28 January 2009

WEF Day 1 - 'Sands into Snow'

My annual pilgrimage to the Magic Mountain is always a transcendent experience of departure and arrival...this year more than most, not only because of the extraordinary circumstances but because my point of departure was Riyadh. Saudi Arabia’s Global Competitiveness Forum precedes Davos each year, with chartered flights for dignitaries in motion from one to the other. The Kingdom’s headline topic for this year was, appropriately, ‘Responsible Competitiveness’. Thankfully, the back-slapping moments of last year’s Davos were completely absent, with still-in-post chief executives and political leaders providing some humbling thoughts on the disaster.

The out-of-time financial sector, with Mr Thain as its unintended posterchild, rightly provided a natural ‘fall guy’ for the event, with misaligned incentives combined with rampant greed providing the background narrative for all that is wrong in the world. Fair enough, certainly, but a strange sight to see some of the world’s most photogenic leaders offloading any sense of their own culpability. Nissan’s hugely successful chief executive, Mr Ghosh, forwent any mention of the failure of Nissan to invest ahead of the pain in low-carbon transport options. Similarly for Mr Enders, Airbus’s chief executive, who urged us to pray for renewable alternatives to jet fuel as if he and his company were out of the loop of aircraft design and production. As to the future, their prognosis is a deep recession with a ‘return to normality’ within five years...

But back to the Magic Mountain...this year’s topical theme is ‘Shaping the Post Crisis World’, but the mood forces the immediate into focus. Wen Jaibao has just finished his plenary contribution...impressive, with a clear message that its going to be okay, despite the serious economic numbers emerging from China...8% is his magic number, which is the annual rate of growth China needs to achieve to avoid serious social problems...rumour has it that China’s most recent quarter performance is well below that number...Mr Putin is next up, Time Magazine man of the year in 2007, and politician of choice in a side meeting at WEF in Tianjin late last year (see my oD article on this)...only problem is that although it is an open plenary, some folks seem to have little yellow tickets and no one else can get down the stairs...Mr Putin is inclined also to tell us its all going to be ok as long as there is a bit of give and take, by which I think he means he could give us energy security in return for allowing Russian companies to migrate downstream into European retail energy markets, that Russia is left to its own local and regional wandering inclinations, and that Russia be applauded for its autonomy and strength...

Was invited to a productive session on climate change this afternoon, with a lot of brain power in the room and knowledge of the intricacies of this tricky topic. Jeremy Oppenheim from McKinsey set out the stark carbon and economic numbers, reminding those who needed it that every year’s delay added another 3-5 parts per million of carbon dioxide, edging us towards the magic number of 450, beyond which Lovelock’s ‘revenge of gaia’ takes hold to our cost. As a long time fan of Achim Steiner, Executive Director of UNEP, he got my session prize in advancing proposals for a sliding levy on the price of oil as a way of raising the money to finance developing country moves towards low carbon trajectories. By one reckoning, a $10 a barrel levy (remember that in the last 12 months, prices have gone from $60 to $147 and now down to $30, so $10 is pretty trivial) would generate $180 billion a year, coincidentally what Project Catalyst, a climate initiative that AccountAbility is involved in, says is what is needed to cover the bill...

23.00, sipping piping hot tomato soup in the restaurant of Hotel Ochsen, a cute hotel that has become the hang-out joint for many of the 50 or so civil society and labour invitees...folks like Ken Roth from Human Rights Watch and Ricardo Young from Instituto Ethos make up a sort of undefined ‘international brigade’ at Davos, available to inform, guide and ultimately challenge the conventional wisdoms that always threaten to disable elites that become overly self-contained...Steward Wallis, the New Economics Foundation’s chief executive, sits twisting someone’s ear on the next table...outside of the window, wayward billionaires, ministers of state and spiritual leaders walk unsteadily along the slippery white pavements, avoiding the high-octane Audis cruising the village moving another level of participant from place to place on demand.

Davos is unbelievably full this year, despite or maybe because of the current crisis, I guess it could be some version of group therapy, or a way to reduce travel costs in getting through a lot of meetings...actually, the truth is that folks are in the room with a lot of head scratching, which is far better than the certainty of last year, which offered the spectacle of unchallenged statements from financial leaders and US political leaders along the lines of ‘problem, what problem’, and intellectual giants spelling out the irrefutable truth of ‘decoupling’...but never mind, one cannot always get it right.

