A political education for business

Richard Haass says that businesses have much to learn from government as they compete in an increasingly complex global landscape.

Andrew Erdmann, Roger C. Kline, and Lenny T. Mendonca

February 2008

Government, many executives are quick to assert, would benefit if it were run more like a business. But can business learn anything from the way government manages a wide variety of stakeholders in a globalizing world? A great deal, thinks Richard Haass, the president of the Council on Foreign Relations. Today, as global companies joust on the international playing field, Haass sees increasing similarities between the management challenges facing business and government.

Business now constantly finds itself addressing new social and political demands. Social activists and nongovernmental organizations (NGOs) are taking a place, alongside governments, as de facto regulators of business. The savviest executives, says Haass, are those who understand the nuances of government and how to balance the concerns of broad, highly varied political and social constituencies.

RICHARD HAASS

Vital statistics

Born July 28, 1951, in Brooklyn, New York

Married, with 2 children

Education

Graduated in 1973 with BA in Middle Eastern Studies from Oberlin College, Ohio

Graduated in 1975 with MA and in 1982 with D.Phil. in international relations from Oxford University, where he was a Rhodes Scholar

Career highlights

Council on Foreign Relations (2003–present)

* President

US Department of State (2001–03)

* Director of policy planning with personal rank of ambassador

National Security Council (1989–93)

* Senior director for Near East and South Asian Affairs; special assistant to the president

Fast facts

Won Presidential Citizens Medal (1991) for helping to develop and articulate US policy during Operation Desert Shield and Operation Desert Storm

Received the Distinguished Honor Award (2003) from the US Department of State for efforts to promote peace, reconciliation, and a new path for people in Northern Ireland

Wrote or edited ten books on US foreign policy, including The Opportunity: America’s Moment to Alter History’s Course; author of The Bureaucratic Entrepreneur: How to Be Effective in Any Unruly Organization

Member of board of directors of Fortress Investment (2007–present)

A veteran foreign-policy expert, Haass, 56, is no stranger to the business world—he wrote a book on management, The Bureaucratic Entrepreneur: How to Be Effective in Any Unruly Organization.¹ After teaching management at Harvard University’s John F. Kennedy School of Government, he served as special assistant to President George H. W. Bush and as senior director for Near East and South Asian affairs on the National Security Council. Haass also worked at the Department of Defense during the Carter administration and at the State Department during the presidencies of both Ronald Reagan and George W. Bush. He is currently writing a book about the Gulf and Iraq wars.

At the nonpartisan Council on Foreign Relations, the preeminent gathering place for the US foreign-policy elite, Haass has been building a brand around the mantra that ideas matter. Through the council’s think tank and the journal Foreign Affairs, he aims to position the group as the leading integrator of thinking about US foreign policy and international relations. To discuss some of the global issues and ideas Haass considers “ripe,” he recently met in the council’s New York headquarters with Drew Erdmann, a consultant in McKinsey’s Chicago office; Roger Kline, a director in New York; and Lenny Mendonca, a director in San Francisco.

The Quarterly: What are the major global trends that businesses should be thinking about?

Richard Haass: First, we no longer have to worry about major-power conflict, which characterized most of the 20th century. That is a fundamental piece of good news. I don’t see the likelihood of that kind of conflict returning, because there are structural forces, such as globalization, that work against it.

Globalization is the second big reality, in which business plays an integral part. Businesses are not only operating in a world of globalization; they themselves contribute to globalization, which is essentially flows of dollars, goods and services, people, and ideas across borders, at tremendous velocity and volume—often without the knowledge, much less the control, of governments. Businesses are among the many largely independent agents in the environment of globalization.

A third major trend is the emergence of multiple players. The 21st-century world has far more players on the chessboard. I see not only major and medium-sized countries but also subsovereign entities that have tremendous importance. Examples that come to mind include the state of California, which can have its own environmental policy or trade policy; or a manufacturing company such as Toyota; or NGOs like Amnesty International, as well as news organizations, such as CNN—and even Al-Qaeda.

The Quarterly: How do you see these different players and forces interacting?

