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The opportunities and challenges for fast-growth businesses building multi-generational workplaces

We often hear the phrase – ‘your greatest asset is your people.’ This is true in any company; without them, you will fail! But fast growth in businesses can all too often come at a high cost to the people on your team, and it’s hard to grow organically and consistently without some things going under pressure.

In a study conducted for Hawthorn, we spoke to leading executives across high-growth businesses to understand their challenges, the opportunities that exist, and the continued need to put people first.

The findings identified four key areas of focus for fast-growth businesses:

  • Attracting and retaining talent
  • Building and maintaining culture
  • The changing face of leadership
  • Ensuring effective communication

These are challenges being faced by many organisations, but they are exacerbated by the pace at which businesses are growing.

Attracting and retaining talent

How you treat your people is paramount. People now expect much more from their employers, and so employers must work harder to attract and retain top talent – it’s no longer just about pay and bonuses, they are looking for career growth, a positive work culture, and work-life balance.

A third of respondents said they have experienced challenges attracting talent to their fast-growing company. Over three quarters said they have found employee retention to be more of an issue since the pandemic, with almost a third saying that retaining the right people has been a significant problem for their business.

At the same time, business leaders are facing a subset of challenges created by a multi-generational workplace. Despite the reported challenges with Generation Z fueling the Great Resignation, respondents said that Millennials and Generation X were the two generations they find most difficult to retain, leaving them with skills and experience gaps in their businesses.

Despite all of this, 71% of respondents have not changed their methods of employee retention over the last 12-18 months, which is surprising considering the clear need for fast-growing businesses to retain top talent.

Businesses would do well to now focus on factors that will contribute to workers’ overall experience, and ensure they have an up-to-date and relevant Employee Value Proposition that meets the needs of their current and future talent.

Building and maintaining culture

Building and maintaining culture is reported as a key challenge for fast-growth businesses. This is likely a result of leadership being more firmly focused on growing their business, coupled with the fact that once you’ve surpassed a certain number of employees, your culture begins to change and becomes more difficult to control. This is further exacerbated by workers of different generations bringing their expectations, core values, and ideas of what constitutes a positive workplace culture.

More surprisingly, three-quarters of respondents felt this is an area that is already taking up too much of their time, and they would like to be able to spend less time focused on it.

The changing face of leadership

The findings clearly show that people and culture are two of the main challenges faced by fast growth businesses. They also indicate that dealing with these issues are among the most important roles for leaders in the business. Therefore, it is surprising that only 15% of respondents felt that defining a purpose, vision, and goals were an important role of the leadership team in a growing business. In fact, it was last on the list!

However, when asked what the impact had been of the challenges they faced when growing fast or at scale, 23% of respondents cited poor leadership.

Leaders must work together to meet the needs of the business, building an inclusive and high-performance culture, discussing growth regularly, engaging employees on their journey, and communicating any changes.

Ensuring effective communication

As befits the current and future need for emotionally intelligent leaders, respondents identified communicating at pace as the most important aspect of all the duties of leaders in fast-growing organisations. Additionally, 24% of respondents identified being a good communicator as the foremost quality a good leader should have.

Yet, the findings indicate that this aspect of running a fast-growing business may have been overlooked. Just 15% of respondents said that they have improved communications to address the challenges they’ve been facing as they’ve grown, making this the least common response. This is despite the generational problems they are facing regarding talent attraction and retention, and the fact that 28% have struggled to manage different communication styles in a multi-generational workforce.

Conclusion

High employee turnover and poor communication has an impact on culture that cannot be understated. Indeed, according to respondents, the biggest negative impact of the challenges they are facing centres around culture. Specifically, 25% said they either found it difficult to maintain culture or prevent a toxic culture from developing. Interestingly, only 15% have improved their communications in response to this. Not only do these directly affect a business’s ability to perform, but they could also severely affect its reputation.

Despite the acknowledgment that leadership plays an important role with regard to people and culture, and despite the challenges they are facing in these areas, respondents feel that they cannot afford to spend any more time addressing these issues.

An organisation’s culture is embodied and maintained by its people. Take every opportunity to engage with your workforce, understand them, and capture their views on how the company is performing. Ensure you have leaders with the new skills and capabilities needed to lead and inspire your workforce because effective leadership will help you make the most of the opportunities creating sustainable growth for the future.

Amid all the excitement and potential of business growth, it can be easy to lose sight of what initially made your venture special and set you on the path to success. Recognising and understanding the potential challenges and how to overcome them is essential if your business is to continue to grow and thrive. Not doing so, will continue to have a negative impact on your business as it grows, as it will become much harder to resolve the more time goes by and the larger the business becomes.

If you would like to know more about the findings of our study or how we at Hawthorn can help you identify and address these challenges, then please contact our Head of Employee Communications & Engagement, Sarah-Jane Wakefield at s-j.wakefield@hawthornadvisors.com.

