Analysis

Politics, populism and trust in business: discussions for the boardroom

11 Dec 2017
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Region: 
Multilateral

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Over Summer 2017, EY and Global Counsel collaborated on a project reviewing the challenges posed for UK boards and managers by political populism. EY have just published some of these reflections as part of their regular Corporate Governance Latest Insights Series. 
 
For all their obvious differences, the landslide election of Emmanuel Macron in France, the election of Donald Trump as US President, and Brexit all have something important in common. They all appealed to an overturning of establishment consensus and they all offered a diagnosis of a society or economy moving in the wrong direction. They all appealed to voters’desire for change and to punish elites. To a greater or lesser extent, this element of dissatisfaction and unease is present in most Western politics.

Why do these messages of dissatisfaction resonate with so many voters, and why now in particular? This is a complex question. The financial crisis and the subsequent recession clearly had a major destabilising effect on politics. But a longer process of economic, social and technological change over the last five decades have also produced a deeper sense of grievance that is part of the problem.

These decades have brought profound change in the structure of the labour market and the skills it values; change in the tenure of employment and the sense of stability and security that comes with it; change in the perceived power of local politicians to make choices that matter; change in the outlook of those who own companies and who they are accountable to. None of these factors is purely negative – most have produced big positive changes too. But all have left their mark on public attitudes.

Clearly this matters for business, but why it does can be less simple to pin down. Populism is a slippery term that evades easy definition. Rather than get distracted by definitions, the task for boards is to distil the challenge of populism to the challenge of understanding the way public expectations of large businesses are evolving. Boards and management need to understand how their companies might be exposed to this political mood and the policy changes it will inevitably bring. 

As agents of economic change, large companies in particular often find themselves part of this political debate. They are often accused of benefiting from greater workplace insecurity, wielding unacceptable market power and profiting from job destruction. Critics often see a growing divide between a class of global managers and an increasingly insecure and undervalued workforce. Increasingly, public debate and political challenge is focused on a set of fair play questions linked to the way companies conduct themselves, not in the rainforests or distant factories, but ‘at home’: in their approaches to tax and pay, their treatment of their workforce and their attitude to their local commitments. Politics is now routinely reframing global economic rationality questions as local loyalty questions for businesses. What is legal, or even socially acceptable today, could easily fail the tests of a shifting zeitgeist tomorrow.

To explore the implications of this for corporate governance in the UK and understand how boards can respond to this shifting mood, EY and Global Counsel interviewed 20 senior politicians, business leaders and board directors across a range of sectors. We asked them to reflect on the way companies need to evolve and read a changing political landscape. In almost every case, board directors saw this both as a question of commercial advantage but also as an exercise in sustaining or renewing a clear sense of social purpose and integrity in the companies they lead. With governments increasingly tempted to reach for legislation or regulation to try and impose their version of accountability on companies, there has never been a more important time for boards to think about their own response to this challenge.

Read the full report here.

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