Podcast: Views from World Economic Forum in Davos — Roberto Quarta, CD&R

Roberto Quarta, Clayton, Dubilier & Rice

In our continuing discussions on Davos – looking not only at what happened at The World Economic Forum’s annual meeting recently, but perhaps more importantly, what business leaders globally might expect its ongoing impact to be – we spoke with Roberto Quarta.

Quarta is a longtime partner with Clayton, Dubilier & Rice and serves as Chairman of CD&R Europe, based in London. He also is Chairman of global media giant WPP, as well as Chairman of Smith & Nephew, a FTSE 100 listed global medical devices firm. Among many other roles, Quarta also previously served as Chief Executive and then Chairman of BBA Group.

Quarta is, clearly, no stranger to global business… nor, as you’ll hear now, to Davos.

Chris Riback: Before we begin, Roberto, what number visit was this for you? Surely this was not your maiden voyage.

Roberto Quarta: No. I think, I was trying to remember exactly whether it was 16 or 17 years ago. I think it’s in that neighborhood. I haven’t missed one in the last 17 years now.

Chris Riback: So you’ve seen the changes. It’s become quite the event. Was it always quite the … Even back at the beginning, did it have the same kind of global sense and vibe about it that it has now, or have you really seen the change?

Roberto Quarta: No. I think it’s like everything else. In terms of attendance, I think it has noticeably changed. The delegations that are there, the level of delegations, think about this year. We had about 70 Heads of State, the first US sitting president since the year 2000, so a few people can argue that Davos does not retain, it’s a lure for both business and political leaders, even though some of us who have been going over the years, sometimes there’s been a skepticism over world economic form relevance. We always ask ourselves, “Well, what do we get out of Davos?”

We ask ourselves the question, “The world is going back,” because there’s something there that causes us to want to go back. It’s the interaction that we can have, the chance meeting in the hallways that you wouldn’t otherwise have. On top of that, it is a big almost like military exercise that we do in order to really maximize the time that we’re there in the one-on-one meetings that we have during our stay.

Chris Riback: That’s fascinating. There surely was, and we’ll get into it a little bit, the presence of global leaders, as you said President Trump and also Macron and Merkel and Theresa May and Italy, there was a lot, and Modi from India-

Roberto Quarta: That’s right.

Chris Riback: The first topic, globalization and populism, obviously one of the major questions going in was how business and political leaders there would balance the long-term globalization trends with the more recent populous pressures. Obviously, we can even start just with Brexit, but way beyond that. A great deal of talk and action on that front in the last year or two in particular. What did you see in terms of that discussion at Davos, and how are you seeing the tension between globalization and populism? How do you see that balance moving at this point?

Roberto Quarta: Well, I think there’s several aspects really. If you think about what globalization, global corporation, really I think it mean many, many things about in terms of economic lives, global corporation, just think over the last three decades, 30 years, has generally meant the liberalization in greater global competition. Now, on the one hand, it’s brought huge efficiency gains and opportunity but also disruption for many. So we need to really be careful when we use this language of cooperation and be alert to it.

What I think one would have to agree that it’s become harder to win arguments by invoking economic growth, as economic inequality has certainly narrowed the recipients of the dividend of economic growth in the OECD countries over the last 30 years, so a discussion certainly around that. Then, if you think about President Xi and the vacuum that was left by President-elect Trump’s increasingly nationalistic rhetoric delivering a speech that really exposed global trading cooperation, so it was quite interesting that Xi and China, if he makes good on his promises, which is a stock departure from its historic policy position, certainly he could take the mantle as a world’s free trade champion.

So there was discussion about that, and I think that Trump’s speech sort of softened the blow a little bit when Trump in his address said, “America first does not mean America alone,” even though he had just imposed to have the tariffs on goods coming in from Korea, so there was a lot of discussion and debate about that along the lines.

Chris Riback: Trump’s speech really, he really tried, at least the characterization of it, was really trying to emphasize America is open for business. Did you see it-

Roberto Quarta: Definitely.

Chris Riback: -or did folks see it as a counter-balance to China’s presentations, and particularly China’s presentation last year, did they see it as maybe an attempt to, in front of that audience, reduce, as you say reduce, some of the rhetoric? Do people take him at his word, or is there more of a wait and see point of view, did you get a sense of?

Roberto Quarta: I think more so than was expected. I think if we reflect on the mood say early in the week, in anticipation of the Trump visit, I think everyone was anticipating it just because it’s kind of a novelty, and I don’t think they expected the speech to turn out to be what it ended up being: well-scripted, well-managed, didn’t go off script, and it was perceived to be sensible. So, in many ways, I think Trump came out of it in better faith than, let’s say, the anticipation going into it.

