The B-word(s) - Block, business and Brexit

Profile picture for user slauchlan By Stuart Lauchlan June 27, 2018
Summary:
Salesforce COO Keith Block has some candid comments on Brexit, international expansion and U.S. data privacy regulations.
Keith Block Salesforce Tower
Keith Block in London

It’s been a week when big business has been more vocal than ever about Brexit - and not in the most comfortable terms for the British Government as first Airbus and then BMW talked up the prospects of quitting the UK in the event of a ‘no deal’ exit from the European Union (EU).

In contrast, a cross-sector readiness study from Pricewaterhousecoopers this week found that tech firms were more confident about life-after-Brexit than their contemporaries in other industries. Some 41% reckon that Brexit will actually be good for business, with around half expecting to see an orderly exit deal in place, while less than a third (32%) believe that a so-called Hard Brexit with no deal is likely.

Only 7% of tech firms surveyed say they haven’t made any plans at all for possible scenarios, stark contrast to Airbus which published its risk assessment around the various options for all to see.

Against that backdrop, I met up with Keith Block, Chief Operating Officer at Salesforce, in London for a chat, so the topic of the day had to be the B-word. I’ve spoken with Block about this before, albeit in quite limited terms. But with nine months to go until Brexit day, this time we were able to get into a bit more detail.

I began by asking about the Airbus risk assessment and whether Salesforce has been carrying out a similar exercise. The answer, as well might be expected from a publicly-quoted company with an expanding European presence, is yes:

Sure, we think about it. Mark Hawkins, our CFO, and I talk a fair bit. Obviously, we have had a conversation with Andy [Lawson, UK country head] about what the world might look like one way or the other. I think the guiding light for us is that no matter what happens, growth will be a premium for companies post-Brexit, whatever the form of Brexit looks like. So I think we're in a pretty good position in a world where we don't know exactly what's going to happen, but we talk about it a lot.

While not about to drill down into specifics of those conversations, Block maintains that Salesforce isn’t anticipating traumatic upheaval to come:

You know, I really don't see a change. First of all, nobody is going to be able to predict what's going to happen. Here's the one thing we can predict. We have a great customer base and a great market opportunity in the UK just like we do in Europe.

We were actually having this conversation this morning because we were with a customer, a major bank, meeting with their CEO. Their business is doing very, very well and they're talking about their growth and how our vision for growth maps to their vision of growth. So that's just an example of opportunity ahead.

​If there are going to be economic headwinds as a result of the B-word, there will be more pressure for companies to grow. And I don't think there's a better software company positioned to help companies grow than we are. I mean, that's what we're all about. So it's difficult to predict exactly what's going to happen...but we still see that there's a huge market opportunity.

Euro-investment

Salesforce has been backing that belief up with hard cash with an announcement earlier this month during London Tech Week that the firm plans to invest $2.5 billion in the UK over the next five years, well past the Brexit deadlines. That came on the back of an earlier announcement of $2.2 billion spending plans in France.

That’s a strong vote of confidence in Europe as growth market as whole, confirms Block:

The backdrop on all of this is as part of our growth strategy has been a big push into the international business. That's been going on for a number of years. It's shown up in the results. If you look at our fastest growing markets, EMEA is growing incredibly fast at scale...So this is really our way to double down. What we've actually launched over the last five years is pretty significant investment in EMEA and we still see yet another wave  of opportunity for us as we continue to innovate around the products. So France, we doubled down, UK, we doubled down...it's really around infrastructure and scale, both in human resources, and in customer-facing people.

The other European market in which Salesforce has a direct presence is Germany, heartland of the SAP global empire. I wondered if a similar spending commitment could be expected there, but it seems that things are slightly different on that front. Block explains:

I'll be very candid with you on this - if I look at Germany, we've implemented a different model in Germany than we've had in France and the UK. If you look at France and the UK, most of the business in France rotates around Paris. When you look at the business in the UK, although we are expanding our coverage outside of London, most of the business does rotate around London.

If you look at Germany, it's five very different cities that are all the same size. Historically, our position has been everything comes out of Munich. Now we realize that there are five equal cities, like Berlin as an example, that we can do business with. So I would say France and UK are more ripe for the investment, that acceleration of investment, but we're still building up the marketplace in Germany. We're happy to be working in SAP’s backyard. It seems to be working for us.

