(July 9): The Covid-19 pandemic has been a black swan event. It has resulted in an existential challenge for many firms. Even in the countries where governments are most supportive, businesses are struggling to stay afloat and avoid bankruptcy. What will differentiate the resilient from non-resilient firms?

The intuitive answer is that well-run firms will weather the storm better. True, but we also believe that companies displaying some attributes of “inefficiency” are also more likely to survive this crisis. By highlighting this, we hope to provoke some questioning about how we evaluate corporate success.

Led by the rise of shareholder activism and private equity in recent decades, firms in the developed world have become lean and focussed in their pursuit of maximising shareholder value. With the exception of a handful of bellwether tech companies which seem to get a free pass, companies have loaded up on debt as well as returned cash to shareholders through share buybacks or dividends. For example, substantial cash on the corporate balance sheet elicits the sneer that “you are not a bank”. Furthermore, conglomerates trade at a discount under the belief that they do many things, but none of them really well, without an ability to extract synergies from unrelated businesses. Activist shareholders have led this charge to break up the diversified company and sell unrelated parts as standalone firms.

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