TheChek News Flow

Asset manager Baillie Gifford feels ‘more comfortable’ with $9.7bn stake following carmaker’s overhaul

Tesla is a “better-run” company after its regulatory battles following the recent addition of independent directors to oversee Elon Musk, according to the electric carmaker’s top external shareholder.

“We thought he was getting things wrong,” said James Anderson, head of global equities for Baillie Gifford, speaking about Mr Musk, Tesla’s founder. “I feel more comfortable now.”

The electric carmaker has overhauled its board in recent years, stripping Mr Musk of his chairman role, cutting the number of board seats and hiring independent directors including Larry Ellison, the Oracle founder, and James Murdoch, the media scion.

The bulk of the changes came after a 2018 settlement with the US securities regulator over Mr Musk’s false claim that he had secured funding to take the firm private. Prior to the lawsuit, Glass Lewis, the proxy adviser, and CtW Investment Group, which works with pensions, had also criticised the company for stacking the board with directors who had close ties to Mr Musk.

Mr Anderson said the appointment of Robyn Denholm, one of the company’s independent board members since 2014, as chairwoman was a decisive move. She had given the founder “emotional” support and allowed him to focus on leading the company, he said.

Ms Denholm left a senior role at Telstra, the Australian telecoms company, last year to focus on Tesla full-time and is one of few board members with automotive experience. Last year, she led efforts to cut the number of board seats to seven from 11 after consulting with top Tesla shareholders. Kathleen Wilson-Thompson, a HR executive from Walgreens Boots Alliance, joined alongside Mr Ellison as an independent director in 2018.

Baillie Gifford first bought shares in Tesla in 2013 and today owns 7.5 per cent of the carmaker, a stake worth $9.7bn. Mr Anderson is co-manager of the £8.2bn Scottish Mortgage Investment Trust, the asset manager’s flagship fund that trades on the FTSE 100, which alone owns $1bn of the company.

The large holding makes the Scottish fund house one of the big winners from Tesla’s recent rally that has added two-thirds to the share price since the start of the year.

The Edinburgh-based fund group has stood by Mr Musk through periods of tumult that have attracted the glare of the media. These include smoking marijuana on a radio show broadcast online, describing a UK volunteer who helped rescue boys trapped in a Thai cave as a paedophile and an incessant battle with short sellers betting against Tesla’s stock.

The sparring between Mr Musk and short sellers, including David Einhorn of Greenlight Capital, has become one of the top rivalries in capital markets. The Tesla founder has marshalled an army of supportive retail investors to fight back against the carmaker’s critics across social media.

Mr Anderson has long warned that exchanges with short sellers and other elements of Mr Musk’s public profile could distract the founder from the more mundane tasks of management. “I think that the shorts acquire too much publicity,” Mr Anderson said in an interview ahead of a planned trip to California, where he will speak to Tesla executives.

Mr Musk has also fought with Wall Street analysts on quarterly earnings calls. Last year, he said “bonehead questions are not cool” in response to one analyst query before taking a question from a retail investor. Prioritising “bloggers and supportive analysts” on earnings calls remained a hurdle for company analysis, said Toby Clothier, an analyst at Mirabaud Securities in London.

“Selective disclosure of news remains a massive problem,” he said. “It doesn’t matter how you change the board if you can’t address many of these basic questions.”

Oil price war spells danger for US junk bonds

Saudi Arabia’s expected production rise set to squeeze heavily indebted US shale producers

US junk bonds face a day of reckoning when markets open on Monday, with the unfolding price war in oil set to knock energy companies buckling from the outbreak of coronavirus.

Saudi Arabia is set to raise oil production next month, in an apparent attempt to put pressure on Russia after Moscow refused to join other nations in curbing output to support the price of oil.

As well as squeezing Russia, the aggressive move is likely to threaten the US shale industry and imperil companies that are teetering on the brink of collapse.

“This was literally the last thing US high-yield energy producers needed,” said John McClain, a portfolio manager at Diamond Hill Capital Management, referring to the effects of the move from Riyadh on junk-rated companies. “There will be blood in the market on Monday.”

