From handshake to clenched fist

CEO activism in America is risky business

Firms used to keep politics at arm’s length. What went wrong?

If you are an emblem of American harmony like Coca-Cola, you play your politics carefully, especially on issues as divisive as race and voting. 

The soft-drinks company did so brilliantly in 1964 when the elite of Atlanta—home to both Coca-Cola and Martin Luther King—threatened to snub the civil-rights leader on his return from winning the Nobel peace prize. 

Appalled at the potential embarrassment, Coca-Cola’s current and former executives worked quietly behind the scenes to persuade other industrialists to attend a dinner in King’s honour. 

They even sang “We Shall Overcome”.

Coca-Cola has weighed in this year, too, before and after Brian Kemp, Georgia’s Republican governor, signed a new law on March 31st that critics said would suppress black voters. 

The firm’s discreet efforts to soften aspects of the bill before its passage backfired twice over. 

First, civil-rights groups accused it of pusillanimity. 

When its boss, James Quincey, subsequently joined other Atlanta natives such as Delta Air Lines in expressing disappointment at the outcome, Republicans branded Coke and the others “woke” hypocrites.

On April 14th hundreds of companies, including giants like Amazon and Google, and big-name businesspeople, among them Warren Buffett, published a letter opposing “any discriminatory legislation” making it harder to vote. 

One prominent signatory, Kenneth Frazier of Merck, a drugmaker, told the New York Times it was meant to be non-partisan. 

In the words of William George of Harvard Business School, himself a former ceo, voter suppression “puts democracy at risk, and that puts capitalism at risk”.

Republicans, who have been pushing the bills in response to Donald Trump’s big lie that he was denied a second presidential term by widespread fraud, call the corporate finger-wagging nakedly political. 

That so many household brands and boardroom grandees nevertheless increasingly wag their fingers at the traditionally business-friendly Republican Party shows that they are prepared to break a code of political silence that has served corporations well since the dawn of American capitalism. 


And what effect will it ultimately have on their business?

America Inc was built on top of a legal innovation: the limited liability company. 

Originally such corporate structures still needed to secure a government charter to operate, which often involved greasing plenty of official palms. 

A succession of court rulings in the first half of the 19th century allowed firms to put politics at arm’s length. 

Afterwards they needed only ambition and willing investors. 

The result was the most fecund business environment of all time.

In the early 20th century some bosses rediscovered politics, using their companies’ wealth to buy cronies in government. 

In the aftermath of the second world war, the door between industry and political office was not so much revolving as wide open. 

“Electric Charlie” Wilson, boss of General Electric, and “Engine Charlie” Wilson, boss of General Motors, worked for several administrations in the 1940s and 1950s. 

The period until the 1960s was a time of what John Kenneth Galbraith, a gadfly economist, called “countervailing power”. 

Big business was in a well-balanced scrum with big government and big labour. 

Some ceos behaved like industrial statesmen, offering jobs for life to workers, building villages and golf courses, and presenting themselves as guardians of society.

That equilibrium was shaken in 1970 by Milton Friedman, a Nobel-prizewinning champion of laissez-faire economics. 

He argued that executives’ sole responsibility was to shareholders. 

So long as markets were free and competition fierce, maximising shareholder value would help society, by ensuring better products for customers and better conditions for workers. 

Firms that failed on either count would see buyers and employees defect to rivals. 

Republicans like Ronald Reagan embraced Friedman through shrinking government and deregulating the economy. 

This gave rise to superstar firms and the cult of the celebrity ceo in the 1980s and 90s.

Even so, businessmen held their tongues on political matters. 

Instead, they put their faith in paid lobbyists and used industry groups like the Business Roundtable to campaign on their behalf. 

The lobbying concerned almost exclusively matters of direct concern to their bottom lines, such as taxes, regulations or immigration policies that might affect their employees. 

They studiously kept out of the broader political hurly-burly.

Corporate cash continues to flow into politics. 

But in recent years it is accompanied by a parallel stream of ceo activism. 

Weber Shandwick, a public-relations firm, dates this phenomenon back to 2004, when Marilyn Carlson Nelson, boss of Carlson Companies, a travel business, took a stand against sex trafficking. 

