Financial Times Europe - 09.03.2020

16 ★ FINANCIAL TIMES Monday9 March 2020

Welch was not to blame

for mistakes made later

Further to your editorial “Welch’s

mixed legacy is a sign of changing

times” (March 5): surely the lesson of

General Electric’s extraordinary

success under Jack Welch, and

subsequent decline under Jeff Immelt,

is that businesses can never stop

adapting. Welch created a GE for the

1980s and 1990s. By the end, when I

worked for him, he had built it up into

the most valuable company on earth. It

was up to his successors to take that

legacy and adapt it to the world of the

2000s and 2010s. While tempting, it

seems perverse to blame Welch for

mistakes made five, 10, 15 years later.

He gave himself an F for picking his

successor, which seems fair. He also

gave himself an A for his own

leadership. That too seems fair.

Patrick Macdonald

Chairman,

School for CEOs,

Edinburgh, UK

Does it ever make sense

to sell off a crown jewel?

Where in the conglomerate discount

playbook does it make strategic sense

to divest a “crown jewel” in favour of a

portfolio of lossmaking or

commoditised business units? (“Lifts

deal takes buyout boom to next level”,

March 6.) Setting aside what may in

hindsight emerge as a Minsky moment

in a private equity market awash with

dry powder, what are the long-term

prospects of the slimmed down

Thyssenkrupp?

Corporate strategy units in the dying

breed of wayward conglomerates

might consider spending a bit more

time determining what is core and non-

core. As laudable as it has been for

Toshiba toshed 53 of its sprawling 350

subsidiaries n a bid to arrest thei

financial meltdown sparked by its

bankrupt Westinghouse unit, one

might ask what the strategic value was

in selling its prized memory chip

division. And how has Pearson fared

since the divestment of stakes in The

Economist, Penguin Random House

and these hallowed salmon pages to

focus on educational publishing, a

sector in long-term structural decline?

Mark Eisinger

Dubai, UAE

Lasting peace will be hard

to achieve in Afghanistan

Recent headlines have celebrated a

breakthrough in the peace talks

between the US and the Taliban (“US

hails signing of peace deal with Afghan

Taliban”, FT.com, February 29) but any

optimism should be cautious at best.

Sustainable peace is rarely achieved

exclusively by negotiations at the top,

much less when such negotiations

exclude the majority of those affected

by conflict.

The key component of the recent

agreement is to establish future intra-

Afghan dialogue, including the Taliban

and a range of other actors from within

and outside the Afghan government.

This nascent process faces the

possibility of making two key mistakes

that could cause it to falter before it’s

even begun: first, that it fails to

meaningfully include a cross-section of

Afghan society and therefore lacks

legitimacy and buy in; second, that it

does not begin from an understanding

of the myriad interconnected and often

localised conflicts that define the

ongoing violence, failing to address

them.

Afghanistan has been at war for 40

years. It’s time to refocus our energies

on sustainable peace, to ensure a long-

term solution to a long-term crisis.

Ben Francis

Afghanistan expert,

International Alert,

The Hague, The Netherlands

New urgency to the debate

on stakeholder capitalism

In his article “Stakeholder capitalism’s

first big test” (March 5), Andrew

Edgecliffe-Johnson argues that stock

market-quoted companies may have to

ditch their newly found belief in long-

termism in the face of an economic

slowdown and falling revenues. That is

practically unavoidable, as corporate

pay structures and incentives have still

not changed and a sinking share price

can put a company at risk of being

taken over.

Also, sending employees home on

paid leave may be considered as a

short-term measure by some

employers, but can’t be afforded for

longer periods of time even by the

more generous. In Germany this would

be covered by so-calledKurzarbeit—

short-time work — when employees are

laid off and unemployment insurance

covers the company’s pay to the absent

employees.

Discussions about stakeholder or

Rhineland capitalism are not new —

Tony Blair raised the subject in a

speech in Singapore in January 1996 —

but they have no doubt gained a new

urgency in the guise of sustainable

capitalism because of concerns about

the environment and inequality.

