Philippa Kaur

A year ago, at the height of the pandemic boom in all things digital, Son Masayoshi embodied in the flesh the futuristic promise of global tech. The flamboyant founder of SoftBank Group, a telecoms-and-software firm turned tech-investment powerhouse, reported the highest ever annual profit for a Japanese company, driven by soaring valuations of the public and private technology darlings in its vast portfolio. Twelve months later Mr Son and his company are once again the face of tech, which like Masa, as he is universally known, is dealing with rising interest rates, deteriorating balance-sheets, investor disillusionment and, for good measure, China’s crackdown on its digital champions and reinvigorated trustbusters in the West. What happens next to the Masa-verse is therefore of interest not just to SoftBank’s ailing shareholders, who have lost a collective $140bn or so in stockmarket value since its share price peaked in February 2021, but also to anyone interested in the fate of the technology industry more broadly. On May 12th SoftBank reported a net loss of ¥1.7trn ($15bn) for the latest financial year ending in March, caused primarily by a ¥3.7trn write-down in the net value of its flagship tech investments (see chart 1). Its public holdings, most notably in Alibaba, a Chinese e-commerce giant pummelled by the Communist Party’s crackdown on the technology industry, are losing their shine. Northstar, an ill-fated trading unit which funnelled surplus funds from the parent company mainly into American tech stocks, has been all but wound down after losing ¥670bn last year. Meawhile, SoftBank’s copious private investments, in loss-making startups with unproven business models, are being rapidly repriced as higher interest rates make companies whose profits lie mostly far in the future look less attractive to investors. Competition authorities have halted the $66bn sale of Arm, a British chipmaker, to Nvidia, a bigger American one. All this is making SoftBank’s net debt of $140bn, the sixth-largest pile for any listed non-financial firm in the world, harder to manage. And there may be more pain to come, for the tech sell-off has accelerated since March, when SoftBank closed the books on its financial year. SoftBank’s first big challenge has to do with its assets—and in particular its ability to monetise them. The pipeline of initial public offerings (ipos) from its $100bn Vision Fund and its smaller sister, Vision Fund 2, is drying up. That makes it harder for Mr Son to realise gains on its early investments in a string of sexy startups. Oyo, an Indian hotel startup backed by SoftBank, unveiled plans in October to raise $1.1bn from a listing, but more recent reports suggest that the company could cut the fundraising target or shelve the plan altogether. Other holdings, including ByteDance (TikTok’s Chinese parent company), Rappi (a Colombian delivery giant) and Klarna (a Swedish buy-now-pay-later firm) were all rumoured to be plausible ipo candidates for 2022. None has announced that it intends to list and that may not change while market conditions remain rough—which could be some time. Arm, which is now expected to launch an ipo, could offer a reprieve. Mr Son has said he would like to list the chipmaker around the middle of next year. But even relative optimists doubt a flotation can fetch anywhere close to the sum Nvidia was offering before the regulators stepped in. At the bullish end, Pierre Ferragu of New Street Research, an investment firm, suggests Arm may be valued at or above $45bn in the public market—$13bn more than SoftBank paid for it in 2016 but well shy of Nvidia’s bid. More bearishly, Mio Kato of Lightstream Research, a firm of analysts in Tokyo, says he struggles to imagine that the chip firm is worth more than $8bn.Mr Son’s problems do not end with the asset side of his company’s balance-sheet. Its debt, too, looks problematic. In the near term, it appears manageable enough. SoftBank’s bond redemptions in the coming 12 months are modest: $3.3bn-worth will mature in the current financial year, and another $6.8bn between April 2023 and March 2024. SoftBank’s $21.3bn in cash would be more than adequate to cover those repayments. Mr Son has pointed out that despite the heavy investment losses his company’s net debt as a share of the equity value of its holdings has remained largely unchanged, at around 20%. The price of credit default swaps against SoftBank’s debt, which pay out if the company defaults, tell a different story. Across most maturities from one year to ten years, the swaps have only been more expensive once in the past decade—during the market turmoil of March 2020, as countries went into the first pandemic lockdowns (see chart 2). The group possesses other large liabilities: its Vision Fund, a $100bn vehicle for speculative tech investments, has no short- or medium-term debt of its own but the holders of $18.5bn in preferred equity tied to it are entitled to a 7% coupon, regardless of the performance of the underlying holdings. On top of that, as of mid-March a third of Mr Son’s stake in SoftBank, worth about $18bn, was pledged to a range of banks as collateral for his own borrowing. The agreements that govern such deals are not public, so it is unclear when or whether margin calls that force sales of those shares could be triggered. Such a sale would put further downward pressure on SoftBank’s share price. All this helps explain why SoftBank shares have consistently traded at a large discount to the net value of its assets (see chart 3).Mr Son’s admirers, a vocal if dwindling bunch, point out that SoftBank still has plenty going in its favour. Its Japanese telecoms business, SoftBank Corp, remains profitable (and helped offset the investment losses). And it has survived previous bear markets, including the dot-com bust at the turn of the century, intact—not least thanks to Mr Son’s early bet on Alibaba. It is not inconceivable that one of SoftBank’s current wagers proves equally successful. As for future gambles, Mr Son struck an uncharacteristically sober note on the latest earnings call. Private companies adjust their valuations one to two years behind the public market, he told investors and analyst, so they are still commanding high multiples. “The only cure is time,” he mused philosophically. Perhaps. Except that in other ways, time is not working in SoftBank’s favour. ■ More

