Crises are normal and of all times: they are always generally unexpected, with the next one quite different from the previous one (as we have put the breaks and stress-tests in place to prevent the previous one from occurring again), and more difficult to contain, manage and resolve. What the current crisis has taught us is how interdependent the world has become: infection, contagion on a broad scale is the price we are paying for multi-dimensional globalization. How to cope with this as business leaders? There are essentially 2 options, as described here: Sell (Option 1) or Buy (Option 2).

 

Option 1: The case for business to be very cautious on globalization: consider that the next major crisis will manifest itself on Monday (always that day) 12 October (often this month, coinciding with an IMF/WB Annual Meeting), 2015 (with biblical logic 7 years after Lehman). It might be a combination of Malthus (he predicted in 19th century already a food crisis with 3bln people) and Marx (state as protector of the rights and interests of the “underclass” failing) with a “wrap” from Murphy (if anything may go wrong….., it will). In the run-up to this date, increasing social tension and elbowing for more exports by competitive currency devaluations worldwide and continued quantitative easing by the USA (causing new asset bubbles and excess debt liability problems) are among the potential de-stabilizing factors. The bubble in which the 1bln elite of the world live (in London, New York, Mumbai, Shanghai) will burst by worldwide collective action of the “poor” at the beginning of our supply-chains: “enough is enough”. Better web-access to market prices by them, as well as us (the elites) not honoring our commitments under various international agreements  (eg. 0,7% ODA, WTO, Climate Adaptation) or national development plans, will trigger events which will be broader-based, more difficult to manage and/or to adapt to than the 1973 oil boycott or the recent financial crisis. The geo-political world is hot, full of peaks, troughs, obstacles. And, no Planet, no People: no Profit. So considering these political risks, stay in your own corner!?

 

Option 2: The case for business to embrace globalization: sustained population and economic growth in developing countries will offer new markets there, and low cost supply chains for access to international markets. Local capital markets and international (patient) investors will support (green) micro-enterprises and contribute to the “graduation” of citizens in such developing countries to more acceptable levels of welfare and wellbeing. Notwithstanding that, the “policy-risk” for business remains high because of local “growth-pains”, as well as international political fragmentation and little progress on some core issues (climate, biodiversity, trade, international governance). It is, however, civil society itself (including regions, cities, entrepreneurs, business) which will drive the progress to a more stable, fair, sustainable place, because the pain of poverty is felt and addressed there also as an obligation to act and also as a business opportunity. Innovation in technology and new business approaches drive the  stemming of the loss of biodiversity and the degradation of ecosystems, including by introducing payment for ecosystem services (PES, as also recommended in the recent TEEB-Study), which will create major new, green business opportunities. Social & biodiversity impact bonds, carbon credit floor price guarantees by national governments (Euro 30/ton CO2 in 2020?) may further accelerate the green agenda. The business world is flat. We have the combination of People, Planet, Profit, driven by  “Pneuma” (spirit, ambition). So reach out!

 

Dreaming high with our feet on the ground: Martin Luther King had a dream, not a nightmare. Who may step in his (big) shoes to create a better global community, living within its planetary boundaries? Is the case against globalization, i.e. living in our splendid isolation, a valid one, or is it not more likely that if we don’t innovate (technology, business models, economy-at-large) as well as “globalise” our views and actions, somebody else will impose himself upon us anyhow; and shouldn’t we be leaders, enjoying “first mover advantage” with the inevitability in mind of a future world of more inclusiveness and a fairer distribution of the wealth of the planet? Value chains, entrepreneurship, innovative, effective and affordable technology, fair trade, public-private collaboration (meeting the objectives of both government and business), the green, or rather “blue” economy, a pro-public service financial sector, will all be imperatives in advancing our societies and international cooperation.

 

 

As following trends indicate, the pace of sustainable business is , notwithstanding the financial crisis, definitely among advanced market leaders accelerating.

 

(1)    Norms & Standards for business: since May 2010 the negotiations have started among the 33 OECD Countries plus the 9 “Adhering” countries (incl. Brasil) , on the update OECD Guidelines for Multinational Enterprises (to be finalized mid 2011), in consultation with business (BIAC), labour (TUAC), NGO’s (OECD Watch); observant countries include India, China. Among the prominent issues is the Human Right Framework for Business: “Protect, Respect, Remedy” (by John Ruggie, Advisor to the UN-SG). ISO 26000  to be effective in 2011 will reinforce this focus. Also, sector-specific Codes of Conduct will continue to evolve, some of them even embedded in national and international legislation/regulations (including EU Directives), as business wants a “base-line level playing field” with its major peers/competitors. An issue of course will be to what extent countries and China and India will be prepared to require its businesses, the emerging multinationals, to adhere to international business standards, but by being listed at for instance the London Stock Exchange makes their corporations vulnerable if they would not be complying with international standards for operations, disclosure, etc.

