The Economist - USA (2020-03-28)

(Antfer) #1

58 Business The EconomistMarch 28th 2020


2

1

ample. Another 24 are health-care firms.
Many have spare cash and a captive market
of people in need of drugs. Plenty of the
weaklings are in the ailing transport, retail
and recreation industries (think Marks &
Spencer or American Airlines).
Clear winners and losers are emerging
within sectors, too. In tech, Amazon is add-
ing 100,000 workers in America to meet e-
commerce demand. Meanwhile SoftBank,
a Japanese conglomerate which bet big on
flaky startups (including smaller e-mer-
chants), has been forced to announce
$41bn in divestments to raise cash, among
them, perhaps, the sale of part of its lucra-
tive stake in Alibaba, China’s biggest listed
firm. In energy, the shares of giants such as

ExxonMobil, Royal Dutch Shell and bphave
outperformed smaller firms by a vast mar-
gin. Occidental Petroleum, an aggressive
medium-sized company that has tried to
acquire its way to the big league, now has a
hefty $40bn in debt. L’Oréal, a big French
personal-care group, has done vastly better
than Coty, an American rival. Even among
beleaguered aircraft-makers a gap has
opened up. On March 23rd Airbus, Europe’s
champion, said it had about $32bn of liquid
funds available. Debt investors view it as
less risky than Boeing, which may seek a
bail-out from the American government.
The top dogs’ resilience should eventu-
ally translate into an enduring advantage,
allowing them to win market share over

time. Their cost of capital will be lower.
Suppliers will favour them over feebler
customers. With higher margins and big-
ger cash buffers, they will be able to afford
higher investment even as other firms cut
back. Some will pursue takeovers, encour-
aged by governments which put the surviv-
al of foundering firms (and jobs) ahead of
antitrust concerns. As valuations fall and
capital gets pricier, the ability of loss-mak-
ing startups to nibble away at big firms’
profits will recede for a while.
Not everything may go the top dogs’
way. Calls for a new social contract may get
louder after the virus passes, with firms
pressed to offer vital products for lower
prices and to give workers more security.
Capitalism may become less Darwinian, as
weak firms are propped up by bail-outs and
subsidised loans. The amount earmarked
for cheap business loans and guarantees by
governments in America, Britain, France,
Germany and Italy is at least $4trn, or a fifth
of their outstanding non-financial cor-
porate debt. Some industries may tempo-
rarily be run as officially sanctioned car-
tels, colluding in order to stabilise prices
and production. That will make it harder
for strong firms to assert their advantage.
Covid-19 won’t only have lasting effects on
society and people’s behaviour. It will also
alter the structure of global business. 7

M


an doesnotlivebybreadalone,
even in confinement. Sections of
the world’s high streets have been spared
from national edicts to shut up shop
until covid-19 passes. Supermarkets,
pharmacies and banks remain open just
about everywhere. Other exemptions
reflect which industries politicians feel
voters cannot do without.
Is booze a basic need? Not in Penn-
sylvania or India, where alcohol retailers
have been shuttered. France, predictably,
has spared its wine merchants. Cavistes
had originally been ordered to close,
then permitted to stay open even as the
French lockdown was tightened (cheese-
mongers count as food shops, in case you
were wondering). Dutch and Californian

cannabisdispensarieswerealsoallowed
to reopen. Weed sales in California re-
portedly tripled as tokers pondered life
cooped up with their families.
Bookshops remain open in Belgium
but not Britain, despite an appeal by
James Daunt, boss of Waterstones, a big
chain, that they were “no different to a
supermarket or pharmacy”. By contrast,
when France’s finance minister, Bruno Le
Maire, wanted to exempt booksellers,
their association beseeched him to keep
them closed—but also to stop Amazon
and supermarkets from selling books.
Dry cleaners and launderettes have
usually remained open, including in
New York. But the need to look dapper
does not extend to coiffures. Barbers and
hairdressers closed in much of Europe
(though Germany let them stay open at
first). Their trade group, too, pleaded for
them to be forced to stay shut, pointing
out that hairdressers could scarcely
avoid coming into close contact with
customers. Also, being closed can help
trim expenses by putting staff on govern-
ment wage-replacement schemes, and
perhaps other handouts.
South Korea at no point strictly en-
forced closure of commerce. But gyms
and night clubs that want to stay open
must keep a visitor log and enforce dis-
tancing rules or be held liable for medical
bills of anyone infected on their pre-
mises. Non-food establishments from
Lucknow to Los Angeles might anyway
see few clients even if they kept going.
People must juggle child care with re-
mote work. They have lost their income,
or are about to; confidence is plummet-
ing. Until it rebounds, shopkeepers may
prefer to seek government life-support.

Stillopen


Confinement shopping

PARIS
Retailers vie to be considered “essential” in a lockdown—or not

Critical infrastructure

W


hen thefinancial crisis rocked the
business world in 2007-09, board-
rooms turned to corporate finance chiefs. A
good cfo could save a company; a bad one
might bury it. The covid-19 pandemic pre-
sents a different challenge—and highlights
the role of another corporate function, of-
ten unfairly dismissed as soft. Never have
more firms needed a hard-headed hr boss.
The duties of chief people officers, as
top human-resources executives are some-
times called, are critical. They must keep
employees healthy; maintain morale; over-
see a historic remote-working experiment;
and consider whether, when and how to lay
workers off. Their in-trays are bulging.
Once derided as “pay and parties” man-
agers, by the early 1990s hr chiefs turned to
compliance, keeping firms out of the
courts (and newspapers). A subsequent
string of corporate imbroglios raised their
status, notes Patrick Wright of the Univer-
sity of South Carolina. Executive-pay scan-
dals in the 2000s at firms such as World-

AMSTERDAM
The coronavirus crisis thrusts
corporate hr chiefs into the spotlight

Human resources

The importance of


people people

Free download pdf