Bob Bischof

Vice-president,

German British Chamber of Industry &

Commerce,

London SW1, UK

Camilla Cavendish in her wide ranging

article on the increase in the

“unretiring” of senior executives and

politicians, with a greater proportion

working during an “extended middle

age” rightly highlights the examples of

the US president and the presidential

candidates (“It is time to wake up to

the challenge of longer lifespans”,

February 29). Perhaps, however,

during an era of diversity and with

International Women’s Day this month,

she might have included Elizabeth

Warren, the senior US senator from

Massachusetts, who at 70 is only

slightly younger than Bernie Sanders,

Mike Bloomberg and Joe Biden.

Given the importance of public

figures as role models, Ms Cavendish

might also have mentioned the age and

seniority of numerous members of the

legislative branch of the US

government. These include Susan

Collins, the senior US senator from

Maine (age 67), Jackie Speier, the US

representative for California’s 14th

congressional district (age 69), Nancy

Pelosi, Speaker of the House of

Representatives (age 79) and Dianne

Feinstein, the senior US senator from

California, who is a mere 86. Nor

should it be overlooked that the third

branch of the US government, the

Supreme Court has its own role

models, who exhibit comparable

longevity, for example, Clarence

Thomas (age 71), Stephen Breyer (age

81) and Ruth Bader Ginsburg (age 86).

During a BBC radio broadcast

over Christmas, Ms Ginsburg engaged

with her much younger UK Supreme

Court counterpart, Lady Hale, who at

the age of 75 was having to retire from

the court due to a mandatory

retirement age in the UK. The

comparison between the two systems

couldn’t have been more graphic,

and our loss of judicial experience

contrasts starkly with America’s gain.

Surely there is now sufficient

evidence to value the combination of

ability and experience which all these

role models exhibit, not to mention

extensive records in their various

disciplines. In many cases they have

outperformed their younger rivals, to

secure and maintain high office at the

latter’s expense, and have used their

experience to this end. Last week’s

withdrawal of the younger presidential

hopefuls amply illustrates this.

Penalising someone simply because

of the length of time they have been

alive is arguably the most pernicious

and unjust form of discrimination, and

increasingly this is being demonstrated

by the success of these role models.

Even the embattled president Trump

has played his part here.

Keith Corkan

Woodfines Solicitors,

Milton Keynes, Bucks, UK

Ability and experience: a valuable combination

Letters

MONDAY9 MARCH 2020

Email: [email protected]

Include daytime telephone number and full address

Corrections: [email protected]

If you are not satisfied with the FT’s response to your complaint, you can appeal

to the FT Editorial Complaints Commissioner: [email protected]

Growing up in southern France in the

mid-1980s, I remember those teenage

girls who enjoyed the freedom I did

not. They hung out with boys after

class, in no hurry to go home; many of

them came from broken families.

At about the same time, “V” was

one of them, not in the south but in

Paris. Unsupervised and in need of

paternal love, she crossed paths with a

paedophile. V is Vanessa Springora,

the author of a memoir that has

provoked shock and soul searching in

France this year, exposing how she

was groomed and abused by “G”, an

award-winning author, almost in plain

sight.

She was 14, living with her mother

after a bitter divorce. He was 36 years

older, and celebrated for novels and

diaries describing his relationships

with teenagers.G is Gabriel Matzneff,

now in his 80s and unrepentant. His

penchant for adolescent girls and boys

was well known in Parisian literary

circles. Her mother barely objected to

the relationship and, after a while, had

him over for dinner regularly.

“Sitting at the table, the three of us,

over a leg of lamb and green beans, we

looked like a nice little family, papa-

maman reunited, with me, in the

centre, radiant, the holy trinity,

together, once again,” she writes. “As

shocking and absurd as this idea may

be, G is perhaps for her, too,

unconsciously, the ideal paternal

substitute, the father she was not able

to give me.”