PRESIDENT XI JINPING’S zero-covid policy has been a plague on China’s firms and a headache for Western ones reliant on its suppliers and consumers. The 25m residents of Shanghai, the country’s commercial hub, have been confined to their homes since April 1st. Beijing, the capital, is teetering on the edge of lockdown. Rail and air travel on a recent national holiday were, respectively, 80% and 75% below the level during last year’s festivities. Retail spending has crashed. GDP may shrink in the second quarter.Listen to this story. Enjoy more audio and podcasts on More

A FAVOURITE PASTIME in Silicon Valley, second only to inventing the next new thing, is bubble-spotting. Even industry insiders tend to get these things spectacularly wrong. “You’ll see some dead unicorns this year,” Bill Gurley, a noted venture capitalist, predicted in 2015, the year that incubation of these startups worth more than $1bn really got going.Listen to this story. Enjoy more audio and podcasts on More

COUPANG’S OFFICES in Seoul afford a view of the South Korean e-merchant’s promise. Every dawn the forest of high-rise apartment blocks teems with its vans dropping off orders made the night before. This self-styled “rocket delivery”, and Koreans’ love of it, fuelled Coupang’s stratospheric rise. When it debuted on the New York Stock Exchange in March 2021, its shares nearly doubled in value in an instant. It closed its first trading day with a market capitalisation of $80bn. It was the biggest non-American initial public offering (IPO) since Alibaba, a Chinese e-commerce behemoth which listed in 2014.Listen to this story. Enjoy more audio and podcasts on More

FIRE-FIGHTING FOAM starves the flames of oxygen. A handful of overused words have the same deadening effect on people’s ability to think. These are words like “innovation”, “collaboration”, “flexibility”, “purpose” and “sustainability”. They coat consultants’ websites, blanket candidates’ CVs and spray from managers’ mouths. They are anodyne to the point of being useless.Listen to this story. Enjoy more audio and podcasts on More

“WHEN WE GO at ’em,” Carl Icahn growls, proudly, “we go at ’em.” After decades as chief executives’ number-one tormentor, the 86-year-old’s disdain for them has softened only a tad. “I wouldn’t call them buffoons,” he told Schumpeter recently, “but, with many exceptions, they are in way over their heads.” Mr Icahn continues to browbeat managers for poor performance. As The Economist went to press he was in the final throes of a fight with Southwest Gas, a utility. His gripes are broadening, too. This month and next he will seek to oust directors at McDonald’s and Kroger over the treatment of sows. Yet Mr Icahn also considers himself a vanishing breed. “Activism is dying,” he laments.Listen to this story. Enjoy more audio and podcasts on More

