Is Geopolitics Damaging Industry?

FP convenes a discussion with four top global executives at the World Economic Forum’s annual meeting in Davos, Switzerland.

By , the editor in chief of Foreign Policy.
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The last few years have brought historic challenges for multinational companies. Nationalism and protectionism were already on the rise when COVID-19 shut down global supply chains. Then Russia invaded Ukraine, and businesses around the world confronted a decision on whether to pull out of the Russian market. In an increasingly fractured world, it raises the question: How do companies with large global footprints decide which side to pick? How do industry leaders define morality? And what happens if the United States and China continue down a path of decoupling?

I sat down with four executives at the World Economic Forum in Davos, Switzerland, to discuss how businesses can build resilience amid a turbulent geopolitical era. The panelists included Anne Richards, CEO of Fidelity International; Carmine Di Sibio, CEO of Ernst & Young; Mathias Miedreich, CEO of Umicore; and Lubna Olayan, chair of the executive committee of Olayan Financing Company.

Click on the video above to watch the complete discussion on deglobalization, the U.S.-China rivalry, the war in Ukraine, and much more. What follows is a lightly edited transcript.

The last few years have brought historic challenges for multinational companies. Nationalism and protectionism were already on the rise when COVID-19 shut down global supply chains. Then Russia invaded Ukraine, and businesses around the world confronted a decision on whether to pull out of the Russian market. In an increasingly fractured world, it raises the question: How do companies with large global footprints decide which side to pick? How do industry leaders define morality? And what happens if the United States and China continue down a path of decoupling?

I sat down with four executives at the World Economic Forum in Davos, Switzerland, to discuss how businesses can build resilience amid a turbulent geopolitical era. The panelists included Anne Richards, CEO of Fidelity International; Carmine Di Sibio, CEO of Ernst & Young; Mathias Miedreich, CEO of Umicore; and Lubna Olayan, chair of the executive committee of Olayan Financing Company.

Click on the video above to watch the complete discussion on deglobalization, the U.S.-China rivalry, the war in Ukraine, and much more. What follows is a lightly edited transcript.

Foreign Policy: Anne, in the weeks leading up to Russia’s invasion of Ukraine, you made a decision to stop investing in Russia. Talk us through the decision process.

Anne Richards: Initially, we framed our reaction by thinking about three things: our staff, the clients, and the assets that we manage on behalf of the clients. In terms of staff, we did not have people physically on the ground in Russia. We have Russians and Ukrainians who work for us in different parts of the global business but not on the ground—and that makes a big difference. We were dealing with an emotional situation, but we weren’t dealing with the logistics of people on the ground. In terms of our clients, I would say there was a very emotional response, but it took a reasonable amount of time for that emotional response to be consolidated into something that related to action. When it comes to investments, it’s not our money. It’s other people’s money, so therefore, we have to think through on that. But when it came to investments in the portfolio, there was a very rapid mobilization to make sure we understood not just the directly listed Russian companies that we might own but other businesses that have a supply chain that is involved in Russia. We had to go through all of those different elements and work through it.

FP: Let me contrast your experience at Fidelity with Ernst & Young’s experience. Carmine, you had more than 4,000 staffers in Russia, and I believe nearly 800 [staffers] in Ukraine. How did that impact your decision-making?

Carmine Di Sibio: Our decision-making wasn’t that different than Anne’s. We also have to look at our clients globally and ask ourselves: “Where do our clients need us to operate?” We wanted to make sure that we weren’t letting all our clients down if we were to pull out. So there was a period of time where we were analyzing the situation. We had 4,500 people in Russia. We were able to relocate many of them, in particular our partners. But then we did pull out. Period.

FP: What’s the guiding philosophy behind a decision like this? Is it morals? Is it business?

