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Bosses will pay a price for mixing politics and corporate values – The Economist

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The downsides of CEO activism will become rather clearer in 2020

The World in

THERE USED to be an iron rule for any American boss tempted to talk about politics: don’t. Recently, this rule has been discarded as chief executives have been drawn into taking stands on inequality, the culture wars and climate. So far they have had an easy ride: it is more fun to outline your vision for humanity than for increasing EBITDA margins. But in 2020 this new breed of activist CEOs will face three problems that politicians know well: the charge of hypocrisy, the risk of a recession and destabilising ideological shifts.

Corporate America’s drift away from political neutrality and inactivity began after the financial crisis in 2008-09. Banks gave displays of contrition. A new generation of woke consumers and workers grew up during the crisis. Some were preoccupied by cultural injustices; others attacked capitalism, too. Climate change became an urgent problem and economic nationalism meant firms had to demonstrate their patriotism.

Bosses have responded to these signals. Jamie Dimon, of JPMorgan Chase, pens 50-page letters, ostensibly to its shareholders: the latest touches on education, and military procurement and demands “CEOs: your country needs you!” Silicon Valley chiefs humour a minority of radicalised employees. Bosses like to claim their firms are leading the fight against carbon emissions. In 2017 bosses joined flag-waving summits in the White House. And over 180 CEOs have signed a declaration by the Business Roundtable that their objective is not just to serve shareholders, but customers and workers, too.

Business folk are motivated by idealism, vanity and calculated self-interest. But it also helps that, so far, CEO activism has been cost-free. Like some politicians, some bosses gladly take credit for things they do not control. Most of the CEOs who pledge to fight climate change do not run firms that are responsible for it. Take the biggest 200 Western firms that disclose emission figures. Of these, the top 20 are responsible for 70% of all emissions: the other 180 don’t matter much. And like some politicians, some CEOs make promises they don’t keep. Despite the Roundtable’s concern for workers, executive pay is rising and there is no sign of a rethink on how the spoils are split between labour and shareholders. Profits for the S&P 500 index are forecast to rise by 8% in 2020.

By then the three downsides of CEO activism will have become more apparent. First, the accusations of hypocrisy: it is not hard to find. Nike, which has pushed virtuous branding, has been embroiled in a doping scandal. BlackRock, a fund manager that pushes other firms to invest more, spent over 100% of its own cashflow on buybacks in the past 12 months. Visa signed the Roundtable letter championing customers, but is part of a payments oligopoly. If the inconsistency between bosses’ words and actions becomes too glaring, reputations can suffer, as Mark Zuckerberg of Facebook knows.

Second, if there is a recession, CEO activists will struggle to reconcile the interests of employees and their fiduciary duty to shareholders. In the past two downturns American firms cut their wage bill by 6%; if they had not, profits would have been 24% lower. This flexibility is a hallmark of American capitalism. The conflict between business logic and political posturing is already evident at firms facing technological disruption. Consider Mary Barra of General Motors, a prominent Roundtable signatory. In September 2019 she faced a strike by 46,000 workers who complained of unfair pay and factory closures as she tries to shift GM to electric vehicles.

And third, as any member of Congress will tell you, the ideological ground can shift quickly. CEOs hope that by adopting social and political causes they will defuse more radical sentiments. Dream on. The presidential campaign in 2020 will feature lots of criticism of big business, some of it legitimate. Democrats’ proposals include workers on boards, beating up health-care firms and tackling monopolies, most obviously in big tech.

No such thing as a free declaration
By the end of 2020 the leaders of America Inc will realise that political posturing is no free lunch. Many will worry that it is a gimmick that elicits a backlash. Prudent firms will adopt a simpler vision: it is the job of government to set the rules, and the job of companies to maximise value within these rules. That means delighting customers (including socially conscious ones), investing in profitable innovation (including in green technologies), and attracting workers (sometimes by paying them more). It doesn’t mean standing on a soap box. That is what politicians are paid (much less) to do.

This article appears in “The World in 2020”, our annual edition that looks at the year ahead. See more at worldin.economist.com.

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Politics Update: How Biden Will Spend His First Days As President – NPR

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Joe Biden has released his plan of action for his first few weeks in as president.

