Philippa Kaur

IT LOOKS LIKE the perfect time to be a chipmaker. The market for semiconductors continues to grow rapidly. By the end of the decade it will exceed $1trn globally, up from $500bn this year, forecasts VLSI Research, a firm of analysts. Demand keeps outstripping supply; the chip shortage is now expected to last well into 2023, paralysing factories of everything that needs processors—which in this day and age is basically everything. Western governments have earmarked billions to build chipmaking capacity within their borders in order to become less dependent on Asian suppliers. America alone is planning to spend $52bn over the next five years.In this context the initial public offering (IPO) of GlobalFoundries, a contract manufacturer which makes chips for other firms, seems a safe bet. The firm, which unveiled its prospectus on October 4th and is expected to list soon, is the world’s fourth-biggest chip foundry by revenues. The typical characteristics of an IPO—a lowish offering price and a small proportion of shares available to public investors, both of which have yet to be decided—should ensure a healthy “pop” in the share price in the early days of trading. But GloFo, as semiconductor aficionados endearingly call the firm, is also an example of how tough the chip business has become, notwithstanding the favourable climate.GloFo is a product of consolidation, caused by the industry’s unforgiving economics that demand ever-tinier silicon furrows and hence ever-costlier fabrication plants (or “fabs”). The most advanced of these now cost more than $20bn apiece. After a spin-off in 2009 from AMD, which designs processors for personal computers and servers in data centres, GloFo later acquired Chartered Semiconductor, another foundry, and the chip-manufacturing business of IBM, a purveyor of assorted information-technology wares.With billions from Mubadala Investment Company, a sovereign-wealth fund from the United Arab Emirates, which currently owns all of GloFo, the firm tried to keep up with rivals in the race to forge cutting-edge electronic circuitry. In 2018 it gave up and started catering to the lower end of the market. These are semiconductors which go into products such as cars and machine tools, and therefore do not need the highest-performing processors, rather than data centres or smartphones. This niche is still a $54bn market, according to Gartner, another market-researcher.Today GloFo operates a handful of fabs across the world, employs around 15,000 people and has a market share of 7% in the chip-manufacturing business. Most of its customers, which include AMD, Broadcom, another American chip designer, and NXP, a Dutch one, are “single sourced”. That means their chips cannot be made by other foundries, such as Samsung of South Korea and in particular Taiwan Semiconductor Manufacturing Company (TSMC), the world’s mightiest chip manufacturer, which controls more than half the market.The difference in size goes a long way to explaining why TSMC is hugely profitable whereas GloFo struggles to generate cash. In the first six months of this year the Taiwanese giant boasted sales of $26bn and profits of $9.8bn. Although GloFo’s revenues rose to $3bn in the same period, up by nearly 13% on a year ago, and its accounting losses have been narrowing, it still lost $300m between January and June.Investing in GloFo will therefore be a wager that the company can ride the current tailwinds in its industry and start making serious money. But it may also be a bet that another firm snaps up GloFo for itself. In July it emerged that Intel, the world’s largest chipmaker by revenues, was in takeover talks with the firm. These did not go anywhere because the parties could not agree on a price. Once GloFo is listed it should be clearer how much it is worth. Negotiations could restart. Then again, with GloFo’s numbers now public, Intel may have a hard time convincing its shareholders that it needs to pay the $25bn that GloFo is expected to fetch. ■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 “A golden-ish age” More

AMANCIO ORTEGA, founder of the Zara fast-fashion empire, got his start selling bathrobes in northern Spain. Erling Persson of H&M peddled women’s clothing in a small-town shop in Sweden for decades before going global. Xu Yangtian had none of their tailoring experience when he founded Shein (pronounced she-in) in 2008. Instead, the creator of the fashion world’s latest sensation was a specialist in search-engine optimisation.This expertise helped Mr Xu gain an understanding of how to draw shoppers’ attention in the digital world. And he has understood this very well indeed, bringing to an audience of rapt Western fashionistas a Chinese style of “social commerce”, which combines social media with online shopping. Add in a revolutionary approach to manufacturing and the results have been spectacular. In 2019 Shein’s gross merchandise volume (GMV), e-commerce groups’ preferred measure of total sales on their platforms, was $2.3bn, estimates to Zheshang Securities, a Chinese broker. This year it is forecast to surpass $20bn. By 2022 analysts expect Shein’s GMV to overtake Zara’s revenues. In May Shein was the most downloaded shopping app in America, overtaking Amazon.Mr Xu has also grasped how to navigate the growing commercial and geopolitical tensions between China and the West. It is hard to say for sure, given how secretive his privately held company remains, but Shein has probably had more success selling directly to Western consumers than any other Chinese firm in history. America is its biggest market, accounting for 35-40% of GMV. Another 30-35% comes from western and southern Europe. It has won the backing of both American venture capitalists (like Sequoia Capital) and Chinese ones (such as IDG Capital, a Beijing-based group). Stitch all this together and you get a new model of a successful Chinese multinational company.Threading the needleShein’s global success rests on three pillars. The first is a turbocharged version of the fast-fashion formula of offering a constantly updated range of garments at bargain-basement prices. Whereas Zara launches about 10,000 new products a year, Shein releases 6,000 new “stock-keeping units” (which includes old designs in new colours) every day. Though some of these are quickly discontinued, its permanent virtual wardrobe already numbers 600,000 individual items. And with a typical price tag of between $8 and $30, Shein’s garments cost roughly as much as those of Primark, a resolutely offline British retailer, and 30-50% less than similar ones from Zara or H&M, according to Douglas Kim of Smartkarma, a research firm.Shein has managed to pull this off by combining a mastery of fashion supply chains with the sort of on-demand manufacturing originally enabled by Chinese e-commerce giants like Alibaba. It starts with design. A Shein team trawls the internet for the latest trends using algorithms to determine what is grabbing the most attention on any particular day. One member of this team told Chinese media last year that he visits thousands of websites to come up with ideas. These concepts are sent to another group that draws up designs, which are then manufactured in batches as small as 100 items, compared with a typical order of thousands.Next, learning from Alibaba, Shein tests these countless new products simultaneously on its app. With all sales happening digitally, managers have a real-time view of the performance of each item. If a new design is popular the company quickly orders more. If consumers shrug at the new style, no more orders are placed. By centralising inventory in a small number of large warehouses and then shipping directly to customers, Shein has pushed inventory turnover down to just 30 days, compared with an industry average of 150 days, according to a consultant who works with the company.To streamline the entire process Shein has moved from the eastern Chinese city of Nanjing to Guangzhou, a huge southern manufacturing hub. It has also been offering factory bosses better terms than most fast-fashion rivals. The company guarantees it will purchase the entire batch and pay within 14 days, compared with 90-day delays common in the industry, in exchange for guaranteed supply. Around 400 of Shein’s 3,000 or so suppliers in China have signed up to this deal, says Chen Tengxi of Zheshang Securities. A bespoke software interface lets them know when production needs to be stepped up.Shein has deployed digital savvy not just in its procurement but also in sales and marketing—the second pillar of its success. Besides handing out products free of charge to thousands of influencers, a common practice these days, it has also recruited hundreds of local designers in America and several other countries. As well as dreaming up new clothes, they market its products and backstories on social media. The company plans to hire another 3,000 such third-party designers in 2022.The strategy has helped Shein amass 250m followers across Instagram, TikTok and other social-media platforms. About 70% of them shop on Shein’s mobile phone app, which boasts 24m daily active users. On any day, one in two of the world’s shoppers who buy apparel online do so using its app. This approach has been so effective that other companies are trying to copy it. Gabby Lewis, a designer in Los Angeles who works with Shein, reports that as soon as the Chinese firm began featuring videos of her promoting her products on social media, other fashion groups got in touch to see if she would do the same for them.The third ingredient in Mr Xu’s winning formula is deft avoidance of geopolitical controversy. Shein wears its Chineseness lightly. Unlike other Chinese brands that have tried to conquer the world, such as Huawei, a telecoms-equipment giant, or Xiaomi, which makes smartphones, it sells next to nothing domestically. That weakens its already loose association with China in Western eyes. Western consumers already assume, correctly, that like most of their clothing, including Western brands, Shein clothes are made somewhere in Asia. Few realise (or care) that the label is Chinese. Helpfully, most shipments to individual customers in America are small enough to dodge tariffs on Chinese exports imposed as part of a continuing trade war between the two countries.Shein has also evaded scrutiny from the Chinese Communist Party. In part that is because selling frocks is not as contentious an industry as making semiconductors or writing artificial-intelligence software. Its tiny presence at home has also spared it the sort of headaches that have afflicted Alibaba and other consumer-internet groups with large domestic operations as President Xi Jinping intensifies his campaign to right the perceived wrongs of Chinese capitalism.For all its stupendous success, Mr Xu’s formula is not without risks. Some of these relate to its industry. Like others in the fast-fashion business, Shein has come under fire for waste and a heavy impact on the environment. Many fast-fashion brands are facing questions over whether they source cotton from the Xinjiang region in far-west China, where the government is accused of using forced labour. And its products’ low price sometimes goes hand in glove with shabby quality. Pictures comparing Shein garments received by customers with the catalogue images have turned into internet memes, hurting its reputation in Europe, notes one consultant.Other dangers may be more specific to Shein’s