Springora’s style is incisive and she

keeps readers hooked with short

chapters depicting a post-

libertarian establishment that lets her

down. She misses school, but no one

pays attention. Anonymous letters

revealing their affair are sent to the

police but lead to nothing.

When she is hospitalised — an

episode she says was a cry for help —

no one objects to G visiting her. When

she confides to a paediatrician that

sexual intercourse causes her pain, he

offers to perform an operation on her

hymen.

Springora’s testimony is important

for several reasons. Her forensic

account of G’s approach and grip over

her life — she calls him an “ogre” —

will serve as a warning to parents and

adolescents. She also delves into the

ambivalence of her feelings. She

admires and loves G, but she also

senses that she is being used.

“At 14, one is not supposed to be

picked up by a 50-year-old man from

school, one is not supposed to live at

the hotel with him, nor to find oneself

in his bed, his penis in one’s mouth for

tea. Of all that I am aware, despite my

being 14, I am not completely

senseless,” she writes.

“From this anomaly, I draw a new

identity. However, when my situation

does not trigger surprise around me, I

intuitively feel the world is not quite

right.”

France has changed. Mr Matzneff

would now struggle to find a

mainstream publisher for his 1974

book entitledLes moins de 16 ans or(

The Under-16) that advocated sex with

minors. The Frenchequivalent of

#MeToo as helped victims of sexualh

crimes and harassment come to the

fore. And yet Mr Matzneff has

received a literary accolade as recently

as 2013. Many of the protagonists of

Springora’s book have been at a loss to

justify their inaction. Some still defend

Mr Matzneff. Her mother feels no

guilt, Springora writes in the book.

For some,artistic creation remains a

powerful excuse or unacceptablef

behaviour. Springora writes: “In

another environment, where artists

did not exercise the same fascination,

things would have unfolded

differently. The Monsieur would have

been threatened to be sent to prison.”

If in the case of Mr Matzneff

literature was used as an excuse, in the

case of Springora it has been used,

eventually, to heal and take revenge.

After G drew inspiration from their

affair in novels, published their love

letters and a diary recounting their

break-up, she developed a profound

distrust for words. She writes: “With

G, I discover to my detriment that

books can be traps to lock up those

one pretends to love, they become the

bluntest instrument of betrayal.”

But she found her way back to

literature, joining a publishing house

and coming up with a plan.

“For so many years I have gone

around in my cage,” she writes, “my

dreams populated with murder and

vengeance. Until the day the solution

presented itself: play the hunter at his

own game, lock him up in a book.”

The reviewer s the FT’s world editori

Playing the

hunter at his

own game

Book review

Anne-Sylvaine Chassany

Le Consentement

by Vanessa Springora

Grasset, €

Correction

cThe Federal Reserve’s new policy

rate is 1.0-1.25 per cent, rather than

1.0-1.5 per cent as incorrectly stated in

an article on March 5.

COMMENT ON FT.COM

Gavyn Davies

The Fed will be watching the labour market

before pushing the panic button

http://www.ft.com/opinion

Britain’s chancellor Rishi Sunak is set
to mark a break with a decade of aus-
terity on Wednesday. The new chancel-
lor, appointed last month after his
predecessorSajid Javidclashed with
the prime minister, will unveil a Budget
whose centrepiece is likely to be new
spending announcements. With the
negotiations on a post-Brexit trade deal
with the EU and, even more, the coro-
navirus epidemic threatening to create
a drag on the economy, this is the right
approach: fiscal policy should support
growth through a difficult year.
Yet this conflicts with the govern-
ment’s spending rules. While these
allow the government to borrow for
capital expenditure, day-to-day spend-
ing is to be financed out of taxation.
Downgrades to productivity forecasts,
previously-announced spending deci-
sions and accounting changes to the
treatment of student loans all mean
that, under the current rules, there is
no room to spend more on public serv-
ices without raising revenues.
This time, though, higher current
spending need not be balanced by tax
increases. Instead, facing so many eco-
nomic headwinds the government
should relax thefiscal rules, borrow —
within sensible limits — and spend in
order to strengthen the economy. Gilt
yields have fallen sharply as fear over
the economic impact of the coronavi-
rus has spread; markets are relaxed
about the prospect of higher UK debt.
The global economy may well be
heading into its first recession since the
financial crisis. Even in a benign sce-
nario where thecoronavirusdoes not
spread as far as anticipated and fades
away as winter ends, the damage to
growth from the prolonged shutdowns
in China and northern Italy alone could
hit employment, wage growth and
living standards. In those circum-
stances, especially with interest rates
already low, fiscal policy should