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Angela Merkel’s heir apparent: Armin Laschet’s rise to summit of German politics – Financial Times

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Armin Laschet could scarcely conceal his delight last year when the carnival club in his hometown of Aachen named him an honorary knight. “Finally I get a job on the first attempt, without having to lose twice first,” he said.

Faced with the kind of painful setbacks Mr Laschet has suffered in his career, most politicians would have given up and tried something else. He slipped off the greasy pole so many times that some thought he would never get back on it again.

But the 59-year-old always bounced back. And on Saturday he scored his biggest victory yet, winning the election for leader of the Christian Democratic Union and so moving into pole position to succeed Angela Merkel as Germany’s chancellor.

Friends see him as a political survivor whose sheer grit and stamina have finally paid off. Faced with electoral setbacks, “he never just threw in the towel and walked away”, said Serap Güler, a CDU politician who has known him for 15 years. “His defeats never dragged him down — he always kept going.”

The son of a miner who studied law and later worked as a journalist, Mr Laschet was long considered the “nearly man” of German politics. He won a seat in the Bundestag in his early thirties but lost it again four years later. In 2010 he ran to be boss of the CDU’s branch in his home state of North Rhine-Westphalia — and was once again defeated.

“The CDU in NRW was famous for its internal power struggles, and he always seemed to be on the losing side,” said one local opposition MP who has known him for years.

In the race for the CDU leadership he was also the underdog. For weeks he trailed his two rivals, Friedrich Merz, a corporate lawyer popular with conservatives in the party, and Norbert Röttgen, chairman of the Bundestag foreign affairs committee. But in the end he beat them both.

One characteristic that has helped him win through is his good humour. Affable and approachable, he frequently appears in fancy dress at carnival time. The award he won in Aachen last February was the “Medal Against Deadly Seriousness”, in recognition of his “individuality, popularity and natural wit”.

“He’s the classic cheerful Rhinelander — the kind of person you’d want as your neighbour or friend,” said Jürgen Hardt, a CDU MP.

However, for some traditional hardliners in the party, he has an image problem: he is seen as too liberal, and too closely identified with Ms Merkel. As a Bundestag MP, Mr Laschet was part an informal discussion group that brought together young lawmakers from the CDU and Green party.

As a minister in the NRW cabinet of the 2000s, he touted the benefits of immigration, saying in 2009 that ethnic and religious diversity should be seen as a “chance” for Germany, “not a threat”. Fellow Christian Democrats nicknamed him “Turk Armin”.

“He was the first politician in this country to really give people from immigrant communities the feeling they were important,” said Serap Güler, who worked as his adviser in the 2000s and is now his state secretary for integration.

That carried through into the refugee crisis of 2015, when Mr Laschet was such a staunch defender of the chancellor’s “open-door” immigration policy that the Berlin press called him “Merkel’s bodyguard”.

CDU conservatives may have been appalled, but it did not harm his chances at the ballot box. In 2017, the CDU defied expectations to win regional elections in North Rhine-Westphalia, long considered the “beating heart” of the left-of-centre Social Democrats. Mr Laschet became prime minister.

“Beating a popular incumbent is a very hard thing to do in politics, and all the polls said he couldn’t do it,” said one of his close allies. “The thing about Laschet is people always underestimate him.”

Though everyone knew he was a Merkel-ite moderate, the cabinet he put together reflected the full spectrum of views in the CDU. He has a tough law-and-order interior minister who has launched high-profile raids on criminal clans. He has a labour minister who is a well-known expert on social policy from the left of the CDU. And he has Ms Güler, the integration secretary, who is the daughter of Turkish immigrants.

“Laschet is a unifying figure — that’s his main strength,” said Josef Hovenjürgen, general secretary of the NRW CDU. “He understands that the CDU needs economic liberals, value-conservatives and those with more of a social agenda. It must remain a broad church.”

Based on his success in North Rhine-Westphalia, Mr Laschet was considered favourite for the CDU leadership when he threw his hat in the ring last February, especially after he recruited health minister Jens Spahn, popular with young conservatives, as his running mate.

But his approval ratings sank during the coronavirus pandemic, when he caused consternation in Berlin by arguing forcefully for a swift relaxation of the shutdown. In appearances on TV talk-shows he was badly prepared and over-emotional. And he was often overshadowed by Markus Söder, the tough-talking prime minister of Bavaria. However, none of that seemed to matter on Saturday.

