Philippa Kaur

The arc of current management thinking bends towards virtue. Co-operation is what makes teams purr. Low-ego empathy is the hallmark of a thoroughly modern boss. Purpose matters to employees as much as pay; society looms as large as shareholders. But appealing to people’s better nature, and ignoring their vices, is an incomplete approach. Nor is being good necessarily great for your own career. Listen to this story. Enjoy more audio and podcasts on More

Like business leaders in other countries, Italian captains of industry have a history of striving for cordial relations with whomever is in power. That includes dealing with questionable characters like Silvio Berlusconi, a media tycoon who has been tried more than a dozen times for fraud, false accounting and bribery, and outright villains like Benito Mussolini, the second-world-war-era fascist dictator. Listen to this story. Enjoy more audio and podcasts on More

Though he likes to write letters to thousands of CEOs at once, Larry Fink must flinch these days when one lands on his own doorstep. In recent months the boss of BlackRock, once feted for “democratising” access to investment, has received stinging missives from Republicans and Democrats alike. “Dear Mr Fink,” started one from 19 GOP state attorneys-general on August 4th, accusing BlackRock of selling its customers short by pursuing an “activist” agenda on climate change. “Dear Mr Fink,” began another on September 21st from the progressive head of New York City’s Office of the Comptroller, telling BlackRock it was shortchanging investors—and the planet—by “backtracking” on its climate commitments. The charges are mirror images of each other, making them all the harder to deal with. BlackRock cannot appease one set of government clients without upsetting the other. Listen to this story. Enjoy more audio and podcasts on More

Every incoming chief executive wants to see their employer’s share price pop on the news of their appointment. No outgoing boss wants to witness the same thing happen when they announce their departure—especially if a market-wowing successor has yet to be named. That was the fate that befell Alan Jope after he declared on September 26th that he would retire next year. The market value of the consumer-goods giant popped by as much as 3.5%, ending the day 1.8% higher. Both Unilever and Mr Jope present the move as his decision. The fact that he has been in the job since only 2019, is a stripling 59 years old and apparently in good nick strongly suggests he had help making it. So does Unilever’s lacklustre stockmarket performance, especially compared with its main rivals, Nestlé and Procter & Gamble (see chart). Whether his exit will be enough to revive the 130-year-old soap-to-soup conglomerate is another matter.When Mr Jope first took the reins less than four years ago investors had high hopes for him. He had experience in China, an important growth market, and had run Unilever’s personal-care division, seen by many as key to the company’s future. He also seemed like a welcome pragmatic antidote to his moralistic predecessor, Paul Polman, an early champion of corporate social responsibility and of environmental, social and governance (esg) considerations in business. Though in many ways laudable, Mr Polman sometimes seemed to view shareholders as an annoying afterthought. Mr Jope can point to some successes. On his watch Unilever finally ditched its convoluted dual structure, with headquarters in Rotterdam and London, and consolidated its corporate home in Britain. He finalised the protracted sale of the firm’s tea business. His strategy of prioritising health and hygiene businesses over sluggish food operations was seen by the market as the correct course. And he steered the firm through the early pandemic panic, mostly from his study in Edinburgh.A sensible strategy and able crisis management weren’t enough to make up for Mr Jope’s missteps. He clung on to Mr Polman’s target of 20% for operating margins even if it meant sacrificing revenue growth. Investors’ confidence was then eroded as expectations for sales and profits sagged. Woolly talk of sustainability made a comeback, leading one big shareholder, Terry Smith, a fund manager, to grumble that a firm “which feels it has to define the purpose of Hellmann’s mayonnaise has …clearly lost the plot”. The final straw was Mr Jope’s bid in January to acquire the consumer-health unit of GlaxoSmithKline, a drugmaker, for £50bn ($68bn at the time). Investors saw the deal as a reckless gamble and it ultimately fell through—but not before becoming a “lightning rod for [their] frustration”, as Martin Deboo of Jefferies, an investment bank, puts it. Mr Jope’s successor will not have an easy task. He or she may well be taking over after recession strikes but before inflation subsides. The future chief executive will also face renewed calls from investors to break the company up into food and home-and-personal-care businesses, and will have to contend with Nelson Peltz, a bolshie hedge-fund manager who joined Unilever’s board two months ago. And the conflicting pressures to hold firm on esg on the one hand, as many consumers and politicians demand, and to increase sales and margins on the other, to placate investors, are only getting more acute. Voluntary or not, retirement doesn’t look like such a bad idea. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Vishal punjabi sounds groggy over the phone. “You know when you can’t remember where you are when you wake up,” he says. “I’m in Cannes, before that Barcelona and before that Dubai, London, Udaipur, Delhi, Chennai and Bangalore. Now off to Charlotte, North Carolina and then the Napa Valley.” This globetrotting lifestyle would be familiar to high-powered ceos, venture capitalists or investment bankers. Mr Punjabi is none of these. Instead, he produces intricate wedding videos for Indian nuptials: 65 in the past year, two-thirds of them for Indian couples who wed outside India. His expanding workforce includes set designers, sound and light engineers, composers, video editors, even script writers. Listen to this story. Enjoy more audio and podcasts on More

