Philippa Kaur

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

“COUNT ON US, hold us accountable and together we will reinvent the way businesses run.” Thus ends a recent letter of support from 337 senior managers at SAP, a maker of business software, to Christian Klein, their chief executive. In April Mr Klein, then a stripling 39 years old, took over as sole boss of Europe’s biggest technology firm, after running it for a few months in tandem with Jennifer Morgan, an American who used to helm SAP’s business across the Atlantic. He needs all the love he can get, for SAP faces a challenge.
Mr Klein became CEO at the peak of covid-19’s first wave. It had hurt SAP more than other tech firms: many of its biggest clients, such as carmakers and energy companies, were temporarily hit by the pandemic. And it struck as more rivals were vying for swathes of the business-software market that the German giant used to rule.

Then, in October, Mr Klein was humbled when he presented changes to SAP’s business model that would depress margins in the short run and delay earlier revenue and profit targets by two years. Combined with lacklustre results for the third quarter, the news shaved 22% off the firm’s share price, wiping out €35bn ($41bn) in market value, the sharpest drop in 21 years and almost unheard of for a firm of SAP’s size (see top chart). The purchase of almost €250m in SAP shares the following day by Hasso Plattner, chairman of the supervisory board, who co-founded the company 48 years ago, did not reassure investors.

To regain their confidence Mr Klein must improve SAP’s offering in the cloud, and persuade more of its clients to move there. And he needs to do this while fending off competition from firms such as Oracle, Salesforce and Workday in America, SAP’s biggest market.
The pandemic has softened demand for “enterprise resource planning” (ERP) software, which firms use to manage their everyday operations—and which has long been SAP’s forte. It has also prompted SAP’s existing clients, typically large or medium-sized manufacturers, to rethink their ERP processes. “I never had so many calls from CEOs who wanted to talk about supply chains,” says Mr Klein. Retailers and manufacturers asked SAP for tools to get more visibility of their suppliers. Critically, many of them demanded that ERP, which has traditionally resided on firms’ own servers, be moved to the cloud instead.
SAP is very late to the cloud, where companies have been progressively moving for the past 20 years, says Liz Herbert of Forrester Research, a consulting firm. Oracle, which also embarked on the transition belatedly, has done so swiftly. So has Microsoft, the world’s biggest software-maker, with ambitions to expand its enterprise offerings. By contrast, SAP remains more of a hybrid. It has moved a chunk of its business to the cloud but many big customers still use its software on their premises.
Why the dithering? Shifting complex, customised end-to-end ERP processes to the cloud is much harder than uploading human resources, sales or customer-relationship management, Mr Klein explains. And ERP remains SAP’s bread and butter: it controls 21% of the market, according to Gartner, a research firm, compared with 11% for Oracle, its closest competitor (see bottom chart). A whopping 92% of Fortune 500 companies—from carmakers, like BMW, to defence firms, such as Lockheed Martin—use SAP software. It therefore cannot get the transition wrong. SAP listened to its customers and took a methodical approach, says an executive at a rival software firm, whereas the market wants it to move fast and break things.

Even so, says Mr Klein, “covid was clearly an inflection point.” Bosses of big firms who may have waited another five years before switching to the cloud now want to speed up. They are also demanding a closer integration of SAP affiliates acquired by Mr Klein’s predecessor, Bill McDermott. These include Concur, a travel-expenses firm; Ariba, a procurement platform; and SuccessFactors, which makes HR software. This will require additional investments by SAP. So will Mr Klein’s plan to increase spending on research and development.
SAP must now persuade its 35,000-odd ERP clients of the benefits of the cloud. It must convince investors of the same thing. Licences for on-site software bring a big chunk of revenue upfront, whereas customers initially pay much less for rolling cloud subscriptions. But recurring revenues are increasingly coveted by all manner of technology firms, from Amazon and Apple to Netflix, because they are more predictable and build a closer relationship with customers. The shift to the subscription model will eventually mean a big revenue lift for SAP, predicts Mark Moerdler at Bernstein, a broker.