heavily digital business model. Although venture-capital funding rounds have valued the company at $15bn and it has reportedly approached investment banks about an initial public offering, no one outside the firm seems to know whether it makes any money. In recent years Shein executives have given few media interviews, and none to Western journalists. Chinese media have consistently dubbed it China’s “most mysterious unicorn”. Analysts are left scratching their heads over its profitability and margins.That may not be a problem, at least in the short term. Investors’ appetite for tech-adjacent startups, even loss-making ones, appears undiminished. Another Shein-specific risk may prove harder to manage in the long run. The company relies on collecting lots of data from American shoppers. As a result, it may face the same problems that befell TikTok, another hit Chinese export to America. Last year the short-video app’s Chinese owner, ByteDance, barely averted a forced sale of its prize asset to American investors over fears that Americans’ data could fall into the hands of China’s Communist rulers (an accusation that TikTok has always vociferously denied).As with TikTok’s social-media rivals in America, Shein’s Western competitors may invoke national security as a reason to curb its relentless rise. That would be a compliment—after a fashion. More

EVERY LARGE business has a boss and minions, who do most of the work. What comes between the corner office and the shop floor is a matter of managerial preference. Some firms’ organisational charts are towering mille-feuilles, with staff piled into rigid hierarchies stuffed with assorted supervisors. More fashionable of late has been the pancake organigram: fewer layers of workers reporting to a smaller cadre of chieftains. As appealing as such “flat” organisations might seem, the thinning of managerial ranks comes at great cost.Vice-presidents, area supervisors and other department heads were once the corporate machine’s central cogs. Now such middle managers are derided as pound-shop CEOs, there largely to organise and attend pointless meetings. A few modish startups bill themselves as having no administrative tiers at all, leaving independent employees flitting between tasks as they see fit. Such holacracy, as it is dubbed, clearly won’t do for a Unilever or Goldman Sachs. But even big firms now ritually boast about “delayering” their ranks.Flat organisations are meant to reflect the modern workplace. Businesses in generations past used to be steeply hierarchical to mimic the armed forces, remembered by bosses of yesteryear as a place where missions were accomplished. Starting off at the bottom of a pyramid, perhaps six or seven rungs below the top brass, wasn’t so bad if you intended to progress at the same firm for your entire career. Millennials and later Gen-Z recruits had other ideas. Reporting to an overbearing boss crimped their ability to make an immediate mark.Several factors contributed to the “flattening” trend. Businesses discovered that having lots of mini-barons could lead to stultifying silos. New ways of working—starting with modern technology—mean that executives can manage more subordinates, including some far away. Add enough direct reports to each supervisor, and the number of rungs between the chief executive and the graduate trainee shrinks accordingly.Proponents of flat organisations say they give each employee added responsibility: bosses with dozens of flunkeys can hardly be expected to micromanage them. Uncluttered organigrams make companies more agile, enable faster decision-making and trim costs to boot. Business titans like Elon Musk of Tesla, a car firm, have painted delayering as a way of improving communication and shedding corporate deadweight.Clearly there are limits to how far one can go. Not every Tesla factory hand is going to seek their annual appraisal from Mr Musk. In fact any amount of delayering hacks away at what it means for an employee to be part of a company. The key corollary—indeed the enabling factor—of flat organisations is for each employee to have less boss. That will sound appealing to some workers.Such bosslessness, however, is a false Utopia. Companies that went furthest in scrapping management tiers discovered that getting rid of a formal pecking order resulted in informal hierarchies taking hold instead. A leadership vacuum risks being filled by petty tyranny. It is inevitable when large groups of people spend time together, in the office or elsewhere, that someone ends up in charge (and often lots of people end up in charge of different little tasks). That can be layers of managers put in place formally according to their competence and track record. Or, if everyone is on paper holacratically equal, it might be whoever talks loudest at meetings.Fewer tiers mean fewer people with day-to-day experience of corralling employees. Yet managing others is not an ancillary task which companies do to reach other aims. It is the precondition for any of their aims to be reached. Sometimes skimping on the degree to which each human resource is supervised doesn’t matter much. But there inevitably comes a time—for the employee or the company—when it matters a great deal. Having lots of organisational tiers means that those in charge of managing lots of people have had experience managing fewer people before.Covid-19 has already upended many individuals’ working lives. Gone are the days of sitting every day in the same office as your co-workers. Plenty will be adapting to the new managerial normal for a while yet. That makes keeping employees in the loop and engaged more important than ever. Layers of bosses provide structure. For all the joy of belittling them, middle managers are part of the solution.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 “Better not squash” More

