Philippa Kaur

EXXONMOBIL, ONCE the world’s most valuable publicly traded oil company, is not easily swayed. As green investors urged it to develop cleaner energy, it planned instead to pump 25% more oil and gas by 2025. As rivals wrote down billions of dollars in assets, it said its own reserves were unaffected. But in the maelstrom of 2020 even mighty Exxon had to budge. On November 30th it announced a write-down of between $17bn and $20bn, and cuts to capital spending of up to a third in 2022-25, implicitly scrapping its production goal. On December 14th it pledged to cut carbon emissions from operations, if only per unit of energy produced, by as much as 20% within five years.
These declarations are a sign that pressure on ExxonMobil is mounting. It lost half its market value between January and November. Investors have gripes beyond covid-19. In May BlackRock, the world’s biggest asset manager, supported a motion to relieve Darren Woods, ExxonMobil’s chief executive, of his duties as chairman. In December D.E. Shaw, a hedge fund, sent the firm a letter demanding capital discipline to protect its dividend. New York’s state pension fund, America’s third-largest, is considering divesting from the riskiest fossil-fuel firms. California State Teachers Retirement System (CalSTRS), the second-largest public pension fund, backs a campaign to replace nearly half of ExxonMobil’s board. “It’s critical to their survival that they change,” says Christopher Ailman, CalSTRS’ chief investment officer.

Still, Mr Woods hangs on to both jobs. And, for all its latest pronouncements, his firm is betting on its old business, even as European rivals seek to reinvent themselves for a climate-friendlier era. This points to a widening transatlantic rift, as the world’s oil giants try to win back investors after a year when demand for crude collapsed and its future became murkier. Each approach is riddled with risk.
Supermajors’ returns have mostly been middling for years. In the decade to 2014 they overspent, furiously chasing production growth. As shale transformed the oil market from one of assumed scarcity to one of obvious abundance, many struggled to adapt. The return on capital employed for the top five Western firms—ExxonMobil, Royal Dutch Shell, Chevron, BP and Total—sank by an average of three-quarters between 2008 and 2019. In 2019 energy was the worst-performing sector in the S&P 500 index of big American firms, as it had been in 2014, 2015 and 2018.
The past 12 months brought new indignities. All told, the big five have lost $350bn in stockmarket value. They talk of slashing jobs, by up to 15%, and capital spending. Shell cut its dividend for the first time since the second world war. BP said it would sell its posh headquarters in London’s Mayfair. In August ExxonMobil was knocked out of the Dow Jones Industrial Average, after nearly a century in the index. Energy firms’ share of the S&P 500 fell below 3%, from a high-water mark of 13% in 2011.
In 2021 a covid-19 vaccine will eventually support demand for petrol and jet fuel—but no one knows how quickly. Leaders of the world’s two biggest oil markets, China and America, have made it clear they want to curb emissions, but not when or by how much. Petrostates such as Russia and the United Arab Emirates are keen to defend their market share and wary of sustained production cuts that may boost American shale by inflating prices. The Organisation of the Petroleum Exporting Countries agreed in December to raise output modestly in January, but declined to promise further price support.

Further out, expectations vary hugely. Legal & General Investment Management, an asset manager, reckons that keeping global warming within 2°C of preindustrial temperatures may halve oil demand in ten years. That is unlikely, but highlights risks to oil firms. While BP thinks demand may already have peaked, ExxonMobil has expected it to climb until at least 2040, supported by rising incomes and population.

Given all the uncertainty and underperformance, the question is not why investors would flee big oil. It is why they wouldn’t. The answer, for now, is dividends. Morgan Stanley, a bank, reckons the ability to cover payouts explains some 80% of the variation in firms’ valuations. That is a reason why those in America, which have resisted dividend cuts, are valued more highly relative to cashflow than European ones, which succumbed (see chart).

