By Dominique Jacquet

This month’s videos pose, each in their own way, a question about the relationship between equity capital and value creation.

It is truly astonishing to observe that 99.5% of the voting rights of Snap Inc. are concentrated in the hands of the founders who only own a little more than 20% of the shares. We understand their motivation well. What is more difficult to grasp is the docility of the capital providers who have agreed to forget this somewhat founding principle of shareholder capitalism: one share, one voting right. So, we are going to talk about the fact that the markets are “too” liquid and that business creators are in a position of strength when raising funds and impose their conditions. It’s a bit fast.

In fact, there are periods of “hot issues” and periods of “cold issues”. During the first few, anything can happen, with “rational” investors eager to keep dancing as long as the music plays. This frequently leads to periods of significant overvaluation, or even speculative bubbles that are sure to burst. After the explosion, there follows a period of sobering up and a timidity in providing funds which is as damaging as the previous overexcitement. So, as rational managers, founders and other “start-uppers” watch carefully and, sometimes, cynically for the right moments and the words and concepts that appeal. This is the (short) reign of Powerpoint and the punch line.

As Facebook had appropriated Instagram and WhatsApp, Snap found favorable territory and investors (prestigious, incidentally!) looking for social networks to take advantage of the rapid emergence of this particularly promising sector. The conditions were set by the sellers, and the “G” of ESG found itself quite battered…

The listing of Athens airport on the stock market involves more complex reasoning because it concerns the dynamics of systems. What leads to privatizing an airport is often a lack of financial resources. Originally, a Public-Private partnership, therefore an interaction confronting quite different utility functions. The history of Project Financing is filled with remarkable achievements which would not have realized without an alchemy being built around a project bringing together very diverse interests, but complementary and satisfied with the contractual relationship which brings them together. The good intentions of the stakeholders and their professional skills are not in doubt, but the fact remains that the ownership of capital is a question of primary importance: privatizing an airport leads its management to ask the airlines to remunerate the capital invested at the level a cost of capital which can be estimated to be close to 7% depending on the current level of interest rates. If this same asset remains in the public domain, the remuneration required by the State will be lower, for example 3% because the sovereign debt is in competition with what investors call the “risk-free” rate, while the shareholders have to benchmark the financial market with much higher rates of return.

All this would only be an expert discussion if the reality of territorial economic development was not an issue of prime importance. Increasing the cost of transport has a negative impact on local competitiveness, which calls on the same State which privatizes to recover financial resources and limit its debt. There is therefore, in this question, a conflict of objectives that is particularly delicate to resolve. Here again, we are going to mobilize ESG, but rather on the “S” side. Double materiality appeared in its complexity with the desire to make the company accountable for the impact on its environment. It is no longer a question of identifying how the outside can strongly impact the firm, but also how the latter creates or destroys value through the creation of externalities that are often significant and difficult to identify and quantify.

In the case of transport infrastructure, the double materiality is all the more interesting to analyze since the main actor in the decision, the public authorities, will decide which way the materiality will lean. No system is perfect, but systemic thinking is necessary.

Remember that Adam Smith in The Wealth of Nations (1776) believed that the State was, beyond the sovereign, in charge of education, health and infrastructure. We often cite the famous “invisible hand” to legitimize uncontrolled laissez-faire without recalling this critical aspect of Adam Smith’s thought and, in passing, his concern about the rising power of very large corporations. 250 years and not a wrinkle.