Paul Singer’s Elliott Management has forced companies to launch efficiency drives  © REUTERS

Efficiency has fallen out of fashion. There is a growing expectation that post-coronavirus businesses will be run with big buffers to guard against the next hundred-year flood.

Companies that were, just a few weeks ago, condemned by activist investors as stodgy and slow, accused of hoarding cash and lacking focus are the ones sitting pretty.

At first glance Primark, the UK-based clothing chain, looks like a good candidate to collapse alongside many of its retail peers. Last month, lockdowns forced it to close all of its 375 stores from Berlin to Birmingham to Brooklyn: 12 countries in 12 days. As it does not sell online, its revenues have now fallen from £8bn a year to an annualised rate of £0.

This is bad — but not existentially bad. Primark is shielded as part of an 85-year-old family-controlled conglomerate, Associated British Foods, that grows and processes sugar and supplies products to supermarkets, bakers and farmers. It is not just the conglomerate’s diverse revenue streams that protect Primark. It also held net cash of £800m going into the crisis.

© Charlie Bibby/Financial Times

Such conservatism became less common in the last few years, as companies loaded up on cheap debt and bought back stock. Bastions of caution such as Japan — where more than half of the Topix index has a net cash position compared with only 14 per cent of the US S&P 500 — started to buckle.

Nintendo, known as an inveterate hoarder with a ¥1tn cash pile, had started to acquire its own shares and this week Reuters reported that US activist ValueAct had built a stake in the video games group over the past 12 months, sensing that the company was open to change.

The California-based fund was not alone in seeing the potential to import US investor capitalism: Paul Singer’s activist fund Elliott Management has also arrived in Tokyo; private equity group KKR had made the country its “highest priority”, believing that executives had changed their minds and now had a “totally different” attitude to spinning off non-core businesses. 

Now all those bets are in doubt. Why would corporate Japan want to embrace a US model when its homegrown conservatism has allowed it to ride out this storm?

At the extreme, inefficiency can save lives. The German hospital sector has far more capacity than other countries, with six acute care beds per 1,000 people compared with 2.4 in the US and 2.1 in the UK. Before the pandemic, smaller hospitals were under pressure to merge into bigger units, shedding beds along the way. As Germany endures with a lower death rate than other countries, those calls for reform are likely to subside.

It is too soon, though, to assume efficiency will be abandoned. Be wary of any confident predictions for a post-crisis period that begins, maddeningly, at some point between now and never. Coronavirus may prove a defining moment in the collective business psyche, or it may fade quickly.

If this does mark a new age of conservatism, there will be a cost. Activists were often the catalyst for positive change. The clichéd corporate raider, who sees a pot of cash and demands it is returned to shareholders, can be dispensed with. But the playbook had evolved well beyond that, with a detailed drive for efficiency throughout a business. A call to scrap pet projects, close underperforming divisions, eliminate wasteful spending on executive perks. That message really chimes with the times.


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