AT THE START of 2020 Green Lung, a London heavy-metal act with a cult following, were about to go on their first American tour. Then came covid-19. The band used ensuing lockdowns to produce a second album, “Black Harvest”. By December it was recorded and ready to be mastered and pressed onto 5,000 gold-vinyl records. Given pandemic disruptions, Green Lung gave itself lots of time, fully nine months, to make these in time for a tour this September. “We were fairly comfortable,” says Tom Templar, the lead singer.Instead the first pressing of the record, which is sold out in pre-orders, will not be available until October. The band could have launched on a streaming service like Spotify. But it wanted to wait for the LP, which generates far more money in the short run. “The vinyl sales prop up the US tour,” explains Mr Templar. In the end, Green Lung played its album-launch gig on September 1st record-less. The band thus became the latest, unexpected casualty of upheaval in global supply chains.First CDs, then digital downloads and now streaming have made vinyl records look like a vintage curiosity. In recent years, however, sales have soared, as fans have taken to owning their favourite bands’ music in physical form (waxing insistent about its supposedly better sound quality). In March vinyl sales in Britain reached highs last seen in 1989. “Every artist in the world has spent 18 months twiddling their thumbs, so they are making records,” says Ed Macdonald, the manager of 100% Records, which represents artists such as We Are Scientists, an indie rock band. “Vinyl is such an integral part of our turnover,” he says. Mainstream artists are increasingly involved. Taylor Swift’s album, “Evermore”, first released digitally in December, broke a 30-year record for vinyl sales. Albums are expected to be released soon by Ed Sheeran, ABBA and Coldplay.Unfortunately for musicians, getting them pressed is becoming close to impossible. In the late 1990s and early 2000s most vinyl-pressing factories closed. As covid-19 raged the biggest remaining ones—in America, the Czech Republic, Germany and Poland—had to shut temporarily, creating a backlog. Now demand from musicians is outstripping capacity. On top of that, the price of PVC, the plastic used to make LPs, has surged after Hurricane Ida knocked out 60% of America’s production in August, while demand has boomed from firms that use the stuff in cars, pipes and much besides (see chart).Dirk van den Heuvel of Groove Distribution, a distributor of dance music in Chicago, says that the big labels created the crisis by closing their own pressing factories in the 2000s. If they had kept these running, he grumbles, the majors would have been ready for the demand and smaller musicians would not now be so squeezed. It is true that big labels can often secure priority on the presses. But not always. It may be cold comfort to Mr van den Heuvel or Green Lung, but Ms Swift’s fans had to wait months for their LPs, too. ■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 “Out of the groove” More

CHIEF EXECUTIVES are not, it goes without saying, the world’s most natural writers. They do not rise to the top without laserlike ambition, a trait that rarely leads to literary reflection. To achieve success, they have to murder their straight-talking selves and master corporate twaddle instead. They need neither fame nor fortune—the main reasons writers go through the agonies that they do. And when they do write, as a business publisher admits, you often “weep for the trees”. Think only of Jack Welch’s paean to great (ie, his own) leadership called “Winning”. Its first pearl of wisdom is: “Winning in business is great, because when companies win, people thrive and grow.”So it is with trepidation that Schumpeter celebrates the flourishing of a genre at which most book-lovers would shudder: the CEO memoir. True, it has its drawbacks. The authors are mostly white, male and middle-class. They are neither Hemingways nor Dostoevskys. There is no sex, drugs and only middle-of-the-road rock ’n’ roll. And they can afford the best ghostwriters so it is hard to tell how much is their work anyway.That said, the genre has many things going for it—especially when the authors are founders of successful firms who, by definition, have mastered the art of telling a good story. It has recently hit its stride with books by Phil Knight, who co-founded Nike, in 2016 and Stephen Schwarzman, co-creator of Blackstone, in 2019. Its newest addition is “Play Nice but Win”, the story of how Michael Dell built the PC company named after him that would eventually change the way computers were made and sold. Ignore the boy-scout title. The book is acidly funny, nail-biting and fast-paced. It is also blessed with a villain from central casting: Carl Icahn, activist investor and publicity hound, whose sparring with Mr Dell gives the story its bite.Moreover, for those interested in business, such accounts provide a ringside seat for observing some of the big dilemmas of recent decades: staying private or going public; prioritising shareholders or stakeholders; building hardware or software. In a world of unreadable business books and overpriced business schools, it is worth taking CEO memoirs seriously. If nothing else they help expose what most self-styled business gurus get wrong.The first trait the books celebrate is competitiveness. The memoirs bristle with it. These are not win-win firms created to make the world a better place. Business, as Mr Knight puts it, is “war without the bullets”, fought one sale at a time, which someone inevitably has to lose. In 1988, when Mr Dell was 23 years