BOSSES HAVE always kept tabs on their workers. After all, part of any manager’s job is to ensure that underlings are earning their keep, not shirking and definitely not pilfering. Workplaces have long been monitored, by inspectors, CCTV cameras and more recently all manner of sensors, to check how many widgets individual workers are assembling or whether anyone is dipping too liberally into the petty-cash box. In the past few years, however, and especially as the pandemic has forced work from the controlled enclosure of the corporate office to the wilderness of the kitchen table, both the scope and scale of corporate surveillance have ballooned.A study by the European Commission found that global demand for employee-spying software more than doubled between April 2019 and April 2020. Within weeks of lockdowns starting in March 2020, search queries for monitoring tools rose more than 18-fold. Surveillance-software makers reported huge increases in sales. At Time Doctor, which records videos of users’ screens or periodically snaps photos to ensure they are at their computer, sales suddenly trebled in April 2020 compared with the previous year. Those at DeskTime, which tracks time spent on tasks, quadrupled over the period. A survey of more than 1,000 firms in America in 2021 found that 60% of them used monitoring software of some type. A further 17% were considering it.In an acknowledgement that corporate surveillance is on the rise—and raising eyebrows—on May 7th a New York state law kicked in requiring companies to inform employees about any electronic monitoring of their telephone, email and internet activity. Corporate scofflaws can be fined between $500 and $3,000 per violation. New York joins Connecticut and Delaware, which have required similar disclosures since the late 1990s and the early 2000s, respectively, and Europe, where companies have had to prove that monitoring policies have legitimate business interests—such as preventing intellectual-property theft or improving employee productivity—since 1995. More such rules are almost certain to emerge. They are unlikely to deter more offices from embracing Big Brotherliness.Firms have lots of valid reasons to monitor their workers. Safety is one: tracking the whereabouts of staff in a building can help employers locate them in case of an emergency. Another is to keep money and data safe. To ensure their employees are not sharing sensitive information, banks such as JPMorgan Chase not only trawl through calls, chat records and emails, but also track how long staff are in the building and how many hours they have worked. In 2021 Credit Suisse began requesting access to personal devices used for work.Startups are offering increasingly sophisticated threat assessment. One, Awareness Technologies, offers software called Veriato, which gives workers a risk score to determine their security risk to an employer, such as being responsible for data leaks or intellectual-property theft. Another, Deepscore, even claims its face and voice-screening tools are able to establish how trustworthy an employee is.Another big reason for companies to surveil workers is to gauge—and enhance—productivity. The past couple of years have seen an explosion in tools available to managers that claim not just to tell whether Bob from marketing is working, but how hard. Employers can follow every keystroke or mouse movement, access webcams and microphones, scan emails for gossip or take screenshots of devices, often without alerting employees—often, as with products such as FlexiSPY, leaving the surveilled workers none the wiser. Some monitoring features are even available on widely used software such as Google Workspace, Microsoft Teams or Slack.Many of the surveillance products are powered by articifical intelligence (AI), which has made strides in the past few years. Enaible claims its AI algorithms can measure how quickly employees complete different tasks as a way of weeding out slackers. Last year Fujitsu, a Japanese technology group, unveiled AI software which promises to gauge employees’ concentration based on their facial expression. RemoteDesk alert managers if workers eat or drink on the job.Collected responsibly, such data can boost firms’ overall performance while benefiting individuals. Greater oversight of workers’ calendars can help prevent burnout. Technology can also empower some employees in the face of bias or discrimination. Parents and other staff with caring responsibilities can show they are just as productive as their office-dwelling colleagues. Employees tend to tolerate bag checks and CCTV cameras, which are regarded as legitimate ways to improve security. Likewise, many even accept that their work calls and email are fair game.Smile, you’re on candid webcamCritics of surveillance nevertheless fear that companies cannot be trusted with this sort of information. In 2020 Barclays, one of Britain’s biggest banks, was forced to scrap software that tracked the time employees spent at their desks, nudging those who spent too long on breaks, after facing a backlash from staff. That same year Microsoft came under scrutiny for a feature it rolled out to rate workers’ productivity using measures including how often staff attended video meetings or sent emails. Microsoft apologised for the feature and made changes to avoid individuals being identified. On paper, the goal was to provide detailed insight into how organisations work. In practice, it pitted employees against each other.That points to another problem: many surveillance products aimed at boosting productivity are not well tested. Some risk being counterproductive. Research has associated monitoring with declines in trust and higher levels of stress, neither of which is obviously conducive to high performance. In one study of call centres, which were early adopters of surveillance tech, intensive monitoring of performance contributed to higher levels of strain, emotional exhaustion, depression and employee turnover. In a separate survey of 2,000 remote and hybrid workers in America by ExpressVPN, a virtual private network, over a third faced pressure to appear more productive or to work longer hours as a result of being monitored; a fifth felt dehumanised as a result. Nearly half of respondents pretended to be online and almost a third employed anti-surveillance software, specifically designed to dodge online monitoring.Add concerns about privacy—especially as the snooping shifts from the office to the home—and it is small wonder that workers appear sceptical about the value of surveillance. According to a survey in 2018 by Britain’s Trades Union Congress, which represents 48 unions, only one in four surveyed workers think monitoring has more benefits than downsides. Around three-quarters find facial recognition software inappropriate, along with monitoring social media use outside work hours or using webcams to spy on staff. Research by Gartner, a consultancy, last year found that employees in nine large economies consistently favoured non-digital monitoring, such as in-person check-ins by managers, to the digital sort. Only 16% of French workers thought that any form of digital surveillance was acceptable.With laws like New York’s coming into force, plenty of employees are about to learn that their employers’ views on the appropriateness of such products may be quite distinct from their own. Employers, for their part, may need to temper their enthusiasm for snooping on staff. Most companies will probably arrive at a sensible compromise. Those that don’t may find that too much knowledge is a dangerous thing. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

