Interesting that the increase in the deficit is the major platform on which every Republican is running.

However, the report also points to increased political controversy around China that runs counter to fairly aggressive charm offensive by high level U.S. officials, including Vice President Joe Biden, U.S. Ambassador to China Gary Locke and Under Secretary of State Robert Hormats, all of whom expressed strong support for Chinese investment in the U.S. These comments, however, were undermined to some degree by high profile resistance by the U.S. government to some investment by Chinese technology firms on national security grounds.

Similarly, on the China side, there have been some mixed messages, with public support by China generally to foreign investment, but some resistance in specific.

China added a new layer of bureaucracy for foreign investment into China. In August, the Ministry of Commerce (MOFCOM) issued the final regulations of China’s new national security screening framework, replacing the temporary regulations enacted earlier this year. While the institutional setup of this framework is very similar to the Committee on Foreign Investment in the United States (CFIUS), there are two major differences that stand out. First, the scope of national security screening is intentionally kept very broad, including “national economic security” or “social stability” as reasons to block foreign investment.

Clearly, investment flows going to and coming from China involve a complex amalgam of politics, economics and diplomacy. The stakes are very high for the globe and it will take the best minds and the best motives on both sides of the Pacific to navigate through the months and years ahead.

As a public affairs professional, it is absolutely fascintating to get “on the ground” reports about significant events occuring all over the world.  I talked to a colleague who was on the phone with the prime minister of a European country this very morning providing guidance on a speech he is about to deliver.   I talked to another colleague who took umbrage when I quoted a Financial Times article critical of his government.  And then discussed a project that a colleague is working on with the President of an Asian country.

The dinner took place in a high rise on the 80th floor with a spectacular view of South Chicago along Lake Michigan.  It was very convivial.  Our CEO gave a brief toast, but clearly did not want to interrupt the comraderie.

A very good kickoff to the meeting.

The article prompted me to think, do corporations maintain the same green standards across all countries that they operate in or do they loosen their green standards if another country’s requirements are less strict?

This great question goes to the heart of the issue.  The point of my post was the observation that companies believe they must be seen to be contributing to the solution of broader social problems.  That belief suggests that companies recognize their business success depends on the opinions and actions of stakeholders beyond their investors, employees and customers.  However, if they see this as a communications issue that can be solved by conforming to the letter of government requirements and then doing a lot of PR around that, they will fail.

The other issue I mentioned in the post is the need for authenticity.  Companies not only need to be seen to be contributing to the greater good, they need to mean it.  That is why activities in this area must carefully planned and strategic, not simply window dressing.  It requires a fundamental shift in the mindset of a company that permeates through its culture.  Unfortunately, there are no shortcuts.   Companies that try to cover this obligation through PR will get the worst of all worlds.  Their PR effort won’t work.  But, more importantly, they will find themselves judged by their own PR and come up wanting.

My chief takeaway at this meeting was a realization that our dysfunctional federal government is driving the private sector to be more active in solving problems beyond companies’ private economic interests.  This topic was truly driven home by incoming Chair of the Executive Committee, Diane Lilly, Executive Vice President, Government Relations at Wells Fargo in her inaugural address, which outlined the challenges she has faced in dealing with this “paradigm sift.”

Until fairly recently, private businesses had one overriding responsibility, achieving good return on investment for their stockholders.  Large companies had a fiduciary responsibility to maintain a single-minded focus on that one goal.  To some degree, dedicating resources to activities that did not contribute to profit was considered irresponsible and even, in some instances illegal.  At a minimum, it was considered contrary to their fiduciary responsibility.  Customers and employees were important, but primarily as assets that would produce the profit that would enrich investors.

All that has changed.  Now, every company must be seen as “green,” and they need to have a plan for operating in the most environmentally friendly way.  This is true even while debate rages in Washington over whether global warming even exists.  Similarly, companies all must engage in Corporate Social Responsibility (CSR) in which they must conduct activities that address social or environment problems outside their specific business interests.  In the old days, this would have been considered reckless “do-gooderism,” having nothing to do with a company’s core mission.