To most consumers, computer chips are all the same: magical artefacts that permit smartphones to perform miraculous feats. Expert technologists instead see a diverse range of highly specialised products of human ingenuity, each with their own unique characteristics and function. Until recently investors in semiconductor companies behaved more like the uninitiated consumers, piling into virtually all chipmakers with the expectation of conjuring up preternatural returns. As the pandemic-era chip boom turns to bust, they are increasingly coming to resemble the discerning nerds.In particular, investors are distinguishing between firms whose fortunes are tied to “logic” chips, which process information, and the manufacturers of “memory” chips, which store it. Although demand for all types of semiconductors has cooled this year, the memory market is feeling considerably frostier than the one for logic. That in turn has opened up a geographical divide between the world’s silicon superpowers, South Korea and Taiwan—and between their respective semiconductor champions, Samsung and tsmc.South Korea, home of the world’s largest producers of memory chips, exported just $5bn-worth of such devices in August, a decrease of 23% compared with a year ago (see chart 1). Across the East China Sea, in contrast, the Taiwanese foundries churning out logic chips are humming away. tsmc’s August sales soared by 59% year on year, to a monthly record of $7bn or so. As a result, reckons ic Insights, a research firm, the company looks likely to go from a relatively distant third in the ranking of global semiconductor sales to number one, dislodging Samsung from the top spot and overtaking Intel, America’s chip champion, at one fell swoop. The share prices of most chipmakers worldwide are down since their peaks in the pandemic, which boosted demand for all sorts of digital devices by stranding shoppers, workers and funseekers on their sofas. Now Samsung’s market capitalisation looks as though that covid-19 surge never happened. That of its closest rival in memory chips, sk Hynix, also of South Korea, is likewise back below its pre-pandemic level. tsmc’s market value, by contrast, remains comfortably higher, this year’s slide notwithstanding (see chart 2). One reason for tsmc’s outperformance is that the semiconductor shortages of the past two years have been concentrated in logic processors rather than in memory silicon. That backlog, combined with tsmc’s More

