Since 2014 with Russia seizing the Crimea, it is clear that President Putin has an agenda to expand Russia. The current Ukrainian-Russian war is in the next step. How can Europe and NATO best meet this challenge?

BG (Retired) Preziosa ended our conversation by discussing the nature of the challenges facing the democracies and some key elements of how to meet those challenges.

Preziosa went back to the early 1990s and underscored that the nuclear deal made in that period of time laid the foundation for the current crisis. This is how he put it: “John J. Mearsheimer in a Foreign Affairs article one year before the Budapest argued that a denuclearized Ukraine, was not positive either for Kiev or for the stability of the Central and Eastern European quadrant. Mearsheimer added that the widespread belief of the time, also promoted by then U.. S President Bill Clinton, was wrong with regard to the benefits of denuclearizing Ukraine.”

Preziosa then cited the perspective of President Macron with regard to the new situation facing Europe and the United States.

“President Macron in an interview to Étien Gernelle affirmed that we are at the beginning of new era and war is back in Europe since Yugoslavia disorders. A nuclear armed power is threatening a nuclear attack for territorial aggrandizement reasons and this is a big change in the grammar of deterrence.”

Preziosa argued that the current Russian aggression against Ukraine is different from Crimea in a fundamental way. “If in 2008 in Georgia and in 2014 in Ukraine, Russia had intervened in reaction to other events, this time it deliberately chose war, and this is a great rupture with the past. The rupture comes by progressive tendency of Vladimir Putin starting in 2008 in Georgia with the perception of possible NATO enlargement followed by the Western weakness in Syria in 2013 when chemical weapons were used.

“Putin has convinced himself of, about a betrayal of the 1990 agreements, an expansion of NATO with a willingness to annihilate his country, to have been abandoned by the West in the Caucasian crisis, essential for Moscow above all because they are lined to Islamic terrorism. Western countries did not understand the consequences in 2014, after the annexation of Crimea and secession of Donbass.”

He added: “Putin has launched an offensive operation based on the perceived weakness of the West. and deduced that the Western democracies were weak.”

He quoted Macron: “All this does not happen in a day. But today the bill has arrived.”

He noted that there are significant spillover effects globally from the war in Ukraine and certainly in Europe. “The events in Ukraine are destabilizing for the Western Balkans which are subject to Turkish, Russian and Chinese influences. The hot spot in the Balkans is Kosovo that never reached political stability with Serbia.”

In addition to the Russian challenge, China is ramping up its global reach and capabilities as well. As Preziosa put it: China is challenging America’s role as the world’s sole superpower.

As a result of the China’s widening influence, spheres of global dominance are projected for the future between the authoritarian and democratic powers.

“Since market liberalizations in 1978, China’s economy has doubled every eight years. Four of the largest banks in the world (by asset) are in China, in the age of easy money, and it is the largest creditors in the world.

“The era of America’s singular dominance is being challenged across multiple strategic domains, with several second-order outcomes. Recent trade wars have caused fractures between the two nations’ trade relationship. Cross border trade settlement in renminbi instead of US dollars has risen exponentially since 2010.China’s Belt & Road initiative has signed agreements with 138 countries. Globally, there are over 3485 megaprojects backed by China’s government.

“The competition between great powers with a clear distinction between the objectives of the democracies and the authoritarian powers.”

But the democracies themselves face divisions not just among themselves but internally within each democratic state. Finding cohesion where possible is crucial to shape a way ahead to deal with the authoritarian challenges globally.

Preziosa underscored that “In the U.S. and in Europe much remain to be done to put their political systems in order and preserve the political and economic strength of the world’s major democracies.”

And his own country, Italy, certainly faces core security challenges along with political ones which need to be met as part of an overall response to the defense challenges posed by the authoritarian powers.

As he concluded: “Russia’s aggression against Ukraine has brought out the extremely risky character of Europe’s energy dependence on Moscow. The side effect of the Ukrainian crisis affects the Middle East and North Africa in terms of the energy issues and food security.