favour supporting the economy.

The extra spending should be care-

fully targeted. Investing in infrastruc-

ture to help raise productivity is sensi-

ble. But more money for services

including education, particularly for

those who do not go to university, will

also be needed to “level up” the coun-

try. Funding for the National Health

Service will be vital to help services to

cope with the disruption caused by

Covid-19. Local authorities need a help-

ing hand after bearing the brunt of cuts

over the past 10 years.

The government should also ensure

those in precarious employment have

the support to be able to take sick leave.

It has already said statutory sick pay

will begin immediately rather than

after four days, but this does not go far

enough for the self-employed and con-

tract workers — many of whom cannot

afford to take even a day off. Britain’s

social safety net was designed for an era

of steady manufacturing employment,

not an nsecure gig economy.i

An expansionary Budget does not

mean the government should waste the

opportunity provided by a new parlia-

ment and a large majority to launch tax

reforms. Modest tax rises this time

could pave the way for more in the

October Budget if the current eco-

nomic turbulence abates. A surcharge

for overseas home buyers, and ending

the nearly decade-long freeze on fuel

duty as well as entrepreneur’s relief are

all good candidates. Scrapping subsi-

dies on fuel for farmers and construc-

tion workers is a sensible measure to

tackle climate change, but needs to be

carefully handled. France’sgilets jaunes

protests are a cautionary tale.

Low interest rates and a struggling

economy are not an excuse to abandon

fiscal prudence altogether. But the

multiple headwinds the country is fac-

ing justify, for now, a careful relaxation

of the rules.

The chancellor has scope for a modest relaxation of the fiscal rules

UK budget should favour

support for the economy

Warren Buffett’s famous critique of air-
lines — that they make poor invest-
ments and are little more than “bot-
tomless pits” in which to throw money
— has never seemed more apposite.
Carriers are facing one of their greatest
challenges as the rapidly spreading
coronavirus has caused a slump in pas-
senger demand. The International Air
Transport Association estimates air-
lines could lose a stunning$113bn in
revenue this year alone f the virus con-i
tinues to spread. That is about four
times the previous estimate published
last month.
Big US carriers have announced
sharp cuts to capacity. Across Europe
there are fears that passenger numbers
could plunge by as much as 24 per cent
this year. Lufthansa on Friday said it
would slash capacity by half in coming
weeks. Investors have voted with their
feet, sending airline shares down
nearly 25 per cent since the outbreak
began — some 21 percentage points
greater than the decline at a similar
point during the 2003 Sars crisis.
Despite the turbulence, government
bailouts are not the right answer to eco-
nomic contraction or to help under-
write failing business models. In the
UK, the government was right astl
weeknot to intervene to save regional
airline Flybe. The carrier was already
on a perilous financial footing. Nor is
the industry alone in suffering the
damaging consequences of the crisis.
Italy’s decision to lock down the region
of Lombardy will have significant
repercussions, not just for travel indus-
tries but for the wider economy.
It also worth noting that the US
industry in particular, whose carriers
have in recent years been the world’s
most profitable, is in a very different
state thanks to a drastic consolidation.
The restructuring even lured back
long-term critics, including Mr Buffett,
who now owns stakes in several

carriers. The virus could lead to a simi-

lar clear-out in Europe where too many

airlines are still chasing too few passen-

gers. Some governments have been all

too happy to support ailing flag carri-

ers. Partial consolidation has already

begun but the virus could give it wings.