Her fellow travel bosses thought such pronouncements would hurt the industry’s neutral image. 

Instead, she was treated as a heroine by customers. ceos in other industries took note. 

Gingerly at first and more conspicuously in the past five years or so, they began weighing in on subjects from the #MeToo and Black Lives Matter movements to religious-freedom laws, gun control, gay rights and transgender-bathroom bills. 

Mr Trump’s divisive actions, such as a temporary ban on visitors from some Muslim countries, withdrawal from the Paris climate agreement or reaction to racist protests in Charlottesville, caused outrage across corporate America (even as it lapped up his tax cuts).

Mr Trump’s tenure also coincided with a period when public trust in government was already in decline, while that in business was rising. 

Despite corporate America’s image as handmaiden of heartless capitalism, Americans trust business a bit more than they do government or ngos. 

Edelman, another pr firm, finds that 63% of Americans think ceos should step in when governments do not fix societies’ problems. 

Heeding the call, in August 2019 members of the Business Roundtable, including bosses of 150 blue chips in the s&p 500 index, pledged to consider not just shareholders but also workers, suppliers, customers, the environment and other “stakeholders” in corporate decisions.

The trouble with such ceo advocacy is a lack of clarity about its motivations and impact—on the issues themselves, as well on the businesses in whose name it is undertaken. 

Although a lot of it is probably well-meaning, it is muddied by suspicions of hypocrisy and grandstanding. 

Before Christmas The North Face rejected an order from a Texas oil company for 400 of its pricey outdoor jackets because it did not want its brand associated with fossil fuels. 

This month an oil-industry group in Colorado awarded the company a tongue-in-cheek“extraordinary customer award”. 

It noted that many of its clothing products are made with products of petroleum—including its jackets.

In terms of its impact on hot-button issues, corporate activism can backfire if it causes the party against which it is directed to dig in its heels. 

Jeffrey Sonnenfeld of the Yale School of Management, who organised a gathering of ceos on April 10th to discuss voter laws, acknowledges partisanship is involved. 

He believes both business and Mr Biden share a common interest in the centre ground. 

In the face of opposition from “liberal elites”, to which many bosses are seen to belong, Republicans may be more emboldened to press on with restrictive voter laws—just to rub it in.

Chief executives claim that they simply have no choice but to tackle societal concerns because in the age of social media their customers, employees and shareholders demand it. 

The evidence for such assertions is mixed.

Start with consumers. 

Some polls show that supporters of each party would buy more goods from companies that lean either right or left. 

But other research has found that consumers were more likely to remember a product they stopped using in protest at what a ceo said rather than one they started using in support. 

After a shooting spree in one of its superstores in 2019 Walmart banned some sales of gun ammunition. 

A subsequent study found that footfall in Walmart stores in Republican districts fell more sharply as a result than it rose in Democratic ones.

The impact on employees is also inconclusive. 

Many tech firms in the knowledge economy are happy to wear their leftie leanings on their sleeves, believing this will attract bright millennial workers who tend to share such views. 

But it can go too far. 

Lincoln Network, a conservative-leaning consultancy, found that firms promoting a political agenda can have an oppressive internal monoculture, which stifles creativity rather than fostering it.

Then there are the shareholders. Bosses rarely consult them before making political statements. 

Lucian Bebchuk of Harvard Law School found that among signatories of the Business Roundtable’s stakeholder pledge only one of 48 for whom data were available had consulted their board beforehand. 

That suggests a lot of the pro-social rhetoric is lip service.

Investors seem to see it that way. 

The share prices of s&p 500 companies whose bosses signed that declaration—which, if taken at face value, would mean that shareholders would have to share the spoils with other stakeholders—performed almost identically to those of companies whose ceos were not among the signatories. 

That implies that markets did not consider the rhetoric to be of material importance. 

The fact that some of the loudest proponents of stakeholder capitalism, such as Salesforce, laid off workers amid the pandemic despite record revenues suggests that investors may be onto something.

In time, shareholders themselves may become more political. 

