Philippa Kaur

LEI JUN, THE founder and boss of Xiaomi, a Chinese smartphone-maker, has long had something of an inferiority complex. For a decade Xiaomi has played second fiddle to Huawei, a rival Chinese producer of handsets. In a recent live-streamed address watched more than 30m times, Mr Lei admitted that his firm is not yet “in the same league” as Huawei. The audience, comprising mainly “Mi fans” (as devotees of Xiaomi products are known), booed the dispiriting assessment. That prompted Mr Lei to change tack, quickly adding that “you will find lots of things we do well”.
Investors are not complaining. Xiaomi’s share price has doubled since June. Its value surged to $80bn on November 5th. The main explanation is the flagging performance of none other than Huawei, which has been cut off from a critical resource—mobile chips—after export restrictions imposed by America came into effect on September 15th. The regulations prohibit chip manufacturers whose products contain American technology, including suppliers outside America, from selling to Huawei, which is accused of acting on behalf of the Communist Party. The chokehold is likely to depress Huawei’s sales for the foreseeable future.

Xiaomi is better insulated from the geopolitical storm. Unlike Huawei, which sells telecoms gear to foreign network operators, Xiaomi runs only a consumer operation. It is thus less likely to stoke foreign ire. Big chipmakers like Taiwan Semiconductor Manufacturing Company, for instance, continue to supply Xiaomi even as they are forced to cut ties with Huawei.
New data from Canalys, a research firm, suggest that Xiaomi is cashing in on Huawei’s troubles. In the third quarter Xiaomi shipped 47m smartphones worldwide, up by 45% year on year. Huawei hawked more handsets, 52m units, but that is down by 23% from a year ago and the next quarter will almost certainly be even weaker. Xiaomi could soon overtake Huawei to become the world’s second-biggest smartphone vendor—behind only Samsung, which shifted 80m units in the quarter. Xiaomi is the undisputed winner from Huawei’s woes. Compared with the same period last year, third-quarter shipments from Samsung and Apple, which dispatched 43m handsets, barely budged. This suggests that consumers regard Xiaomi smartphones as a suitable substitute for Huawei’s products.
Like its Chinese rival, Xiaomi tries to cater to every customer. Wealthier folk favour the flagship “Mi” phones. “Redmi” phones are aimed at the mass market (similar to Huawei’s “Honor” series). This explains Xiaomi’s popularity in both developed and developing countries. It is the leading smartphone supplier in markets as diverse as India and Spain. Apple’s pricey products have less appeal in poorer countries.
The question is how long Xiaomi can sustain its fortuitous ascent. A new administration in America may lift restrictions against Huawei, enabling it to buy chips from global suppliers once again. If that happens, Xiaomi could be squeezed. To avoid this fate it talks of building on an “ecosystem” designed to keep customers interested. In addition to smartphones, which account for three-fifths of revenues, the company sells a range of smart devices, from light bulbs to electric scooters. It also offers fintech services like micro-lending. Xiaomi’s sense of inferiority could be a thing of the past. ■
This article appeared in the Business section of the print edition under the headline “Mi time” More

“IN THE SHADOW of their own profound failures, DoJ and DEA now seek to retroactively impose…requirements that are not found in any law.” Unusually strong words to hurl at America’s Department of Justice and its Drug Enforcement Administration. They come from an unusual lawsuit filed by Walmart on October 22nd. It is a pre-emptive strike against the Feds, who are preparing to hammer the giant retailer for allegedly fuelling the opioid crisis.
Opioids Inc is under legal assault on several fronts. Drugmakers were first in the firing line. Last year a judge in Oklahoma ruled that Johnson & Johnson (J&J) had created a “public nuisance” by contributing to opioid abuse and ordered it to pay some $500m; J&J is appealing the verdict. The company also stands accused of wrongdoing, along with other firms, in lawsuits filed in federal courts by thousands of local governments. While insisting it did nothing wrong, J&J signalled this month that it is willing to cough up $5bn if a comprehensive settlement can be agreed.