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Future of leadership

By Sarah Sands, Partner

The Platinum Jubilee celebrations were about 70 years of history but they also turned into a discussion of the character of leadership. The Queen is an outstanding example of servant leadership. As Charles Moore wrote in the Daily Telegraph, the Queen’s role is that of sacrificial service. She does not seek power, her motivation is vocational.

Commentators have contrasted this selflessness with political leadership which is about grasping and retaining power. George Osborne is quoted as saying about the potential coup against the Prime Minister: “Power is not given, it is taken.”

With handy timing, Hawthorn Advisors and Spencer Stuart, both of whom work with corporate leaders and search for them (we’d prefer “find and advise them”) held a dinner on the theme of the future of leadership.

The premise of the discussion was that we are undergoing a generational change in expectations of leadership. Power cannot be assumed, it has to be earned and new qualities of collaboration and empathy are required.

We are witnessing a passing of conventional leaders and followers and in its place a new form of social contract. While we see old style authoritarian leadership across the globe – most tragically in Russia – it is on the wane in corporations. Prepare for challenge – if not quite as dramatically as seen at Westminster.

Hawthorn Advisors and Spencer Stuart assembled for their round table discussion leaders of the future and the present. There were two One Young World ambassadors, Zubair Junjunia and Dara Latinwo. Zubair is an educational activist who founded ZNotes an online learning platform which reaches 3.5 million global students. Dara creates digital disruption at Deloitte.

Also at the table, representing experience and optimism, was John Flint, the former group chief executive of HSBC and now the chief executive of the UK Infrastructure Bank. Next to him, was Freshta Karim, founder of the charity Charmaghz, which runs a mobile library in Afghanistan. Freshta represents the beacon of citizen leadership. When the Taliban outlawed girls’ education, Freshta devised a way of allowing them to read.

Dr Eliza Filby provided academic credentials for our theories, drawing on her work on Generational Intelligence, from baby boomers through to post 2010 generation alpha. Poppy Mills represents transformational change, as the director of Ubitricity, formerly working on Shell’s renewables business. Sasha Dabliz, head of marketing at Waverton Investment Management knows how to direct the flow of money responsibly and profitably.

Kristina Ribas, senior strategy manager at Shell, who began her career at Goldman Sachs, was also questioning of traditional routes and warned of the conflict of using past leadership models to predict the future. Stephanie Edwards, Head of Sectors Strategy at Cop26 was at the heart of transformation, while Charlotte Appleyard, Deputy Director of Development at the Royal Academy of Arts showed the pluck of a young woman leading distinguished elders down new paths. This, said Katy Jarratt, from Spencer Stuart, was the way of the future. Spencer Stuart are busy appointing under 35s to boards and watching the response of the 60 year olds who must answer to them. Generational Intelligence in action.

John Evans, CEO of Hawthorn Advisors, described the entrepreneurial opportunities and challenges of rapid growth with a diverse work force. Zubair began the discussion by talking of motivating volunteers; this requires passion, purpose and mission rather than didactic instruction. John Flint called this catalyst leadership. He also defined the boundaries of leadership; you can set a strategy but you cannot “ lead” on process, such as technology. You are leading people. He added, with the wryness of experience: “ You have to know yourself, and knowledge comes with scars.” You can avoid vulnerability by staying behind your desk but only by risking vulnerability can you achieve a modern kind of leadership. There are two ways of leading, by fear and money, or positively. Inspiration has the longest tail.

Eliza agreed that change has come.

“There has been 30 years of turning humans into robots and robots into humans.”

What does it mean to talk of human leadership? Sasha asked about the evolution of leadership. Are leaders born or made? Learning is now a more communal process and the new work force is drawn to the creative and the unconventional. John Evans called for the alchemy of new ideas combined with experience. Theories have to work in practice.

Dara pointed out that we look for omnipotent leaders in our entertainment, the Marvel superhero. How does that square with vulnerability? Dara posited that leadership needn’t be visible and voluble. It could be invisible and valuable. Mobile libraries in Afghanistan could be an example of leadership as doing good. If leadership becomes communal there are consequences to that. Katy asked which leaders are prepared to take on all the baggage of others. Narcissism is a familiar characteristic of leadership, even among the good leaders. The dangers of leadership were underlined by Eliza – it can’t just be about an ability to have followers. This allows for populists and maniacs.

Freshta talked of the hard choices affecting leadership, including engaging with the oppressor. She said that the leadership open to all of us, is to do what we can, and to encourage open debate even if means sacrificing popularity, or worse. Freshta’s aim is to work for a “ better truth,” through grass roots platforms. Leadership is a facilitation of this. Leadership also demands example.

