THE MODERN manager has to play the role of coach in charge of their team. And that requires an understanding of the different personality types they may be managing, and indeed the role their own personality may play in the way they manage.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More
SHIBUSAWA EIICHI is having a moment. A 19th-century industrialist known as the “father of Japanese capitalism’”, he helped found more than 500 firms, including Japan’s first modern bank. His life story has been turned into a hit new drama on NHK, Japan’s national broadcaster, and his likeness will grace a new ¥10,000 bill. “The change of the times is calling him back,” says Shibusawa’s great-great-grandson, Shibusawa Ken, who heads an asset manager in Tokyo. “There is a rethink about capitalism happening.”Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More
ROBIN LI SMILED when asked at a corporate shindig in 2014 to reflect on his path to becoming, at the time, China’s richest man. “I’m just lucky,” he insisted. Mr Li, co-founder and boss of Baidu, a Beijing-based search engine, may have been trying to project modesty. But his words could also have been taken literally. Thanks to government censorship, Google is inaccessible in mainland China. That leaves Baidu as the unrivalled leader in Chinese search. Slowing advertising revenues, however, are now taking it down a different road.Baidu’s search dominance is indisputable. Its average of 538m monthly active users last year was nearly six times the combined total of the next three domestic rivals. Baidu’s share price has tripled in a year, taking its market capitalisation to $93bn. Riding this wave of investor enthusiasm, it has filed for a secondary listing in Hong Kong, with trading set to begin on March 23rd. The firm is expected to raise around $4bn. But the steep rise in Baidu’s valuation might seem unwarranted. Advertising, the main source of revenue, has suffered as the pandemic forced Chinese businesses to cut marketing budgets. Adverts on Baidu’s main search service brought in 66.3bn yuan ($9.6bn) in 2020, 5% less than the year before.Even as China’s economy recovers advertising is unlikely to propel Baidu’s growth as powerfully as before. In recent years the supply of digital ad space in China has multiplied, depressing prices. Businesses can now choose from an array of platforms on which to hawk their wares—from addictive video apps like Kuaishou to e-commerce upstarts like Pinduoduo.Baidu’s bosses appear to recognise as much. The firm is rapidly diversifying. Last November it agreed to buy YY Live, a video-sharing and live-streaming app, for $3.6bn, in a bid to boost its presence in online entertainment and compete with the likes of Kuaishou. Baidu is also investing heavily in cloud services to keep up with Alibaba and Tencent, two bigger Chinese tech rivals. But arguably the boldest push is what the company calls “intelligent driving”.This business contributes hardly any revenues today but holds “huge long-term monetisation potential”, according to Baidu’s new prospectus. The business has three prongs. The first is the establishment of a nationwide fleet of robotaxis powered by Apollo, Baidu’s in-house self-driving technology. The firm is already operating self-driving taxis in three Chinese cities, including part of Beijing. Rides are currently free but Baidu hints that it may soon start charging. It has international ambitions, too. In January it received permission to test self-driving cars in California.Baidu also plans to mass-produce electric vehicles (EVs). In January it formed a new venture with Geely, a Chinese carmaker, to bring to market “intelligent” (if not fully autonomous) EVs within three years. By 2035 China’s government wants every other new car sold to be an EV. The third prong allows Baidu to earn immediate revenues by selling services to Chinese carmakers, such as high-definition maps and automated-parking technology, which it has already sold to ten firms. Baidu is already a late entrant to China’s crowded personal-mobility industry. For now, at least, investors are on for the ride. ■This article appeared in the Business section of the print edition under the headline “Searching for the next big thing” More
MOST OCTOGENARIANS would, given the opportunity, rush to the sun lounger in Monaco. It was widely assumed that Leonardo Del Vecchio, Italy’s richest man, would do just that. He turns 86 in May and some years ago moved his principal residence to the Mediterranean principality. His four marriages and six offspring have produced a gaggle of grandchildren to play with. On March 12th his corporate baby, EssilorLuxottica, reported a strong rebound in sales of the posh spectacles it makes in the second half of 2020. Its market capitalisation is once again above €60bn ($72bn) and near the all-time high it reached in early 2020, before the pandemic dented demand for pricey accessories. What better time to slip on a pair of Ray-Bans (which his firm produces) and bask by the pool?
