Cognitive dissonance, the ability of have inconsistent beliefs, seems to go with the job of running a major US financial institution.
As you read this, the CEOs of most major American banks[1], will gather in Hong Kong to attend a conference entitled “Navigating Beyond Uncertainty”, a meeting Xi Jinping need not attend since he eliminated any uncertainty about his personal future at the just-concluded party conference. The Americans will be guests of John Lee, a former police officer installed by Beijing as the city’s chief executive to wipe out democracy in the rebellious city, which he has succeeded in doing.
“Money is starting to flow out of Hong Kong …” reports NIKKEI Asia, as are talented foreign financial-sector workers. With Singapore aiming to wrest the role of leading financial center from Hong Kong, Xi needs America’s bankers to signal that it is safe and respectable to do business in his no-longer independent city.
Xi Jinping can only be pleased at the eagerness of bankers whom Lenin, were he still with us, might call “useful idiots” to come to the aid of a regime that has failed to reach its growth targets, has a housing sector so troubled that the banking sector that supports it is on red alert, a currency trading at a 14-year low against the dollar, a slumping export sector, and like Lenin’s own plan, the goal of bringing down the American system.
Xi has seen the market value of China’s industries collapse, their cost of capital soar after he used the recent gathering of some 2,300 comrades to replace respected policymakers with loyal cronies. He has destroyed China’s entrepreneurial class as part of his “common prosperity” campaign to reduce economic inequality and, no accident, increase political inequality. Many of China’s leading wealth creators, especially in the tech sector, have been forced to step down from the companies they created lest they become a force to rival the state. Many have moved to the US, almost all are planning to send their children to the US or UK for their educations and their capital for safety, a number are serving long prison sentences.
China is also beset by grumbling from the allies it thought it bought with its “Belt and Road” investments. They are squealing as variable interest rates on their dollar-denominated loans soar, and are groaning as China is set to take over key parts of its debtors’ infrastructures.
Xi, who has doubled the budget of the People’s Liberation Army, is determined to continue to strengthen and modernize a military already larger than America’s, and says unification with Taiwan “must” and “can without doubt be realized”. Which is one reason America’s new National Security Strategy declares Communist China the most dangerous opponent of America’s capitalist system. President Biden has begun denying China access to America’s sophisticated semiconductors and chipmaking machinery.
The heads of America’s financial institutions know all of this. But they act as if they have no role to play in supporting the administration to cope with threats to national security. They are mere private-sector executives, charged only with the responsibility of maximizing the profits of the institutions they manage. But not always.
When it comes to diluting attention to profits in order to play the role of responsible, respected members of the community, they leap front and center. Before leaving for Hong Kong, America’s financial titans undoubtedly made certain that their teams continue to tread the path of righteousness by strictly adhering to the Environmental, Social and (corporate) Governance (ESG) goals they have adopted, goals that many investors claim clash with the fiduciary responsibility to maximize profits within the rules set by society.
This willingness to take on what might be called extra-curricular activities, outside of the range of issues normally considered to be governmental rather than private-sector responsibilities, contrasts sharply with the unwillingness to consider national security considerations when profits from the China trade beckon.
The attraction of ESG, in addition to bragging rights at the 19th hole of the country club, is that its effect on executive performance cannot be measured. Independent agencies that generally agree on corporate credit ratings, produce wildly varying scores of any company’s ESG rating, making these ratings of little help to investors seeking to separate profit-maximizing CEOs from those choosing the easier life of a highly paid social worker hiding behind a reputation for good deeds.
Leftish billionaire George Soros complains that in the interests of ESG, BlackRock, which manages $10 trillion in assets, including major holdings in Exxon, is pressuring the company to cut output to reduce emissions, but puts no such pressure on the Chinese oil companies that are also represented in its portfolio. Reduce the availability of oil to America, but not to China might be fine for your ESG score, but it doesn’t do much to support America’s national security policy.
It might be that cognitive dissonance is not an apt description of CEO mindsets. Perhaps Walt Whitman had a better description, “Do I contradict myself? Very well then, I contradict myself. I am large. I contain multitudes.”
[1] Blackstone President Jonathan Gray and Citigroup CEO Jane Fraser pulled out when they came down with Covid, not a disease to be caught with in China.