All this does not mean there is no

room for assistance. Insurance policies

will vary for each airline but not all of

them will be covered. Targeted inter-

vention would not be unprecedented

and can prove a useful tool during

emergencies. The European Commis-

sionlent a helping handto ailing air-

lines in 2002, after the 9/11 attacks in

the US; in 2003 after the Sars epidemic

and the Iraq war; and again in 2009

after the financial crisis. The help con-

sisted of relaxing strict EU rules that

govern the use of slots at airports. Air-

lines must use their allocated slots 80

per cent of the time or risk losing them.

These rules have already been relaxed

for flights to and from Hong Kong and

mainland China. In Europe, some car-

riers are operating “ghost” flights to

keep their slots. It would make sense to

suspend these rules temporarily.

Other measures could include air-

ports reducing aircraft landing and

parking charges. Singapore has already

done so. It would, however, be difficult

to seeprivate owners of airports in

western nations agreeing to follow suit.

The UK overnment is under pressureg

to suspend air passenger duty for the

next six months in this week’s budget.

Yet the virus should not obscure

what is by far the largest threat to the

industry: climate change. Airline pas-

senger growth typically increases

faster than economic output. Accom-

modating this in a low-carbon world is

a daunting challenge. Companies are

investing in developing electric planes,

but carbon-free long-haul flying is

unlikely to become viable over the next

few decades, if ever.

Targeted intervention could help carriers weather the turbulence

Virus risks emergency

landing for airlines

Ruth Bader Ginsburg and Brenda Hale: role models Alamy—

Markets do not always

prove unerringly accurate

Accounting is by fiat. The book value of

a bank’s net assets is not what the

accountants think that the net assets

are worth, as Simon Samuels seems to

suggest (“Beware ‘badwill’ in European

bank mergers and acquisitions”, March

2). Instead, it is the residual figure

when applying accounting rules to

individual liabilities and assets, at a

balance sheet date, and then deducting

one from the other.

The fact that book values are above

market capitalisations of many banks

does not mean that either the

accountants or the market got the

valuation wrong. Accounting

conventions and market valuations are

two different things, and accounting

rules serve different purposes from

markets where prices are established.

In an acquisition, badwill is

calculated based on fair values of

individual assets and liabilities, not

their book values, as the article

suggests. Setting that aside, Mr

Samuels raises an interesting (and

difficult) question: why do many banks

trade below book value? One

explanation may be that the market

expects lower than historical returns to

equity, and historical returns are at

least partially reflected in today’s book

values, absent a transaction. Lower

expected returns to equity may be

driven, in turn, by a combination of the

low interest environment and higher

capitalisation requirements that

reduce equity returns.

Further, market valuations may

reflect an expectation that the cost

base of many banks is not in line with

such lower expected returns. Future

costs, unrealised at the balance sheet

date, are not necessarily captured in

book values. They are, however,

reflected in market capitalisations.

Hence a difference.

Moreover, even if all individual

assets and liabilities were valued at fair

value in the accounts, markets may

believe that some banks are worth less

than the sum of their parts. What the

author appears to advocate is a general

market-based accounting for net

assets, which goes beyond even fair

value accounting for individual assets

and liabilities. Such a market-based

valuation approach would import the

prevailing market view into accounting

rules, whatever that view may be at

any time.

But markets do not always prove

“unerringly accurate”. Accountants

have recognised for a long time that

even fair value accounting means

importing market speculation into

balance sheets (Benjamin Graham

called it “water”), and they have been

well advised to leave speculation to

others.

Heiko Ziehms

Managing Director,

Berkeley Research Group,

London EC4, UK

MARCH 9 2020 Section:Features Time: 3/20208/ - 17:41 User: charlotte.middlehurst Page Name:LEADER USA, Part,Page,Edition:USA , 16, 1