As for the transition to the cloud, it need not be onerous technically. That is a bit of red herring, thinks Paul Sanderson of Gartner. The bigger challenge is changing the culture of SAP, which has become too removed from its clients.
Rivals will try to exploit the transition period to win over some of those customers. Larry Ellison, the colourful co-founder and now chief technology officer of Oracle, declared last year that “SAP’s customer base is up for grabs.” His subsequent claim that a huge client of SAP was about to defect to Oracle proved unfounded. Another such boast might not be. ■
This article appeared in the Business section of the print edition under the headline “Hitting the reset button” More

DISNEY’S THEME parks may be closed and its cruise ships docked, but the entertainment giant’s Disney+ streaming service has been one of the great success stories of the year of lockdown. Launched 13 months ago with a target of reaching 60m-90m subscribers by 2024, it had hit that mark by this summer, as self-isolating audiences happily shelled out $6.99 a month for access to the deep back-catalogue of Hollywood’s biggest studio.
Wall Street lapped it up. Despite a net loss of $710m in the three months to September, mainly owing to those closed theme parks and docked cruise ships, the growth of Disney+ propelled the company’s share price back to where it had been before the pandemic. If the stockmarket had any lingering doubts, it was over the emptiness of Disney’s pipeline of new shows. Aside from “The Mandalorian”, a “Star Wars” spin-off, and “Hamilton”, a Broadway musical, the service has had few original hits, relying heavily on the Disney archives. The company allocated only about $2bn for fresh Disney+ content this year. Netflix, the world’s biggest streamer, with 195m subscribers, earmarked $17bn.

In a presentation to investors on December 10th Disney dispelled those doubts once and for all. It announced a content binge designed to put it on a par with Netflix—and to shift the company’s focus sharply towards streaming. This was just what the presentation’s audience of market analysts wanted to see. Disney’s share price leapt by almost 14% the next day, reaching an all-time high and adding $38bn to the company’s stockmarket value (see chart).

Disney said that in the next few years it would release around ten more “Star Wars” series, ten based on the Marvel comic books, 15 other new original series and 15 feature films, all going straight to Disney+. By 2024 its content spending on Disney+ will be $8bn-9bn; across all its streaming channels (which include Hulu, an entertainment service, and ESPN+, which shows sport) it will be $14bn-16bn.
As well as matching Netflix dollar-for-dollar, Disney is broadening its range of content in a way that will make the two streamers more direct rivals. Netflix has had recent hits with documentaries and reality shows such as “Selling Sunset” and “Floor is Lava”. Disney announced that a new service, Star—to be included with Disney+ in some countries and offered separately elsewhere—will carry a wider range of programming, including a new programme about the indefatigable Kardashian clan.
To help pay for all this the company plans to raise the subscription price of Disney+ by a dollar a month. But that dollar will be multiplied by what it now expects to be 230m-260m subscribers by 2024—more than treble its previous target. That should allow Disney+ to break even the same year, in line with earlier plans. Across all its streaming channels, Disney expects to have more than 300m paying subscribers by 2024. This could be enough to make streaming the company’s single largest business by revenues, notes Benjamin Swinburne of Morgan Stanley, a bank. It would also probably be enough for Disney to draw level with Netflix in subscribers. The “content tsunami” announced this week 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 spending spree will also worry cinema-owners. WarnerMedia, a subsidiary of AT&T, a telecoms group, shocked them last week with its announcement that in 2021 all its feature films will be released on its HBO Max streaming service on the day that they come out in theatres, which historically have had an exclusive run of a couple of months or so. The first movie to get this treatment, on Christmas Day, will be “Wonder Woman 1984” (shot partly outside The Economist’s London offices, though its journalists were, inexplicably, spurned as extras).

