Corporate wealth divisions throw a mirror on society; Evidence growing of a ‘winner takes all’ economy

February 14, 2014 6:06 pm

Corporate wealth divisions throw a mirror on society

By Brooke Masters

Evidence growing of a ‘winner takes all’ economy

For months now, the improving economic indicators in both the UK and the US have not been mirrored in better results from many companies – particularly those that cater to consumers.

That split was heightened this week as the Bank of England unveiled surprisingly bullish economic forecasts in which it predicted UK growth would hit 3.4 per cent for 2014, instead of 2.8 per cent as forecast.

But companies including Nestlé and Tate & Lylecountered with downbeat assessments about their earnings prospects. Both echoed concerns raised last month by Unilever about stagnant demand in emerging and developed markets. Big carmakers also reported adecline in US sales for January, though cold weather appears to have played a part.

The real culprit in this may be income inequality. Evidence is growing that we are living in a “winner takes all” economy right now. Consider Barclays, the UK bank. On Wednesday, it simultaneously announced that it planned to eliminate 12,000 jobs while boosting its bonus pool by 10 per cent to nearly £2.4bn. A very different example of a select few cashing in on lucrative activity was provided by Supercell, the Finnish mobile gaming company. This week, it revealed it had earned nearly $900m in revenues last year, despite having just 132 staff. Its two products, both highly addictive mobile video games, did not exist three years ago.

At least Supercell has products. As the Financial Times highlighted on Monday, the owners of US biotech companies are rushing to float right now, even though some have not even started clinical trials on their products. Fewer than one in 20 drugs typically make it through all the testing.

Dicerna Pharmaceuticals, which raised $90m in late January, has drawn particular concern because it did not require its main investors to hold on to their shares for a “lock up” period after the initial public offering. Its shares tripled on the first day of trading, but have fallen 15 per cent since that initial high. While it is not clear who cashed in, the group’s prospectus warned that 7 per cent of shares could immediately be sold and the remaining 93 per centrwithin three months. The whole thing has a strong odour of “take the money and run” – reminiscent of the US dotcom boom in 2000, or even the Gilded Age of the 1890s.

So far, investors, customers and employees have been content to watch the masters of the universe – particularly in tech and banking – reap most of the benefits from returning growth. But there are signs that public attitudes are changing, as seen in the San Francisco protests against the luxury buses ferrying Google workers to Silicon Valley.

Last month, the World Economic Forum in Davos – an unequal group if there ever was one – put income disparity at the top of its list of 31 potential risks to global stability. Thus far, the issue has remained largely theoretical for most companies. But, last autumn, US regulators proposed a rule that would force companies listed there to disclose the ratio of their chief executive’s compensation to the median pay of employees. If it is introduced, some corporate boards could find themselves in an uncomfortable spotlight.

 

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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