Vision| Edition 7 2020 Where Is The World Going? How Do We Get There First? Editor | James Hoge Vision Edition 7 | 2020 Where Is The World Going? How Do We Get There First? Editor | James Hoge Vision | Edition 7 | 2020 Table of Contents Foreword – Declan Kelly 02 Executive Summaries 05 Global Outlook 13 At the Center of the Global Order: The United States and China – Kevin Kajiwara 14 The Implications of European Populism – The Rt. Hon. The Lord Hague of Richmond 21 Perspectives from the C-Suite – Ursula Burns, Patricia F. Russo 28 Markets 36 Preserving Market Value in a Recession – Gordon McCoun 37 The New Security Risk Management Paradigm – Courtney Adante, Jonathan Wackrow 52 The New Era of Corporate Activism – Dan Tarman, Alexandra Rogan, Faten Alqaseer 62 The Expanding Report Card for Companies – Matt Filosa 69 Challenging the Current Board Structure – Megan Shattuck, Dr. Martha Carter, Patricia Lenkov 80 What’s Next for the Internet? – Mark Wainwright 91 CEOs and the New Media World – Seth Martin, David Lurie 99 Politics 105 U.S.-China Trade War, Light at the End of the Tunnel? – Paul Haenle, Mike Cooper 106 Asia at a Crossroads – Gabriel Wildau, Bob Herrera-Lim, Tobias Harris 116 Balancing Act: Russia and OPEC – Dr. Otilia Dhand 125 Europe’s Domestic Politics Driving Global Confrontations – Wolfango Piccoli 131 Europe in the World – Jacob Lund Nielsen, Poul Skytte Christoffersen 136 Biographies 145 The views and opinions in this book are solely of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion and not as legal, financial, accounting, tax or other professional advice or counsel. 1 Where Is The World Going? How Do We Get There First? Foreword Declan Kelly, Chairman & CEO, Teneo Recession or not is front of mind for every CEO with whom I speak. The data is mixed. And hard to read. And prediction is tricky, according to one Nobel prize-winning economist, “the stock market has predicted nine out of last five recessions.” The U.S. is in its 11th consecutive year of growth. In that time, the U.S. stock market had the longest bull run in history. Employment remains strong, as does consumer confidence. By contrast, the inverted yield curve we saw in the summer has historically been a strong predictor of recession. About three-quarters of U.S. economists expect a recession by 2021. Half of U.S. CFOs expect it by the second quarter of 2020. By contrast, another Nobel prize-winning economist sees a less than 50 percent chance in 2020. Central banks around the world remain cautious and the Fed itself has no clear consensus. Most CEOs in place today have never steered a company through a recession. So, the ones I speak to are thinking hard about their responses. Ultimately, the U.S. economy depends on the confidence of the U.S. consumer, which remains high. Consumer spending is two-thirds of the economy. It’s easy to envisage that confidence coming under pressure in 2020. If the U.S.- China trade conflict gets worse. If the U.S. opens a second trade front against Europe. A bitterly fought Presidential election. Middle East tensions produce an oil shock. The knock-on impact of a disorderly Brexit. Against this uncertain backdrop, what can companies do to prepare? Research from previous recessions shows that around a fifth of public companies get hit badly, while a tenth prosper and outperform. Several recession-beating themes are evident from the literature, including reducing debt, balance-sheet optimization, and improving efficiency. The literature also shows that companies that prepare for recession tend to outperform their peers, maintaining or even improving margins, despite challenging market conditions. 2 Vision | Edition 7 | 2020 Any recession will magnify the impact of technology, which is continuing to restructure most if not all industries. The speed of digital disruption is likely to increase in a downturn as consumers reward companies that make their lives easier, better or less costly. Any downturn will also expose underperforming companies and management teams; we can expect activist investors to increase their scrutiny. Again, this year, Teneo advised companies worth more than a trillion dollars in activist situations. And in a downturn, passive investors will surely feel more pressure to pull the levers they have to improve performance, with more intense scrutiny of corporate governance. We have also seen an increase in other types of activism. Employees are increasingly willing to question their employers’ decisions on who they do business with or on their approach to climate change, for example. And CEOs themselves are increasingly taking public positions on subjects that historically would have been left alone. In this book, you will find in-depth and expert thinking across all these subjects. If there is a common theme to be found, it is around the purpose of a corporation. We saw the Business Roundtable revise its principles of corporate governance, widening the commitment to stakeholders beyond shareholders. That stakeholders matter comes as no surprise to the CEOs I work with. On one level, they spend their day trying to simultaneously respond to stakeholder demands and add value for shareholders, while also managing the trade-offs between them. I believe passionately in the power of business to make a difference. As one leading U.S. CEO put it, “the business of business is improving the state of the world.” The question is how best to do that; each company has to decide. 