Philippa Kaur

AN OFFICE IS meant to bring people together. Instead, it has become a source of division. For some, the post-pandemic return to the workplace is an opportunity to re-establish boundaries between home and job, and to see colleagues in the flesh. For others it represents nothing but pointless travelling and heightened health risks. Many ingredients determine these preferences. But one stands out: seniority.Slack, a messaging firm, conducts regular surveys of global knowledge workers on the future of work. Its latest poll, released in October, found that executives are far keener to get back to the office than other employees. Of those higher-ups who were working remotely, 75% wanted to be in the office three days a week or more; only 34% of non-executives felt the same way.The divide has played out publicly at some companies. Earlier this year, employees at Apple wrote an open letter to Tim Cook, the firm’s chief executive, objecting to the assumption that they were thirsting to get back to their desks: “It feels like there is a disconnect between how the executive team thinks about remote/location-flexible work and the lived experiences of many of Apple’s employees.” Why are bigwigs so much keener on the office?Three explanations come to mind: the cynical, the kind and the subconscious. The cynical one is that executives like the status that the office confers. They sit in nicer rooms on higher floors with plusher carpets. Access to them is guarded, politely but ferociously. When they walk the floors, it is an event. When they sit in meeting rooms, they get the best chairs. On Zoom the signals of status are weaker. No one gets a bigger tile. Their biggest privilege is not muting themselves, which isn’t quite the same power rush as using the executive dining room.The kind explanation is that executives believe that in-person interactions are better for the institutions they lead. Working from home “doesn’t work for people who want to hustle, doesn’t work for culture, doesn’t work for idea generation,” was the verdict of Jamie Dimon, the chief executive of JPMorgan Chase, earlier this year. Ken Griffin, the boss of Citadel, a hedge fund, has warned young people not to work from home: “It’s incredibly difficult to have the managerial experiences and interpersonal experiences that you need to have to take your career forward in a work-remotely environment.”These concerns have substance. Virtual work risks entrenching silos: people are more likely to spend time with colleagues they already know. Corporate culture can be easier to absorb in three dimensions. Deep relationships are harder to form with a laggy internet connection. A study from 2010 found that physical proximity between co-authors was a good predictor of the impact of scientific papers: the greater the distance between them, the less likely they were to be cited. Even evangelists for remote work make time for physical gatherings. “Digital first does not mean never in person,” says Brian Elliott, who runs Slack’s research into the future of work.But the advantages of the office can also be exaggerated. The Allen curve, which shows how frequency of communication goes down the farther away colleagues sit from each other, was formulated in the 1970s but still rings true today. Every workplace has corners that people never visit; no gulf is greater than that between floors. And the disadvantages of remote working can be overcome with a bit of thought. Research by a trio of professors at Harvard Business School found that lockdown-era interns who got to spend time with senior managers at a “virtual watercooler” were much likelier to receive full-time job offers than those who did not.If physical workspaces have drawbacks, and remote working can be improved upon, why are executives clear in their preferences? The subconscious supplies a third explanation. As Gianpiero Petriglieri of INSEAD, a French business school, observes: “people advising youngsters to go into the office are those who made their way in that environment.” Executives who have achieved success by working in an office are the least likely to question its efficacy.That is a problem, especially since a majority of executives say that they have designed return-to-work policies with scant input from employees. A hybrid future beckons, in which workers divide their time between home and office. Managers need to improve both environments, not assume that one is obviously superior to the other.This article appeared in the Business section of the print edition under the headline “Why executives like the office” More

