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Permanence & Politics

It struck me when I was writing two articles at the same time, both on politics, largely late at night. One was for an American publication on the new generation of Chinese leadership, appointed last October at the 17th National Congress of the Communist Party, which is held every five years. The second was for …

It struck me when I was writing two articles at the same time, both on politics, largely late at night. One was for an American publication on the new generation of Chinese leadership, appointed last October at the 17th National Congress of the Communist Party, which is held every five years. The second was for a Chinese publication on the American presidential campaign, which is held every four years. The simultaneity was coincidental, but as it turned out, revelatory.

On Chinese Politics for America

My article on the new Chinese leaders noted that by appointing two younger men to the Politburo Standing Committee, China effectively stabilized leadership for a full 15 years! Xi Jinping and Li Keqiang are the new and youngest members of the Standing Committee of the Political Bureau (Politburo) of the Central Committee of the Communist Party of China (I thought you might like to know its official title); with only nine members, including Party General Secretary Hu Jintao, it is the pinnacle of power in China.

At 54 and 52, with Ph.D. degrees in law and economics, respectively, Xi and Li are widely anticipated to become the future senior leaders of China following the retirement of Hu, who is also president of China, and Premier Wen Jiabao, at the 18th National Party Congress in 2012. This clear line of succession, which involved sensitive inner-Party negotiations, compromise and ultimately consensus, is designed to give the Party continuity and stability as it faces the future. This means that, barring disruptive events, China now has a decade and a half of predictable senior leadership: the five years to 2012, followed by two successive five-year terms, not concluding until 2022.

The contrast to the American system seemed especially sharp during this hectic season of presidential primaries, where week-to-week during 2007 we could hardly handicap our likely next leader.

On American Politics for China

A few months ago, I had written an article in China explaining why Hillary Clinton gets such high positives and high negatives, and the implications of this polarization for the electoral process. When my article was picked up across the Chinese Internet, I suddenly found myself with a new calling, political pundit, at least in China. I liked the idea (though not always the commitment, what with the ever-feverish world of investment banking), because it gave me an opportunity to present to the Chinese people, through a leading publication (Global People, published by People’s Daily) and leveraged over the Internet, the rough-and-tumble reality of media-driven, garishly transparent American politics, a subject for which, I discovered, the Chinese people have an insatiable appetite. That’s good, I thought, the more China knows about the American political process, warts and all, the better for both countries.

So I was writing for my Chinese readers right after one of the most startling and dramatic weeks in American politics. First, Barack Obama made history in his stunning victory in the Iowa caucuses, suddenly becoming the first ever, serious African-American candidate for president of the U.S. Then, five days later, Hillary Rodham Clinton, trailing in the polls by as much as 10 percent and written off by most commentators as tired and old, also made history by her shocking and convincing win of the New Hampshire primary. With headlines like “She Lives” and “A Return from the Political Dead,” political writers, who the day before had been speculating whether Hillary would have to drop out of the race, had to write in reverse, taking back virtually everything they had just written.

With all the hype and frenzy, it is sometimes hard to remember how important the American election really is. Indeed, I have a concern. How could such swings in political passions and fortunes occur so quickly, and what are the long-term implications of such volatility? Such instant, unanticipated tsunami waves of change would have been unthinkable in previous elections.

Why now? One reason is the instant nature of news and information, from 24-hour cable news to the Internet. It is as if the entire country is hard-wired together and resonates together. This deep connection is driven by in-your-face emotion. There is little time for reflection. There is minimal inertia in the system. Any influence can move opinions rapidly, perhaps too rapidly.

All this political action may seem like fun; it’s certainly exciting to watch. But with so much at stake, so much volatility may not be so healthy.

Which System Works Better?