old and Compaq was his biggest rival, he placed a billboard outside its headquarters in Houston, Texas, with an arrow pointing west towards Austin, where his own four-year-old company was based. “158 miles to opportunity”, it read. In “Shoe Dog”, Nike’s former boss writes about the importance of being first into China to gain an advantage over its competitors. “What a coup that would be,” he writes. “One billion people. Two. Billion. Feet.”The second factor is how character affects business. In most such books, personality is overshadowed by bloodless abstractions: visions, narratives, missions. In reality, businesses are built by people with flesh-and-blood strengths and weaknesses. Of course, all entrepreneurs crave success. But part of Mr Dell’s genius lay in realising that his triumph would come from complementing his cocky young self with colourful elder statesmen who understood the pitfalls of building a business at lightning speed. The laconic Mr Knight’s sidekick was Jeff Johnson, an oddball so enthusiastic about selling trainers that he wrote endless letters to his exasperated boss. He never got a response, yet the affection between the two men helped make Nike what it is. A cast of Wall Street characters brightens Mr Schwarzman’s book. One of the most memorable is Jimmy Cayne, boss of Bear Stearns, who pigheadedly refused to write a cheque that could years later have saved the bank from collapse.Third comes candour. Be honest about failure as well as success. Founding a business always comes with what Mr Schwarzman calls “the moment of despair”: when you think you are a master of the universe, but no one else does. In Mr Knight’s case it was the word uttered by his banker that ran through his head as he punched his pillow at night: “equity”, ie, cold, hard cash he needed to inject into his firm. He had none. For Mr Dell, it was the frustration of having Mr Icahn, a master of the soundbite, accusing him of grossly undervaluing Dell when attempting to take it private in 2013. He likens it to being “smacked in the face with a flounder”.Finally, context. The books all channel the cacophony that surrounds business, coming from employees, customers, competitors, lenders, investors and regulators. This makes keeping a single-minded focus on success so hard. When Dell temporarily goes private in 2013, Mr Dell silently waves goodbye to the “legions of whiners, back-seat drivers, kerbside experts, rear-view-mirror thinkers, and second guessers”. Mr Knight takes issue with what he calls the “bland, generic banner” of business itself. “What we were doing felt like so much more. Each new day brought 50 new problems, 50 tough decisions…and we were always acutely aware that one rash move, one wrong decision, could be the end.”Over to you, Jeff BezosThe lure of self-aggrandisement remains. Mr Schwarzman ends his book with pages of name-dropping. Mr Dell descends into pieties about doing good for the world. Refreshingly, Mr Knight, who in later life studied creative writing, finishes before his tale becomes a dull one of Nike’s success. And the genre has room to develop. Soon, the west coast’s middle-aged tech barons will be itching to tell their stories. The world may wince less if the CEO scribes remember the four Cs: competitiveness, character, candour and context. And if they need a ghostwriter, remember the business hacks who, unlike superstar bosses, toil in obscurity. ■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 “How bosses should write books” More

IN 1909 THE founder of General Motors (GM), William Crapo Durant, offered to buy Ford for $8m. Henry Ford spurned the advance, making way for one of the fiercest and most multifaceted rivalries in corporate history. Does Ford’s harnessing of mass production with the one-size-fits-all Model T in 1908 trump the marketing genius of GM’s Alfred Sloan, who promised a “car for every purse and purpose” in the 1920s? Which is Detroit’s finest V8 engine: Ford’s “flat head” or the “small block” from Chevrolet, GM’s main brand? Did the looks of the Ford Thunderbird outshine the Corvette in the 1950s? Did the Chevrolet Camaro outmuscle the Mustang a decade later?Even as petrolheads continue to squabble over the history, a new contest is brewing between America’s two mightiest carmakers that may be the most momentous in a century. It is the race to electrify their fleets, and especially pickups, the biggest source of profits for both companies. As part of this campaign GM has said it will build four battery factories by 2025 with its partner, LG Chem, a South Korean battery-maker. And on September 27th Ford and its battery partner, SK Innovation, also of South Korea, announced an investment of $11bn in three battery factories and an assembly plant for electric F-Series pickups.Ford reckons that 40% of its global sales will be electric by 2030, five years after the deadline President Joe Biden would like to set for half of all new cars in America to be battery-powered. GM wants all of its vehicles to be emissions-free by 2035. The ultimate result of this competition will determine which of Detroit’s giants will have the upper hand in the market for electric vehicles (EVs) and autonomous driving. It will also help shape the future of both motoring and carbon emissions in the country that invented the gas-guzzler and car culture.Start your growth enginesAfter a slow start compared with European and Japanese rivals like Volkswagen and Nissan, the Detroit duo are revving up their EV plans. The new investment by Ford and SK Innovation, $7bn of which will come from the carmaker, is part of a pledge the company made in May to spend over $30bn on electrification by 2030, up from a previous commitment of $22bn. That put it in range of GM’s