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February 3, 2010
A Sober and Reflective Davos
I attended my twelfth World Economic Forum meeting in Davos this past week. In previous years, there were exuberant “dot-com” savants (1999), self-assured US diplomats just before the invasion of Iraq (2003), impressive sovereign wealth funds (2007) and confident private equity barons (2008). In turn, each has been humbled within eighteen to twenty four months. Last year in Davos, the world stood at the precipice, with insolvent financial institutions looking to government as lender of last resort and global trade plummeting as recession gripped the economy. Economic collapse has been averted but this year’s Davos attendees were forced to reconsider such basic assumptions including the role of business in society and the private sector’s relationship with government. One left the ice and snow with a distinct sense of unease. Here are a few observations from WEF 2010 about the priorities of world leaders that may inform your thinking and client counsel:
- Government on the front foot: Nicolas Sarkozy, president of France, took a very aggressive position on the future of business, calling for “moral capitalism” in place of the selfish, bonus-addicted behavior that led to the crash of 2008. The president of Korea, Lee Myung-bak, noted that the unprecedented cooperation among G-20 nations had staved off the crisis. He called for strong regulation to “counter pro-cyclical financial institutions” and an end to “too big to fail banks.” Larry Summers, chief economic advisor to President Obama, said, “We were there for the banks, now they need to be there for us and for the country. It is the task of progressive activist leadership not to work against capitalism, but to strengthen the market economy. The system cannot work for the benefit of the limited elite.” A few business leaders pushed back, for example Eckhardt Cordes of Metro Group, who said that government is now too “interventionist,” citing the Opel case in Germany where “there was a private sector solution available.”
- Bankers on the back foot: Mr. Profumo, CEO of a large Italian bank, said, “Banks have a huge reputation problem. We need a significant regulatory framework to restore trust.” Howard Davies, former head of the UK’s Financial Services Authority, noted “mounting public anger against the bankers; broad discontent among the people.” Brian Moynihan, CEO of Bank of America (disclosure: a client), said that “pension funds need to have more sober assumptions on investment returns so that they don’t make speculative purchases.” Joe Perella of Perella Weinberg acknowledged that the “incentive system does affect behavior. You cannot have extreme bonuses linked to short term profitability. But the leadership of a firm sets the tone on culture; what are the priorities?” Bob Diamond, CEO of Barclays, took a strong stand against the Volcker plan to limit bank involvement in proprietary trading or hedge funds, saying it will hurt their ability to serve clients.
- Business’ endorse stakeholder model: Indra Nooyi, CEO of Pepsico (disclosure: a client) calls it Performance with Purpose. Mr. Caleo, CEO of Vodaphone, calls for “zero tolerance for bad values; lots of rope on operations.” However you characterize it, the consensus of CEOs was in favor of evolving the model away from Milton Friedman (the social responsibility of business is to make profit) toward a more nuanced approach of business’ positive contribution to society. Michael Porter, professor at Harvard Business School, said, “The greatest competitive advantage for business will be social. We used to believe there was a trade-off between profit and social issues. Now we know differently. We thought work place safety and environmental stewardship were expensive, but the highest return on investment comes from zero accidents and reengineering the supply chain to make you more efficient. Companies which understand complex social issues will turn them into competitive advantages.” Tim Flynn, managing partner of KPMG, said that a CEO needs to be explicit and transparent and take a long term point of view on shareholder value.
- Copenhagen round moves forward: On the positive side, Copenhagen marked the first international meeting based on a consensus on the science (maximum desirable temperature rise of two degrees Celsius), the aid package from the developed to the developing world and a smaller divide between north and south on emission targets/caps. The negatives include failure to deliver on target amount or period in which to achieve the ‘goal by nation’; absence of private sector involvement; and the lack of capacity of the United Nations in negotiating. A senior minister from India acknowledged that climate change is now linked to trade competitiveness, economic development and politics in each nation; “let’s not trash the multilateral process.” President Calderon of Mexico, who will host the next round in December, 2010 in Cancun, said, “We must reestablish trust among the parties. We have two gaps that threaten us; the rich versus the poor and man versus the environment. Let’s connect the solutions to both problems.” Caio Koch Weser of Deutsche Bank suggested public private partnerships such as that between his institution and the German Government to provide 10% of the country’s power needs from solar projects in the Sahara Desert, with the government agreeing to take the “first loss on equity projects.” Mr. Cameron of the Climate Action Project said we will not have a low carbon economy for at least thirty years—carbon sources will account for at least 70% of supply until 2040. Mr. de Boer of the UN said, “There will be winners and losers. No way China can do 8-9% growth per year and have a low-carbon economy.” Ed Markey of the US Congress, warned that “other nations will not be allowed to exploit the US commitment to better environment because it will cause job losses. We will have tariff protection against those actors.”