WHEN VLADIMIR PUTIN’S tanks rolled into Ukraine in late February, crude-oil markets reacted instantly to the uncertainty and, in short order, to the sanctions imposed on Russia, the world’s second-biggest exporter of the black stuff. The war’s impact on another set of crucial oils—the edible vegetable fats such as sunflower oil, of which Ukraine and Russia are the world’s two biggest exporters—has taken longer to digest. It is now causing heartburn for the consumer-goods giants that use them by the tonne to make everything from snacks to lipstick.Exports from war-torn Ukraine have all but stopped. Russia has placed an export quota on its sunflower oil. Worries about scarce supplies have led countries including Egypt and Turkey to ban exports of edible oils. And from April 28th Indonesia has banned exports of palm oil, another widely traded variety.The archipelagic country sold $18bn-worth of the stuff abroad in 2020, accounting for half of all palm-oil exports. So the move sent prices, which had dipped after the initial war-induced spike, soaring again (see chart). A tonne of palm oil for delivery in May is trading at over $1,700, 70% higher than the average spot price in 2021. This is piling more inflationary pressure on global producers of consumer goods—and sabotaging their environmental bona fides.Unilever, a soap-to-soup group, spent $2.7bn on palm oil last year, around 15% of its total spending on commodities. Procter & Gamble, a similarly sprawling giant, and big packaged-goods firms like Mondelez and Nestlé are in a similar pickle. Everyone is paying more for soyabean and other alternative oils, too, so substituting one kind for another would bring little financial relief. Investors typically view the big consumer firms as being resilient to economic shocks. But as input prices rise some may be beginning to doubt the companies’ ability to pass on the extra costs to shoppers, who are becoming fed up with rising bills.The ban, which does not have a specified end date, will also complicate the companies’ efforts to present themselves as environmentally responsible. Palm-oil production has historically often come at the expense of rainforests, which were razed in places like Indonesia to make room for plantations. Today Nestlé says that 90% of the palm oil it purchased in 2021 was certified as deforestation-free, thanks to close monitoring of supply chains, from the plantation to the port. Such capacity has taken years to develop in Indonesia and will be hard to replicate elsewhere at short notice. If the Swiss giant and its rivals have to resort to buying oils from more opaque places, that could leave a greasy stain on their carefully manicured green reputations. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More