It was a great week for longtermism, now that Paul Walsh and Alex Ferguson can sit back, relax and compare notes. The most striking common feature of this odd couple is to note how long it took before the businesses they ran really started taking off. Sir Alex went four years before ManU won the first trophy on his watch, while the Diageo share price gave up most of its early gains during Mr Walsh’s first six years. The patience of fans and investors since then has been hugely rewarded.

Unfortunately, those looking for ways to spot the next Diageo, or even to see what made Paul run will not find much guidance in the way he was rewarded. The plan that covered much of his tenure was put in place in 2004, and is the usual impenetrable mix of salary, annual bonus and so-called long-term incentives. The long term here is defined as three years. Yet when it comes to building global brands, whether whisky or football, persuading people that consuming your product will somehow say how fashionable/wealthy/exciting they are, three years merely puts the idea into the customers’ heads.

A CEO whose eyes are fixed on a three-year horizon would look at the scale of spending required, consider the damage that would do to profits, and decide that launching the project was something to leave to his successor. Us shareholders will not begrudge Mr Walsh the £11m he earned last year, when the value of the business has doubled since 2009 to nearly £50bn, but so many schemes like his have merely rewarded executives for mediocrity that it was surely something more than the incentive plan that made his 13-year tenure such a success.

Supermarket blues

Justin King, another longtermist, is in a better position than his competitors to moan about taxes. Unlike CEOs at other supermarket groups, J Sainsbury  is not looking for an excuse for poor performance. It’s raising profits, dividend and margins, but Mr King worries that the likes of Amazon will eat his lunch. Not that they are better retailers, you understand, but because they have neither bricks and mortar nor checkout girls to look after.

Higher business rates on the bricks and National Insurance payments for the girls have taken twice what the Chancellor dished out with his cut in corporation tax and, as Mr King couldn’t resist adding, those competitors don’t seem to pay much of that, either. So far, this attack on conventional stores has not caused him to rethink the business model – on the contrary, much of Sainsbury’s planned £1 billion of capital spending is to go into convenience stores, located on those very high streets which are under threat.

However, as he did not say, there are far too many shops in Britain. It may not be pleasant to see the life sucked out of your local shopping parade by the mega-malls and the internet, but that is the way we live now. The harder question for the supermarkets, as Tesco signalled last month, is whether all that expensively-acquired real estate on the edge of town is an asset or a liability. Even the longtermist Mr King will be gone before we see the answer to that.

We wus wrong

Capital Economics have got quite a lot right with their post-crisis forecasts, as they are quick to claim. But they got inflation seriously wrong. Since January 2006, the Consumer Price Index measure has risen by 24.5 per cent. They expected it to have risen by just 7.5 per cent. What went wrong? They explain that they didn’t see the rise in VAT and energy prices or the fall in sterling.

Some of us would say that a compound rate of 3.6 per cent is pretty good going for the inflation-prone UK economy, and that a falling pound is always the way to bet, but Capital’s economists have the expertise, and they’re sticking to their guns. “We still do believe that a recovery in productivity growth will bring down labour costs and core inflation.” So that’s a recovery with no rise in labour costs, after years of suppressed wages? It’s a point of view…

This is an uncensored version of my Saturday FT column

 

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