For the world’s largest drug firm, with annual revenues of $56bn, such a hit would be a publicity nightmare but financially manageable. For smaller fry, litigation can prove fatal. On October 12th Mallinckrodt, a big purveyor of generic opioids, agreed to pay $1.6bn in a settlement as it filed for bankruptcy. On October 21st the DoJ announced that Purdue Pharma, the most prominent opioids producer, which folded last year, had agreed to admit guilt and pay roughly $8bn. A number of state attorneys-general think the settlement lets the Sackler family, which controlled Purdue, keep too much of the $10bn or so they have taken out of the firm since 2008.
As the second phase of opioid litigation begins, “pharmacies are front and centre,” says Andrew Pollis of the Case Western Reserve School of Law. Two counties in Ohio have sued three big chains, CVS, Rite Aid and Walgreens, and Walmart (which has pharmacies inside its big-box stores). The suits will be bellwethers for more than 2,000 similar complaints filed across the country. The plaintiffs allege that the pharmacies knew that opioids were being overprescribed but kept dispensing them. The firms deny wrongdoing.
For firms caught in the mess, the next best thing to exoneration is a speedy resolution. A few months ago rumours swirled of a “big global deal”, in the words of an insider, involving counties and state attorneys-general. To co-ordinate the 2,000-plus lawsuits, Dan Polster, a federal judge overseeing the Ohio cases, promoted a novel legal concept of a “negotiation class”. It would bind all parties to any settlement.
The pandemic has led to big delays, removing the pressure to settle quickly before trial begins. Mr Polster rejected the demand made by plaintiffs’ attorneys that 7% of any settlement go into their pockets, so unhappy lawyers are now threatening to derail the big global deal. A federal appeals court recently rejected Mr Polster’s negotiation class as a jurisprudential innovation too far. Elizabeth Burch of the University of Georgia School of Law, worries that the way forward now “looks like a zigzag”. The end of the legal saga seems as remote as that of the opioid crisis itself. ■
This article appeared in the Business section of the print edition under the headline “Painkiller wars” More

“TO SOME EXTENT, we try to scare off investors,” admits Mateo Jaramillo, co-founder of Form Energy. The startup is trying to solve one of renewables’ knottiest problems. Solar and wind power are intermittent, so green utility firms must store excess energy and release it when no sun shines or breeze blows. Large lithium-ion batteries can discharge energy for up to four hours. Form Energy, founded in 2017, wants to extend that to days with a different, and undisclosed, battery technology. In May it announced a pilot project with Great River Energy, a Minnesotan utility. So star-studded is its team of founders that a rival’s boss calls it “the Travelling Wilburys of energy storage”, in reference to the 1980s supergroup featuring George Harrison and Bob Dylan. Still, Mr Jaramillo does not expect to start scaling up until 2025.
The combination of long wait times and unproven technology would give many venture capital (VC) investors the jitters. Most want to see returns in five to seven years. Form Energy has more patient backers. They include Breakthrough Energy Ventures (BEV), a fund set up by Bill Gates and supported by other billionaires; Eni Next, the Italian oil firm’s VC arm; and The Engine, a fund run by the Massachusetts Institute of Technology. This reflects the evolving nature of the green VC ecosystem, which is teeming again after years in relative hibernation.

In 2019 investors poured a record $36bn into climate-related technology, up from $17bn in 2015, according to Cleantech Group, a research firm. Half the money flowed into North American startups (see chart 1). China accounted for between 15% and 30%, depending on how the sector is defined, and Europe for another 15%. This should spur innovation and, hopefully, lower the relative price of climate-friendly technology even in the absence of regulations making carbon-heavy ones dearer. And it needs to happen across the board, not just in energy and transport. “When we think about decarbonisation we have to remind ourselves that this is the entire industrial economy”, says Mr Gates.

The International Energy Agency (IEA), a global forecaster, predicts that a quarter of the reductions in emissions needed to put Earth’s climate on a sustainable path by 2070 come from mature technologies, such as hydropower. A further 41% come from relatively new technologies with less than 1% of a given market, such as offshore wind in electricity generation. Technology at the demonstration or prototype stages (battery-powered ships or aircraft, respectively) account for 17% apiece. That presents a huge opportunity for investors—so long as they have a strong stomach.
Green VC has a chequered past. In the late-2000s it experienced a boom and bust cycle in America and, to a lesser extent, Europe. VC funds took a financing model designed for software firms and applied it to companies producing physical products, mostly solar panels and biofuels, that take plenty of time and money to generate revenues. Many companies went bust. Their VC backers lost more than half of the $25bn they had bet. Capital dried up.
Now it is flowing again. This time investors are looking at a broader range of clean tech. About half the deals by value go to low-carbon transport, encouraged by Tesla’s credulity-stretching success. In 2004 Elon Musk bought a 14% stake in the electric-car maker for $6.5m. Six years later it went public and is today worth $385bn, more than any other carmaker. Mr Musk’s stake alone is worth perhaps $72bn, just shy of General Motors and Ford combined.
Investments are not confined to Tesla wannabes. Impossible Foods, a $4bn plant-based-protein firm backed by Mr Gates and Google, and Beyond Meat, its listed rival now worth $10bn, have whetted investors’ appetite for agricultural technology. Form Energy and other developers of grid-scale storage are also in demand.