- Sustainability as a core value: Water needs to move to the center of planning for development. According to Peter Braubeck, chairman of Nestle, “Seventy percent of our use of water is in agriculture and 85% of that is used in less developed nations. We must improve agricultural efficiency and raise the intensity of production. In fact, 20% of our water use is in manufacturing and 10% is for drinking and personal hygiene.” It was suggested that water used in cities could be recycled but that a significant psychological barrier remains. Vindi Banga of Unilever (disclosure: a client) said that the carbon footprint on a typical Unilever product is 2% at the company offices, 25% at the factory, 10% in logistics and 50% when the consumer uses the product. He said that it is a company’s responsibility to educate consumers, to provide enough background so the consumer can make well-informed product choices. Mark Parker, CEO of Nike, said companies should take on the case for the environment. “Consumption has been seen as linear, from ‘Buy to Use to Throw Away. We have to recapture the value in reuse. We have to tell our investors how we are saving money and creating a sustainable business model.”
- Education: There are 72 million children who do not go to school, half of whom live in Africa. Queen Rania of Jordan cited the “marginalization of girls and minority groups. We must offer access to all. We should also empower parents in the local environment; they are the best advocates.” Her campaign, 1Goal seeks to raise the $16 billion needed to build schools and hire teachers for those outside of the educational system. Terry McGraw, CEO of McGraw Hill (disclosure: a client) described a program his company is rolling out that “prepares workers seeking re-training over a ten week period to be ready for their next jobs via on-line training modules.” He suggested educating the teachers via broadband, so that they teach critical thinking skills instead of rote instruction.
- Chronic disease is preventable: The threat of obesity, tobacco and alcohol abuse to incidence rates of heart disease, cancer and diabetes is now present not just in the West, but in China, India and Africa. George Halvorsen, CEO of Kaiser Permanente, said, “We have intervened aggressively, offering every blue collar worker who is overweight a personal trainer. We have achieved lower rates of back pain, heart disease, absenteeism and diabetes.” He asserted that there is “no deterministic link between rates of obesity and education or income.” The health minister of Tanzania said that 60 years ago, cancer and diabetes were rare in his nation, “now many children have Type I diabetes and cancer kills more of our people than AIDS, tuberculosis and malaria together.” The panel agreed that there should be incentives for people to modify diet and start exercise. There is potential for technology to be used in disease prevention, with weight and blood pressure monitors linked to PCs. I attended a dinner on Altzheimer’s, where Dr. Robert Butler of Mt. Sinai Hospital called for a public-private partnership to fund a massive study on use of drugs in prevention, not treatment of the condition.”You have to get to the patient early, even at age 40 when abnormal proteins begin to be produced in the part of the brain where memory lives. One important discovery is that the disease is not genetic.”
- Emerging market consumers: The consumer in the developing world is seeking to trade up, while the consumer in developed markets is trading down, according to a Boston Consulting Group study released at Davos. Consider that the Chinese saving per family is dropping from 26% of income to 13% of income. In the developing world, 85% of purchases are made by women, who go to 3-5 stores as “deal hunters.” The CEO of Carrefour said these women “value affordability, aspiration and availability. They are smart and empowered.” Newly wealthy people in developing nations “have high aspirations. They want high value premium brands.” In fact, China will pass Japan next year as the #2 luxury market in the world. The CEO of tech giant HTC of Taiwan, Ms. Sher, said that companies must move to local production, given the demand for ecological stewardship. “We need much better communication to customers on the provenance of the product.” In a session on media in developing markets, Shekar Gupta of the India Express Co. said that locally produced content does better than global content. Eddy Saramedia of Indonesia’s leading media company said that he buys scripts from Korea and India, then localizes the creative and shoots at home. I met the creator of “99” comics from the Middle East, super heroes of the Batman and Superman vintage, except of Arabic origin. “I make the story lines local. I give my writers a character guide—no romantic scenes allowed.”
The World Economic Forum experience is akin to being thrust into a blender with the world’s smartest people for four days, then being poured out on the other side. I come away convinced of the necessity of explaining how and why business exists. It is not good enough to generate strong financial returns, outstanding stock price or to have a celebrity CEO. We must demonstrate that business is a change agent, a flexible and fast instrument of social good through employment and better life. Those of us in PR play a vital role in this endeavor.
Posted by Edelman at February 3, 2010 4:49 PM |
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Comments
Dear Mr Edelman,
I interrogated the survey here:
http://paulseaman.eu/2010/01/edelmans-trust-survey-interrogated/
It is the third time in a row I have done so.
Posted by: Paul Seaman at February 4, 2010 8:05 AM
You and I agree on most points. I am happy to make Trust about commitment and action. It requires a different sort of communication approach as well speaking via employees, academics, NGOs... not just from the top of the company. Thanks for taking the time to review the Trust Barometer in depth.
