Philippa Kaur

It has been a tricky year atop the corporate ladder. Sluggish growth in many markets has set bosses scrambling to rein in costs just as inflation has spurred their workers to demand hefty pay rises. Fractious geopolitics and toxic culture wars have left corporate chieftains feeling like tightrope-walkers. The craze for generative artificial intelligence (AI) has had them fretting over looming technological disruption, too.Still, for some chief executives 2023 was a vintage year. To determine who did it best, The Economist has examined the performance of bosses of large listed companies in the S&P 1200 index, which covers most big economies bar China and India. We put aside those who have been in the job for less than three years, to avoid giving too much credit for replacing an inept predecessor. We then ranked the remaining chief executives by the returns they generated for shareholders relative to their sector’s average. The top ten by that measure included both household names and relative dark horses.Among the top ten were bosses of two companies—Cameco, a Canadian miner, and PulteGroup, an American homebuilder—whose stellar results were thanks mostly to macroeconomic forces (a surge in uranium prices and a slump in sales of existing homes, respectively). We left them out. Also on the list were the chief executives of two buy-out firms, 3i and Melrose Industries, whose results were more a testament to the performance of the bosses running their portfolio companies than the financiers on top. We excluded them, too. Last, we also removed Richard Blickman of BE Semiconductor Industries, a Dutch maker of chipmaking tools. His pay was rejected by shareholders—not a good look for any chief executive.image: The EconomistThat has left us with a shortlist of five superstar chief executives for 2023 (see table). In ascending order of shareholder returns these are: David Ricks of Eli Lilly, now the world’s most valuable pharmaceutical firm; David Vélez Osorno of Nubank, a Brazilian neobank that is gobbling up customers across Latin America; Sekiya Kazuma of Disco, a Japanese maker of cutting-edge tools for semiconductor production; Mark Zuckerberg of social-media giant Meta; and Jensen Huang of Nvidia, a chipmaker whose market value soared past $1trn this year.Over the holiday season all five can bask in the warm glow of having generated enormous value for shareholders. But who has had the best year of all?A case can be made for any of the five. Mr Ricks has put Eli Lilly close on the heels of Novo Nordisk, a Danish rival, in the bulging market for anti-obesity drugs and overseen extraordinary results in a very ordinary year for the industry. Few neobanks have managed to dislodge entrenched incumbents. Yet under Mr Osorno’s leadership Nubank, which he co-founded in 2013, has grown into the fifth-largest financial institution in Latin America by number of customers. Mr Kazuma, who also runs Disco’s research-and-development division, has kept his company at the frontier of semiconductor dicing and grinding for many years. After terrifying investors in 2022 with his descent into metaverse madness, Mr Zuckerberg delighted them in 2023 with his “year of efficiency” and his company’s forays into generative AI. And Mr Huang has cemented his firm’s position as the indispensable supplier of the chips powering the AI revolution.How, then, to choose? One way is to listen to the underlings. After all, a chief executive that hoists the share price but enrages staff is unlikely to succeed for long. We gathered figures from Glassdoor, an employee-review website, on how workers at the five companies felt about their chief executives and their companies more broadly.At a mere 62% Mr Zuckerberg’s approval rating is a clear outlier, suggesting that his “year of efficiency” has been as awful as it sounds for employees. Worker satisfaction at Disco also seems low (albeit with fewer respondents). One explanation may be the company’s odd mechanism for co-ordinating work. Teams use a virtual currency called Will to pay one another for providing services. Managers then dole out the currency among team members for performing tasks, which determines bonuses. All that sounds like an economist’s dream, but hardly collegial.Angering customers is also an unsound strategy for chief executives. This year a number of American states including California have sued Eli Lilly, among others, for allegedly overcharging for insulin, an essential drug for diabetics. The company’s decision in March to slash insulin prices by 70% has done little to quell the upset. (The company has rejected what it describes as the “false allegations” of the lawsuit in California.)As for Mr Osorno, not all of his strategy is paying off. Although Nubank is profitable as a whole, an achievement that has eluded many of its peers elsewhere, it is losing money in Mexico, where its approach of targeting the unbanked is proving costly. If Mr Osorno pulls it off, he could claim the prize in years to come.It is Mr Huang, then, who prevails. Few bosses have been as farsighted in their bets on AI as Nvidia’s chief. Over a decade ago Mr Huang realised that the graphical processing units his company produced were also good at training AI models. In the years that followed he readied Nvidia for the AI wave by investing in a proprietary software platform, CUDA, to help developers make use of its chips and by acquiring Mellanox, a supplier of networking technology that links many chips together to deliver greater processing power. The pay-off from those bets is now becoming clear; Nvidia controls over 80% of the market for specialist AI chips.Mr Huang, whose signature leather jacket has become as integral to his public persona as the turtlenecks sported by Steve Jobs, reportedly shares the Apple founder’s intensity and exacting standards. Nonetheless, he is adored by staff, with a 98% approval rating. All things considered, he has had the best 2023 of all. ■ More

