Monday 16 April 2018 FT FINANCIAL TIMES C002D5556 BUSINESS DAY A3 World Business Newspaper Security and plane costs hit $9m as Zuckerberg tours US Why don’t more deputies get a shot at the top job? Sidekicks play a vital role that deserves more recognition PILITA CLARK Which chief executive wrote this last week: “There is no such thing as a free lunch. We will have to fight to succeed and my team and I are ready to do so. Because it’s worth it!” I doubt it will help much if I tell you it was the boss of one of the world’s biggest banks, because the words came from Christian Sewing, Deutsche Bank’s new CEO, in a message he sent to staff about his appointment on Monday. Outside banking circles, Mr Sewing is not a big name in his native Germany, let alone anywhere else. He joined Deutsche as a teenager in 1989 and has been quietly plugging away there for all but two years ever since. I have no idea if he will be the answer to the bank’s plummeting share price or years of annual losses. But I rather hope he will be because Mr Sewing — formerly one of Deutsche’s deputy chief executives — is an example of something you do not see every day: a deputy who got the top job. I am biased because, although I have never had a job remotely as important as any of Mr Sewing’s, I have been a serial deputy, most recently this paper’s deputy news editor. And as is well known, this is often an excellent way to make sure you do a lot of thankless work and never get the boss’s job. In my case, this was not a problem. I am rarely gripped by the urge to run anything and have mostly been a deputy to pleasant, hard-working people who made their offsider’s life easy. At the same time, I decided I never wanted another job with the word “deputy” in the title. I agree with Richard Hytner, one of the few people to have written a book (Consiglieri) about the under-studied role of the sidekick. When people hear the word “number two”, he says, they often think “also-ran, loser, couldn’t hack it as number one”. And in my experience, they do. It was no surprise to see a survey last year showing the number of deputy chief executives in the 100 largest UK companies had dwindled to zero. Even deputies themselves dislike the Fastest expansion in loan books since Trump’s election ALISTAIR GRAY US banks have finally reopened the lending taps to corporate America, expanding their loan books at the fastest pace since Donald Trump’s election resulted in a lengthy credit stagnation. While the industry data published on Friday reflect only one month of recovery, bankers said they were an Page A4 title. Two friends of mine who recently became a number two did something smart I wish I had thought of. They insisted on being called an “executive” so-and-so, rather than a deputy. Mr Hytner, a former deputy chairman of the Saatchi & Saatchi advertising group, thinks the deputy’s sorry reputation is unfair. Support acts are often happy to be number two and play a vital role in their organisations that he thinks deserves more recognition. I agree, but I am more interested in why deputies are so often passed over for the top job in favour of an outsider or thrusting insider. This is annoying for several reasons. First, the deputy usually has a proven record of running an organisation because they often have to do it when the boss is busy or away. They also usually do this without one of the big advantages the boss has: a deputy. Promoting people to be a deputy is also a helpful way to groom talented staff and create a pool of potential leaders who can be considered alongside outside candidates when a new chief is needed. These number twos have one big advantage over external hires: they are a known quantity. Outsiders who look terrific on paper and have stellar records elsewhere are not guaranteed the same success in new organisations. The corporate landscape is littered with examples of high-fliers raided from rival organisations who falter. Few fall to ground as quickly as John Browett, the former boss of the Dixons electronics chain who lasted less than a year as Apple’s head of retail. But they can be just as disruptive. This is no argument against the often excellent outside hire. Carolyn McCall, the former boss of the Guardian Media Group, was dismissed as a media luvvie when she was picked to run easyJet in 2010. By the time she left seven years later, the company’s share price had quadrupled and its passenger numbers had soared to records. There are plenty of other examples like her. Would deputies have ever done as well? It is impossible to say because, as is so often the case, they never got the chance to lead. US banks open lending taps to corporate America encouraging sign and predicted a more sustained pick up as US business gets more comfortable about taking on more debt. “You saw a decent pick up in March and we’re seeing that in our pipeline,” said Bill Demchak, chairman and chief executive of PNC Financial Services, the sixth-biggest US retail bank by assets. Continues on page A4 Tighter interest rates raise fears of central bank exposure Second fiddle: Julia Louis-Dreyfus as US vice-president Selina Meyer in ‘Veep’ © HBO Berlin’s airport travails bruise German engineering pride Project nears completion, almost a decade late and regarded as national joke GUY CHAZAN It has been such a mess that one senior Lufthansa executive recently predicted it would have to be torn down and rebuilt. But after years of scandal and controversy, Berlin’s new airport is finally inching towards completion. The €5.3bn building will begin operations in October 2020, nearly a decade later than planned. Germany’s biggest national