Consequential Thinking for Family Enterprise
Families Summit of Minds: New thinking and bold initiatives for enterprising families.
In a recent McKinsey interview Jaime Augusto Zobel de Ayala1, chief executive of seventh-generation Ayala Corporation, couldn’t be blunter in describing the consequences of the world pandemic. “This crisis has resulted in a massive reshaping of the economic and social environment globally,” he declared, summarizing the outcome of what has been a disastrous year.
As with past major disruptive events, every significant shift has resulted in new ways of doing business, Zobel says. “What’s difficult now is the magnitude of will and resources required to reignite our economies and progressively guide them to a new stable equilibrium.”
That does not imply a shortage of resolve to create new forms of economic growth. On the contrary, family business leaders expect change, but this time with more emphasis on consequential thinking. At a recent Families Summit of Minds, an executive of a Paris-based food services giant suggested a retooling of business performance measurement may be in order: “We need to move beyond the return-on-investment model and think about the return for people and society with sustainability, inclusiveness and resilience as the primary incentives for growth in the post-COVID-19 world.”
Dark Ages?
What would that world look like? Over the next 20 years, three scenarios could play out, predicts Oracle Partnership’s Peter Kingsley2. One, Dark Ages, would usher in an end to multilateralism, see decades-long high unemployment, and any number of environmental crises. The second, Walled Gardens, could trigger a form of post-industrial green nationalism, with localization and greater self-sufficiency as social unifying factors. In other words, countries withdraw into their physical boundaries but free from complex global supply chains. “Globalization comes to an end but in a different way.”
The third scenario, Renaissance, suggests a “more accelerated world” in which widespread realization emerges among the public, private investors and governments that the only option is large-scale coordinated action. This narrative is “one of massive re-generation . . . leading to a worldwide re-engineering boom to ensure climate and health security,” Kingsley says. “This will create a very positive investing climate and a source of vital employment.”
You need to grow to achieve productivity gains and redistribute wealth
Who knows what may unfold? Shorter term, as coronavirus vaccines are rolled, economic recovery will take root. Debt rating agent Fitch Ratings predicts a 5.3% surge in global GDP in 2021. Rosy as that may be, growth will emerge from a low base. Global debt, which could reach a record $277 trillion or 365% of GDP by year-end as governments spend in response to the pandemic, looms large.
Foolishly Frugal?
Those expecting a return to normal in 2021 will be disappointed. That may no longer be the point. Family enterprise leaders are already thinking differently: about frugality, economic growth – even degrowth – and how to manipulate positive outcomes beyond the confines of their enterprises. CIBC estimates that Canadian consumers are sitting atop $90 billion in excess cash, the highest in the country’s history. Businesses are hoarding another $80 billion.
This level of austerity seems out of kilter. “Living within our means is a very delicate balance between overspending and over-saving,” says a Summit participant, warning that frugality can work against well-intended ideals of wealth redistribution. “If you’re a company, you need to grow in order to achieve certain productivity gains, to redistribute wealth – and to do good. If I look at governments as stewards of our tax money and redistribution of that wealth, then we as companies and families have the same type of invitation to get involved as stewards.”
For Canada’s smaller family firms, many of which are still struggling for survival, an economy firing on all cylinders can’t come soon enough. Meanwhile, there’s evidence that at least private wealth continues to grow at record rates,” according to the Canadian Centre for Policy Alternatives. All economies and businesses function on the fundamental idea of growth. So sacred a notion, says Concordia University’s Joel Bothello3, that it’s never questioned as a moral imperative. “What we’ve seen with the pandemic is full-scale degrowth.”
Not all industries are equally affected: Energy, travel and hospitality have been decimated, Bothello points out. But those that have promised more sustainable futures, Tesla for example, have thrived. Those that create novel products and services – even processes that specifically reduce environmental impact – will be more resilient than those that don’t. “The question becomes then: To whom does degrowth become a threat and to who is it an opportunity?”
What do business owners need consider going forward? One is the prospect of an uneven or K-shaped recovery in which different parts of the economy recover at different rates and magnitudes. National debt and its impact on inflation (or deflation) are other pain points. As for currency movements, some analysts predict the US dollar could fall by 20% in 2021, thanks to vaccines and a sharper-than-anticipated economic recovery.
Warning Signs
Meanwhile, geopolitics is back with a vengeance. “Are we entering an era of acute geopolitical instability and disorder?” asks Monthly Barometer’s Thierry Malleret4. Closer to home there are obvious dots to connect – and questions. Will Canada be better off with new American leadership? Gone will be President Trump’s the threats of tariffs aimed at Canadian steel, aluminum and cars. Yet there’s concern that President-elect Joe Biden’s “Buy American” infrastructure program will cut Canadian firms out of that lucrative market. Tensions over the rules will live on to 2021, even if Donald Trump’s presidency won’t.
Biden has promised to spend $400 billion on clean energy and infrastructure with American products, materials, services and shipping companies favoured. That should sound alarm bells in Canadian business circles hoping for a Canada-friendly US president and the prospect of $600 billion in federal contracts, apart from $2 trillion in green infrastructure spending that Biden has promised – a $2.6 trillion jackpot. If he kills the Keystone XL pipeline, which he has promised to do, 2,000 construction jobs to Albertans could vanish.
Family enterprise leaders operate in global markets – often erratic, sometimes not – that are subject to very complex geopolitical factors. But is the world so unpredictable? We were warned about the pandemic by epidemiologists yet few CEOs, policymakers and economists took early indications seriously. “The tendency to downplay threats seems almost universal, very human – and dangerous,” says family enterprise expert Joe Astrachan5.
We live in a world of systemic collectivity, which can blind us to oncoming macroeconomic problems. If one world had to distill what the 21st century is about, it would have to be interdependence, Malleret says. “Interdependence is by-product of globalization and technological progress and it can be defined as the dynamic of reciprocal dependence among the different elements of that compose the system.”
Business owners are a huge part of that system and its ripple effects. As one third-gen leader conveys, they possess the “components to make the kind of changes necessary” to build a better society. “We have autonomy to choose how capital is deployed, where it is deployed and how it is measured it, in a more holistic approach. We’re not judged by quarter-to-quarter results. We can take the long bet and make these systemic changes.”
Change is coming and new thinking too. Probably for the better.
Notes:
- Jaime Augusto Zobel de Ayala is Chairman and CEO of Ayala Corporation, Philippines
- Peter Kinglsey is Chairman and Co-Founder of the Oracle Partnership
- Joel Bothello is Assistant Professor, Management at Concordia University, Canada
- Thierry Malleret is Co-Founder and Principal Author of the Monthly Barometer, France
- Joe Astrachan is Professor Emeritus and past Executive Director of the Cox Family Enterprise Center at the Coles College of Business, Kennesaw State University, USA