Energy companies are the biggest issuers of junk bonds, accounting for more than 11 per cent of the US high-yield market. Such issuers have credit ratings of BB or below, indicating that they are at higher risk of default than “investment-grade” issuers, rated BBB and above.

A Saudi-led price war could usher in the worst rout for junk-rated energy debt since the rise in US shale production and subsequent collapse in the oil price in late 2015.

The average US high-yield energy bond closed in “distressed” territory last week, defined as a cost of borrowing of 10 percentage points or more above Treasury yields. The spread was almost 11 percentage points on Friday, according to an index run by Ice Data Services.

The prices of bonds issued by heavily indebted oil and gas producers have dropped sharply in recent weeks.

Laredo Petroleum’s $600m bond maturing in 2025, for example, fell 10 cents to 58 cents on the dollar on Friday, while struggling Chesapeake Energy’s $2.2bn bond maturing in 2025 also tumbled about 10 cents to trade at 40 cents.

A recently issued $550m bond from Range Resources has slipped to 65 cents on the dollar, having been sold to investors at face value in early January.

A warm winter and falling global demand have also sent natural gas prices lower, compounding the fallout from the declining price of oil. Bond markets have been closed to new sales from low-rated energy companies in recent weeks, cutting off a vital source of additional financing.

“If this persists for any meaningful period of time you could see a wave of restructurings,” said Mr McClain.

Higher-rated companies may also suffer.

Just over 11 per cent of the investment-grade corporate bond market sits within the energy sector, with a host of companies rated BBB, the lowest rung. More pressure on cash flows caused by lower oil prices could result in downgrades, further weighing on junk debt.

Muddling governance is likely to hurt those it purports to help

Every now and then, an idea comes along about how businesses should be run. And right now, the idea in vogue is “stakeholderism”.

Basically, it’s a response to the bashing business leaders have taken for the downsides of modern shareholder capitalism: whether the excessive pay of chief executives and fund managers, or the spillover effects from heedless shareholder-focused entities that can hurt communities by squeezing wages, closing factories or polluting the environment.

If you doubt the strength of feeling, look at the political campaign US advocacy groups have been running about private equity in the retail sector. In a document last year entitled “Pirate Equity”, they accused a greedy Wall Street of stripping 1.3m workers of their jobs.

Fearing for the future of their societal “licence to operate”, bosses have started promising to do better. They are vowing to focus less on shareholders, and more on the other constituents that their decisions affect.

So last summer, with a fanfare, the Business Roundtable of 181 US chief executives revised their concept of the purpose of corporations. They renounced “shareholder value” and swore to “lead their companies for the benefit of all stakeholders”, such as customers, suppliers, employees and communities.

Others have followed suit with similarly pious emanations. The World Economic Forum, a sort of Alpine Netjets affinity group, has urged companies to move to a model of “stakeholder capitalism”, while in January Larry Fink, billionaire boss of the world’s largest fund manager, BlackRock, issued a letter to all CEOs exhorting them to “be committed to embracing purpose and serving all stakeholders”.

But is there much more to all this gush than an urge for self preservation? Not according to a new working paper from the academics Lucian Bebchuk and Roberto Tallarita. They claim the public declarations are little more than PR releases. And thank goodness, say the authors, because real stakeholder capitalism would not benefit those it purports to help.

Their analysis divides stakeholderism into two categories. First, there’s the halfway house of “enlightened shareholder value” where directors still work for shareholders, but are supposed to “take into account” other interests. (This is the sort of “directors’ duties” regime the UK’s Companies Act prescribes). The authors regard it as being mainly wallpaper, with almost no direct effect.

After all, even Milton Friedman, in his famous 1970 article disavowing the social responsibility of business, did not rule out stakeholder-friendly actions when they aligned with profit-maximising goals.

The second, more full-bodied version, they term “pluralistic” stakeholderism, which is where directors try genuinely to weigh the impact of their decisions on the welfare of different constituents. This, as the authors show, is both extremely hard to measure and involves complicated trade-offs.

For instance, consider a plan to relocate a plant to another location. “Should the company’s leaders take into account not only the negative effects on the plant’s current workers but also the positive effects on the workers of the new plant and on the community in which the new plant would operate?” the authors ponder. “Would the answer to this question change if the new location was overseas?”