Mr Del Vecchio’s idea of dolce vita, it appears, is rather less passive. It is also ambitious—and not just with respect to his company, over which he maintains an iron grip and which he wants to thrust into the digital age. As a supplemental senior activity, the tycoon is also trying to shake up Italian high finance.
Mr Del Vecchio is certainly not short of the audacity and grit required to pull off both endeavours. He spent part of his childhood in an orphanage because his widowed mother could not afford to feed him, and built Luxottica from a shack in Italy’s Dolomite mountains into a global titan. Although he speaks no English, he chose to list his firm in New York, to gain access to America’s deep capital markets, brands such as Ray-Ban and Oakley, as well as a place to sell them (Sunglass Hut, which Luxottica bought in 2001). Instead of taking it easy at 80, he returned to the company in 2014 after a decade-long hiatus to mastermind the merger with Essilor, a giant French lensmaker, and its move from the New York and Milan bourses to Paris.
Now, after what he told the Italian press on March 6th were three “intense years” of getting to know Essilor’s management, the billionaire’s grip on the company is stronger than ever. In February he put forward a list of new nominees to the company’s board. It would install a close aide, Francesco Milleri, as chief executive and prominent Italians handpicked by Mr Del Vecchio as independent directors. The tycoon himself would remain as chairman. Hubert Sagnières, his deputy who had previously chaired Essilor’s board, would retire, marking the end of a turf battle the Frenchman had waged against Mr Del Vecchio. The slate must still be approved by shareholders at the company’s annual meeting in May. With Mr Del Vecchio’s family holding company, Delfin, owning 38.4% of the shares, the outcome looks pre-ordained.
So does doubling down on Mr Del Vecchio’s bet on technology. During the pandemic EssilorLuxottica has begun building a new e-commerce hub in Sedico, a town in the Dolomite foothills, next to a factory that churns out its frames and lenses. Its direct online sales to consumers, which one former eyewear executive calls “the last big margin”, grew by 40% in 2020, to €1.2bn. This year the company plans to launch smart Ray Bans, developed together with Facebook. These connected specs, which display information about the outside world to the wearer, promise to be both smarter and more stylish than Google Glass, an earlier collaboration with Silicon Valley from which Luxottica walked away after Mr Del Vecchio declared that “it would embarrass me going around with that on my face”.
Although Mr Milleri’s nomination as CEO raised eyebrows given his lack of experience in consumer goods, his previous job running his own management and information-technology consultancy makes him a reasonable choice to lead the company. Thanks to his closeness to Mr Del Vecchio, he is said to know the company inside out. Most important, he has the founder’s full confidence. That is critical given that the elderly tycoon is not going anywhere. Trim and upright, he could pass for someone 20 years younger. Managers recall that the first question Mr Del Vecchio asks on his regular visits to the factory floor is, “What do you have to show me that is new?”
As if thrusting his empire into the digital age were not challenging enough, Mr Del Vecchio’s side hustle may be more ambitious still. In the past few years he has been preparing the ground for a shake-up of Italian high finance. He has, through Delfin, long owned a stake of around 3% in Generali, Italy’s biggest insurer, and nearly 2% of UniCredit, its biggest bank. In the past year his holding company has also built a 13% stake in Mediobanca, becoming the single largest shareholder in the Italian investment bank (which in turn owns 13% of Generali’s shares). Europe’s banking regulator has given Mr Del Vecchio approval to increase his ownership of Mediobanca to nearly 20%.
Mr Del Vecchio’s interest in Generali can in part be explained by the growing role that insurers will play in paying for glasses as ageing populations’ eyesight deteriorates. Milan’s financial-rumour mill is rife with chatter about the shareholder value that might be generated if Mediobanca spun off its Generali stake, or if either the investment bank or UniCredit merged with the insurer. Mr Del Vecchio himself has said that Delfin’s Mediobanca stake is a long-term investment and that he does not intend to gain control of the firm or sway its management. One person close to him says that his plans will become clearer when his stake does rise closer to 20%. Others familiar with his thinking say that he is genuinely concerned about the fate of corporate Italy and would like his legacy to extend beyond EssilorLuxottica.
