Today began with sessions on two great topics, both very close to my heart, long term investment and digital transformation. Reflecting on this year’s Davos theme, Managing the Fourth Industrial Revolution, we were reminded that most things which are good in the long term tend to be a challenge in the short term. How true! Especially when we consider digital transformation. Digitalisation will lead to massive change and it will come at a much faster pace than we are currently expecting. One key thing which can hold us back is a lack of trust. All businesses need our clients and customers to trust that the data we are collecting will be used to their benefit and in a fully responsible way. This needs to be embedded at the core of every successful organisation’s values.
The trust piece brings me back to long term investment. Some people argue that quarterly reporting is the main driver for companies to focus on short term success. I don’t deny that it may play a role, but shareholders are smarter than that. If you are transparent with your long term ambitions, you will win support from your shareholders – assuming your plans make sense. The challenge may be, as one panellist alluded today, that 97% of shareholders tend to remain very quiet while just 3% of activist shareholders fill all the airspace. Publicly listed companies need to find ways to engage with all their shareholders – and shareholders also need to reflect on their responsibilities as owners of a company. Owners do tend to have a long term interest in their belongings, which neatly aligns with long term investment decisions. If this change of focus does not happen soon, I can see governments stepping in with new regulations around the minimum duration of shareholdings or limitations to the shareholdings of index funds.
Regulation leads me nicely to the afternoon session on China and the ‘new normal’. There was consensus in the room that the Chinese government needs to reduce its interventions into the market. Zombie companies, the ones which stay alive only because of constant government subsidies, need to disappear. This will help to minimise excess capacity. There was some notable negativity in the room, but interestingly Professor Roubini, who is not known for being overly optimistic, is forecasting a growth rate in excess of 6% for this year and an annual rate above 5% for the rest of this decade. Not too bad considering the size of the overall Chinese economy and the massive demographic challenges China is facing. So, as always, it all depends on your expectations. European central bankers will find those growth numbers enviably impressive – and they are growth rates which could be a good basis for building a sustainable, long term model for the Chinese economy.
Meanwhile, another huge emerging economy could be the big winner of collapsing oil and commodity prices. Not only that, global digitalisation, will certainly benefit India. I moved on from the China session to hear how India is enthusiastically embracing the Fourth Industrial Revolution. The digital revolution may well position the country as the stand-out winner of the emerging world. Could this mean we see India overtake China’s long-term growth rate?
Let me close with some great advice from Mrs Sabanci of the Turkish family conglomerate: ‘Let’s have more women on the boards of global companies and those companies will all behave more long term.’