Why life is about to get tougher for business leaders

Politicians and consumers are increasingly turning to the business world to take a lead on challenges such as public health, climate change and the energy crisis. But how should business leaders face up to this pressure? Billy Glennon explores the skills of leaders who make good but sometimes deeply unpopular decisions.

 

Three-minute read

  • The world is under threat from four areas of radical uncertainty.
  • Politicians and consumers are turning to business leaders to steer us to safety.
  • The understanding of ‘moral risk’ has rarely been more important.
  • Be ready to embrace decisions that appear beyond rational persuasion.

If the pandemic was a challenging time for business leaders, it’s about to get even tougher. That’s the belief of the historian and economist Adam Tooze, who spoke at an event we held in London earlier this year. “Business is in the crosshairs,” he said. “Your lives are going to be far more complicated. The hopes projected on you are absolutely massive.”

 

So why is this? Firstly, Adam sees “four areas of radical uncertainty” piling up on top of the disruption caused by COVID-19:

 

Russian aggression

The war in Ukraine continues to pose a threat of sudden and rapid escalation into widespread conflict. Indeed significant Ukrainian gains over the past week may have exacerbated that threat.

 

China’s economic woes

China’s property crisis and its collapse back into COVID-19 contagion will bring formidable economic challenges – not just for China, but for the rest of the world.

 

Global inflation

Inflation rates are already having a highly damaging impact on consumers in the UK and Ireland, and there’s no easy way out.

 

US instability

The polarisation of US politics retains the potential to spill into the sort of civil unrest we saw at the Capitol in 2021 – but on a much broader scale.

 

These are all deeply worrying threats, and Adam created an even more troubling Krisenbilder of the polycrisis in a subsequent blog. But why should business leaders be any more alarmed than other sectors of society? Well according to Adam, the key (as is so often the case) lies in history. He points out similarities between the situation we are in now and the economic crises of the 1970s. The world emerged from those problems via free-market enterprise and deregulation but that spirit of neoliberalism has lost its vigour and relevance in a world of radical uncertainty. Adam argues that the new creative edge of economic and geopolitical progress lies in what he calls ‘industrial policy’. That is government and business working together to solve large problems. And I believe that, at the very least, we will observe more experimentation with government-business joint ventures. You can already see the lines blurring today. While the UK Government avoided decisive action over the cost-of-living crisis during the Conservative leadership campaign, Steven Fitzpatrick (CEO of OVO Energy) grabbed the headlines recently by proposing a 10-point government-backed action plan to support consumers who are struggling to pay their energy bills.

 

Albert Bourla’s moral risk

So apart from wading into politics, what skills will business leaders require in this new era of joint ventures? An increasingly important one will be an understanding of moral risk. In business, moral risks generally involve spending money, forming relationships, and pushing people in ways that could backfire with significant harm. When a moral risk taken by a leader proves to be a practical success, we salute their wisdom. When it ends in failure, we tend to deem them not only mistaken but immoral. To get to grips with what that means, let’s take Pfizer as an example. In the race to tackle COVID-19, Pfizer famously cut the traditional timespan of developing a vaccine from at least five years to just eight months.

 

CEO Albert Bourla’s first moral risk was to sign off on a potential budget of $3bn when it normally takes $1bn to create a vaccine. His second moral risk was starting work with BioNTech before they completed their contract. Thirdly, he declined government funding to avoid slow-downs. Fourthly, he authorised the beginning of production before the tests succeeded. And fifthly, he pushed his teams hard. The mission was noble, but the risks to shareholders, employees, and patients seeking other therapies were high. However, the critical point was that delivering a vaccine in eight months required taking these risks or others like it. Moral risk is never easy. But Bourla shows leaders that taking such risks is part and parcel of responding effectively to crises.

 

The Oran ultimatum

Traditionally, people have seen moral risk taking as a pre-requisite of leaders of states, and Winston Churchill in 1940 is a good example. France had surrendered to Nazi Germany and Churchill knew that, if the French naval fleet were to fall into the hands of the Germans, their combined force could nullify the British naval advantage. He therefore presented three options to the French navy, most of which was stationed off the coast of Oran in Algeria:

1) Sail to the French West Indies or to British ports (a high risk given the threat from the German navy).

2) Sink the ships.

3) Or… be sunk.

 

It was an extraordinary demand to place on an ally, and the French command at Oran delayed in complying. After a final ultimatum was ignored, the British bombarded the French ships, killing 1,297 sailors.

 

Churchill was sombre as he reported developments to the House of Commons. However, as well as denying the opportunity of the Germans to strengthen their fleet, Churchill’s decision sent out a message that Britain would be ruthless in its determination to crush the threat of a Nazi invasion. He was taking a highly courageous moral risk. But had he failed, and the French fleet had joined with Germany to invade Britain, Churchill would have been seen as immoral – and possibly a war criminal.

 

As we business leaders increasingly find ourselves called on to work with governments to solve social crises, we will have to take moral risks. It’s time to start thinking about how far you would be willing to go in order to be ready for the moment.

 

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