A long time in politics – 20 years of political due diligence
This article appears in the current 20th anniversary edition of Real Deals.
Cast your mind back to 1999. Tracey Emin’s My Bed was shortlisted for the Turner Prize, Manchester United won the treble, and the Millennium Dome was opened (to mixed reviews) as the cornerstone of the UK’s millennium celebrations.
Politically, it seemed like a simpler time. Tony Blair’s New Labour was still riding high in the polls, having won an historic landslide majority of 179 seats two years previously on a platform of progressive social reforms.
Two party, centrist politics was the order of the day, with the Labour Party and Conservatives looking for ways to capture and hold on to the centre ground. Labour had its ‘Third Way’, founded on establishing a modernised social democracy, passionate in its commitment to promoting social justice. The Conservatives, for their part, were trying to reconcile historic Thatcherite principles with the demands of a more socially liberal age. This process would reach its peak with the one-nation principles of social obligation that came to characterize the Cameron years in No.10.
The political philosophies of the end of the 20th century seem something of an anathema at the end of 2019, where political parties appear no longer interested in reaching out beyond their core support base and are retrenching to each represent a smaller and smaller subset of the electorate.
How did we get here? The answer is simple: if a week is a long time in politics, then 20 years is a millennium. Trying to find an answer to why did we get here is much more complex.
The journey from political stability to relative instability over the last 20 years has been punctuated by political risk flashpoints, all of which have driven us closer and closer to the ‘new normal’ in which we find ourselves.
The ongoing uncertainties around Brexit is the latest, and perhaps most obvious, example of a tidal wave of political change. But other events, domestically and globally, have also shifted us further and further away from where we once were, tilting the political system off its stable pre-millennium axis. It has created an environment where political decision-making has become, on the face of it, less predictable, while presenting greater risks to those affected by them.
The UK economy still bears the scars of the 2008 financial crisis, with the subsequent recession bringing about austerity policies that are still being heavily felt across the public sector. Jeremy Corbyn’s Labour Party, promising a politics ‘for the many, not for the few,’ is perhaps the best example of an electorate tired with a political class mired in scandal and perceived to be ignoring the views of much of the population. The same can be said for UKIP, and latterly the Brexit Party.
Devolution of policymaking to Scotland, Wales, the EU and city regions has meant powers are more dispersed than ever. The creation of the first peace-time coalition in 150 years has changed the way we think about parliamentary democracy and accountability in the UK.
Demographic and behavioural changes, lifestyle factors and the rapid evolution and democratisation of technology have all played their part in creating the current disequilibrium in politics, having changed how we interact with the world, and how we engage with political processes and each other.
These changes, both individually and in concert, have brought us to a new political risk horizon, where decisions taken hour by hour, if not minute by minute, significantly shape the external environment.
It’s no longer enough for investors to tune into the ten o’clock news or the Today programme to understand policymaking and political priorities. In the past we have had the luxury of long periods of relative political stability where trends were easy to follow and predict; decisions made by policymakers were at least logical, even if we disagreed with them. 24-hour news, an omnipresent social media, and our permanent connectivity to emails and messaging apps mean that crises, comment, response and reactions now appear to happen at alarming speed, and political agendas seemingly evolve overnight.
20 years ago political due diligence didn’t exist in the way we know now. It has understandably become a key part of the M&A process as investors seek rationality in what appears to be a chaotic and disordered political reality.
That’s why political due diligence is now more important than ever. While there is method in the political madness, it’s harder to find and to follow. For investors to make informed decisions, based on real insight and understanding, they need specialist support.
WA Investor Services is at the forefront of providing that support, helping investors understand the risk and impact of political, policy and regulatory changes on their portfolios and potential assets. We keep them up to date with the fast-paced and ever-changing political world. We forecast and scenario plan for different outcomes and provide ongoing intelligence to track issues as they develop. In an era of rising political uncertainty in the UK, across Europe, and on the international stage our services help investors accurately price in risk.
The quality and salience of our advice is reflected in the sustained, extraordinary growth in demand for our services, and the regularity with which clients bring us on board time and time again as a key part of their transaction team.
If we know how we got here, and we’re some way to understanding why we got here, the next question must be what do we do now? The savviest investors will be those that quickly understand that restless, fractured politics is the new normal, and embrace the opportunities that those changes bring. Michael Gove was wrong – we need experts now more than ever, particularly when it comes to unpacking the nuances of politics in 2019 and beyond.