In a remote and beautiful corner of British Columbia, Canada, we followed breakfast television coverage of the ceremony in Liege, Belgium, in commemoration of the beginning of the First World War. Some 60,000 Canadian soldiers lost their lives in the conflict, with an estimated global death toll of more than 10 million – predominantly young men. The awful magnitude of this first global conflict still appals today, when once again geo-political uncertainty casts a long shadow over the August holiday season.
There has been substantial analysis of the thirty odd days a century ago between the fateful shot in Sarajevo and the declaration of war by the Great Powers. Was war inevitable? Today governments, corporates and investors are also nervously watching three major theatres of conflict. Why this dramatic escalation? What’s to be done? How should companies and their shareholders respond?
Europe today is a powder keg and the leaders are like men smoking in an arsenal…A single spark will set off an explosion that will consume us all…I cannot tell you when that explosion will occur, but I can tell you where…Some damned foolish thing in the Balkans will set it off.
– Otto von Bismarck (Congress of Berlin, 1878).
As every armchair historian knows it is easy to discern patterns, but to forecast what comes next is quite a different matter. Consider, for example, a very different set of historical parallels. At a recent Fidelio dinner, General Sir Richard Shirreff, the recently retired Deputy Supreme Allied Commander Europe of NATO, was asked if events in the Ukraine implied a return to the Cold War. Chillingly he replied that he rather saw parallels with the 1930s.
We do not wish to hurry headlong into the second global conflict that so scarred the twentieth century. Nonetheless, there are a number of parallels between today’s troubles and the woes of the 1930s which we choose to explore in this month’s edition of Overture.
As in the 1930s Europe continues to face troublingly high levels of unemployment. Current unemployment is hitting the younger generation particularly hard. While the pick-up in employment levels in the UK is good news, two trends give cause for concern. Firstly, the large increase in the self-employed, which probably implies a large increase in those just scraping by. Secondly, that the increase in employment has not led to an increase in wages. We are not out of the woods yet and it is telling that works focusing on inequality, such as Thomas Pikkety’s “Capital in the 21st Century”, have topped the US best seller list – hardly conventional reading for the beach!
Another obvious parallel is the regulation but also demonization of the banks. Eighty years ago, much like today, the global economy had been sent into freefall by the over-exuberance of the financial system. The 1930s saw a slew of regulation, including the Glass-Steagall Act, designed to contain systemic risk in the banking system. After five years of frantic legislation and banking regulation following the Financial Crash of 2008, the pace of legislation has subsided. Banks have some breathing space to start to digest the tsunami of regulation that has hit them. But this is clearly not the end and a heavy cost of regulation is today recognised as an inevitable aspect of a bank’s licence to operate.
Again, as in the 1930s, public anger at the banks has spilled over and is also targeting “big business” more generally. Major corporations including Amazon, Google and Starbucks have been hauled in front of Parliamentary Committees at the UK and EU level to address allegations of short changing the customer/tax payer. In the US a not dissimilar debate has arisen over tax inversion as US companies seek to relocate their headquarters to enjoy more favourable tax regimes.
As in the 1930s, society is certainly becoming more censorious, for example on issues regarding privacy and harassment. There is also much less tolerance of companies that fail to appoint women to their Boards and a growing indignation that women are far from adequately represented at Senior Executive level.
In the 1930s an expression of public indignation was Prohibition in the US. Today’s tobacco industry is also steering a course through moral and ethical imperatives to deliver a product that may be controversial but for which there is incontrovertible demand. Or is a more accurate parallel the controversial, yet growing demand for the legalisation of cannabis?
On a positive note the 1930s witnessed the New Deal as response to seemingly intractable economic recession. Possibly here we see a parallel to some of the large scale government driven engineering works we are seeing including Crossrail and HS2 in the UK and the upgrading of rail networks across Spain to accommodate TEN-R, the Trans-European high-speed rail network.
Clearly geo-political uncertainty and its knock on impact on the public mood has implications for business. For example the recent slowdown in what has been the powerhouse of Europe, the German economy, is at least partly attributable to the imposition of sanctions against Russia, as well as anxiety about the two other theatres of conflict Gaza and Iraq/Syria.
In terms of an appropriate corporate response, a common theme we see in the Board room is recognition that engagement with government is hugely important. This takes different forms. We have previously written about the growing influence of trade associations and industry bodies.
Recently Lord Digby Jones, the former Director General of the CBI and former UK Minister for Trade and Investment, has flagged the importance of big business and the danger of politicians resorting to the “easy wins” of bashing large corporates. To bridge this growing divide he has advocated a “Business Covenant” – a deal outlining business’s obligations to society and what business can expect from Government in return.
While we are alert to the dangers of big business losing its mandate to operate, on a point of disclosure as a small business we have very considerable sympathy with the argument recently expressed by Edmund Phelps in the Financial Times that “Corporatism not capitalism is to blame for inequality.” Phelps, the 2006 winner of the Nobel Prize in Economics, argues that it is the corporatist maladies (i.e. lack of healthy competition for big business) deep in Western Society which have brought about profound inequality.
Nonetheless, for a number of reasons, Lord Digby Jones is absolutely right to focus on the importance of big business articulating its social utility.
Practices of the unscrupulous money changers stand indicted in the court of public opinion… Faced by failure of credit they have proposed only the lending of more money…The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.
– Franklin Delano Roosevelt (First Inaugural Address, March 4th 1933)
As an Executive Search Consultancy we see companies investing in Senior Executives with the skills and networks to secure the licence to operate. A recent trip to the US demonstrated to me the increased importance of relationships with Washington and the regulators. For senior communications professionals, the media and investors were previously the key stakeholders. In a number of leading US corporates and banks, the top communications role now requires previous government experience at a senior level and strong links to Washington as well as the Federal Reserve.
Similarly in Europe we see both corporates and consultancies reinforcing their capability to engage with Brussels. In practical terms corporates are importing both political experience and regulatory experience at Board and Executive level. New senior roles are being created to improve engagement with government and regulators and ultimately with public opinion, in order to secure the licence to operate.
Candidate briefs for senior compliance roles and communication roles can be surprisingly similar: a clear mandate to create a framework which is acceptable to stakeholders and within which the business can operate successfully.
As the West gradually pulls out of the Financial Crisis of 2008, we now face geo-political uncertainty which is reminiscent of the early 20th century. This is unpredictable terrain for government and business and places very great demands on leadership.
One consistent response we are seeing in public companies is investment in Executives and Non-Executives who understand government and regulation. This cannot eradicate major challenges, including public scepticism of big business and at least three theatres of escalating conflict. The ability to engage with government, regulators and the broader public in times of great uncertainty has become a critical component of the corporate response to those risks.
Fidelio High Notes – August 2014
- Capital markets activity drives demand for Fidelio Search expertise in critical roles for shareholders e.g. Independent Directors and IR Directors.
- Fidelio sees consultancies also investing in senior capital market advisory skills.
- Fidelio Development programmes for Boards and Senior Executives focus on alignment, group dynamic and quality of communication.
- Fidelio rolls out international programme in New York and Zurich.
Please contact us with comments or for more information at info@fideliopartners.com