...there is a distinct shift towards profiling political rather than business leaders, and a tonal change that leaves many sessions ringing with the words ‘let government action begin’, whether it concerns fiscal stimulus, bail outs, funding a new smart grid in pursuit of effective climate management or even previously unheard of calls for greater regulation in pursuit of stability, risk reduction and more generally ‘safe market making’.

The New York Times yesterday set out a small truth that is still not being faced here at Davos..."By almost any measure, 2008 was a complete disaster for Wall Street — except, that is, when the bonuses arrived”, and then sets out the terms on which almost US$20 billion dollars were doled out last year to the fabulous stewards of our global assets, our investor comrades...it is a curious fact that the NGO community has failed to date in grasping the true significance of the financial meltdown, and there are no signs at Davos of this unbroken and unenviable record being broken. One conversation with a leading human rights activist (HRA) yesterday went roughly as follows...

Me: Do you realise that the financial meltdown has huge development, environmental and rights-related implications.
HRA: Yes.
Me: There is a once in a life time opportunity to reshape the basis on which capital is invested in business, which could have a massive impact on their sustainability impacts.
HRA: Yes.
Me: It appears that civil society, whilst displaying outrage, is not engaged in the policy process of re-regulation of the financial community.
HRA: Yes.
Me: Don’t you think this is something that needs to be addressed, and in the short term since key decisions are being made as we speak.
HRA: Yes.
Me: So does that mean you could engage in this, now, since it is only in the coming weeks and maybe month or two that such interventions would count.
HRA: No.
Me: Oh (sound of quiet sobbing).

Posted by Simon Zadek at 1/29/2009 10:26 AM

WEF DAY 2: 'Upsetting the NGO Sector'

Actually the session title was ‘Sustaining the ngo sector’, a lunch session with 50 + NGO leaders discussing the impact of the downturn on the community...am amazing group of people of course, as the uplifting series of opening presentations amply demonstrated...discussion about mergers and acquisitions and currency management seemed quite normal to these folks, alongside the more familiar concerning calls for support to the community in helping – yes – the community.

It was Ingrid, the now-not-so-new Secretary General of Civicus (note that her predecessor, Kumi Naidoo, is on hunger strike in a large scale campaign for change in Zimbabwe (check out YouTube for more on this: www.youtube.com/user/civicusworldalliance), who landed the matter of the fabric of the NGO community itself, “in recent times, no fewer than 87 countries have passed or are advancing legislation that will to varying degrees muzzle civil society...in our understandable prioritisation of those directly impacted by the recession, let us not forget civil society itself”...

My take on the moment was offered minutes later in a somewhat different vein, “civil society has blossomed in recent decades, and now employs more and secures more money than every before, our growth rates have exceeded those of China...so do we feel proud of ourselves as we enter the greatest global recession in history, do we feel as we rightly point to the flaws of business and political leaders that we escape blame...surely our current circumstances suggest that we are culpable in having failed, fundamentally, in shaping society as it should be”...curiously, the session moderator stepped in before any answers were forthcoming, “lets now talk about culpability, but maybe responsibility”...well no, that is the point surely, I pondered (to myself), culpability is essential if someone or something can be held to account, responsibility is a means of avoiding such starkness.
We highlight this difference when we call out business misdemeanour, but seem unwilling to apply it to ourselves.

This could become an entirely unintended Davos theme, and I apologise in advance for any irritation it might cause.

'Making Prices Count'

Oil is cheap. New York’s main futures contract, light sweet crude for March delivery, traded at $41.63 a barrel today, while Brent North Sea crude for March fell 68 cents to $44.22. By almost any measure, it is just not enough. “We are not happy with $40 even $50 a barrel,” Abdalla Salem El-Badri, Opec Secretary-General, told a panel discussing energy security. And they are not alone.
Tony Hayward, the chief executive of BP, told the panel that Opec countries needed a price of about $60-$80 per barrel to balance their budgets and invest in social programmes. “A price somewhere between $60-$80 would be appropriate,” he said.

Cheap oil, you would think, translates through to reduced eco-innovation, much as a low price on carbon would...but things are apparently not that simple. Attending a session about how consumer retail companies were innovating in pursuit of sustainability, I asked what I thought was an innocuous question, “at what level do energy and carbon prices drive innovation?”...the answer, provided by two CEOs, was kind of a shock, “you don’t get it”, said the first, “sustainability is just part of the business, its not about energy prices”, and the second followed this up with the equally intriguing comment, “you might as well talk about rice prices, or the price of water, these are equally important”...well yes, but...hmmm.