Several round the table warned about corporate spin without substance. Beware those who got to the top merely by having the sharpest elbows and the determination to shape their own mythology. The different framing of leadership for women and for men was also raised. Eliza picked up that Poppy used the word “ accessible “ leadership rather than “vulnerable. ” Poppy agreed she chose the word carefully. Women are wary of being described as vulnerable.

Charlotte pointed out that leadership under scrutiny changes expectations. Decisions made in jobs in which the public have an awareness or a stake are much more glaring. Stephanie spoke up for the outliers, the radicals, for example on climate, who push the boundaries so that the middle ground shifts slightly for the realists and the pragmatists. She also laid down one essential for leadership, evidence that you care for those who work for you. James Nicoll at Spencer Stuart added the virtues of resilience and empathy.

Who got the table’s votes as role model leaders? John chose Alison Rose, Chief Executive of NatWest Group as an example of modern leadership, Eliza went for Margaret Thatcher as a leader who led rather than followed, Sasha chose Peter Harrison, CEO of Schroders, for his moral compass and for wearing leadership lightly. John Flint said those who speak truth to power and named Alexei Navalny and in happily different circumstances, his predecessor at HSBC Stuart Gulliver.

Freshta wanted a leader who could end wars, Stephanie called for Dame Barbara Woodward, UK ambassador to the UN, Charlotte for former US ambassador to the UK Matthew Barzun and for the artist Ai Weiwei, Dara for Sasha Romanovitch, former CEO of Grant Thornton, for sticking to principles, Katy for Bernard Looney, CEO of BP who leads with vulnerability and transparency. Turning to the world of sport, James Nicoll of Spencer Stuart suggested Toto Wolff, the CEO of the Mercedes-AMG F1 team, who leads through a management style of empathy and empowerment. Zubair thought for a bit, then came back with Muhammad Yanus, the Bangladeshi social entrepreneur who pioneered microcredit. All leaders who make a difference rather than serving time.

The collaborative nature of the evening was achieved partly by swerving political leadership. Hard power is not the same as soft power. Hawthorn Advisors and Spencer Stuart will continue discussions of the nature of leadership through different forums and events during the next years.

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Best of British

By Sarah Sands, Partner

As Platinum Jubilee flags appeared on the streets and the Chelsea Flower Show put native nature on show, Hawthorn Advisors CEO John Evans and Hawthorn partner Sarah Sands welcomed a group of extraordinary talents to our Best of British dinner. They were there to answer a pressing question: what makes Britain great?

Our guests were an eclectic mix. Ten years after delighting the world with the cauldron that provided the climax to the London Olympics, the designer Thomas Heatherwick arrived having created a new talking point, the Tree of Trees sculpture, in celebration of the Jubilee. A royal theme was taken up by Anthony Geffen, whose Atlantic Productions have just made the visually stunning documentary on the crown jewels.

From the world of science and technology we had the leader of the Whittle Laboratory, Rob Miller; Frank Strang, CEO of the SaxaVord Spaceport UK and Daniel Golding, global head of corporate communications at McLaren. Anabel Kindersley, co-owner of Neal’s Yard Remedies and nature campaigner brought insight into sustainability. The entrepreneurial dynamism that Britain is looking was embodied by Trinny Woodall, who has created a multi-million-pound company built on women’s beauty products, Andrew Roberts, senior vice president of corporate relations and engagement at Burberry and Meredith O’Shaughnessy, the brand strategist.

It was terrific to welcome Emma Bridgewater, who has not only created a brilliant brand but also revived the art of pottery in Stoke on Trent, and Mark Cropper, whose commercial paper mill has a global reach, and who is now exploring handmade paper craft in the Lake District.

Antonia Romeo, who used to run the GREAT campaign to promote British exports and investment was there to keep us on our mettle, Elizabeth Adekunle, chaplain to the Queen, to ensure we did not lose sight of our humanity.

To kick us off, Antonia reminded us of the original concept of the GREAT campaign. Soft power. It is business, culture and people that create and innovate, with government playing a facilitative role.

And with that in mind we were away, the conversation flowing between big philosophical questions about the British character and big practical questions about the role of government, such as can the government facilitate business during a period of massive financial constraints?

A consensus emerged, led by Rob Miller and Frank Strang: we need more of a liberating vision, less of a strangling bureaucracy. It was not so much a matter of public funding, but of belief in the innovators.

Rob reminded us that leadership in innovation demands conviction and speed. At Cambridge, the vision of a UK “Bell Lab” nurturing critical early stage technology is ready to break ground. £34 million has been raised and there is £20 million to go. Will leadership come from private companies such as Rolls Royce and James Dyson or government funded bodies?

The hard thing for governments, we agreed, is risk taking. “If only the UK Government could find better ways of funding the gut feelings of its leading innovators then the UK economy would be turbo charged and at a fraction of the current research spend,” said Rob. Frank noted the distinction between governmental and private spend. In the space race it is individuals, such as Elon Musk, supported by government to take big risks, who are leading. And it is Americans who are more likely to visit Shetland at the moment. Where we have a combined advantage of innovative technology and geography – Shetland could not be better placed – we must not falter.

