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Don’t panic (yet) about populism

When I called for investor engagement with Facebook and the social media giants, I did not expect to see a sovereign wealth fund leading such an initiative just three months later. Nor did I expect a large global fund manager to call into question shareholder value primacy.

Or to be interviewing a Harvard Business School professor who says “there’s been an implosion of trust, the public are getting pissed off…. and we don’t admit it”.

New Zealand Super’s leadership – alongside other New Zealand Crown funds – of a collaborative engagement with Big Tech was prompted by the recent terrorist killings. It is ironic that New Zealand is where the über-rich hope to escape if things become really bad, but there are no safe havens in this interconnected world. 

Within a month of launch, the engagement had 44 investors representing over €900m of assets, 26 local funds and 17 international players including AP1, AP2, AP3 and AP4 as well as BMO Global Asset Management. It is too early to say what this will achieve but as with the rapid passage of gun reform, the range of ideas acceptable to the public, also known as the ‘Overton window’, has shifted. 

According to NZ Super’s CEO, Matt Whineray: “This is a great example of an opportunity for collective action. Pressure from multiple stakeholders – investors, consumers and regulators – has the potential to be very powerful. We have been heartened by the support we have received both within New Zealand and internationally. For some of the New Zealand participants, this is their first direct engagement, and we look forward to working with them alongside some very experienced overseas investors.” 

A recent paper by Fidelity International in the UK entitled ‘Populism Will Change Corporate Purpose For Good’ puts this engagement in a wider context: “Populist movements will force companies to rethink their purpose over the next decade… there is now enough momentum to move the dial permanently, from shareholder value maximisation based on purely financial indicators towards a more comprehensive, sustainable approach.” 

Fidelity International’s change in leadership, both generational and gender, has been critical and remains a work in progress. Nevertheless, it is important to note that the paper comes from Fidelity International (end-2018 AUM €246,499) and not the main US parent, Fidelity Investments (AUM around €2.5trn).

But it is ground-breaking regardless, and Anne Richards, Fidelity International’s CEO is clear: “History teaches us that when capitalism makes big profits through doing bad business, it ends up failing badly too, both politically and corporately. As responsible capitalists, we must always seek to do the right thing, in the right way, for the right reason or we, and society as a whole, will pay a very high ultimate price.”

Crony capitalism
Malcolm Salter is emeritus professor of business administration at Harvard Business School (HBS). A self-confessed “happy capitalist”, Malcolm has distilled 50 years of HBS experience in “Rehabilitating Corporate Purpose: How the Evolution of Corporate Purpose Has Contributed to a Widening Breach Between Capitalism and Justice and What to Do about It” (April 2019). 

Prof Salter explains his motives using the words of the British historian Arnold Toynbee who warned that “great civilisations die from suicide, not by murder”. Salter argues that the political and economic governance systems (democracy and capitalism) in many countries, the US and UK in particular, are in distress and the causes are interconnected, namely crony capitalism. 

Why has contemporary capitalism become so untethered from common-sense principles of fairness? Prof Salter’s answer is that shareholder value maximisation has become the “only legitimate basis for guiding corporate strategy and measuring corporate performance”. Political and legal critiques of shareholder value maximisation are far from new but what Prof Salter offers is an Ivy League business administration alternative.

Mindful of the limited impact to-date of corporate responsibility and responsible investing, he has sought to develop a principle – ethical reciprocity – that is as easy to understand but also to operationalise as shareholder-value primacy and which executives can use to guide day-to-day decision-making.

Prof Salter is not yet in the majority amongst business school professors but nor is he alone. Colin Mayer, the former dean of the Saïd Business School in Oxford says: “The rationale and motivation for the existence of business have gone awry. And this is creating immense problems globally and in society in general.” Other heavyweights such as Henry Mintzberg and Michael Porter agree.

So is all this re-thinking fit for purpose? A recent – study of democracy by – Swedish academics from the Varieties of Democracy Project (V-Dem) suggests not. This empirical overview of all episodes of ‘autocratisation’ has both bad and good news.

The bad news is that a third wave of ‘autocratisation’ is underway. It started earlier than realised in 1994, that is, after the shareholder value revolution had started. By 2017, reversals outnumbered the countries making democratic progress – something that has not happened since 1940. Important reversals include the US which was downgraded by both Freedom House and V-Dem in 2018.

Today’s autocracy – gradual setbacks under a legal façade – is undercover. Elites avoid sudden moves, instead eroding democratic institutions gradually. And aspiring autocrats are learning from each other, borrowing tactics that are less risky than, for example, abolishing multi-party elections. What is particularly worrying is that few such episodes have stopped short of descent into authoritarianism.

And the good news?
More than half of all countries still qualify as democratic. In addition, most episodes of contemporary ‘autocratisation’ are, for now at least, slower and more feeble than their earlier waves so democratic actors can sometimes mobilise resistance as happened in South Korea in 2017.

Fewer autocracies are affected by further ‘autocratisation’ and multi-party elections remain the norm, even in authoritarian regimes.

The bottom line, according to the authors, is that “panic is probably not warranted: the current declines are relatively mild and the global share of democratic countries remains close to its all-time high…. As it was premature to announce the ‘end of history’ in 1992, it is premature to proclaim the ‘end of democracy’ now.”

Personally, I am not so sanguine. Perhaps what we are experiencing is the equivalent of a frog in water that is gently coming to the boil. Initial small steps towards autocracy in Turkey, Nicaragua, Venezuela and Russia were followed by a descent into authoritarianism.

Of course, the financial sector has deeply rooted motives and incentives for ignoring these trends. Indeed, my IPE colleague, Joseph Mariathasan wrote a piece where he concluded that, with President Trump backing Saudi Arabia despite its assassination of a journalist, there “were greater issues of concern for ESG activists than US social media companies”. 

What this ignores, of course, is the role of mainstream and social media in the success of populists. It is easy for European investment professionals and commentators to ask who radicalised fundamentalist Muslim terrorists. It is harder to ask who radicalised white supremacists. 

What it is hard for us to do is recognise how we, ourselves, have been groomed. Would not it be ironic if MBA/CFA indoctrination turned out to be the most dangerous fundamentalism of all? And who will be the Toynbee of this civilisation’s suicide?

Raj Thamotheram is founder and chair of Preventable Surprises

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