Those being my two articles, one on Chinese politics for America and the other on American politics for China, I began to reflect on the obvious question of which system works better? I have, as you’d expect, a built-in prejudice that Western multi-party democracy, in Winston Churchill’s famous adage … is the worst form of government ever devised by man, except for any of the alternatives. Virtually all Americans believe that our political system, notwithstanding our election-year capriciousness, is surely best for our country and likely best for every country. Most (but not all) Chinese believe that their system, assuming the continuation of reforms, is best suited for the realities of China, at least for the near future. Are there deeper principles to be found here?

Applications to Corporate Governance

I began to think about the broader ramifications of predictable stability versus dynamic uncertainty in the governance of institutions, particularly in the selection of their senior leaders. Can what we see in the process of choosing our government leaders help in the process of choosing our corporate leaders? I came up with some general principles. See what you think.

Competition among leadership candidates is good; transparent competition is (usually) better.
Lack of competition allows entrenched leaders to become enshrined; there is high inertia to change as policies and positions become ossified and unable to adapt. The Chinese system does have competing interests. At the highest levels, competitions are opaque to the public; though at lower levels, they are beginning to emerge through the development of what is called “Intra- Party Democracy,” which empowers individual party members as never before and develops degrees of transparency in Party operations.

In leading corporations, when internal candidates vie for senior positions, the competitive process stress-tests candidates and puts even subordinates on alert. Selecting the successor to Jack Welch at GE was the classic case.

Stability in leadership is the default objective.
Stability in leadership operates optimally at the extremes, both under normal conditions and during times of high exigency when change could be destructive not just disruptive. (Obviously, if leadership is the cause of problems, then the organization has no choice but to change it.) China today needs stability in light of its significant problems, particularly imbalances of income and potential social consequences. Prolonged uncertainty in corporate leadership can be unsettling to executives, who should focus on doing their jobs, not on worrying about their possible new boss.

Dynamic uncertainty in leadership is optimal only under specific conditions.
When change should disrupt the status quo, but not destroy the organization, that is the time for dynamic uncertainty. America, today, is in need of such change, both to engender domestic harmony and to foster international repair. Therefore, the dynamic uncertainty generated by our political process is a positive. The same can work for corporations. When innovation is required, allowing a period of uncertainty before new leaders are selected can reenergize the organization. Though uncertainty is uncomfortable, it heightens awareness and intensifies energy-but too much can be counter productive.

When changing leaders, assess the tension between stability and dynamic uncertainty.
Given the different situations in the U.S. and in China, it can be argued that each has a system for selecting its national leaders in a manner consistent with its real world needs. Actually, when one thinks about it, the two systems aren’t all that different. In the U.S., after a short period of high uncertainty, the political campaign settles down to a few choices and ultimately to just two. In China, there was uncertainty for many months prior to the National Party Congress as internal groups vied for position and sought compromise and harmony.

It usually just happens that an organization either has stability or dynamic uncertainty in maintaining or selecting its leaders. I’m saying that this dichotomy-how best to match the leadership-selecting process with the needs of the organization- should be a proactive choice, not a reactive accident.


Robert Lawrence Kuhn, an international investment banker and corporate strategist, is senior adviser to Citi group. He is co-editor-in-chief of China’s Banking and Financial Markets: The Internal Report of the Chinese Government and author of the No. 1 best-selling book in China in 2005, The Man Who Changed China: The Life and Legacy of Jiang Zemin. Dr. Kuhn’s articles describing and explaining investment banking are posted at www.chiefexecutive.net/investment

About robert lawrence kuhn

Dr. Robert Lawrence Kuhn is an international corporate strategist, investment banker and expert on China. Since 1989, he has worked with China’s senior leaders and advised the Chinese government on matters of economic policy, industrial policy, mergers and acquisitions, science and technology, media and culture, Sino-U.S. relations, and a variety of international business matters. Dr. Kuhn advises leading multinational companies, CEOs and C-Suite executives, regarding formulating and implementing China strategies in a variety of sectors, including science and technology, energy and resources, industrial, media and entertainment, healthcare / medical / pharmaceuticals, consumer products, and financial services. He works with major Chinese companies on structuring their capital markets financing and M&A activities.