There is little evidence that pro-stakeholder CEOs are even thinking through how to resolve these knotty questions. Mostly, they simply dismiss the existence of trade-offs. The Business Roundtable’s Pollyanna-ish statement, for instance, explicitly denies that the interests of shareholders and stakeholders can ever clash in the long run.

But should executives even attempt to wade into this treacle? The authors are doubtful. They worry first that even sham stakeholderism might serve to insulate bosses from accountability. And if licence led to worse corporate performance, all constituents, whether shareholders or stakeholders, would be worse off.

A second, deeper worry, is the chilling effect that stakeholderism might have on regulation if politicians shirked decisions that could actually protect stakeholders, taking illusory comfort from the notion that companies were on the case.

It may seem a trivial example, but let’s take Mr Fink’s recent call for companies to back their pious words on climate change with action. He followed this statement by undertaking to increase the sustainable funds BlackRock offered and to divest a few coal-producing stocks.

This all might seem harmless, a bit of well-intentioned window-dressing. But it could be counterproductive if it led politicians to subcontract climate action to businesses, preferring self-regulation to policies that could really help.

None of this, of course, is an argument for unfettered shareholder primacy of the type popularised by the late Jack Welch. The duties of business clearly go well beyond the maximisation of short-term market value. Shareholder welfare is about more than a bloated market cap.

But stakeholderism isn’t some magic wand we can wave over the economy. Business leaders should remember the inadvisability of trying to serve two masters. Even with the best of intentions, you can end up very confused.

The higher education sector should receive more from employers alongside reformed student fees

In 2006 I had lunch with Boris Johnson for the first and only time. As higher education spokesman for the opposition, he was looking for tips in shifting Conservative party policy away from outright opposition to university tuition fees. In that same helpful spirit, I now offer some suggestions to the prime minister for urgent reform of the post-school funding system — which, as he knows, is working badly. The subject is moving rapidly up the political agenda.

Since I established the current structure of university funding in 2004, there has been just one substantial reorganisation. The 2012 reforms, raising the fee cap from £3,000 to £9,000, fatally undermined its sustainability.

Theresa May believed Labour’s pledge to scrap student fees was a significant reason for her poor performance in the 2017 election: a few months later she commissioned the Augar review. Last May, its recommendations were published, including reducing the fee cap to £7,500. But the political toxicity of the issue meant the latest manifestos ducked it. Labour kept its vacuous abolition pledge. The Conservatives said they would “look at the interest rates on loan repayments with a view to reducing the burden of debt on students”.

This long period of policy immobility is now coming to an end. Controversial reforms are best dealt with early in the parliament. The new universities minister has signalled a “crackdown on low quality courses” and Downing Street’s favourite think-tank has already highlighted the public trust challenges facing higher education.

But the system of student finance is so complex that any reform needs absolute clarity of purpose. Our original rationale was to raise money for universities so that resources could be targeted at schools. The 2010 context was austerity, so coalition ministers shifted university costs from the state to individuals. This government needs to be clear on what it hopes to achieve with further changes.

Ministers need to appreciate that the UK’s strong universities — more so than governments, corporations or NGOs — are best placed to offer ways to address the complex challenges of a fast changing world including pandemics, terrorism, climate change, 5G and the trade disruptions caused by Brexit.

World-class research institutions analyse the problems, identify long and short-term solutions, and, by educating about half of all young people, help society handle rapid change.

Moreover, there is good evidence from the US that universities in the UK are well placed to help regenerate those localities that have been the biggest losers from globalisation. The Tory manifesto promised to “work with local universities to do more for the education, health and prosperity of their area” — rightly linking successful institutions and the welfare of communities rather than pledging, as some would like, to reverse university expansion.

A new, sustainable funding structure must encourage more universities to pursue these missions, and better. Government can take straightforward steps to achieve that, some of which were recommended by the Augar review.

The loan system should be extended to a wider range of courses as in countries like Australia, New Zealand and Singapore, including technical education and vocational courses other than law, medicine and the other work-related degrees taught at university. The real interest rate for student loans should be set at zero and the loan repayment income threshold substantially reduced. Maintenance loans should fully cover real living costs. Maintenance grants for students from poorer backgrounds should be reintroduced.