CDS: From a business perspective, it’s a losing proposition. In terms of the philosophy behind pulling out, it’s moral. It’s doing the right thing and listening to our people. There’s no doubt Russia was the aggressor here. We had about 750 people in Ukraine, and we helped make sure that they could relocate to Poland and other places, making sure they were safe.

I got huge backlash from our people around the world, making sure that we really severed ties with Russia, that we helped them in no way, and that we were not working for clients to help them in any way with Russia. It became very emotional.

FP: Lubna, the question of morality itself is so different depending on your vantage point. Much of the West went along with U.S.-led sanctions on Russia, but we know that most countries in the global south did not. India, for example, has dramatically ramped up its purchases of Russian crude. I can’t imagine Indian companies would pull their workers out of Russia. You run a big Saudi company. Your country has navigated a very difficult world in 2022, but it has maintained ties with Russia. How would you think through the morality of what a company needs to do?

Lubna Olayan: The morality of what a company needs to do is based on their values and their DNA. We’re different than the others. We’re a private company. We just celebrated 75 years since we started, and our values are embedded in our DNA and the DNA of our executives. We always say that the two most important things for us is our net worth and our people, and this is embedded in our DNA. For any crisis, the first thing we have to do is make sure that we safeguard both those things.

The West went through this with the Russia-Ukraine war, but I come from a region where we’ve had more than our fair share of geopolitical issues. During the war in Lebanon in 1976, we had to evacuate our people from Lebanon. During the Gulf War of 1990, when Iraq invaded Kuwait, we had so many international people working in our company in Saudi Arabia. We had to evacuate them and send them home. As a company, we don’t get involved in the geopolitics, but we have to take care of our people and we have to stick to our values, even in times of crisis.

You have to ask yourself: What is the right thing to do? And if you answer that as honestly as possible, keeping in mind your culture and DNA, you can protect yourself against the pressures of geopolitics.

FP: Mathias, let me bring you in on the question of morals and values. If you had to look at the world and make a choice based on what you stand for versus what competitors in China or India or Saudi Arabia are doing, how would you think through that decision?

Mathias Miedreich: I find that values are the basis of decisions. Our company is in the materials technology business. For us, the Russian invasion was a supply chain problem. We source materials from there, but we have other conflicts as well. For example, look at [carbon dioxide] CO2 efficiency. You can source nickel from Indonesia that has a very high CO2 footprint, or you could source cobalt from the [Democratic Republic of the] Congo, where you cannot assure child labor wasn’t involved. Some companies do that, and there is a commercial benefit. We have decided as a company that the backbone of what we do are the values that we stand for. We are 200 years old, founded as a mining company in the Congo to mine cobalt for King Leopold II of Belgium.

FP: That’s a fraught history, of course.

MM: It’s a broad history.

FP: No, I said it’s a fraught history.

MM: And broad.

FP: And fraught.

MM: My predecessors went through many transformations.

FP: Let’s do a survey of the group. I want each of you to rate on a scale of 1 to 10 how worried you are about the United States and China decoupling, with 10 being the most worried.

LSO: 7.

CDS: 9.

AR: 6.

MM: 3.

FP: A range of 3 to 9, quite a divergence. Carmine, you had a 9. Why are you so worried, and how is business hurt by this potential decoupling?

CDS: I’m not worried about business because I think business is trying to do whatever it can to not decouple—to maintain relationships, to maintain supply chains, to be able to invest cross-border U.S. to China and so forth. I think the issue is around people’s feelings around national security and with elected officials in the United States.

I’ve been in several meetings in Washington, D.C., where administration officials came to talk to us as CEOs, and they are extremely aggressive in terms of investing in China, in particular in the areas of technology. That’s true in the United Kingdom, Canada, and in some of the [other] European countries as well.

The Business Roundtable in the United States, which I am a part of, is putting together arguments so that businesses can show the [Biden] administration that both sides need each other and we need to be able to share and solve issues together. But the politics are really in the way here, and I am worried that they’re not getting better, particularly in the United States, because both sides of the aisle have this as a major part of the agenda. As people say, it’s the one thing they can agree on, and that’s going to continue to cause a problem.