Well-laid plans
Shareholder returns in the next 5-10 years will be determined by two factors, reckons Michele Della Vigna of Goldman Sachs, another bank: cost-cutting and the management of the old business. Take Chevron, ExxonMobil’s American rival. It has some low-carbon investments but no pretence of becoming a green giant. “We have been pretty clear that we are not going to diversify away or divest from our core business,” Pierre Breber, its finance chief, affirmed in October. Its low-cost oilfields pump out cash. A $5bn takeover of Noble Energy, a shale firm, will help it consolidate holdings in the Permian basin, which sprawls from west Texas to New Mexico. Morgan Stanley expects Chevron to generate $4.7bn of free cashflow in 2020.
This path is not risk-free. If oil demand declines more rapidly than the companies anticipate, they might struggle with a rising cost of capital and stiff competition from the likes of Saudi Aramco, Saudi Arabia’s oil colossus, or its Emirati counterparts. ExxonMobil shows the danger of spending too much on fossil fuels and losing sight of returns. Its free cashflow in 2020 is already negative. The alternative, embraced by European firms, is to increase the efficiency of the legacy business while venturing into new areas.
The challenge for that model, says Muqsit Ashraf of Accenture, a consultancy, is proving they can generate strong returns from their green businesses—and outdo incumbents. Europe’s utilities are already renewables giants. Investors have doubts. When BP vowed in September to ramp up investment in clean energy tenfold and reduce production of oil and gas by at least 40% by 2030, the market saw not a bold leap but a belly-flop. BP’s market capitalisation kept sliding, to a 26-year low in October, until successful vaccine trials pepped up the oil price—and with it energy stocks.
Even in Europe incentives remain muddled. According to CarbonTracker, a watchdog, as of 2019 Shell and BP continued to reward executives for increasing oil and gas output. Shell and Total have set emissions targets that let them increase total production of oil provided their output from renewables and cleaner (though still polluting) natural gas rises faster. Shell sees gas as crucial to efforts to reduce its products’ carbon intensity, and a complement to intermittent power from the wind and sun. In the third quarter its integrated gas business accounted for 22% of cashflow from operations. Total also views the fuel as strategic, with plans to nearly double its sales of liquefied natural gas by 2030. Goldman Sachs calculates that in 2019 low-carbon power accounted for just 3% of BP’s capital spending, 4% of Shell’s and 8% of Total’s.
These figures are rising—even in America, though at a slower clip. Mr Della Vigna predicts that renewable power might account for 43% of capital spending by 2030 for BP and generate 17% of revenues. By 2025 Total plans to increase its installed solar and wind capacity from 5 to 35 gigawatts. On December 15th Norway’s government approved funding for a big project to capture and store carbon that Shell will develop with Total and Equinor, Norway’s state oil company. The prize for gaining scale in green energy is bigger than merely maintaining it in the dirty sort, says one seasoned investor. “But”, he adds, “the risk is also bigger.” ■
This article appeared in the Business section of the print edition under the headline “Brown v broad” More

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FOLLOWING THE tragic yachting accident that killed my predecessor, Buck Passer, the board decided on a change of direction at Multinational United Subsidiary Holdings (MUSH). As the new chief executive, I would like to live up to my nickname, “Honest Harry” Hunter and tell it to you straight.

We had a dreadful 2020. To be fair, nobody could have reasonably expected the executive team to predict a global pandemic which resulted in widespread economic shutdowns. But by the same token, if managers aren’t at least partly responsible during the bad times, they shouldn’t take full credit for the good times. Most executives are riding on the backs of central bankers who have slashed the cost of capital and on technology pioneers who have made it easier to transact and communicate.
So, given that my fellow executives took bonuses in the boom years, we are slashing their salaries by half. That will give us more money to save jobs in the rest of the group. This may upset people in the C-suite and prompt some of them to leave. We will miss them—and wish them well finding a new job in the current labour market. We also know that many of you had to keep coming into our factories and warehouses during the pandemic while most of the office staff have been able to work from home. So as budgets are tight, we are making sure that the salaries of those essential workers keep pace with inflation this year. For everyone else, there will be a pay freeze.
Another cost-saving measure will be the elimination of my predecessor’s use of management consultants. I have nothing against the profession, which is full of bright people. But if my executive team needs advice on how to do their jobs, that raises the question of why they were hired in the first place.
What about 2021? There is no point in making economic predictions; the best approach is to clear up the mistakes made in the past. First of all, my predecessor bought too many companies without considering whether they would fit well with the rest of the group. Chief executives like acquisitions: to expand their empires and give them news to announce when they are talking to investors. Time the purchase right and you can boost both earnings and the share price.

