Spin machine enters fresh cycle of austere valuations

As the age of political spin begins to wane, a fresh austerity in stock valuations is forcing the ‘new economy’ to emphasise substance over image.

I’m not sure what Tony Blair and his invisible army of spin-doctors should make of being called “unmanly” by Ken Follett. That’s because I don’t know what qualifications Follett has, as a thriller writer, to be a judge of manhood.

This takes us into the business of image. I suspect Ken and Barbara Follett, the erstwhile golden couple of New Labour, have suffered, in terms of public perception, from having names so easily associated with pre-pubescent dolls marketed by Mattel. Ken and Barbie may be fantasy figures with perfect lives, but has he – to use the image merchant’s terminology – been “positioned” properly to enter a real political debate?

In any case, is this a real political debate or a snubbed party grandee behaving badly? And can anything about it be described as “manly”?

I raise these questions not because I think they are of any interest in themselves, but because they illustrate the essential triviality of the debate about “spin”.

Not only does this debate not matter a jot in the scheme of things, it is my contention that it has no substance whatsoever. By which I mean the debate has no substance, because neither does the spin itself. I believe that we’re at the end of an age of spin and, while that may be of passing concern to a lot of politicians, it is a critical issue for companies.

Business often takes its lead from politics. In a prosperous and booming economy, politicians behave entirely differently compared with periods of crisis and austerity. In turn, companies reflect an environment in which it is not only OK to spend but a virtue to do so, since that is one of the drivers of the sound economy from which we all benefit. The politicians endorse this positivism and the wheel goes around.

At the moment, spin is being exposed as vacuous politics, so we can expect a knock-on effect in marketing services, with advertising and the whole machinery of corporate communications sombrely readjusting to emphasise substance and the abandonment of image.

These are big claims. So let’s be clear. I don’t anticipate that mobile phone retailers are suddenly about to start marketing their wares as handy little utility devices whose only differentiation is price. Still less do I expect us to be entering, in the biblical sense, the “last days” of spin. What I do expect to see is a continued denial of spin in politics in the approach to the next General Election, which will be reflected, as trends in politics invariably are, in the corporate world. Business is not the lap-dog of politics; they feed off one another. I have already described the process as circular. And there are reasons for supposing that business has reached the top of the spin cycle, if I may adapt a term from the white goods sector.

As the bubble deflated in the technology, media and telecoms sector (TMTs), we have thankfully avoided a serious meltdown in worldwide equities. But the collapse in TMT share valuations has nevertheless been significant in broad industrial terms, as well as for companies in that sector. The Nasdaq index took a hammering and the FTSE and Dow Jones have had bear-legs and steadied. In any event, they are not pursuing levels of valuation that were irrationally driven by TMTs.

This correction in markets has been due in large part to a fresh austerity in institutional valuations of “new economy” stocks. For example, e-tailers are flat on their backs in valuation terms (but still quite high compared with traditional retailers). The retailers and

e-tailers can be expected to merge in valuation terms as the new austerity in institutional thinking recognises that the Internet is a delivery channel, not a new economic paradigm.

During the spring’s raging bull market in Net stocks, it was a heresy in investment banking circles to claim that such companies were wildly overvalued, that the market would pop and it would all end in tears. Corporate financiers, venture capitalists and market-makers were coining it in TMTs and to point at the naked emperor was to jeopardise his patronage. They were making money, so there was money to be made. Simple as that.

The reckoning had to come. Valuation models that looked implausible at the time now look like they bordered on the insane. That has a more than sobering influence on what we might call the market for image. Spring-time’s TMT valuation models were, in political terms, nothing but spin. For the time being, therefore, spin has become a “sell stock”.

We’ve been here before. In 1987, the worldwide bull market in equities finally ran out of steam. Indices crashed. The world was a different place then. Not only were markets able to crash in a way that they are protected from today, but they were built on even more fragile sentiments. Spin, in those days, consisted of flying analysts and journalists around the world.

Today, the spin machine may be a more sophisticated business resource. But, when times get hard, business people, like politicians, have to learn to live without it.v

George Pitcher is a partner at issue management consultancy Luther Pendragon

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