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The Role and Changing Powers of CEOs in the Spotlight

July 19, 2012

It's not all doom and gloom When historians look back upon the first decade or so of the twenty-first century, I suspect they will analyse just how and why every one of Britain’s institutions (bar the Monarchy) came to be discredited. They will also ponder the demise of leaders in the worlds of politics, finance and business.

The end of the Noughties witnessed a breathtaking financial collapse which swept away trust in banking. Simultaneously, a scandal broke over the misuse of MPs’ expenses that deepened an historical distrust of politicians. As the 2010s began, a dirty tale of phone hacking sucked media, police and politicians, into a fresh quagmire of shame. Faith in the justice system seemed to be at an all time low as successive British judgements were overturned by European courts. And as the nation faced its collective indebtedness, the mantra ‘we’re all in this together’ led to searching questions about whether celebrities, bosses and companies really were paying their fair share.

As a corollary, twenty-first century Britons came to feel impotent, disillusioned…and angry.

The upshot of this simmering cauldron of fury will, I suspect, be the emergence of those who instinctively understood that the old ways of doing things were defunct and that a new, tougher world was fast emerging. Most crucially, however, they will be the people who showed vision and leadership. With CEOs facing a level of scrutiny as never before, how does the contemporary business leader get ahead of the curve and avoid potential pitfalls? There are huge opportunities for those flexible, dynamic and imaginative enough to grasp the nettle but they first require an understanding of the unique challenges of the current climate.

1. Who are the disgruntled?

It is not just the usual suspects on the anarchistic left of politics, but increasingly a lot of middle class, Tory-voting people who feel that the rules of capitalism have become skewed against them. There is now a deep sense of unease, impotence and frustration amongst people who, despite having got themselves educated and then worked and saved hard, now view themselves as the losers of the globalised, capitalist system.

Here lies the conundrum for today’s leaders. We are reaping the rewards of two or three decades’ worth of debt accumulation, implicitly supported by a generation that enjoyed an expanded welfare state, cheap goods, never-ending lines of credit and inflated house prices. All this has quietly torn massive rifts – between young and old, debtors and savers, East and West. Anyone seen to be profiting from or immune to those canyons, whether fervent financier or top tier businessman, is now a potential target for public outrage.

In a more transparent and fast-moving 24/7 media age, leaders are given neither the space nor time to work through serious solutions, which is why we have seen a sequence of sticking plasters and cheap, anti-business rhetoric. Truth is, there is no way of painlessly or equitably untangling a culture of debt and credit built up over decades. The friction between the old structure’s beneficiaries and its hapless young inheritors is sure to define the West’s story for some time.

2. Transparency and Trust

Growing in tandem with this mood has been a push for transparency as the internet and investigative journalism have shone a light on hitherto shadowy areas and helped focus public anger. The most obvious examples in business are tax and pay. Take the Uncut sit-ins at top retailers and the campaign against Amazon over tax avoidance, or the furore over pay and bonuses for FTSE boards that seem to be out of sync with share performance.

The political challenge for those of us whose instincts support free markets, enterprise and unequivocal support for capitalism, is whether we should side with the rich or sympathise with ‘our people’, the strivers who seem so shut out from the colossal rewards given to the financial and business elite. For the gap no longer seems between an essentially equally sized grouping of rich and poor but between the super rich and everyone else.

Instinctively suspicious of the interfering hand of government, it nevertheless sits uneasily that a certain portion of the population is being remunerated at a level that seemingly distorts the links between talent, hard work and reward. Normally this can be reconciled by the fact that to be a top dog is to take on an extra level of responsibility and, most crucially, risk. However time and again in recent years, we have seen a lack of accountability through the awarding of financial riches regardless of performance, and frequently for failure or engaging in immoral practices. Even when a Chief Executive resigns, stories of hefty payoffs and pension deals rather weaken the notion that they have paid a price for their incompetence. This has utterly undermined trust in the system, the ingredient most crucial to the proper lubrication of our economy. Its restoration should be one of the greatest priorities of the modern CEO.