FOR EIGHT CONSECUTIVE years ver.di, Germany’s second-biggest trade union, has called a strike during the pre-holiday season at Amazon’s fulfilment centres, the vast warehouses where packages are prepared for delivery. This year the tradition continued. Around 2,500 Amazon employees at seven centres walked out on November 2nd. The union warned that the strikes could continue up to Christmas.Ver.di demands an“immediate” salary increase of 3% this year, followed by 1.7% next year, in line with a collective labour agreement for the retail sector. Amazon is making heaps of money in Germany and cannot continue to “refuse wage increases that other companies in the sector pay”, says Orhan Akman of ver.di. Mr Akman vows not to give up as strikes in previous years yielded results. Union pressure forced Amazon to increase wages several times, he states.The wider goal of the strike is the preservation of the Tarifvertrag, a periodic agreement between unions and bosses that sets wage levels for each industry. It is credited with playing a big part in Germany’s harmonious labour relations. Such “tariff” agreements have been eroded over the past couple of decades, especially in eastern Germany. Many firms in service industries in particular no longer adhere to them.“Amazon is an excellent employer without the tariff agreement,” insists Michael Schneider, a company spokesman. In the summer Amazon raised pay for all employees to at least €12 ($14) an hour—the minimum wage is €9.60. After two years workers earn on average €2,750 a month.Half of its 19,000 employees have worked at Amazon for over five years and seem unwilling to walk out.Amazon is hiring an additional 10,000 temporary employees for the busy Christmas season in its second-biggest market.The company says it can fulfil all orders in spite of the strikes. In likelihood this year’s industrial action will end like the others every year since 2013 with Amazon making some concession. But by not adhering to the Tarifvertrag, the company is further chipping away at wage agreements both for the retail industry and Germany as a whole. ■This article appeared in the Business section of the print edition under the headline “Strike season” More

“IT’S LIKE TASERING an elderly person who’s already on a pacemaker,” says a British newspaper boss of the newsprint market, where prices have risen by over 50% in a matter of months. The cost of paper that feeds into presses around the world is rising to record highs, pushing up expenses for newspapers from Mumbai to Sydney.When times were good, before ads shifted online, newspapers had a supportive partnership with paper mills. As ads departed and circulations fell, relations became more transactional. They are now at the shouting stage.Paper mills had the worst of it for years as newspapers reduced pagination, went wholly digital or shut for good. The papers were able to hammer down the cost of newsprint from firms fighting for business as demand declined.Price-taking paper mills suffered in silence.Many hesitated to shut massive machines costing hundreds of millions of dollars.That hesitance has disappeared; mills are taking out newsprint capacity and diversifying. Norske Skog, a Norwegian pulp and paper firm, said in June it would close its 66-year-old Tasman Mill in New Zealand, for example. Many mills are converting machines to make packaging for e-commerce. UPM, a Finnish firm, announced this year the sale of its Shotton newsprint mill in Wales to a Turkish maker of containerboard and packaging. For JCS Volga, a Russian mill, newsprint used to account for 70% of production; now half of what it makes is packaging.The mills “moved from being price takers to being capable co-participants in a declining market,” says Tim Woods of IndustryEdge, a research firm for Australia and New Zealand’s forestry and paper industries.The pandemic, with people working from home, meant even fewer newspaper purchases, which depressed demand for newsprint again and increased the pain for paper suppliers. In the past 24 months European mills have responded by shutting almost a fifth of their newsprint capacity, says a buyer for a large British newspaper group.Then economies reopened. Newsprint demand shot up. That, combined with much reduced capacity and coupled with soaring energy prices, has resulted in a price shock. Particularly controversial are energy surcharges that some paper suppliers are seeking to pass on. Newspaper firms reckon this amounts to breaking contracts. European newspapers will have to pay newsprint prices that are 50-70% higher in the first quarter of 2022 compared with the year before. As for their counterparts in Asia and Oceania, they are facing prices around 25% to 45% above their usual level. Kenya’s Nation Media Group is paying around $840 per tonne, compared with $600 at most in the past, says Dorine Ogolo, a procurement manager at the firm. North American prices went up earlier, and more gradually; contracts are fixed monthly rather than half-yearly. But there, too, newsprint prices are 20-30% higher in 2021 than in 2020.Germany’s print and media industry association has warned that mills are going to force newspapers to dump paper editions, hurting each other in the process. “It’s about the famous branch that both of them are sitting on,” it said recently. But mills can sell packaging instead. “We’re not going to save the publishing industry by being unprofitable ourselves,” says a mill executive in North America.For some publishers, price rises will wipe out profits. They will need to do further restructuring involving axing titles and layoffs. Iwan Le Moine of EMGE, a British paper-industry consultancy, expects a big increase in 2022 of the number of papers that shut compared with a typical year. That will lower demand and nudge the market back towards equilibrium.But newspapers will have more hard conversations about paper, full stop, says Douglas McCabe of Enders Analysis, a research firm. More digital adrenaline is one possible riposte to the paper mills’ tasers. ■This article appeared in the Business section of the print edition under the headline “Paperchase” More

