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Pitfalls, opportunities and the people to watch in 2021



A global pandemic did not feature in predictions for 2020, but the assumption that the Covid-19 vaccines will live up to their promise underpins how the business world is sizing up this year. Here are the key trends, people and risks for sectors from energy to technology.


Trend to watch

The turmoil of 2020 did little to encourage confidence in the staying power of fossil fuels. While peak oil demand remains on the horizon, it is not imminent. Consumption will roar back at some point in 2021 but while renewable energy will continue its advance, CO2 emissions will also rise after last year’s hiatus. Economic stimulus measures in the US and a weak dollar should underpin crude prices, making the battered oil and gas sector tempting for some investors.

Biggest regulatory risk

International energy policy will move in one direction next year: towards decarbonisation. US president-elect Joe Biden has promised a clean energy revolution, but how much of it happens will be down to Congress and the courts. Working out who has the upper hand will keep the energy sector on edge. In November, the focus will turn to Glasgow’s COP26 climate meeting, where governments will pledge more action on emissions.

Person to watch

Gina McCarthy is set to take the new role of US domestic climate tsar  © Alex Edelman/AFP/Getty

Gina McCarthy, Mr Biden’s pick to oversee climate and energy policy from the White House, is the policymaker to watch. The success of Mr Biden’s energy ambitions will hinge on her organisational skills and political nous. Although she has run the Environmental Protection Agency, as domestic climate tsar Ms McCarthy will need to corral the country’s fragmented energy bureaucracy, while also trying to win support from a divided Congress.

What would be the biggest surprise

Deep production cuts by Opec last year eased the worst oil price crash in decades, and the cartel is expected to keep cutting until 2022. But some Opec countries are chafing at the supply restrictions and political frictions are never far away. Indeed, some advisers to Saudi Arabia say it no longer makes sense for the kingdom to keep sacrificing market share to keep rival producers afloat. Still, failure to reach agreement on future cuts would be a surprise and upend forecasts for this year. Derek Brower


Trend to watch

Sustainability. Consumer goods groups have set ambitious targets for cutting their greenhouse gas emissions and in many cases becoming “net zero”. But shareholders will be watching for specifics, including how companies will manage the costs of such plans. With the pandemic disrupting economies, there are concerns that consumers may be less prepared to pay a premium for “green” products. At the same time, Unilever chief executive Alan Jope argues the world is moving towards charging for emissions. “It is inevitable that a price on carbon will come — that will focus everyone’s minds,” he said.

Biggest regulatory risk

Sugar beat? Makers of processed foods are under growing pressure © Wachara Kireewon/Getty

Sugar taxes and other moves to fight obesity. The UK’s almost seven-year-old soft drinks tax is viewed as a success after it pushed beverage makers to cut the sugar content of their products; other countries including Malaysia and India have also brought in such levies. Curbs on junk food advertising and promotions are being introduced in the UK and elsewhere, while the market in sugar substitutes is booming. Makers of processed foods are under growing pressure, while “healthy” food and drinks producers are likely to be the acquisition targets of choice.

Person to watch

Carlos Brito, chief executive of Anheuser-Busch InBev. As well as navigating the challenges of the pandemic, AB InBev has been trying to shift away from the merger machine that made Mr Brito’s reputation but also amassed large debts. A share “lock-up” for some of the company’s core shareholders, including tobacco group Altria and Colombia’s Santo Domingo family, ends in October. The FT reported last year that the group had begun a search for Mr Brito’s successor.

What would be the biggest surprise 

A merger of Unilever and Reckitt Benckiser. Unilever’s decision last year to unify its structure — becoming a UK company rather than an Anglo-Dutch one after 90 years — should make mergers and acquisitions easier. Some analysts have suggested it might look to a potential combination with Dettol maker Reckitt. Both companies poured scorn on the idea, but a surprise combination would herald a return of the megamergers that created Kraft Heinz five years ago. Judith Evans


Trend to watch

Demand for some digital services will slip but will still be at a new and much higher level than before © Hollie Adams/Bloomberg

Will the tech sector be left with an almighty pandemic hangover? The rising tide of demand for digital services in 2020 lifted many boats, as working, learning and playing from home took off. There should be fewer video meetings and less take-out ordering by the end of 2021, but the pandemic taught workers new ways to collaborate and opened consumers’ eyes to the many conveniences of the digital economy. Demand for some services will slip but will still be at a new and much higher level than before the pandemic, and many companies will spend 2021 struggling to upgrade their digital capabilities to keep up.