The rise of investment funds that consider environmental, social and governance (esg) factors suggests an appetite for certain forms of social stance-taking when allocating capital. esg investors are often willing to accept somewhat lower yields for corporate bonds tied to some do-gooding metrics. 

After studying ten years’ worth of public-interest proposals at s&p 500 companies, on everything from economic inequality to animal welfare, Roberto Tallarita, also of Harvard Law School, found that virtually no such motions pass. 

But support for them is on the rise. 

In 2010 18% of shareholders voted for them, on average. 

By 2019 this had risen to 28%.

One day the boardroom may become as political as the corner office. 

In the meantime, ceo pontificating is likely only to get louder.

Europeans raise privacy concerns over digital currency

ECB’s work on monetary innovation should ensure spending cannot be tracked, consultation shows

Martin Arnold in Frankfurt

The consultation indicated a suspicion that a digital euro could open the door for companies to profit from people’s payments data and for governments to spy on their financial activity © Daniel Roland/AFP/Getty Images

Any future European digital currency should ensure users’ payments cannot be tracked, according to respondents to a European Central Bank survey who highlighted the importance of privacy in any future monetary innovation.

More than 40 per cent of the over 8,200 respondents to the consultation about a digital euro said their priority was for payments to remain “a private matter”, reflecting the deep attachment of many Europeans to the anonymity of cash.

The responses prompted calls for the digital euro — which the ECB defines as central bank money available digitally to all parties — to have cash-like features that would permit offline use without internet access.

The ECB’s consultation of citizens and professional groups is part of its work to build support for its efforts to keep up with the rapidly changing world of digital currencies and payments. 

It will announce by the middle of this year whether it will press ahead with preparations for launching its own digital currency.

Fabio Panetta, an ECB executive board member, told MEPs on Wednesday that the currency could be ready to launch in about five years. 

“Electronic payments are becoming increasingly popular, so a digital euro would ensure that sovereign money — a public good that central banks have been offering to citizens for centuries — remains available in the digital era,” he said. 

“A digital euro would not mean the end of cash. 

It would complement cash, not replace it.” 

In much of Europe, cash is still used for the majority of payments in shops and cafés, and the ECB consultation revealed a suspicion that a digital euro could open the door for companies to profit from people’s payments data and for governments to spy on their financial activity.

The central bank said “most citizens” who responded to its consultation expressed a preference for a digital currency that was restricted to offline transactions, even if that limited the amount of innovative services that could be provided.

“When confronted with a specific choice between an offline digital euro focused on privacy, an online one with innovative features and additional services, and a combination of the two, citizen respondents generally opt for an offline solution focused on privacy, while professional respondents consider a hybrid approach more appealing,” it added.

While privacy was the priority of most respondents, Panetta said they still “understand the trade-offs that are necessarily imposed by the introduction of a digital euro”, in particular the need to respect laws preventing illicit activities such as money laundering or terrorist financing. 

He said a digital euro could not be completely anonymous because of the need to impose limits on the amounts each person can hold “to safeguard financial stability and banking intermediation by preventing excessive capital flows or excessive use of the digital euro as a form of investment”.

The ECB has been testing “bearer instruments” to store smaller amounts of digital euros on hardware devices so they could be used in offline transactions without needing an internet connection or the involvement of a third party

In another experiment, the central bank tested tools to detach a person’s identity from their payments using digital euros via “a decentralised ledger” — the blockchain technology behind cryptocurrencies such as bitcoin.

Panetta said: “Our preliminary experimentation on a digital euro is showing promising results on how technology can be used to protect user privacy without relaxing standards against illicit activities.” 

Germany, May 8, 1945

By: George Friedman

On May 8, 1945, Germany formally declared defeat in World War II. 

As others have said, there was one war in Europe that began in 1914 and ended in 1945, with a 20-year truce in between. 

Both wars pitted Germany against France, Russia and Britain with increasing involvement of the United States. 

It is not an overstatement to say that it was a war of Germany against the rest of Europe, with lesser European powers scattered in minor coalitions with one side or another. 

The wars began in the deep structure of Europe, but they were initiated on a broader scale by Germany and ended when Germany surrendered. 

The two wars might collectively be called the German War, laying the groundwork for asking how much of the Germany that was crushed in 1945 remains today. 