target of $27bn by 2025. But not for long: in June GM responded by raising its goal to $35bn.The reason for this sudden spurt of ambition is both firms’ painful decline in their home market. America “defines both companies”, says Dan Levy of Credit Suisse, a bank. In 2020 65% of Ford’s revenues and well over 80% of GM’s, along with most of their profits, came courtesy of domestic buyers. But although America dominates both companies, they no longer dominate America (see chart). Hubris, bred from decades of effortless success, ran up against smaller, cheaper and better vehicles made by foreign firms. Ford’s and GM’s current combined market share of 30% is a shadow of the combined 50% they commanded 20 years ago, let alone the 70% in the 1970s.GM was quicker to start getting out of this rut. Ironically, that is in part owing to Ford’s efforts to do so in the mid-2000s. In 2006 Bill Ford, chairman and Henry’s great-grandson, appointed Alan Mullaly, an outsider from Boeing, a planemaker, to revive the company. Mr Mulally’s plans included a $24bn credit line. When the financial crisis hit in 2008, this saved Ford from bankruptcy protection and a government bail-out that befell GM and Chrysler (the smallest of Detroit’s big three that is now part of Stellantis, a global carmaking conglomerate whose largest shareholder, Exor, part-owns The Economist’s parent company). But it also let Ford avoid the deep transformation into which GM had been forced.As a result, profits dived from 2016 to 2019. Neither Mark Fields, a Ford insider who took over from Mr Mulally, nor Jim Hackett, the relative newcomer who replaced him as CEO in 2017, managed to arrest the decline. New Fords underwhelmed and the firm made a series of missteps, such as the botched launch of the Explorer SUV in 2019. If Mr Hackett indeed had deep thoughts about the future, the ostensible reason Mr Ford appointed him, he proved inept at enunciating them to investors. Critically, he failed to get his hands dirty running the day-to-day operations in the present, says Philippe Houchois of Jefferies, a bank.By contrast, Mary Barra, who took the helm at GM in 2014, ran the firm with a laser focus on profits over market share. Slashing underperforming parts of the business, she took GM out of Russia and India, and sold Opel and Vauxhall, its European operations, to PSA Group. Mr Levy of Credit Suisse says that thanks to Ms Barra “not much is left underperforming”. This in turn gave GM greater self-confidence in communicating its future direction to investors. Its share price has outperformed Ford’s by a country mile in the past ten years.Ford’s new boss, Jim Farley, appointed just over a year ago, has brought fresh urgency. His credentials as a “car guy” are indisputable. He proudly displays his intricate model cars on Twitter. Only Carlos Tavares, boss of Stellantis, spends more time on the racetrack. Mr Farley’s love of speed and his attention to detail are evident in Ford’s electrification plans.The company has stolen a march on GM with its current EV line up. GM says it will have 30 electric models by 2025 but the only car on the road now is the Chevy Bolt, a small hatchback in a market hungry for pickups and SUVs. Ford’s offerings look more compelling, desirable and closer to the firm’s areas of expertise. The battery-powered Mustang Mach-E has revived a dying brand. Whereas the electric Chevy Silverado may not hit the showrooms until 2024, Ford’s F-150 Lightning can already be pre-ordered and goes on sale next year. Mr Farley is also exploiting Ford’s strength in commercial vehicles by electrifying its famous Transit van. The company expects all this, plus various new mobility services, to help push overall revenues from $27bn in 2020 to $45bn by 2025. It has an undisclosed but sizeable stake in Rivian, a EV-trucks startup that is set for an IPO that could value it at $80bn (roughly equal to GM’s market capitalisation and half as much again as Ford’s).GM is not asleep at the wheel, however. In January it created BrightDrop, a new unit dedicated to electric delivery vehicles. And it retains an edge in basic technology, as well as in making batteries in-house, a sure route to cutting the costs of the priciest element of electric cars. Its Ultium batteries, with a wire-free system that cuts weight and costs, married to its new electric motors, could make for a vehicle with a range of 450 miles (724km), 40 or so more than the longest-range Tesla.If the electric race is tight, the longer-distance one to autonomous driving is even harder to call. Both firms are tight-lipped about progress in their self-driving divisions. Cruise, of which GM is the majority owner, is widely seen as being ahead of Argo, jointly owned by Ford and Volkswagen. Cruise has landed the backing of SoftBank, a giant Japanese tech-investment group, and a funding round in April valued it at over $30bn. But its robotaxis, now set to hit the road in 2023, are four years behind schedule. Despite a humbler valuation of more than $7bn, Argo is already starting trials of its autonomous cars and is planning to go public this year. And so the age-old rivalry shows no signs of slowing. More