And what of the fate of his company once he is gone? A succession plan in case of his death or incapacitation has been agreed with his six children and his current wife. This ensures that each child would each inherit a 12.5% stake in the family holding company, with Mrs Del Vecchio getting 25%. All must agree to any strategic changes to Delfin’s holdings—and so, by extension, to EssilorLuxottica. The need for concensus may make the sort of transformational deals Mr Del Vecchio has pursued harder to pull off. No wonder the tycoon is trying to make more of them while he still can. ■ More
AMERICA’S MAIN financial regulator is taking an interest in climate change—and wants everyone to know. The Securities and Exchange Commission (SEC) has created a task-force to examine environmental, social and governance (ESG) issues, appointed a climate tsar and said it will “enhance its focus” on climate-related disclosures for listed firms. It looks poised to introduce, among other things, rules forcing firms to reveal how climate change or efforts to fight it may affect their business. Since September regulators in Britain, New Zealand and Switzerland have said they plan to make such climate-related disclosures mandatory. So, too, have stock exchanges in Hong Kong, London and South Korea. The EU may follow suit.
Listen to this story
Your browser does not support the element.
Enjoy more audio and podcasts on iOS or Android.
The flurry of rulemaking stems from a concern that climate change poses a threat to financial stability. Whether this is true or not is hard to say. The data are shoddy and climate-risk reporting is largely voluntary. Firms tend to cherry-pick the most flattering numbers and methodologies. The reporting seldom reveals anything about a firm’s risk in the future—which is where the financial threats from climate change mostly reside.
Many watchdogs are pinning their hopes on the Task Force on Climate-Related Financial Disclosures (TCFD), set up in 2015 by the Financial Stability Board (FSB), a global group of regulators. The TCFD has recommended a reporting standard made up of 11 broad categories, from carbon footprints to climate-risk management. Regulators like it because it focuses on material risks rather than environmental impacts, and because it asks for information about firms’ future plans. That includes “scenario analysis”, in which a company’s strategy is tested against potential futures, such as a hotter world or higher carbon prices.
These qualities also appeal to financiers. Financial firms make up almost half of the 1,800 or so companies that back the TCFD‘s recommendations. Together they hold assets worth over $150trn and include the world’s ten biggest asset managers and eight of its ten biggest banks. Their clients and regulators are egging them on to adopt the standard, so the financial firms in turn are prodding companies to do so, too, causing an uptick in its use (see chart).
Not all companies are happy about this. It means compliance with one more ESG measure, and a tricky one at that. Many bosses claim their firms lack the expertise to do climate-based scenario analysis (the TCFD’s recent 133-page how-to guide may help). Only 7% of big firms disclose such exercises, according to a review of 1,700-odd companies by the TCFD. Those that do often use different scenarios, making their efforts hard to compare .
Another problem is that disclosures may scare off investors. This, of course, is the point. But until reporting is mandatory for everyone, firms risk being punished for being early adopters. That is the evidence from France, which made climate-risk disclosures obligatory for asset managers, insurers and pension funds in 2016. A study by its central bank compared those firms with French banks and non-French financial firms. It found that the firms which had to disclose climate risks held 40% fewer bonds, stocks and other securities in fossil-fuel firms by value than those that did not have to disclose risks.
Such a shift may drive up capital costs for polluting projects and lead to fewer emissions. But more climate disclosure will not by itself cut carbon, notes Remco Fischer of the UN Environment Programme. Regulatory climate risk can, in theory, be mitigated by moving carbon-heavy assets somewhere with laxer environmental rules. And sophisticated risk assessments do not always result in decarbonisation. Last year AGL Energy, an Australian utility, published an analysis of scenarios. The one it has chosen to follow involves keeping one of its coal-fired power stations open until 2048. ■
For more coverage of climate change, register for The Climate Issue, our fortnightly newsletter, or visit our climate-change hub
This article appeared in the Business section of the print edition under the headline “Telling all” More
BEFORE COVID-19 Hollywood was alight with franchise fever. All ten of 2019’s top-grossing films globally came from big studios and featured characters returning to the big screen. Directors such as Martin Scorsese fretted that Marvel’s superheroes would be the death of cinema. Cinema-owners would beg to differ. On March 10th AMC, the world’s biggest chain, which has recently become a darling of retail investors, reported a 77% fall in revenues last year, and a net loss of $4.6bn, in large part because Marvel and others have postponed releases until audiences come back.
Listen to this story
Your browser does not support the element.
Enjoy more audio and podcasts on iOS or Android.
The dearth of blockbusters is reshaping box-office economics. Six of last year’s top-ten money-makers worldwide were not in English. Five were Chinese and one was Japanese. This reflects Asian countries’ ability to contain outbreaks more successfully than most of the West. It also points to another twist. As big productions have retreated, smaller ones have stepped in.
