What do the market changes tell us about IR during the presidency of Donald Trump?
I don’t mean to pile in, but it’s getting hard to ignore this whole ‘Watergate déjà vu’ discussion. While our current drama with President Donald Trump still has lots of plot twists to play out before the final act, it’s tempting to make comparisons with that political tragedy more than four decades ago when then-president Richard Nixon resigned in the face of impeachment following Congressional investigations and a special prosecutor looking into the Watergate burglary and cover-up.
After Trump fired FBI director James Comey, the financial press was filled with stories about what happened to the stock markets during that earlier debacle. While markets hated political uncertainty back then as much as they do now, the comparison stories all noted that the brutal bear market of 1973-1974 also coincided with the Yom Kippur War, an oil embargo that crippled the US economy, a recession and inflation that spiked into double digits – hardly the macro environment we see today.
But there are some points worth pondering that should be of interest to today’s IROs watching the headlines. First, it’s useful to remember that the market then looked nothing like today’s global, high-speed, interconnected trading environment. Options and stock futures only began trading officially in 1973. The Employment Retirement Security Act, which essentially created the 401K market in the US and supercharged the growth of mutual funds, was only signed into law by Nixon’s successor, Gerald Ford, in 1974. And when Nixon instigated the infamous ‘Saturday night massacre’ causing Special Prosecutor Archibald Cox to be fired, and started his own long descent, John Bogle was still more than two years away from launching his first retail index fund.
Just try to imagine a market much smaller than today, with no derivatives and no passive investments – a very different market that was arguably less agile, less liquid and slower to adjust prices in reaction to news, negative or positive. And ironies abound. Most obviously, we have the first true businessman in the White House, so we have a live experiment into the proposition that a more business-oriented approach to government will not just benefit the economy but also make government run more smoothly. So far, the experiment is not working out all that well and, depending on where we end up, the overall ‘brand’ of business may take a big hit in the public’s mind.
The largest irony, for those few of us still around who actually lived through Watergate (a group that includes Trump, if not all his aides), is that the major lesson from that earlier saga was the oft-repeated shibboleth: ‘The cover-up is worse than the crime.’
But this is, after all, a magazine about IR, and there are some interesting lessons here, too. First, good IR is built on clear, consistent communication and an understanding of the audience. While Trump is undeniably clear when he has a point to make, it’s hard to accuse him of consistency. And he does understand, almost intuitively, the audience most important to him: his supporters. Unfortunately, he forgets that supporters aren’t the only audience out there.
He reminds me of many CEOs who bristle at any criticism. As every IRO knows, sometimes you can learn from your critics. While the bear case on a stock may be overblown, at the very least it highlights gaps in communication and can often be an early warning sign of competitive vulnerabilities, management blind spots and outright hubris that could turn into real liabilities in the future.
What’s more, as many battle-scarred IROs can confirm, a CEO who refuses to acknowledge criticism and personalizes every challenge is more likely to turn allies into adversaries, ignore or overlook real threats and miss opportunities. He or she becomes fixated on the critics and forgets that, after all, it’s just business.
This article appeared in the Fall 2017 issue of IR Magazine
