Wednesday, August 5, 2015

Henry Paulson's Book “Dealing with China”

Henry Paulson, Jr. has a new book titled “Dealing with China”. Is this a practical treatise on working with China?

Seventeen of the book’s twenty chapters are detailed descriptions of Mr. Paulson’s own personal history while working with Goldman Sachs, as US Treasury Secretary and with the Paulson Institute. It is an interesting personal story. However, the autobiographical review is not truly helpful for dealings with China.

A Wall Street Journal book review by Jeffrey Wasserstrom is quite accurate:
“…careful language that will not bother Chinese censors…Mr. Paulson is too soft on his “old friends,” including the man now in power, Xi Jinping.”

The Financial Times review by James Kynge is on target as well:
“…Paulson’s prescriptions all tend toward forging better relations with China by supporting what China wants…may win friends in Beijing but will be less popular among U.S. allies…such as Japan...the lessons…are…academic.”

These reactions are entirely understandable, leaving the reader to wonder what is clouding Mr. Paulson's vision. His assessment of China consistently glosses over reality. While addressing the needs of the Chinese people, Mr. Paulson curiously concludes: “…they have made good on their vows.” Throughout this book, Paulson is clearly advocating on China's behalf. He encourages a greater role for China internationally, including with the World Trade Organization. Paulson suggests: “We should… make concessions… to encourage China to take a more prominent role.”

In a Fox News’ interview with James Rosen discussing his book Mr. Paulson offered: “I would definitely not classify China as an enemy…they are a competitor.”

The FBI report in Matt Dean’s recent Fox News’ article raises doubt that China is simply a competitor: “China the most predominant economic espionage threat to US…the number of economic espionage investigations undertaken by the agency over the last year…a 53 percent increase…state-sanctioned corporate theft by China is at the core of the problem.”

Are China’s strategic ambitions hostile? Jingoistic?  Its territorial claims as reported by the BBC’s Carrie Gracie and in the Financial Times book review have raised concerns in Taiwan and Japan.

Mr. Paulson is a successful and serious man. He is certainly not na├»ve. But his glowing praise of China’s economic and social progress, including suggesting a leading international role, raises sincere questions about his impartiality. This book was unfortunately a disappointment for those seeking constructive analytical insight.

Tuesday, July 7, 2015

What will the world look like in a decade?

Stratfor has 11 chilling predictions for what the world will look like a decade from now” by Armin Rosen, Business Insider, June 16, 2015

The private intelligence firm Strategic Forecasting, or Stratfor, recently published its Decade Forecast in which it projects the next 10 years of global political and economic developments.

In many ways, Stratfor thinks the world of 10 years from now will be more dangerous place, with US power waning and other prominent countries experiencing a period of chaos and decline.

Russia will collapse...

"There will not be an uprising against Moscow, but Moscow's withering ability to support and control the Russian Federation will leave a vacuum," Stratfor warns. "What will exist in this vacuum will be the individual fragments of the Russian Federation."

Sanctions, declining oil prices, a plunging ruble, rising military expenses, and increasing internal discord will weaken the hold of Russia's central government over the world's largest country. Russia will not officially split into multiple countries, but Moscow's power may loosen to the point that Russia will effectively become a string of semi-autonomous regions that might not even get along with one another.

"We expect Moscow's authority to weaken substantially, leading to the formal and informal fragmentation of Russia" the report states, adding, "It is unlikely that the Russian Federation will survive in its current form."

...and the US will have to use its military to secure the country's nukes.

A deactivated Soviet-era SS-4 medium-range nuclear-capable ballistic missile.
Russia's nuclear-weapons infrastructure is spread across a vast geographic area. If the political disintegration Stratfor predicts ever happens, it means that weapons, uranium stocks, and delivery systems could end up exposed in what will suddenly become the world's most dangerous power vacuum.

The breakout of Russia's nuclear weapons stockpile will be "the greatest crisis of the next decade," according to Stratfor.

And the US will have to figure out what to do about it, even if it means dispatching ground troops to secure loose weapons, materials, and delivery systems.