So is software. PwC, a consultancy, estimates that of the biggest 5% of early-stage VC deals between 2013 and 2019, one in ten involved pure software firms. Another six in ten involved startups that integrate clever algorithms with clean hardware. The falling cost and commoditisation of things like solar panels or batteries, the price of which has dropped by 82% and 87%, respectively, between 2010 and 2019, allows such firms to offer auxiliary goods and services. Software innovations make it possible to take this cheaper hardware and push it beyond its previous limits, observes Varun Sivaram of Columbia University. Some startups are, for instance, trying to use clever programming to aggregate distributed energy sources, such as rooftop solar panels or batteries, and provide electricity to the grid like a virtual power plant.
Investors, too, have grown more diverse. VC firms are increasingly rubbing shoulders with governments, corporations, climate-conscious billionaires and private-equity (PE) firms.

In 2015, 24 countries, including America, China and Germany, and the EU pledged to double R&D spending on clean energy over five years. Many will fall short of that goal. But the decline in spending in the mid-2010s appears to have been reversed. Last year taxpayer-funded green-energy R&D around the world rose for the third consecutive year, to a record $25.4bn, accroding to the IEA.
Governments are trying to fill funding gaps at a later stage, too, when deep-pocketed banks are reluctant to hand out $50m for a factory-scale project and less risk-averse VC firms cannot afford to do so, observes Emily Reichert of Greentown Labs, an incubator. Initiatives such as the EU’s long-standing innovation fund and a new scale-up fund within ARPA-E, an American programme for advanced energy technology, aim to help startups escape this “valley of death”.
Corporations, for their part, are on the lookout for new technologies to help them decarbonise or cut energy costs. According to Cleantech Group, big business is involved in about a quarter of deals, up from 16% in 2010. They either invest through their VC arms or by providing capital directly. Oil majors including ExxonMobil have created a clean-investment fund (though it pales in comparison to their oily capital spending). Energy Impact Partners is trying to set one up on behalf of two dozen utilities, such as Southern Company, an American one, and Britain’s National Grid. This year non-energy firms have announced around $5bn-worth of climate VC. Amazon, an e-commerce empire, has backed five firms, including Rivian, an electric-van startup, and Redwood Materials, a battery-recycling firm. Microsoft, a software colossus, Unilever, a consumer-goods giant, and IKEA, a furniture-maker, have also loosened their purse strings.
High net-zero worth
So have rich individuals, who, like corporate VC funds, tend to represent more patient capital. Family offices participate in around 8-10% of deals, up from 4% in 2010. Many act in concert, as with Mr Gates’s BEV. Launched in 2015, the $1bn vehicle invests only in startups with the potential to cut annual greenhouse-gas emissions by at least the equivalent of half a gigatonne of CO2—some 1% of the world’s total. Mr Gates has enlisted abou 20 fellow plutocrats, among them the richest men in America (Jeff Bezos), China (Jack Ma) and India (Mukesh Ambani). The fund is backing 40 firms and will last for 20 years.
Régine Clément, who heads Clean, Renewable and Environmental Opportunities (CREO), a network of 200 or so family offices, says that many families are trying to be “catalytic”. Some support risky prospects and when a product is established, as is happening with low-carbon protein, they take their capital and move to the next nascent market. The Emerson Collective, a foundation founded by Laurene Powell Jobs, the ex-wife of Steve Jobs, Apple’s late boss, has invested in perhaps a dozen climate-tech startups through an incubator. Mr Gates has separately founded TerraPower, a company developing advanced nuclear reactors, and invested in Carbon Engineering, a firm that builds machines which suck carbon dioxide from the air.
Green innovators are also attracting innovative financing methods. PE firms like Spring Lane Capital and Generate Capital are using new funding models to help startups escape valleys of death. In 2019 Generate lent $100m to Plugpower to install its hydrogen-powered forklift trucks in warehouses of Amazon and Walmart. The retailers pay Plugpower for the service, and it uses the proceeds to repay the loan. Specialised insurance firms, such as New Energy Risk, an affiliate of AXA, a giant insurer, help financiers manage the risk.
In September QuantumScape, a battery startup which counts Mr Gates and Volkswagen among its investors, said it planned to list through a reverse merger with a special-purpose acquisition company (SPAC) of the sort that have been all the rage on Wall Street this year. SPACs allow startups to negotiate the purchase price directly. Deals are faster and more predictable. So are exits, which may encourage climate-tech VCs to support more startups.
Many are already heartened by the rapid rise of green stocks. In the past year the S&P clean-energy index, which tracks around 30 firms, outperformed the S&P 500 index of big American companies (see chart 2). Liqian Ma, of Cambridge Associates, a consultancy, notes that between 2014 and 2018 green VC investments around the world generated annual returns of 20%. That is double what typical VC firms manage, and a vast improvement over the mid-2000s, when the average green VC lost money.