Biggest regulatory risk

The first batch of antitrust cases against big tech companies in the US will not hit the courts this year. Instead, the focus will shift to lawmaking, as Europe and the US push ambitious new legislative agendas. Brussels is further ahead, and the new laws it proposed in the final days of 2020 to curb the power of the tech giants will be echoed in less strident proposals from the US Congress. By the end of the year, the outlines of a broad consensus will be visible: to limit the way big tech companies use their dominant platforms to favour their own services, and to force them to do more to fight illicit content. It will take until 2022 for these new frameworks to make it into law, and even longer to discover if they have any real teeth.

Person to watch

The restless Elon Musk will be looking for new worlds to conquer © Andrew Harrer/Bloomberg

Elon Musk. Who else? Despite becoming the world’s second-richest man (after Jeff Bezos) and seeing Tesla shoot to the top of the automotive industry’s valuation rankings, Mr Musk still has plenty of room to surprise. For much of the world, his Twitter persona — tech visionary and full-time contrarian, spiced up with a Trumpian blend of egomania and trolling — guarantee attention. But the scope for real business and technology impact remains high, including what could be the world’s first global broadband network delivered from satellites, SpaceX’s Starlink. Expect at least one other radical departure as the restless Mr Musk looks for new worlds to conquer.

What would be the biggest surprise

If one of the big tech companies considered spinning off a significant part of its business. Regulatory pressure is building, with critics pleased at the prospect of forced break-ups, though that battle is still years in the future. But there is scope for voluntary reforms that would reduce the risk of big-company sclerosis and unleash promising businesses, while at the same time staying one step ahead of the regulators. Alphabet has already started to unpick some of its “moonshot” projects: a more radical step would be to spin off its cloud computing division, which is developing a very different culture from the rest of the group. Richard Waters

Financial Services

Trend to watch

The consequences of Brexit remain the big unknown in financial services. Having left the EU, can London retain its crown as the region’s financial centre or will its dominance be slowly eroded by European challengers? New York, Hong Kong and Singapore will also be eager for a share of the spoils if London stumbles.

Biggest regulatory risk

European regulators could decide that the €78tn of euro-denominated derivatives currently cleared in London need to be managed inside the EU. This would lead to a massive headache for banks and their customers, who would probably have to pay more to trade as a result. Banks and plenty of other institutions will also need to step up their preparations for the switch away from the discredited Libor benchmark interest rate after a spate of scandals.

Person to watch

Jane Fraser, incoming CEO of Citigroup © Rodrigo Capote/Bloomberg

Jane Fraser will be the first woman to lead a major Wall Street bank when she succeeds Michael Corbat as Citigroup chief executive in February. The 63-year-old Scot knows she will have to do far more than fly the flag for gender equality. Her task is a daunting one.

Among the big US banks, only crisis-plagued Wells Fargo had a worse share price performance than Citi in 2020. Citi has long struggled to convince investors that it can forge a cohesive strategy from its myriad businesses, which range from a global corporate and investment bank to a large Mexican lender.

What would be the biggest surprise

Europe has yet to see a transformative cross-border merger that would begin to address the continent’s disastrous decade in banking. If a big deal were to happen, a wave of consolidation could follow that might create lenders capable of competing with those on Wall Street. More disruptive, still, would be if a major technology company, such as Google or Amazon, expanded their so far limited forays into finance and tried to become full-scale competitors to traditional lenders, asset managers and insurers. Stephen Morris and Laura Noonan


Trend to watch

A shopper in protective mask loads purchases outside a Target store in South Bend, Indiana © Daniel Acker/Bloomberg

The gap between retail’s winners and losers grew during the pandemic and is set to widen further in 2021. In the US, Walmart and Target have cemented their position as go-to destinations for shoppers and are likely to use some of the additional cash they have generated in the crisis to further integrate their stores and online operations. For clothing chains and department stores and others hit hard by coronavirus, the problems are existential. Another wave of bankruptcy filings is expected.