"Washington is the only power able to address the issue, but it will not be able to seize control of the vast numbers of sites militarily and guarantee that no missile is fired in the process," the Decade Forecast states. "The United States will either have to invent a military solution that is difficult to conceive of now, accept the threat of rogue launches, or try to create a stable and economically viable government in the regions involved to neutralize the missiles over time."

Germany is going to have problems...

Germany has an export-dependent economy that has richly benefitted from the continent-wide trade liberalization ushered in by the European Union and the euro, but that just means the country has the most to lose from a worsening euro crisis and a resulting wave of euroskepticism.

The country's domestic consumption can't make up for this dip in Germany's export economy or for a projected decline in population. The result is Japan-style stagnation.  
"We expect Germany to suffer severe economic reversals in the next decade," the Decade Forecast says.

...and Poland will be one of Europe's leaders.

Look a little to Germany's east, and things won't be quite so bad. "At the center of economic growth and increasing political influence will be Poland," the report says.
Poland's population won't decline as much as those of the other major European economies. The fact that it's the largest and most prosperous European state on Russia's western border will also thrust it into a position of regional leadership that the country could leverage into greater political and economic prestige.

And it only helps to have the kind of close, longstanding strategic partnership with the US that Poland enjoys.

There will be four Europes.

It wasn't long ago that European unity seemed like an unstoppable historical force, with political and economic barriers between countries dissolving and regionalism and nationalism disappearing from the continent's politics.

In 10 years, that may all seem like a distant memory. The Decade Forecast talks about four Europes that will becoming increasingly estranged from one another: Western Europe, Eastern Europe, Scandinavia, and the British islands. They will still have to share the same neighborhood, but they won't be as closely connected as they were before.

"The European Union might survive in some sense, but European economic, political, and military relations will be governed primarily by bilateral or limited multilateral relationships that will be small in scope and not binding," the report says. "Some states might maintain a residual membership in a highly modified European Union, but this will not define Europe."

Turkey and the US will have to be close allies but for an unexpected reason.

Several Arab countries are in a state of free fall, and the Decade Forecast doesn't see the chaos ending anytime soon. The major beneficiary from all of this will be Turkey, a strong, relatively stable country whose borders stretch from the Black Sea all the way down to Syria and Iraq.

Turkey will be reluctant to intervene in conflicts on its borders but will inevitably have to, according to the forecast. As Ankara's strength and assertiveness increases relative to its neighbors, the country will become an indispensable US partner.

But Turkey will want something in return: a line of defense against a certain powerful and aggression-minded country on the other side of the Black Sea that has military bases in neighboring Armenia. Turkey will want the help of the US in keeping Moscow out of its backyard.

"Turkey will continue to need US involvement for political and military reasons," the report says. "The United States will oblige, but there will be a price: participation in the containment of Russia. The United States does not expect Turkey to assume a war-fighting role and does not intend one for itself. It does, however, want a degree of cooperation in managing the Black Sea."

China will face one huge problem.

China may have a rough decade ahead as economic growth slows, leading to widespread discontent toward the ruling Communist Party. But the party will not liberalize, which means its only viable option for controlling the gathering chaos while remaining in power will be to increase internal oppression.

Beijing also faces another, perhaps even bigger problem: China's growth hasn't been geographically distributed very evenly. Coastal cities are thriving, but China's interior has less access to international markets and is comparatively much poorer. That problem will only get worse as China continues to urbanize.

"The expectation that the interior — beyond parts of the more urbanized Yangtze River Delta — will grow as rapidly as the coast is being dashed," the report says. And the growing rift between China's coast and its interior could presage even deeper, more ominous splits.

As the report notes, regional fissures have been a persistent driver of political chaos throughout China's history, and there is an unlikely but "still conceivable outcome in which political interests along the coast rebel against Beijing's policy of transferring wealth to the interior to contain political unrest."

Japan will be Asia's rising naval power.

Japan has a maritime tradition going back centuries, and as an island nation it is pretty dependent on imports. China is building a state-of-the-art navy of its own, and it may become even more aggressive in controlling shipping routes in the East China Sea, South China Sea, and Indian Ocean that Japan depends upon.