We explored tech, including Anthony Geffen’s belief that immersive virtual reality will soon displace the iPhone and that the metaverse is the next revolution. Trinny Woodall was bewildered that we continue to turn out graduates who can read Milton but do not understand the tech economy. And, talking of economics, puzzled that men seemed so poor to judging businesses run by women.

But before we lost ourselves in the metaverse, Emma Bridgewater and Mark Cropper, united in a Quaker philosophy, reminded us of the dignity of making things and providing jobs in places that needed them. Liz Adekunle reminded us that we have a responsibility towards others and should remember the lesson of the pandemic: those key workers who kept the country running, rather than those who ran the country. Anabel Kindersley also spoke for social purpose, and for doing the right thing. She was dismayed that the government’s decision to lift the ban on use of neonicotinoid pesticides for use on sugar beet is killing bees again and has harnessed a coalition of businesses to find some solutions at a forthcoming Bee Symposium.

Little by little, a consensus emerged. The Best of British is scientific ambition, creative possibilities, a business-friendly environment and…something intangible. Thomas Heatherwick summed it up. When artificial intelligence takes over most tasks, what will be left is imagination. Slogans are not enough. You can’t just say Glorious Great Britain, like Incredible India or Amazing Asia. We have to show what we can do.

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Jess Phillips, Labour Party MP on support of alienated voters and the role all businesses can play in supporting their employees who may be suffering from domestic violence

Following the poor performance of the Labour Party’s recent election results and the subsequent botched reshuffle, the direction of the Party remains very uncertain. Jess Phillips, Labour Party MP and Shadow Minister for Domestic Violence and Safeguarding, spoke to Hawthorn’s Sarah Sands on Tuesday 18th May.

Author of three books, including the Sunday Times Bestseller, ‘Truth to Power’ and the forthcoming ‘Everything you need to know about being an MP’, Jess is known as being one of Westminster’s most outspoken MPs. She spoke about how the party can win back the support of alienated voters as well as discussing the role all businesses can play in protecting and supporting their employees who may be suffering from domestic violence.

Listen to the replay of Sarah Sands in conversation with Jess Phillips, MP.

Speakers
Jess Phillips is a Labour Party politician who became the MP for the constituency of Birmingham Yardley at the 2015 general election. Jess has committed her life to improving the lives of others, especially the most vulnerable. Before becoming an MP, Jess worked for Women’s Aid in the West Midlands developing services for victims of domestic abuse, sexual violence, human trafficking and exploitation. She became a councillor in 2012, in this role she worked tirelessly to support residents, with her work being recognised when she became Birmingham’s first ever Victims Champion. Since becoming an MP, Jess has continued her fight to support those who need it the most and has earned a reputation for plain speaking since being elected, unfazed by threats and calling out sexist attitudes as she promotes women’s rights. Jess has written two bestselling books ‘Everywoman: One Woman’s Truth About Speaking The Truth’ and ‘Truth to Power: 7 Ways to Call Time on BS’.

Sarah Sands, Board Director at Hawthorn. Sarah joined Hawthorn from the BBC, where she was editor of the Today programme, Radio 4’s flagship news and current affairs programme. She was previously editor of the London Evening Standard, the first woman to edit The Sunday Telegraph and deputy editor of The Daily Telegraph. Sarah is Chair of the Gender Equality Advisory Council for G7 for 2021 and of the political think tank Bright Blue. She is also a Board Member of London First and Index on Censorship and is a Patron of the National Citizen Service.

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Monetary policy and the Treasury, trust and the Troika and spotlight on the Senate Parliamentarian

Policy preview: monetary policy and the Treasury
Indications of government policy do not always come from ministers briefing journalists or from whispers in Whitehall – occasionally they come via the civil service’s job board. To that effect, earlier this month HM Treasury posted a call for applicants for a new role as the department’s Head of Monetary Policy. While the posting may seem anodyne, it in fact raises serious question about how Prime Minister Boris Johnson and Chancellor of the Exchequer Rishi Sunak view the independence of the Bank of England.

Monetary policy is traditionally the remit of central banks. Economic orthodoxy for most of the last century has held that central banks’ ability to set monetary policy independently of the government is crucial to ensuring the long-term economic stability. The thinking has long been that if governments had the ability to set interest rates, they would be motivated to do so in a myopic manner designed to boost their electoral performances, such as by slashing interest rates to stimulate growth ahead of elections.