3. Morality

As my colleagues in parliament learned to their enormous cost a few years ago, being within the letter of the rules does not mean one operates within their spirit. The public increasingly demands that leaders, whether in the political or business worlds, apply a sense of morality to their conduct, to make a distinction between legal practice and immoral practice. Not even some of the nation’s most popular celebrities are immune, as we have seen from the furore over the financial affairs of Jimmy Carr and Gary Barlow, where legal (if so-called ‘aggressive’) was seen as morally equivalent to tax evasion or theft in the court of public opinion.

The modern day CEO should therefore grasp that corporate social responsibility is no longer simply about bankrolling community projects. It is about passing the eternal smell test on pay and tax. It is about being seen to deliver for shareholders not board members as the primary motivation. It is about understanding that ‘this is how it has always been done’ no longer cuts the mustard.

As our economic woes deepen, we will also likely witness a shift in public worry from how British companies operate in the developing world to how companies serve the citizens of their own country. Most notably, this is beginning to manifest itself in questions over the make-up of the workforce. Over the past decade, companies understandably chose to take on enthusiastic migrants over workshy, low skilled young Britons. For so long as the welfare bill was manageable, this bargain was sustainable. But as unemployment even amongst young graduates expands, there will likely be a growing demand for British companies to train and employ British workers – see the recent slating of Pret a Manger for employing so few home-grown youngsters.

Hostility and suspicion will doubtless grow as well towards companies that sell out to foreign buyers – see Cadbury’s takeover by Kraft – or choose to locate important offices or factories beyond these shores. CEOs will have to balance such calls alongside the demands of operating in an aggressively competitive global marketplace.

4. Ongoing Political and Economic Uncertainty

Contemporary CEOs, many of whom will have built a career during the good times, will rapidly have to come to terms with a decade of low or no economic growth and the management of employee and shareholder expectations.

The resolution of the Eurozone crisis will not, in my view, come any time soon. Summit after summit demonstrates that the main actors can get away with doing just enough to get through the next phase before markets strike again. It has worked so far in keeping the cart from running off the tracks but the price will be long term stagnation as uncertainty infects the entire system. I suspect that amidst this uncertainty the joint plan of Chancellor George Osborne and Bank England Governor, Mervyn King, is no more uplifting or ambitious than to keep the show on the road until the next General Election – and that means maintaining ultra low interest rates to ensure that most voters are not overwhelmed by mortgage and personal debts this side of May 2015.

On top of the formidable challenge represented by the general economic outlook, the modern CEO may have to grapple with challenges presented by our own government, whether in response to public anger (stamp duty hikes that squeeze London property development, student visa clamp downs that stifle the higher education sector), a desire to court votes (granting new maternity rights) or the simple need to raise taxes to fill empty coffers.

5. Global Competition

Western companies have long been used to the notion of outsourcing lower skilled jobs to the East. But our hope that we can assume continued dominance in the ‘knowledge economy’ may prove optimistic. I suspect that within the next decade or so, it is quite likely that the intellectual property rights that have underpinned the West’s competitive advantage (licensing, patents, copyright protection) are overdue for a radical, philosophical shakeup. An ever more assertive China will argue that traditional IP structures are no more than the West’s attempt to impose its own form of protectionism to suit its particular demographic. We should not assume that the dominance of ‘our’ values in determining global trade will remain unchecked.

If there is to be a longer term price for our collective indebtedness, it will be for the UK to watch with increasing impotence as it becomes our turn to suffer as the rules of the global trading game are changed. The modern CEO will have to be alive to these changing terms of trade and a fresh army of competitors who may have the backing of governments with far greater global clout than our own.

These are doubtless unnerving times for those wedded to the old ways of doing things. Paradoxically, while the public currently believes itself to be impotent, I suspect its anger is levelling the ground for new and improved ways of working – exactly what Britain needs as we wake up to the brave new world before us. To mark oneself out as a survivor in these turbulent times will require the modern business leader to have an intuitive understanding of the public mood alongside a firm vision and sense of direction. However, they will also need to be fearless about shaping the debate when all around seem all too timid to fly the flags of commerce, enterprise and job creation.