“The fear is that discontent will generate new waves of instability and migratory flows to Italy and Europe. Italy is one of the European country most dependent on Russian energy supplies, and the energy issue can only assert itself as the first point to be addressed. The first step taken by Italy has been to turn to third countries that produce and export energy, to diversify our sources of supply and pursue our energy security. This strategy has involved both African countries and North African countries such as Egypt, Algeria, and Egypt.

“Italy needs to find an internal political stability as well to shape not only its way ahead but to play the kind of role which is needed for expanded European influence and cohesion in dealing with the 21^st century authoritarian challenges.”

For the first two pieces in this series, see the following:

The War in Ukraine and the Challenge of Reshaping European Direct Defense

Airpower in Shaping a Way Ahead in European Defense

And for our book addressing the authoritarian challenges to European direct defense, see the following:

 

By Thomas Wilkins

On 8 July, the world was stunned by the assassination of former Japanese prime minister Shinzo Abe during a campaigning speech in the city of Nara two days before elections were to take place. While domestic debates about improved security for politicians continue in Japan, it’s also timely to reflect on the legacy of Abe’s achievements in terms of not only his foreign policy legacy, but, especially for Australians, the contribution he made towards strengthening Japan–Australia ties.

It was during his first term in office (2006–07) that Abe signed the foundational Japan–Australia Joint Declaration on Security Cooperation with Australian PM John Howard—a moment that redefined the whole nature of bilateral ties by extending economic and diplomatic cooperation to the security and defence spheres.

When Abe returned to office for his second term in 2012, he lost no time in further consolidating that earlier achievement. When he again visited Australia to address parliament in July 2014, he jointly launched the so-called special strategic partnership with then PM Tony Abbott. Both Abe and Abbott concurred at the time that a ‘special relationship’ was born that day. This was very specific qualitative language, reserved only for the closest of partnerships, and most commonly associated with descriptions of US–UK or US–Israel ties. Prior to this, in 2013, Abbott had already described Japan, not without controversy, as Australia’s ‘best friend in Asia’.

But the 2014 special strategic partnership announcement was more than simply effusive rhetoric and public diplomacy optics. It was accompanied by the launch of the Japan–Australia Economic Partnership Agreement, the most significant step forward in bilateral economic relations since Abe’s grandfather PM Nobusuke Kishi signed the Australia–Japan Agreement on Commerce in 1957. The 2014 agreement has since overseen increased economic cooperation; an uptick of more than 30% in two-way trade; and the development of infrastructure projects, such as the Ichthys LNG facility in northern Australia, supported by Japanese company INPEX, which is vital to the export of energy supplies to Japan.

The 2014 visit also resulted in the signing of an agreement for transfers of defence equipment and technology, designed to facilitate closer defence-technological collaboration. Though Canberra did not pursue cooperation on submarines with Japan as originally envisaged, it’s likely that this agreement will be the basis for plans to explore other high-technology projects such as, potentially, joint missile procurement.

Under Abe, Japan and Australia worked hand in glove to coordinate efforts to strengthen the regional architecture in the Indo-Pacific with the shared aim of building a stable, prosperous and rules-based order. During the turbulent presidency of Donald Trump in the US, they worked together to rescue the Trans-Pacific Partnership, which now lives on as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership under their combined leadership. Abe was also pivotal in reviving the Japan–Australia–US–India Quadrilateral Security Dialogue, which has since gone from strength to strength and forms a major platform for combined regional engagement.

Japan’s move towards a more prominent role as a regional security actor under Abe’s banner of a ‘proactive contribution to peace’ and the ‘free and open Indo-Pacific’ vision, launched by Abe in 2016, were also well received in Canberra. Indeed, Australia has effectively adopted the latter concept, alongside others including the United States, to frame much of its regional engagement and to uphold a rules-based order.