The breakdown in the relationship between unemployment, interest rates, and inflation – which has failed to run at an average of 2 percent or higher in developed economies despite over a decade of near-zero interest rates – has left many economists scratching their heads. However, so long as serious deflation is avoided, there are not many political opponents of low inflation. Yet concerns abound about how the poorly understood nature of this relationship is impacting monetary policy, most clearly evidenced by the conclusion issued by the Independent Evaluation Office on 13 January that the Bank of England did not have an explanation for how its quantitative easing policy worked, hindering its ability to build “public understanding and trust” in the programme.

Given the centrality of quantitative easing to not only the UK’s response to the COVID-19 pandemic and its economic impact but that of every other major central bank, renewing research efforts regarding monetary policy is indeed something that the Treasury and other Finance Ministries should prioritise. While the QE that followed the global financial crisis failed to result in inflation, the government has a responsibility to not just assume it will continue to have a non-inflationary impact.

The pandemic portends a crisis driven by a downturn in the real economy, whereas the post-2009 economic impact was demonstrative of the financial economy’s ability to precipitate a crisis in the real economy. Modelling how monetary policy may respond – in the face of renewed inflation or if it continues to remain absent – will be central to developing the government’s decision on whether austerity or continued deficit spending is preferable in the pandemic’s aftermath. The Bank of England’s independence will not go away, but with monetary policy to set to remain the driving tool in shaping the economy, the Treasury official tasked with interpreting its impact will prove extremely influential.

Dollars and sense: trust and the Troika
The global container shipping industry stands in a remarkably healthy position as the rollout of a number of vaccines means there is an end to the COVID-19 pandemic on the horizon. After being caught up in market turbulence as the virus spread across the world in the first quarter of 2020, shipping rates recovered substantially in the second half of 2020. As an billions faced unprecedented lockdowns, one common theme emerged – they still wanted to consume even if they could not venture out or splurge on services.

The resulting demand has proven a boon to the shipping industry, which had faced a torrid decade in the aftermath of the global financial crisis. Global trade peaked as a share of GDP in 2008 and has not recovered even as the world appeared to have put the worst impacts of the global financial crisis behind it before the pandemic and the industry was hampered by overinvestment on extremely large container ships that proved less adaptable to the new economic paradigms that emerged. Dozens of major businesses filed for bankruptcy, leading to industry-wide consolidation.

Some 85 percent of global container shipping is now controlled by three shipping alliances. Maersk and Mediterranean Shipping operate an alliance responsible for roughly one-third of container shipping. China Ocean Shipping Company, France’s CMA CGM and Taiwan’s Evergreen make up another alliance, responsible for nearly another third. The tie-up between Hapag-Lloyd and Ocean Network Express, Yang Min and Hyundai Merchant Marine controls another 20 percent.

If the promise of vaccines bears fruit, these firms stand to benefit further. Little new investment into container shipping has been made from outside these alliances as financing has proven hard to come by and the capacity glut caused by the long time-horizon of ship-construction has only begun to fade away.

Meanwhile the demand for shipping is likely to grow further as manufacturers seek to prioritise optionality, constructing multiple supply chains to hedge against the risk of further trade wars. While such a scenario should spell a return to boon times for the industry, the sector’s consolidation raises the spectre of renewed scrutiny.

In 2017, the US Department of Justice launched an antitrust probe into the global shipping industry. It quietly dropped the investigation in 2019, a result of political pressure and concerns that action could further strain the impact of trade tensions. While such a new probe is not likely until the pandemic is in the rear-view mirror, expect regulators in Washington and elsewhere to re-examine the industry’s competitiveness over the coming years.

Power play: spotlight on the Senate Parliamentarian

The post of US Senate Parliamentarian rarely garners significant attention. The officeholder’s role is to interpret the Senate’s own standing rules as well as its ethics and practices. Only six people have held the post since it was introduced in 1935. The incumbent, Eizabeth MacDonough, has held the post since 2012 when she replaced Alan Frumin, under whom she had previously served as senior assistant parliamentarian. The 50-50 divide between seats held by Republicans and those held by Democrats in the Senate, however, will see the role take on a significance not seen in the 20 years at least until the 2022 midterm elections.

MacDonough is not seen as party-political. Appointed by then-Senate Majority Leader Harry Reid, a Democrat, she was retained in the post by Mitch McConnell after Republicans took the Senate majority in 2014.

MacDonough may have successfully navigated the increasingly poisonous political environment in the Senate in recent years, but her largest challenges are still to come. Perhaps the parliamentarians’ most influential role relates to the interpretation of the so-called Byrd Rule, a longstanding Senate convention that allows certain bills to be approved by a simple majority rather than the 60-vote threshold required to overcome a single senator’s filibuster. Legislation is only eligible for passage under the simple majority if its primary impact is on government outlays, typically over the next ten years, rather than policy.