Japan will have no option but to project power into the region to counter China and protect its supply routes. With US power waning, it will have to do this on its own.
"Right now [Japan] depends on the United States to guarantee access," the forecast states. "But given that we are forecasting more cautious US involvement in foreign ventures and that the United States is not dependent on imports, the reliability of the United States is in question. Therefore, the Japanese will increase their naval power in the coming years."
The South China Sea islands won't start a war — but there's a catch.

Asia Maritime Transparency Initiative

The regional powers will decide that South China Sea island disputes aren't worth a major military escalation, but they will still be a symptom of a hazardous power dynamic. 

"Fighting over the minor islands producing low-cost and unprofitable energy will not be the primary issue in the region," the report predicts. "Rather, an old three-player game will emerge. Russia, the declining power, will increasingly lose the ability to protect its maritime interests. The Chinese and the Japanese will both be interested in acquiring these and in preventing each other from having them."

Dangerous great-power dynamics are returning to East Asia, even if it may not result in armed conflict in the South China and East China seas.

There will be 16 mini-Chinas.

China's economy will slow down, and growth in its production capacity will flatline. That's actually good news for a handful of countries. The entry-level manufacturing jobs that China used to gobble up will migrate to 16 emerging economies with a combined population of 1.15 billion.

So while China's growth will stall, leading to unforeseeable political and economic consequences, Mexico, Nicaragua, the Dominican Republic, Peru, Ethiopia, Uganda, Kenya, Tanzania, Bangladesh, Myanmar, Sri Lanka, Laos, Vietnam, Cambodia, the Philippines, and Indonesia could see improving economic fortunes over the next decade as more manufacturing jobs arrive.

US power will decline.

With the world becoming an even more disorderly and unpredictable place over the next 10 years, the US will respond by being increasingly judicious about how it picks its challenges rather than taking an active leadership role in solving the world's problems. 
A growing economy, surging domestic energy production, declining exports, and the safety of being in the most stable corner of the world will give the US the luxury of being able to insulate itself against the world's crises. While this more restrained US role in global affairs will make the world an even less predictable place, it's a reality that other countries will just have to deal with. 

"The United States will continue to be the major economic, political, and military power in the world but will be less engaged than in the past," the forecast says. "It will be a disorderly world, with a changing of the guard in many regions. The one constant will be the continued and maturing power of the United States — a power that will be much less visible and that will be utilized far less in the next decade." 

Wednesday, May 6, 2015

My Leadership Excellence magazine article “Seven lessons from a turnaround CEO”

Leadership Excellence magazine published my article: "Mastering Leadership - Seven lessons from a turnaround CEO"

By Robert F. Amter

There are many theories about what it takes to be an effective Chief Executive Officer.  Most are based on observation and research.  They lack the hands-on, in the trenches experience of what it really takes to lead a company – especially one that is experiencing bad times.

When I enter a company that is severely distressed and losing money I find that the previous CEO whom is usually a decent, hard working executive, has failed because he or she simply did not know how to be a leader.

Having worked 22 years as a turnaround CEO, I’ve learned seven key practices that have worked for me in restructuring distressed companies.

1. Understand the True Meaning of CEO

Naturally born leaders are very rare.  It takes hard work to learn how to lead effectively.  You must be a serious, passionate, and accessible student, to develop into a capable CEO.
Focusing on the true definition of the Chief Executive Officer is central to illustrating the basis for sound leadership.  Common dictionary descriptions may be simplistic, but they accurately define the position:

Chief: The person with the most authority, who ultimately controls or commands all the others.

Executive:  A person having administrative or supervisory authority in an organization with the power to put plans into effect. To execute.

Officer:  One who holds an office of trust, authority, or command.

Yes, the Chief is the highest in rank; however, the ability to execute is key. Anyone can write a plan, but few can execute it - implement it. Having a team carry out a focused plan is vital.  To guide all to remain disciplined in the executing a strategy can be difficult.  Providing clear-cut direction only grows more problematic, while facing competing forces, considerable distractions, and intense challenges.