BARROW ISLAND, off the coast of Western Australia, is an unlikely place to find what will with luck become the high-water mark of the hubris of the West’s international oil companies (IOCs). It is a nature reserve dotted with termite mounds. Since it was severed from the mainland about 8,000 years ago, its local species, including golden bandicoots and spectacled hare-wallabies, have lived free from predators. Some call it Australia’s Galapagos. Yet a sliver of it is also home to one of the world’s biggest liquefied natural gas (LNG) developments, mostly owned by Chevron (47%), ExxonMobil (25%) and Royal Dutch Shell (25%).Gorgon, as it is called, has a pockmarked history. It cost $54bn to build, a whopping $20bn over budget. That was partly because the cost of manpower and material soared amid a $200bn Australian LNG investment binge during the past decade. To respect the sanctity of the island’s wildlife, Chevron enforced covid-like quarantining. On arrival, thousands of construction staff had to be inspected at the airport for stray seeds; bulldozers, diggers and trucks were fumigated and shrink-wrapped before shipment. Since production started in 2016, Gorgon has been dogged by unplanned outages. Tax filings suggest it has yet to make a profit. And its failure so far to sequester four-fifths of the carbon dioxide produced from its gas reservoirs has shredded the credibility of its environmental commitments. Carbon capture is considered crucial for the future of LNG on Barrow Island and elsewhere.For all that, it is emblematic of the belief among IOCs that even if oil demand peaks as the world shifts to cleaner fuels, consumption of LNG will continue to grow for decades to come, especially in Asia. Gorgon alone hopes to produce and ship natural gas until the mid-2050s, one day for considerable profits. A sharp rise in LNG prices in recent months amid a surge in demand from China has fanned those hopes. Yet even as the majors double down on the fuel, they are running up against the reality that it is becoming harder to take controlling stakes in new megaprojects, and even those they can develop have rising risks. LNG is nothing like the relatively safe bet the oil industry portrays it as.The immediate problem the majors face is a shift in the balance of power. The deep pockets and risk appetite of giants like ExxonMobil, Shell and TotalEnergies used to be essential for coping with the challenges of building frozen gas factories in inhospitable places. Now national champions in Qatar and Russia, home to the most promising resources, say they can largely make do without them. Qatar Energy, a gas giant, has taken the lead in developing the biggest LNG complex in history, a $30bn extension to its North Field site. The IOCs have been relegated to bidding for minority stakes in the project, mostly giving them the right to market a surge of Qatari gas that is expected to hit the market by mid-decade. Chinese oil companies may invest, too. The majors are squeezed, says Giles Farrer of Wood Mackenzie, a consultancy.Other opportunities have turned into nightmares. A jihadi conflict on the north-eastern coast of Mozambique has at least temporarily halted a $20bn offshore LNG project by Total, which declared force majeure in April. Neil Beveridge of Bernstein, an investment firm, quips that it is “the only LNG project to hit force majeure before it’s even started.” For the same reason, ExxonMobil’s $30bn LNG plan in Mozambique is in limbo. The firm has also been bogged down for years trying to strike a deal with the government of Papua New Guinea on a $13bn expansion. That leaves America’s Gulf Coast as the most likely domain outside Qatar and Russia’s Arctic to supply more LNG in the next five years. But operators there can secure gas to liquefy from producers across America, and engineering skills from domestic construction companies. That leaves the oil majors twiddling their thumbs.They still have scope to build some projects. But for those a structural change in the LNG market poses a further challenge. As Alastair Syme of Citi, a bank, explains, for decades the majors reduced the risk of long-term investments by striking 20-year-plus contracts with big customers, such as Japanese utilities. However, a slide in the spot price of LNG in the second half of the 2010s caused a rethink. Buyers have shifted to shorter-term contracts (say ten years) or the spot market.The recent spike in spot prices may change the mood once again. Nonetheless some buyers face such uncertainty about the future of natural gas because of the growth of renewables that they will remain loth to sign long-term contracts. For IOCs, the corollary is that shorter contracts increase the risk of LNG investments with long paybacks. This adds to the arguments for them to focus on short-cycle projects to reduce the danger that, as the world economy decarbonises, they will be left with stranded assets.Trading placesThere is a way out of the bind. The majors, particularly European ones, are turning from megaprojects towards trading cargoes of other producers’ fuel. It reduces the amount of capital they have tied up in heavy assets and dirty fuels. It also helps them keep their promises to become portfolio companies trading