China faces a problem familiar to dictatorships throughout history: how to strike a balance between growth-boosting innovation, which thrives in a free society, and the paranoia of an authoritarian state. Its leader, Xi Jinping, wants the country to become a hyper-advanced economy. His government is aggressively promoting the commercialisation of high technologies it likes, from electric vehicles to quantum computing.At the same time, it is tightening the screws on those it disapproves of. In 2021 it regulated a booming online-tutoring industry into oblivion almost overnight, apparently out of fear that high tuition fees were making children’s education so expensive that Chinese were put off the idea of parenthood. On December 22nd the government took a wrench to the video-gaming industry, introducing rules to, among other things, limit how much players can spend on in-game purchases—and so how much developers can make. The market value of Tencent, one of China’s most innovative firms that also has a big gaming business, tumbled by 12%.Nowhere is this tension clearer than in the hottest technology of 2023—artificial intelligence (AI). In many countries, command of AI is seen as both economically and strategically important. Politicians everywhere fret about machines going rogue or, more realistically, being harnessed by human mischief-makers. In Beijing the added worry is that the technology, which thrives on unlimited data and, at its current stage of development, in unregulated spaces, could prove subversive if not kept in check. It is therefore busily shoring up its “great firewall” for the AI age.In 2000 Bill Clinton, then America’s president, likened China’s attempt to control the internet to “trying to nail Jell-O to the wall”. Today the jello seems firmly in place. Western internet services, from Facebook and Google search to Netflix are unavailable to most Chinese (apart from those willing to run the risk of using illegal “virtual private networks”). On local platforms, any undesirable content is deleted, either pre-emptively by the platforms themselves, using algorithms and armies of moderators, or afterwards, as soon as it is spotted by government censors. A tech crackdown in 2020 brought China’s powerful tech giants, such Tencent and Alibaba, to heel—and closer to the government, which has been taking small stakes in the firms, and a big interest in their day-to-day operations.The result is a digital economy that is sanitised but nevertheless thriving. Tencent’s super-app, WeChat, which combines messaging, social media, e-commerce and payments, alone generates hundreds of billions of dollars in yearly transactions. Mr Xi now hopes to pull off a similar balancing act with AI. Once again, some foreign experts predict a jello situation. And once again, the Communist Party is building tools to prove them wrong.The party’s efforts begin with the world’s toughest rules for Chinese equivalents of ChatGPT (which is, predictably, banned in China) and other consumer-facing “generative” AI. Since March companies have had to register with officials any algorithms that make recommendations or can influence people’s decisions. In practice, that means basically any such software aimed at consumers. In July the government issued rules requiring all AI-generated content to “uphold socialist values”—in other words, no bawdy songs, anti-party slogans or, heaven forbid, poking fun at Mr Xi. In September it published a list of 110 registered services. Only their developers and the government know all the ins and outs of the registration process and the precise criteria involved.In October a standards committee for national information security published a list of safety guidelines requiring detailed self-assessment of the data used to train generative-AI models. One rule requires the manual testing of at least 4,000 subsets of the total training data; at least 96% of these must qualify as “acceptable”, according to a list of 31 vaguely worded safety risks. The first criterion for unacceptable content is anything that “incites subversion of state power or the overthrowing of the socialist system”. Chatbots must decline to answer 95% of queries that would elicit unacceptable content (any that do get through would, presumably, be censored ex post). They must also reject no more than 5% of harmless questions.Anything produced by unregistered algorithms is to be blocked and its creators punished. In May a man in Gansu province was arrested after he used ChatGPT to produce text and images of a fake train crash and publish them on social media. He may have been the first Chinese to be detained for spreading AI-generated misinformation. He will not be the last.This heavy-handed strategy has slowed the uptake of consumer-facing generative AI in the country. Ernie Bot, built by Baidu, another tech firm, was ready around the same time of ChatGPT’s launch but only released nine months later, in August—aeons given how fast the technology is evolving. It is still clumsy when it comes to expressing its devotion to the party. When asked sensitive questions about Mr Xi, it dutifully censors, offering no answer and deleting the query.Model socialistsWith more work the party may be