Northern Rock runs out of money and the share price falls. The Bank of England lends it the money and the share price falls. The company cancels its dividend - and the share price falls again. Surprise, surprise!

It may have been politically correct not to pay a dividend. Had the Treasury not been guaranteeing all deposits it might have been legally correct not to pay shareholders money due to creditors.

But if the value of a share is the discounted value of its future dividends, then cutting the distribution can only cut the company’s market capitalisation. Without the prospect of a future payment – where a dividend or the proceeds of a takeover – shares have no value.

True, a yield that had seemed reasonable when the dividend was announced in July had soared to 22 per cent as the shares collapsed (more even than the interbank rate for the worst-rated credit risk) but the prospect of a 14p payment is no compensation for a £6 fall in the share price. Nevertheless, at this stage of Northern Rock’s game, 14p in hand was quite valuable.

Northern Rock is a rarity in all respects - an allegedly solvent bank that cannot borrow and a private company bailed out by the government – but it is a case study for every finance director. Everyone has much to learn from this episode: savers, regulators, the Bank of England and the Northern Rock itself. But most interesting will be the lesson in share valuation.

First came the regulation; now come the penalties. Fines are being handed out like confetti to companies – not by the courts, but by unelected watchdogs.

Latest to have its chequebook forced open is the company that operated phone quizzes for GMTV, fined £250,000 by Icstis, the premium-rate line watchdog. That is its maximum penalty but GMTV could be fined far more by its regulator, Ofcom. If nothing else, that shows how inconsistent these fines are.

Of course, no business should break the rules, but with the rule-book getting so thick, it becomes increasingly likely a business will transgress – or that a rogue employee will take a short cut or fail to understand the regulations.

Companies always knew they could be sued by customers, staff or others to whom they cause damage; then the criminal courts became involved with manslaughter, pollution and other law. Now the regulators are allowed to apply their non-judicial fines too.

Financial services companies were an early target – not least because they have the cash. The regulators found a regular series of financial penalties made a healthy contribution to their budgets, but because fines became so common they have been steadily increased in size. Naming and shaming stops working when everyone has been shamed.

Lloyds Bank thus found itself fined £1.9m for selling something called precipice bonds. But that is nothing now compared with fines from the Office of Fair Trading: Hasbro was fined £17.3m for fixing the price of UK toys. Now the Americans have upped the stakes. The OFT fined British Airways £121m for agreeing its surcharges – presumably to keep up with the US Department of Justice, which fined the airline $300m for the same thing.

Where will it end? When the fine is so large it puts the company out of business, causing even more damage than the original sin?

Business needs to know the extent of its liability, if only because impending penalties ought to be included on the balance sheet. Fines must be consistent and sensible. What is the point of a state-regulator fining the state broadcaster for changing the name of the Blue Peter kitten? A free for all on fines helps no one.

The amateurs have taken control of Britain’s boardrooms. When an executive attends the monthly board meeting he or she will be lucky to have one colleague present other than the chief executive: all the other sites are filled with part-timers. The non-executives are supposed to review what the full-time directors are up to but there is an ever decreasing number of executives to monitor.

The Higgs review of corporate government in 2003 said that the majority of a board must be non-executive. Initially companies increased the number of part-timers to achieve that ratio but it resulted in unwieldy boards; the next step has been to cull the number of executives. It is not common to have the CEO, the finance director and just one other full-time executive.

The accountants Deloitte now say the number of executives on boards of FTSE 350 companies has fallen by 20 per cent in five years – some 360 positions disappearing.

It means that lots of senior executives whose view would once have been sought at board meetings are now excluded, limited to a written report to the board, the hope that the CEO represents their thoughts or the possibility of being invited to address the board on a particular issue but not permitted to stay or vote.

It is not good for a company that ambitious middle-ranking executives are unlikely to become plc directors. It deprives them of the boardroom experience they could take to other companies as non-execs. And it means that if companies are not to be run by once-a-month part-timers, decisions will be made by executive committees of the senior managers with no input from outsiders.

It is time to rebalance the boardroom. Without executives, the non-execs have nothing to review.

The government really hasn’t got the message on small business. Having ignored them first, the Department for Business now thinks the answer is to make them bigger. Department head John Hutton is worried that most businesses with fewer than 50 employees have no ambition to grow and has hauled in a handful of mini-entrepreneurs for breakfast to tell them to expand.

With chancellor Alistair Darling he has launched a six-month consultation that will lead to a white paper next year with new policies for making small business big. Faced with criticism that red-tape is hindering small companies, the government solution is more bureaucracy.

If any small company has time to respond it should point out that there is nothing wrong with being small. Many bosses think it better to run a business with 50 staff than to be a line manager in a conglomerate in charge of 500. It is their choice: it is what turns them on, and forcing them to accept the responsibility of more employees, more locations, outside capital and the other trappings of growth is not what every entrepreneur wants.

Instead of telling his breakfast guests he wants to crack the glass ceiling that bars small businesses from expanding Hutton should be making it easier for small firms to thrive. Culling the 3,000 business support schemes to 100 is good, but as almost half of small companies were unaware of this help it shows they can survive without state aid.

Britain has a higher start-up rate of small companies than Europe even if it does not match America. But it does not matter that 65 per cent of UK businesses employ fewer than five staff when the US proportion is 55 per cent: even if that is statistically significant, UK small firms account for 99 per cent of all companies and more than half the country’s GDP. Hutton should not kill the goose that lays such golden eggs – and should not force it to lay more.

Prime minister Gordon Brown showed, when he announced to his business council, that he thinks ‘business’ only means big business. Hutton should not continue this fallacy: he should be saying he wants more small firms – not bigger small firms.

The myth that the Bank of England sets interest rates has been exposed. The market sets the price of money just as it sets all other prices and, at present, the market says the price is high.

All the Bank has done for the past decade at its monthly interest rate meetings is to spot the way the wind is blowing and to move its rates to match.

Finally idealism and reality have parted however. Thinking that it could cut bank rate at the September meeting – or in the near future – to save the financial system is nonsense: out in the real world rates are rising, whether on credit cards, mortgages, overdrafts or the rates paid to savers and institutions to persuade them to deposit cash. The rates banks pay has had to rise: even banks are now reluctant to lend to each other without receiving a hefty premium.

Suddenly the world has woken up to the risk involved in lending and wants rates that compensate for the danger of the loan not being repaid. It will be a shock for a lot of businesses to find they are no longer regarded as prime and have to pay that risk premium.

It may make companies reshape their finances to appear a safer prospect but until they do, they should not be surprised to find that when their loan or overdraft comes up for renewal they have to pay 3 per centage points above bank rate compared with the current 2 points. That is a 100 basis point increase, and even if the Bank of England announced a quarter-point cut in bank rate, it would still be a 75 basis point rise.

It really doesn’t matter what the Old Lady does with bank rate if the market has already put up the rates that companies and customers pay. As Mrs Thatcher said, you can’t buck the markets.

Welcome to my new blog where I will share my thoughts on the subjects of the moment that are not being commented on elsewhere - or where I think the other commentators have missed the point. It could be on exports or economics, pay or profits, rules or regulation, tax or trading conditions. You may not agree with me on everything, but when you don’t, tell me what you think. It is for you that the blog is produced.

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