October 11, 2019 / 4:16 PM / 12 days ago

Breakingviews - Send the A-Team to Saudi’s “Davos in the Desert”

A Saudi man walks past the sign of the Future Investment Initiative during the last day of the investment conference in Riyadh, Saudi Arabia October 25, 2018.

LONDON (Reuters Breakingviews) - Who’s off to Riyadh later this month? A year ago, finance executives from BlackRock’s Larry Fink to JPMorgan’s Jamie Dimon stayed away from the Future Investment Initiative, Saudi Arabia’s annual money junket, following the murder of journalist Jamal Khashoggi in Istanbul by the kingdom’s agents. The calculus on whether to attend the so-called “Davos in the Desert” looks different 12 months on.

Three weeks ahead of the conference it appears that Fink will be there, as will HSBC’s interim boss Noel Quinn. Of the other leading banks recently selected to coordinate Saudi Aramco’s stock market debut, Credit Suisse’s Tidjane Thiam and Citigroup’s Mike Corbat may travel, while Morgan Stanley and Bank of America are also yet to confirm. Dimon and Goldman Sachs’ David Solomon will probably take last year’s default option of sending lower-ranking bankers in their place.

At first sight, the latter approach seems logical. HSBC can argue its seven decades on the ground in the kingdom have encompassed other bumps in the road, but overall FII attendance remains controversial. Environmental, social and governance realities require a commitment to human rights, and a United Nations investigator cited credible evidence to probe Saudi Crown Prince Mohammed bin Salman for Khashoggi’s killing. Against that, President Donald Trump clearly isn’t bothered, so the hard-headed business decision is piecemeal attendance.

Yet that’s also a bit limp. Contrast it with Fink’s blog post soon after returning from an April trip to Riyadh, in which he argued against operating “under the radar” in favour of a “public dialogue” to press Saudi towards change. In ESG parlance, this would be called a strategy of engagement rather than exclusion. The argument for the former is that it’s more effective to push companies or governments that seem committed to reform to do better from within the tent than just sell their assets to another investor who doesn’t care.

The weakness of Fink’s argument, as with all engagement strategies, is that they can just be a cynical front for doing nothing. Making it credible requires the BlackRock boss to push Saudi into tangible steps. But at least he’s owning his strategy and dealing with the negative vibes that emanate from it. Banks that send the B-Team to Riyadh shouldn’t kid themselves they are much better.

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