Deep decarbonisation will mean changing heavy industries, too, says Mr Sivaram of Columbia. For that, says Mike Perry, the chief technology officer of VIONX Energy, “You need someone with deep pockets.” His company, which makes large-scale flow batteries and has struggled to get financing to build its fourth plant, is now going through a restructuring process. “This is not-for-the-faint-of-heart investing,” Mr Perry concedes.
Part of the problem is that, as Mr Gates explains, “the demand side for innovation is missing.” That is particularly the case for high-emitting products bought by businesses, such as cement (which accounts for around 8% of global greenhouse-gas emissions) and steel (7-9%). Unlike software, which is easy to differentiate from rivals, “green steel is not going to be any better than steel,” notes Mr Gates. “So there is no market for early innovation.”
Targeted government procurement could boost green products, as happened when the Pentagon enlisted Silicon Valley to make computers. In the private sector Mr Gates is planning a fund that uses auctions to buy clean tech with the lowest price. This, he argues, will stimulate demand and lower costs. With ideas like this the latest green-VC boom may protect the planet—and avoid another bust. ■
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This article appeared in the Business section of the print edition under the headline “Greenbacks for greenery” More

IT HAS THE largest windows in space. Six reclining seats. And blue edges that passengers can grab hold of as they float weightlessly more than 100km (62 miles) above Earth. If that is not rarefied enough, imagine if one of the fellow passengers were Jeff Bezos, gazing down onto a planet that is spanned by his digital conglomerate, Amazon, and of which he is the richest inhabitant. When the time comes for Mr Bezos’s private venture, Blue Origin, to send paying tourists into space, its proprietor will almost certainly be among them. “I suspect that he will be—and is, indeed, eager to be—one of the first private citizens to blast himself into space,” writes Walter Isaacson, a biographer, in an introduction to the collected writings of Mr Bezos. Already you shudder to think of Mr Bezos’s peals of laughter ringing through the heavens.
It is easy to assume that for the 56-year-old man who has (and sells) everything, space tourism is the ultimate vanity project. He launches rockets from his ranch in West Texas. He has a rippling physique. His bald head resembles that of his idol, Captain Jean-Luc Picard in “Star Trek”. He is fulfilling a childhood dream. In 1982 he told his schoolmates: “Space, the final frontier, meet me there!”

Yet dismissing his space quest as a combination of mid-life crisis and money to burn would be underestimating the missionary zeal that drives Mr Bezos, and which “Invent & Wander”, a collection of 23 years of letters to Amazon shareholders and other musings, illustrates. His work on Earth is not yet done. Covid-19 has brought him back squarely to Amazon’s helm. But the book, which is mostly backward-looking, leaves a tantalising hint that you need to peer into the stratosphere to see what comes next. What that means for the future of Amazon is left frustratingly vague.
On the surface, his twin obsessions are a puzzle. It is difficult to imagine more different ventures than retailing and rocketry. Revolutionary as both firms are, there are few more hard-headed ones than Amazon, and few more dreamy-sounding concepts than space colonisation. Amazon is a utilitarian monument to the consumer, worth $1.6trn. It promises relentlessly lower prices, speedier delivery and greater variety—as well as faster cloud computing power in the case of Amazon Web Services (AWS). Blue Origin’s vision, funded by the sale of Mr Bezos’s Amazon stock, is Utopian. It is “to enable a future where millions of people are living and working in space to benefit Earth”. It hopes to achieve this by making launch vehicles that can land and be fully reusable. New Shepard, its suborbital spacecraft, has completed more than a dozen flights. Yet it is years behind schedule for flying tourists to space. For now, Blue Origin’s main customer is the government.
The two companies operate with different degrees of transparency and velocity, too. Amazon has been a public company since it was three years old. Its founding motto was “get big fast” and its obsessive quest to innovate includes a willingness to fail. Blue Origin was kept secret for years after its birth in 2000. It calls itself a tortoise not a hare. Its motto is Gradatim Ferociter, or “Step by step, ferociously”. As Mr Bezos has said, “If you’re building a flying vehicle, you cannot cut any corners.”
Or take their approach to rivals. Amazon, which dominates e-commerce and the cloud, treats them with the haughtiness of a trailblazer. Mr Bezos tells employees to be terrified of customers, not competitors. Blue Origin is a laggard. It is trying to catch up with SpaceX, the rocketry business of Elon Musk, another space-mad plutocrat. Other rivals include Virgin Galactic, the listed venture of Richard Branson, a British tycoon. Aerospace stalwarts such as Lockheed Martin and Northrop Grumman are both collaborators and competitors. Boeing is a mighty incumbent.