joke is readying for primetime. Engelbert Lütke-Daldrup, boss of the airport operating company, knows many will view the new deadline, first unveiled last December, with scepticism. Since work began on BER, as it is known, its official opening has been postponed six times. But on a recent press tour of the building, he promised there would be no more delays. “We’ve deliberately gone for a date that’s reliable, that has Americas find common cause in attack on Maduro Trump is the first US president to miss Americas Summit in its 24-year history GIDEON LONG Latin America found rare common ground with the US in criticising Nicolás Maduro, Venezuela’s president, at a fractious Summit of the Americas marked by Donald Trump’s decision to stay at home to deal with the conflict in Syria. Mr Trump pulled out just three days before the start of this weekend’s summit in Lima, becoming the first US president to miss the event in its 24-year history. Some Latin Americans said his no-show proved how little he cared about the region. The US leader sent Mike Pence, vice-president, in his place, but a White House faux pas served only to raise Latin American hackles further. In a note to journalists, Mr Pence’s office said he would attend a banquet hosted by Pedro Pablo Kuczynski, who resigned as Peru’s president last month. Trade tension between the US and China also cast a shadow over Page A5 sufficient reserves built in to cover all unforeseen circumstances,” he said. “It means we’ll all have to be a bit more patient — the public too.” Mr Lütke-Daldrup whisked journalists through the new terminal building, a cavernous, light-filled space the size of eight football fields. Eerily empty now, it will one day swarm with travellers: by 2040, BER will be capable of processing up to 55m passengers a year. “With BER the city will finally get the airport it deserves,” said Burkhard Kieker, head of VisitBerlin, which promotes tourism to the German capital. But it’s questionable whether it will ever be able to shake off its reputation as a national embarrassment. “BER is not exactly a glorious chapter in the history of German engineering and construction,” Mr Lütke-Daldrup said. That is an understatement. Dogged by technical snafus, poor planning the summit. Latin American companies export billions of dollars in raw materials to both countries and are wary of any threat of further tariffs. But on Venezuela, most nations of the Americas were in agreement. With the exception of a few leftwing countries, notably Cuba, they expressed concern about the exodus of Venezuelans fleeing hyperinflation, hunger and crime in their homeland. “It’s incredible that [Mr Maduro] remains in a state of denial when faced with such a clear crisis, when the whole world can see with its own eyes how his people are physically dying of hunger,” said Juan Manuel Santos, president of Colombia, which has borne the brunt of the exodus. Colombia, Chile and Argentina said they would not recognise the results of Venezuela’s presidential election, arguing the May 20 contest would be neither free nor fair. “The elections are not democratic, they’re not transparent, they and dizzying management changes, BER has become a byword for incompetence. When work on the site began in September 2006, the opening was set for 2011. That has since been repeatedly pushed back, while the project’s budget has more than doubled from €2.5bn to €5.3bn. Thorsten Dirks, a senior executive at Lufthansa, said last month that all the equipment the airline had installed in BER was now hopelessly out of date. “My prediction: the thing will be pulled down and rebuilt,” he said. Critics think the 2020 deadline will go the way of all the others. “This is the same team that never managed to get it up and running on time and crashed all the previous deadlines,” said Dieter Faulenbach da Costa, an airport planner who has been one of BER’s harshest critics. “Why should it be any better this time?” don’t comply with the minimum standards of a truly democratic society,” said Sebastián Piñera, Chile’s president. “No country that truly believes in democracy in my opinion should recognise these elections.” Mr Pence described Venezuela as “essentially a failed state” and the government in Caracas as a “corrupt dictatorship”. “The responsibility for the Venezuelan people’s suffering can be laid at the feet of one man: Nicolás Maduro,” he said. With Mr Maduro barred from the summit, the defence of Caracas fell to Havana, and at times the exchanges between Bruno Rodríguez, Cuba’s foreign minister, and Mr Pence were reminiscent of the darkest days of the cold war. Mr Rodríguez accused the Trump administration of promoting “hate, division, selfishness, calumny, racism, xenophobia and lies”. The thawing of relations between the two nations under Barack Obama had been reversed, he said, and Cuba “will not cede one millimetre” in the way it conducts its internal affairs.