Richard Haass: At any one moment in history—and this is no exception—there are forces of order and disorder, integration and disintegration, society and anarchy. At any one moment, forces and actors are trying to bring the world together by creating rules, orderly interactions, institutions, or arrangements. And there are forces and agents doing just the opposite, either consciously, as a goal, or simply because of who or what they are.

One way to think of history is to weigh the relationship between these forces of integration and disintegration. Do the positives outweigh the negatives? How do you see the trends? It has been roughly two decades since the Berlin Wall came down, and we still don’t have a great handle on this era’s character. It is hard to predict exactly how these forces will play out over the next decade or two.

The Quarterly: How are those forces playing out today?

Richard Haass: I am concerned that disorderly forces are gaining ground, partly because of the loss of position and power of the United States. On the one hand, that loss of power is the result of structural forces from the rise of other actors and of systemic forces of globalization, both of which will reduce the power of any country. But to a certain extent, we are seeing the consequences of US policy, both what we have and haven’t done. In the former category would be things like Iraq, and in the latter category I’d include a failure to address entitlement programs, energy, and primary and secondary education.

The Quarterly: Do you envision further consequences of reduced US power?

Richard Haass: Other forces will be in a position to possess and exert greater power and wield greater influence. Integrating all of these forces is going to become a larger challenge, and my concern is that centrifugal forces, all things being equal, will gain relative to forces that are pulling things together. International relations could become messier. It’s not inevitable—statecraft, diplomacy, and foreign policy can make a difference. And, again, there are powerful integrating forces, particularly in the economic realm.

The Quarterly: As this landscape evolves, what are the implications for business?

Richard Haass: Certainly a more complex, crowded, and uncertain environment to operate in, simply because you’re going to have more actors with the capacity to make consequential decisions. Businesses need a degree of predictability, particularly if they’re making long-term investments. They need to know about not only the political stability in a country but also the likely range of commodity pricing. They need to know about demand for certain products and services, and, more generally, about the international environment. There are a lot of uncertainties to identify, contemplate, and assess. The greatest difficulty is integrating those conclusions into a strategy.

The Quarterly: How can businesses assess the risk?

Richard Haass: Traditional political risk assessment looks at a given country’s stability and openness to foreign business. For example, businesses might ask if Egypt is likely to be a stable, pro-Western, “good-to-do-business-in” environment in 5, 10, and 15 years. Analysts might look at questions of succession in Egypt and the strength of the Muslim Brotherhood and raise questions about whether higher economic-growth rates are likely to create a more resilient political environment.

But in order to do intelligent analysis about Egypt, you need something complementary to traditional, “inside-out” analysis. You also need “outside-in” analysis, because Egypt isn’t operating as an island. You should look at what is likely to happen in the Islamic world. What about Iran’s bid for regional influence? What are the repercussions of Iraq? What about energy prices? What is likely to be the debate within the Arab and Islamic worlds about modernization, about democratization, and so forth? Risk control requires a richer analysis. In a way, this is another consequence of globalization. Companies operate in a global environment, but so does each particular place or actor they evaluate. Trying to put individual countries or situations in an isolated petri dish not only has become much more difficult but, in many instances, distorting.

The Quarterly: Are there new social and philanthropic responsibilities and standards for global businesses?

Richard Haass: It comes down to a balance between opportunity and obligation. For large businesses, there’s not only a tremendous opportunity but also an obligation to make a difference.

Take climate change. This is one of the few areas where many businesses are actually in the vanguard. They’re discovering that sound environmental decisions are often financially beneficial. Rather than there being a price to pay, they often turn out to be good for the bottom line.

Another such issue is corporate social responsibility. I don’t like that wording, because it is marginalizing. The phrase sounds like a set of philanthropic activities somehow divorced from the corporation’s self-interest. Actually, it’s in the corporation’s self-interest and should be mainstream. Perhaps not immediately, but certainly over time, smart corporate social responsibility will contribute to the bottom line.

The Quarterly: Where do you see the greatest need for businesses to assume a stronger social role?