It’s therefore safe to say that 76 years ago, the Germans collapsed and, with that, the European war that began in 1914.

Germany did not unite as a country until 1871. 

The unifying principle was not religion or culture, as there were significant variations, but a common language that enveloped a common myth of the German past, a myth quite at odds with its reality. 

Emerging from this complex mix was a single powerful reality. 

Germany created an extraordinary economy. 

It passed France quickly and then surged past Great Britain, becoming the economic powerhouse of Europe.

The economic surge threatened to exhaust German raw materials, turning the country into a hostage of its suppliers. 

It was also exhausting the appetite for German goods in Europe. 

There were scant markets in play, but Germany was forced to both look beyond Europe and box European competitors out of Europe’s markets. 

That problem was not economic but political, and the political problem was ultimately military.

Max Weber, a famous and still admired sociologist, said during unification that Germany had become a nation-state too late. 

France and Britain had empires from which to draw. Germany had only Europe. 

Thus, he said, economics dictated that Germany secure its own empire. 

He did not mention that the good parts had been taken, the rest were of lesser value, and empire therefore meant war. 

His thinking became common, and Germany began building a navy.

Europe was attentive to but not horrified by German unification. 

It was stunned at the speed at which Germany became an economic power, but most saw ways to take advantage of it. 

But as it became Europe’s dominant economic power, and as it began to modernize its military, concern grew. 

Germany sought to create a continental alliance. 

The Austro-Hungarians bought in but were not the key. 

Russia, with its vast resources, ultimately said no. 

France and Britain were not prepared to be Germany’s junior partners.

Germany understood the military panel. 

Russia, France and Britain were reaching clear understandings. 

A simultaneous attack by France and Russia, accompanied by a British blockade, would break Germany. 

The only counters to this were to curb their economic and military power, thereby reducing the military threat but leaving them dependent on the others’ goodwill – never a good position to be in. 

Alternatively, the Germans could take military action, forcing at least one of the three powers to capitulate. 

Its choice was to crush France, execute a holding action against Russia, and then deal with British naval power at a later date. 

The key to Germany’s reality is that if alarm over its economic power grew, the pressure on the triple alliance to act would grow, and Germany would lose its agency. 

Therefore, it executed its plan before the others could strike. 

Germany would have won, I think, if it had made a deal with Russia. 

Instead, it was forced to fight three armies, and it lost.

The description of World War II is the description of World War I. 

It was the same war. Germany surged economically after Hitler came to power. 

It had a need to expand, and the same coalition of forces – Russia, France and Britain – were potential enemies. 

Political solutions were tried, but the same need to avoid a two-front war trapped Germany into the same strategy. 

After various political maneuvers, it attacked France, this time defeating its army, occupying it and forcing Britain off the Continent. 

It then attacked Russia, once again underestimating the Russian ability to survive defeats and casualties that would break other countries. 

And totally left out of the equation was the United States, so great that Hitler declared war on it, forcing it into war.

May 8, 1945, found two significant powers in Europe, neither of which were fully European. 

One was the Soviet Union. 

The other was the United States. 

Germany was no longer a united nation-state but an occupied territory. 

Its economy was a wreck, its military not fully under German command. 

In 1989, nearly 120 years after the first unification, Germany reunited. 

Its economy, surging before and continuing to surge after reunification, is today the leading power in Europe, particularly now that Britain has left the European Union. 

Germany has learned from its past. 

Its strategy is not to maintain military force. 

It searched to find a basis for working with the Soviets. 

Its historic competitor, Britain, is out of the EU, and the economic alliance of which it is only one member pivots around German economic power. 

Germany has sought to avoid the threat of war while dominating Europe by making certain that Russia is not hostile and that France doesn’t seek alliance with it.

Some 76 years after its surrender, Germany is again the economic pivot of Europe and the fourth-largest economy in the world. 

It underestimates no one, but the truth is that no one underestimates Germany. 

Britain has seceded from the German-led union. 

Russia courts Germany, and the Germans have mastered coyness. 

France searches for its place in the sun, which is often blocked by Germany. 