3 Where Is The World Going? How Do We Get There First? Part of the answer for Teneo is partnering with Global Citizen on Global Goal Live, to deliver meaningful change for the world’s poorest countries by securing the commitments needed to make the United Nations Sustainable Development Goals a reality. It is a privilege for Teneo to be leading the private- sector response, working with some of the most respected companies in the world to end extreme poverty, tackle climate change, and reduce inequality. Thank you to the CEOs who are making this a reality. And thank you to all the CEOs we work with every day. It is our great privilege. Thanks also to Jim Hoge for his excellent work editing this book and thank you to the Teneo experts from around the world for sharing their insights. Also thanks to Steve Meahl, Ali Penaro, Solomon Chaison, Devin Mullin and Alexandra Rogan for making it all happen. Declan Kelly Chairman & CEO, Teneo 4 Vision | Edition 7 | 2020 Executive Summaries GLOBAL OUTLOOK At the Center of the Global Order: The United States and China Kevin Kajiwara, Co-President, Political Risk Advisory The 21st century will be dominated by four major trends, and myriad sub and derivative trends, that corporate decision-makers and investors will have to successfully navigate in order to thrive and perhaps survive. The rise of China and the nature of its relations with the United States; climate change; the technological revolution and the impact it will have on societies and the nature of ‘work;’ and the role of the United States – as the defender of the norms and rules that it designed and benefited from in the post-war era: these are the tectonic issues of our time and they are already profoundly impacting the operating environment. The Implications of European Populism The Rt. Hon Lord Hague of Richmond, Teneo Senior Advisor Populist political movements continue to rise, even drawing advocates whose own economic interests are ill-served. The motivation behind populism in varied countries is a feeling that the centrist politicians of left and right are all the same and a belief that those same leaders have rendered themselves powerless to shield people from the worst effects of global change. The result is a wide spread feeling that crucial issues are not being addressed, particularly immigration and cultural change. In most European democracies, the long duopoly of moderate conservative and social democratic parties has come to an end. If centrist politics are to endure, it will take new ideas, fresh approaches and reform. 5 Where Is The World Going? How Do We Get There First? Perspectives from the C-Suite Ursula Burns, Senior Advisor Patricia F. Russo, Senior Advisor With the roles of both CEO and Chairman on their resumes, Ursula Burns and Pat Russo have seen it all. Here they reflect on lessons learned. They think today’s boards have become more strategic, more open and more attuned to board refreshment. Directors also are more attentive to different kinds of activism and to political pressures, originating externally and among employees. Both decry the slow pace of achieving diversity and inclusion of women and minorities on boards and in top management roles. What keeps them awake at night? Both cite geopolitical uncertainty and tariff battles with China and others. As for the economy, they predict the long bull market now coming to an end. MARKETS Preserving Market Value in a Recession Gordon McCoun, Senior Advisor The market is showing incipient signs of weakening fundamentals. While there might be no immediate threat of a recession or crack in the equity market, we are living on borrowed time. Because of the elevated levels of corporate indebtedness, high equity valuations, investor complacency and increased proportion of formulaic-managed assets, instability could come quickly and violently. When the cycle does turn, management teams must have prepared their firms to withstand the hostile economic environment. It is never too early to start planning. The New Security Risk Management Paradigm Courtney Adante, COO, Risk Advisory Jonathan Wackrow, Managing Director The threat landscape is evolving at a pace never seen before.