“The Biggest Risk Is Being Risk Averse”

International Advisory Board reviews the global economy

17/04/2015 Barcelona

International Advisory Board (IAB)

How International CEOs See the Global Economy

Five members of IESE's International Advisory Board were addressing an audience of MBA students and alumni in Barcelona, who gathered to hear analysis of the global economy. The session, entitled "How International CEOs See the World Economy" analyzed the risks and factors currently affecting stability and growth - and the opportunities that lie ahead.
The IESE International Advisory Board panel – from l to r: Hans Jacob Bonnier, Bruno Di Leo, Patricia Francis, Janne Haaland Matláry, Francesco Vanni d’Archirafi, George Yeo, Eric Weber / Photo: Edu Ferrer

"You can’t predict earthquakes, but you can detect fault-lines," said George Yeo, former foreign minister of Singapore and chairman of Kerry Logistics and member of IESE’s International Advisory Board.

"You need to look at the deep forces that cause changes and move with them. If you fight these forces, you’re like a ship that refuses to pull up anchor and set sail; you’re almost guaranteed to sink eventually. The biggest risk is being risk averse."

Yeo was addressing an audience of MBA students and alumni in Barcelona this week, who had gathered to hear analysis of the global economy from members the International Advisory Board.

The session, entitled "How International CEOs See the World Economy" was introduced by IESE Dean Jordi Canals and chaired by Associate Dean Eric Weber. Yeo and five other members of the board analyzed the risks and factors currently affecting stability and growth – and the opportunities that lie ahead.

Difficult Times and a "Feeble West"

Patricia Francis, chair of public sector transformation for the government of Jamaica, noted that geopolitical instability remains a risk to global trade – a view shared by the majority of CEOs, she said.

"The risks to change are mainly on the downside," she said, pointing out that any shortfall in U.S. performance could stifle global demand, as demand from China was likely to be "steady rather than accelerating." This was evidenced by the fact that China’s GDP growth in 2014 was the lowest for 24 years.

The subject was explored from another angle by Dame Janne Haaland Matláry, professor of international politics at the University of Oslo, and former state secretary in Norway’s Ministry of Foreign Affairs. Drawing on her work at the Norwegian Military Staff College, she likened geopolitics and business to games, in which only two factors matter: rules and the "trust between partners."

From 1990-2008, successful Western economies had prevailed but a "spiraling decline in defense spending" had left them "feeble." Defense spending in Europe, she said, was now less than two percent of GDP but much higher in China and Russia where it is increasing by 15 percent a year.

"Our political institutions are in crisis. These are difficult times, but the solution is to analyze the risk – and deal with it."

The Pillars of Success

Hans Jacob Bonnier, executive vice president of Bonnier AB, said that the three pillars for sustained growth remained the same as at the time of the French revolution: Liberté, Égalité and Fraternité.

"If these pillars are imbalanced, we are in trouble," said Bonnier, who listed the greatest threats to the balance as extreme poverty, financial collapse, limited global resources and climate change, and the risk of war.

The Only Constant Is Change

"Where are the opportunities of the future?" asked Bruno Di Leo, senior vice president of sales and distribution for the IBM Corporation.

Everything is in transition, he said, and this is creating new paradigms: "In a world with limited resources, it’s changing from ‘who can make things cheapest’ to ‘who can make things smartest.’"

And in terms of trade, he said, it’s changed from: "made for China, to ‘made in China,’ and now it’s ‘made with China.’"

The global trend of increasing urbanization, the huge cohort of ‘millennials’ and an ageing global population, he said, were examples of transitions that presented opportunities as well as challenges.

The theme of opportunity amid risk was picked up by Francesco Vanni d'Archirafi, CEO of Citi Holdings. "Globalization," he said, "has created a more complicated world."

He described the bilateral relationship between the United States and China as the "most important" in this globalized world – adding that, a positive note, this was "on a better footing than most people realize."

Dramatic improvements in life expectancy and incomes in the developing world had been created alongside increased systemic risk because of increased connectivity.

"The pace of change has leapfrogged the ability of institutions to cope," said Vanni.

The Geopolitical Dinosaur

This point was echoed by Patricia Francis, who said: "Changes are being driven by the private sector. The rules and regulations are antiquated. Flexibility needs to be built into political systems in order to adapt to change. This hasn’t happened, and the result is fragmentation."

According to Dame Janne Haaland Matláry, the opportunities of globalization are only starting to be exploited.

"Most people are still mentally tied to a region, but geopolitics is a dinosaur – it can’t compete with globalization."