But all too often these are vanity purchases, like the middle-aged man who buys a Porsche to reclaim his lost youth. When combining companies, it is possible to make savings in areas like procurement but these are often more than offset by the loss of morale that occurs when managers try to mesh organisations with completely different cultures. So we are not going to make any acquisitions in 2021. Instead, we are going to see if some of our subsidiaries can be spun off as stand-alone organisations. They can probably manage their businesses far better than we can.
Speaking of management changes, too much staff time is taken up by meetings. From now on, team leaders will have a 15-minute catch-up every morning; if there is important news, they can message employees directly. Most of the staff should not be expected to attend an internal meeting more than once a month. That should give them more time to meet the important people, our suppliers and customers, or just to get on with their jobs.
Other changes are required to end the gobbledygook that plagued the previous regime. We will no longer have a “human resources” department: our employees are people, not resources. That section has been renamed personnel. Similarly, the whole concept of a “thought leadership” division is both pretentious and Orwellian; clients are not impressed by this waffle and in order to save money I will shut our unit down.
Finally, there is a lot of talk about corporate purpose, and a lot of grandiose language tends to be used by other executives. So let me tell you the purpose of this business under my leadership. It is to create a company that provides products and services that customers are eager to buy. In turn, that depends on ensuring that our employees are both well-rewarded and committed to their tasks. If we can achieve those goals, then the returns to shareholders will look after themselves.
So enjoy your holiday break—you have earned it. I can’t promise you that things will be better in 2021. But if they aren’t, it won’t be for lack of effort from me or the rest of the management team. Thanks for all you have done this year.
Best wishes,
Harry Hunter
This article appeared in the Business section of the print edition under the headline “Straight talking” More

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SOMETHING HAS changed since your columnist first met Michael O’Leary, boss of Ryanair, over a no-frills sandwich lunch almost two decades ago. He still talks blarney at supersonic speed. He still rails against an unholy trinity of flag-carriers, governments and regulators. But his tone is different: less cursing (only three “fucks” in an hour) and even a moment of half-joking humility (“I would like to think I have emerged like Scrooge on Christmas morning realising the error of my ways”). Most notably, his views have mellowed about three constituencies which for decades he would reliably berate, if chiefly for publicity purposes: customers (“usually wrong”), unions (“busted flushes”) and environmentalists (“shoot them”).

The reason for this newfound magnanimity, as he explains it, is Ryanair’s size. Bad-mouthing everyone was fine when he led a scrappy upstart fighting flag-carriers lavished with state aid. But now Ryanair is Europe’s biggest airline, worth almost as much as the owners of British Airways, Lufthansa, Air France and EasyJet combined. In 2019 it carried 152m people, comfortably ahead of Southwest Airlines, the American low-cost carrier on which it is modelled. “We have to be more sensible,” Mr O’Leary says.
“Sensible” is a broad term. Ryanair has just put in a huge order for Boeing’s 737 MAX jets, which are only beginning to come back into service after being grounded in the wake of two tragic crashes in 2018 and 2019. It may be one of the rashest moves of Mr O’Leary’s career. Or it could signal that, like any insurgent-turned-incumbent, Ryanair now has a huge stake in maintaining the system it helped create. In effect, by increasing its MAX order from 135 to 210 (admittedly at a hefty discount from Boeing), the airline is betting that within a few years aviation will return to just the way it was before the covid-19 pandemic bludgeoned travel. It is a wager on the preservation of the status quo.
It is not the first time Mr O’Leary has thrown the dice at a time of historic convulsion. The sandwich lunch in 2002 followed Ryanair’s order of 100 Boeing 737-800 jets just four months after the 9/11 terrorist attacks in America. It was a lifeline for Boeing—and made Mr O’Leary a hero in Seattle, the aeroplane-maker’s hometown. It was a roaring success for Ryanair, thrusting it into the big leagues in Europe. In two ways, he is hoping history will repeat itself.
The first is that, if you offer people low-enough fares, not even safety concerns will keep them from travelling. The threat of terrorism did not put off passengers for long. Mr O’Leary is sure the same will happen again following the recertification of the 737 MAX by America’s Federal Aviation Administration in November, and draft approval by European regulators the same month. Ryanair calls the MAX “the most audited, most regulated [aircraft] in history”. Its more numerous seats and lower fuel costs allow Ryanair to make tickets ultra-cheap. Anyone who does not want to board it will be put on a later flight on another aircraft, Mr O’Leary promises. But, he says, “€9.99 [$12] fares will cure an awful lot of customer apprehension.”