At least five of the ten highest-grossing films of 2020 had budgets under $100m, compared with one in 2019. Many of those lower down the charts did much better than their producers had hoped. In December IFC Films, an independent American studio, predicted that last year would be its most profitable ever. Its films, including “The Rental”, a horror flick, had longer theatrical runs in more cinemas than they would have had they been competing for screens with the Avengers. “After We Collided”, a romance distributed by Open Road Films, another indie studio, made $5m in Britain, ten times its expected haul (and nearly $50m worldwide).
The economics are changing for big studios, too. The handful of blockbusters released in the pandemic busted few blocks. Warner Bros’ “Wonder Woman 1984” had the best opening weekend in America last year, taking $17m, compared with the $103m that the earlier “Wonder Woman” earned in a comparable period four years ago. Warner’s parent firm, WarnerMedia (part of the AT&T telecoms group) plugged some of the gap with revenues from streaming the superheroine’s antics. According to Antenna, an analytics firm, WarnerMedia’s newish HBO Max platform gained more subscribers in the film’s first three days than any other streaming service gained in any three days of 2020.
Going straight to streaming could increase profits by cutting out cinema owners, who typically receive half the price of a ticket. It may also trim costs. With a quicker turnaround from big screen to small, studios save on marketing. Explosions and other special effects, a big reason why tentpole films cost between $100m and $200m to produce these days, lose some appeal when viewed in the living room. Sadly for Mr Scorsese, franchises are here to stay. Disney is planning more spin-offs for its Marvel and Star Wars characters—even if many never grace the silver screen. ■
Dig deeper
All our stories relating to the pandemic and the vaccines can be found on our coronavirus hub. You can also listen to The Jab, our new podcast on the race between injections and infections, and find trackers showing the global roll-out of vaccines, excess deaths by country and the virus’s spread across Europe and America.
This article appeared in the Business section of the print edition under the headline “Go small” More
THE ABSENCE of vapour trails in a clear sky is an obvious sign that commercial aviation has been hit hard by covid-19. The upshot for the makers of the jet engines that create those ephemeral streaks—fewer planes sold, fewer flying hours and older aircraft retiring early as fleets are pruned—is a triple blow for an industry that mostly profits by keeping them in the air for years after they are sold.
Listen to this story
Your browser does not support the element.
Enjoy more audio and podcasts on iOS or Android.
The immediate impact for the business, which is dominated by a handful of manufacturers, was on full display on March 11th. Rolls-Royce, a British company that competes with the aviation division of America’s General Electric (GE) to power long-haul wide-body jets, published grim results for 2020. The hit to commercial aerospace, source of half its revenues in 2019, led to an operating loss of £2bn ($2.8bn). It sold just 264 large engines, down from 510 the year before.
Rolls-Royce is likely to recover most slowly, because it makes engines only for the hardest-hit long-haul market. But Pratt & Whitney, a division of Raytheon, an aerospace-and-defence group, which vies with a joint venture between GE and Safran of France to make engines for short-haul planes, has also revealed a drop in revenues in 2020, of 20%. GE Aviation’s sales slipped by a third to $22bn and it is shedding 13,000 jobs, a quarter of the total.
The slump will have an impact for years. Engine-makers operate more like services firms than traditional manufacturers. They sell engines at cost (or even a loss) to build an “installed base”. For GE, the mightiest of the three, this amounts to 37,700 units. In an engine’s lifespan of 20 years or more, supplying spare parts and maintenance brings in three to five times the sale price, reckons Bernstein, a broker. Production cuts by Airbus and Boeing, which make the planes themselves, mean lower demand for engines. Capacity cuts by airlines are making matters worse. With early retirements and around a third of the fleet in storage, carriers can salvage planes for expensive spare parts or even swap entire engines due for a costly overhaul for those with fewer miles on the clock.
A merger between GECAS,’s huge plane-leasing unit, and Ireland’s AerCap, announced on March 10th, could also disrupt engine-makers. In recent years Airbus and Boeing have preferred to offer just one type of engine for new planes rather than a choice, which cuts their development costs. But it leaves airlines with less room to extract discounts from engine-makers by threatening to go with a rival. GECAS, with a fleet of over 1,000 planes, gave GE more power to insist that the two big planemakers opted for sole sourcing. Under new ownership its strategy may change.