Business leaders here, or at least some of them, seem to believe that the climate thing is beat...technology, innovation and business prowess is what it takes, and there is a lot of all three at play. Unfettered markets and Schumpeterian Umph has considerable cache, it seems, more than any talk of accountability...but to be fair, that is not quite true, one CEO in the same session declared, “we need to redefine our field of responsibility”, a view that received the nod-through assent of the assembled $500 billion a year worth of businesses...but in this world, responsibility is exercised through innovation, not any traditional view of accountability (I have a weird feeling I have written about this already today – have a look at the earlier blog on the NGO sector).

It has to be said that edible packaging, collaboration to fill empty trucks, value chain redesign to reduce energy use, and product reconfiguration to deliver the ‘experience not the stuff’ has indeed moved from the movies to the mainstream...there is no doubt that many businesses have got it at a gut level, “we cannot expect to continue to provide body cleaning products unless we can secure a sustainable supply of palm oil, and the Rainforest Alliance can ensure that our coffee is fair bought” are the kinds of remarks that would have caused celebration at the Body Shop less than a decade ago, and it is a true development that it is increasingly part of business as usual. And there is little doubt that most civil activists under-estimate by a massive factor the power of business innovation to deliver meaningful solutions.

But why must innovation and accountability be at such odds, a sort of West Coast – East Coast thing, social entrepreneur’s and mega-businesses alike cannot, it seems, be constrained by mere accountability where innovation and values provide a heady blend that will lead us our of our current quandries.

Over the peak and heading for end-station Sunday...there is a seriousness here, a focused concern that is strangely settling...despite the usual chaos of Davos’s unfounded hopes, dissassociations of responsibility, technological idealism and the occasional relapses into post-Friedmanite market mania...there is an inner reality that most folks here seem to share, that the exercise of globalisation has indeed gone wrong, that Business as Usual will deliver more of the same toxic results, and that tinkering with the system will not do the job.

The facts now go undisputed, a huge step forward in itself from previous eras of outright denial. No one in the room disputed the shocking data point that by 2020, 85% of the world’s population will live in water stressed areas unless something changes. As Nestle Chair, Peter Braebeck, made clear in his speech in Saudi Arabia and has reiterated every time he has had the chance here at Davos, “we will run out of water long before we run out of oil”. Businesses as much as labour organisations have embraced with horror the fact that in the last year, according to the ILO report timed to coincide with WEF, 50 million souls have been registered as having been made unemployed, excluding in the main China and the many millions who have slipped, or who have been booted, out of the labour market unnoticed by the statisticians...and with the US alone exorcising a cool 0.5 million a month, the numbers are unquestionably going to rip off the roof...

With such diverse players and interests around the table, there is common cause created and demonstrated here in merely accepting these and many similar numbers.

Lobbying and tactics and debate and argument come in discussing culpability and solutions... On the former, there are some curious perspectives at play, ”you cannot really blame alone the US for over-consumption, a massive consumer credit boom and living beyond its means”, explained one person patiently to me, “after all, we were just mopping up the inapprorpriate trade surpluses of Germany, Japan and China”...actually, such views would not matter if they didn’t, but they do because they inform the next act...in one discussion of the timing of the end of the recession (ranged from a few folks saying last quarter 2009, most folks saying late in 2010 and a few would-be suicide cases voting for 2012 and beyond), I argued, “it is not so much when it ends, but how we emerge from this mess, politicians will be desperately tempted to unlock the cage and let consumer credit roam the streets once again, so swamping any attempt to deliver a green fiscal stimulus”...nonsense, I was told, consumer demand in itself is not part of the problem, “it is the best form of democracy that we have”.

But that said...pretence is at a remarkably low ebb, certainly less than ever before...the main game, the parallel world of private sessions full of CEOs and ministers with a liberal scattering of NGOs, the tough questions are, one way or another, on the table...what does it take to cut a decent climate change deal, how to fix the financial system, ways of addressing the water crisis, means of preventing food speculation...this is the conversation in play, and it must be said outside of the glare and reward of public relations...as one CEO insisted in a tricky discussion about scope of accountability for water management in supply chains, “lets not posture, we have to get stuff done, now, in securing water for communities, or else none of us have much of a future”.