Yet at Amazon, Mr Bezos has proved he can run businesses as diverse as one famous for brown boxes, and another for cloud computing. As he wrote in 2015, Amazon and AWS may look different, but they share similar underlying principles on which they act. The same may be true of Amazon and Blue Origin.
Stairway to heaven
Their visions are communicated by a simple narrative. Amazon’s is a focus on customer satisfaction, behind which employees, suppliers and shareholders fall into line. Blue Origin’s core belief is that reusable rockets will lower costs so that access to space is made possible for many. These mantras are endlessly repeated.
Second, the two businesses share breathtaking ambition. From the Kindle and AWS to Echo smart speakers and Alexa, their soothing machine-learned voice, Amazon has frequently given customers more than they ever thought they needed. With Blue Origin, Mr Bezos hopes that he can unleash entrepreneurial activity allowing others to follow his “road to space” and create a new era for business along the way.
Most important, both firms are imbued with Mr Bezos’s devotion to the long term. In his missives about Amazon, he repeatedly reaffirms his intention to invest to win market leadership in a variety of industries, rather than prioritising short-term profits. Blue Origin’s horizons are measured in decades, if not centuries. Both benefit from Mr Bezos’s knack for burying himself in the day-to-day detail, without losing sight of the big picture.
What his fixation with the heavens says about Mr Bezos’s future at Amazon remains a vexing question. The book does not hint at controversies such as the online empire’s treatment of third-party sellers, the hollowing out of high streets, or its quashing of unionisation efforts. It repeats the cliché that it is “day one” for Amazon, even though it seems late in the day as competitors in e-commerce and the cloud up their game and political heat rises. It gives no sense of whether AWS, its most profitable division, should be spun off, or of when Mr Bezos may step down. But it makes clear that Blue Origin, as Mr Bezos put it last year, is “the most important work I’m doing”. One day it may take him not just into orbit but away from the mother ship. ■
This article appeared in the Business section of the print edition under the headline “Jeff Bezos’s final frontier” More

THE BUSY worker looks at the clock on her laptop and discovers that it is nearly 1pm. Time for lunch. So she picks up the phone and asks to speak to room service. A hot meal appears 20 minutes later; no need to bother with the cooking or washing up.
If that vision appeals, you could be a potential customer for one of the many hotel groups that are trying to induce people to rent a room for use as an office. The idea makes a certain amount of sense. Hotel rooms are short of guests during the pandemic; some workers may find it too difficult (or boring) to sit at the kitchen table every day.

The big chains are rushing to test out the size of this market. Hilton has launched a new service called Workspaces in America, Britain and Canada which gives workers the chance to use the gym or swimming pool (where available) and complimentary bicycle hire. The Wyndham chain is offering worker packages at hotels in California, Florida and South Carolina.
Hotels have long made good money out of the business market, catering for business travellers, conferences and team get-togethers. They have also recognised that they need a good Wi-Fi signal to appeal to laptop-toting businesspeople. But renting rooms by the day has traditionally been aimed at a rather different slice of the market from the solitary desk jockey.
Bartleby wrote part of this column in Sofitel St James, a luxury hotel in the heart of London’s West End. This certainly would be an excellent bolthole, for those who can afford it—£299 ($388) a day, with breakfast, lunch and a cocktail available for another £50. Your columnist’s suite offered a lounge with a desk, printer and shredder, plus a four-seater table, two comfy chairs and a sofa. Nice little touches included extra pens, sellotape, scissors and a stapler. All the staff wore masks and kept a safe distance. The place was extremely quiet, which aided concentration.
Nice as these facilities were, they would almost certainly be beyond the budget of an ordinary worker who might be looking to escape the builders or the children during school holidays. A cheaper Sofitel option is available at £199 but that would still require a company’s expense policy to be incredibly generous. If you are fully employed, you can probably retreat to the office for no extra cost. And if you are a freelance worker, you may simply head for the nearest coffee shop, where seating, subject to social distancing, can be obtained for the price of a few cappuccinos.