And the United States lurks in the distance happily indifferent to Europe’s problems.

Each had a mortal fear of the other. 

Now each has mild unease. And geopolitics is not shaped by good intentions, of which there are many. May 8, 1945, was certainly a comma in history. 

It remains to be seen if it was a period.

Cash-rich US banks move to reduce corporate deposits

JPMorgan Chase and Citigroup take unusual step to avoid additional capital requirement

Imani Moise in New York

The deposit challenge facing US banks results from fiscal stimulus programmes and Federal Reserve policies that have pumped trillions of dollars into the economy during the pandemic © Reuters

A wave of cash flooding bank balance sheets during the pandemic has prompted some of the largest US lenders to take the unusual step of advising corporate clients to move money out of deposits.

Banks including JPMorgan Chase and Citigroup have held conversations with some large corporate clients about putting cash into money market funds rather than in deposits, according to people briefed on the talks.

The discussions followed a Federal Reserve decision in March to end looser capital rules for banks that were put in place early in the pandemic. The regulatory relief had helped lenders to cope with a surge in deposits that resulted from US fiscal stimulus and the Fed’s quantitative easing policies.

Usually, deposit growth is a welcome indicator of a healthy economy and allows banks to lend more. But extra deposits can be costly for banks, requiring more capital.

Jenn Piepszak, JPMorgan’s chief financial officer, pointed to the difficulty for US banks during an earnings call in March, saying it was “hard to envision that organic loan growth could keep pace with further QE”.

The balance sheets of JPMorgan and Citi are under particular pressure owing to the supplementary leverage ratio requirement that was imposed on the largest US banks following the financial crisis.

The Fed rule change in April last year had allowed the big banks to temporarily exclude holdings of US Treasuries and cash kept in reserve at the central bank from their assets when calculating SLRs.

Now that the regulatory relief has been withdrawn, some big banks are being pickier about the deposits they hold in an effort to avoid tripping regulatory restraints.

Prodding clients to put cash into money market funds is preferable for the banks because the instruments are managed through their asset management arms and are not included in leverage ratio calculations.

Piepszak acknowledged last month that “turning away deposits” was an “unnatural” action for banks, adding that such measures “cannot be good for the system in the long run”.

But other lenders may soon follow suit.

“Many of the institutions that I speak to are actively looking at the value of corporate clients . . . which ones from an overall perspective, [are] more or less profitable,” said Jai Sooklal, co-head of finance for the Americas at the consultancy Oliver Wyman.

Deposits held at the three largest US banks by assets — JPMorgan, Bank of America and Citi — climbed $243bn in the first three months of the year, on top of a record $1tn inflow last year. In 2019 they rose by $92bn.

Senior bankers including Jamie Dimon, JPMorgan’s chief executive, and Mark Mason, Citi’s chief financial officer, have expressed confidence that the Fed would eventually change the SLR rule, which is under review.

But in the meantime, JPMorgan has started tinkering with its capital structure to help manage the load. In the first quarter of this year it issued $1.5bn of preferred shares, which increases tier one capital and helps improve its leverage ratio.

Pandemic-era deposits were initially expected to come out of the system as the economy normalised. But bankers are beginning to think that the unprecedented stimulus could leave them with excess deposits for years.

“Even if consumers do draw down to go on trips to Disney World, and companies draw down to build out new warehouse facilities and buy new equipment, they’re just not spending fast enough relative to what’s coming in,” said Gerard Cassidy, analyst at RBC.


By Egon von Greyerz

Credit Suisse is hours from collapse and the consequences could be a systemic failure of the financial system.

Disappointingly, my dream last night stopped there. 

So unfortunately I didn’t experience what actually happened.

As I warned in last week’s article on Archegos and Credit Suisse, investment banks have created a timebomb with the $1.5 quadrillion derivatives monster.

A few years ago, the BIS (Bank of International Settlement) in Basel reduced the $1.5 quadrillion to $600 trillion with a pen stroke. 

But the real gross figure was still $1.5q at the time. According to my sources, the real figure today is probably over $2 quadrillion.

A major part of the outstanding derivatives are OTC (over the counter) and hidden in off balance sheet special purpose vehicles.