And so I think that what resonated amongst many that I spoke to was it’s very difficult to be critical of US policy in terms of economic stimulus, and that Trump and the administration have brought to bear. Obviously, the stock market performance spoke for itself, and also I think the tax reform being passed was another big, big plus. People are saying, “You can be critical about America first,” but in many ways, lots of business leaders in particular were great beneficiary of these policies, so very difficult to be negative.

And because he was measured in the speech and more balanced than people expect, and because he didn’t go off script, as I said earlier, I think it made a huge difference in perception. Now, as you said earlier, people perhaps also are cautious and say, “Well, let’s wait and see. So far, so good.”

Chris Riback: As you were mentioning, the juxtaposition between the anticipation of the speech and what was being discussed earlier in the week versus the outcome of the speech itself earlier in the week, of course, you heard fairly strong muscular speeches from your Pan leaders, from France, Macron, from Merkel, from Italy. In the end, first of all, did you sense a … This may be overstating things, a coming out party for, “You’re up for the continent,” and maybe trying to establish itself as a first choice, or at least maybe at the same level there with a China and a US, and then Europe, did you get a sense that that was being executed by the European leaders, and what’s the sense about European opportunity that you felt there?

Roberto Quarta: Well, I perhaps have a slightly different take. I don’t know whether the image that was being presented by the three M’s, and by the way I include in that Modi although he’s India obviously, so if you think about Macron and Merkel, the two M’s … And Trudeau did well in its own right. It did very, very well. What I heard was that Macron in particular sort of stole the show. At the beginning of the week, on a Monday, he hosted a relatively impromptu meeting in Paris, in Versailles, and a dinner attended by business leaders, about 140 business leaders worldwide who actually went out of their way to go to Paris and [Tiki] and Macron.

The view is that Macron was really promoting France first and Europe second, but you could argue, “Why not?” He’s basically inviting people to come, labor reform, legislation that’s been passed, “We’re open for business.” America has always been that way, and so from Merkel, it was just about reinforcing her policies and her views towards business and globalization. It’s particularly interesting, Merkel obviously is more pro-EEU, and that’s only came out loud and clear. By contrast, May, very much preoccupied with Brexit at this point in time, and therefore, she ended up really … Her speech was about AI and security over the internet, which was rather odd.

Chris Riback: Odd being the focus of her speech. I was to ask you about AI and about jobs and about technology, particularly given what we were talking about at the very start about opportunity and where the benefits of globalization and the challenges that globalization might accrue, but just one follow-up on these regional discussions.

You brought up Modi, the Prime Minister of India, and my reading of his presentation, I’m very curious as to your point of view, was to really call on nations to embrace globalization, combat climate change, strengthen international institutions like the World Trade Organization while not really noting his country’s recent import restrictions and what one paper quoted called the broad industrial policy meant to force foreign companies to increase manufacturing operations in the country.

There was also some … Maybe thinking about Chia as well, are the China and India economies, while they’re not as fully open or transparent perhaps as purely capitalist markets, what did you see as the attractiveness for investment and business growth there because of their structure, and because of their governance more direct involvement? What was your take coming out of Modi’s presentation?

Roberto Quarta: Well, Modi was selling India big time as she promoted China last year. Yes, it has its twists and roundabouts, but there’s no doubt that they want to be seen as leaders in expanding globalization because it suits them, India in particular. India needs to put a million people to work every month, and they’re just not creating enough jobs by any means in India, so therefore, they need to put more people to work. In order to put more people to work, they need to be part of a global community and not just the Indian community. China both has greater opportunity for labor within its own borders, also sees I think a similar goal and objective.

Chris Riback: How did technology fit into all of this, and by that I mean in terms of jobs and an innovation point of view? Obviously, from where you sit, you see companies of all sizes, also of course your role with WPP are very aware of jobs, really globally, almost all over the world. From a jobs and innovation point of view, AI has of course become a key topic, not just for Theresa May, in terms of what it means for industry and employment and competition and innovation. Did you find business leaders excited or apprehensive? Do you feel that businesses have a strategy? Is it too late for those who don’t? Job killer or job creator? What was your take on AI and all of that?

Roberto Quarta: Well, Chris, I found two differences really. One camp really excited about AI, and that same camp would say, “Ultimately, AI is going to create more jobs.” Another camp that could see the benefit of AI was concerned about what was going to happen to jobs, what was going to happen to employment, who is going to have to deal with the aftermath of AI if one or two believe in the assumption that AI may in fact render 50% of the jobs today null and void. What do you do? Who’s responsible for training? What happens with those who cannot be retrained? Will the state be able to cope?