Uncertainty over the next generation of aircraft is another headache. Last year Airbus said it is aiming for a net-zero-emissions plane by 2035, perhaps using hydrogen as a fuel. Boeing is looking into biofuels. Neither company has firm plans just yet. But such announcements worry Rolls-Royce, which has spent £500m on UltraFan, a more efficient engine but one that uses existing technology. If the planemakers are serious about going green, it could struggle to find customers. ■
Dig deeper
All our stories relating to the pandemic and the vaccines can be found on our coronavirus hub. You can also listen to The Jab, our new podcast on the race between injections and infections, and find trackers showing the global roll-out of vaccines, excess deaths by country and the virus’s spread across Europe and America.
This article appeared in the Business section of the print edition under the headline “Losing thrust” More
A BANKER TAPED a picture, drawn by one of his small children, to his office wall. When he arrived at work the next morning, he found the picture was covered by a large notice, saying he was in violation of company policy which required personal items to be put away at night. Such a reaction was not just petty, it risked demotivating the banker completely. In short, it defied common sense.
Listen to this story
Your browser does not support the element.
Enjoy more audio and podcasts on iOS or Android.
Martin Lindstrom is a management consultant who spends his time battling the kind of corporate red tape that alienates customers, as well as employees. He has even persuaded some companies to establish special departments to fight this nonsense, sometimes dubbed “The Ministry of Common Sense”, which is the title of his latest book.
As Mr Lindstrom says, successful companies are able to put themselves in their customers’ shoes, and this leads to better service and sensible solutions. He once advised a credit-card issuer which had poor ratings for customer service. So he booked a restaurant for dinner with the executives, but got the fraud division to ensure their credit cards did not work. When one manager tried to pay for the taxi, he then watched their fury and embarrassment as they tried to get through to the call centre themselves.
The author came across another example of poor customer satisfaction at Maersk, a big shipping company. On investigating the matter, he found that call-centre employees were judged on the time spent per complaint. The firm changed the metric for judging success from time spent to other factors, such as issue resolution. Customer satisfaction nearly doubled. Later the company suffered a cyber-attack which meant that the headquarters lost contact with its ships. The chief executive issued a directive to staff to “do what you think is right to serve the customer”. This flexibility helped the company to survive the crisis and improved employee engagement.
Often the problem stems from new regulations being introduced without thinking through the implications. The pandemic has provided plenty of examples of new rules that lack common sense. On a flight last year, Mr Lindstrom flew from Zurich to Frankfurt. The crew asked passengers to fill in a form detailing where they were from and where they were going, in order that they could be traced in case others became infected. But there were only two pens on board so the writing implements were passed from hand to germy hand. When they left the plane the passengers were asked to keep six feet apart as they filed down the steps before they reached the bottom, whereupon they were crammed onto a packed shuttle bus.
When it comes to dealing with employees, budgeting rules are often the cause of frustration. Many companies insist that workers travel on a certain set of airlines, even when cheaper options are available, and insist they stay in certain chains of hotels, even though they may be many miles away from the site they are visiting. Mr Lindstrom recounts the story of a junior manager who had an executive shadow him for a day. To illustrate the problem, he decided to take the executive on a business trip. This required a 6.05am flight (the cheapest available); the executive agreed but took a business-class seat, which was against company policy. The executive then tried to read his emails on the plane—another breach of the rules, because the company required employees to access emails only when they were linked to a secure network. That regulation ensured they were out of reach for hours at a stretch.
Why can’t companies escape all this nonsense? Part of the problem is that bureaucracy has an innate tendency to multiply. Successful companies have only three or four reporting levels. Every reporting layer adds 10% to an employee’s workload, Mr Lindstrom estimates. And bureaucracy also means that employees’ time gets consumed by endless meetings, as Bartleby has often complained. Such gatherings should last no more than half an hour, says the author, who should clearly be hired by The Economist immediately.
In many companies, meaningful change could be achieved if the management just asked the staff. Most employees will be able to cite rules or practices that make it harder for them to do their jobs and to serve customers properly. Creating a special unit to push through the changes is a sensible idea, provided it has the support of senior management. That, of course, requires executives to have the common sense to appreciate that change is needed. Employees and customers can only hope they do.
This article appeared in the Business section of the print edition under the headline “When common sense fails” More