all sorts of energy sources in an era of mass electrification. But it’s a different business. The barriers to entry are lower. There is competition from trading houses such as Trafigura, Vitol, Gunvor and Glencore. And Chinese firms like Sinopec, which last month signed two long-term contracts with Venture Global LNG, an American exporter, are emerging as potential rivals.It all adds up to uncertainty. The big investments, complex engineering and generation-spanning paybacks of projects such as Gorgon have long made the LNG business one of boom and bust. In an era of shorter-term contracts, amid all the question-marks associated with climate change, the future may be no less volatile. The world has changed since Gorgon was conceived. For the IOCs, the big bet on Barrow Island may soon belong to a bygone era. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The Gorgon knot” More

“WE ARE A different company now. We are no longer focused just on mobile. And we have the numbers to back it up.” Cristiano Amon, the boss of Qualcomm, which makes chips mostly for smartphones, is emphatic when he describes what he will tell Wall Street at the firm’s investor day on November 16th. He is in good company. Over the past few weeks, some of the other famous members of a previous generation of big-tech firms (Cisco, Dell Technologies, Hewlett Packard Enterprise and IBM) have met investors to explain how they intend to stay relevant in the age of cloud computing and artificial intelligence (AI).There is plenty of action as well as words. On November 1st Dell spun off VMware, a big software-maker; later in the week IBM will float much of its globe-spanning professional-services business. The tech old guard hope to reinvent themselves, much as Microsoft has done in recent years in spectacular fashion.Although dwarfed by the current big-tech generation (see chart 1), this handful of IT veterans still has clout. There is hardly any business that does not use some of their products and services. In the past 12 months they cranked out a huge $284bn in revenues collectively and $56bn in gross operating profits. And they employ nearly 700,000 people worldwide—about as many as today’s big-tech leading lights, if Amazon’s army of delivery workers are excluded.Each firm has its own specialisms. Qualcomm designs its chips, but outsources manufacturing. Both Cisco and IBM, though mainly regarded as makers of hardware, have in large part become mainly software firms. As for Dell and Hewlett Packard Enterprise (HPE), their reputation is rooted in personal computers (PCs), even though they now sell other hardware, from storage devices to supercomputers (the PC business stayed with HP’s other branch when the company split in 2015).Yet all face similar challenges. For a start, they mostly used to sell wares, be they hard or soft. In recent years, however, delivering IT in big distinct chunks has moved to providing it “as-a-service”, or “AAS,” in the parlance—a business that is now dominated by startups and big cloud-computing providers such as Amazon Web Services (AWS) and Google Cloud Platform (GCP). The internet allowed the centralisation of such things as number-crunching and data storage in football-field-sized data centres to be served up online. AI is part of this story, too: the more data are collected in the cloud, the more they can be mined and turned into algorithms, which then become the engines of new services, from detecting hacking attacks to interpreting the sound of a car engine which may need a new part.The quest to escape commoditisation is pushing the industry towards services. IT has always been a lumpy business, with customers paying large sums of money for new wares once every few years. At the same time hardware and even some software have become low-margin businesses. Subscriptions to services, by contrast, bring more predictable revenues and higher profits. Services are good for buyers, too, argues Pierre Ferragu of New Street, an equity-research firm. In the past a customer might have had to buy an oversized network switch for $10,000. Now it can be had for $3,000, plus $2,000 a year for services. “Everybody is happier,” he explains.That means taking on cloud operators that offer similar subscriptions, such as AWS and GCP. The pandemic has accelerated the cloud’s rise but it has become apparent that not all number-crunching can be done in big data centres. Companies have many reasons to keep some of their computing in-house, including regulations that do not allow others to process their data and the risk of becoming dependent on a big cloud provider. Then there are “edge” devices, from smartphones to intelligent sensors, which connect to the cloud and extend it, generating ever more data. It is often more efficient to bring computing to the data than the other way around.The tech veterans want to help firms manage this world of many clouds (“hybrid” or “multi” in the lingo). Red Hat Hybrid Cloud Platform, now at the centre of IBM’s software offerings, is an uber-cloud of sorts that runs on top of many systems, including IBM’s own machines, public clouds and edge ones—which is supposed to allow customers to stay independent of any one system. HPE offers something similar called GreenLake. Cisco boasts several more specialised platforms, including one to optimise a