Philippa Kaur

Each earnings season comes with new buzzwords. As companies ready their scripts for the most recent quarter, one phrase in particular is sure to end up on many bosses’ lips—generative artificial intelligence (ai). Ever since Chatgpt, an artificially intelligent conversationalist, began dazzling the world, bosses have been salivating over the potential for generative ai to turbocharge productivity. Zurich, an insurer, is now using a customised version of Chatgpt to simplify lengthy claims documents. Mattel, a toymaker, is designing new playthings using dall-e, another tool that conjures images based on text prompts. Absci, a biotech company, is using the new wonder to assist with the development of therapeutic antibodies. Plenty of other firms are dipping their toes in this unfamiliar water.The toolmakers of the knowledge economy have more fully embraced the innovation frenzy. Microsoft has announced a string of product updates that will allow desk jockeys to offload tasks from drafting emails and summarising documents to writing computer code. “Like working in dog years”, is how Eric Boyd, head of ai for the tech giant’s cloud-computing division, describes the company’s hectic release schedule. Google, a rival, is likewise souping up its suite of tools, as are Adobe, Salesforce and Bloomberg, makers of software for creative types, salesmen and financial whizzes, respectively. Startups like Harvey, a Chatgpt-like legal assistant, and Jasper, a writing aid, are emerging thick and fast.Despite all the experimentation, companies remain uncertain about how to make use of ai’s newfound powers. Most, according to Mr Boyd, either underestimate or overestimate the technology’s capabilities. Efforts are being made to determine which jobs are the strongest candidates for reinvention. A study published last month by Openai, the outfit behind Chatgpt and dall-e, looked at the share of tasks within an occupation that could be accelerated by at least half using the new technology. Topping the list were occupations involving copious amounts of routine writing, number crunching or computer programming—think paralegals, financial analysts and web designers.It is unlikely that firms will soon dispense with such jobs entirely. Generative ai may do a good job of producing first drafts but relies on humans to give instructions and appraise results. Microsoft, tellingly, has labelled its new suite of tools “co-pilots”. In “Impromptu”, a recent book by Reid Hoffman, co-founder of LinkedIn, a social network for professionals, the author counsels users to treat Chatgpt and others “like an undergraduate research assistant”. (The book was written with the assistance of a bot.)What’s more, as coders, salesmen and other white-collar types become more productive, there is little evidence yet that companies will want fewer of them, argues Michael Chui of McKinsey, a consultancy. Software may eventually eat the world, as one venture capitalist predicted, but so far it has only nibbled at the edges. And most companies will surely choose more sales over fewer salesmen. Yet various hurdles lie ahead for businesses looking to make use of generative ai. For a start, many firms will need to rethink the role of junior staff as apprentices to be trained, rather than workhorses to be whipped. Getting the best out of generative ai may also prove tough for firms with clunky old it systems and scattered datasets. On the plus side, large language models like the ones powering Chatgpt are better at working with unstructured datasets than earlier types of ai, says Roy Singh of Bain, a consultancy that has inked a partnership with Openai.Other reservations could still slow adoption. Companies have a much higher bar than consumers when it comes to embracing new technology, notes Will Grannis, chief technologist for Google’s cloud-computing division. One concern is shielding confidential or sensitive data, a worry that has led companies from JPMorgan Chase, a bank, to Northrop Grumman, a defence contractor, to ban staff from using Chatgpt at work. Zurich does not allow customers’ personal information to be fed into its tool. A bigger concern is reliability. Chatgpt-like tools can spit out plausible but incorrect information, a process euphemistically dubbed “hallucination”. That may not be a problem when dreaming up promotional material, but it is a fatal flaw elsewhere. “You can’t approximate the design of an aeroplane wing,” notes Mike Haley, head of research for Autodesk, a maker of engineering software. Humans err, too. The difference is that generative-ai tools, for now, neither explain their thinking nor confess their level of confidence. That makes them hard to trust if the stakes are high.Productivity to the peopleBosses could also find their appetite for generative ai spoiled by growing worries over the risks the technology poses to society, particularly as it gets cleverer (see Science section). Some fret about a barrage of ai-generated scams, misinformation and computer viruses. Such concerns are spurring governments to action. America’s Commerce Department is seeking comments from the public on how it should approach the technology. The European Union is amending a planned bill on ai to encompass recent advances. Italy has, for now, banned Chatgpt.A final fear is that rolling out clever ai could undermine the morale of staff, if they worry for their futures. Yet so far employees appear to be among the new technology’s most enthusiastic supporters. Of 12,000 workers surveyed in January by Fishbowl, a workplace-network app, 43% had used tools like Chatgpt for work-related tasks—a large majority without their bosses knowing. Such enthusiasm suggests few tears shed for the loss of menial tasks to ai. “No one goes to law school to spend time trawling through documents”, says Winston Weinberg, Harvey’s co-founder. That may be enough to encourage firms to continue experimenting. With productivity growth in rich countries languishing for two decades, that would be no bad thing. ■ More