Mr O’Leary’s second assumption is that the need to restore Europe’s battered tourism industry, combined with pent-up demand for travel, will mean fewer curbs on airlines, as they did after 9/11. This Christmas and new year Ryanair plans to bombard Europeans with adverts enticing them to fly abroad next summer, capitalising on hopes for the covid-19 vaccine. It assumes that other large carriers, such as British Airways and Lufthansa, will continue to suffer from subdued long-haul and business-class travel, a big source of revenue, reducing their ability to subsidise cheaper flights within Europe for a few years. With hotels, bars and beaches empty, Mr O’Leary thinks that European regulators will be reluctant to push more “anti-aircraft” environmental taxes. As Ryanair takes delivery of more 737 MAXes, by the summer of 2026 it expects to have almost 150 more aircraft flying than it did in 2019. In the meantime, its boss predicts, some European carriers will go bust or be acquired, further consolidating the industry—with Ryanair at the front of the pack.
Not everything will be the same as before. Mr O’Leary admits he was “much too cavalier” in his treatment of customers. These days he is more respectful. He is proud of deals he has struck with pilot and cabin-crew unions, with which he once picked fights. In the pandemic they have mostly taken pay cuts in exchange for keeping their jobs. And he notes that the MAX emits less carbon and less noise than its forerunners, which he hopes will ease concerns among green-minded passengers and people living near runways.
Be leery
The danger for Ryanair is that a supreme leader who thinks he has seen it all before fails to see that some things may have fundamentally changed—especially on climate change. Asked about the move by Airbus, Boeing’s European arch-rival, to develop zero-carbon hydrogen planes by 2035, Mr O’Leary is unimpressed. He loses interest over such engineering matters, he admits. He adds that Europe does not have the luxury of constraining air travel anyway; its lack of industrial competitiveness means services, especially tourism, are more important than ever and need low-cost flights.
He may be right. In the battle between Europe’s “flight-shaming” ecowarriors and those wanting cheap holidays abroad, the second lot may prevail. Over the next decade or so Europe’s priority may be to curb car emissions more than those from aviation. But Mr O’Leary may also be complacent. He risks locking Ryanair into a dirty technology—and a partnership with Boeing—that may be out of step with the times. He may underestimate the EU’s desire to crack down on carbon. And he may overlook the greener alternatives that could support tourism in Europe: trains, buses and increasingly electrified cars. Once Ryanair was a David, wielding its slingshot with deadly accuracy against industry Goliaths. The danger is that it may now be the one with the blind spot. ■
This article appeared in the Business section of the print edition under the headline “The parable of Ryanair” More

IF ANY INDUSTRY could use help from Wonder Woman, it is cinemas. Lockdowns and a dearth of new releases have reduced worldwide box-office takings by about 70% in 2020. Thankfully for theatre owners, the corseted crusader will charge to the rescue on Christmas Day, giving audiences a reason to go back to the movies.
Yet in a plot twist, AT&T, the telecoms giant that owns the film’s producer, Warner Bros, has announced that “Wonder Woman 1984” and the 17 feature films on Warner’s release slate for 2021 will be made available on its HBO Max streaming service on the day they are released in cinemas, which historically have had an exclusive run of a few months. Purists are aghast. “The future of cinema will be on the big screen, no matter what any Wall Street dilettante says,” declared Denis Villeneuve, whose sci-fi epic, “Dune”, is among the affected films.

Warner is not the only studio shifting its focus to the small screen. In July Universal Pictures, part of Comcast, a cable company, did a deal with AMC, the world’s largest cinema chain, to give theatres just 17 days before its films are made available online (AMC will get a cut of streaming revenues). Paramount Pictures, owned by ViacomCBS, has sold several films to Netflix this year rather than release them to empty auditoriums. And on December 10th Disney, Hollywood’s biggest studio, signalled that it, too, sees its future in streaming.
In a presentation to investors the studio announced a blitz of new content for its Disney+ streaming service: ten “Star Wars” series, ten more based on Marvel comic books, 15 other new original series and 15 feature films. By 2024 Disney+ will be spending $8bn-9bn annually on content, up from $2bn in 2020. Add ESPN+, which shows sports, and Hulu, another Disney streaming channel, and the company will splurge $14bn-16bn a year, nearly as much as the $17bn that Netflix, which pioneered streaming, earmarked to spend in 2020.