Disney, which makes far more money at the box office than any other studio, with seven of last year’s top ten hits in America, is not willing to go that far; “Black Widow”, its latest Marvel-superhero blockbuster, due out in May, is still to be shown first on the silver screen. But the notion is no longer a complete non-starter. Disney has announced that in March it will offer one of its lower-budget films, “Raya and the Last Dragon”, simultaneously in theatres and on Disney+, for a one-off fee of $30. Other productions are sure to follow. “Made for TV” is no longer a slur in Hollywood. More

LETITIA JAMES, New York’s attorney-general, couldn’t be blunter in describing the antitrust case lodged on December 9th against the world’s biggest social network. “By using its vast troves of data and money Facebook has squashed or hindered what the company perceived as potential threats. They’ve reduced choices for consumers, they stifled innovation and they degraded privacy protections for millions of Americans,” she declared, summarising the accusations. Forty-five states joined her bipartisan coalition against the giant. Separately, the Federal Trade Commission (FTC) sued Facebook for monopolistic practices in social-networking and demanded remedies including the firm’s break-up.
A few years ago co-ordinated action by 46 states and the FTC that could split Facebook apart was unthinkable, says Lina Khan, an antitrust scholar at Columbia Law School. But the case is about more than narrow competition law. The controversies around Facebook’s privacy practices, the spread of fake news and conspiracy theories on the platform, and its exploitation by authoritarian regimes mean regulators and politicians are set on forcing change.

Will they succeed? The cases look strong. Experts judge Facebook to be the lowest-hanging antitrust fruit, alongside Google (which America’s Justice Department sued over alleged monopoly abuses in October). Amazon and Apple are in the crosshairs, but those cases will take longer, if they come at all, says an antitrust expert.
[embedded content]
Listen on: Apple Podcasts | Spotify | Google | Stitcher | TuneIn
The Facebook lawsuits centre on its acquisitions. The firm maintained its monopoly in personal social-networking by systematically buying up potential competitors, both contend—notably Instagram in 2012 and WhatsApp in 2014. A smoking gun could be Onavo, an Israeli firm Facebook bought in 2013—to protect user data, the firm said. The suits claim it in fact used Onavo to track rival apps’ popularity and select acquisition targets. Another alleged anti-competitive practice was blocking rival app developers from its platform. As consumer harm is hard to prove against big tech’s mostly free products, the suits try a novel argument: that damage is done to users’ privacy and advertisers’ choice.

Facebook will argue that its market is social media, which is broader and more competitive than social-networking. TikTok, a Chinese-owned short-video app, is now more popular than Instagram among American teenagers. The internal Facebook emails on which the lawsuits hinge hardly paint a picture of a lazy monopolist; Mr Zuckerberg and his lieutenants see competitive threats everywhere. Facebook can also argue that breaking it up is well-nigh impossible. Last year it started integrating Instagram, WhatsApp and Messenger more deeply. And the FTC’s complaint fails to mention it cleared the Instagram and WhatsApp deals. The government “now wants a do-over”, sending a chilling warning to American business that “no sale will ever be final”, Facebook said.
Markets shrugged off the news. Facebook’s shares dipped by 2%, in line with the rest of big tech. Investors either see forced divestitures as unlikely, says Brent Thill of Jefferies, an investment bank—or spy even more money to be made from spin-offs. ■
This article appeared in the Business section of the print edition under the headline “Battle commences” More

IN MARCH THE corporate world found itself staring into the abyss, recalls Susie Scher. From her perch overseeing global capital markets at Goldman Sachs, a bank, she witnessed firms scrambling for money to keep going as the wheels of commerce ground to a halt amid the pandemic. Many investors panicked. Surely, the thinking went, public markets would freeze in the frigid fog of covid-19 uncertainty—and then stay frozen.
Instead, within weeks they began to thaw, then simmer, kindled by trillions of dollars in monetary and fiscal stimulus from governments desperate to avert an economic nuclear winter. In the past few months they have turned boiling hot.