Biggest regulatory risk

Retail lobbyists have a close eye on increases to the minimum wage, while antitrust measures against Amazon could ripple through the sector if they come to fruition. But topping the list of retailers’ policy concerns is how quickly authorities can get a grip on the pandemic. Few bricks-and-mortar chains can wait until vaccines are rolled out: more lockdowns in 2021 would push more over the edge.

Person to watch

The executive behind some of the sector’s most intriguing deals in recent months is not even a retailer. David Simon is a property magnate who runs Simon Property Group, America’s biggest owner of shopping malls. The real estate investment trust has been buying up some of its largest tenants, including the department store chain JCPenney, Forever 21 and Brooks Brothers. How Mr Simon integrates them with the property empire will be fascinating.

What would be the biggest surprise

As consumer behaviour returns to normal at some point in 2021, some struggling chains should be able to stage a recovery. Deep-rooted structural challenges facing shopping mall and main street operators will persist, however. Wall Street would be surprised if the laggards somehow find a way to effectively combat the might of Amazon. Alistair Gray

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‘Their hair is on fire’: Trump fans await return to political stage




On his final day in the White House last month, Donald Trump told a small crowd of supporters at Joint Base Andrews, the military airport, that he had no intention of leaving the stage quietly.

“I will always fight for you, I will be watching,” the outgoing president said before boarding Air Force One for the last time. “We will be back in some form . . . we will see you soon.”

Now the 45th US president is set to make a splashy return to the fray on Sunday with a keynote speech at the Conservative Political Action Conference (CPAC), an annual gathering of Republican politicians and media personalities that has become a kind of rock festival for rightwing activists, especially college students.

Ford O’Connell, a Trump supporter and former Republican congressional candidate, said attendees were “dying” to hear from Trump, whom he described as the “leader of the Republican party, even if he is not in office in the traditional sense”.

“These folks are unhappy about how the 2020 elections turned out, but their hair is on fire after a month-and-a-half of the Biden administration,” O’Connell said.

“What they want to hear from Trump is: how do you move forward in 2022 and 2024,” he added, referring to the midterm elections in two years and the next presidential contest.

Trump’s speech will end an unprecedented stretch of near silence for the former reality TV star, who built his political career on regular cable television appearances and constant tweeting. After leaving Washington, he took off for Mar-a-Lago, his resort in Palm Beach, Florida, and has stayed there since, playing golf and shunning the spotlight.

Shorn of his ability to communicate with to his millions of supporters on Twitter and Facebook — which banned him for his role in the deadly January 6 siege on the US Capitol — Trump has made just two notable interventions: he called in to Fox News to eulogise the late rightwing radio host Rush Limbaugh, and released a blistering statement attacking Mitch McConnell, the top Republican in the Senate.

Advisers had encouraged Trump to keep a low profile during his impeachment trial, which ended this month with his acquittal.

Trump will be the final speaker at the four-day conference, which is being held in Orlando, Florida — a city that is just two-and-a-half hours drive from his home and that has looser Covid-19 restrictions than CPAC’s usual location of Washington, DC. The former president is expected to speak in person, although event organisers have not confirmed the details of his speech.

Ted Cruz, Republican Senator from Texas © Getty Images
Ron DeSantis, Governor of Florida © AP

The list of the other CPAC speakers reads like a who’s who of his fiercest defenders, including Florida’s governor, Ron DeSantis, and Republican senators Josh Hawley and Ted Cruz — all of whom have been suggested as possible 2024 contenders that could carry Trump’s torch if he does not run again for president.

Trump has not ruled out another bid for the White House, despite mounting legal troubles, including criminal investigations in New York and Georgia.

His appearance at CPAC — an event dating back to a speech by Ronald Reagan in 1974 that has become increasing populist and Trump-centric in recent years — has also drawn attention to Republican party infighting.

Mike Pence, the former vice-president, who fell out of favour with Trump supporters after he certified Biden’s election win, is not attending the event. Nor is Nikki Haley, the former South Carolina governor who told Politico in an interview that ran earlier this month that Trump could not run for office again because “he’s fallen so far”.

