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Perma-paign: The Brave New World where Perception is Substance

This week in Alrroya Aleqtissadiya, the United Arab Emirates (UAE) business and financial daily, using a metaphor borrowed from politics, I point out that the competitive nature of today's capital markets requires that CEOs should always be in risk capital-pricing mode, conscious of the fact that investors are watching their every move and statement even when they are not in strategic transaction or capital raising mode.

In 1976, Patrick Caddell, a young political adviser to incoming President Jimmy Carter, articulated the implications of a doctrine that would become known as the term ‘permanent campaign.’ Under the title, ‘Initial Working Paper on Political Strategy,’ Caddell suggested that:

Too many good people have been defeated because they tried to substitute substance for style; they forgot to give the public the kind of visible signals that it needs to understand what is happening. . . Essentially, it is my thesis that governing with public approval requires a continuing political campaign.

In effect, Caddell argued that a campaign state of mind for public office holders ought to be a permanent condition and politicians who deviate from this awareness do so at their own peril.

The Position-Posturing (P-P) dichotomy has existed for so long it almost enjoys the status of scientific fact. Positions are the serious stuff like policy- and law-making while posturing is the soft stuff like campaign speeches, sound bites and photogenic opportunities which travel so well in an age of 24-7-365 media coverage. Pundits maintain this cynical divide in their analysis, all the time bemoaning the creeping domination of posturing over position in the last three decades. From the day they are elected to office, politicians become hostages to their re-election campaign in future.

This state of being captive to appearances and consent is well noted by William Safire, the late man of letters, in Bending the Curve, one of his last essays for his On Language column in the New York Times. Safire uses the pseudo-scientific jargon ‘optics’ to describe this condition. He observed that:

“Optics” [drives] politicians to ensure that their policy positions are stated in a way that’s “optically acceptable” to their constituents.

His identification of the consensus principle gives the false impression that being beholden to the latest polls on voter sentiment is a secondary issue which politicians treat as a necessary distraction. In other words, it assumes that politicians can do something about it and exclaim ‘damn! To hell with the optics.’

In spite of the attraction of the P-P divide, there is evidence to show that it has lost a huge part of its relevance. It would be wide off the mark to confuse optics with cheap publicity or crass PR visibility. Optics have become an integral part of ‘doing real business’ because of its influence on the way voters make decisions. There can be no real business, as it were, without obeisance to optics. Furthermore, the coherent blending of perception and substance is not limited to politics. It has extended to the economy, that other sphere of human activity, especially in capital markets.

Intelligent CEOs know that the competition for capital is a constant and fierce one. Consciousness of this reality is not limited to their obsession with internal rates of return and net present values for various projects. Executives must take into account the reaction of their capital market stakeholders to every significant event instigated by them or which affects their company and sector.

This includes financial results, senior appointments, mergers, acquisitions, spinoffs, corporate actions, strategic partnerships and investment programs. So just as much as these corporate actors affect the market, the markets determine their actions as well. This reflexivity is best seen in the tendency of many company executives to focus on the next quarterly results rather than five years out and of investors to pore over company-related information from stock prices to governance codes to CSR policies.

The executives’ obsession with making next quarter’s numbers is a real limit on their flexibility to pursue initiatives they would like to but which place a lien on their shorter-term profitability. This is the permanent campaign of the capital markets.

From the day a company raises debt or sells equity to the public, it is always mindful that it will need to roll over that debt and sell more shares in future. In addition, it knows that it will require the support of bondholders for certain initiatives like restructuring and shareholders for others. Likewise, credit and equity analysts, governance experts, CSR campaigners, environmental and gender activists, employee unions, and regulators must also be kept sweet. As a result, companies must always be considering the reactions of these groups to most major decisions which might have an impact on its future cash generating potential. Balancing the interests of these groups and being seen to do so is not a distraction for the company. It is central to its success.

The most tangible example of this reality can be seen in BP’s Gulf of Mexico oil rig catastrophe. The public actions and statements of Tony Hayward, the BP CEO, are as important to its ability to raise capital now as its success in plugging the damaged well. Public reaction to his recent statement that ‘I want my life back’ when the demands of managing the crisis seemed to overwhelm him, was just as feverish as if BP had announced a new explosion on another rig. In today’s world, not just public officials, but public company executives must always be en garde. Permanent campaigning has become the main business.

The original article may be read here on the Alrroya Aleqtissadiya website.

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