The usual critique of state aid is that governments should not be in the business of picking winners. It is worse when they pick losers. 

The Trump administration’s plan to lend $765m to fund Kodak’s pivot to making ingredients for the generic drugs that might one day combat coronavirus looked far-fetched when the two sides announced it last month. 

The pioneer of the popular photography era had experience with chemicals. But, having invented the digital camera only to remain wedded to its once lucrative film business, it had also become a byword for missing the boat. Kodak had shrunk to a small commercial imaging company with a record of losses, despite faddish ventures such as a “photo-centric cryptocurrency” called KodakCoin.

Yet none of this deterred officials such as Adam Boehler, a former college roommate of Jared Kushner, President Donald Trump’s son-in-law and senior adviser. His agency, the US International Development Finance Corporation, was diverted from its usual mission of funnelling investment to the developing world to sign a letter of intent with the group. 

It was “a historic agreement with a great American company”, Mr Trump claimed, as officials predicted that repurposing Kodak’s ageing factories would ease America’s reliance on foreign suppliers for essential medicines. Enough people agreed to send its stock soaring 15-fold. But naive punters were badly burnt by what followed. 

The loan is now on ice and the stock has tumbled after the DFC said it had serious concerns about unspecified allegations of wrongdoing. House Democrats, a board committee and, reportedly, the Securities and Exchange Commission are investigating recent activity by the company. 

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If the deal dies, Kodak’s pivot to pharma may be remembered only as a brief flurry of strange summer headlines. But the questions to which lawyers and lawmakers want answers deserve closer attention, as they illuminate much about the interplay of business and government in the Trump era. 

Three main issues deserve scrutiny. First, why did authorities choose Kodak over more experienced pharmaceutical companies, even though as recently as May it admitted that there was “substantial doubt” about its ability to continue as a going concern? And what role did a reported surge in Kodak’s lobbying spending play in convincing politicians to transform its fortunes in such spectacular fashion? 

Kodak’s share price moves deserve equal attention. The stock started jumping the day before the announcement, purportedly after the company notified local media that big news was coming. Was that anything more than the kind of careless mistake which a drug ingredient company is not supposed to make? 

Finally, investors need an explanation for the windfall paper profits executives made on shares they bought or were granted strikingly close to an announcement that clearly stood to transform the company’s valuation. Jim Continenza, Kodak’s CEO, bought stock in June which rocketed in value to $2.8m at the peak. He was awarded a further 1.75m stock options the day before the announcement which made them instantly profitable.

Kodak says that Mr Continenza has spent more on Kodak’s shares than he has earned from the company, and that the award’s timing was a technicality. Still, more than a quarter of his options became exercisable immediately, which makes them look like a gift to management, not an incentive to align its interests with long-term shareholders’. 

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Even after the stock’s slide, the close-knit group of investors on Kodak’s board and shareholder register are enjoying substantial paper gains. One director, the investor George Karfunkel, donated 3m shares with his wife to a religious group called Congregation Chemdas Yisroel on July 29, the day the stock peaked. What tax benefit he receives in return should be another question for investigators.

Outsiders must let the investigators do their work, but Kodak’s putative government-funded reinvention looks rushed and shabby. It will be remarkable if its attempt to reinvent itself as a key link in the US pharmaceutical supply chain survives unscathed.

It has been a long time since Kodak was an icon of US innovation, consumer insight and branding brilliance. Yet all of those traits are still alive elsewhere in corporate America, where more successful companies are engaged in their own pivots, embracing the idea that they have responsibilities to stakeholders wider than shareholders alone. 

Even if you support that shift in corporate culture, however, it is important to remember case studies like Kodak. At a time when companies are realising that they must work more closely with politicians to rebuild from the Covid-19 crisis, it looks clear that many of those collaborations will be ill-conceived and disproportionately lucrative to a small group of insiders. 

It is such glimpses of more opportunistic forms of public-private partnership that weigh on public trust in both government and business. 

At best, throwing so much money at a company with so patchy a record is a pastiche of an economic revival strategy. At worst, it further sours public attitudes towards capitalism — the model that gave so many lifestyles that they wanted to capture on Kodachrome, but which so few can now mention without adding the word “crony”.

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andrew.edgecliffe-johnson@ft.com

Via Financial Times