Blowing hot and cold

January is commonly thought to be named after the Roman god Janus, who presided over beginnings and transitions and was often depicted as a two-faced figure, with one face looking to the past and one to the future. That January was, in fact, named after Juno shouldn’t detract from Janus’ duality and the link to change that offers us a useful lens through which to view recent events.

A month linked to an ancient god of transitions and JAB Holding’s $18.7bn acquisition of Dr Pepper captures the mood at the start of the year nicely – blowing hot and cold (JAB will combine Dr Pepper, a maker of cold drinks, with JAB’s Keurig Green Mountain coffee business).

Some like it hot

Even if the UK is in an economic eddy of its own making (commonly called Brexit), the global economy is gathering momentum and is now growing at its fastest pace since before the financial crisis. Coupled with this, a general air of optimism is creeping back, as is inflation. Despite valuation being high, the M&A market is also hotting up, with January’s mergers and acquisitions hitting a level not seen for many years (at the height of the dotcom boom) – a good thing for the bankers and advisors supporting such deals but a statistic that holds potential warning signs.

This peak in M&A was partly driven by the passing of the new tax law in the US, reducing corporate tax levels and enabling the repatriation of cash held offshore at discounted rates, but is also driven by the pressure on margins driving consolidation and the ongoing search for growth in a world characterised by instability and pressure.


On the political front, the post-war consensus emphasising stability and cooperation is being eroded by the emergence of a multi-polar world and the combination of nationalisation, growing talk of trade wars and the knock-on effects of heavily indebted governments in the west. Donald Trump’s new-found conciliatory tone (seen most recently at Davos last week) is not matched by the talk of trade wars coming out of his administration. Talk about ‘blowing hot and cold’.

There also seems to be a remarkable lack of consensus in the business world. For each company announcing stellar results this month (Caterpillar, ASOS, LVMH and Fiat Chrysler being an eclectic handful of examples), there are as many struggling with falling sales and profits or even going into receivership. Carillion’s messy collapse has exposed fundamental issues with the UK’s government’s outsourcing strategy as well as potentially trouble ahead for the ‘big four’ auditing firms.

At the same time, whole industries are being altered by disruptive new entrants.  The mere announcement that Amazon is entering a new market is now sufficient to wipe billions off the share price of incumbents, as we saw this week with its collaboration with JPMorgan Chase and Berkshire Hathaway to enter the US healthcare market.

A change in the wind

In addition to pressure on profits, there has been noticeable shifts in sentiment in the public, political and regulatory spaces in recent months.

A letter by Larry Fink (BlackRock CEO) to the CEOs of their portfolio companies – entitled ‘A Sense of Purpose’ – states that the “time has come for a new model of shareholder engagement” bringing prominence to a shift in investor engagement that has been underway for some time. The letter, which is worth reading in full, describes the importance of companies demonstrating the positive contribution they make to society and emphasised the role of boards in helping their organisation in “articulate and pursue its purpose”.

‘Big Tech’ is also under pressure to take more responsibility for the content posted on their platforms. The practice of using complicated legal structures to avoid tax, once the norm – is now frowned upon. Businesses are now expected to identify, articulate and maximise their positive contribution to society in addition to simply turning a profit.

The speed and degree to which sentiment is changing means that many organisations are not keeping up and are suffering long-term reputational damage as a result – see the BBC’s clumsy attempts to stop being news (as opposed to reporting it, as they would prefer to) over their very public row on equal pay.

Making sense of a confusing picture

Taken together, these factors feel like a great ‘re-ordering’ of old certainties where the underpinning assumptions that have long served established businesses no longer apply. Many such organisations, which have enjoyed the twin benefits of high barriers to entry and a favourable monetary environment for years, are now struggling to adjust.

There are many promising signs in business as well as the broader economy but the external context is changing fast. The leadership teams that can operate effectively amongst the instability and plot a clear course anticipating changes in their markets and sentiment will thrive. As Wayne Gretzky put it, when asked what the secret of being a great hockey player was: “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”

Safe passage

In order to navigate through this period of pressure and instability, organisations need clear direction from an aligned and effective leadership team, overseen by a challenging and supportive board and executing against a clear purpose and direction.Without these key ingredients to long term success, more organisations will flounder in the unpredictable waters that are today’s operating environment.

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