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Political decisions and their impact on P&L accounts
On September 20th, as part of the ESADE Alumni Refresher Programme, Juan Luis Manfredi gave a talk entitled “Executives and political risk.
Juan Luis began by outlining the concept of political risk and its different definitions. “We are in the throes of a massive change which may not have affected your company yet but which will affect your market trading, how you interact with governments, the different ways in which consumers, customers and the general public communicate, the different concepts of country, nation and state, regulations, etc, all in a context of change, said Manfredi. This is when vulnerable societies, as he called them, will emerge, i.e. people who seem to be fine but who will lose something during this transformation such as the foundations or traditions upon which they have built their world.
Five premises about global governance
At this stage, Manfredi mentioned five premises about global governance to help understand the strategic setting that he described as “open, global, digital and transparent.
The first premise is that planet earth is urban, city-oriented and has massive country-to-city population flows. Some 54% of the population lives in cities and 25% of this percentage lives in great metropolitan areas.
The second premise concerns power and how it is organised in the 21st century. “New sorts of power have emerged, political start-ups such as Podemos, Ciudadanos, Salvini, Macron, Trump… – all of which are companies in themselves. The three denominators they have in common with start-ups are: a magnificent idea or flash of inspiration that has not yet been developed and has no business plan; non-traditional finance; and hyperleadership with no structure and nothing behind the leader.
The third premise that Manfredi highlighted was economic transformation, with four big companies that dominate virtually everything: Amazon, Facebook, Apple and Google. The fourth premise was climate change i.e. “mankind’s irreversible impact on planet earth. I believe that climate change is the major issue of the 21st century, and that it will change how companies interact with governments. The fifth premise was the individual. “People have been empowered and social media have changed how they interact and organise themselves, making it cheaper and easier.
Manfredi then focused on political risk which he defined as “the likelihood of being unable to maintain a contract in the next ten years because of or due to the impact of a political decision.
He then proceeded to outline the three mainstays of corporate diplomacy: influence, reputation and credibility. He described influence as the ability to impose one’s will by using different mechanisms and mentioned four types of influence: secret, discreet, political and public. He considered public influence to be the most recent and interesting. “Influence is now public: people can see it, consume it and take part in it.
Reputation is the image that other people have of an individual or company or institution and Manfredi emphasised that it is an attributed quality that affects P&L accounts. He then mentioned the political stance of companies and the fact that consumers regard this as positive because it reveals what companies think. He explained that credibility is based on facts, is related to what we do, and that nowadays, everything is public, “which is something that companies operating overseas tend to forget.
From ideas to action
Before question and answer time, Jose Luis Manfredi ended his talk with a list of twelve ideas or actions that can help build corporate diplomacy. He began with a quote by George Shultz, US state secretary, which compared diplomacy with gardening, and mentioned what the Vienna convention says about diplomacy: “Represent your interests, protect your nationals, negotiate with the parties involved, gather information and foster acts of friendship.
Manfredi mentioned other ideas: the need to have a global outlook, not only amongst experts; bear in mind the global supply chain and how a blockade can be settled for example, the power relations inside each political system, the power of the media and their ability to influence, diversity, climate change and its impact on geography, and the need to understand that the world changes constantly.
This refresher programme uses the Student First method. It is essential and mandatory to read the documents beforehand.
ESADE Alumni is pleased to invite you to this talk in the refresher series entitled “Executives and political risk by Juan Luis Manfredi, academic director of the ESADE – PwC Public Sector Transformation Observatory
What happens when risk stems from political decisions and not markets themselves? In situations such as Brexit, new trade agreements yet to be signed and recent populism, why are we getting used to political stances having a decisive impact on P&L statements? The answer is political risk – already part of the mission of companies’ general management and on the agenda of their board of directors.
Design and implementation of strategy for relations with public and private authorities. Impact management to safeguard international business from political tsunamis. This talk will examine how corporate diplomacy can be a framework for legitimacy, attraction and collaboration.