From Knoweldge at Wharton
I was about to board a flight for the annual meeting of the World Economic Forum in Davos, Switzerland. With a final check of the Internet, my laptop screen lit up with headlines of financial crises, sparked by sub-prime woes and, we would later learn, rogue trading at Societe Generale.
It was obvious that the Davos discussion would not go entirely as planned. But few of the 2,400 people expected to attend the 38th annual meeting of the World Economic Forum were deterred by the plunging market.
The annual meeting of the World Economic Forum has come to serve as one of globalization's best classrooms.
My experiential learning began as I left customs at the Zurich airport. Two years ago, a luminescent display touted "!ndia." Today, in its place I found "Turkey: Land of Opportunity." In 2006, Indian business had sought to brand itself in the minds of those on their way to Davos; two years later, Turkish business now evidently appears to be coming of global age.
The first morning of the conference, I wedged into a jam-packed session hosted by CNBC's Maria Bartiromo under the intriguing banner, "Who's in Charge?" On stage was a luminary cast including former U.S. Treasury secretary John Snow, Nobel-prize winning economist Joseph Stiglitz, financier-philanthropist George Soros and Infosys CEO Nandan Nilekani. They and a set of designated challengers including former Treasury secretary Larry Summers debated three timely resolutions:
Motion 1: Central bankers have lost their focus and control with respect to economic governance.
Motion 2: New stakeholders such as sovereign wealth, hedge and private equity funds, have become the new power brokers.
Motion 3: We need a new sheriff to police global financial markets. The sides were drawn, and the rhetoric was sharp. One of the participants advocated for the first motion, declaring that "sovereign wealth funds are the new powers and the new power brokers" -- and they are now deciding "which banks are re-capitalized and which will fail." Another advocated against the third motion, asserting that a global sheriff is "completely impractical." Can you imagine, he warned, "the President or the Fed calling up a sheriff to ask for permission to stimulate the economy or cut interest rates?"
With handheld voting devices, the large audience then cast its ballots
-- against the central bankers -- 59 percent said they have indeed lost their way;
-- for the new stakeholders -- 81 percent said they are the new power brokers; and
-- against a global sheriff -- 75 percent said we need no such policing.
It proved one of the most riveting sessions of my six years at the forum. Several hundred of the world's elite had concluded that central bankers had lost control; sovereign wealth, hedge and private equity funds were increasingly in control; and no new authority should be put in control.
Further insight into new power brokers came from a subsequent panel on sovereign wealth funds with those who managed the funds for Kuwait, Norway, Russia and Saudi Arabia. Driven by oil revenues, many of these funds have become enormous, and they now operate at the same scale as giant investment firms such as Fidelity or Vanguard. Taken together, such funds worldwide control $2.5 trillion in assets, and like traditional institutional holders such as pension funds and investment companies, their managers said that they considered only risk and return in their investment decisions. But another panelist questioned whether they would long stay so un-sovereign in behavior. He urged that they explicitly pledge to use purely financial principles in their investment decisions now to ensure that political calculus would not intrude later.
Within the new power-broker club, private equity welcomed the rise of the sovereign wealth funds with some ambivalence as well. A panel with principals from private equity firms Carlyle Group, Clayton, Dubilier & Rice, and Apax Partners attracted a number of private equity managers. They and the audience questioners implicitly concurred with the "Who's in Charge?" vote that private equity was indeed an ascendant power. One person noted that the sovereign wealth funds were fortunately taking some of the heat off private equity. It would be only a fleeting advantage, however, since he expected the sovereign wealth funds to move into private equity themselves.
A personal directive from these sessions on sovereign wealth and private equity was to ensure that the leadership classroom includes a focus on how company executives and directors can effectively work with the principals of such funds. Company leadership has traditionally been defined around inspiring and directing those below, but increasingly it will also require a capacity to attract and enthuse those above -- the new holders of big capital whose decisions to invest or not can be just as fateful for an enterprise as employee decisions to rally around the enterprise.
Finally, this year's Davos forum provided insights into an array of global trends with implications for both teaching and research. India's aviation minister, for instance, reported that more people travel on Indian trains in a day than by air in a whole year, almost the reverse of the U.S. But his country's 9 percent annual growth rate is transforming traditional habits in everything from aviation to consumerism. India boasts 450 commercial aircraft now, up from 125 four years ago. Daily flights between New Delhi and Bombay total 57 now, up from four. India operates 50 commercial airports now, but 400 are planned. Other Indian political and business leaders in Davos recited a host of similar growth statistics over the four days, and anyway you looked at it, "!ndia" was booming.
New worries over sub-prime loans and rogue traders altered the tenor of the annual gathering of the World Economic Forum, but the rising economies of India, Turkey and elsewhere, and the rising assets of sovereign wealth, hedge, and private equity funds all suggested that whatever has been transpiring in mortgage markets or French banks, global business will remain vibrant and -- hopefully -- resilient.