able to make AI models into not merely good communists, but fluent ones. That would obviate the need for ex post censorship, says Luciano Floridi of Yale University. Yet the authorities seem in no rush to get there. Instead, they are promoting the technology’s business applications.In contrast to consumer AI, enterprise AI faces few constraints on development, notes Mimi Zou of the Oxford Martin School, a research institute. As Steven Rolf of the Digital Futures at Work Research Centre, a British think-tank, explains, this has the effect of channelling capital and labour away from things like consumer chatbots and towards machine learning for business. This, the government seems to be betting, will allow China to catch up and even overtake America in AI without the hassle of dealing with potentially subversive AI-generated content.In May the southern city of Shenzhen announced it would launch a 100bn-yuan ($14bn) AI-focused investment fund, the largest of its kind in the world. A number of city governments have launched similar investment funds. A lot of this money is going to firms such as Qi An Xin, which offers generative AI that manages data-security risks for companies. The company claims that the bot can do the work of 60 security experts, 24 hours a day. Before going public in 2020, it received big investments from state companies, like many similar startups.For this strategy to work, the enterprise-AI firms need the right sort of raw material. Consumer chatbots use AI models trained on swathes of the public internet. Corporate applications need corporate data, a lot of which is squirrelled away inside companies. So the other plank of China’s strategy is to turn corporate data into a public good. The state does not want to own the data but—as with the other factors—to control the channels through which it flows.To that end, the government is promoting data exchanges. These are meant to let businesses trade information, packaged into standardised products, about all areas of commercial life, from activity at individual factories to sales data at individual shops. Small firms will gain access to knowledge once reserved for the tech giants. Banks and brokers will get a real-time picture of the economy.Chinese cities began launching data exchanges about a decade ago. Now there are around 50 around China. And they are finally gaining speed. The Shanghai Data Exchange (SDE), which was launched in 2021, has started dealing in a number of new data products. In one of its first transactions, ICBC, a bank, bought information from the energy sector. This can be used to assess companies’ power consumption and, because it reflects real levels of activity, to create alternative credit profiles for companies. SDE sells satellite-derived data on steel output in China’s heartland and environmental violations by mining companies. Another product gives real-time data on doctors, nurses and hospital beds across the country in order to help medical firms make business decisions. The SDE is also experimenting with using data as collateral for loans.At scale, the datafication of industry could deliver a significant economic boost, says Tom Nunlist of Trivium, a consultancy in Beijing. And more data may be coming to the exchanges soon. In August the central government tasked state-owned firms with thinking about how to value their data. In the past few months teams of auditors have been trying to come up with ways to do this, with a view of adding such data to companies’ balance-sheets as intangible assets. They are meant to report back by January 1st (though the deadline looks likely to be missed, given the unprecedented nature of the task).The government’s gamble on enterprise AI is not without problems, however. The car industry is a case in point. In 2022 about 185m vehicles on Chinese road had an internet connection, and a national plan envisages mass production of semi-autonomous cars by 2025. For that to happen, companies devising self-driving algorithms need lots of data on which to train their systems. A company called WICV is building a platform for the data that is beginning to trickle out of cars.For now, WICV returns a car’s data to the carmaker that built it, so BYD gets data from BYDs, Nio from Nios and so on. But the plan is eventually for the data to be traded on exchanges, where it could be bought by other developers of self-driving systems. For that to happen, though, driving data must first be “desensitised”, explains Chu Wenfu, WICV’s founder, by stripping out biometric and geolocation details that could help bad actors track the movements of specific people.The potential for such tracking spooks Chinese authorities. A big reason why they cracked down on Didi Global days after the ride-hailing firm’s initial public offering in New York in 2021 was, it later transpired, a fear that data on Didi’s 25m daily rides, including geolocation information linked to passengers, could fall into the hands of the American authorities. The Chinese government is pre-emptively mapping out vast areas of China where data collection could potentially pose a national-security threat.Many carmakers, including Western ones such as BMW, have little choice but to team up with state-backed companies to handle driving information and ensure that local data-compliance rules are followed. Just in case, some car companies are ditching certain features, such as allowing drivers to watch live footage of inside and outside their car on their phones. Some of that footage could, after all, inadvertently capture something sensitive.Such trade-offs between innovation and security are unlikely to be limited to cars. Other industrial and corporate data, too, will probably need desensitising before it can be traded at scale on exchanges. That will slow the development of enterprise AI, even if algorithms remain unshackled. It is a price that the party appears willing to pay for its paranoia. ■ More