MacDonough faced a handful of rebukes from those on the Republican party’s right wing in recent years as they sought to repeal the Affordable Care Act through such a simple majority, which she ruled against. However, the ruling that most portends events in the coming Congress was the approval, then denial, of a motion brought by Republican Senator Josh Hawley last June. She initially ruled in favour of a move that he had brought requiring a Senate vote on withdrawing from the World Trade Organzation last June, although it rested on a technicality. Yet two weeks later she reversed her position, after the senior Republican and Democratic Senators on the Senate Finance Committee shared a new analysis of the move.

Hawley has since become a household name in the past month for his vocal endorsement of attempts to stop the certification of Joe Biden’s win in the November 2020 election. He has refused to apologise for his perceived role in fomenting unrest at the Capitol on 6 January, having welcomed the crowd as it gathered outside Congress. Hawley and his allies are likely to further seek to challenge the Senate’s established practices, and potentially seek to politicise the parliamentarian’s role. The fact Democrats lack a substantive majority, relying on incoming Vice President Kamala Harris, to serve as the tie-breaker will only heighten the importance of MacDonough’s interpretations of the Byrd rule and other Senate procedures.

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Return of the World Trade Organisation, Europe’s lithium litmus test and offshore national security

Policy Preview: Return of the World Trade Organisation (WTO)
US President-elect Joe Biden will seek to rebuild the global trade infrastructure that Donald Trump has sought to dismantle – starting with the World Trade Organisation. Not too long ago, the body was the core international trade institution, but the Trump Administration effectively neutered its ability to hear disputes by refusing to support the appointment of new judges to its appellate body. Three are required to hear disputes, but currently just one is in office. Just before the election, the White House also blocked the appointment of Ngozi Okonjo-Iweala, a former Nigerian finance minister and World Bank economist, as the WTO’s director general.

Expect the Biden Administration to back Okonjo-Iweala’s appointment within weeks of the 20 January 2021 inauguration. It will also begin negotiations with the bloc’s other member – including China – about the appointment of new appellate judges. This will not be straightforward – Democrats and Republicans alike have long voiced concern over the WTO court’s handling of dumping issues as well as the slow nature of the process. The Obama Administration also blocked new appointments to the court in the second term as a result.

Biden has made it clear that he does not envisage new trade agreements as a priority – and as discussed in the previous Hawthorn Horizons, Republicans may still deny him the opportunity to pursue such pacts if expedited trade authority is not renewed before its June 2021 expiration. However, the past four years have highlighted the fragility the Western-led international institutions built up over the last seventy years are, particularly when they are under threat from within the West itself.

Reforming the WTO is likely a non-starter, the same challenges with expedited trade authority would still apply and Beijing’s ability to exert leverage over the other 162 members regarding the terms of any new deal is far greater than when it joined the bloc in 2001. But the Biden Administration will act on his comments to support the ‘rules based international order,’ and strengthening the WTO will prove essential to this agenda.

Ironically, Trump’s own tariff actions may have given the Biden Administration the leverage to also secure appointments it considers more favourable. If the appellate courts are reinstated, even the most US-friendly arbitrators would likely eventually find that these tariffs violate WTO rules. But China and other countries are keener to have them lifted than the Biden Administration will be. Removing these tariffs in exchange for appointing friendly appellate judges, restoring the WTO’s dispute-resolution function, is a bargain that Biden’s team will see as making sense for all sides.

Dollars and sense: Europe’s lithium litmus test
The European Union has for nearly a decade operated a ‘critical raw materials strategy’ aimed at shoring up access to and developing sources of key commodities. It has long been seen as ineffectual and now faces arguably its greatest challenge yet, following the inclusion this year of lithium for the first time. The increase in secure supply needed is drastic, EU Commissioner Maros Sefcovic in September decaled that the bloc “would need up to 18 times more lithium by 2030 and up to 60 times more by 2050”.

Lithium is the key to the battery and energy storage industries, hence the expectation for a rampant increase in demand. However, it has not been found in commercially-viable quantities within the EU anywhere other than Portugal’s Barroso mountains. Two mining concessions have been granted, one to UK-listed Savannah Resources and to Portugal’s own Lusorecursos. Yet the project has faced significant resistance from local residents and various Portuguese NGOs. They have also sought to block still-in-development plans to build lithium refineries in the region, necessary to enable the metal’s use in batteries.

Portugal’s government has repeatedly stated that it intends to get the approval of the lithium mines finalised, and Prime Minister Antonio Costa has endorsed the EU’s agenda wholeheartedly. However, after Costa’s Socialists won the 2019 election, securing 106 of the lower house’s 230 seats, they did not continue the support pact they previously struck with the Communists and Left Bloc.. Instead, these two far-left groups provide the government with support on a bill-by-bill basis. It is also occasionally backed by the environmentalist PAN and Green parties, which hold another five seats combined. To continue the development of the country’s lithium prospects, Costa will not be able to rely on these allies, who all oppose lithium extraction. And while the main opposition centre-right Social Democrats (PSD) do support lithium extraction, the extent of this does not extend to a willingness to support Costa.