The party’s divisions were laid bare in an awkward encounter on Capitol Hill this week, when reporters asked House Republican leader Kevin McCarthy whether Trump should be speaking at CPAC.

McCarthy replied, “Yes, he should,” before Liz Cheney, one of his deputies, interjected: “I’ve been clear in my views about President Trump . . . following January 6, I don’t believe he should be playing a role in the future of the party or the country.”

After Cheney contradicted him, McCarthy abruptly ended the press conference, saying: “On that high note, thank you very much.”

Cheney was one of 10 House Republicans who joined all House Democrats in voting to impeach Trump last month, and is among a handful of critics on Capitol Hill who have openly castigated the former president despite knowing they run the risk of losing the support of party voters.

While a few elected Republicans, like McConnell, have joined Cheney in rebuking the former president, CPAC will serve as a stark reminder of how popular he remains among party activists.

A Suffolk University poll out this week found 46 per cent of people who voted for Trump last November said they would abandon the GOP if the former president broke away and formed his party. Half of those polled said the Republican party should be “more loyal to Trump”, compared to one in five said the party should be less loyal.

Matt Schlapp, a Trump ally and chairman of the American Conservative Union, the group that organises CPAC, told Fox News this week the Republican establishment should recognise that it must now cater to a much broader church; one made up by the old party faithful and the supporters that Trump brought into the fold with his “Make America Great Again” movement.

“It’s Republicans, it’s conservatives — who are this big, big minority in this country — and then it is these new MAGA supporters,” Schlapp said. “This is now a coalition.”

But more moderate Republicans warn that by sticking with Trump, the party will never be able to win back the centrist conservative and independent voters who abandoned the party at the ballot box in November.

“It is important to remember there is a whole other wing of the party, and virtually no one from that . . . wing is being represented at CPAC,” said Whit Ayres, a veteran GOP pollster. “It is a gathering of the most conservative and some of the most active members of the Republican party, but it represents only a portion of the party.”

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McKinsey partners sacrifice leader in ‘ritual cleansing’




The news this week that Kevin Sneader would be McKinsey’s first global managing partner since 1976 not to win a second three-year term stunned many of the consultancy’s partners and influential alumni. 

Few could point to any one mis-step that had felled the 54-year-old Scot. “It added up,” one veteran said simply of the litany of reputational crises he had tried to resolve. 

But nor did many think that Sven Smit or Bob Sternfels, who beat Sneader to the last round of voting, would represent a cleaner break with the past — or that whoever won the final vote in the next few weeks would face an easier task than he had. 

Within days of taking over in 2018, Sneader flew to South Africa to apologise for failures that had embroiled the firm in a corruption scandal. “We came across as arrogant or unaccountable,” he admitted in a speech that began with the word “sorry”.

That set the tone for a tenure defined by the need to make up for other crises that largely predated his promotion, from damaging headlines about McKinsey’s contracts in authoritarian countries to US states’ lawsuits over its work to boost sales of highly addictive opioids

Speaking to the Financial Times less than two weeks before senior partners voted him out, Sneader said he had focused on making the private firm more transparent, more selective about which clients it took on and better structured to avoid surprises in a global group whose rapid growth had made it more complicated. 

According to people who witnessed those efforts, though, pushing them through consumed much of the political capital Sneader needed to win re-election. For some, particularly younger staff, his reforms did not go far enough. For an older group more prominent among the 650 senior partners who vote on their leadership every three years, they went too far.

Kevin Sneader’s failure to win a second three-year term as McKinsey’s global managing partner has stunned many at the consultancy © Charlie Bibby/FT

Sneader’s downfall looked like a case of “the partners not wanting to take the medicine”, one former partner said. Another argued that Sneader’s push for more oversight over partners who prized their freedom had made the firm “too corporate”, while some Sneader allies saw the “protest vote” as a rejection of his reforms rather than a clear mandate for Smit or Sternfels. 

Sneader was not helped by the timing of this month’s $574m opioid settlement with 49 US states, added Yale School of Management professor Jeffrey Sonnenfeld, who said that consultants outside the US did not understand why he agreed to the payout.