If anything, I sense that corporates and private companies who employ people are thinking about that very seriously, and actually beginning to think that perhaps they need to carry more of the mantle. The states have proven to be not the most efficient in dealing with these sorts of issues. There are some who are saying, “Why worry?” People were worried when computers first came out, and people felt that computers were going to replace human, and therefore, lots of jobs would be lost and employment will go through the roof. It didn’t happen with computers. Why will it happen with AI?

So they’re really, I think, people are in two camps, but does everyone acknowledge and recognize that AI is here to stay and it’s going to have a greater impact on the way we work, and the way we access information, and how information is going to be digested? Absolutely, and people are just trying to work their way through it. There are those who believe that will create jobs, and those who believe that they will actually destroy jobs, and then the concern about what are the social implications.

Chris Riback: Did sensitivity on this front overlap with trying to manage the tension between globalization and populism between the growth of cross border opportunity and all of the positives that that can create, against as well, obviously, some of the discomforts and dislocation that it can create as well? Were people more … Did that effect the conversation? Was it looked at in the shadow of rising concerns, as you noted at the start around where benefits have accrued over the last, call it 10, 20, 25 years, or was it seen just on its own: AI, tech without the other factors coming into play?

Roberto Quarta: Well, one of the things that one heard is that feeling about technology and obviously technology in the broad sense, and then AI, so as technology evolves and at the place it’s evolving, it was one heralded as the great equalizer in terms of accessing information and social vulnerability. This year, it was very interesting that at Davos, technology companies were actually under fire for damaging levels of trust in large institutions, the fake news issue, concerns about job security with the rise of AI, and increased automations.

Now, what’s interesting, the leaders of these companies that were there did not really shy away from it. They were there and prepared to try to deal with the issue, but there’s no question that this is a big issue that business leaders are trying to deal with, as politicians are trying to deal with. I have a sense that corporates, as I said earlier, and private companies are beginning to think that they’re going to have to share more of the burden, that before they say was more in the hands of government. There’s a view that governments will not be able to cope with this transition, certainly not on their own.

Chris Riback: Certainly that’s an evolution. That’s an interesting insight and something to keep a watch on.

Roberto Quarta: Of course, it’s interesting because to think that a few years ago, it was criticism about corporates and CEOs due to inequality of pay, et cetera, whilst that’s not going away, I think a recent survey that I think US World and News Report, if you read the leaders, country leaders report, the annual report, which is partly sponsored by WPP, and in there, if you’ve seen it or if you haven’t, have a look, I think they interviewed about 32,000 in 90 countries and seen just a huge shift in that survey from having confidence in state to having confidence in corporates.

Chris Riback: It’s a massive global trend. Yes. Just to be sensitive to time, anything else, anything else that struck you on a personal level, on a professional level? Anything that surprised you in terms of this visit to Davos that we haven’t gotten to touch on?

Roberto Quarta: I think we’ve covered in a relatively short period of time pretty much the waterfront. I certainly was surprised how the whole Trump, I’m going to say, visit evolved from the beginning of the week to the end of the week, and the outcome of that. That was more positive than perhaps I and others had anticipated. And what we just spoke about, the social inequality shift that’s taking place, an awful lot of focus being put on that and I think for very good reasons. We can’t … Corporates cannot keep their head in the sand. We have to recognize that we’ll have to deal with these issues as they progress.

Chris Riback: You just reminded me. One quick question on Trump and “America first does not mean America alone.” The trade agreements and pulling out of, or not really wanting to get into multi-lateral agreements, but maybe going a little bit more bilateral, obviously the pulling out of the Trans-Pacific Partnership talk that’s going on with NAFTA and the Trans-Pacific Partnership being revived after 11 nations agreed to the trade deal with Canada but without the US, was there a sense that these bilateral agreement, from a business point of view, is that helpful or in an age where companies like WPP, many are in so many different countries that are multi-national, is the lack of these multi-lateral trade agreements or reduction of them, is that a concern or were people feeling like, “No. If Trump is willing to do deals bilaterally, that can work as well”?

Roberto Quarta: Well, there wasn’t … Actually, I didn’t hear much on the subject at Davos. I think each company will … It really depends. It depends on, as I think it’s obvious, it depends on whether you are a local company, local meaning a UK company, versus a Pan-European company, versus a global company. I think each of those would probably have a different view depending on whether they were global, regional or local.

Chris Riback: Where you sit depends on where you stand, just like much else in life I guess.

Roberto Quarta: Absolutely. I think to try to generalize probably would not be fair.

Chris Riback: Then we will not. Roberto, thank you. Thank you for your time and for your insights. I appreciate it.

Roberto Quarta: Thank you, Chris.


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