firm’s many applications.Dell and Qualcomm are different. By floating VMware, which sells software similar to IBM’s platform, Dell appears to be moving against the stream. But the spin-off mainly serves to get rid of a conglomerate discount. Dell has negotiated a detailed agreement to continue to benefit from VMware’s products. It has also launched an as-a-service effort of its own, called APEX, which is supposed to offer cloud computing in Dell’s trademark “pragmatic and predictable way”, in the words of Allison Dew, the firm’s chief marketing officer, who is also in charge of APEX.As for Qualcomm, it sees the cloud not as a threat but an opportunity. As growth slow in its main market, smartphones, it hopes that the cloud will create new demand for its chips from makers of other devices, from connected cars to intelligent sensors. “If you believe in the cloud, you have to believe in the edge,” says Mr Amon. “You can’t have one without the other.”As well as developing new lines of business, deals large and small have been part of the metamorphosis. IBM’s hybrid cloud platform owes its name and underlying technology to Red Hat, an open-source software maker it acquired for $34bn in 2019. Kyndryl, the name given to the business that IBM is spinning off, will allow IBM to hive off its army of IT workers and consultants in favour of mainly selling tools and digital services to automate customers’ businesses rather than renting out as many bodies as possible. “We are a technology firm again,” declares Rob Thomas, a senior executive.What are the results so far of the tech incumbents’ transformation dreams? Cisco was the first to react, promising in 2017 that more than half of its revenue would come from software and subscriptions within three years. HPE announced an even more ambitious goal in 2019, saying that it will offer its entire portfolio of products as a service by 2022. IBM, mainly thanks to its mainframe business, has always had a healthy stream of subscription revenues, but wants to grow these further. Taken at face value, the numbers provided to investors are impressive. Cisco announced that it had reached its targets set in 2017: software and services now generate 53% of revenue. HPE boasted services revenues of $1.2bn and after the Kyndryl spin-off IBM’s software sales will leap to 65% of revenues. Mr Amon will hammer home the point that Qualcomm’s non-handset businesses, such as cars and the internet of things, already amount to $10bn, more than a third of revenue, and are growing 1.6 times faster than its handset ones.But so far, investors do not seem to be convinced that old IT’s new clothes are a good fit: the group’s collective market capitalisation, now amounting to about $600bn, has only barely budged from where it was before the charm offensive aimed at Wall Street. Much will depend on whether they will be able to attract top technical talent. Without it, they will have a hard time competing with both the big cloud providers and hot startups. Antonio Neri, HPE’s chief executive, says he recently moved the firm’s headquarters from Silicon Valley to Houston, Texas, in part because recruitment is easier there.Do these firms still have what it takes? Most have new ranks of hungry executives but even the veterans still have fire in the belly. Michael Dell has remained at the wheel of the firm he founded in 1984, except for a hiatus in 2004-07. Asked about his future, he replies: “I love what we do: It’s fun, it’s interesting, it’s exciting. I have no plans to change my involvement.” More

THE PROFITS cranked out by American businesses make them look indestructible. Despite a pandemic and savage slump in 2020, the net income of large American firms for the third quarter of this year is expected to exceed $400bn. Yet as the earnings season gets into full swing three worries are circulating: supply-chain tangles, inflation and wages, and concerns that competition is intensifying in some industries.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

“THERE IS PERHAPS no bigger ESG opportunity than in ‘Big Oil’, and specifically, at Royal Dutch Shell.” Regarding Shell as an environmental, social and governance investment is the hyper-green explanation offered by Dan Loeb for his move against one of the fossil-fuel industry’s biggest firms. Third Point, an activist hedge fund run by Mr Loeb, revealed on October 27th that it has taken a stake (thought to be worth $750m) in the Anglo-Dutch oil firm. His aim, Mr Loeb declared, is to unleash trapped shareholder value by forcing the breakup of the energy supermajor.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

TRADE COFFEE shifted under 1m bags of whole and ground beans between beginning operations in April 2018 and the start of the pandemic in March 2020. By the start of 2022 it will have sold another 4m or so, says its boss, Mike Lackman. It has benefited from a covid-era craze for subscriptions. Confined at home, consumers round the world hit “subscribe” on all manner of boxes delivered to their doorsteps, from drinks and meal kits to scented candles, razors and underwear. Sales in America surged by over 40% during 2020 to $23bn according to eMarketer, a research firm. But hanging on to those customers as lockdowns start to ease will be hard.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More