In his speech to delegates, Mr Laschet presented himself as the only one of the three candidates who could keep the CDU’s various competing camps together. Any party leader “has to be able to unify”, to reach compromises and find solutions, and not polarise, he said. He also positioned himself as the continuity candidate who would maintain Ms Merkel’s pragmatic course. “We’ll only win if we remain strong in the centre of society,” he said.

Having won the leadership election, he is now well-placed to run as the CDU’s candidate for chancellor in September’s election. But he has to deal with Mr Söder first. Any decision on who runs will have to be made in consultation with the CDU’s Bavarian sister party, the CSU — and Mr Söder is its leader. Speculation is rife in Berlin that Mr Söder might himself entertain ambitions for the top job.

Many in the CDU, however, are now convinced that Mr Laschet must be their candidate in September.

“Söder is a polarising figure, while Laschet is a unifier,” said one CDU MP. “And that’s what has always set the CDU apart from other parties, like the Republicans in the US. We have to represent the whole of society.”

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EXPLAINER: Italy faces a political crisis amid a pandemic – ABC News

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Former Italian Premier Matteo Renzi is testing his already low popularity by provoking a political crisis that could bring down the government at yet another critical juncture in the fight against the pandemic

MILAN — Former Italian Premier Matteo Renzi is testing his already low popularity by provoking a political crisis that could bring down Italy’s coalition government at a critical juncture in the coronavirus pandemic.

RENZI’S POWER PLAY

This is not Renzi’s first foray as an iconoclast shaking up Italian politics. He became premier in 2014 by out-maneuvering and unceremoniously deposing then-fellow Democratic Party member Enrico Letta as Italy’s leader. Renzi himself fell from power nearly three years later after gambling his popularity on a constitutional referendum that failed.

Now, the 46-year-old former Florence mayor might bring down Conte. He broadly accuses the premier of not properly managing the coronavirus crisis. Renzi says he is only following his conscience, at great political cost.

“Italia Viva did not start the crisis. It has been going on for months,’’ he asserted during a press conference last week.

Renzi, a senator for the Italia Viva party, supported Conte during an earlier, failed power grab by Matteo Salvini, the leader of the right-wing League party that was part of Conte’s first government.

New polls show junior coalition partner Italia Viva has the support of just 2.4% of survey respondents, down from a high of 6.2% at the party’s inception. Italia Viva was created in September 2019 when Renzi bolted the Democratic Party he once ran. He brought with him two Cabinet members, giving himself the kind of leverage he employed last week.

CONTE’S NEXT MOVE

With the resignation of the Italia Viva ministers, Conte is working to shore up support in parliament among independent lawmakers. He still has the backing of the Democratic Party and the 5-Star Movement, which have criticized Renzi’s move as irresponsible.

Conte will make his case in the lower house on Monday and to the Senate on Tuesday. A voice vote will take place after each appearance, tantamount to a vote of confidence.

Conte may survive to lead what would be his third government by cobbling together enough support in both houses. And it is still possible that Italia Viva will restore its backing.

WHAT’S AT STAKE

Italy expects to have 222 billion euros ($268 billion) in European Union economic recovery funds to manage, money that is crucial to modernizing the country and its limping economy.

While Conte had wide support during Italy’s devastating go-round with the coronavirus in the first half of 2020, cracks in his popularity have appeared during the even more deadly fall resurgence. Four months into the government’s system of tiered restrictions, new confirmed daily infections remain stubbornly high, and Italy’s pandemic death toll of 81,800 is the second-highest in Europe after Britain.

Conte’s government also is under fire for not keeping high schools open during the pandemic, a decision mostly tied to inadequate transportation to allow for social distancing. And there are concerns that Italy does not have enough medical personnel to carry out the country’s vaccination campaign.

But the crisis was ultimately spurred when Conte presented a plan that would have put himself in charge of managing the EU recovery funds. Political analyst Wolfgang Piccoli called it “the ultimate mistake,’’ setting up Renzi’s move to reassert his own “prominence.”

Italians are showing little patience for the political infighting when the nation’s priority is getting the coronavirus pandemic under control and rolling out the vaccines that many hope will end the nation’s long coronavirus nightmare. In a new poll, 42% of Italians said they didn’t understand what provoked the latest government divisions.

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Follow AP coverage of the coronavirus pandemic at:

https://apnews.com/hub/coronavirus-pandemic

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