Disney’s “content tsunami” is “frightening to any sub-scale company thinking about competing in the scripted entertainment space”, wrote Michael Nathanson of MoffattNathanson, a media-research firm. The Wall Street dilettantes swooned: Disney’s share price leapt by almost 14% the day after its presentation, reaching an all-time high and adding $38bn to its stockmarket value (see chart).
Disney now expects 230m-260m Disney+ subscribers by 2024—more than treble its previous target. The extra viewers, and a planned price rise, put the service on track to break even in 2024, despite more content spending. Across all its streaming channels Disney expects more than 300m subscribers by 2024—maybe enough to overtake Netflix, currently on 195m. Disney will take Netflix on more directly via a new service, Star, with a wider range of programming, including a new show starring the indefatigable Kardashian clan.
Two months ago Disney began a corporate restructuring to increase its focus on streaming. Since then it has trimmed jobs at ABC News and announced the winding up of its radio business. The plans for Disney+ imply that by 2024 streaming will be the company’s single largest business by revenues, notes Benjamin Swinburne of Morgan Stanley, a bank. Whatever some directors may think, “made for TV” is no longer a slur in Hollywood. ■

This article appeared in the Business section of the print edition under the headline “Big bets on the small screen” More

A YEAR AGO Europe was being hailed as a regulatory superpower in technology. Countries around the world copied its strict new privacy law, the General Data Protection Regulation (GDPR), while America’s government scarcely tried to exercise any control over a fast-moving industry.
The positions have since been reversed. This autumn the European Court of Justice quashed a €14bn ($17bn) fine on Apple levied by Margrethe Vestager, the EU’s competition chief, in a huge setback for the bloc’s antitrust strategy. And America has found new purpose. In October Congress published a lengthy report on how to update competition law. The same month the Department of Justice launched a lawsuit against Google over alleged abuses of its monopoly in search advertising. And in December the Federal Trade Commission and 46 states sued Facebook over anticompetitive practices in social-networking.

Europe wants to reclaim its place in the vanguard. On December 15th the European Commission, the EU’s executive arm, published long-awaited drafts of a double bill of ambitious new legislation aimed at reining in big technology platforms. If adopted, the Digital Services Act (DSA) and Digital Markets Act (DMA) would together amount to the biggest overhaul in 20 years of European policy towards the internet, and the firms that populate it.
Since online platforms play a central role in society and democracy at large, said Thierry Breton, commissioner for the internal market, “we are organising our digital space for the next decades.” Both laws ditch the old “ex post” approach of bringing lawsuits citing past events—a process that takes too long to have much bite when it comes to huge firms—in favour of “ex ante” rules that would constrain big tech companies upfront.
The twin laws’ scope together is remarkably broad. Illegal goods, services and content, abuse of platforms, advertising and transparency of recommendation algorithms are all tackled in the DSA. The DMA, meanwhile, defines a new category of “gatekeeper” platforms—and prohibits them from engaging in practices deemed uncompetitive. Tech giants could no longer favour their own products on their platforms over those of third-party sellers or stop users uninstalling pre-installed software. The only big, controversial area of technology policy left alone, indeed, is where tech giants pay their taxes.
Both laws take unapologetic aim at the industry’s heavyweights. In terms of market capitalisation, it is overwhelmingly American companies that would be affected. That is in contrast to the GDPR, which applies to companies large and small (and which is widely considered to have benefited large groups possessed of greater resources to pay for compliance, at the expense of minnows).

