What do the words in bold in the following Financial Times article mean ?European business
got through previous crises with a mixture of restructuring,
denial and government intervention. A similar
outcome seems likely from this crisis even if the speed and
scale of the
downturn are testing companies as never before.
Take German private engineering companies,
renowned for conservatism, which even in the middle of last year were
bullish and saw their orders rising by 2 per cent. By November the monthly
growth was minus 30 per cent; by January minus 42 per cent. Now, the groups are cutting jobs, investment and
fighting for survival – as they are across Europe.
For many big European companies, the most significant event in the last decade was the
shift in
ownership from governments or other national companies to private, often foreign, shareholders. This has seen a big rise in
stakes held by US and UK investors,
leading in turn to a broad push for more “Anglo-Saxon” corporate policies, as many continental Europeans call them.
According to Gerhard Cromme, chairman of Siemens, foreign capital “revolutionised the way Germans do business”.
Across Europe, companies were forced to adopt more shareholder-friendly strategies and boards came under pressure over
corporate governance issues,
prompting investor revolts at
the likes of Eurotunnel, the channel tunnel operator, and Deutsche Börse, Germany’s stock exchange. Financing arrangements changed as local lenders
proved less willing to prop up domestic groups and foreign banks
flooded in.
How much of that is now
likely to be rolled back? Already – as in most parts of the world – the state is more active, both in
taking stakes in companies and prodding them to do what the authorities would like, such as a French suggestion that carmakers should close no
domestic factories. Foreign lenders have
withdrawn from many countries and banks are being encouraged to lend locally again.
Restructuring is likely to be a dominant theme, with millions of jobs to be cut as
profits slide. The question is how radical that restructuring will be. Although the automotive industry may be
prime among those needing a shake-out, government support could
stymie that. “I am worried that a lesson could be just that ‘you are too big to fail’, like Opel [General Motors’ European arm], rather than ‘you are too good to fail’,” says a director of one carmaker. But big names will still disappear across the continent, as Woolworths has from UK retailing.
Strategy will be made with an eye not just on shareholders but also on what governments and workers want. Wendelin Wiedeking, chief executive of Germany’s Porsche, hopes the days of shareholders
seeking to tell companies what to do are over: “Nobody’s system is perfect but hopefully some of the
lecturing will
die down now.”
The UK is also
showing signs of a change. Jeremy Darroch, chief executive of BSkyB, the broadcaster controlled by Rupert Murdoch’s News Corporation, accepts that short-term financial return is not all. In almost continental European terms, he adds: “I think
that means having a focus on our customers, it means having a focus on our employees and it means having a focus on the
broader stakeholder groups.”
Corporate governance improvements could, however, be
reversed. “There is a danger that corporate governance
slips down the agenda,” says Hans Hirt of Hermes, the influential UK investor. Others
fret that state intervention could slow the internationalisation of boards that Europe needs, leading instead to more national appointees.
Hubertus von Grünberg, chairman of ABB, the Swiss industrial group,
fears a time of “Eurosclerosis” in which businesses
muddle through rather than reinvent themselves. “Europe, instead of finding something new to get out of the crisis like the US and Asia will do, could in fact
go backwards.”