Early loan repayment should be incentivised and students could be treated as financially independent from the age of 18. Research and teaching budgets should be separated to increase transparency — tuition fee income currently subsidises research.

The biggest change is to recognise that employers, who benefit directly from a highly educated workforce, should contribute to the higher education costs of the graduates they employ — governments already contribute because society benefits and individual students contribute because they benefit personally. This third contribution would strengthen collaboration between employers and universities.

The principle of employer contributions already exists, for example through the apprenticeship levy, support for work-based degree courses and some bursaries. But the existing arrangements are incoherent, insubstantial and often ineffective. Ministers could decide to set employers’ national insurance contributions at a higher rate for university graduates and direct the revenue to universities.

It is time for universities to contribute their full potential, and for the government to make the changes necessary to make it happen.

The latest target was a 94-year-old man in Tennessee said to have been a guard at a concentration camp in Germany. “These people are old, and they’re dying,” a prosecutor said of the cases’ urgency.

OAK RIDGE, Tenn. — It is perhaps fitting that the decades-long search for Nazi collaborators living on United States soil may have reached its conclusion — or something close to it — in a small city, in an unremarkable ranch house on an equally unremarkable cul-de-sac.

By many accounts, the man living inside that house was also seemingly unremarkable — not unlike the dozens of other under-the-radar Nazi collaborators who have been found and prosecuted over the last half-century.

The man, 94-year-old Friedrich Karl Berger, was ordered by a federal judge this week to return to Germany, where he remains a citizen and where he had served as a guard in a Nazi concentration camp during World War II.

Like in so many cases before his, the revelation that the friendly old man — a thoughtful father and husband who had raised his children in that house and had cared for his ailing wife until her death — came as a stunning surprise to his neighbors.

Ed McCleary, a retired school principal, recalled years of pleasant chitchat with Mr. Berger.

The revelations about his past, he said, “has not been circulated here.” But, he added, “It would be concerning to me to find out he had been involved in such things.”

Few cases like Mr. Berger’s remain.

Since 1979, the Justice Department has made a special point of hunting down collaborators in Nazi war crimes, with the intention of deporting them back to their home countries. But from the beginning, it has been a race against their natural life spans.

“We were told at that time to work as fast as you responsibly can because these people are old, and they’re dying,” said Eli Rosenbaum, recalling his mandate toward the beginning of his career as a Nazi hunter in 1980, soon after federal officials started their targeted hunt for such men.

Mr. Rosenbaum, a top official at the department’s Human Rights and Special Prosecution unit, was among those who tried the case against Mr. Berger. After a two-day trial in Memphis, an immigration judge issued the removal order against Mr. Berger, which officials announced on Thursday.

“Mr. Berger made his choice to enlist in 1943 in the German military,” Mr. Rosenbaum said in an interview on Friday.

Mr. Berger then made another choice, Mr. Rosenbaum said, to not request a transfer when he was assigned to a sub-camp overseeing prisoners in the Neuengamme concentration camp system near Meppen, Germany.

In a statement, another federal prosecutor, Brian A. Benczkowski, said that Mr. Berger was “part of the SS machinery of oppression that kept concentration camp prisoners in atrocious conditions of confinement.”

While Mr. Berger’s story is not quite over — he has 30 days to appeal the deportation order — federal prosecutors are “just about finished” with such Nazi-era cases, given the advanced ages of the suspects, Mr. Rosenbaum said.

And that means the likely end of a specific kind of high-stakes detective drama, heavy with the weight of history and horror — cases that played out over the years in the long shadow of World War II and the Holocaust, as collaborators were discovered and rooted out from often-cozy American existences that had normalized them and scrubbed them of their complicity.

The federal government has brought forward 133 such cases over the last four decades, and won 109 of them. In most of the others, Mr. Rosenbaum said, the suspects died or became medically incapacitated and were unable to stand trial before their cases were resolved.