Richard Haass: There is a potential role for global corporations and organizations to play in matters of public health, such as building up local health-delivery systems and the health infrastructure in certain parts of the world. Businesses and corporations could also do things closer to home, such as building up resilience against natural or man-made disasters for the communities they operate in, including supporting local infrastructure and response mechanisms.

Companies and businesses operating throughout the world could also make an investment in the area of female literacy. There is the potential for great impact. If more girls learn how to read, it has tremendous consequences for everything from the rate at which infants survive to disease incidence to the economic success of the society.

The Quarterly: Those are both examples of causes businesses could adopt. More broadly speaking, should they be louder in advocating certain policies?

Richard Haass: US business leaders and corporations don’t do enough to project what might be called the corporate statesman’s voice. Maybe CEOs are simply too busy, or they are worried about political landmines. But in the United States, at least, we are seeing unfortunate trends, such as the growth of protectionism and an increasing closed-mindedness, whether one is talking about trade, investment, or people. Look at the immigration debate in the current race to elect a new US president. It has emerged as a hot-button issue.

The business community has traditionally been the most stalwart, vocal, and committed community in the United States arguing for openness and pushing back against protectionism. One of the reasons the debate has increasingly tilted against openness is that the business community has not been as active.

The Quarterly: On the other hand, more companies have been vocal about climate change. Why is there more positive movement there?

Richard Haass: Climate change is, no pun intended, an increasingly hot issue, whether on campuses or in communities or with the public at large. For the most part, the prevailing political winds are arguing for a more responsible, active role in that area. Additionally, many businesses find that doing the right thing for climate change also turns out to be good for business. It saves money.

The Quarterly: Polls around the world reveal that the average citizen thinks globalization is a bad thing. Is this a question businesses should address?

Richard Haass: Businesses have been cautious about taking on those issues because they are politically controversial. There are two trends that ought to concern businesses. First, at an international level, there is a gap between the forces of globalization, many of which are potentially quite destructive, and the rules, arrangements, and institutions that manage them. Second, there is a gap in most societies between the realities and the politics of globalization. Businesses ought to be much more forceful advocates for portable safety nets, to give an example—retirement benefits or health care or retraining and educational opportunities that follow workers when they change jobs. That will dramatically affect the willingness of societies to stay open to the forces of globalization.

The Quarterly: Some executives seem to be more willing to suffer bad policy than to take on the risks that come with speaking out on social and political issues. Why?

Richard Haass: Today, the environment that business leaders operate in is fundamentally different than it was a generation or two ago. It’s far more political. There is a conceit in the business and management literature that businesses face the toughest problems and have a lot to teach the rest of us. But the reality is that the environment business leaders operate in is increasingly political. It is global and it involves tremendous transparency, greater accountability, independent stakeholders, less freedom to maneuver, and an inability to narrowcast messages. That sounds a lot like politics. Businesses actually have a lot to learn.

In any case, executives should realize that it is always easier to be aware of the potential costs of acts of commission. But it is equally important to weigh the potential costs of omission or inaction.

The Quarterly: So how would you change the literature?

Richard Haass: There is a slightly hermetic quality to management books that doesn’t quite capture an increasingly political, transparent, and demanding reality. Too much of the business literature operates within the confines of the firm, inside the balance sheet, or inside headquarters. That is important and necessary, but insufficient. Taking a more politically complicated role as a CEO or senior executive requires training far beyond an hour-long course on how to look good before a camera or what to do when you are hauled up in front of a congressional committee. The new role involves nothing less than a fundamentally different way of doing business. It is about dealing with a wider and more powerful group of stakeholders and constituencies and being proactive, not reactive, with them. If I am right, whether you run a hospital, a city, a think tank, or a Fortune 500 company, the environment and management demands are increasingly similar. Business schools and the management literature do not capture this new mind-set; on the contrary, they are slightly apolitical.

The Quarterly: Would you say that understanding the political element is essential for businesses to be accountable and a trusted partner as these new networks evolve?

Richard Haass: It is a challenge for both sides. Just as governments have to learn to deal with a much broader array of actors, players, and forces, businesses have to understand and interact with everything from governments and NGOs to media organizations and lobbies.