Sneader might have been able to reassure them in person, but with McKinsey’s frequent-flyers grounded by a pandemic, “there are limits to what you can do with Zoom”.

‘In business, as in poker, there is uncertainty’

Laura Empson, author of Leading Professionals, said one question now was whether the vote against Sneader was “a ritual sacrifice to appease the bad PR” or a sign that McKinsey’s partners were willing to take more radical action. 

The run-off between Sternfels and Smit may not resolve that issue, say people who know them both, who note that they are of a similar age to Sneader and members of the leadership council that signed off on his reforms. 

Sternfels, a California-born Rhodes scholar who joined McKinsey in 1994, was the runner-up to Sneader in 2018. As head of “client capabilities”, he has a role akin to that of a chief operating officer and is closely associated with the rapid expansion of the firm under Dominic Barton, Sneader’s predecessor. 

Based in San Francisco after six years in Johannesburg, the former college water polo player is known as an effective operator and, the second former partner says, “the guy who built the new business models”. 

But some of McKinsey’s newer activities have dragged him into controversies: last year, he was called to testify in litigation brought by the restructuring specialist Jay Alix — the founder of rival consultancy AlixPartners — over McKinsey’s disclosures while advising clients in bankruptcy. 

When a frustrated judge asked whether he was dealing with “a group of people who are so educated, so arrogant, that they just can’t admit that they’re wrong”, Sternfels apologised, insisting that “we try and not foster arrogance”. 

Smit, who joined in 1992 and is based in Amsterdam, is known inside McKinsey as a more cerebral figure. Now co-chairman of the McKinsey Global Institute, the consultancy’s research arm, “there’s not a university campus he couldn’t parachute into and be received as one of the smartest people in the room,” Sonnenfeld said. 

The Dutch mechanical engineer earlier ran McKinsey’s western European operations and may attract less support from US peers, but the first former partner describes him as “the conscience of the firm”, who will say no to ideas with which he disagrees. The second thinks he may “take the firm back to more of an old-school McKinsey”.

Smit’s writing on topics from urbanisation to the future of work made him popular with clients and provided a glimpse into his thinking on strategy, which he likened in one report to poker. “In business, as in poker, there is uncertainty, and strategy is about how to deal with it. Accordingly, your goal is to give yourself the best possible odds,” he wrote.

Discontent runs deep

Whether the cards fall for Smit or Sternfels, colleagues past and present question whether either will reverse the reforms that seem to have triggered unrest about Sneader. 

“I don’t think Kevin had any choice but to centralise,” said one Sneader ally.

One of the former partners added: “What were the alternatives? It’s a large firm to govern and you do need structures.”

What the election result has already revealed, however, is that discontent with the state McKinsey finds itself in runs deeper than had been obvious outside the firm. 

Whichever candidate triumphs, they will need to listen seriously to the concerns of alumni, clients and policymakers and make clear that he plans meaningful cultural reforms, Empson says.

Sneader’s successor will also have to defy the odds in professional services firms, she adds. “Often with partnerships, when something goes wrong, they appoint someone else in reaction to the problem and that isn’t the solution either and they cycle through another round of leaders quickly,” she says: “It’s almost as though they have to go through this ritual cleansing.” 

McKinsey, which does not disclose its financial performance, earned annual revenues of $10.5bn in 2019 by Forbes’ estimate. Sonnenfeld points to the irony that the firm, which charges a premium for its services, has stumbled in this way.

“It’s odd that McKinsey doesn’t create the kind of leadership that would thrive in a crisis,” he reflected. Before the succession process starts again in 2024, “they need to go into overdrive on leadership development”.

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Investors look to Sunak for clarity on new UK infrastructure bank




Ever since chancellor Rishi Sunak announced the setting up of a UK government infrastructure bank last autumn, investors have wondered what its role will be. Next week, in the Budget, they will get the answer.

The Treasury has only said it will focus on supporting new technologies that are too risky for private finance and would contribute to meeting the government’s target of net zero carbon emissions by 2050. As examples, it gave carbon capture technology and the rollout of a nationwide network of electrical vehicle charging points. 

