Ladies and Gentlemen,
Welcome to Lloyd’s. When this building was completed in 1986, the architecture was called high tech, but if you had come inside, what you would have found is that the offices contained no internet, no emails and no world wide web. The risks coming into the underwriting room originated largely from the western side of the Berlin wall, as cold war politics sealed off opportunities from large sections of the world.
In the short time span since the construction of this building, our political, technological and trading systems have fundamentally changed. Business has been quick to take advantage of the new opportunities to sell goods and services all over the world. And since the construction of this building in 1986, there has been a sevenfold increase in imports and exports . This rise in global trade has famously lifted over 500 million Chinese out of poverty, although it is still the more developed economies which have actually benefited the most.
In the 1990s, and for the early part of this century, it really did seem to be a case of the triumph of the West. Then, all of a sudden, one day early in the autumn of 2008, Lehman Brothers’ collapsed, and across the West, bankers who had for years been lionised as great generators of wealth were quickly rebranded as the pariahs of the global economy, as their organisations went to the taxpayer cap in hand. In the public view, it seemed as though the bill for a decade long party had finally arrived, and the taxpayer was being asked to pick it up.
Lots of column inches have analysed what went wrong. But one phrase, I think, sticks in the mind above all: systemic risk. The barriers which had been lifted to allow goods, capital and people to travel freely from country to country had also created a free conduit for risk to travel the same path.
So the purpose of this conference, and of the report which we are launching today, is to look more closely at global systemic risk. We are now all very familiar with risks associated with the movement of capital, or debt. But this is not the only potential systemic risk for businesses. From pandemics, to supply chain failures, globalisation means that businesses are exposed to events which happen far away from their head offices in London or in New York.
Distance is no longer nature’s insurance policy which insulates you from the disasters and tragedies happening on the other side of the world. When the Icelandic volcano last erupted in 1821, it poisoned a few cattle who were grazing on its slopes. A hundred and ninety years later, it has caused chaos among airline passagers throughout the world, with an estimated loss to European business of £400 million a day in lost productivity.
However, international businesses are not simply passive victims of globalisation. They are also major beneficiaries of the breakdown in trade barriers. And they have a third role, which is usually underemphasized, they are highly active agents in creating and managing the global frameworks which move people and goods around the world – whether that is the construction of a railway, the operation of a mobile phone network, or indeed underwriting an insurance policy on a transnational oil pipeline.
So what will the successful international firm – whether large or small – look like in the future?
Well I think that what will characterise success is not simply the ability to act globally – with the removal of trade barriers, and the levelling out of the playing field, we can all do that.
The characteristic which distinguishes between failure and success will require a mobility of mind as much as a mobility of action. We need to think global. We need to know what is happening in the countries where we build factories, invest capital or sell services. We need to understand the risks in these places and crucially how a failure in location X will effect our operations in location Z.
Today’s international business doesn’t belong to any one country. Lloyd’s is a case in point. We are proud of our 300 year heritage as a British and as a City of London institution. But we are keenly aware of our role as the market where the world brings its risks. Every day, as I travel to my office on one of those glass lifts, I hear brokers having rapid conversations on their mobile phones in Spanish or, Japanese or in Italian. Wherever I travel in the world, I meet the CEOs of airlines or construction firms who insure huge investments with Lloyd’s.
We have responsibilities to the businesses across the world, who look to us when something goes wrong.
When the infamous oil platform was lost, we covered a large chunk of the cost of it, which we paid almost immediately.
One of the great lessons of the financial crisis has been the need to bring a sense of duty back to the boardroom. And global firms must accept that they have responsibilities across the world, not simply in their home countries.
Many individual governments are trying hard to develop global risk management systems. But they are hampered in this activity by the fact that, by nature, they are there to represent national positions and interests. There are exceptions. The leadership shown by the G20 in 2008 and 2009 helped to stabilise the global economy. But perhaps, effective international co-operation is easier during a crisis than at any other time. Certainly, what we are seeing in the wake of the financial crisis is a great rise in the number of regulations across the globe, but the amount of co-ordination and coherence between these regulations should be better.
So, for the foreseeable future at least, I predict that businesses will need to navigate a variety of regulations. They will also need to take responsibility for managing the risk in their own international activities and networks. And this is precisely how it should be.
Ladies and Gentlemen,
This seminar and the report which we launch today, are focused on the risks of globalisation. However, we remain strong advocates of world trade and free markets. The financial crisis has reminded us that removing trade barriers carries risks, but we do not believe that fact creates a case for reconstructing the obstacles that prevented us from trading with many nations in the seventies and eighties.
We cannot go backwards. We must not go backwards. We should not be protectionist. Instead we must manage these risks better. We are not the first generation to experience rapid technological advances. Francis Bacon, writing in 1620, noted that the invention of printing, gunpowder and the compass had 'changed the whole face and state of things throughout the world'. So what was Bacon’s advice four hundred years ago?
“It is well to observe the force, virtue and consequence of discovery”.
In other words, business models, and particularly our risk management systems must change as the risks change. We cannot simply try to hide away from risks, which travel further and faster than ever before.
So I hope that during today’s seminar we can discuss not simply the risks that our businesses face, but also how we are trying to manage those risks and I am delighted to welcome a number of distinguished speakers who will address these issues.
Our first speaker today is Sir Michael Rake, who could perhaps be described as a one man architect of global networks. He is currently Chairman of the BT network, which allows people to communicate across national borders. He is also Chairman of easyjet, which allows people to travel internationally and was previously Chairman of KPMG which helps international business to manage their accounts.
Sir Andrew Cahn, who as Chief Executive of UK Trade and Investment will be able to set out the great advantages of international trade as a means to generate prosperity here in Britain. Also, Dr Ian Goldin, who is the author of our new report and is Director of the James Martin 21st Century School at the Oxford University. Dr Goldin has also worked as a Vice president of the World Bank, and is a leading expert on globalisation.
But first, before we hear Sir Michael, I would like to thank Kate Adie who will chair this morning’s event. Probably nobody here today understands the need for effective international co-operation better than Kate Adie, who became a household name with her reports from warzones in the Former Yugoslavia and the Gulf. Thank you, Kate, for agreeing to oversee our event today and let me give you the floor!