The DSA applies only to firms with a reach of 45m users, or a tenth of the EU’s population. The DMA treats a company as a gatekeeper if it controls a “core platform service” with the same reach of 45m and has a market capitalisation of €65bn or more. Tellingly, only one European firm, SAP, a German maker of business software, meets the value threshold. But Alphabet (Google’s parent), Amazon, Apple, Facebook and Microsoft easily satisfy both.
The sanctions are heavy. Breaking DSA rules could result in a fine of up to 6% of annual global turnover. Violating the DMA carries penalties of up to 10% of annual global turnover—which would amount to around $28bn for Amazon or Apple. Serial offenders could be broken up.
The tech giants have lobbied hard against the rules but have so far found eurocrats unreceptive. The laws’ final drafts are at the heavy-handed end of what was expected, says an executive at a technology firm. Mr Breton has taken a more combative stance of late even than Ms Vestager. He argues that the tech giants have grown “too big to care”.
They certainly care about the legislation, and most of all about the DMA. Whereas the law on digital services mostly compels them to do more of what they are doing already, the DMA reshapes the whole market, they argue. Three of its provisions stand out.
First, it singles out large companies, unfairly in their eyes. Second, it bans them from what tech executives claim is the sort of preferential treatment of their own products that is common across industries online and offline alike.
Third, the new rules impose a greater obligation than currently exists for large firms to share data with smaller companies and to ensure interoperability with their own software and hardware. Search engines such as Google and Amazon will have to provide their ranking, query, click and view data to rival search engines such as Qwant, a French firm. That, they say, could impinge on their intellectual property.
The devil will be in the detail, some of which could change in the legislative process, likely to last one or two years (or more; GDPR took four to reach fruition). The laws will go to the European Parliament, where politicians may propose further amendments of an anti-big-tech nature, then to the Council of Ministers. But companies are not expecting big changes.
Not just the American tech giants but the incoming Biden administration will be on the watch for signs of digital protectionism. France and Germany in particular are suspected of trying to create a favourable environment for nascent European tech champions to thrive. According to a technology executive involved in lobbying ahead of this week’s presentation, EU officials often point enviously to China’s exclusion of American firms from its mainland and nurturing of its own tech giants.
Still, the new rules could backfire. Biggish European tech firms will have to obey even though they wield nothing like the clout of the American behemoths. This week rumours swirled in Brussels that the draft laws were held up because Spotify and other European firms were trying to change the criteria for being a gatekeeper firm so they could slip through the net.
Emmanuel Macron, France’s president, recently bemoaned that Europe seems to be better at regulating tech firms than building its own. “Now, when you look at the map,” he told Niklas Zennstrom (the Swedish founder of Skype, sold in 2011 to Microsoft), “we have what we call the GAFA [Google, Apple, Facebook, Amazon] in the US, the BATX [Baidu, Alibaba, Tencent, Xiaomi] in China and GDPR in Europe.” Adding two more sets of regulatory initials may have an effect on America’s, maybe even China’s corporate ones. But it will not by itself help Europe create a rival to them. More

IF DINNER PARTIES were permitted in locked-down France, it is not hard to guess what would set le tout Paris aflutter. For months bankers, politicians and other pre-covid canapé-scoffers have taken sides in a corporate battle royale pitting two century-old firms against each other. Veolia, a water- and waste-management utility, has been struggling to gobble up Suez, a rival which is resisting fiercely. The proposed deal is mired in legal disputes, boardroom recriminations and ministerial intrigue. All grist to the mill for those who see French business as the product of its politicians’ dirigiste tendency to shape the private sector in the mould of the public one. But look at the wider French business landscape and the stereotype is out of date. Away from the clutches of politicians, many French firms have become world-beaters. Is this thanks to the attention of elected officials—or in spite of it?
The ugly spat between Veolia and Suez shows politics still matters in Parisian business circles. Given the two firms offer the same outsourced environmental services to customers dotted across the globe, a tie-up has long been mooted. Veolia having already seized nearly a third of its target’s shares, each side has lined up members of l’establishment to make its case. Their brief is not so much to convince shareholders of the merits of a deal, as might be the case in Britain or America. Rather, politicians whose assent is considered critical are an important audience. Suez and Veolia are each said to have a former speechwriter to President Emmanuel Macron lobbying for them (not the same one). Given that a slew of legal challenges and regulatory clearances is required, the outcome will not be known for months. Few think it will hinge on the transaction’s commercial merits.

Such intrigue used to delight the French business elite. Now it feels old hat. Look at the top of the CAC 40 index of France’s leading companies today, and a new generation of firms has emerged. Two decades ago the corporate league table was dominated by firms in sectors in which relations with government matter, such as telecoms, utilities or banking. The bosses of France Télécom or BNP Paribas, a bank, were inevitably former ministerial advisers. More often than not they had graduated from the École Nationale d’Administration (ENA), a finishing school for public officials.
Fast forward to today and the CAC 40 is led by companies with less use for political connections. The index’s brightest stars today are luxury giants such as LVMH (of Louis Vuitton fame), Kering (Gucci) and Hermès; L’Oréal, a beauty-products firm; Sanofi, a drugmaker; and a host of industrial giants. Selling handbags or skincare products to Chinese yuppies is a global contest in which French firms excel, thanks to competent management. Lesser-known but equally astute companies such as Schneider Electric, a specialist in energy-management kit, have outperformed American rivals such as 3M and General Electric, and European ones like Siemens and ABB. Investors in Air Liquide, a chemicals firm, have enjoyed juicier returns than those of Germany’s BASF or America’s DuPont. Publicis, an advertising group, is worth nearly three times as much as in 2000, while rivals like WPP in Britain and Omnicom in America have lost market value. EssilorLuxottica, a French-Italian firm, is the world’s biggest purveyor of spectacles.
Even more telling, some big firms began to prosper only once unshackled from the government yoke. Total, an oil-and-gas major, used to be worth a fraction of BP or Royal Dutch Shell. As it has gained distance from the corridors of power since privatisation in 1992, it has caught up with its European rivals’ valuations. Safran, an aerospace firm, has seen its market value go up 14-fold in two decades as the state has sold down its stake. Airbus has outpaced its American jetmaking nemesis, Boeing, as political meddling (by the many European governments that founded it) has ebbed.
And today political allies carry less heft than they once did. According to Morgan Stanley, a bank, over 70% of big French firms’ revenues nowadays come from overseas, where French politicians hold little sway. Most regulation critical to French firms used to be done at national level, where regulators were drawn from the same ENA lecture halls as corporate bosses. Now a lot is carried out by European or global watchdogs.