Under Abe, real practical cooperation in the security and defence sphere progressed. Upgrades to logistical arrangements under the acquisition and cross-servicing agreement were put in place, followed shortly after Abe’s departure from office by the long-awaited reciprocal access agreement, which allows for smoother operational cooperation between the Australian Defence Force and the Japan Self-Defense Forces to train and exercise in one another’s countries, something he paved the way for. Even more significantly, it was Abe who pushed through ground-breaking domestic legislation in a package of peace and security laws in 2015, which created provisions for the right to ‘collective defence’ and now allows the Japan Self-Defense Forces to protect Australian deployments in the event of a survival-threatening situation.

Abe was also a champion of historical reconciliation with Australia, making an unprecedented prime ministerial visit in 2018 to Darwin, the site of sustained aerial attacks by the Empire of Japan during the Pacific War in 1942 and 1943. The visit was a part of his bid to move beyond past animosities and form the basis for a future-focused relationship—at the time, he declaimed: ‘We in Japan will never forget your openminded spirit nor the past history between us.’

There were frictions and disappointments in bilateral ties during Abe’s terms of office, such as the Australian case against Japan over whaling in the International Court of Justice, and Tokyo’s surprise at being eliminated from the tender for Australia’s future submarine program in 2016 (in favour of the French contract, since annulled and replaced by AUKUS). Yet, these setbacks were successfully absorbed and have not had a significant lasting impact on the relationship.

The tragic loss of Abe has been deeply felt in Canberra and elsewhere. After Abe’s death, Prime Minister Anthony Albanese praised him as a ‘true leader and true friend’ to Australia, a sentiment echoed by Abbott, who called Abe a ‘best friend of Australia’.

Abe’s determined leadership played a crucial role not only in charting a new path for Japan but also in building the strategic partnership with Australia. Thanks to the special strategic partnership bequeathed to us by Abe, a recent study by the Australian National University concluded that ‘Australia’s relationship with Japan has never been more close.’  Under the partnership, Japan and Australia now cooperate across a wide spectrum of diplomatic, security, defence, military, economic and scientific areas on a scale and at a pace never seen before. This in large part can be credited to the far-sighted leadership of Abe, in tandem with his Australian counterparts.

As Abe himself exhorted the Australian parliament back in 2014 in one of his many colourful evocations: ‘Let us walk forward together, Australia and Japan, with no limits.’ His successors in Tokyo and Canberra appear to have every intention of continuing on the path of bilateral friendship and cooperation that Abe did so much to pioneer.

Thomas Wilkins is a senior fellow at ASPI.

This article was published by ASPI on July 26,2022.

Also see the following:

China Drives Significant Change in Japanese Strategic Thinking

Featured Image: Jason Reed/Pool/Getty Images.

By Paul Bracken

While media attention focuses on the military and humanitarian aspects of the war in Ukraine the huge implications for multinational corporations get very little attention.

Two major themes stand out here.

First, many companies will be swept up in the impassioned media stories of the war and overlook the more fundamental need for a disciplined assessment of political and social risks. Most companies want to do the right thing. But without a careful evaluation they will be sucked into the emotional and political hysteria that often comes with political and social conflict.

The second theme is the precedent that companies pulling out of Russia has established. Getting out of Russia is pretty much of a clear cut case.

It’s an easy call for many reasons. Future political and social risks won’t be so stark. They’ll be a lot more complicated.

Should multinationals come clean on their ties in China?

What about Hungary?

Israel?

What about African nations?

Outside critics argue that pressuring companies to get out of Russia shows that shaming businesses is a high profile tactic for their other political and social projects.

In the face of these major points we can look to one of the lessons of the Cold War, a lesson that’s still useful today. It’s the need to think through the dynamics of crises before they happen.

Who exactly is in charge?

Have they prepared beforehand by gaining relevant knowledge?

What is the checklist of things to consider while in a crisis?

How to recover reputation after the crisis is over?

In the middle of a crisis these questions won’t get the attention they need. There’s too much emotion, fear, and even panic. Companies need to think through how they assess political and social risks before they occur – that is the overwhelming lesson, not just from many crisis post-mortems, and also from academic and business school studies.

These problems aren’t going away after the Ukraine war is over.

