What Tesco’s US debacle tells us about the wisdom of markets

 
Allister Heath

EVER since the nineteenth century, the leaders of businesses quoted on the stock exchange have bemoaned investors’ supposedly fickle nature, inability to understand their firms, general competence, and more recently, their relative youth and inexperience.

So when back in 2010, Sir Terry Leahy, Tesco’s then boss, complained that fund managers were too risk averse and insufficiently patient for “long-term value creation”, many listened sympathetically. Here was a business hero trying to take on America, launching his Fresh and Easy chain to take on Wal-Mart – so why couldn’t those pesky scribblers in the City not give him a break?
It turns out that Leahy, tragically, was wrong and that the fund managers, sadly, were right. Tesco spent a fortune on its US adventure, allowing itself to become distracted in the process; the City, which didn’t like it, was proved right. Tesco was being excessively long-termist: it should have pulled the plug earlier. Far from being short-termist, the City, which had handsomely rewarded Leahy, his management and investors, had rightly spotted a major problem long before anybody else.
There are several lessons to be learnt from this sorry tale. First, even the most well-respected of bosses can get it very wrong. Second, be suspicious of CEOs that blame their investors for being too uncommitted or insufficiently understanding of the nature of their business; the truth is that UK fund mangers are far less short-sighted than their critics allege. Third, of course public markets can get it wrong and prove useless for firms needing truly long-term investments, so a healthy economy needs a variety of stock market and private equity financing sources to match entrepreneurs with the right kind of capital. Fourth, the UK would gain from having the kind of alternative, ultra-long term US investors who have supported Amazon all of these years, even though the company is clearly not yet really trying to turn a profit.
Fifth, it’s jolly hard for UK retailers to make it big in the US. And sixth and last, very successful CEOs often overstay their welcome; Leahy’s reputation today would have been far improved had he retired a couple of years earlier.
SYRIAN NIGHTMARE
REMEMBER those pundits who said we would lose our global influence as a result of Parliament’s rejection of David Cameron’s Syrian proposals? The opposite has turned out to be the case. Had we backed military action, Barack Obama wouldn’t have promised to put his own proposals to the vote in Congress, a development which in itself has helped shift US public opinion.
Our decision also clearly had an impact on Vladimir Putin’s own reaction to all of this, for good or for bad. Regardless of whether one supports or opposes intervention in Syria, it is undeniable that our MPs have had a remarkably large global impact on the course of the past few weeks.
Yet it is hard to look at the growing crisis across the Middle East with anything other than despair. Given the limited, not to say outright pathetic options at our disposal, there is no satisfactory way forward. The regime in Syria is barbaric. But chucking a few missiles cannot be the answer, as the public understands. Many of the opposition groups are even worse; assassinating Assad with no plan B and no ability to reconstruct the country would merely unleash even greater devastation.
It would be monumentally stupid and downright immoral to dip in and out of the Syrian quagmire, stirring things up but not resolving them. We are, for all practical purposes, powerless and debilitated.
There’s no point deluding ourselves: this is a very bad time for the West, for millions of ordinary Syrians, for our foreign policy and for the future stability of the world.
allister.heath@cityam.com
Follow me on Twitter: @allisterheath