For generations, American chief executive officers and other top managers have believed that it was their job to create global platforms that would maximize their short-term profits and hence their share price. It did not matter where the companies sold their products or services, where they obtained financing, where they developed or sold technology, or what nationalities they hired in their managements and work forces.
I submit that China’s global exertion of power and now Vladimir Putin’s invasion of Ukraine are now challenging these notions of “statelessness” and “globalization.”
But first, some background. I first encountered this debate in the mid 1970s when I was a young reporter for United Press International in Lansing, Mich. I heard that Carl Gerstacker, the CEO of Dow Chemical, wanted to find an island where he could put his company’s headquarters and not be beholden to any government. I went to Midland to interview him and he expanded on his argument.
Then in 1990, a team of us at Business Week wrote The Stateless Corporation. We analyzed the composition of management and boards, the pattern of global sales, connectons with their national governments, and other threads of the tapestry. We looked at German, Swiss, French, British and Japanese companies in addition to American multinationals. In the final analysis, top managements of the non-Americcan multinationals realized they were part of their nation-states. Only American CEOs truly drank the Kool-Aid that they had no responsibiity for the national security or economic well-being of the their home country.
This philosophy (or perhaps even “religion” is not too strong a word) was supported by Milton Friedman, the University of Chicago economist, who argued that a CEO’s only responsibility was to maximize earnings. Many CEOs embraced that idea.
And in the case of China, I watched first hand as American companies poured into China. They (and I) believed that it was fine for them to pursue profits in China because it was ultimately in America’s best interests. We expected the Chinese governance model to gradually liberalize as the wealth spread. We thought China would become a “responsible stakeholder” in the world order we had created.
But recent events have shown that China and Russia are lurching in a very different direction. They celebrate their authoritarian models. They seek to undermine democracies worldwide, including ours. One reason Putin felt obliged to invade Ukraine was that it was enjoying a genuine democracy. If Ukraine could enjoy democracy and a measure of economic prosperity exceeding Russia’s, that was an existential threat to his grip on Russia. Both China and Russia are using cyber tools to attack America’s national security. This is no longer a cozy community of nations.
It’s still early, but it appears that the confrontation between Western democracies and authoritarian nations is going to last for years. If so, American CEOs are going to have to shift their thinking. The sale of advanced technological goods to Russia is now banned, but what about China? Will the Chinese sell the Russians what they need, whether the Chinese have manufactured it or purchased it from the West? The evidence is overwhelming that the Chinese are going to do that. They are extending agreements to purchase Russian energy and grain, and may play a role in helping Russia finance itself through use of the Chinese currency, the yuan.
The same is true in the world of finance. Wall Street has recently deepened its activities in China by taking control of affiliates that had previously been joint ventures. The Chinese deliberately drew them in. This has been a mistake. We should not be supplying capital or financial expertise to China.
Another recognition that American CEOs are facing is this: the Information Technology systems they have built are vulnerable. They have not invested enough in cyber security and have not trained enough people to help protect their systems. The Chinese and Russians have developed a permanent presence in America’s computers, including some of the ones involved in critical infrastructure. Reflecting their globalization religion, CEOs have argued that it is up to the federal government to protect national security, not theirs. But the government depends on civilian networks and civilian suppliers. If they have been penetrated, government systems are vulnerable. No one is truly safe.
I think American CEOs are going to come under mounting pressure from all directions to retreat from their globalization strategies. One other obvious reason is that global supply chains are so easy to disrupt. Americans don’t make enough of their own things.
It’s going to be a very tough ideological and political battle. But American CEOs are going to be forced to move in the direction of how their predecessors behaved in World War II. They created a war production board and organized themselves to make the things that America needed to wage the war and prevail. When the American system coalesces around common goals, it is the most powerful system in the world. It was acceptable to allow American companies to go global and stateless during the decades when the United States enjoyed unchallenged power. But that era is now over. It’s time for American CEOs to play for the home team.