A4 BUSINESS DAY C002D5556 Monday 16 April 2018 FT NATIONAL US poised to support $13bn capital increase for World Bank Package would see big lending reforms and rise in China’s shareholding SHAWN DONNAN AND SAM FLEMING The Trump administration is poised to back a $13bn capital increase for the World Bank in a package that would see significant lending reforms and an increase in China’s shareholding. Barring last-minute hiccups, US Treasury secretary Steven Mnuchin is set to tell fellow World Bank shareholders at next week’s spring meetings in Washington that he will support an increase in the bank’s capital, a senior Treasury official confirmed to the Financial Times on Friday. The move would be a significant shift in the US administration’s attitudes towards multilateral institutions. “I think we are moving in that direction. We have been working for months on reforms at the bank and they have made a lot of progress,” the senior official said. The turnround in White House views on the World Bank marks a major win for its president, Jim Yong Kim, who was first nominated for the role by former President Barack Obama. He has worked hard to build a relationship with the new administration and aligned himself with Ivanka Trump, the president’s daughter, who was behind a $150m women’s empowerment fund launched by the bank last year. The administration, which expressed reservations about World Bank lending to China and other middle-income countries at last October’s annual meetings, had been wary of the plans for a capital increase and expectations for an agreement at next week’s meetings were muted. However, Scott Morris, a former Treasury official now at the Center for Global Development, a Washington think-tank, said: “I’m hearing a lot of positive sentiment both from the Bank side and the US side. That’s pretty remarkable.” US banks open lending taps to corporate America... Continued from page A11 “That should set us up well for the rest of the year.” Commercial and industrial loan balances swelled at a seasonally adjusted rate of 9.3 per cent last month to hit a record $2.13 trillion, according to the Federal Reserve figures. That was by far the biggest increase since the 2016 election. In only two other months since the vote has the rate of growth been higher than 3 per cent. The protracted period of weakness had called into question how businesses feel about the Trump administration’s agenda and uncertainty about tax reform in particular, suggesting they were nervous about the direction of the economy. Commercial loan volumes have been among the biggest concerns to investors in US banks, who are otherwise upbeat about a profit-boosting mix of higher interest rates and financial deregulation. Analysts have offered some technical explanations for the corporate lending sluggishness: instead of borrowing from banks large companies have been tapping capital markets, for instance. However, bankers have identified policy uncertainty from Washington as a primary factor, arguing it held made companies hold back on expansion plans. Presenting quarterly earnings on Friday, executives said business was feeling more comfortable — especially now that tax reform had passed. John Gerspach, Citigroup’s chief financial officer, said the “best is yet to come” from the tax cuts. Marianne Lake, chief financial officer at JPMorgan Chase, said the bank was “expecting growth in the mid-single digits” in commercial and industrial loan balances for the year. They rose 5 per cent in the first quarter compared with a year ago. She added, though, that the bank would “continue to be very selective and cautious” — especially in commercial real estate, where “pricing has become fiercely competitive”. Earnings season continues on Monday with results from Bank of America, which is also forecast to benefit from a pick-up in loan demand. Analysts have pencilled in a 40 per cent year-onyear rise in first quarter net income to $6.16bn, according to estimates collated by Bloomberg. The recent commercial lending recovery has helped banks compensate for weakness in other areas, notably mortgages. Higher interest rates have led to a slump in demand for refinancings. Wells Fargo has been particularly hard hit, reporting a 24 per cent decline in mortgage banking income in the first quarter. Security and plane costs hit $9m as Zuckerberg tours US Surge in costs for safety picked up by company for founder worth estimated $66bn TIM BRADSHAW Facebook shareholders picked up a $9m bill for chief executive Mark Zuckerberg’s personal security detail and private aircraft usage last year, as he took on a “personal challenge” to visit every US state. Mr Zuckerberg, whose net worth is estimated at $66bn, spent much of 2017 criss-crossing the US, from Alaska to Louisiana, as part of an effort to “get out and talk to more people about how they’re living, working and thinking about the future”. While the grand tour was styled by Mr Zuckerberg as the latest in a series of “personal challenges” designed to help him “grow outside of my work”, Facebook’s shareholders were left to pick up the tab for much of the travel. Mr Zuckerberg, who receives a notional $1 annual salary, saw his “other compensation” jump by more than 50 per cent, from $5.8m in 2016 to $8.9m MATTHEW GARRAHAN After almost two weeks of swirling speculation about his future, it still came as a shock late on Saturday night when WPP announced that Martin Sorrell, its chief executive of more than three decades, would be stepping down following an investigation into an unspecified misconduct allegation. Company and man have been inextricably linked since 1987 when he was appointed to lead what was then known as Wire & Plastic Products, a small maker of shopping baskets until Sir Martin and a business partner bought a minority stake. They set about transforming it into a global marketing services company and with Sir Martin running the show and masterminding deal after deal, WPP ascended to the summit of the advertising industry. last year, according to a regulatory filing released on Friday afternoon. The figure includes $7.3m in personal security fees both at home and on his travels, up from $4.8m in the prior year, and $1.5m for “costs related to personal usage of private aircraft” — a 75 per cent increase on 2016’s flight costs. The disclosure comes at the end of a bruising