There are however things that must on the discussion table when looking at Brexit ‘what ifs?’. For example, what’s the organizational model in a post-Brexit world? Will the UK still fall under EMEA or will there be EMEA+UK? Block understandably demurs from making commitments here:

​We're always evaluating organizational models. I mean, I'm not going to start [to speculate], but we'll make the right decisions for the business. I mean, we still see EMEA as the theater with or without the B-word.

What he does say is that Salesforce’s direction of travel is already to evolve into a more country-specific model:

So we have somebody who runs EMEA, but we also have the country leader for UK. I think you're going to see more and more of that in future as we continue to get critical mass and scale within geographies. We're going to be looking for more self-contained units. There will be more agile, more flexible, the decisions are made right in front of the customer. They're not made back at headquarters in the States.

Data considerations

With no data transfer agreements in place as yet and the European Commission currently dismissing the UK’s wish to have an adequacy-plus special arrangement on data protection after Brexit, there will surely also be circles to be squared around that? There are already in-country data centers in the UK, France and Germany and plans to expand that footprint in the UK.

Block hopes that the situation won’t arise whereby data sovereignty is enforced so rigidly that UK data has to stay in UK data centers and only in UK data centers. He’s also, in common with CEO Marc Benioff, a big supporter of the EU’s General Data Protection Regulation (GDPR):

​Interestingly enough, this is kind of classic in history, that we [in the U.S.] are taking our cues from the Europeans. The Europeans are very process-oriented, I should say, process, process, process. We've seen some of the things that have happened in the U.S., so I hope that reasonable minds come together and put together the right data privacy laws that do not restrict trade but protect the individual rights of people.

As for the prospects of the U.S. introducing its own version of GDPR, Block indicates that this is now increasingly on the table and something that Salesforce will be doing its best to promote:

The United States needs to take a cue and look at everything that's happened over the last year with Facebook and the elections etc. Unfortunately, it takes an event or a set of events that really serves as a catalyst to make something happen. And as Marc [Benioff] typically does, he's done a brilliant job of raising awareness. I mean, everything that happened kind of lit the match and now we're just amplifying that message.

So something has to be done, it's the right thing to do. It remains to be seen exactly what happens. One can't predict what happens in the United States these days. But it's important that we address the issue. And the more that people get educated on the topic, they understand why it has to happen. I think the climate in the U.S. is very ready for this.

That said, while there are some articulate advocates of data protection reform, including Workday, Apple and Box, there are also a number of enterprise tech leaders which have yet to side with this. Some of these, suggests Block, won’t take a stand, but will prefer to wait and try to ride out whatever direction of travel emerges. In other word, tech industry consensus on this matter is a long way off:

The reason why is that there are too many different points of views, there are too many different self-serving interests. The hope is that people do the right thing - and we always hope that people do the right thing - and that reasonable minds prevail. But I also think that we're in an environment where people are ‘reading the tea leaves’ to see what the government is going to do.

This is where Salesforce is different, he adds:

One of that things that I think we enjoy with a CEO like Marc is that he's not going to ‘read the tea leaves’. He's got a good moral compass, he's got a good ‘true north’ and he's going to push an agenda that says, ‘This is the right thing for the United States and the consumers and customers‘. ​So, I'm not surprised that some people are leaning in and some people are not, that doesn't surprise me at all.

It is, as he points out, a time of disruption on both sides of the Atlantic and a time of differing agendas across the markets in which Salesforce operates. That’s important to remember. It’s been noted that while Brexit dominates the political landscape in the UK, it’s just another agenda item across the rest of the EU - and that’s more than it is in the U.S., according to Block:

Brexit hasn't come up in any dialog in U.S. companies to be candid. Now, it may be that I'm just not in that conversation, but I think there is so much going on in the world right now. There are so many things to focus on. It’s not lost in the dialog, I just think that there's a macro-environment. Now I understand if I live and breathe in the UK, this is probably top of mind for me every single day and I know that it is for our customers, our employees, and our partners there.

But I think that we've almost created an environment where we expect disruption everywhere all over the world. So unfortunately, that's kind of the world we live in right now.

My take

I always enjoy the chance to sit down with Block as what results is a conversation rather than a Q&A - an important distinction and one unfortunately often lost in some circles.

As a Brit, I welcome the reassurance that Salesforce continues to regard the UK as an international priority whatever form of Brexit eventually emerges.

There are clearly complexities that will emerge and those risk assessment-style conversations internally will only gain more importance as the deadlines approach. But the ‘we’ll cope whatever happens’ message is a positive one for customers and employees alike.