FP: Anne, I’m curious what this means for your world. It often strikes me that so many Americans with pensions are, in a sense, investing in China because their index funds have growing China weightages. But they’re not actively aware of how invested they are in China. Contrast that with the political mood of decoupling and seeing China as a threat rather than a challenge. How do you approach that? How come you only rated your level of worry at 6?

AR: Answering your second question first, there’s an awful lot of rhetoric, and when you hear what the officials are saying to each other, it’s an area where it’s really important to listen very hard to what is actually being said. My take is that a complete decoupling would be catastrophic for the global economy, which means that there is a genuine desire of both the United States and the Chinese side to find the areas where cooperation can happen. There are some clear areas of active competition, and I take comfort in the fact that those conversations still happen and that there is still intent to not completely fracture the global economy.

On the broader question, I think you have to go back to the late ‘80s and early ‘90s to realize how much the global economy has benefited over the last 30 years from the Chinese workforce entering the global economy. That is what kept inflation low for 30 years. We always underestimate the impact of demographics generally, but particularly as it relates to the workforce. We have been a massive beneficiary of that. As a consequence of having created this very powerful entity, now the West is struggling with a new engagement model, and it starts to feel more threat than opportunity.

Having said that, I think most businesses, encouraged by government, do not want a complete breakage in those global supply chains. They want China plus one: Rather than a single supply chain, they want a bit more resilience by having other options, which is why you’ve seen investments into Indonesia or Mexico or Cambodia and other places.

CDS: What we’re seeing our clients doing is changing their supply chains. Basically everyone wants to get to a point where what’s made in China is sold in China. Some have a much harder time because the bulk of their supply chain is in China, but most of them are moving away little by little.

But China’s very different than Russia. There’s just too much revenue. There’s too much at stake. So it will be more gradual, and whether we like it or not, with businesses fighting back, it will be more political.

FP: Mathias, when you said 3, there was an audible gasp.

MM: I want to make a pledge to support decoupling. Why do we produce electric vehicles? Why is Europe banning combustion engines in 2035? The answer is we want to reduce carbon emissions. But producing an electric vehicle produces enormous amounts of CO2. Just imagine that you need to ship millions of tons of materials all over the world to build electric vehicles. The Inflation Reduction Act is a major move to support decoupling. Our customers wouldn’t accept for us to ship from China to the United States because of the penalties they would have to pay on the carbon footprint.

So what I am arguing is that, yes, there are a lot of problems, especially in terms of forbidding companies to do things, but there’s a huge opportunity in terms of reaching the decarbonization goals of the industry. Decoupling, in a way, is a consequence of taking decarbonization seriously.

FP: Let’s try another survey. On a scale of 1 to 10, how worried are you about deglobalization?

MM: 5.

AR: I’m going to go with 4.

CDS: I was going to go with 4 as well.

LO: I’ll go with Matthias.

FP: We have two 4s and two 5s. But the issues of decoupling and deglobalization are fairly interlinked. Anne, how do you differentiate between the two?

AR: I think we risk confusing capital flows and physical movement of stuff. I think the point Mathias made about the CO2 footprint is completely right because, let’s face it, shipping is a major contributor to CO2 unless we can transfer everything to green hydrogen. I’m not so sure that the natural consequence of that is that capital flows will become materially less global. I think capital will remain fungible and flows are likely to continue If not at the current status quo, they might actually become even more global over time.

FP: Carmine, do you see globalization as something that is necessarily inflationary, that increases the costs of doing business?

CDS: Yes, it’s inflationary, but I think the business world is adjusting to that.