week for Mr Zuckerberg, as he faced questions from dozens of lawmakers in Washington DC about Facebook’s handling of personal privacy and electoral interference. During Mr Zuckerberg’s walkabout, he posted on his Facebook page about driving a tractor in Wisconsin, fishing for salmon with Native Alaskans, and petting a service dog in Montana’s Glacier National Park. He has also spoken about meeting recovering drug addicts in Ohio and visiting a church in Charleston, South Carolina, where a shooting in 2015 killed nine people. The local families and community Martin Sorrell’s empire building reshaped adland The former Saatchi & Saatchi finance director created the model of an advertising holding company with a conglomerate-style structure where individual media buying, creative, public relations and digital services businesses coexisted under one roof. A flurry of deals saw J. Walter Thompson, Ogilvy & Mather, Young & Rubicam and Grey added to WPP’s portfolio. Other companies, such as the media buying giant GroupM, were created in-house. “You can’t underestimate what he achieved,” said Alex DeGroote, media analyst with Cenkos Securities. “He took a cash shell that had zero value and turned it into an established FTSE 100 name over a 30-year period, acquiring the global marketing services industry’s biggest names. I don’t think anyone will be capable of doing it again.” The impact on the ad landscape groups he flew to visit were often given only a few hours’ notice of his arrival, in order to ensure his security. Facebook said in its proxy filing that the company paid the security costs due to “specific threats” to Mr Zuckerberg’s safety that arise “directly as a result of his position” as Facebook’s founder and chief executive. “We require these security measures for the company’s benefit because of the importance of Mr. Zuckerberg to Facebook, and we believe that the costs of this overall security program are appropriate and necessary,” the company said in the filing. Using private aircraft is part of the security programme, it added. The proxy filing also disclosed that Facebook’s other executives saw their cash bonuses fall in 2017 compared with the previous year. Sheryl Sandberg, Facebook’s chief operating officer, received a bonus payout of $640,378, less than half the amount she received in 2017, after a reduction in her “individual performance” rating. His impact on the industry was profound but not everyone was a fan of his approach was profound as rivals such as Publicis and Omnicom followed WPP’s model, consolidating what had been a large and disparate industry into a handful of holding companies. But not everyone was a fan of his approach — or of the changes wreaked on the ad industry by WPP and Sir Martin, who declined to comment. When WPP acquired Ogilvy & Mather in 1989, the late David Ogilvy called him an “odious little shit”. He also upset some within advertising’s creative community: Ogilvy employees were not happy in 1992 when WPP uprooted them from central London to a new office in Canary Wharf — an area not exactly rich in inspiration for advertising creatives. “There was a period, probably in the first four or five years, when it could have killed the agency,” Paul O’Donnell, Ogilvy’s former UK head, told the Financial Times in 2014. Donald Trump creates task force to scrutinise postal service President seeks report on pricing linked to USPS contract with Amazon BARNEY JOPSON AND KADHIM SHUBBER Donald Trump has begun to act on his complaints that the US Postal Service is losing out on shipments for Amazon by ordering an official review of the mail agency’s pricing of package deliveries. After amplifying his longstanding dissatisfaction over Amazon’s delivery contract with the post office, Mr Trump late on Thursday created a task force to evaluate the “operations and finances” of the post office. The move caught Washington by surprise as it had been unclear how Mr Trump would act on his contested claims that delivering packages for Amazon was contributing to the postal service’s substantial losses. An executive order creating the task force — to be led by Treasury secretary Steven Mnuchin — said it would examine “the expansion and pricing of the package delivery market and the USPS’s role in competitive markets”. Despite Amazon’s high-tech credentials, it relies on about 230,000 postal workers to deliver millions of packages along the “last mile” to many American homes. As concern about the power of big tech companies escalates in Washington, Mr Trump has turned Amazon into the target of a personal crusade even as Congress is preoccupied with Facebook, hauling its founder Mark Zuckerberg in to testify this week. Package deliveries for ecommerce have been a source of revenue growth for the postal service, going some way towards offsetting a sharp decline in letter volume. But the post office has still posted a net loss in each of the past 11 years, including a $2.7bn loss in 2017. The executive order says: “The USPS is on an unsustainable financial path and must be restructured to prevent a taxpayerfunded bailout.” In one tweet this month, Mr Trump said: “I am right about Amazon costing the United States Post Office massive amounts of money for being their Delivery Boy.” His discontent over the alliance of the postal service with Amazon appears to have become entangled with its founder Jeff Bezos’s ownership of the Washington Post — one of the president’s least favourite media outlets. Allies of the postal service said it cannot be losing money on its work for Amazon since it is barred by law from charging its customers less than the cost of delivery.