Costa’s government is already facing challenges – it passed its 2021 budget on 26 November only after the Communists agreed to abstain; all other parties voted against, even after Costa agreed a new environmental review process, including for lithium projects, earlier in the week. Yet there is little chance the left will seek to a new confidence vote over the next six months, given Portugal’s assumption of the EU presidency in January. Costa’s priorities will be enacting reforms to the bloc’s fiscal and economic union that have dominated the past year, and the left will be unwilling to give these up. The EU’s critical resource strategy may remain ineffective in and of itself, but the fortuitous timing of the rotating presidency will give it a much-needed boost. Expect Lisbon to finalise a new law sharing revenues with municipalities and for ground on key projects to be broken by the end of 2021.

Power play: offshore national security
The 11 November publication of the UK’s National Security and Investment Bill (NSIB) laid out the processes by which the government will review inbound foreign investment, and the requirements for UK firms in certain sectors to notify the state about proposed foreign takeovers. Its passage through parliament is all-but assured, and it is expected to become law early next year. The new powers it grants the government will almost entirely be invested in the Secretary of State for Business, Environment and Industrial Strategy (BEIS), currently Alok Sharma. Unlike the US’ Committee on Foreign Investment (CFIUS), which provides a recommendation to the president who then makes the final decision, the NSIB in its present form grants this power to the Secretary of State, not the prime minister.

But even before the introduction of the NSIB, the government signalled its intention to take a more proactive stance on such interventions. In December 2019 then-Secretary Andrea Leadsom announced a review of the Chinese-owned Gardner Aerospace Holding’s attempt to purchase aerospace components manufacturer Impcross. Leadsom also reviewed US private equity firm Advent’s purchase of another defence firm, Cobham, though it was relatively swiftly approved. Gardner on the other hand abandoned its takeover in September, in response to the government scrutiny.

In other words, the new process and requirements for foreign takeovers contained in the NSIB are its most significant components.

The legislation does require such interventions consider acquirer risk, but also for firms in sensitive industries to pre-emptively disclose potential takeovers. Furthermore, the structure of the takeover has to be considered by the Secretary of State in any review.

In the debate over the bill, Sharma noted that “those who seek to do us harm have found novel ways to bypass our current regime by either structuring a deal in such a manner that it is difficult to identify the ultimate owner of the investment, or by funnelling investment through a UK or ally investment fund”. There is a growing recognition of the importance of the structure of any takeover, not just in the UK. The legislation underlining the US’ 2021 defence budget, the National Defense Authorization Act (NDAA), is set to pass in the coming weeks and sources close to the process have said it too will include expanded reviews for the offshore control of companies seeking to invest in the US.

Once NSIB becomes law, Sharma’s approach will set the precedent for how the legislation is applied. A loyal supporter of Prime Minister Boris Johnson, his approach will not stray far from the government’s messaging, yet the NSIB does grant the power for Sharma to review changes in ownership even before majority control is established, as well as after the fact. The extent to which he applies these powers over offshore ownership may have a great influence over sectors far beyond defence.

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Batteries for Britain, deal with Japan hints at data plan and the keys to US trade agenda

Policy Preview: Batteries for Britain
Batteries are the new diesel, or so the proponents of electric vehicles would have us believe. Governments across the world – from Australia to China to Germany – appear to have embraced this mantra as well. Britain has attempted such a strategy for over three years now, with then-Business Secretary Greg Clark launching the £246m Faraday Challenge and QUANGO Faraday Institution in 2017.The government seeks the development of a domestic battery industry as part of its promised Brexit dividend. Among the many areas of dispute in the ongoing EU-UK trade negotiations talks are ‘rule of origin’ requirements around the battery industry and electric cars. Rules of origin often depend on the value of components, and EU and UK negotiators have apparently acknowledged the reality that neither has sufficient battery-producing capacity at present for the lion’s share of the value of electronic vehicles to be the result of production from either bloc. But leaked documents indicate that the rules would tighten from 2027, when only some 35 per cent of the value could originate outside the EU or UK to qualify for tariff-free trade between the two.

While neither the EU or UK has sufficient capacity at present, both are already in a race to ramp up such production, deal or no deal. Elon Musk’s Tesla has pledged to build batteries at its planned ‘Gigafactory’ in Brandenburg, outside Berlin, while in in May AMTE Power and British Volt signed a memorandum of understanding to build a roughly equivalent battery-producing factory in the UK. Yet no significant progress has followed the MoU, and the government has also faced criticism for failing to join up its policies, for example with the seemingly counterproductive move of raising VAT on home batteries from 5 to 20 percent this October.