“WHOEVER SAID don’t question things? We say question everything.” So began the television commercial that EY aired in 2021 during the Super Bowl, a sports extravaganza known as much for its pricey ads as for the American football they interrupt. On April 11th, under a little too much questioning from its American branch, the professional-services giant decided to pause indefinitely plans for a separation of its audit and advisory businesses. A big sticking point was the division of the tax practice, coveted by both the auditors and the advisers. Plans to publicly list the advisory business and load it with debt to pay off audit partners also looked cleverer when the deal was conceived in 2021 amid low interest rates and frothy share prices.This suspension is a huge blow to EY’s global bosses, who underestimated just what an uphill climb “Project Everest”, the unfortunately codenamed break-up project, would prove. To EY’s split-averse professional-services rivals in the so-called “big four”, Deloitte, KPMG and PwC, it looks like vindication. Joe Ucuzoglu, Deloitte’s global chief, insists the “multidisciplinary model” is the “foundation” of his firm’s success. Bill Thomas, his opposite number at KPMG, says his firm’s decision in the early 2000s to list its advisory arm (since regrown) was “not the right thing”. Bob Moritz, who leads PwC, insists keeping the businesses together is central to his firm’s ability to recruit and retain talent. Yet the case against turning the big four into a biggish eight is far from open and shut. That is because the commercial logic of the split is in many ways getting more compelling—for EY itself, which is still leaving open the possibility of such an outcome one day, and for its three peers. At stake is the future of one of the business world’s most critical oligopolies.The big four are the heavyweight champions of professional services. They dominate the market for audits—checking the books for 493 of the companies in America’s S&P 500 index and a big proportion of European blue chips. They also offer clients a one-stop shop for advice on issues from dealmaking to digitisation. As of last year they together employed 1.4m people and generated $190bn in fees, up from $134bn in 2017 (see chart 1). KPMG, the smallest of the big four, generates three times the revenue of McKinsey, the high priest of strategy consulting.The driving force behind the big four’s growth in recent years has been the rapid expansion of their advisory businesses, which now account for half their combined revenues (see chart 2). In the early 2000s EY, KPMG and PwC all spun off or sold their consulting arms in response to new conflict-of-interest regulations, which barred them from selling advice to audit clients. (Deloitte planned but then abandoned a spin-off.) With little room to expand in audits, however, the giants were soon lured back into the fast-growing business of advice.The rebundling has in many ways paid off. The opportunity to dabble in different service lines has helped the big four entice the bright-eyed young things their businesses rely on. A career in bean-counting looks more appealing when it comes with the opportunity to work on big acquisitions or advise governments on important matters, observes Laura Empson of Bayes Business School in London and formerly of the board of KPMG’s British branch.The big four’s breadth has helped them win over clients, too. Expertise in areas like tax and valuations have helped KPMG and the others solidify their position as the auditors-of-choice for large companies, says Mr Thomas. Widely recognised audit brands, meanwhile, have given a reputational leg-up to the firms’ advisory arms.Mr Moritz argues that the multidisciplinary model has also helped PwC and the other professional-services giants adapt to the digital era. Software and data now underpin nearly all the services the firms offer. The auditors benefit from the technological know-how of the advisors, while the advisors benefit from the counter-cyclical nature of audit work, which can fund investments even during downturns.All that helps explain why some have balked at the idea of a separation. That the firms operate franchise-like structures, with independent partnerships in each country, also makes big shifts in direction like a break up tough to pull off—as EY discovered in America.Yet the case for staying conjoined is steadily weakening as the big four’s businesses shift ever more towards consulting. Auditor-independence rules have turned from an inconvenience into a drag; a particular bugbear of EY’s is its inability to team up with software firms it audits, like Salesforce, to help them roll out their technology to clients. Newish requirements in Europe and elsewhere for companies to rotate their auditors, typically every ten years, have increased clashes between audit and advisory partners over who will serve big customers. Meanwhile, audit has been steadily losing its internal clout, says Ms Empson. Sarah Rapson, deputy head of the FRC, Britain’s audit overseer, worries that the firms are no longer fostering the “culture of scepticism and challenge” that auditing relies on.The problems are on display in a string of much publicised audit snafus. On March 31st APAS, Germany’s accounting watchdog, barred EY’s German branch from taking on new publicly listed audit clients for two years over its failure to spot mischief at Wirecard, a fintech darling turned German fraud of the century. Last year KPMG was fined £14m ($18m) by the FRC for feeding misleading information into a review of two of the firm’s audits. In 2020 Deloitte was fined £15m ($19m) by the FRC for audit failings, too.Those audit flubs have tarnished the consultants by association. They could also led to greater pressure from regulators to invest more in auditing, particularly around fraud detection. At the same time, the advisers are getting increasingly capital-hungry—they are looking to expand into managed services, running functions like compliance, payroll and cybersecurity on behalf of clients, and need new technology to do it. An advisory spin-off would leave the auditors flush with cash while freeing the consultants to pump themselves up with fresh equity from outside their partnerships. Staying together may no longer be good for the clients, either. The increasingly specialist skills offered by the big four to their customers leaves fewer opportunities for junior staff to dabble in different tasks. Few chief executives are eager to receive cybersecurity advice from a fresh-faced chartered accountant.You can go your own wayMr Ucuzoglu of Deloitte warns that auditor-advisor break-ups have “never once played out as intended”. True, the consulting business KPMG listed two decades ago, under the name BearingPoint, went bankrupt in 2009. And the sale of EY’s and PwC’s old advisory businesses to, respectively, Capgemini and IBM, two IT-focused consultancies, resulted in their own messy culture clashes.As EY reels from its graceless tumble down its Everest, it and its three rivals will certainly think twice before embarking on a similar expedition. Still, in the long run the break-up logic is unlikely to go away. Out in the distance they see Accenture, the publicly listed consulting giant that emerged from the rubble of Arthur Andersen, the collapse of which in the early 2000s turned what was the “big five” into the big four. The firm has thrived as a standalone enterprise, now raking in $62bn a year in sales, more than any of the big four. Since listing in 2001 its market value has climbed 20-fold, to $185bn. Such a prize may prove too tantalising to resist. ■ More