The word Officer is also significant. A person appointed to this elevated position is held in trust with genuine fiduciary accountability. They are entrusted with the management of the property, with the power to act on behalf of the owners. Fiduciary is a solemn responsibility – take it seriously.

2. Learn To Whisper 

A CEO’s primary focus is people.  A CEO gets the job done by working through others.  People greatly appreciate a CEO who can command authority without condescension.  Moreover, there is no room for hubris.

Some leaders believe a tormenting style can motivate, but the mistreatment of people eventually leads to loss for all.  At no time should a CEO bully employees.  If an officer yells at an employee, the news will spread and reduce the CEO’s effectiveness.  Even high-ranking officers, will become timid, wary, fearful, and suspicious.  Many will wonder if they will be next to receive ugly treatment.  Trust is lost, eroding confidence and efficiency.

When I joined General Electric, this training precept was passed on to me:  “When you become a CEO remember that people are your most important resource.  Successful leaders motivate.  They do not intimidate.  They whisper to get results and remain calm.  They are viewed as having high integrity and being distinctly competent.  Leadership is learned.  Respect is earned.”

3. Interact With Employees at All Levels

Whether newly appointed or a 10-year veteran, a CEO only knows 10 percent of what is actually going on in the company – particularly the key issues and problems.  To be successful, CEOs must submerge themselves into all levels to learn the status of the company’s vital issues – to get the facts. 

Effective Chief Executive Officers are not office bound, nor isolated from employees. They are seen walking the halls, the floors of the manufacturing plants and distribution facilities.  People are curious about you.  I’ve had employees touch me and remark in an excited voice “I’ve never touched a CEO”. That’s a humbling experience.  Remember how much influence you can have on people.

When walking around, be approachable.  Today, many company dress codes are business casual. If there is a formal dress code, do not wear a suit coat – be more informal. Interact with people. Stop to answer questions and ask what the employee is working on. Do not be aloof. You are the ultimate boss and people will be nervous around you. Display a likeable personality, a sense of humor – don’t be judged a stiff. Do not answer requests for improvements in work rules, bonuses or wages by saying “I’ll check and get back to you.” Be decisive and say no – if the ultimate answer is no – but explain why the answer is no.

4. Demand Excellence

It is perfectly acceptable for a CEO to demand excellent performance.  Expectations for above average results can motivate a team.  Intense encouragement for quality will inspire all to work harder. 

This winning style can grow capabilities.  People will stretch and can reach higher performance. Success foments self-confidence.  It builds a gung ho team – the enthusiastic and dedicated attitude of working together.

Always use a constructive tone.  Never intimidate anyone with bullying.  Again, instead of raising your voice, remember to whisper in a productive manner.

5. Consider Failure

Managers often require that rigorous, in-depth and detailed analyses be completed prior to implementing priorities, initiatives and capital investments. Management wants to know what positive incremental profitability and free cash flow will result from executing the project or making an acquisition.  But the analysis should also analyze the impact on the company if the initiative fails. What will the effect of the capital expenditure be on the capital structure and the cash flow?  If it’s a new product introduction, what will the reaction be in the channel segment, with customers and competitors?  If an acquisition, are we ready to handle integrating the new operation into existing operations?  Does management have the time for an acquisition, or will they be overwhelmed with other priorities?  What are the short and long-term consequences on the businesses that may result by an overwhelmed management? 

Once a management team decides on its priorities, a project tends to get a life of its own, to not be killed once work has started on it.  Still you need to periodically judge its viability. 

6. Foster Communication

Well-run companies have candid cross-functional communication.  It is essential for the new CEO to maintain open exchanges of information.  Meetings should include everyone involved with the initiative, issue, or problem including those from the third and fourth tiers of the company.  For example, do not invite only the VP of sales and his team, while investigating a problem with sales.  Include marketing, manufacturing, supply chain, product and accounting in the meeting, since each of these functions affect sales.

Cross-functional communication is almost always lacking in distressed companies, because it takes the direction, energy, and patience of management to maintain it. Silo management with top-down decision making is easier but always results in a failing business.  Mistakes are easily hidden and multiply when information isn’t shared.  When internal functions do not discuss vital issues, a business becomes uncoordinated and produces negative surprises.