A CURIOUS LETTER sent on November 6th recently surfaced in Washington, DC. On that day, nearly a dozen American senators sent a stern note to Janet Yellen, America’s treasury secretary, Jennifer Granholm, its energy secretary, and John Podesta, the senior adviser to the White House on clean energy. It was about the legal guidance they expected from the Internal Revenue Service (IRS) on tax rules governing a generous new subsidy for “green” hydrogen. They insisted that the rules for this clean fuel, that can replace fossil fuels in hard-to-decarbonise industrial sectors like steel and chemicals, must be “a robust and flexible incentive that will catalyse and quickly scale a domestic hydrogen economy”.That was but one heavyweight salvo in a months-long war waged by technology companies, environmental groups, energy lobbyists and business chambers over this previously obscure topic. To influence the handful of tax nerds and their political masters making this decision, millions have been spent on full-page advertisements in the New York Times and Washington Post, on podcasts and—to the bewilderment of punters looking for a mindless rom-com—on mainstream streaming services like Hulu.Perhaps that was fitting, for the ruling looks to be a blockbuster. The long-delayed draft guidance on the 45V tax credit, as the proposal is formally known, was finally unveiled on December 22nd (the White House tried to bury the controversy in pre-Christmas distractions). Those senators calling for flexibility will not be pleased. There is always tension between growth and greenery in environmental regulation, and especially when it comes to writing rules for an industry that does not yet exist. The Biden administration has tilted strongly towards greenery in its proposals. In doing so it will probably kick up a hornet’s nest of industry protest.The stage was set for this battle royal by the passage last year of the Inflation Reduction Act (IRA), America’s landmark climate law that offers the world’s most generous subsidy ($3/kg) for making the greenest sort of hydrogen from renewable energy, as well as smaller subsidies for making low-carbon hydrogen in other ways. Because Congress declined to cap this subsidy, potentially hundreds of billions of dollars are at stake in the coming decade. Though Europe led the world in developing clean hydrogen, the Hydrogen Council, an industry association, has found that the IRA lured many potential investors to its side of the Atlantic with proposed investments in hydrogen as of January at $46bn, up from just $29bn in May 2022.The green trade-off arises because making the cleanest sort of hydrogen involves the use of electrolysers, fancy bits of kit that separate water into its constituent hydrogen and oxygen using a lot of electricity. As an influential study done by Jesse Jenkins and colleagues at Princeton University has shown, if those machines use grid power burning coal or natural gas then the resulting hydrogen (though clean in its end use) could pollute more over its life cycle than the hydrogen produced using fossil fuels today.That is why it is vital to put in place three pillars as “guardrails” against greenwashing, argues Rachel Fakhry of the Natural Resources Defence Council, a prominent green group. One would require the renewable energy involved to be produced close to the point of use. Another, known as “additionality”, would require any clean power used to come from new, not currently operating, generation facilities. The final requirement is that the hydrogen produced be matched hour by hour with clean-energy production, rather than using annual matching of production. The IRS proposes strict criteria on all three fronts, earning praise from Ms Fakhry and other environmental advocates.Predictably, some industry advocates are up in arms. Jason Grumet, boss of the American Clean Power Association, a big lobby representing renewables, hydrogen, technology and transmission firms, argues the new proposal contains “a fatal but fixable flaw”. While accepting the three pillars, he argues that the hourly matching provision is being imposed too aggressively and so will “discourage a significant majority of clean-power companies from investing in green hydrogen”. Potential financiers will worry that hourly matching is not even possible in all parts of America, and the reforms needed for it will take several years to come into effect.Only a fifth of that $46bn in hydrogen projects identified by the Hydrogen Council has been firmly committed, in part because investors have been waiting for this tax ruling, and some of those will now be in jeopardy. Keith Martin, a 45V expert at Norton Rose Fulbright, a law firm, reckons “the Treasury has made it difficult to finance green-hydrogen projects” because it does not grandfather projects under construction before the introduction of the hourly-matching requirement in 2028. Bernd Heid of McKinsey, a consultancy, reckons the guidance could lead to an increase of $1/kg to $2.5/kg in the cost of producing green hydrogen compared with using annual time-matching and looser additionality standards, yielding a total cost of $2.7/kg to $4.5/kg depending on input costs. For comparison, the total cost of dirty hydrogen made from natural gas