Another option for British workers is the traditional pub, with some trying to drum up business by offering “hot-desking” packages. One hostelry in Warrington, a town in the north-west of England, is offering a £12 daily package with a meal, unlimited coffee and an internet connection. (Whether a pub would be a great place to concentrate is another matter; an open-plan office looks like a Trappist monastery by comparison.)
Few Britons live far from a pub. By contrast, though Bartleby enjoyed the luxurious accommodation, his visit to St James’s required a lengthy trip. For many workers, the absence of the daily commute has been one of the big bonuses of lockdown. So hotel rooms are most likely to appeal to workers if they are a short distance away, meaning that they need to be in the suburbs rather than the city centres. Suburban hotels will also be a lot cheaper. Hilton offers a work package in a Hampton hotel in west London at a bargain £45 a day.
Even then, the market is likely to be a niche product. Being at home allows workers to have all their chosen comforts (books, snacks, favourite tea) to hand. They will be there if delivery or maintenance men come to call. And sitting alone in a hotel room, good as it may be for concentration, is more likely to increase a sense of isolation than being in the more familiar surroundings of one’s own house.
Still, on occasion a bit of isolation might be welcome, just as authors retreat to a cabin to finish their manuscripts. Workers who have a big project to finish might relish a hotel break, especially if their office does not have the covid-19 protocols in place to ease their fears. Hotels might also be a good place to conduct job interviews, provided that companies respect government social-distancing rules.
For humble drones like Bartleby, however, home will continue to be the office of choice, even if it means doing the washing up. Indeed, time to stop writing and fill the kettle.
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This article appeared in the Business section of the print edition under the headline “Luxury with your laptop” More

IN THE SPRING of 1995 word got to Lee Kun-hee that a batch of Samsung’s brand-new mobile phones, which it had doled out as new-year gifts, did not work. Incensed, the group’s chairman ordered employees at the factory that had made the offending devices to pile up tens of thousands of them in a courtyard. A cool $45m-worth of equipment then went up in flames.
The episode is emblematic of the way Mr Lee (pictured), who died on October 25th aged 78, turned a South Korean maker of knock-off electronics into a technology powerhouse. He was obsessed with quality and demanded total devotion from executives. Every decade or so he made bold bets. His last one, on smartphones and semiconductors, paid off handsomely. Samsung Electronics, the group’s crown jewel, has a market value of $311bn, more than JPMorgan Chase, America’s biggest bank.

The patriarch’s death was not unexpected—he had been incapacitated since a heart attack in 2014. It will not prompt leadership changes. But it highlights two challenges facing South Korea’s biggest chaebol (conglomerate). The group must find growth beyond maturing smartphone markets. And it has to grapple with Mr Lee’s other legacy: an over-cosy relationship with politics that has embroiled his company, as well as his son and successor, Lee Jae-yong, in corruption cases.
The rise of Samsung mirrors that of South Korea. When Lee père took over from his father in 1987, the country was an emerging economy that had yet to make the transition to democracy. When he fell ill in 2014 it was rich, thriving and democratic. On his watch Samsung abandoned the “fast follow” strategy adopted by South Korean firms since the 1970s and allowed himself “to imagine that his company could be number one in its own right”, says Park Ju-gun of CEO Score, a corporate watchdog. This entailed some mistakes, such as an expensive foray into carmaking. But it mostly brought success.
Although the group maintains businesses from shipbuilding and life insurance to amusement parks, the younger Mr Lee, de facto boss since 2014, has kept a focus on electronics. Today Samsung is the world’s biggest maker of smartphones and its second-biggest of memory chips. It has defended its position in mobile devices against competition from China. Lee fils has forged global partnerships, including with competitors such as Apple, which Samsung Display, a subsidiary, supplies with screens for iPhones. He has also begun to move the company away from producing solid but unsexy hardware towards an emphasis on design and software, which accounts for American big tech firms’ trillion-dollar valuations.
It has not all gone the Lees’ way. Wielding economic influence to preserve a corporate structure that benefits the founding family has landed them in trouble. Lee père was twice convicted for corruption, including bribing the president—and twice pardoned when politicians deemed his continued involvement in Samsung to be in the national interest. His son has already spent time in prison, for bribing a confidante of Park Geun-hye, a former president, to gain approval for a merger, which prosecutors allege helped him consolidate control over the Samsung empire. Ms Park was removed from office and Mr Lee is facing retrial on those charges, plus a fresh one on related accusations of manipulating stock prices to facilitate the merger. Mr Lee and Samsung deny wrongdoing.