And the Davos crowd is in fact the team, if they were a team, like it or not, with the power to make decisions on our collective behalf, thrown up by hard work, heritage, luck and perhaps occasional misdemeanour into positions of power. They do have the power to make a difference, in fact they have a rare opportunity in this moment of crisis to rewrite the rule book...to actually change the course of history. And to top it all off, the Davos crowd is hugely intelligent, on the whole rather nice, and in the main, deeply moral.

...But here is a strange thing, because many of the sessions dealing with the right topic, an appropriate sense of urgency, and with theses folks in the room, seem to exude uncertainty complete with an eerie feeling that someone notable is missing...its a little hard to explain, but everyone seems to be talking to someone who isn’t there...sometimes this is quite concrete and specific...leaders of some of the world’s most powerful companies worrying that it is local authorities (absent of course) that hold the key to solving the world’s water problems...or with some of the world’s political leaders in the room discussing climate change, they look towards business in seeking permission or guidance in how best to move forward...and as for the NGOs, well, I have already made this point in earlier blogs...but mostly it is not so concrete, but a real, undisclosed collapse of confidence that the club has the right members, the right mandate or arrangements, to sort out the mess.

The problem of course, are the institutional bonds that hold extraordinary people in place...the most amazing business leader, in flight through a insight, is struck dumb through a need to reiterate, “of course we will only do this if makes money”, just as the charismatic and insightful politician lowers his or her sights with the words “...but the people I represent are not concerned with this”...it is as if some great bluff, a grand, well-intentioned hoax is required to save the planet and us all in it...climate change is predicted, if unabated, to wipe us all out, but to rise collectively into action, we have to posit or even guarantee a low carbon prosperity that allows for driving (electric), flying (biofuel), and meat eating (electric sheep ?)...now of course economic development counts, just as private property rights and the role of private capital needs to be protected and indeed nurtured...but it beggars belief that no one stands back and at least asks, ‘are we really making the right assumptions about how to organise our political economy and the role of its principal actors.

It is as if some Anglo-Saxon view of corporate governance and fiduciary responsibilities was a mandate from some greater being...I am a member of WEF’s Global Agenda Council on corporate governance, along with some fine folk such as the great investor activist, Bob Monks and the executive director of the International Corporate Governance Network, Anne Simpson. At our first jamboree in Dubai earlier this year (along with no fewer than 70 other Councils covering every conceivable topic), we debated trends in corporate governance. A true-blue argument flared up over the topic of public ownership. On the one side was, yes you guessed it, me, arguing that a revival of public ownership provided an opportunity to revolutionalise the manner in which the public interest could be exerted through ownership, a step wise change from the relatively limited and highly constrained ‘responsible investment’ movement. The dozen or so real experts around the table were, frankly, horrified, and argued strenuously that the world had to take steps to ensure that these public owners behaved like, yup, you guessed it again, ‘private, commercially-focused owners’...only in this manner, so the argument ran, could a real level playing field in ownership be sustained given the regulatory power of governments and their diverse and politicised interests.

We are blighted by the way things are, in our minds as much if not more than how they are on the ground...public-private partnerships have earned themselves, in many respects, a bad name. And often for good reason, as private capital fails to deliver the goods, lines of traditional public accountability are lost, and profit variously appears to be gained on the back of poor public services, or is lost by the bucketful where the politics are just too hot to handle...but these partnerships, in their immense diversity and mixed records, is the closest we have got to in experimenting in true institutional cross-dressing...yes, companies are at the table of the Global Fund for HIV, AIDS and Maleria with a profit mandate, just as labour represents its constituencies in the Ethical Trading Initiative or the MFA Forum. But ‘doing partnerships’ can have an unexpected, almost neurological impact on organisations and the folks who work in them...NGO leaders experience the profit motive, just as businesses don the garb of social mission-focused activities...

I suspect that we will not wake up any time soon and find that the traditional roles of our key institutional actors have changed, fundamentally...but it might just turn out that this is exactly what is needed to overcome the irony of those in power being constrained by their basis of accountability to make the changes that we now in some sense all know are needed. Now I am sure that I will not be celebrated or rewarded here or in heaven by encouraging such institutional cross-dressing as the hard road that we need to pass along. But it is worth at least a thought, whether we have indeed reached a Kuhnian cross-roads in the organisation of our affairs...And as do turn as a generation to the matter of governance, whether for global trade, to manage climate, to secure water, to stabilise food supplies or just to bake bread and biscuits, it is worth I believe considering some more radical options based on a hard nosed view of what is not going to work, and an insightful take on the potential offered by today’s experiements.

Watch the WFP ' A new blueprint for globalisation' video.