The selection process has just begun for a part-time chair, working two to three days a week, and it is scheduled to open on an interim basis on April 1.

The bank’s creation has prompted a debate about how infrastructure should be funded in the UK, at a time when the government’s finances are stretched and customers are likely to resist tax or bill increases, the means by which many sectors — such as ports, airports, energy, telecoms, water, and electricity — are funded. 

Many of these assets in England are owned by sovereign wealth, pension and private equity funds, and regulated by arm’s length bodies, under one of the most privatised infrastructure systems in the world.

The government’s finances have been stretched by the coronavirus pandemic, limiting funds for infrastructure projects such as rail © Niklas Halle’n/AFP

Dieter Helm, a utilities specialist at Oxford university, said the bank was “a good idea but it needs scale — a balance sheet and capital funding from the state, in which case you’ve essentially created a new arm of the Treasury”.

“The question is whether this is going to be the primary vehicle through which the government implements infrastructure,” he said. 

John Armitt, chair of the National Infrastructure Commission, a government advisory body, suggested it needed an initial £20bn over five years to make an impact and reach projects the market might be unwilling to support.

The institution, which Sunak has said will be based in the north of England as part of the government’s levelling up agenda, will partly replace the low-cost finance provided by the European Investment Bank, which is no longer available since Brexit. But it is unclear if it will be able to match the €118bn the EIB has lent to the UK since 1973.

Sunak has promised that the government, which spends much less than most European states on infrastructure, will spend £600bn over the next five years. But ministers hope that more than half their national infrastructure plan will be paid for by the private sector. However, private finance is generally more expensive than government borrowing and requires taxpayers to underwrite the construction and financial risks.

Infrastructure spending (as a % of total government expenditure) for Netherlands, UK and Germany. Also a band showing the min and max for all 31 European countries

“The government wants the public to believe that the country can have this wall of private sector investment without higher bills and taxes now but investors will only come if the government will guarantee they will receive a return and it acts as a backstop,” Helm said.

Dissatisfaction with UK infrastructure has been widespread for years: a CBI/Aecom survey in 2017 found that nearly three quarters of businesses were unhappy with facilities in their region.

The lockdowns have taken a heavy toll, for example forcing the renationalisation of rail services. At the same time the Eurostar train service, airports and airlines have called for taxpayer bailouts, while the government is also paying for some households’ broadband.

Although the prime minister has in the past year given the go-ahead to some rail and road schemes, including a tunnel under Stonehenge, other projects — including £1bn of rail improvements — have been axed. 

A road tunnel under Stonehenge is one of the infrastructure projects given the go-ahead © Matt Cardy/Getty Images

Meanwhile, local authorities — which are responsible for urban roads and other key infrastructure — have been forced to shift their limited financial resources to care for the elderly and vulnerable during the pandemic and so want more central government help.

Despite this growing demand, some investors have questioned the need for the new bank, even though they are popular elsewhere — such as Canada, which established one in 2017. 

“Given there is at least $200bn of international capital looking for projects in which they can invest, the government has to be careful it doesn’t just crowd out existing finance,” said Lawrence Slade, chief executive of the Global infrastructure Investor Association, which represents private sector investors.

He argued the new bank, which will take over the government’s guarantee scheme, should only take on projects that are “too risky” for institutional investors, pointing out that the Canada Infrastructure Bank was mandated to lose up to C$15bn (£8.45bn) over 10 years. “It’s not yet clear what question the new infrastructure bank is trying to answer,” he said.

Ted Frith, chief operating officer of GLIL Infrastructure, a £2.3bn fund backed by UK pension funds, said the EIB loaned money at competitive rates to projects that also borrowed from capital markets. “This is a global market and there are plenty of alternative sources of finance to replace the EIB,” he said. However, he added that the infrastructure bank could play a role in addressing the shortage of available projects.

While investors will put equity into existing or smaller infrastructure projects — such as an airport extension or a wind farm — they are wary of new projects, according to Richard Abadie, head of infrastructure at consultancy PwC, because the latter carry long term construction risks and do not provide an income stream for several years.

“The NIB can play a role de-risking projects but the main challenge is how we can afford and manage the cost of energy transition, not whether finance is available to bridge the cost,” he said.

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