They’re going to become more important as anyone who looks at today’s corporate environment can see. The Ukraine war is, likely, a rare, one-off event.

But the increasing frequency and intensity of social and political conflicts isn’t. Whether it’s the NBA or Apple in China, or a U.S. tech giant threatened with costly new regulations in the EU, companies need a systematic approach to deal with political and social conflict.

Politics can be a fractious place. Moreover, politicians are better at this game than most CEOs will ever be. After all, they do it for a living. And there are plenty of people who would love to mobilize a company’s good name and reputation for their cause. Or to advance some wedge issue to take out a company for their own personal agenda.

Game theory teaches that while it takes years to build a reputation, it can be lost in a single day by the mismanagement of some high profile risk. Look at Credit Agricole. This French investment bank had a good brand and solid reputation. It built this over many years.

But in 2015 they were caught running $ 32 billion of payments from Sudan, Cuba, and others through their New York office. They wound up paying nearly $ 800 million in fines to regulators, with a huge hit to their brand. Perhaps of equal importance, they got on the U.S. and New York State regulators’ radar screen.

As a result they had to dial back their risk appetite over a wide range of unrelated deals for fear of being accused of breaking the law a second time. Other financial institutions hesitated to do deal with them for fear of getting extra intense regulatory attention.

So what does a multinational corporation do in a world of growing political and social conflict?

Companies should start with asking themselves a basic question “Do we really know what we’re doing in this very different game?” Having worked with many companies it’s amazing to me that this question is rarely asked. There’s an unfounded feeling that political and social risks will somehow be dealt with, by someone, somehow.

This absence of forethought leads to a set of harmful, but predictable, decision patterns. One is that it lands on the CEO’s desk – largely because it doesn’t belong to any other department. Call this the “CEO risk” approach. Yet the vast majority of CEOs have little background or knowledge of political and social conflicts. But they need to appear like leaders. So they “wing it,” without any framework or staff work behind their decision.

In the CEO approach to risk management the long run consequences of a decision are subsumed to the immediate gut feeling of a single person. While this instinct may be a good one, and it may even be correct, it bets the future of the company on a hunch, a feel, for the situation.

A capital expenditure of any size would get far more staff review.

Yet the potential billions lost in making the wrong call in a fast moving crisis, in shareholder value, reputation, and heightened regulatory scrutiny dwarfs almost any bad capital expenditure.

Military officers would look at this situation with an immediate reaction: “Sir, you need to staff this out.” Some review process to look at the issue free of emotion, and to examine various “What if” branchpoints is needed. Going with your gut in war means lost lives. In business it can mean billions of dollars of destroyed value.

Absent a disciplined emotion free process the CEO is making a huge bet on something he or she probably hasn’t thought very much about. A CEO knows a lot about marketing, finance, HR, and operations. But about the way political and social conflict could impact the company?

Probably not. Too often, this CEO risk approach leads to aping whatever frame of reference the headlines are screaming. The result is overly hasty decisions without regard for their strategic consequences. In some cases it leads to panic.

There are scale changes in the risk environment that bear on managing political and social conflict. The huge sanctions put on Russia by the United States has expanded the apparatus for monitoring compliance with sanctions, technology sales, and cross-border money flows. Collection of information about these activities is mushrooming.

There’s a growing cooperation between intelligence services like CIA and NSA and with regulators in Treasury and Justice. Compared to even a few years ago the Departments of Treasury and Justice have new information collection to draw on. These are highly relevant to potential violations of the Foreign Corrupt Practices Act or to reviews by the Committee on Foreign Investment in the United States.

The apparatus now in Washington (and in states like New York) is today focused on a bad actor, Russia. No one seems to mind this because Vladimir Putin’s actions are so brazen. But an important lesson of the war in Ukraine is the precedent being set. Next year this apparatus might be focused on a different actor. Maybe China, or Hungary. Or maybe the target is “amoral” multinationals “who don’t pay their fair share of taxes.”

As the United States gets more polarized the political motivation of regulators becomes more important. Sometimes there are few regulatory enforcement actions. But at other times there are spikes in the number of cases. It isn’t a random process.