If either case lands Mr Lee in prison, his leadership may be in jeopardy. That need not spell doom—the day-to-day running of the company is in the hands of professional managers. But it may make it harder to perform the late patriarch’s occasional, sweeping changes of direction.
Some of his son’s bets seem to be working. Samsung Biologics, the listed biotech subsidiary, is building a new $1.5bn factory. Its share price is up by 50% this year. That of Samsung SDI, a battery affiliate, has nearly doubled (see chart); it has invested $2.1bn since January and is eyeing the electric-car market. It is planning to expand a factory in China and build a new one in Hungary. But at a combined value of $63bn they look small next to Samsung Electronics. And competition in both areas is hot.

Samsung Electronics’ third-quarter results on October 29th beat forecasts. It plans to spend around $10bn on its contract-manufacturing chip business over the next ten years. American sanctions against Chinese technology firms, which have already hurt its smartphone rivals such as Huawei, may help with that—and with its flagging foray into 5G telecoms. But the firm warned of lower chip demand in the short term. And the market share of its chip “foundries” lags behind Taiwan Semiconductor Manufacturing Company, the industry leader. No new mega-bet in the style of Lee père is on the horizon.
Lee fils has apologised for his group’s run-ins with the law and vowed to break with tradition and not pass control to his own progeny. The Lee family says it plans to pay the full inheritance tax on the patriarch’s $16bn shareholdings. Honouring his positive legacy may prove harder. ■

This article appeared in the Business section of the print edition under the headline “The Lee way” More

EVEN A HALF-EATEN apple shoved in Dara Khosrowshahi’s face by his young son during a Zoom interview does not ruffle Uber’s boss. “Not now, sweetheart,” was his calm response. Mr Khosrowshahi needs all the unflappability he can muster. Besides picking their president, on November 3rd Californians will vote on a ballot initiative, Proposition 22, that will shape the future of the ride-hailing firm and other gig-economy platforms. The companies have spent nearly $200m promoting the measure, in an effort to preserve their business model.
At issue is whether their freelance drivers, couriers and other gig workers should be treated as employees, entitled to benefits such as unemployment insurance and sick leave. More fundamentally, “Prop 22” is a stab at balancing worker protections with the gig industry’s flexibility, which lets people work when they want while ensuring that customers never have to wait long for a ride or a meal delivery.

Founded 11 years ago, Uber created the template for the gig economy. Its software matches demand and supply in real time. At first riders and drivers benefited, as Uber and Lyft subsidised rides in a battle for market share. In the past few years the duo began to cut costs, egged on since they went public last year by investors. Uber’s “take rate”, the share of fares it keeps for itself, now averages 26%, up from 20% in 2017, according to New Street, a research firm. Drivers get correspondingly less.
How much they earn per hour is a matter of hot debate. Whatever the pay, though, it comes with no benefits. This may not matter to those who drive to make cash on the side, in addition to other jobs. Uber claims the bulk of its drivers are such part-timers. Critics allege that most rides are provided by full-time drivers. Sharing these concerns, a year ago California passed a law, called AB5, which among other things redefined independent contractors as those who are free from the control and direction of the hirer. Gig firms argue they meet AB5’s criteria. On October 22nd an appeals court ruled they do not.
Complying with AB5 would turn Uber from an online marketplace to something like a conventional taxi company, Mr Khosrowshahi says. It would, he adds, have to let go 76% of its 200,000-odd drivers in California. The remainder would work mostly at peak times—and no longer be paid “exactly in proportion to the value that they bring to the system”, he argues, which is “one of the underestimated features of the gig economy”. And, Uber warns, fares would rise by between 25% and 111%.
Nonsense, retort Uber’s opponents. Veena Dubal of the University of California’s Hastings College of the Law, reckons AB5 would raise the firm’s cost per driver by a third. But, she says, it would preserve flexibility and protect vulnerable workers. As for fare hikes, findings in New York, which forced ride-hailing firms to pay the city’s minimum wage, suggest these would be lower than Uber’s estimate.