The federal target list included well-known men like Valerian Trifa, the Romanian Orthodox archbishop accused of being a Nazi sympathizer, who left the United States in 1982 to avoid deportation. Arthur Rudolph, a developer of the Saturn 5 rocket for the federal space program, left the country in 1984 after the Justice Department accused him of “working thousands of slave laborers to death” in a German rocket factory during the war.

And then there were those who led much quieter lives, but for the accusations leveled against them, such as John Demjanjuk, a Cleveland autoworker who was accused of killing Jewish prisoners in three death camps. He was deported to Israel after being stripped of his citizenship in 1981. And Jakiw Palij, a former Nazi guard turned New York resident, was deported in 2018 at age 95. The authorities used a stretcher to wheel Mr. Palij out of his home in Queens and onto an air ambulance bound for Düsseldorf, Germany.

When he left Germany, Mr. Berger first moved to Canada before later settling in the United States, Mr. Rosenbaum said.

Neither Mr. Berger nor his lawyer could be reached for comment this week. But in a phone interview with The Washington Post, Mr. Berger, who had been a member of the German navy, said he was ordered to work in the camp. He described himself as a widower with two grandchildren who spent a career building wire-stripping machines.

“After 75 years, this is ridiculous. I cannot believe it,” he said. “I cannot understand how this can happen in a country like this. You’re forcing me out of my home.”

A photograph of Mr. Berger in a local newspaper, published in 2012, shows him in a Tyrolean hat and khaki pants, smiling and dancing with a woman during a concert at a public market.

In interviews on Friday, some neighbors said they were surprised and saddened to learn that Mr. Berger was being deported. He had been a friendly presence who was “proud to live in the United States,” said one neighbor, who lived across the street from Mr. Berger for nearly 30 years and came to know him and his wife fairly well.

The woman declined to be identified, afraid of drawing attention to herself and concerned about saying anything that might hurt any effort to keep Mr. Berger in the country, but she said she understood that “what he did was not good.”

“I know bits and pieces,” she added, noting she had some limited conversations with Mr. Berger. “He didn’t realize the extent of what was happening when he was there,” she said of his time stationed at the camp, adding that he had told her that he quickly sought to be reassigned elsewhere.

Prosecutors have no evidence of Mr. Berger lying about his work in the concentration camp. And when he arrived in 1959, Mr. Rosenbaum said, the United States had allowed postwar rules banning the entrance of participants in Nazi-sponsored persecution to sunset, as the nation grew more concerned about the infiltration of communists.

But with the 1970s came stories in the news media about Nazi war criminals living in America, and the 1978 Holtzman Amendment to the Immigration and Nationality Act, which deemed “deportable” anyone who participated in Nazi-sponsored persecution.

The judge, in her opinion, found Mr. Berger removable under the act for his “willing service as an armed guard of prisoners at a concentration camp where persecution took place.”

Her decision was the culmination of a multiyear investigation that was aided by a kind of miracle: a set of SS cards that identified guards in the Neuengamme camps, discovered in 1950 in a German ship that had been sunk by the Allies five years earlier. One of the cards identified Mr. Berger.

“What are the odds of this one card surviving intact after being in the Baltic Sea after five years?” Mr. Rosenbaum said.

Oak Ridge, Tenn., where Mr. Berger has lived for decades, was almost entirely constructed around the United States’ bomb-building efforts during World War II, becoming the administrative and military headquarters for the Manhattan Project, the effort to build the first nuclear weapons. It remains home to the Oak Ridge National Laboratory, a federally funded research center.

But even here, the living links to the World War II era are fading.

Mira Ryczke Kimmelman, a Holocaust survivor who lived in Oak Ridge and became well known in the area, died almost a year ago. She spoke at schools, churches and local gatherings, letting students see and touch the blue number that had been tattooed on her arm. “There’s never a question I won’t answer,” Ms. Kimmelman said, according to The Knoxville News Sentinel.

Devora Fish, the director of education for the Tennessee Holocaust Commission, said prosecutions like those of Mr. Berger help ensure that the sins of the past will not be forgotten.

“Every time that somebody is brought to justice, even from 50 years ago or longer, that is a message to the world,” Ms. Fish said. “Because we are not going to stop until everybody is brought to justice. Even if it’s something you did years ago, it will catch up to you.”