India is a good example. We have over 80,000 people in India, and the talent in India is fantastic. To me, what’s important in terms of globalization is that immigration continues. If there are restrictions on immigration, my number would be way higher. But right now, if you look at demographics around the world, in Europe and the United States, they need labor. Over the next 10 or 15 years, they’re going to need more and more people. As long as immigration policies enable this in a legal way, people will continue to move around globally, maybe less so from China but more from Southeast Asia, more from Latin America, more from Africa, and so forth.

FP: I want to spend a few minutes on domestic politics, which can often be just as polarizing and challenging to companies as geopolitics. When you have a domestic issue, let’s say Black Lives Matter in the United States, and you’re a giant global company, how do you have an international policy or an international moral standard to what began as a national issue?

CDS: All of our companies have values. Ours are integrity, respect, and inclusiveness, and those are the values that we live by around the world. Inclusiveness and diversity, for example, is something we battle with because some governments don’t allow people with different sexual preferences to exist freely. We battle it as best we can, but we’re also law abiding, so that gets difficult for sure.

FP: When you say battle it, you mean you put pressure on governments to change?

CDS: Yes, our employees put pressure.

FP: Can you give us an example of having done that?

CDS: The leader of our practice in Japan is a gay man, and he experiences this all the time, but he’s actually educating people in Japan. He’s educating the government. Japan’s actually pretty good, but it’s an example of where we are trying to lead the way into making countries more inclusive.

FP: Lubna, Saudi Arabia has gone through its own set of reforms over the last few years, but it gets criticized a lot, especially in the Western press. And rightly so, I would argue.

LO: Why rightly so?

FP: Pick up a newspaper?

But either way, how do you deal with the issue of morals in business, especially when it conflicts with that of your government—if it does?

LO: As a proud Saudi citizen, I find sometimes that we are judged by standards that are not put into perspective. When we had the Jamal Khashoggi incident, which is a sad one in the country, it was a mistake, and we acknowledge this. But this is never, ever forgotten [by our critics]. It’s judged by countries across the world, where many of them had done even more hideous crimes. I think people don’t know as much about our country, and that is why Saudi Arabia is opening up and trying to say, “Come visit, come see where we are and where we stand.”

But for me, as a private citizen not in politics, I find it so unfair to be judged by standards, whether they are democratic standards or whatever they are labeled to be, that are applied only to certain countries and not applied to others. For example, in America, why judge everyone by your rules and not try to put yourself in another country’s place? And if you apply U.S. rules, why don’t you apply them to the country itself? Look at Black Lives Matter; so many mistakes happened.

FP: I would just say that that’s why it’s important to acknowledge mistakes. Obviously in the Khashoggi case, that hasn’t been done by Crown Prince Mohammed bin Salman. I’ll just leave that at that.

LO: I’m sorry, but it was acknowledged that it was a mistake.

FP: But not his culpability.

LO: No, but he did acknowledge. Since I’m at the top, I’ll take the blame. The buck stops here. So, yes, it was acknowledged.

FP: We’ll let the record speak for itself there.

Anne, when you hear a conversation like this and you see clear differences between countries and cultures that don’t want to be judged by one yardstick, how then do you begin to apply company values in places as different as Saudi Arabia or England or India?

AR: The approach we take in the workplace is one of absolute respect. On the ground, country by country, we don’t believe that our role as an investment manager is to lobby government on all of these different issues, but we strongly encourage employee-led initiatives in each jurisdiction to become involved in effecting change in a way that is also respectful of the culture and the history of the country. Every country is on a journey. The U.S. is on a journey: LGBT rights, for example.

FP: What a change in 20 years.

AR: Exactly. We’re all in different places. It’s not so long ago that it was criminalized in the United Kingdom. I think it’s really important to remember that, and just because in a certain Western country we are at a certain point today, we cannot suddenly preach to the rest of the world. You have to engage, and I think the more that it is employee-led and encouraged and supported by us as a business, that’s the way you bridge that gap.

Ravi Agrawal is the editor in chief of Foreign Policy. Twitter: @RaviReports

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