There is a good tale about Samsung’s entry into the silicon-chip business, which at the time—1983—was dominated by Japanese and American manufacturers. Lee Byung-chul, the founder of the South Korean chaebol, announced the new strategy in what he grandiloquently called the Tokyo Declaration. He said that though his country lacked raw materials such as oil, it had an educated and diligent workforce that was well equipped to turn its hand to chipmaking. As Geoffrey Cain recounts in his book, “Samsung Rising”, shortly afterwards some Samsung executives were sent on an overnight march across the mountains from Seoul to toughen them up for the challenge. They arrived at Samsung’s first semiconductor factory, built in a record six months, and signed a pledge before breakfast to make the business a success. Then, without sleeping, they put in a 16-hour work day.Listen to this story. Enjoy more audio and podcasts on More

The pandemic embedded video into the workplace. Workers who had never previously been on camera suddenly spent every hour of the day getting used to the sight of themselves and their colleagues on screen. Executives realised that they could send video messages to their workforces rather than having to convene town halls. Listen to this story. Enjoy more audio and podcasts on More

FOR YEARS nutritionists have advised Americans to steer clear of grocery shops’ central aisles and instead fill their trolleys from the outlying shelves. Fresh meat, dairy products, fresh fruit and vegetables often line supermarket walls; cans, boxes and other packages of less salubrious processed food are stacked in the middle. Some shoppers have heeded that advice: sales of canned soup have been lacklustre in recent times, even as those of fresher refrigerated potages have grown. Now makers of the packaged stuff are staging a comeback. This says as much about shifting economic conditions as it does about products on shelves.Listen to this story. Enjoy more audio and podcasts on More

