GlobeScan Chairman Doug Miller had the pleasure of discussing challenges and opportunities for business with Lord Mark Malloch-Brown, who has seen business from all sides during a distinguished career, serving as both Deputy Secretary General of the United Nations and previously as Administrator of the United Nations Development Programme under Kofi Annan. He has also served in the UK Cabinet as Minister of State at the UK’s Foreign and Commonwealth Office under Gordon Brown, with a consulting career before and after his public service years, and is now Chairman of SGO Corporation, the leading provider of automated election systems and related e-governance solutions.
What are the pressures on global business today, and what are the resulting imperatives for business leaders?
In some really profound ways, compared to how much change has occurred in business over the last 10 or 20 years, my suspicion is “we ain’t seen nothin’ yet.” There are some pent-up issues that are going to lead to more change. The first is the movement of capital from its traditional home in the West to the emergence of capital-rich multinational companies in the South, seeking global fortunes and destinies in the way Western companies have in the past. I’m not sure they’re all going to be global, but they’re all going to become, at the very least, formidable regional players.
I think the nature of the business enterprise itself will, as a consequence, also shift. The Western model of the free market enterprise operating on a level playing field of transparent rules is changing, because the rules aren’t transparent and they’re not level any more. It’s not just that new markets like Brazil and India have a lot of national traits and characteristics that multinationals have to adjust to, so do Western markets. The US for example is a really tricky market to get into, in terms of regulatory frameworks but also consumer preferences and behaviours, etc. A lot of businesspeople in London consider the UK, in some ways, to be one of the most politically risky markets they deal in; for example, the regulatory tax regime for North Sea Oil has been changed almost 20 times! So in very real ways we’ve moved from the free market global level playing field or “flat earth” world of Thomas Friedman, to highly complex national and regional markets that are no longer shy of asserting their own cultural traits and regulatory authority.
And then the third big change, I’d say, is technology. On the one hand, the shift to online retail commerce has changed our everyday life. On the other hand, I think we’re at a beginning, in a way. A lot of industries, which are getting disrupted by this shift, are still in place. I was struck last week being in Washington, that the Washington Post is a little bit of a better newspaper than it was a couple of years ago; is it because it is now owned by Amazon? At the moment the old bricks and mortar world looks strangely stabilized. People still do an awful lot of their Christmas shopping on High Streets or shopping malls, not online, yet you get the sense that an awful lot of the disruption still lies ahead. Surely a bulky Washington Post dropped on suburban doorsteps must soon be a thing of the past?
So in sum – capital has moved to new places, markets have become much more complex and locally regulated, and the real impact of technology on business is only beginning to be felt.
In today’s low-trust world, is resiliency a concept that will spawn new business models? Clearly we’re hearing CEOs talk of the need to develop new business models which some of your comments refer to directly. Is the notion of resiliency taking over from ambition?
I sometimes wonder whether resilience is the right word. I think it’s more about the components of resiliency – adaptability, opportunism, invention, innovation. And to me a better idea is to stay on your toes and never be satisfied with business today, but constantly be asking where you should be in five years’ time. Because on the one hand, decision-making timeframes have gotten shorter and shorter and, on the other hand, five years still remains a useful planning horizon. If five years from now you’ve not cracked the Indian market, or five years from now you’ve not found a way of selling your stuff except out of shopping malls, you know you’re going to be in trouble just given the direction of things. I think it’s all those sorts of attributes that are nowadays necessary in the C- suite.
“Keeping on one’s toes” is a nice alternative to resiliency or sustainable business. Let’s get into what some of the tools are for a business to stay on their toes. Is it both deep listening and getting to the strategic priorities in the midst of it all?
It is both of those things; and I think the key to the second one is to get strategic planning out of the planning department and into the C-suite so it is internalized and drives the day-to-day agenda. As for the deep listening bit, this is particularly important and difficult for C-suite people to do today. At SGO, one of our most interesting traits is that all of our software programmers live not in the ivory towers of Silicon Valley or Cambridge, or even Shoreditch, but in developing countries. We have programmers in Estonia, Belarus, Venezuela, and Panama; and they experience the problems of citizens in those countries. This gives them a sort of relevant inventiveness that the traditional Western company doesn’t get. I was quite close to Carly Fiorina when she was at HP and I headed UNDP, and I remember her pride when she opened a lab in India to test and adapt HP products against the needs of Indian consumers – including kids. It’s one thing to be a Western company that tries to listen but what’s attractive is if you’re lucky enough to be a developing country company – because it’s in your DNA – those are your neighborhoods that you’re designing products for.
In today’s world to keep on one’s toes, having high walls around your company probably isn’t the way to do it. It’s more about how porous your walls are, and about creating virtuous learning cycles through interaction with key external reference groups, including customers and stakeholders. Is this part of the deep listening/innovation cycle that companies can use to navigate?
I think so, and the problem is the bigger the company, the harder that is. When you’ve got as profound a set of social transformations under way as we do now, large companies are disadvantaged – they are removed from the ground level where they need to be listening. I think in this way there may have been a reversal of the size advantage. Size seemed terribly important in the past, because it gave you a global footprint; but now I think the rise of regional and local sensibilities is making much harder weather for some of the global brands. If there’s this much change going on at the grassroots level, and if you’re a big company and can’t hear it, I think globalization 4.0 may actually be the era of regional brands taking on global brands.