That is not to say that big firms and politicians steer clear of each other. France’s foreign minister recently waded into LVMH’s takeover of Tiffany, an American jeweller, in ways that were eyebrow-raisingly useful for the French luxury champion. But direct patronage is becoming a burden. The French authorities remain a shareholder in Renault and in 2019 clumsily handled a proposed merger with Fiat Chrysler Automobiles, an Italian-American rival (whose big shareholder, Exor, owns a stake in The Economist’s parent company). Peugeot, a nimble competitor with no direct state shareholding, is now in the midst of the merger Renault fluffed.
French whines
Corporate France has plenty of shortcomings. It has no tech giants to match Google or Amazon. Many large companies with few state ties, such as Accor, a hotel chain, and Carrefour, a retailer, are decidedly ordinary. The CAC 40 was lagging behind its European and American equivalents even before covid-19 hit the French economy particularly hard. Its smaller firms pale in comparison to Germany’s Mittelstand. And French politicians, though no longer the dirigiste master-planners of yore, still pine for national (or European) champions to take on Chinese rivals. They frown on hostile takeovers—the mere prospect of which serves to sharpen managers’ minds—which is one reason the Veolia-Suez deal may fail.
That is a shame. Just ask Danone’s shareholders. In 2005 an unsolicited approach by PepsiCo for Danone was foiled by the French authorities on the grounds yogurt-making was a strategic industry. The American firm went on its way and has since delivered fizzy profits for its shareholders. Those at Danone, meanwhile, have had to stomach far blander returns.■
This article appeared in the Business section of the print edition under the headline “Dirigiste? Moi?” More

IN 2016 TRAVIS KALANICK, then Uber’s chief executive, described self-driving cars as mission-critical. If somebody managed to beat Uber to making them work, he said, then the rival’s ability to offer taxi trips without paying for human drivers would mean that “Uber is no longer a thing.”
Times change. On December 7th Uber announced the sale of its self-driving arm to a firm called Aurora. No price was given. But Uber said it would put another $400m into the unit; that Dara Khosrowshahi, its current boss, would join Aurora’s board; and that the deal would leave it with a 26% stake in Aurora.

One reason for the spin-off is Uber’s belated effort to return to profit. It lost $8.5bn in 2019, as it fought for market share with rivals such as Lyft. Besides offloading the self-driving unit, the firm has sacked workers and sold its Jump electric-bicycle division to Lime, a scooter firm. On December 8th Uber said it would flog its Elevate flying-car project to a startup called Joby Aviation.
Another explanation is that the reality of self-driving has lagged far behind the excitement, as it had done in the idea’s earlier heydays in the 1960s and the 1990s. The machine-learning software on which the cars rely often struggles to cope with “edge cases”, which are absent from software’s training data but pop up regularly on real roads.
Uber’s self-driving progress has, according to industry rumours, been slow. In 2018 one of its cars ran over and killed a pedestrian in Arizona. It is not alone; Tesla’s “Autopilot” feature has been linked to at least four deaths since it was launched in 2015. But Uber’s Kalanick-era reputation for rule-breaking has made the PR burden heavier.
The bearish interpretation of the sale is that, having given up on self-driving, Uber will remain a fancy taxi-and-delivery firm. But if Aurora can buck expectations and make self-driving work, Uber could license the technology back. And high-tech distractions like self-driving cars—or flying ones—may be the last thing the firm needs. It is under pressure not just from rivals and investors but also from regulatory probes into its other big cost-saving innovation—the assertion that its drivers are not employees, but independent contractors. Joe Biden, America’s president-elect, has called that a “misclassification”. Tighter European rules will come into force by 2022. Those edge cases look urgent.
This article appeared in the Business section of the print edition under the headline “Spinning off” More

