January 22, 2015, by Tony Hong

Are there lessons from Business for the CCP?

By Joseph Healy,

MA student in Contemporary Chinese Studies, UNNC

One of the intriguing leadership and management challenges anywhere in the world in 2015 is how the Chinese Communist Party (CCP) manages the socioeconomic transition within China.

It’s hard to think of a precedent in politics or business to equate to the scale of the change management challenges that the CCP leadership is navigating. The risks are many and the consequences huge. In many ways, a strategic and risk management case study, with huge implications for China and the World. David Shambaugh’s excellent book ‘China’s Communist Party: Atrophy and Adaption’ (2009) captures the complexity of the management dilemma and whilst providing an extensive menu of possible outcomes, it doesn’t provide the ‘cut-through’ that a well-managed business would have.

There is a credible argument that the CCP leadership needs as much business management competencies as it needs political know-how and, in particular, risk management is a critical competence.

How to frame the risk management challenges facing the CCP reminds me of Nicholas Taleb’s (2010) insightful book on the impact of “Black Swan” events. Taleb defines “Black Swan” events as having three characteristics: (i) low probability of happening; (ii) huge impact when they occur; and (iii) ex-poste, obvious that such events would occur.

I believe “Black Swan” thinking is one of the most powerful frameworks for considering risk management in politics, business and personal life. All leaders (and individuals) should ask, ‘what is our/my Black Swan event?’ and then formulate a plan to manage that event(s). The global financial crisis was a classic ‘Black Swan’ event as was ‘9/11’ and the collapse of the USSR. Few saw these events occurring, when they did, the impact was huge and after the event, in the cold light of day, few were surprised that these events occurred; they were obvious!

Back to the change management challenges facing the CCP and the lessons from business.

Many Western commentators argue that the CCP model of governance has lost its ideological foundation, lacks viability and is ultimately doomed. In the business world, it was fashionable not so long ago to claim that conglomerate business models where doomed to fail as the lacked ‘core competencies’ or a distinctive competitive advantage, yet conglomerate firms like General Electric (GE), founded in 1892, have prospered. True, such firms are an exception, but perhaps so too is the CCP governance model, with its distinctive “Chinese characteristics”.

Kerry Brown in his book ‘The New Emperors’ (2014) describes the CCP as “operating like ruthlessly successful multi-national” (MNC) with GDP as a focus (proxy for profit in my business analogy), but facing a world in which its values and sustainability are under threat from new challenges.

In business, the MNC would look to competitor threats, to increased globalisation, the impact of new technology on its operating model, with the intranet allowing customer to by-pass traditional channels, to changes in consumer preferences and other social-economic changes moving at an unprecedented pace. On top of all this, reconciling often conflicting stakeholder expectations on the primary purpose of the firm.

Business today know that making a profit or maximising shareholder value, whilst necessary conditions of survival, may not be sufficient to pass societies test of success. Society demands that MNC’s in particular have a clear commitment to corporate social responsibility and understand the need to satisfy all stakeholders.

So it is with the CCP and its need to look beyond GDP growth to important qualitative measures of economic and societal development. Not easy and arguably the biggest leadership and management challenge in the history of business and government, but a challenge where the CCP might find some helpful insights from business. A risk management strategy based on “Black Swan” analysis may well provide important insights to guide strategy.

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