The $30 billion in Archegos derivatives that went up in smoke over a weekend is just the tip of the iceberg. 

The hedge fund Archegos lost everything and the normal uber-leveraged players Goldman Sachs, Morgan Stanley, Credit Suisse, Nomura etc lost at least $30 billion.

These investment banks are making casino bets that they can’t afford to lose. 

What their boards and top management don’t realise or understand is that the traders, supported by easily manipulated risk managers, are betting the bank on a daily basis.

Most of these ludicrously high bets are in the derivatives market. 

The management doesn’t understand how they work or what the risks are and the account managers and traders can bet billions on a daily basis with no skin in the game but massive potential upside if nothing goes wrong.


But we are now entering an era when things will go wrong. 

The leverage is just too high and the bets totally out of proportion to the equity.

Just take the notorious Deutsche Bank (DB) that has outstanding derivatives of €37 trillion against total equity of €62 billion. 

Thus the derivatives position is 600X the equity.

Or to put it in a different way, the equity is 0.17% of the outstanding derivatives. 

So a loss of 0.2% on the derivatives will wipe the share capital and the bank out!

Now the DB risk managers will argue that the net derivatives position is just a fraction of the €37 trillion at €20 billion. 

That is of course nonsense as we saw with Archegos when a few banks let $30 billion over a weekend.

Derivatives can only be netted down on the basis that counterparties pay up. 

But in a real systemic crisis, counterparties will disappear and gross exposure will remain gross.

So all that netting doesn’t stand up to real scrutiny. 

But it is typical for today’s casino banking world when depositors, shareholders and governments take all the downside risk and the management all the upside.

So let us look at the global risk picture in the financial system:

The $2.3 quadrillion above is what the world is exposed to when this timebomb explodes.

That is the total sum of global debt, derivatives and unfunded liabilities. 

When all the dominos start falling, and no one can meet their obligations, this is what governments are left to finance.

Yes, they will print this money and much more as deficits mount exponentially due to collapsing currencies. 

But the MMT (Modern Monetary Theory) clowns will then find out that printed money rightfully has ZERO value.

If these clowns studied history they would learn that MMT has never worked. 

Just check the Roman Empire 180-280 AD, France in the early 18th century, or the Weimar Republic, Zimbabwe, Argentina and Venezuela in the 19th and 20th centuries.

So when Fiat money dies, how much gold is required to repair the damage?

If we look at the cube below with all the gold ever produced in history, we see that it is 198,000 tonnes valued at $11 trillion.

Below the cube the total central bank and investment gold is shown. 

This amounts to 77,000 tonnes or $4.3 trillion. 

That sum represents 0.2% of the total debt and liabilities of $2.3 quadrillion as shown in the Timebomb.

The $4.3 trillion gold value is at a gold price of $1,750 per ounce. 

This minuscule 0.2% of liabilities obviously is far too small to support global debt. 

A 20% gold backing of total liabilities would be a minimum.

That would be 100X the current 0.2% or a gold price of $175,000.

I am not forecasting this level or saying that it is likely to happen. 

All I am doing is looking at the total risk that the world is facing and relating it to the only money that will survive.

Also, measuring the gold price in dollars serves no purpose because when/if this scenario happens, the dollar will be worthless and the gold price measured in worthless dollars at infinity.


Rather than focusing on a potential gold price measured in dollars, investors should worry about preserving their wealth in real assets held outside a bankrupt financial system.

Regardless of what price gold and silver reach, history proves that it is the ultimate form of wealth preservation.

It will not be different this time. 

Therefore, in the coming crisis, precious metals will be the best insurance to hold as protection against unprecedented global risk.

Gold’s rise since 2000 in no way reflects the massive money printing we have seen in this century.

Still as the graph below shows, gold is at the beginning of a very strong uptrend that has very far to go in both time and price.

Investors have the following choice:

Either they follow the coming crash in bubble assets like stocks, property and bonds all the way to the bottom which is likely to be 75-95% lower in real terms (measured in gold).

Or they protect their wealth in physical precious metals, stored outside a fractured financial system.

As always, history gives the answer as to which path to take.