AMAZON, VODAFONE and Cairn Energy operate in different industries: e-commerce, telecoms and oil-and-gas exploration, respectively. But they share a common predicament. All are waging legal battles over their Indian operations—and doing so outside India.
The trio are part of a larger wave. Last year nearly 500 cases filed in the Singapore International Arbitration Centre came from India. No other country came close (see chart). The number of Indian parties involved in arbitration through the Paris-based International Chamber of Commerce tripled last year, to 147. More quietly, London remains a crucial centre for India-related commercial spats, as to a lesser extent does The Hague. Two newish arbitration centres in the United Arab Emirates, in Dubai and Abu Dhabi, want in on the game.

Narendra Modi, the prime minister, is believed to dislike this trend. His administration sees it, with reason, as an infringement of India’s sovereignty—but also as impugning its laws and judicial process. The resistance to outside meddling in the country’s legal affairs is echoed by its bar association, which blocks foreign lawyers and law firms from practising locally.

Crucial components of the legal system are nevertheless being outsourced. Companies feel that it is the best way to get a fair shot in India. And for all its grumbling, India’s government understands that attracting investment requires the availability of a judicial recourse that is considered efficient and fair—which Indian courts can at times seem not to be.
The emigrant cases can be divided into two categories. The first kind involve the Indian government. Vyapak Desai of Nishith Desai Associates, an Indian law firm with expertise in the area, has compiled a list of more than a dozen big cases pending. Some were brought by Indian firms. In 2017 Reliance Industries, a conglomerate famous for ably navigating India’s courts and bureaucracy, chose Singapore as the venue to fight a $1.6bn claim by the Indian government, which accused it of improperly extracting gas from fields owned by state-controlled firms. Reliance won and was awarded $8m in compensation.
Foreign arbitration is all the more attractive for firms lacking Reliance’s local nous. Cairn, which is British, filed its case in The Hague, arguing that it should be paid back $1.4bn in taxes involuntarily extracted on the basis of a retroactive law passed in 2012, which was applied to an asset sale six years earlier. Cairn says this violated a bilateral investment treaty between Britain and India; a decision is expected any day now. Vodafone’s case stems from the same law and relies on a similar treaty which India signed with the Netherlands. The firm, which had purchased mobile-telephony assets in 2007, won a bitterly fought case before India’s Supreme Court in 2012 exempting it from a capital-gains tax on the transaction, only to have the levy reimposed by India’s parliament. In September it won a unanimous decision fro
m a three-person arbitration panel in The Hague.

The prime minister’s office is said to be torn over offshore arbitration. On the one hand, it believes that foreigners have no right to contest Indian taxes; partly in response to such cases it has withdrawn from 73 bilateral investment treaties, including the British and Dutch ones, and imposed more onerous terms for challenging tax assessments in new ones it has signed.
On the other hand, it fears that rejecting arbitration would reinforce the sense that India is a toxic place for foreign firms to invest. Appealing against a decision—let alone ignoring it—brings costs, not least by putting off investors at a time when Mr Modi is keen to lure them away from China.

The second category of disputes settled abroad involves only private parties. These often move offshore simply because business moves fast whereas Indian courts do not. It takes more than three years on average to resolve a case before the High Court in Mumbai and nearly three years in Delhi, according to a study by Daksh, a research group. Seven years is not uncommon, Daksh says. Lawyers in Mumbai’s High Court report that is not hard to find cases still pending from the 1960s.
Most of the offshore private cases are resolved quickly and quietly. Some, though, make headlines. The one involving Amazon is an example. In October the e-commerce giant won a favourable decision in Singapore to suspend the acquisition of a tottering retailer, Future Group, by Reliance. Amazon had earlier negotiated with Future a right of first refusal on any sale. Given Future’s troubles, Amazon might reasonably have felt it had no time to wait for a sluggish Indian court to intervene. In appealing against the Singaporean arbitrator’s decision to the Delhi High Court, Future accused Amazon of acting “like the East India Company of the 21st century”. The comments chimed with Mr Modi’s instructions to all Indians to “be vocal for local”. They rhyme less well with his appeals to foreign investors.■
This article appeared in the Business section of the print edition under the headline “The case of the disappearing cases” More