The danger is that many businesses too often have offices focused on government relations. It is the equivalent of a government having an environmental minister—something that tends to be a bad idea. This marginalizes and isolates that issue from what people at the top do. There is a danger in thinking you can channel those interactions or concerns to narrowly based functional offices rather than headquarters and the executive suite. The new world calls for a different sense of how the CEO orders his or her priorities.

The Quarterly: What advice would you give rising executives on how to prepare for a more complex environment?

Richard Haass: When we think about training for rising executives, instead of simply considering business school why not think about a slightly broader academic exposure? This curriculum could include a little political history and something about the more complex environment of business. Why not make it a requirement that before anyone could be considered for promotion to a senior level, he or she would need to spend a year or two in a nonbusiness experience? This could mean an NGO, a couple of years at the statehouse, or working as an aide to a member of Congress. It would be good for the country, for the development of this younger man or woman, and for the business in the long term.

The Quarterly: What role does the Council on Foreign Relations play in all of this?

Richard Haass: It begins with the notion that ideas matter. If you deconstruct most things going on in a society, you’ll find an idea sitting there somewhere, behind this or that public-policy act or proposal. The Council on Foreign Relations is a producer and a distributor of ideas. We are also a nonpartisan, independent venue where ideas are introduced and debated.

Beyond this, intellectual organizations have to overcome the conceit that if you simply produce good work, people will listen to it. We have to work as aggressively as any tire company at wholesale and retail marketing and try to identify critical consumers who could make use of our analysis or leverage it.

The Quarterly: How do you measure the success of your marketing?

Richard Haass: At my first or second board meeting in this job, I was bragging about how well we were doing. I said we were producing quality work at the council and I cited a few examples, adding that I thought it was really making a difference. Suddenly, one board member boomed out, “How the hell do you know? Prove it to me.” It took me aback, but it was the right question and shook me out of my complacency.

Still, assessing the impact is difficult. It is a great discipline for any nonprofit to constantly try to answer that question. We look at a wide range of quantitative measures, from page views and downloads on our Web site² to magazine and book sales to media citations. Before every significant project we do, I ask for justification. What impact might this have? And following a sizable project, we complete after-action reports and reviews devoted to measuring and assessing the influence of the project on debates and policy.

The Quarterly: How do you ensure that your work is relevant?

Richard Haass: The first thing is knowing your competitors. It is a big mistake for an organization like mine to see only similar organizations as the competition. We are competing for people’s time and attention. We are competing with the New York Times and CNN and the Economist. The challenge for us is how to do that, being relatively modest in scale by comparison.

We have got to concentrate on areas where we can be the “market maker.” So I ask myself, what are the issues where ideas really could make a difference? Years ago, I wrote about the concept of “ripeness.” Certain issues are ripe for a solution. And certain public-policy issues are riper at some moments than others for intellectual input. Ripeness can reflect where debates are or whether there have been recent developments that create room for organizations like this one to be heard.

The Quarterly: What issues are ripe now?

Richard Haass: I talked before about the lag between globalization and global arrangements. That is one of the areas we are going to be focusing on, where we can make a real impact over the next couple of years. What to do about sovereign wealth funds is but the latest example. Climate change is another good example. This is an area in which outsiders can contribute to thinking about new rules, new organizations, and new approaches. Yet another issue is what sort of regional architecture to develop in Asia. Speaking of Asia, there is the question of how best to integrate a rising China and a rising India into that region and the world. And I haven’t even mentioned the Middle East, which contains enough issues to keep anyone occupied. The uncomfortable reality is that there is no shortage of subjects worth thinking and writing and speaking about if your business happens to be assessing political, economic, and strategic risk and suggesting what to do about it.

About the Authors

Drew Erdmann is a consultant in McKinsey’s Chicago office, Roger Kline is a director in the New York office, and Lenny Mendonca is a director in the San Francisco office.

Notes

¹ Richard N. Haass, The Bureaucratic Entrepreneur: How to Be Effective in Any Unruly Organization, Washington, DC: Brookings Institute Press, 1999.

² CFR.org.