“A FLOTATION is like your own funeral. You usually do it only once,” deadpans the chief financial officer of a software company that recently staged a blockbuster initial public offering (IPO). Some compare a listing to a wedding, requiring much frantic preparation and ending with a big celebration and bell-ringing. Others liken it to an 18th birthday, marking the moment a young company is launched into the harsh realities of adult life. Whichever metaphor you choose, going public combines mixed emotions, much complexity and myriad idiosyncracies. Despite that, and undeterred by recent wobbles in equity markets, startups have been listing in droves. So far this year tech firms have raised $60bn, according to Dealogic, a data provider, more than at the height of the dotcom bubble in 2000. Include all types of business and the figure is close to $250bn (see chart 1). One headhunting agency is said to have more than 50 searches under way for finance chiefs at startups hoping to go public soon. This week alone will see a handful of blockbuster flotations. They include Amplitude, a data-analytics company most recently valued at $4bn, Olaplex, a hair-care-products firm seeking a valuation of $10bn, and Warby Parker, a maker of spectacles popular among hipsters that could be worth nearly $3bn. Investors can’t get enough of the fresh blood. Despite a sharp drop in the first half of the year, recently listed firms are back in favour, and have handily outperformed the stockmarket as a whole since the start of 2020 (see chart 2). Besides being more numerous than earlier cohorts, the current generation of floaters enjoy greater choice in how to go about it. Holders of stakes in Amplitude and Warby Parker will sell their shares directly to public investors without raising fresh capital, as is the case in an IPO. Last year a record number of companies listed via reverse mergers with special-purpose acquisition companies (SPACs). Even the classic IPO is getting a reboot. To make sense of it all, we spoke to bosses and chief financial officers of companies that have recently listed or are about to, as well as venture capitalists, bankers and brokers, most of whom spoke on the condition of anonymity. The result is a rough-and-ready guide to everything that is new in what one chief executive dubs the “key moment in capitalism”.Party poppersA conventional listing goes something like this. Banks distribute newly created shares, on average 10% of a firm’s total, to public investors, and pocket 7% of the money raised as fees. Though this should incentivise them to price the shares highly, the bankers also work for the buyers, who are often their long-term institutional clients rather than one-off customers like the listing startup. Pleasing those regulars often means setting a lower price. That in turn all but ensures a share-price “pop” on the first day of trading, generating a quick profit for the public investors at the expense of the private ones. In the past decade the pop averaged 21%, according to an analysis by Jay Ritter of the University of Florida. And the first-day surge can be much bigger. Snowflake, a cloud-based data platform which went public last year, popped by 112%, adding nearly $40bn to its market value. As a result, its private investors may have left nearly $4bn on the table.The good news for startup bosses, their early backers and staff, who are often paid in stock, is that banks’ power over the process is waning. Faced with alternatives such as SPACs and direct listings, the bankers have become more flexible with the terms they are willing to accept, at least for bigger, high-quality deals aiming to raise $500m or more. The 7% is now negotiable. Strict 180-day lock-ups, which bar pre-IPO investors from selling their shares too soon, have given way to staggered ones. Employees of Coursera, an online-education platform which went public in March, were allowed to sell 25% of their holdings 41 days after the IPO. Management could do the same, but only if the share price stayed at least 33% above the IPO price for 10-15 trading days. That makes the IPO look a bit more like a direct listing, which by definition has no lock-ups. Direct listings, meanwhile, are becoming more like IPOs. Last December the Securities and Exchange Commission (SEC) approved a rule change that allowed companies listing directly on the New York Stock Exchange (NYSE) to raise capital—something that had been prohibited. In May the markets regulator waved through a similar change for the tech-heavy Nasdaq exchange. For the time being, startups eyeing direct listings simply raise money ahead of the flotations, as Databricks, a data-management firm eyeing a listing, has done in two rounds this year that brought in $2.67bn. But the ability to raise new capital may in time make direct listings appealing to companies with less cash than the tech darlings that have taken the direct route, like Spotify (in music-streaming) or Slack (office-messaging). Then there are the SPACs. These have been around for decades, as has their reputation for dodginess (born of laxer requirements than the more traditional avenues to public markets). After a frenzy in late 2020 and earlier this year, this reputation may have caught up with them. Having raised around $100bn between January and March, the SPAC fever has broken. According to one reckoning, new SPACs that had merged with their target by mid-February have lost a quarter of their combined market capitalisation since then, wiping out $75bn in shareholder value. Still, there may be room for SPACs in the pool of flotation options, especially now that regulators and investors alike are waking up to the iffiness. The SEC is taking a closer look at the practice, fearing that SPACs mostly benefit the vehicles’ founders (who customarily get 20% of a SPACs shares as a fee, or “promote”), their bankers and lawyers. This month its advisory panel recommended that SPACs disclose more information about things like promoters’ financial incentives and conflicts of interest, merger due diligence and risks. In August the SEC objected to one novel SPAC format proposed by Bill Ackman, a hedge-fund billionaire, because it looked too much like an investment fund.Closer scrutiny should help clean up the industry. And even before any new rules are enacted, many SPACs