TikTok is becoming the West’s favourite time sink. Last month it said it had 150m users in America, putting it ahead of Instagram and within striking distance of Facebook, two social networks owned by Meta. For its Chinese parent company, ByteDance, it remains a money sink. ByteDance can afford to be patient with the lossmaking Western app thanks to its lucrative Chinese version, Douyin. Last year the tech group as a whole made a gross operating profit of $25bn or so, most of it at home. On that measure, it overtook China’s reigning tech titans, Alibaba and Tencent. The gap between Meta’s overall profits per user and those of ByteDance’s apps is narrowing—and will shrink further once TikTok starts making money. Unless, that is, Western politicians act on their threats to ban TikTok on national-security grounds.■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

In a miserable year for initial public offerings, Indonesia’s capital is turning heads. The Jakarta Stock Exchange enjoyed record IPO volumes in the first quarter. The $800m raised in these flotations outstripped the sums drummed up on Hong Kong’s or New York’s stock exchanges in the same period. The bulk of the money came from the listing of Pertamina Geothermal Energy, a green subsidiary of the state oil-and-gas giant. It may have been just the start of Indonesia’s clean-energy IPO boom. On April 12th Harita Nickel, a firm that processes the battery metal, pulled off the country’s biggest IPO in almost a year, raising nearly $700m at a valuation of around $5bn. Later this month Merdeka Battery Materials, another nickel firm, aims to raise more than $500m. Listen to this story. Enjoy more audio and podcasts on More

In FEBRUARY TECK RESOUrCES finally announced its slow move into the future. The Canadian miner plans to spin off its relatively dirty steelmaking-coal operations. Under the plan, Teck would focus on mining copper and zinc, while continuing to get the majority of the severed coal company’s profits. Holders of Teck’s super-voting “class A” shares would retain control over the rump firm’s strategic moves for six years. After that its dual-shareholding structure would be scrapped.Glencore, a much bigger commodity firm based in Switzerland, has something much more radical in mind. It proposes a merger between it and Teck that would then create two giant versions of Teck’s proposed entities. The first would amalgamate Glencore’s and Teck’s metals and minerals businesses. It would be listed in London and have an enterprise value of perhaps $100bn. With copper mining expected to make up roughly half its profits, “GlenTeck” would be a red-metal giant poised to take advantage of a green commodities supercycle. The second company would combine the parent firms’ coal businesses, to be listed in New York. This “CoalCo” would shovel all cash it generates to shareholders as the world weans itself off the black stuff.Glencore publicly announced its unsolicited offer on April 3rd. Its boss, Gary Nagle, said that the deal, with an implied premium of 20% over Teck’s share price, would cut costs and unlock shareholder value. After swiftly rejecting the offer, his opposite number at Teck, Jonathan Price, called the transaction a “non-starter”, complaining that it would expose Teck’s shareholders to Glencore’s thermal-coal business, which may command less enthusiasm from investors than coking coal for steel mills. Mr Nagle fired back on April 11th, offering Teck’s shareholders their quarter of CoalCo in cash rather than shares. If later this month shareholders scupper Teck’s original restructuring plan, which requires approval from supermajorities of both share classes, the firm could be forced to the negotiating table. Even then, securing a merger will be difficult. It would be the biggest acquisition of a Canadian miner since 2007. The Keevil family, which owns many of Teck’s super-voting shares, is a hard sell. Norman Keevil, the patriarch and Teck’s chairman emeritus, has made plain his desire to keep the firm in Canadian hands. Canada’s government shares his wariness: it is tightening foreign-investment rules in its critical-minerals sectors.To placate the Keevils and the Canadian authorities, Glencore promises to keep GlenTeck’s industrial head office in Canada. In addition, it has pledged domestic employment guarantees and a secondary listing on Toronto’s stock exchange. If Glencore’s overtures to Teck fail despite all these sweeteners, the Swiss company may still want to put its coal business up for sale. Other mining bosses may be ready to start shaking hands, too. On April 10th Newmont, an American mining giant, raised its takeover offer for Newcrest, an Australian gold miner, to almost $20bn. Years of dwindling capital expenditure and a commodities boom have left miners flush with cash. With their shares often trading close to the replacement value of their assets, buying looks more attractive than building. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More