Enter Prop 22. It would scrap AB5’s provision mandating the treatment of “app-based” workers as employees, while providing them with some benefits, including net earnings of at least 120% of the hourly minimum wage and health-care stipends. It could pave the way for portable benefits, which Mr Khosrowshahi has called a “third way” between the status quo and AB5, and which prominent economists, including the late Alan Krueger, have advocated (though it has no provision for collective bargaining, which Krueger also backed). Benefits would be based on “engaged time”; waiting between rides does not count. To qualify for a full health-care stipend, for example, drivers must be “engaged” for 25 hours a week. And it would require a seven-eighths supermajority in California’s legislature to amend.
Critics call Prop 22 lopsided. Californians may still back it. They have been bombarded with ads and notifications in their apps warning that a no-vote would doom gig-working. Prop 22’s backers have won support from influential lobby groups such as Mothers Against Drunk Driving. Polls show the measure winning. If it does, this may bolster Uber’s case in other places, such as Switzerland, where authorities want to classify drivers as employees.
Even if Prop 22 succeeds, Uber’s business model needs work. It is still losing money and investors are getting impatient. Its share price is down by a fifth since it listed. Revenue from rides dropped by 75% in the second quarter, year on year, as covid-19 lockdowns sapped demand. Mr Khosrowshahi’s answer has been to expand from moving passengers to ferrying everything within a city. Quarterly revenues from its meal-delivery arm doubled as restaurant-goers self-isolated, and now account for nearly 70% of the total. “Just like Facebook built the social graph of connections between friends, we can build the local graph of the connections between people and things,” Mr Khosrowshahi explains. Until self-driving cars replace human drivers—don’t hold your breath—that business may not be viable in an AB5 world.
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WHEN CAPTAIN Gareth Tennant was patrolling with the Royal Marines in the Gulf of Aden in 2010, his team intercepted some Somali pirates on two skiffs. The pirates’ weapons were confiscated and the marines waited for clearance to release their prisoners. The plan was to tow the ne’er-do-wells back to Somali waters. But the pirates misread the troops’ intentions, and thought they were about to be abandoned at sea; a few jumped into the water while the rest attacked Mr Tennant’s team.
For a brief period, there was chaos. Mr Tennant was unable to give any orders. But his team acted anyway. One boat rescued the Somalis who had jumped into the water; another came alongside to offer support in ending the fight.

His team acted that way, Mr Tennant argues, because they were used to working with each other and they had war-gamed what might go wrong. In contrast, the pirates were suffering from fear, stress and fatigue, and acted on gut instinct. “If you haven’t gone through the decision-making process in advance, then gut instinct tends to kick in,” Mr Tennant says.
Now Mr Tennant is back in civilian life, acting as an adviser to the Future Strategy Club, an association of consultants. And he believes the habits learned in the Royal Marines can be useful for business life.
Given the long history of blunders in warfare (such as friendly-fire incidents), it may seem odd to turn to the armed forces for tips on efficiency. It is an old joke that “military intelligence” is an oxymoron. But many a corporate titan has sought wisdom in the philosophies of strategists like Sun Tzu and Carl von Clausewitz. And military expertise in emergencies was exploited by the British government to help build “Nightingale hospitals” early in the covid-19 pandemic, just as the armed forces had been used to counter Ebola in west Africa in 2014.
Soldiers regularly have to deal with the four forces dubbed VUCA (volatility, uncertainty, complexity and ambiguity). In particular, Mr Tennant cites the concept of mission command which developed during the Napoleonic wars. Armies found that, by the time messages had arrived at the front, the military situation had changed. The lesson was to establish what the army was trying to achieve before the battle and allow junior commanders to use their initiative and take decisions as the situation demanded.

The ideal command structure is not a rigid hierarchy, he argues, but a sphere, where the core sets the culture and the parts of the organisation at the edge are free to react to events outside them. In effect, the contrast is between centralised command and decentralised execution.
Business has been hit by two huge events this century: the financial crisis of 2007-09 and now the pandemic. These showed the extreme importance of resilience—and of preparation. The organisations that are dealing with the pandemic best are those which were already prepared for the unexpected, he says. The key lesson, Mr Tennant argues, was not having stocks of hand-sanitiser and plastic sheeting but knowing how to manage large changes in society and shifts in supply chains. It also requires training for the type of situations that managers may face.
Mr Tennant argues that in recent years companies have become overenamoured with predictive analytics, trying to make precise forecasts about the direction of markets. Instead, they should get involved in war-gaming, where they can discuss ideas that push the boundaries of what is possible. “The more we think about hypotheticals, the less space there is for unknown unknowns,” he says, echoing that well-known American strategist (and ex-defence secretary), Donald Rumsfeld. Corporate executives know their own business really well. But when the environment changes, experience counts for less. The answer is to apply a test and adjust the process, in a feedback cycle.
When a crisis happens, bosses display a tendency to hold on tight and take control. But that is losing the benefit of the diversity of the organisation, Mr Tennant thinks. Companies need those at the sharp end of the business to be adaptive and responsive. Senior managers need to relinquish authority and allow juniors to make decisions. In a crisis, companies which have invested in building up leaders at the lowest ranks of the organisation are more likely to prosper. In business, as in conflict, it isn’t the generals who carry the burden of the war; it’s the troops.
This article appeared in the Business section of the print edition under the headline “Fighting spirit” More