are already offering more generous terms as they hunt for promising startups to merge with, which they must do within two years. Some SPAC sponsors are accepting lower “promotes” than the customary 20%. In one SPAC last year Mr Ackman forwent the promote altogether and settled for warrants that allow him to buy shares in the merged entity.SPACs’ sponsors are also sticking around for longer rather than flipping shares quickly, which gives them a reason to nurture longer-term success. In the record $40bn SPAC deal involving Grab, South-East Asia’s biggest super-app, due to be completed this year, founders of the shell company, Altimeter Growth, vowed to hold on to their shares for at least three years, rather than the customary 12 months. Other parts of the listing process look a bit more familiar. A CEO must find a trusted finance chief, and IPO-hardened ones remain a scarce commodity. Startups also continue to rely on investment bankers to take on legal liability, provide underwriting (as “stabilisation agents” vowing to support the share price should it tank) and act as a marketing department for the listing. Chief executives should still try to talk to the more taciturn members of the sales team pitching a bank’s offer (they do more work than the talkative types) and forge close relations with brokers that will follow their firms’ public fate (as the saying goes, “you date the banker but marry the analyst”). And firms in Silicon Valley still have only three real choices for the two “lead” banks: Goldman Sachs, JPMorgan Chase and Morgan Stanley. If a tech startup picks some other bank as the lead, investors will wonder what is wrong with its offering. Bankers beware But here, too, change is afoot. Improved access to information and investors lets bosses play the big three banks, and the ten or so others in the prospectus that provide additional distribution of shares and analyst coverage, off against each other. Banks are responding by throwing in ever more extra sweeteners, such as offering to manage a founder’s future wealth, or loans in exchange for collateral in the form of privately held stakes. Some startups that make business technology, like SimilarWeb, which provides tools to analyse website traffic, require that banks which want to vie for the contract purchase their wares. Once the syndicate is in place, it is time to sell a story. This has grown in importance as technology offered by startups has become more complex and their business models more unusual. Few companies these days leave the prospectus entirely to the bankers. The middlemen can deal with the financial disclosures and other legal boilerplate. But the opening letter to shareholders is virtually always written by the founder CEO. “It helps clarify the essence of what you do as a company,” says Daniel Dines, the boss of UiPath, which sells automation software and raised $1.3bn in an IPO in April that valued it at $29bn. Nowadays many companies file their prospectus, or s-1 in SEC-speak, confidentially, allowing them to modify the document in response to queries by the regulator without the embarrassment of having to refile it publicly. The “road shows” that make up the other part of the sales pitch have also become more of a back-and-forth process. Some firms start meeting investors before they file their s-1. After the filing, they do another round of meetings to hone the presentation and the accompanying pitch deck. Only then comes the road show proper, which gets cracking after the s-1 is made public. As a result of the pandemic this arduous process involves fewer actual roads. Investor presentations have mostly gone virtual, sparing bosses visits to a dozen cities in ten days, including a handful overseas. And the tedium of talking on Zoom for hours on end is at least now punctuated by instant gratification. After each presentation investors put in their bids, which pop up instantly in an app provided by the banks. These enable all manner of fancy analytics, including drawing demand curves for an offering. Nevertheless, actual share allocation and pricing still requires “man-to-man combat”, in the words of a (female) banker. If a bank senses no pushback, the client startup will find many hedge funds on the investor list. Most startups do try to push back, however, demanding that all their future shareholders are long-term and blue chip. CrowdStrike, a cyber-security firm which went public in 2019, had confronted its bankers with a spreadsheet of some 400 investors that management had already vetted. Some firms are offering shares to their users. In its IPO Uber set aside 3% of its stock for drivers. Its ride-hailing rival, Lyft, did something similar. In July Robinhood, a day-trading app, reserved up to a third of shares in its IPO for its users. Once the price is set and the allocations decided, the last task for the exhausted boss is to ring the bell on the opening day of trading. Besides being the culmination of a protracted process it also remains a marvellous marketing opportunity. So when the bell chimes on the NYSE or the Nasdaq, bosses should smile, wave and watch traders spring into action to start delivering their wildest capitalist dream. More

FOR MOST people, coming into work is about more than picking up a pay slip. Not everyone aims to change the fate of humankind at the office. But even a sense that one’s employer is making a useful product helps escape the lure of the duvet in the morning. Bosses hype this up. It has become fashionable to claim that the pursuit of purpose in the service of “stakeholders” matters more than pleasing shareholders. The outcome of a takeover battle shows how removed from reality the rhetoric is.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More