Tim Pendry is Chairman of TPPR Public Affairs & Communications.
Rapidly changing politics across the globe and governments' drive for transparency and accountability in a bid to bring business under social control have become a major challenge for the private sector. Tim Pendry looks at the risks and how to avoid them
Few family businesses have lasted as long as Kongo Gumi of Japan, founded in the same decade as the Prophet Muhammed was born. Its survival is a tribute to the continuity and stability of Japanese culture as much as to the talents of the family.
Elsewhere in the world, stability and continuity are as much an exception as a rule, and many families can be lulled into a false sense of security about the effects of political change on their fortunes.
But even the least historically-minded family business will be aware that if they had been in the wrong place at the wrong time, everything might have been lost on the shift of a border, the movement of a tribe or the change of a regime.
What is different about today – so we like to think – is that business can have plenty of warning about changes to come and make appropriate adjustments well before danger looms over the horizon.
Many Jewish families had lived with the ebb and flow of anti-semitism in middle Europe for decades by the 1920s. Prominent Jews, such as Rathenau, were in the highest reaches of government and industry. His murder in 1922 was a signal of what was to come. Within 12 years, Jewish businesses were being expropriated. Within another ten years, Jews were being murdered en masse.
This is perhaps an extreme example matched only by the expropriations of communism, but it shows how fast things can move. The trajectory from being at the centre of society to ethnic cleansing took barely two decades.
Where are the risks?
What dangerous ideas should we be tracking today? The
obvious fear in the media is Islamism. But nationalism is not dead and nor is liberalism. Liberalism, I hear you say, what threat can that possibly pose? That depends on what sort of liberalism we are talking about.
Liberalism, in theory, leaves family businesses just to get on with it and then taxes them to provide the basic infrastructure necessary to maintain law and order. But the state does so much more now, providing welfare, managing a consumer society and waging asymmetrical war. This costs a great deal of money.
Much of my firm's work has been in the reputational defence of significant Arab interests who found themselves on the wrong side of the barrier in the war on terror. Whenever we looked at specific political attacks on our clients, classic family businesses, we saw a link to something that was unconnected to terrorism and rogue states.
A legitimate concern about terrorism was often being used to put in place a completely different programme of work – the ever closer regulation of global capitalism. Underpinning much of the activity we monitored in the late 1990s was concern about the eroding tax base of the OECD economies and the ease with which funds could pass from place to place.
The trigger was not so much the conduct of businesses, both family and corporate, but a realisation that electorates were not going to accept high tax regimes for which they seemed to get so little in return and that free global capital was creating massive accumulations of funds that might be used politically.
Things are changing today as radically as they did between 1978 and 1988 when Margaret Thatcher and Ronald Reagan introduced us to globalisation and neo-liberalism. They let a genie out of the bottle that states are now busy trying to stuff back in. Most private businesses blithely think that things will carry on regardless.
The opportunities for business are still there and continue to grow, but the next period may be one of defensive management, even under conservative governments, of a new determination to bring business under some social control, particularly private business.
It is not just a matter of the hoary old challenge of labour law (indeed, the trend is probably to stop, and even reverse, regulation in this area), it is about a drive for transparency and accountability that will affect hedge funds and private equity – and family businesses. It is the mood of the time and it is developing quickly into a major challenge for the private sector.
A good example of the trend lies in the drive to expose those western businesses engaged in bribery and corruption. There are major political conflicts over these policies both between states and within states.
One camp will see bribery of overseas officials as necessary in winning contracts against less scrupulous rivals. It sees disadvantages for the national interest in being too moral in the wrong countries at the wrong time. The UK has already got itself into a dreadful pickle over allegations surrounding the Al-Yamamah project that would seem to insult some very important Saudi interests.
The other camp has formidable friends – the OECD itself, the lobby group Transparency International, development NGOs, the new forensic investigation services of major audit firms – and it takes the moral high ground, especially in relation to Africa.
The blunt fact is that every early investigation will be targeted and political, and designed to get maximum public leverage to sustain political support. The methodology is usually to target the most egregious example of alleged wrong-doing and then throw all the resources available – investigative, political, legal and reputational – to bring them down. The aim is to frighten the others because, without willing compliance, the system will not work.
Fight the good fight – carefully
If a client has been targeted, our approach is always to indicate that we will fight hard and dirty on equal terms. Often it is true that the attackers are far less competent, prepared or informed than they like to present themselves. To bare one's teeth will help send the predator off to weaker prey.
But it is far better not to be targeted in the first place. Fighting a political war is exhausting and not what family businesses do best, while most unethical behaviour (we find) is accidental rather than deliberate. As the Russian oligarchy is discovering, it is fairly futile to take on the state with all its resources. This struggle to reform capitalism may have its enemies within nations, but it also has a formidable array of transnational friends with exceptional media, NGO and even security sector links. Certainly, you are fighting an increasingly uphill battle in a European context.
It is far better to avoid battle in the first place. Stick to a few simple rules that will push you out of sight of the political warriors while they go for a competitor or a maverick:
- Understand the new ideology of regulated capitalism. It does not always get its way and is probably reaching its high point but it will still set the debate for some years to come. A little transparency and accountability can go a long way.
- Review your business practice from the point of view of risk of attack – this is more important if you are involved in natural resources or in Africa and the Middle East than in any other area of endeavour. They will not be attacking you (usually) so much as someone with whom they think that you are associated. Analysis of the wider political situation will help ensure you can ride out the storm.
- Assign a trusted consiglière (we recommend a public affairs-driven legal counsel) to work through the zones of risk and evaluate what has to be done and who is available to negotiate solutions – and who will act as official spokesperson if necessary. Preferably someone who can be objective.
- Have a de minimis public affairs strategy. This is no more than having someone able to advise on changes in political climate, prepare positions and texts, develop a minimal public relations capability and handle crises.
If all these simple operations are undertaken, then political risk can be managed on a care, maintenance and crisis management basis.
By showing teeth, but also a willingness to accept that the general principles of the new order are just how it is going to be (at least until the next shift in the political market), most family businesses should be able to steer their way through crises without becoming a target. But these risks should not be minimised – the world is changing fast. Kongo Gumi may be around because Kublai Khan's fleets were sunk twice by typhoons. Modern governments and political movements are far harder to deal with.