DAVOS, 28 January 2007 — CEOs of the world’s largest corporations are facing new variables in the factors that drive their businesses, according to panel discussion at the World Economic Forum on the shifting business power equation.
Session moderator Declan Curry, a BBC business broadcaster, asked panelists at the Congress Center in Davos here yesterday as to what three factors they thought would drive CEO decision-making in the near future?
Coca-Cola President and CEO Muhtar A. Kent began the discussion by saying that in the next 10 years, billions of new customers from the emerging economies will enter the market, not because of demographics, but as a result of their increasing wealth. “This is a huge shift of power,” he said. “CEOs must understand not only their preferences but their concerns, as well. They must be seen as accessible and present by all stakeholders.”
Harvard Business Professor Rakesh Khurana agreed that CEOs must learn to take into account a wider range of issues than they have in the past. “Their biggest challenge is to regain and sustain their legitimacy in society as a whole,” Khurana said, noting that too many corporations have succumbed to hubris, acting as if they are autonomous from the communities in which they operate. That is the way “that they lose society’s trust, and when that happens, they get into trouble. They have to think far beyond the short term.”
Harvard Business Review Editor Thomas A. Stewart observed that there are shifts in power from both inside and outside the corporation. On the one hand, he said, “CEOs’ salaries are rising so fast that this narrows the base inside the company,” in effect increasing CEO power. On the other hand, stakeholder power is also increasing, from a confluence of new technologies and networks. There are new links between customers, suppliers and activists. “That responsibility is also spreading outward. It is a war between capital and talent.”
Cristobal Conde, president and CEO at Sungard, USA, reckoned the most important task facing CEOs is to “create, maintain and enhance opportunities for collaboration.” In a networked economy, he said, “the CEO is no longer master of the universe but must set up processes to use the best information and expertise available.” This process, he concluded, “is fundamentally driven by technology.”
Scott J. Freidheim, co-chief administrative officer at America’s Lehman Brothers and a Young Global Leader, argued that the rise of private equity funds and hedge funds represent a fundamental shift in power that could make corporations less open to public influences and even free them from some regulatory pressures. “This is a discreet change,” he said, “but they have more than a trillion dollars available to buy.”
Many participants questioned the evolving nature of executive power. Some maintained that it is becoming more imperial; while others believed that managers must take into account new stakeholders, in a way more akin to a prime minister than a sovereign. Some contended that regulations impose a greater burden on companies, forcing them to address such priorities as global warming.
To wrap up the discussion, the moderator said he saw consensus on two factors that are driving CEO decision-making. First, the power of customers is increasing. Second, new consumers from emerging markets are redefining all aspects of business. To decide on the third factor, Freidheim submitted it to a vote between: The rise of private equity and hedge funds; the necessity for CEOs to nurture collaborative environments, in particular with new technologies; the increasing impact of regulations; and finally, taking into account the wider social impact. One thing was clear — business leaders cannot use 20th century practices for success in the 21st century.