According to Refinitiv, a data provider, this year the world’s non-financial firms have raised an eye-popping $3.6trn in capital from public investors (see chart 1). Issuance of both investment-grade and riskier junk bonds set records, of $2.4trn and $426bn, respectively. So did the $538bn in secondary stock sales by listed stalwarts, which leapt by 70% from last year, reversing a recent trend to buy back shares rather than issue new ones.
Initial public offerings (IPOs), too, are flirting with all-time highs, as startups hope to cash in on rich valuations lest stockmarkets lose their frothiness, and venture capitalists (VCs) patience with loss-making business models. VCs still plough three times as much into American startup stars than public investors do. But proceeds from listings are now growing faster than private funding rounds (see chart 2). The boom is global (see chart 3). On December 2nd JD Health, a Chinese online pharmacy, raked in $3.5bn in Hong Kong. A week later DoorDash, an American food-delivery darling, and Airbnb, a home-rental platform, both more or less matched it in New York.

In a world of near-zero interest rates, it appears, investors will bankroll just about anyone with a shot at outliving covid-19. Some of that money will go up in smoke, with or without the corona crisis. What does not get torched will bolster corporate haves, sharpening the contrast between them and the have-nots.
The original spark that lit capital markets on fire was the $6.25bn in debt and equity that Carnival Cruise Lines secured in April, remembers Carlos Hernandez of JPMorgan Chase, a bank. Investors reasoned that cruises will one day sail again—by which time some of Carnival’s flimsier rivals will have sunk. Other dominant firms have benefited from this logic. Boeing, part of a planemaking duopoly, has sold $25bn in bonds this year, even as its bestselling 737 MAX jetliner has remained on the ground and the near-term future of travel up in the air. Many Chinese companies have taken to issuing perpetual bonds, which are never redeemed but pay interest for ever, to repair their balance-sheets.

By the summer, notes Ms Scher, “rescue capital-raising” had given way to something less defensive. Investors’ ultraloose purse-strings allowed opportunistic firms to lock in historically low coupons. S&P Global, a ratings agency, calculates that the average investment-grade bond paid interest of 2.6% in this year’s covid recession, down from 2.8% in 2019. Thanks to a boom in online shopping and cloud computing, Amazon, which is a leader in both areas, can now borrow at 1.5% for ten years, more cheaply than any American firm since at least 1980—and than some governments. Indebted giants like AT&T, a telecoms-and-entertainment group, are lengthening debt maturities. In November Saudi Aramco, an oil colossus, sold $2.3bn-worth of 50-year bonds, in spite of looming climate policies that may cripple its business of selling crude long before 2070.

Even cheap debt, of course, must be rolled over and, perpetuities aside, eventually paid back. With stockmarket valuations propped up by loose monetary policy, and only a slim prospect of tightening, many firms opted to shore up their balance-sheets with new share issues. Danaher, a high-rolling industrial conglomerate, raised over $1.5bn by selling new stock just after its share price returned to its pre-pandemic highs in May; it has risen by 39% since. On December 8th Tesla, an electric-car maker whose market value has grown eight-fold this year, to $616bn, said it plans to issue $5bn-worth of shares.
With shareholder payouts trimmed or suspended until the covid fog lifts, the cash held by the world’s 3,000 most valuable listed non-financial firms has exploded to $7.6trn, from $5.7trn last year (see chart 4). Even if you exclude America’s abnormally cash-rich technology giants—Apple, Microsoft, Amazon, Alphabet and Facebook—corporate balance-sheets are brimming with liquidity.
It is still too early to tell what firms will do with all that cash. The merger market is showing signs of life, though mostly as deals put on ice during the pandemic are being revived. Many companies will content themselves with maintaining liquidity, at least until a covid-19 vaccine becomes more widely available.
Startups, for their part, will use IPO proceeds to blitzscale their way to profitability. The pandemic has made business models that might not have matured for years, such as digital health, suddenly viable. Many will fail. But for now giddy investors are pouring money into any firm whose IPO prospectus features the words “digital”, “cloud” or “health”. Headier still, “special purpose acquisition companies”, which go public with nothing but a promise to merge with a sexy startup later on, and which have raised $70bn in 2020, mostly on Wall Street, are shattering previous records.
Markets seem no more discerning in mainland China, where proceeds from listings hit $63bn, the most since 2010. Hong Kong added another $46bn. Shanghai’s STAR Market, a year-old technology board, this week welcomed its 200th member, bringing its IPO haul to $44bn. In September demand for shares to be traded on the Hong Kong Stock Exchange by Nongfu Spring, a water-bottler, outstripped supply by 1,148 times. Even the authorities’ last-minute suspension of Ant Group’s record-breaking $40bn IPO in Hong Kong and Shanghai, after the fintech titan’s co-founder annoyed regulators, may not frighten other listers. And so long as geopolitical tensions between America and China persist, more Chinese firms with an American stock ticker may avail themselves of a Hong Kong one, observes Julien Begasse de Dhaem of Morgan Stanley, a bank.
For now, capital is likely to keep flowing. Mr Hernandez says his bank’s pipeline of IPOs looks “the most robust in years”. The ten-year Treasury yield is below 1% and the spreads between American government and corporate bonds have narrowed to pre-pandemic levels. As a result, even riskier firms’ paper yields less than 5%, according to JPMorgan Chase. Investors expecting meaningful returns are therefore eyeing stocks. For the pandemic’s corporate winners, the choice between cheap debt and cheap equity is a win-win. More