I encourage leaders to meet face-to-face.  Avoid depending on email, telephones or video conferencing. Judging performance and initiatives is best evaluated first hand, in the same room with the people orchestrating the endeavor.  Seeing body language, facial expressions, and sensing a person’s passion, provides signals often missed when using various technologies.

7. Empower The Team

Ownership of the strategic plan to fix or run a company must be held by the people on all the levels who contribute to creating the plan and are crucial to its being implemented.  It cannot be only the CEO’s action plan.  It will never get implemented.  Do not legislate the strategies and tactics.  Do not dominate the process.  Persuade your subordinates and remember to listen to their input.

While it’s important to have consensus and ownership of decisions by the officers and managers, in the end the CEO is the final decision maker.  Don’t abdicate the role or decide based on since we all agree.  If, as CEO you do not agree, don’t approve a group decision.  You may decide on an alternative solution and not implement the consensus solution. 

As the CEO, you have fiduciary responsibilities.  Take them seriously.

Being a CEO is a position of great power, but not an easy one.  If you follow the steps, you and the company you lead will thrive.

Wednesday, March 18, 2015

Is China Headed for a Breakup Just Like The Soviet Union’s?

The Wall Street Journal article “The Coming Chinese Crackup” by Dr. David Shambaugh, a leading expert on China, forecasts that China may be heading towards the same political breakup the Soviet Union experienced in 1991 under Mikhail Gorbachev.

“China-watchers have been on high alert for telltale signs of regime decay and decline ever since the regime’s near-death experience in Tiananmen Square in 1989. Since then, several seasoned Sinologists have risked their professional reputations by asserting that the collapse of CCP (Chinese Communist Party) rule was inevitable.”

Dr. Shambaugh suggests:

“Consider five telling indications of the regime’s vulnerability and the party’s systemic weaknesses.”:

1. Many of the richest and most powerful citizens are making plans to leave China permanently. Some have already left the country. A large number have already transferred their wealth to safe havens.

2. Since becoming China’s leader, Mr. Xi Jinping, has arbitrarily increased political repression. The crackdown is severe compared to the tactics of prior leaders. One signal that he is not popular are reports that he recently changed his security detail.

3. A number of CCP’s leaders have signaled that they are not happy.

4. The extensive corruption continues which is corroding support for the CCP and Mr. Xi’s policies and actions.

“Moreover, Mr. Xi’s campaign is turning out to be at least as much a selective purge as an antigraft campaign. Many of its targets to date have been political clients and allies of former Chinese leader Jiang Zemin.”

5. The economy is not an unstoppable and powerful force. There are problems which are not easily fixed. “…economy that has slowed to its lowest pace in two decades.” My question: Will China experience the economic malaise Japan experienced?

Dr. Shambaugh’s conclusion:

“These five increasingly evident cracks in the regime’s control can be fixed only through political reform. Until and unless China relaxes its draconian political controls, it will never become an innovative society and a “knowledge economy”— a main goal of the Third Plenum reforms. The political system has become the primary impediment to China’s needed social and economic reforms. If Mr. Xi and party leaders don’t relax their grip, they may be summoning precisely the fate they hope to avoid.“

Based on my experiences managing a business in China, I see Dr. Shambaugh’s treatise as reasonable. I suggest adding the following intractable problems to the Sinologist’s lists of telltale signs of that may result in decay and decline:

  • Servicing the massive debt China has incurred to support economic growth.

  • Its hazardous environmental conditions.

  • A number of its manufacturing operations are inefficient with knowledge, processes and productivity comparable to the USA in the 1970s.

Dr. Shambaugh is a professor of international affairs and the director of the China Policy Program at George Washington University and a nonresident senior fellow at the Brookings Institution. His books include “China’s Communist Party: Atrophy and Adaptation” and, most recently, “China Goes Global: The Partial Power.”

Follow-up articles:

BBC May 10, 2015 “China Cuts Interest Rates to 5.1%” – to stimulate economic growth

Reuters’ April 15, 2015 “China growth slowest in six years, more stimulus expected soon”