Let’s look at how companies, big and small, get regulated today. Would you agree that in the current context, with little in the way of active government regulation, one of the most important mechanisms for holding companies to account has been the threat of reputational harm, and its cost in terms of customer outrage?
I’d say yes, the consumer is king on the reputation question, and that’s what hurt Nike with the sweatshop issue. But on the back of that, nation states have struggled to be relevant and, as a result, have written some very unproductive regulations in the hope that they could still be useful intermediaries between that consumer anger and company behaviour. I’m on the board of a bank and it’s absolutely astonishing the extent to which governments are still looking over their shoulder at the financial crisis of 2008–9. They are not really looking forward to where, plausibly, the next financial crisis is coming from and preparing for that. So it’s arguably over-regulating the traditional banking sector but, as a consequence, unintentionally allowing the emergence of a shadow banking sector which is under-regulated. Capital moves. It’s adept at finding the unregulated corners. So the state sometimes isn’t quite smart enough to regulate today’s economy. For its part, public opinion is a sledgehammer, not a nutcracker. It’s a bit capricious about when it gets aroused; ignoring sometimes bad behaviours at companies, until an untoward comment to a journalist goes viral across social media and mainstream media. Or an egregious breach of environmental or social standards is caught on camera.
Is reputation management going to be replaced by something else that will regulate corporate malfeasance? Is there something else that is bubbling up?
Many governments will struggle along to try to turn public anger into regulations in an ever-diminishing effort to seem useful. I think we will see more and more industry regulation, including industry self-regulation. Faced with consumer expectation of better standards, what happens when governments don’t have the reach and competence to do regulation very well anymore? You’re going to get some kind of industry-initiated formula involving multiple stakeholders. But also don’t misunderstand me; governments should not abdicate a hard-nosed role in pressing for high standards of protection for their citizens. If they do, corporations will always be tempted to do too little. But the writing and enforcement of those standards may often more usefully be done at a transnational level.
That brings us to one of the most fascinating trends that we’ve been seeing; just how quickly multi-stakeholder collaboration has gone from a random occurrence to one that is being applied in many different settings – the Kimberley Process to stem the flow of conflict diamonds being one example. Do you see this trend? How important is it? Is this something that business needs to be part of?
It’s a tricky one. I do strongly believe this is the direction of a lot of international governance initiatives. In a sense these multi-stakeholder collaborations fall into two categories. There is the campaigning part of it that establishes standards, and then there’s the enforcement part of it which is to apply the standards universally and try to resolve the issue of free-riders and all the rest of it. I think if one steps back, one would have to conclude it’s a set of activities still in formation. The potential is understood but there are still a lot of companies in a lot of sectors dodging these new standards.
We’re probably far better on the campaigning side than the enforcement side of these new collaborative initiatives.
Certainly. I was at a gala dinner recently about conservation in Africa. It was really interesting that one of the sponsors of it was Tiffany’s. Before the Kimberly Process they had been in terrible trouble for where they were sourcing their diamonds. Now they’re in a great position of virtue, as a leading light on the issue of conflict diamonds. I think there are plenty of companies that show that redemption is possible, and in a strange way, companies seem to have more second chances than people. You can come back from reputational death and make a virtue of it – earlier management didn’t understand the expectations, we’ve changed all that, we’ve cleaned house, we’ve set these new standards. It can be very transformative for both inside and outside shareholder relations at the company. I have no doubt that a company like Tiffany’s, that is not pricing its products at a commoditized price, is building in a whole price premium around its ethical practices and reputation. When you’re not in a price-sensitive market, that’s very doable. It is trickier in the more price-sensitive areas but even there, if you take oil and gas, extraordinary attention is given to safety and environmental issues, even though it’s the most commoditized product of all. One gallon of oil looks exactly like another. Even there, these industries are having to transform themselves, and that’s more to do with shareholder pricing and stakeholder demands than the consumer side of things.
We were there 20 years ago when Shell signed up as a leader on climate change. And then BP launched their Beyond Petroleum campaign. Do you feel the time is nigh, that there’s going to be another breakaway strategy in big oil around climate?
I ultimately think that change depends on the long-term price of oil. If it’s high enough and steady enough to allow the growth of a renewables sector, we’re going to get a shift. If it isn’t, we won’t; although I do recognize that the argument is also more complicated than that. Local power generation for off-grid communities or the removal of the hidden subsidies behind traditional energy could still change the playing field even in a lower oil price environment.
I’d like to get your view on the concept of putting societal purpose at the core of business, along the lines of a company like Unilever.
I do think Unilever’s record under the leadership of CEO Paul Polman, and that of a handful of other companies, do seem ahead of most of their peers. These companies in a way don’t yet represent a confirmed or universal trend. There’s a danger of a premature declaration of victory when there’s still a long way to go. The old-fashioned P&L still drives the stock price; and the quarterly results, not the long-term impact, remain the lens by which markets judge companies. Yet look out 20 years and look beyond the slowing western markets to the challenge and opportunity of markets in Asia, Africa or Latin America and it’s hard to see how the company that only wants to be judged by its three-monthly sales performance prevails. The permission to operate in these new markets will be granted to companies that offer themselves as long-term partners in the extraordinary societal transformations that are under way in these regions.