CORPORATE CHIEFTAINS can barely keep tabs on what their own staff are up to, let alone suppliers and subsidiaries in far-flung places. A referendum in Switzerland on November 29th proposed to change that, making Swiss multinationals liable in domestic courts for lapses in human rights or environmental stewardship along their global supply chains. The proposal failed by the narrowest of margins—a watered-down version will come into force instead.
The changes were championed by the usual foes of big business—NGOs, pressure groups and the like—with their long-standing gripes over cacao that Nestlé uses in KitKats or cobalt traded by Glencore. This political push to make companies more accountable chimes with boardroom proclamations about purpose-driven business, shareholders be damned. Corporate bosses nonetheless fiercely opposed the measures. Vague threats were made about footloose multinationals moving to laxer jurisdictions.

That won’t be necessary. Though the Responsible Business Initiative gained 50.7% of votes, it failed to carry enough cantons under the arcane Swiss system. (Another proposal, to ban the central bank from investing in defence companies, was roundly defeated.) The Swiss government, which opposed the measures, will still bring in some less stringent norms. Reporting standards will be tightened, with fines for erring. But campaigners will not be allowed to bring wayward companies to civil courts, as they had hoped.
No Swiss business is—at least publicly—in favour of child labour, human-rights abuses or environmental vandalism. But low taxes, pleasant living conditions and a historical penchant for business-friendly policies like bank secrecy have helped the Alpine confederation attract more than its fair share of global firms, some with tricky supply chains. All proclaim their attachment to corporate social responsibility, as proven by glossy brochures. But none felt being dragged through Swiss courts for misbehaviour elsewhere would do anything but enrich lawyers. Some argued that the risk of litigation may dissuade them from being open about inevitable shortcomings they are working to fix.
The referendum was seen as a prequel to wider European efforts to hold businesses accountable beyond their immediate operations. Germany has mulled a law on supply-chain standards; next year the EU will push for firms to be held responsible for human-rights abuses and environmental harm. If the Swiss experience is anything to go by, bosses will resist, stakeholder-friendly rhetoric notwithstanding.■
This article appeared in the Business section of the print edition under the headline “Swiss miss” More

MARC BENIOFF got the idea for the “ohana” corporate culture on a sabbatical in Hawaii. The term refers to a network of families bound together. He likes to think of Salesforce, the world’s third-biggest software firm, which he founded and runs, as just such a network. On December 1st Mr Benioff welcomed Slack, an instant-messaging tool, to his ohana. The $27.7bn deal is one of the biggest ever in the software industry.
Like many family alliances the tie-up is partly about power and feuds. Slack’s product has a cultlike following, which Salesforce wants to harness to build a tech platform that sells digital tools that no firm can do without. Stewart Butterfield, Slack’s co-founder, hailed it (hyperbolically) as “the most strategic combination in the history of software”. The feud is with Microsoft, whose advances Slack spurned four years ago. The deal makes Salesforce a far more formidable challenger to the giant.