today is well under $2/kg.Revealingly, though, some powerful industry voices do support this ruling. One is Andrés Gluski, head of AES, a utility investing in a $4bn green-hydrogen facility in northern Texas. He is confident his mega-project, which will use bespoke renewable energy made on site, will meet the tough new 45V proposals. Air Products, the world’s largest manufacturer of hydrogen, has made a $15bn global bet on clean hydrogen including a stake in that Texas facility. Seifi Ghasemi, its boss, applauds what he calls the “strong three-pillar” proposal which he reckons will stimulate investments while reducing emissions.The schism suggests the trade-off between growth and greenery may not be as stark as it first seems. Guardrails are indeed needed to prevent greenwashing. This is especially true, notes Martin Tengler of BloombergNEF, an information firm, since making hydrogen with grid power is dirtier than, say, using grid power for electric vehicles (which are still cleaner than using petrol-fired engines). He argues that claims of a chilling effect on investment are overblown, and that although the pool of viable projects “is going to shrink, it is worth it”.As the enthusiasm of the aspiring green-hydrogen tycoons reveals, there can be opportunity here in leapfrogging too. A big source of future revenue will be exports of green ammonia (a hydrogen derivative used in making fertiliser) to environmentally minded overseas markets like Japan and Europe, so long as it is demonstrably clean. Maria Martinez of Breakthrough Energy, a climate-policy organisation, argues that the draft rules put America’s hydrogen sector in alignment with Europe’s green rules, which will help those (like Air Products) keen to export there.The new proposals are now open for public comment for two months. An almighty scrum will surely take place in the new year, involving fulmination from those senators whose advice was ignored. This will probably result in some modification of the strictest provisions. Even so, America looks likely to have pretty green rules for its nascent green-hydrogen sector. The open question is whether the resulting boost for leapfroggers will outweigh the loss from those laggards that drop out. ■ More

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Until the Suez Canal opened in 1869, merchant ships in the Red Sea mostly carried coffee, spices and slaves. The waterway changed everything. So far in 2023 around 24,000 vessels have plied the passage, accounting for some 10% of global seaborne trade by volume, according to Clarksons, a shipbroker. That includes 20% of the world’s container traffic, nearly 10% of seaborne oil and 8% of liquefied natural gas.So missile and drone attacks by Houthi militants in Yemen on ships passing through the narrow strait of Bab al-Mandab, which connects the Red Sea to the Gulf of Aden, apparently in support of Palestinians in Gaza, looks like the latest blow to the shipping industry—and to its customers. It has struck just as both groups try to return to normality after the upheavals of the pandemic and, more recently, troubles that include a drought that has restricted large vessels from passing through the Panama Canal for several months.A dozen Houthi attacks in recent weeks and four more on December 18th pose an unacceptable danger to shipping. Container firms accounting for some 95% of the capacity that usually crosses Suez, including giants like Swiss-based msc and Denmark’s Maersk, have suspended services in the area. A few energy firms, such as bp and Equinor, have also temporarily stopped their ships from using the canal. As when the route was disrupted in 2021 after Ever Given, a giant container ship, ran aground and blocked the canal for six days, shipping companies are already rerouting vessels around Africa. This will extend journeys from around 31 to 40 days between Asia and Northern Europe, reckons Clarksons. Unless the route can safely reopen, delays and the inevitable disruption at ports as vessels arrive out of schedule will create disorder in the coming months. Still, this Suez crisis will not “put a cork in global trade”, says Lars Jensen of Vespucci Maritime, a consultancy. The reason for cautious optimism has to do with the shipping industry’s remorseless cyclicality. Unlike during the Ever Given fiasco, supply chains are not currently under immense strain. Back then cuts to capacity coupled with a surge in spending by locked-down consumers had sent shipping rates surging to astronomical levels. A global index from Drewry, another consultancy, hit over $10,000 per standard container. On some routes, spot rates surpassed $20,000. That helped push shipping firms’ combined net profits in 2022 to $215bn, according to the John McCown Container Report, an industry compendium, compared with cumulative loss of $8.5bn in 2016-19.image: The EconomistThe shipping firms’ customary response to such price signals is to order new vessels. Those are starting to arrive. Though demand has remained flat over the past year or two, the global fleet’s capacity will swell by 9% this year and another 11% in 2024, according to ing, a bank. Already, the industry’s profits are forecast to plunge by 80% in 2023. With capacity to spare, running longer routes should not cause the disruption seen at the height of covid-19. Drewry’s index is now becalmed at $1,500 or so (see chart). Rates could double as a result of the Red Sea turmoil, reckons Peter Sand at Xeneta, a freight-data firm. But they will probably stay well below their pandemic peaks—and so will shipping companies’ profits. ■ More