as unworkable by Ms Hewitt. Worse, it would strike a blow, she said, at the sanctity of contract law, which has prevented many a company from taking an underperforming chief executive to court.

The political temperature has risen several degrees since then, fanned by comments from some of her own Cabinet colleagues, and now, lo and behold, Mr Norman's proposal is back on the agenda. So, too, is the idea of reducing directors' notice periods from one year (best practice under the Combined Code) to six months.

Ms Hewitt's instincts is to avoid legislation, particularly when it relates to a minefield like contract law and rely instead on voluntary coes, shareholder pressure and moral suasion. But this is one area where the vested interests of institutional shareholders and company directors are so intertwined that legislation may be the only answer. Ms Hewitt has got a tiger by the tail and does not quite know how to let go.

Defence spending

It is not only the Republican Guard who were utterly demoralised by the awesome military firepower the Americans displayed in Iraq. It frightened the life out of the European defence industry too. So much so, in fact, that the heads of its three biggest companies, BAE Systems, EADS and Thales, have now written to every government in the European Union with a blunt message: if we want to stay in the game, then we have to throw a lot more money into defence.

With every conflict that comes along, from Gulf War 1 to Kosovo and Afghanistan and now Iraq, the more battle hardened becomes America's defence industry and the more the hegemony of the US military machine grows. The gulf between US and EU defence spending used merely to be big. Now it is enormous. Just the increase in the Pentagon's budget post 11 September was equivalent to Europe's entire defence spending and the Americans have used the money to devastating effect, as the rout of Saddam proved. The US forces may still be caricatured as the guys with all the gear and no idea but, by comparison, their European counterparts look like a regular Dad's Army.

Hence the letter signed by one Englishman, two Frenchmen and a German bemoaning the growing military gulf across the Atlantic. This, in itself, represents an uneasy alliance since the Englishman, Mike Turner of BAE Systems, now has more in common with the Americans than with his European counterparts. Britain had a good war as the sole partner in the "coalition" assembled by America and BAE is as big over there nowadays as it is over here. In fact, Mr Turner would jump at the chance of a transatlantic merger to cement the special relationship if one came along. His French and German counterparts at EADS and Thales, on the other hand, are destined to suffer for a long time from the collateral damage done to their commercial prospects in the US by the failure of France and Germany to back America over Iraq. They are not, as George Bush might put it, likely to be coming to the ranch anytime soon.

Perhaps this is what has produced a missive which veers uncomfortably between threat and exhortation, on the one hand advocating a "Fortress Europe" approach to military procurement, and on the other seeking to carve out a role for Europe as a "reliable partner" to America's world policeman. BAE knows where it would rather be and Gulf War 2 may just be the moment when it won its spurs.

S&N/Bulmers

Anyone who has bought a round of drinks lately in their local, or worse still a theme bar, will know that owning a pub chain is a licence to print money. The brewer Scottish & Newcastle used to think so too and it was only four years ago that it added to its retail empire with the £1.1bn acquisition of the Greenalls pub estate.

But these days, it is all about focus and so S&N has put its entire estate of 1450 pubs up for sale and decided to concentrate on brewing instead. It had planned to exit the pub business slowly with a series of sale and leaseback deals but in the end decided that there were any number of rival pub chains that would bite its hand off if the whole lot were put on the block.

The sale should raise upwards of £2.3bn and marks the final act in the breaking of the tie between brewing and selling beer. With the exception of tiddlers likes Wolverhampton & Dudley and Greene King, brewers have ceased to own pubs. In fact Britain's biggest landlord is a company called Enterprise Inns that was created by venture capitalists a decade ago.

Before anyone could ask Scottish & Newcastle what it planned to do with the money, up it pops with an agreed £278m takeover of the Strongbow cider maker HP Bulmer. The hangover for investors comes in the shape of a one-third cut in the dividend because of all those lovely cash generative pubs Scottish & Newcastle is waving goodbye to. But the two deals still delivered a tonic to the share price once investors were able to focus on the focus it brings.

Sir Brian Stewart, the Scottish & Newcastle chairman, reckons the pub sale will give him the flexibility to become a bigger brewer and he reportedly already has his sights on Peroni in Italy. The flip side of the deal is that it makes S&N an easier business to swallow whole for one of the seriously big drinkers like Carlsberg or SAB Miller.

michael.harrison@independent.co.uk