Mr Benioff may be best known to the public for championing corporate “purpose” (and owning Time magazine). But in his own industry he wins kudos for disruptive innovation. In the 2000s the young Salesforce basically invented software-as-a-service (SaaS)—accessing programs remotely rather than installing them on office computers—particularly for managing customer relationships. Microsoft, Oracle, SAP and others had to follow suit.
The explosive growth of SaaS has propelled Salesforce to ever greater heights. And to greater breadth: since 2016 it has spent over $25bn snapping up over a dozen firms to boost its computing chops. It bought Tableau, a data-analytics platform, and MuleSoft, which helps firms connect legacy IT systems to the cloud.

Then came the pandemic. A boom in tech stocks lifted Salesforce’s market value from $144bn to $225bn this year. Slack, whose share price has lagged behind those of Zoom and other enablers of remote work, suddenly looked affordable. Mr Benioff is paying with a mix of cash and Salesforce stock. His firm’s valuation is still well behind Microsoft’s $1.6trn. But it may at last have a shot at tech’s top table. It already rules in customer-relationship software and thrives in other areas of business software, especially since acquiring Tableau. Aaron Levie, boss of Box, a cloud firm, describes Slack as “another dot on the graph” that plots Salesforce’s rise to become the world’s number-two business-software company (behind Microsoft). Perhaps, Mr Levie muses, “even the largest”.
Such sentiments explain why for Microsoft the Slack deal is a red rag. Slack got the giant’s attention a few years ago when Mr Butterfield promised to wipe out email, which would threaten Outlook, Microsoft’s popular inbox, and its email server, Exchange. “If you are going to come at the king, you’d better not miss,” quips Charles Fitzgerald, a former executive at Microsoft who is now an angel investor. Back then Mr Butterfield did miss—and Microsoft shot back with a new product, Teams, combining messaging with videoconferencing and other functions. Slack has launched an antitrust complaint against it for offering Teams free of charge in its Office bundle, together with its popular word processor and Excel spreadsheets.
Teams is a big reason why Mr Butterfield is in an ohana-ish mood. Like Zoom, it has videoconferencing—and far more active users than Slack, which explains the latter’s lacklustre stockmarket performance. Salesforce will invest to reinvigorate it, presumably adding more video-meeting capability. Its sales machine will push Slack beyond early adopters into the corporate mainstream.
That will intensify Salesforce’s rivalry with Microsoft, with which it will compete in three main areas. With Slack it will directly take on Office, now that Teams has been folded into it. Slack also offers a gateway to 2,400 software tools, mostly created by independent companies, that compete with other Microsoft products. Salesforce and Slack could bundle all this software into a convenient alternative to Microsoft. Second, Salesforce competes with the giant in customer-relationship management, where it plans to make Slack the user interface, and other business functions.

Then there is the bigger battle over platforms. Both Salesforce and Microsoft aim to give businesspeople who do not themselves write software the tools to build customised programs—“with clicks not code”, as Salesforce puts it. Salesforce’s Developer 360 is punier than Microsoft’s Power Platform but is improving, thanks to MuleSoft and Einstein, a set of artificial-intelligence services. Slack could be a “Trojan horse” to hook customers of Salesforce’s own clients on more of the company’s applications, says George Gilbert of TechAlpha Partners, a consultancy.

Success is not in the bag for Salesforce. Mr Benioff may fail to turn his vision into reality. Even if Slack gets its video act together it would be late to videoconferencing, which has matured rapidly during the pandemic. Most large corporate clients already use Zoom, Teams or Cisco’s Webex software. And Salesforce might mistakenly end up sacrificing Slack’s growth while trying to bolster its own businesses.
Moreover, Slack is not in and of itself enough to make Salesforce into a genuine rival to Microsoft. Mr Benioff would need to build (or buy) capabilities in document storage, cyber-security and more, reckons Mark Moerdler of Bernstein, a broker.
Wall Street is already wary of Salesforce’s big acquisitions; the firm’s share price dipped when news of the Slack deal surfaced. Still, SaaS holds vast potential, as Microsoft shareholders know well. And, as Mr Butterfield noted on the deal’s announcement, Mr Benioff has already started one revolution. Betting against this ohana is not for the faint-hearted.■