In this new world order, the debate goes beyond whether there should corporate social responsibility.  Some question whether there should even be a discrete “function” in a company called CSR.  Rather than segregate these kinds of activities, some argue that they should be built into the fabric of a company.  We have thus come to a point where companies must recognize that their stakeholders extend beyond stockholders, beyond employees, even beyond customers.  Now, stakeholders include society at large.  In some ways, this is a good thing, particularly at a time when our government seems fundamentally unable to address larger societal goals.  The public clearly holds large companies accountable for their impact on the larger community beyond their private interests.

Companies respond to this public demand in various ways.  For some, it is a communications problem.  They treat the challenge in the category of “perception is reality.”  If the public “perceives” them as acting in the public interest, they have achieved their goals.  Checked this box, as it were.

But another new obligation that is imposed on companies, largely through the spotlight social media puts on them, is “authenticity.”  So, the companies that deal with these issues as perception problems are doomed to failure.  To paraphrase the old joke, “If you can fake sincerity, you’ve got it made!”  The fact is you can’t fake it anymore.

Companies will continue to advocate for public policies that are in their own financial interests, i.e. weaker environmental mandates, limited worker protections, etc.  At the same time, companies have to recognize that the public holds them to higher standards in how they conduct their business.  There is clearly a tension.  But, at a time when public esteem for government is at an all time low, it may offer some hope that public pressure on the business community will force the greater society to address these very large problems  in spite of government inaction.

“If the whole sector’s sentiment is negative, then investors tend to be panicking, and then they sell the most liquid names, regardless of whether there are really any problems,” said Jeffries analyst Cynthia Meng. “We don’t think that the flagship [Chinese] Internet names have accounting issues.”

So, add accounting irregularities to the other issues, such as undue government control, poor quality, lack of transparency, etc., to the list of stereotypes that plague the reputations of Chinese companies.  It puts a great burden on individual companies to communicate in ways that separate them from their “bad apple” brethren.
Technorati Tags: China

His performance in Parliament today showed him at his prime-ministerial best: in command, in control, and, for the first time since the phone-hacking scandal at News of the World erupted, on top of the situation. “The buck stops with the prime minister,” he said.

Jon Stewart swooned over the histrionics yesterday over the phone hacking scandal.  “This is their CSPAN!” he exulted.

Liam McCloy

My colleague, Liam McCloy in the Fleishman Hillard London office gave his pre-debate analysis to me as follows:

The Prime Minister will be listening closely to the evidence given before the Committees tomorrow as on Wednesday he will have to demonstrate a clear sense of purpose in driving the investigation forward.

This is what the Opposition are quite rightly calling for him to display. If he fails to exhibit this then we will be left under no illusion that this is due to his proximity to those at the heart of the investigation.

I suspect that Cameron more than most MPs will be glad when the Speaker calls time on Wednesday and Parliament breaks for the Summer Recess.

However, with August traditionally a quiet month for news, the Prime Minister might find the crisis continues to lap at his feet as he paddles off the British shoreline on his summer break.

As we head into August, Cameron seems to be making the best of a bad situation.

The current issue of Vanity Fair has a very lengthy investigation of the collapse of the Irish economy by Michael Lewis, author of a number of lively accounts of the dismal science of economics.  Liars Poker and The Big Short are very accessible and often funny investigations of the bizarre world of high finance that focus on the people involved to illustrate larger insights.Turning his attention to the situation in Ireland, he uses the same technique.  As an Irish American, I was most amused by his ironic observations on how this particular economic crisis is informed by the unique qualities of the Irish.

Here’s his explanation for the unusually strong Irish ethnic identity:

The Irish insistence on their Irishness—their conceit that they’re more devoted to their homeland than the typical citizen of the world is—has an element of bluster about it, from top to bottom. At the top are the many very rich Irish people who emit noisy patriotic sounds but arrange officially to live elsewhere so they don’t have to pay tax in Ireland; at the bottom, the waves of emigration that define Irish history. The Irish people and their country are like lovers whose passion is heightened by their suspicion that they will probably wind up leaving each other. Their loud patriotism is a cargo ship for their doubt.