When investment bankers agreed in January to underwrite the leveraged buy-out of Citrix, a software company, by a group of private-equity firms, returns on safe assets like government bonds were piffling. Yield-hungry investors were desperate to get their hands on any meaningful return, which the $16.5bn Citrix deal promised. Lenders including Bank of America, Credit Suisse and Goldman Sachs were happy to dole out $15bn to finance the transaction. Inflation was transitory, central bankers insisted. Russia hadn’t invaded Ukraine, energy markets were placid and the world’s economies were growing. Nine months later the banks tried to offload the debt in a market gripped not by greed but by dread—of stubborn inflation, war and recession. Struggling to find takers, they palmed off $8.6bn of the debt at a discount, incurring a $600m loss. They are still nursing the remaining $6.4bn on their balance-sheets.The Citrix fiasco is a particularly egregious example of a broader shift in corporate debt markets. Having rediscovered their inner Volcker, Western central banks are pushing interest rates to levels not seen in 15 years and shrinking their balance sheets. Those that bought corporate bonds during the pandemic in order to stave off a wave of bankruptcies have been selling them or have already done so. All this is draining the market of liquidity as investors abandon riskier assets like corporate debt in favour of safe Treasury bonds, now that these suddenly promise decent return, observes Torsten Slok of Apollo, a private-asset manager. The result is plummeting prices of corporate bonds, especially for less creditworthy businesses: yields on junk paper have soared to 9.1% in America and 7.5% in Europe, up from 4.4% and 2.8%, respectively, in January (see chart 1). All this raises awkward questions about what happens next with the mountain of debt that companies have amassed in recent years (see chart 2). Since 2000 non-financial corporate debt has gone up from 64% of GDP to 81% in America and from 73% to 110% in the euro area. (In Britain the share is a modest 68%, roughly what it was in 2000, a rare spot of relief for an otherwise beleaguered economy.) All told, American, British and euro area public companies now owe creditors almost $19trn, with a further $17trn owed by unlisted firms. Just how wobbly is this pile?The credit crunch will not affect all borrowers equally. Indeed, viewed in aggregate the West’s corporate debt load looks manageable. We calculate that American public companies’ earnings before interest and tax are a healthy 6.7 times the interest due on their debts, up from 3.6 times in 2000. In the euro area, this interest-coverage ratio has risen from 4.4 to seven this century. Moreover, some riskier borrowers loaded up on debt at low rates during the pandemic. Just 16% of the euro area’s junk bonds by value mature before the end of 2024. In America the figure is 8%.Yet the surge in borrowing costs will cause strain, in three areas. The first comprises businesses that have come to rely on less orthodox sources of credit, which are often those with the diciest prospects. The outstanding value of leveraged loans in America, typically provided by a syndicate of banks and non-bank lenders, now matches that of junk bonds, and it has been growing briskly in Europe, too. So has the value of private credit, offered by private-asset managers such as Apollo and Blackstone. Such loans tend to tolerate higher leverage in return for high and, more troubling at the moment, floating interest rates. Borrowers are thus far more exposed to rate rises. Because this sort of debt often comes with fewer strings attached, lenders have limited ability to accelerate repayment once signs of distress emerge.The second area of vulnerability involves so-called zombie firms: uncompetitive enterprises, kept alive by cheap debt and, during the pandemic, government bail-outs. Fortunately, according to our calculations the corporate undead are relatively rare and typically small. We define a zombie company as one that is at least ten years old and whose interest coverage ratio has been one or less for at least three consecutive years, stripping out fast-growing but loss-making tech firms, pre-revenue businesses in sectors like biotechnology, where products take years to get to market, and revenue-less holding companies. On that definition, we identify 443 active zombies that are listed in America, Britain and the euro area (see chart 3). That is up from 155 in 2000, but represents just 5.6% of all listed firms, responsible for 1.9% of total debt and 1.4% of total sales. Their demise could be the economy’s gain, as mismanaged firms with low productivity that binged on bail-outs finally close, although that would be cold comfort to their employees and owners.The third and biggest area of concern involves firms that are merely unfit rather than undead. One way of capturing their prevalence is to look at firms with an interest coverage ratio of less than two times. That gets you to a fifth of the total debt of listed American and European companies—some $4trn-worth (see chart 4). Alternatively consider firms whose debts are rated just above junk status. Some 58% of the investment-grade non-financial corporate bond market is now rated bbb, according to Fitch, a ratings agency. The average yield on such bonds has more than doubled in America in the past 12 months, to 5.6%. Unlike high-yield bonds, many of them come due soon and will need to be refinanced at much higher rates.Ever since the global financial crisis plenty of mature companies with slow sales growth have taken advantage of cheap credit to pile on debt to the precipice of junk status in order to fund shareholder payouts. As profits come under pressure and interest costs rise, they face a squeeze that could lead them to cut employment and investment. And if earnings plummet, which some analysts are beginning to predict as recession fears mount, this financing strategy could push these businesses over the edge into junk territory. Asset managers whose portfolio mandates require them to favour safe assets may then be forced into fire sales, triggering a crash in prices and an even greater surge in borrowing costs. Most of the firms operating just above junk status are still a long way off a downgrade, reckons Lotfi Karoui of Goldman Sachs. Many of the flakiest investment-grade borrowers got downgraded early in the pandemic, so the remaining ones are on average more robust. A nightmare scenario is not, in other words, inevitable. But it is no longer inconceivable, either. ■ More

With a straw hat, shades and a red chequered shirt, Randy Bekendam looks every inch the grizzled farmer—albeit in a Californian countercultural sort of way. The tomatoes, courgettes and King David apples he sells at this time of year have never seen a pesticide. Young families visit to pet his goats and learn about the merits of soil health. The 70-year-old is not shy about sharing his convictions, either. They run deep. The land he has leased for the past 34 years, called Amy’s Farm, has been sold out from underneath him. Now, echoing Joni Mitchell, he is battling to stop the rural idyll from being paved over and turned into a warehouse.Listen to this story. Enjoy more audio and podcasts on More