 

(2)    Public Reporting: more and more governments are introducing in their laws the “comply or explain” requirement on companies for public disclosure of non-financial(=sustainability) issues; the Johannesburg Securities Exchange has gone even a step further: as of 1 June 2010 all listed companies are required tp produce an “Integrated Company Report”, i.e. combined financial and non-financial accountability, fully audited and subject to shareholder approval; the creation of the IIRC (International Integrated Reporting Committee) with i.a. GRI, IASB, FASB, and all leading auditing firms, will further advance this process.

 

(3)    New economics: the economics of nature will be increasingly included in business operations, as the dependencies, impacts and also benefits from “Nature” will become clear (like in today’s carbon markts). The green economy will offer a major opportunity for business growth, technological innovation, leadership. The earlier mentioned TEEB study (“The Economics of Biodiversity and Ecosystems”) will bring more political and business impetus to this agenda, both from a risk and opportunity point of view. The New Economy has an ethical dimension too: living beyond our planetary boundaries, depleting natural resources at a rapid pace, having irreversible damage on our biodiversity and ecosystem (which form the basis of the “GDP of the Poor”) is not only at the expense of the today’s “underprivileged” generation (in the “South”), but also of all future generations. We (today’s elites) have no unlimited right of access to the planet’s scarcities.

 

(4)    Investors interest: reputation, possible litigation and “polluter pays” principle will get, even more after BP’s Mexican Gulf disaster, even more scrutiny by regulators, investors, talented staff, partners, etc. The Indian mining company Vedanta suffered significant market value loss following the decline by the Indian government of a major mining permit. So traditional shareholders start to take notice. SRI-portfolios among pension funds, “impact” and “social” investing  are rapidly increasing as investors are adopting a longer, more sustainable horizon with closer look at the underlaying fundamentals, as opposed to recent “momentum strategies”.

 

(5)    Branding, labels, product certification, value chains: consumer pressure for fair & green trade is clearly increasing, with companies paying more attention to their supply, distribution and waste chains. Government procurement policies (as in NL), labeling regulations (like in the car sector) and increasing number of voluntary product labels and certifications (FSC, MSC, Fair Trade, Utz Certified, etc., etc) will add to brand-values. Also investors are paying attention to this: it was only after the Norwegian Pension Fund had put major US retailer Walmart on its Exclusion List, that it started to reinvent itself and is now one the leaders in organizing a responsible supply-chain for its products. Its drive has put additional pressure on its sector peers worldwide.

 

(6)    Young professionals: to an increasing extent, this ambitious category of staff is aware of the transformational changes in our societal, geopolitical and business environment, and does not want to be faced with legacies affecting their own future. They are becoming  very vocal in their desire to challenge business-as-usual strategies of their Boards. Considering that the battle for talent is heating up, their voices are increasingly heard. Their social media will only intensify this development. For boards, such engagement is offering very interesting opportunities for innovation and long term, business-as-unusual strategies.

 

(7)    Failure of governments to deliver: it has become increasingly clear to policy-makers themselves that business is a major part of the solution for all of the pressing societal issues, such as climate, ecosystems, poverty alleviation, human rights, corruption. The role of governments in developed countries will change following the financial crisis, with more emphasis to “enable” (with some pressure) business to make its contribution to its agenda, preferably in a policy-coherent manner; this will include using its convening power for public-private “co-creation” of codes of conduct, policies, rules, and instruments such as tax- and partial risk guarantee schemes, capitalizing on the complementary roles and objectives between them. Business realizes that markets are not perfect, cannot operate in a vacuum, that there must be a level play of standards, and that the price is not always right.

 

(8)    Stagnation in our own, traditional markets: unlike us in the “West”, people in the “South” will become more in number, healthier and wealthier: those are the grow markets for any business. Equally those regions will be a major source of supplies and talent, even finance. And also competition and new technology.

 

(9)    Recognition that we cannot walk alone: multi-stakeholder engagement/ cooperation/ co-creation including customers and NGO’s, with a medium term strategic horizon, will be a major driver of innovation, growth, profitability, success; listen to and learn from your clients, your challengers.  Those companies which will be apply this by bottom-up approaches, decentralized authorities, while maintain a strong global brand, are the most likely to succeed over time.

 

(10)    Competing on values and quality: the quality of a product or service in combination with solid, service-oriented relationship-management is much more important than competing on price. A brand must be consistently built on this, in good and in bad times; the latter may necessitate the immediate closure of a link in the supply chain if such corporate values or product standards are not complied with.

 

 

Crises are normal and of all times, we cannot prevent them. But we can create resilience (adaptation) and be “on the right side” of a possible root cause for such crisis (mitigation).The signs of change are on the wall: the question is not whether we will live and work in a world with much more global welfare, better wellbeing and living within the limits of this planet. Technological solutions to live this world are there or will be soon developed.

 

The issue is when, how and by whom. Among the key drivers to accelerate the adjustment to this better world are you, the future leaders: you have the right to do so and also an obligation to yourself and your children. Too many of today’s leaders are suffering from unintentional blindness, tunnel vision: for you to offer them your perspectives of how you want to assume your inevitable leadership of tomorrow’s world, corporation. It starts with your own ambition!
Thank you!

Herman Mulder, Amsterdam 25 October 2010