Ahead of his presentation at IR Magazine’s Cocktail and Networking evening with Q4 on March 2, economist Tim Harford answers a few of Andrew Holt’s questions
With Brexit and the US election of Donald Trump, what do you view as the key challenge for the IR community?
It is hard to think of a time when political uncertainty has been higher. There have been times when the financial markets have been unpredictable, but purely in terms of trying to read the political tea leaves, it is exceptionally hard to do that at the moment. There is a case with President Trump and Brexit where companies have to decide whether they want to speak up, express a view, take sides, or try to keep out of it.
Within this there is a strong element of companies having to manage expectations: is there a limit to what they can do?
I think many companies just want to keep their heads down and keep out of the news. But it is not always straightforward to do that. Politicians like to make news out of what companies are doing and the investment decisions they are making, and journalists are looking to make news as well ‒ so you need a response and a strategy.
But isn’t the uncertainty an issue in itself?
It is a strategy of Trump’s. There is a chapter in my recent book Messy about using chaos as a competitive weapon, and that has been true for some time of Trump’s campaigns. It is not clear how much is deliberate and how much isn’t but it has worked for him. It is hard to see him taking steps to change that. And companies will have to act quickly if they get caught up in it.
There have been growing instances of major shareholders questioning corporate governance structures at big companies. Is this a good thing?
No one can object to having better corporate governance structures. The question is: what is a better corporate governance structure and what does it look like? A point people often miss is that in a big organization you want a diversity of views and you need people to disagree. That clash in the boardroom is something that makes people uncomfortable and [feel] that they should be pulling together instead. But you need that disagreement. You need that diversity of perspective.
The focus is often on having more women and ethnic minorities on boards, and that is very important [from a fairness perspective]. But in diversity we need to remember it is in the interest of companies to have a diversity of perspectives. That might mean more women on an all-male board, it might mean a board with different ethnic backgrounds, but it might also mean people on the board with different training – with HR professionals, finance professionals, those with exposure to markets or from different industries – that is diversity as well. And this is important in making better decisions. Sometimes it will create tensions but it makes for a more robust environment.
Snap’s recent IPO states shareholders will not have any voting rights. What’s your view on this?
It is extraordinary. You could say: ‘Well, people are grown-ups and nobody is forcing them to buy the shares.’ But you do have to ask whether it is in the long-term interest of how public markets operate and how Snap is going to operate. I wouldn’t say this should be illegal or should be banned, but I am not sure it is wise.
Tim Harford will be discussing how we can make better forecasts at the IR Magazine/Q4 cocktail reception on March 2 at 6.30 pm in London. To attend the event, please add your name here.