Who happens to be in power in Washington has a lot to do with the targeting.

The difference now, and in the future, is that political-regulatory technology is getting a lot better. The war in Ukraine is accelerating the trend, with much more tightly linked connections between intelligence, regulation, and law enforcement. This even extends between countries, as the United States and the EU cooperate more on sanctions compliance.

Different from the CEO risk pattern is that the CEO delegates the matter to a department that seems to be the logical place for it. The legal department is the appropriate place for compliance and regulatory matters, or so it would seem.

But you cannot let your legal department own these issues. They will overlook broader strategic, political, and especially business dimensions of a crisis. Their training is in law. That’s how they think, not in terms of corporate strategy. They will stick to what they know, the narrow interpretation of the law. Key issues like the political motives of regulators, precedents getting set, and drawing unwanted scrutiny to the company will get scant attention. Here, a foreign multinational is an especially easy target.

Few people want to talk about this but a U.S. regulator can target a European or Asian company with near impunity. Likewise, the EU can go after an American technology company with an open hunting license. In both cases public opinion is likely to support it – and politicians know this. So do regulators. And both are better at the PR game than any company is likely to be. They have the links to key media organizations and reporters for news leaks hostile to a company.

I recommend that the leadership team develop a checklist of questions to put to their departments about potential violation of regulations that could arise in a crisis. Leaders also should play out different response scenarios, e.g. in terms of how certain hypothetical events could affect their reputation, employees, and how the media might handle real or perceived violations.

Here’s another idea.

During the 1962 Cuban Missile Crisis President Kennedy put together an ad hoc Executive Committee, or ExCom. It played out different scenarios of how Moscow might react to various U.S. moves. These were individuals whose judgement President Kennedy respected. Their job was to review recommendations from the Pentagon, CIA, and State Departments because JFK didn’t fully trust them to give neutral views or exercise good judgement.

A year earlier they had recommended a U.S. invasion plan to remove Fidel Castro by landing a force in Cuba, at the Bay of Pigs. This debacle led JFK to say that he would never again leave a really big decision to “the experts.”

The attraction of JFK’s ExCom was its limited scope and short lived tenure. it was stood up to handle a specific problem and then it was disbanded. This made its existence less threatening to established departments. Robert McNamara, JFK’s secretary of defense, many years later said that his biggest mistake was not setting up an ExCom to review his decision to go into Vietnam.

The range of political and social conflicts facing global companies is going to broaden. A crisis over doing business in Russia is very different from other problems of corporate social responsibility.

Just look at the current demands on business: pull out of Russia; the anti-trust breakup of technology firms; anti-fossil fuel protests; animal rights and testing; sustainable development; human rights in China. Demands from all sides for business to do something about social and economic inequality have also grown.

All of this makes corporate social responsibility a much more important, and a much broader issue. Government and public demands aren’t going away simply because a company did the right thing by quitting Russia. An important lesson business should learn is that most of these will not be as clear.

They will not be black and white. They will be gray, twilight issues of great complexity. At the same, time the media works to map complex issues onto a simple, binary choice. Stay or go from China. End fossil fuels or drown from rising ocean levels.

But to jump to the conclusion that a tradeoff is the way to deal with these twilight issues is a huge mistake. Companies need to recognize that corporate social responsibility cannot be usefully considered as taking a position along a one-dimensional profit to responsibility continuum.

If they use such an overly simplified framework they’ve lost the race at the starting gate. There’s a lot of complexities that have to be included that this framework misses.

Getting these into the leadership team’s conversations by asking better questions, scenario methods, staffing a temporary ExCom, and not delegating the future of the company to an unprepared department, can go a long way to facing the political and social storms ahead for multinational companies.

This article was published by The European Business Review on July 21, 2022 and is republished with permission of the author.

Featured photo: KYIV, UKRAINE – Feb. 25, 2022: War of Russia against Ukraine. View of a civilian building damaged following a Russian rocket attack the city of Kyiv, Ukraine. Dreamstime.