The government may, however, have ideas in mind to jump start the sector related to another more prominent area of the Brexit negotiations, namely state aid. Brussels is reportedly willing to make concessions here if media reports are to be believed, in return for Britain’s reported concession that it will include its terms for such support in the final agreement. There is precedent from Brussels for allowing state aid in the sector, with the European Commission having approved last December a joint research effort by Belgium, Finland, France, Germany, Italy, Poland and Sweden, authorising them to spend €3.2bln in supporting such efforts. In 2021, expect a similar package from Westminster.

Dollars and Sense: Deal with Japan hints at Data Plan
On 22 October, Trade Secretary Liz Truss inked Britain’s first post-Brexit trade deal, flying to Tokyo for the occasion. Truss dubbed the deal historic and a sign of the benefits that will finally begin to flow from the years-long process of exiting the European Union. The new Japan-United Kingdom trade deal has unsurprisingly become a lightning rod of debate amongst erstwhile Remainers and Brexiteers, with significant debate over the extent to which it is different from the recent EU-Japan Trade Agreement to which Britain would have been party had it not left the bloc. Critics have noted that Britain has already signed agreements with some smaller Eastern European nations to continue trading under the free trade terms they secured from Brussels in years past, and that the minor differences Truss secured from Tokyo in relation to the EU deal will benefit Japanese manufacturers far more than it will benefit UK exporters.

But there is one key element of Truss’ deal that is noteworthy, even if it is perhaps while perhaps a small victory for now. Unlike the EU-Japan deal, British firms operating in Japan will not face data localisation requirements. Such rules are certainly a technical matter but, suffice to say, data is already a key commodity in modern economies, and is only set to grow more significant. In layman’s terms, British firms will be able to sell services, and software-as-a-service subscriptions, without the need to invest in expensive local servers and related staffing and infrastructure in Japan. If this technical detail of the UK-Japan trade deal can be repeated in others, it could set Britain on a path to become a larger tech and startup powerhouse.

Such data localisation rules require other foreign firms to store data locally in Japan. Japan is not the only country to have instituted such requirements. Russia prominently introduced extremely stringent rules on data localisation in 2016, and the global protectionist wave – combined with the realisation of how valuable data has become – means more countries are likely to implement them in the coming years. Brazil has recently advanced legislation imposing such requirements. Yet while Truss’ talk of the deal promoting a ‘Singapore-on-Tyne’ in relation to the video game industry is primarily aimed at garnering positive headlines from friendly media and the concession may not be enough to significantly impact GDP projections, it sets a significant precedent for other talks. If Britain secures similar provisions in other future trade deals, it will secure a key advantage in the data industry and make it a more attractive hub for tech start-ups.

Power Play: The Keys to US Trade Agenda
Markets have welcomed the simultaneous election of Joe Biden as the next President the United States and Republicans’ apparent continued hold on the Senate, where they hold 50 seats. Divided government makes it highly unlikely Democrats will be able to reverse the Trump tax cuts, but the partisan split throws up other challenges. Among the most immediate of these is whether Congress will renew the Trade Promotion Authority (TPA) that allows president to negotiate trade deals and for Congress to review them in a straight yes-or-no vote, without amendments. The current authority expires 1 July 2021.

Also known as fast-track trade, the authority requires the President to present a new trade deal to Congress 30 days before it votes on the pact. For Britain, which has seen a bilateral trade deal with Washington as key to its post-Brexit economic regime, that leaves a realistic deadline of 1 June – just 132 days into the Biden Administration to negotiate such a pact without an extension of the TPA. Such a tight deadline is highly unlikely to be met. Although talks with the outgoing Trump Administration formally began this May, the Biden Administration will have different demands – and Biden has said he does not envisage seeking trade deals in his first year in office.

The TPA was last re-authorised in 2015, albeit narrowly in the House, where Democrats initially refused to co-sponsor relevant legislation. Ultimately the move had to be included as part of a bill addressing issues with pensions for federal law enforcement and firefighters – an issue neither party was keen to obstruct. It also preceded the rise of Donald Trump and his challenges to free trade orthodoxy.

Whether the TPA is renewed could come down to the fight for the final two Senate seats, both in Georgia, to be determined in a runoff election to be held on 5 January. Incumbent Republican Senator David Perdue supported the 2015 extension and has expressed some, muted, support for renewed trade deals during the latest campaign. However, the other Republican candidate, Kelly Loeffler, has taken a more Trumpian approach, though this was likely motivated by her need to see off a challenge from her right. Democratic opponents Jon Ossoff and Raphael Warnock, respectively, have little public track record on where they stand on the matter – highlighting just how absent discussion of trade has been in the US election thus far.

Victory for either Perdue or Loeffler would allow Mitch McConnell to retain the bully pulpit of the chamber’s chair. Trade is among the few areas on which he was occasionally willing to rebuke the Trump Administration and the previous TPA one of the few areas he was willing to work with the Obama administration. His stance on the TPA and trade negotiation with Britain will shape the direction of the Republican party on trade for at least the next four years.

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