Richard
Posted by: Richard Edelman at February 4, 2010 11:50 AM
Dear Mr. Edelman,
I thought this post was very informative as a student studying public relations. Public relations is ever changing and constantly being influenced by different things such as what you chose to write about, world leader’s priorities, and social media. I chose to comment on 6 of the 8 points you made in your post of world leader’s priorities that you observed from WEF 2010.
Concerning your point of government on the front foot, I agree with Mr. Cordes in saying that the government in today’s world intervenes much too frequently. Regarding the Opel case in Europe, I read in an article titled “UPDATE 3-Germany says EU concerns don’t endanger Opel deal” on reuters.com that the German government offered 4.5 billion Euros to the General Motors European arm in return for a promise not to fire any of the current workers for the car company.
With all of the news about banks such as National City going bankrupt, this is a very important topic to discuss. I agree with Mr. Perella on the notion of how one can’t have extreme bonuses linked to short-term profitability. I believe that by participating in that kind of behavior is considered counter productive and is giving employees the notion that the bank business is doing well since they are getting a significant raise when in fact, banks are experiencing exactly the opposite.
From a public relations point of view, displaying a positive image of the company you are representing to the public is very important and is best done through contributions to society. I agree with Mr. Porter and believe that companies need to take on social issues such as work place safety and environmental stewardship in order to raise investments within the company. I believe that if you contribute to society and show the public that you care about your employees by improving work safety or that you care about the effects your company may be having on the environment and find ways to cut down your company’s carbon footprint, then people will notice you are making an effort and thus be more likely to invest in your business.
President Calderon of Mexico said that there are two gaps that are threatening us: the rich versus the poor and man versus the environment and I semi agree with his statement. I think this is an issue in the United States as well. The rich are getting richer and the poor are getting poorer, thus leaving the middle class to become thinner and thinner. This is exactly the opposite of what we want; ideally we would want the majority of the people to be in the middle class with small amounts of people in the upper and lower. The gap between man and environment is less of a problem because we are doing and advertising many ways for us to be more environmentally friendly. Companies such as Toyota are coming out with hybrid cars, companies such as Energy Star have come out with fluorescent light bulbs that save energy, companies such as Wal-Mart have pushed using reusable bags when we shop, and companies such as Brita have pushed water filtration systems in place of buying bottled water. I feel like companies and people have come a long way and are being more environmentally conscious in their actions.
In your point, “Sustainability as a core value,” I noticed that you said that it was suggested that water used in cities be recycled but that psychological barriers still exist that prevent that from occurring. I can honestly say that I wouldn’t feel comfortable with reusing the city’s water; there’s just something about me drinking water that has been used to clean someone else’s body that unnerves me. I do however agree with Mr. Banga is saying that it is a company’s responsibility to educate consumers so that the consumer can make well-informed decisions. In the paragraph above, I stated companies such as Toyota, Energy Star, Wal-Mart and Brita and these companies have done just what Mr. Banga says is a company’s responsibility: educating consumers about sustainability issues and then solutions that the company may offer to combat such issues.
I think it is an awesome idea to link technology such as weight and blood pressure monitors to PCs in disease prevention because that is where the majority of individuals at any age spend their time- in front of their computer.
I really appreciate your post revealing some of the priorities of world leader’s so people like me, who are studying public relations in hopes of going into a career of public relations, can cater our thinking and client counsel around these observations you made while you attended WEF 2010. Thank you for your insight and documentation of your observations so that others may learn from your experiences and thus be more efficient in his or her public relations role.
Posted by: Tracy Scherzer at February 20, 2010 4:55 PM
Dear Mr. Edelman
I found this post, particularly the comments on education extremely interesting.By making education possible to those it was not an option for before would be like allowing an entire part of the world to help each other by helping themselves. If those 36 million children in Africa that currently are not allowed an education were given the option to go to school that would greatly decrease the amount of poverty, sickness, and who knows what else. In turn this would greatly increase the quality of life, amount of opportunities available to people, and economic well-being of Africa. Giving these people the option to be educated will empower them by allowing them to help themselves more than any other donation we could give to them would. Violence, terrorism, and poverty will then become less profound in areas where it now runs rampant.
But, we all already know this. What I feel most people do not think about is where we are going to get the people who are going to educate those in need. I am happy to see this is a point being addressed by McGraw Hill. Teachers need to be educated in ways that allow them to take what they learn and apply it to the changing market; education shouldn’t just be about what you know anymore. It needs to be about what you know and then how to use what you know and do something useful with it to benefit society as a whole. Having the program online is a great idea because I have found online classes take more self-motivation and discipline. Consequently only those that really want to learn the material and digest what they are learning will do well. Because of this, you will get teachers that really want to do a good job, and that really want to be doing what they are doing.
First it is our goal to find those educators who want to deliver a quality education to those who want and need it more so than ever. That being said, educating them first takes priority. I am a current PR student and I feel that being socially responsible is one of the most important things and I am so glad to see this being recognized.
Posted by: Jane Wood at March 1, 2010 4:00 PM