WEF 2017 - if no-one trusts big business, does size matter?
- Summary:
- There's a trust deficit around big business and the rise of populism to challenge the establishment. At Davos this week, business leaders debated whether size really matters.
As the World Economic Forum gathering in Davos kicked off this week, several announcements emerged with a recurring meme that could be read as ‘big is bad’.
Charity Oxfam issued an eye-catching statement that eight men account for the the same wealth as half the rest of the world’s population. Half of those men are CEOs and founders of global tech firms, including Microsoft’s Bill Gates, Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg and Oracle’s Larry Ellison.
Then there was the survey of almost 1,400 chief executives across 79 countries by global accounting firm PwC which found that 44% of respondents believed globalisation had not helped narrow the gap between rich and poor nations.
Meanwhile the Edelman Trust Barometer - based on polling 33,000 people in 28 countries via an online survey- found a "a yawning trust gap emerging between elite and mass populations”, a situation particularly acute in the US, the UK and France.
In the UK, Sage CEO Stephen Kelly won media attention with his own declaration that Davos is a talking shop for big business and largely irrelevant to the needs and interests of the small and medium sized companies that drive national economies.
So when the ‘One Percent’ touched down in Davos, the trust deficit and the rise of so-called populism, as manifested by the likes of the UK’s Brexit vote and the US election of Donald Trump as President, were high on the agenda.
One panel discussion focused down on some of the issues involved, debating the future of big business and featuring some interesting contributions from leaders of global corporations, including Sir Martin Sorrell, CEO of the advertising and media giant WPP, who talked about the problem of:
a populist trend where big business is in the front line of criticism.
Sorrell took an interesting starting point, arguing that while WPP might be regarded as big company, in comparison to Google parent Alphabet - whose CFO Ruth Porat was a fellow panelist - his firm is actually quite small. Size is relative, he contended:
The question is how you define ‘big business’? If I look at our own business, in terms of scale, as opposed to Alphabet with $650 billion of market cap, we’re a puny little $30 billion, but to some extent we’re a ‘frenemy’. We compete and co-operate.
In our own industry, we would be regarded as the largest by a a margin of about 50% from the second largest in terms of market capitalisation. But if I look at the way we compete and who we compete with, we’re competing with companies that are far bigger and far better resourced.
What Sorrell preaches is to be both big and small in the way you operate:
If I look at the digital revolution, we have traditional legacy parts of our business that we’re driving into digital. We have digital parts of the business that we want to go faster. Then we have ‘let’s be experimental’ or what I call cannibalisation - if you don’t eat your children, somebody else will. You have to experiment and disintermediate and disrupt your own business.
This is all down to the threat from Uber-isation, he added:
You have to change the engines on the airplane while you’re flying. And another analogy, you have to make sure the trains run on time. You have the companies that throw off cash, the cash cows, and you have to push them to change. You then have digital assets that you push to change. You have to do some very painful things. Again this comes back to the long term. You come back to that all the time.
If you are going to intentionally dis-intermediate and disrupt your own businesses, that causes comparison issues, precedent issues, performance issues. If you make a long term decision, it inevitably means that shareholders, including your employee shareholders, are going to have to take some pain in the short term. This is the fundamental issue for business… the answer is, push traditional, push digital, then cannibalise.
Long term thinking is vital, he insisted and that’s something that’s been in short supply since the collapse of Lehman Brothers:
There has not been the focus on innovation. Innovation works. Big companies have made incremental investment, but not fundamental. The system is focused on the short term. The average life of a CEO is about six to seven years.
Alphabet advantage
Sorrell expressed his envy for the corporate structure of Alphabet - “a controlled company” with a handful of leaders at the top holding sway - which allows it to make the long term bets needed. It was a view that obviously found favor with Porat:
One of the very important statements that we talk about at Alphabet is that incrementalism leads to irrelevance. You really do need to look and plan for the long term. If you don’t invest and push the frontier, then you really end up becoming that incremental player. Short termism is a problem. We’re invested for the long run. We keep coming back to [that statement] which I think is as true outside technology.
The Alphabet corporate structure is designed to address this situation, she explained, encouraging risk-taking and experimentation:
Our view is that you need to not just innovate because you have the opportunity with talent, but you need to be deliberate about it…Even at Google, where so much of the mantra was about pushing the frontier and making those bets, people didn’t really want to go outside of their comfort zone.
So we created a structure where we said, ‘We are going to take bets and we’re going to be focused, because focus yields results’. We created a transparency, not just externally but internally. By dividing the businesses the way we did, we pushed expenses down within Google and within what we call the Other Bets.
Porat pitched the idea that while Alphabet is a mega-corporation, it’s built around a premise of servicing everyone, not just the elite:
Our mission at Google from the earliest days has been to build products for everyone, whether it’s for one percenters here at Davos or a student in an emerging market who’s coming online for the first time or a senior who’s housebound. If you think about Search or about Maps, it’s about creating information that’s usable for everyone. The way we’ve approached this is by building open source platforms that enable anyone to reach millions, whether its the Android developer around the world building her app to reach millions or the small local merchant who can reach a broader group of people.
We do have a shared responsibility to make sure that everyone benefits from technology. So we focus on things like digital skills training. Here in Europe, for example, in the last two years we’ve trained two million people in digital skills. We want to make sure that everyone has the ability to benefit from technology.
And that includes the small and medium businesses, she said, backing up the claims made by Sage’s Kelly:
We agree that small businesses are an engine for growth. There are about 28 million small businesses in the US. They employ about half the private sector workforce. It’s a big area for us - how do you use technology to bring small businesses online. Last year we worked with 200,000 US companies giving them free technology support and access to technology to fuel them as the engine for growth in the economy.
On the trust issue, she concluded by suggesting that it’s easier to see a glass half empty than half full:
Throughout history, when we’ve seen technology change, it is easier to fear the jobs and the roles that you see being displaced. It’s harder to see those which are being created.
Throughout history, what we’ve seen is the impact that technology can have, across so many different industries, to solve so many problems, many of which still remain.
My take
For anyone hoping that the balance of power would be shifting, the ultimate conclusion of the big business discussion was that in ten years time, the most likely scenario is that even more wealth is accounted for by even fewer companies.
Whether we’re still using the somewhat dismissive term of ‘populism’ is another matter. There’s been a lot of talk at Davos this week of the shock that the establishment has received from things like Brexit and Trump’s victory. Sorrell made the point that at last year’s Davos gathering you’d have been hard-pressed to have found anyone who predicted those two outcomes.
There’s much to come that might yet impact on the trust deficit surrounding big business. Sorrell pointed out that if Trump implements some of the policies he’s spoken about, then the result is likely to be growth-stimulating in the domestic market, but disruptive in the international markets. What you win on the US swings, you lose on the foreign roundabouts.