CEO Daily: Thursday, 1st June
I’m a little late to this one, but there was a good article in strategy + business published May 25 entitled “Common Purpose: Realigning Business, Economies, and Society.” Written by Colm Kelly and Blair Sheppard, it cites a fundamental breakdown in confidence in our economic system. “No matter what your own political perspective may be, our times are marked by a fundamental loss of confidence: in the reliability and impact of economic growth; in the institutions of our interconnected world; and in the apparent ability of government business and civil society to respond.” True dat.
The authors cite three great drivers of post-World War II prosperity—globalization, digitization, and financialization—which from 1945 to 1989 had an extraordinarily positive impact on society… leading Francis Fukuyama to declare 1989 “the end of history.” But history doesn’t end, it turns. The collapse of the Berlin Wall in November of that year, Deng Xiaoping’s “southern tour” in the spring of 1992, the emergence of the global Internet, and the “big bang” of financial deregulation expanded the international trade system to countries with “massive populations, low wage rates, immature capital markets, and nascent market-based legal processes.” The result was large-scale labor arbitrage—moving work from high-cost to low-cost countries. Business contributed to the trend with massive outsourcing.
The Great Recession was the final straw, exposing the flaws in a system designed to maximize GDP at the macro level and shareholder value at the micro level. Both masked growing inequality, massive problems in the workforce, and a deteriorating relationship between business and society. And now technology is threatening a new wave of job disruption, further undermining confidence. “For decades, globalization, technology and financialization worked as a system to create both economic growth and social progress.” But today, the link has been broken.
So what’s the way forward? It starts with metrics, the authors say. “One fundamental assumption of economic theory for at least the last 70 years has been that social progress follows economic growth as traditionally measured. We must now recognize that this is not necessarily true.” They advocated explicit targeting of societal goals, more energy to creating thriving communities, and a move away from the notion of shareholder value as the sole measure of business success.
Easier said than done, of course. But the article neatly dissects the forces that have led Fortune to create the CEO Initiative, as a forum for business leaders to share ideas and best practices for re-forging the link between business and social progress. Conceived at our meeting at the Vatican last December, the CEO Initiative will hold its first meeting on September 25 in New York. Details here.
• Trump Set to Quit Paris Accord
President Donald Trump will say at 3pm ET whether he will withdraw the U.S. from the Paris Climate Accord, one of his signature campaign promises. The Accord has no mechanisms for sanctioning non-compliant signatories, so a formal decision to withdraw is largely a symbolic one against collective action in global politics, and against scientific consensus. Regardless of whether man-made climate change is real, relaxing constraints on polluters will have serious public health effects (borne largely by the poor), while U.S. companies innovating in clean technologies, such as Elon Musk’s Tesla will lose the tailwind of regulatory support, disadvantaging them against foreign competition. The advantages of withdrawal, by contrast, appear to be largely psychological and emotional. Fortune
• Exhibit A: Exxon Mobil
A good indication of how far outside the mainstream a decision to withdraw from the Paris Accord would be came at Exxon Mobil’s shareholder meeting Wednesday. Over 62% of shareholders backed a non-binding resolution requiring it to disclose the risks to its business from climate change, and policies to mitigate it. Last year, only 38% had backed a similar motion. Exxon, under its new CEO Darren Woods, now has to decide whether or not to comply with the wishes of its owners. Earlier this year, Exxon wrote off 15% of its reserves on the assumption that oil prices won’t recover to levels that would make them economic to develop—an assumption that reflects, not least, expectations that cleaner energy sources will increasingly displace hydrocarbons. Fortune
• Subpoenas Fly as Russia Probe Widens
The House Intelligence Committee issued four subpoenas related to its investigation into alleged Russian meddling in the 2016 election, targeting former National Security Advisor Michael Flynn and President’s Trump’s personal attorney Michael Cohen. Devin Nunes, the Republican chairman of the House panel who has recused himself from leading the probe, also issued three subpoenas related to its investigation of alleged leaks from officials during the transition between the Obama and Trump administrations. Separately, various reports said ex-FBI James Comey will testify next week that President Trump leaned on him to stop investigating Flynn. NYT
• Uber Is Now Looking for a CFO Too
Uber’s head of finance Gautam Gupta will leave the company to join another startup, according to The Wall Street Journal. The company, which has been without a formal CFO since 2015, is now looking to hire one with public company experience, the WSJ said, in what appears to be a hint at the approach of an IPO. It is, of course, already looking for a new COO. Uber’s net loss reportedly narrowed to $708 million in the first quarter, from $991 million three months earlier, on an 18% rise in revenue to $3.4 billion. The company has relied heavily on loss-leading giveaways to build market share (in the past, it has spent up to $1 million a month on its car-pooling service in San Francisco alone), but still appears to be some way short of the dominant position needed for future margin expansion. WSJ, subscription required
Around the Water Cooler
• PPG Throws in the Towel
PPG ended its interest in Dutch paints and coatings maker Akzo Nobel, after failing to convince (then coerce) the Dutch company’s board into talking to it. It’s another victory for the European corporate establishment over the forces of activist investors and accelerated cost-cutting, echoing Unilever’s rejection of Kraft Heinz earlier in the spring. However, the environment for M&A in Europe remains supportive, as long as local sensitivities can be negotiated: the Financial Times reported that private equity group CVC had raised 16 billion euros ($17.6 billion) for a new buyout fund, the largest ever for a European-based investment company. Bloomberg
• High End or Low, Retail Misery Is the Same
Luxury goods maker Michael Kors said it will close up to another 125 stores, some 15% of its total, as it unwinds an expansion plan that has gone spectacularly wrong. Its shares fell 8.5% in response. At the other end of the scale, it emerged that Payless ShoeSource is asking its bankruptcy administrators for permission to shut 112 stores outright and up to another 296 if it fails to persuade landlords to offer better lease terms. The current rash of bankruptcies and stores closings, along with the rise of e-commerce and discount chains, means that as many as 25% of U.S. malls will close by 2022, according to analysts at Credit Suisse. Fortune
• Meeker Zeroes in on Gaming Explosion
Transportation, entertainment, and retail stand out as the three sectors where the Internet is having the greatest impact, according to the annual Internet Trends report of guru Mary Meeker. Within the entertainment category, gaming stands out as perhaps the most dynamic—online gaming is now a $100 billion a year industry, and mobile game play rose 300% last year alone, she reckoned. Meeker’s report also noted a broad slowdown in the global market for smartphones, the devices that act as the conduit for most of this activity. India was the exception to that trend, posting a 15% rise in shipments in the first quarter of the year. (This item has been corrected) Fortune
• Plus Ça Change…
Less than two weeks after he swept into power promising to clean up political life in France, Emmanuel Macron is facing his first personnel crisis. Prosecutors have opened a probe into whether Regional Development Minister Richard Ferrand, who ran Macron’s presidential campaign, committed a crime in giving contracts to both his current partner and his ex-wife. And for those who believe the old ones are the best, the EU Commission produced yet another strategy paper for fixing the Eurozone’s flaws, yet again recommending the bundling of sovereign debt, to yet another resounding Nein from Berlin. France 24
Summaries by Geoffrey Smith; firstname.lastname@example.org @geoffreytsmith