This article appeared in the Business section of the print edition under the headline “Get me some Slack” More

FIVE YEARS ago the Porsche and Piëch families, who control just over half of Volkswagen’s voting rights, poached Herbert Diess from BMW, a posh Bavarian carmaker. He was hired to run VW, the biggest by far of the the group’s 12 marques, because of his reputation as a cost-cutter and hard-nosed manager who would not shy away from taking on the unions. Untainted by VW’s “Dieselgate” emissions scandal, he made a good start by improving its poor profit margins. In 2018 he was rewarded with the job of running the entire group.
Only two years later the dynamic Bavarian’s job is on the line after a series of clashes with organised labour. In June Mr Diess almost got the boot because of a dust-up with the supervisory board over a leak of confidential information about the group’s software failings. He alleged it might have come from the board’s union representatives. After that he was relieved of his job as boss of vw (which he had kept).

This time the clash is more serious still. On December 1st the executive committee of the group’s 20-member supervisory board, the non-executive conclave that holds management to account, met to discuss his request for an extension of his contract. The current one runs to 2023, so extending it now would constitute a vote of confidence. No decision has been made public. The whole board will convene on December 10th.
Mr Diess demands unequivocal backing from the board so that he can fulfil his mission to cut vw’s bloated workforce and boost profitability (which is lagging far behind Audi and Porsche, the stars of the group). He wants to fill the soon-to-be-vacant job of chief financial officer with an ally, perhaps Arno Antlitz, Audi’s finance chief. He also intends to make his confidant the group’s head of procurement. The two roles are central to his drive to boost efficiency at VW, which recently approved a €150bn ($181bn) investment plan.
Bernd Osterloh, who heads the works council and also sits on the supervisory board’s executive committee, voted down Mr Antlitz and other candidates for the two jobs suggested by Mr Diess. That provoked Mr Diess to ask the board for support. Stefan Weil is the state premier of Lower Saxony, which, as the owner of 20% of VW shares, is entitled to two seats on the supervisory board. The Volkswagen law from 1960, which limits the voting rights of any shareholder to 20%, gives Lower Saxony a veto on any major decision. To protect investment and jobs in the region, representatives of the Land invariably back the board’s ten labour representatives, which means that organised labour tends to call the shots on VW’s board.
“Osterloh and Weil will try to bring down Diess,” predicts Ferdinand Dudenhöffer of the Centre for Automotive Research, a think-tank. Mr Diess, who can be gruff, clashed with Mr Osterloh soon after he arrived from BMW—and regularly since then. On November 28th he published a manifesto on how to transform VW into a digital company focused on electric vehicles. “When I started in Wolfsburg, I was determined to change the Volkswagen system,” he wrote of his early days at VW’s headquarters. Mr Diess wanted to “break down antiquated structures, and make the company more agile and modern”. He succeeded in some areas, he said, but not everywhere.

“Lower Saxony should give up its voting rights,” thinks Mr Dudenhöffer. Otherwise VW will remain constrained by its “provincial corset”. Mr Dudenhöffer believes that Dieselgate would not have happened without VW’s skewed corporate governance. With unions refusing to allow lay-offs, he explains, cheating may have seemed the only way to increase its profit margins. Toyota sells almost the same number of cars worldwide as VW with roughly two-fifths of the workforce.
Bernstein, a research firm, published an open letter to board members in November urging them either to back Mr Diess or to sack him. Corporate Germany’s traditional model of co-determination has gone too far at vw, the letter says. It is supposed to help bosses and labour to work together rather than fight each other at every turn. Even if the board backs Mr Diess this time, the infighting will soon resume. It may be time to consider repealing the counterproductive Volkswagen law.■
This article appeared in the Business section of the print edition under the headline “In the hot seat” More