Matt Ranen: Time for CEOs to Choose Sides?

If you are the CEO of a major American or European based multinational you have a difficult question on your plate right now. Are you going to the St. Petersburg Forum in late May this year? If it were Switzerland and this were the World Economic Forum annual meeting, the decision would pretty much make itself (unless you are just bored of Davos). But this is Vladimir Putin’s show, the Russians’ answer to what they see as the ‘Western-centrism’ of the World Economic Forum.

You’ve probably gone to St. Petersburg the last few years without much worry. Like Davos, it’s a good place to network, share perspectives, and talk informally with government officials. At St. Petersburg it’s often been about alternative perspectives, a map of the world that puts a big resource-centric ‘emerging’ economy right at its center rather than (as seen from Davos) at its periphery. That’s a useful intellectual and strategic exercise… and St. Petersburg is a great backdrop for it.

But this year is different. This week is the one year anniversary of the Edward Snowden story breaking. Then there was Crimea. And now, Eastern Ukraine. In the background looms Syria. If it were only one of these four things where Putin had stuck his fingers in Washington’s eye, people would be talking about St. Petersburg as a useful opportunity for another chance at a ‘reset’. But not this time, not with all four on the table.

In the last two weeks, top executives from companies like Alcoa, Goldman Sachs, Pepsi, and ConocoPhilips have taken phone calls from the White House asking them not to attend St. Petersburg this year. Nobody is telling them they cannot go — and it’s not illegal under current US sanctions. But is it worth saying no right now to people as close to the President as Valerie Jarrett or John Podesta or possibly John Kerry, for the sake of a few days in Russia? Is it worth a photo-op handshake between you and Mr. Putin that shows up on the front page of the New York Times?

Hard question. Russia is not a place that you just write off. It’s a large emerging market and an energy superpower. It’s a place where lots of money is being made and can be made so long as you are in the good graces of the Kremlin. Mr. Putin will surely take attendance at the meeting. Does anyone doubt the inevitability of subtle (or not so subtle) retaliation against the no-shows? Even more frustrating, how will it feel to cede the playing field to other companies who do go — including companies from some of our allies, like Germany, that are less severe in their judgements of Putin?

We’re not giving big bold advice here about whether anyone in particular should go or not go to St. Petersburg. The general point is simply to recognize that this type of decision, with these kinds of stakes and higher, is set to become a much more common dilemma for global corporations going forward than it has been for the last decade or more.

The global business environment has always been embedded within a global political environment, that used to go by the phrase ‘geopolitics’. Every decade or so, a pundit arises to proclaim that the interconnection between the two is over and that economy will henceforth dominate politics on the global stage. This pundit usually ignores history (an expensive error) and imagines that he or she is the first person to ever make this argument.

It usually doesn’t take long for the pundit to be proven painfully wrong. This time around it’s Putin’s turn to put reality up front. It’s not that the Kremlin ignores or doesn’t get the interests of global capitalism. Rather, the Kremlin competes in that game by doing everything it can to limit American freedom of action in the world and moving determinedly to increase Russian influence by wielding political and military power, not market power, because that’s what Russia has.

Russian geopolitical strategy in one phrase, is to put more sand in the gears — increase the friction — at any place and any time where life can be made more difficult for Barack Obama and US-based multinationals. This isn’t stupid, retrograde, anachronistic, or self-defeating. It’s basic strategy, blocking and tackling in a geopolitical sense.

Why? Because friction differentially benefits the less efficient, less global, and less powerful players in the game. It differentially hurts the players at the technological and economic horizons. And thus on a relative basis, it’s good for Russia.

There’s going to be more of it coming in the next few years. And not only from Russia, since the logic applies to many other emerging market governments and multinationals as well. As a result, CEOs of American based global companies are very quickly going to find themselves in a real bind.

No one wants to have to ‘choose sides’ in an argument like this, but the argument is not going to go away. This is going to require very thoughtful and subtle corporate diplomacy. The single most important question a CEO can ask right now is this: what do I need from governments, going forward, to limit the friction that my business will encounter at geopolitical flash-points? A little foresight and advanced planning may help.