Here’s his comparison between the Irish collapse and the American version:

The Irish real-estate bubble was different from the American version in many ways: it wasn’t disguised, for a start; it didn’t require a lot of complicated financial engineering beyond the understanding of mere mortals; it also wasn’t as cynical. There aren’t a lot of Irish financiers or real-estate people who have emerged with a future. In America the banks went down, but the big shots in them still got rich; in Ireland the big shots went down with the banks.

At the conclusion of an account of the meeting as which it was decided to have Irish taxpayers provide a guarantee of the debts of the Irish banks, he explains the choice confronting Irish Finance Minister Brian Lenihan:

Lenihan faced a choice: Should he believe the people immediately around him or the financial markets? Should he trust the family or the experts? He stuck with the family. Ireland gave its promise. And the promise sank Ireland.

To drive home the profound folly and, frankly, tragedy of that decision, he describes how this it played out for one financier in a way that, frankly contradicts his point that the big shots suffered:

Not long ago I spoke with a former senior Merrill Lynch bond trader who, on September 29, 2008, owned a pile of bonds in one of the Irish banks. He’d already tried to sell them back to the bank for 50 cents on the dollar—that is, he’d offered to take a huge loss, just to get out of them. On the morning of September 30 he awakened to find his bonds worth 100 cents on the dollar. The Irish government had guaranteed them! He couldn’t believe his luck. Across the financial markets this episode repeated itself. People who had made a private bet that went bad, and didn’t expect to be repaid in full, were handed their money back—from the Irish taxpayer.

And, finally, explains, in part, why the Irish seem to be absorbing this catastrophe with such stoicism.  Unlike Greece, the Irish are not marching in the streets.  Instead, they appear to be taking ownership of this situation as a whole society.  An Irish friend wrote to me, “We were on drugs- almost an entire nation !!”  There is not a lot of public wailing.  Again comparing the Irish to Americans:

Two things strike every Irish person when he comes to America, Irish friends tell me: the vastness of the country, and the seemingly endless desire of its people to talk about their personal problems. Two things strike an American when he comes to Ireland: how small it is and how tight-lipped. An Irish person with a personal problem takes it into a hole with him, like a squirrel with a nut before winter. He tortures himself and sometimes his loved ones too. What he doesn’t do, if he has suffered some reversal, is vent about it to the outside world. The famous Irish gift of gab is a cover for all the things they aren’t telling you.

It’s a long read, but well worth the time.

On a more positive note, a recent piece in Forbes entitled, “Four Reasons the Irish Roar Will Return,” Nin-Hai Tseng outlines the qualities in the Irish economy that position it well for recovery.  These include low taxes, a young, productive and educated workforce and the following:

Unlike Greece, Ireland’s economy is overwhelmingly made up of exports — they account for about 80% of GDP versus just 7.2% in Greece. Facing huge debt and deficits, it’s clear both countries will have a hard time relying on demand for goods and services at home. If anyone can look at markets abroad to increase GDP growth, it’s Ireland given the sheer scale of exports its economy already runs on.

Hope springs eternal.

In his mild academic manner, the economist explained that he’d just re-read some accounts of the Great Depression and the lessons learned from conservative economic God, Milton Friedman.  He pointed out that Bernanke is doing exactly what Friedman recommended, in hindsight, should have been done to prevent the Depression.  A slam dunk against Scarborough.

Scarborough continued to protest by saying, “Isn’t that the same thing that Greenspan did [which the hypocrite on the left refuse to acknowledge]?”

The economist pointed out that Greenspan’s loose money policies occurred at a time of economic growth, which inflated the bubble.  Bernanke is responding to a recession that could have tipped into a depression.  Double slam dunk!

Scarborough changed the subject.  No concession, no rebuttal.  Just changed the subject.

Grrr!