From there she became a founding Partner at Dalberg, where she led the Americas business and transformed the startup into the largest social impact strategy firm with 25 offices worldwide. She spent five years in the Obama Administration as the Senior Advisor for Development to the Secretary of State, serving under Secretaries Clinton and Kerry. Daniella is a member of the Council on Foreign Relations and was a 2014 World Economic Forum Young Global Leader. Daniella’s perspectives have been featured in the Harvard Business Review, the World Economic Forum, Morning Consult, and Fast Company. She has also been interviewed by the Financial Times, New York Times, Wall Street Journal, Bloomberg, The Hill and CNN, among other publications. She holds an MBA from Harvard Business School, an MPA from the Kennedy School and graduated cum laude from Cornell with a BS in Operations Research and Industrial Engineering.

Daniella Ballou-Aares

As we go into an election, people are thinking about politics and democracy. They might be getting a little bit sick of it at this point, but it's a moment where many of us start to ask the question of where are we in our system? Why are we here at a place where many are feeling worried about the state of our democracy and are trying to figure out how to be a part of fixing it. At Leadership Now Project, we are focused on really enabling effective action by business leaders to be part of protecting and renewing our democracy. And to do that in a way that is well-informed, that is informed by the best data and evidence, and also is action-oriented and gets to beyond the food fight and the exchange of ideas, or lack of ideas, about what's going on in politics. We're really oriented towards what can we really do to get our system back on track

Ray Dalio, the head of Bridgewater, said it is entirely possible that neither side will accept losing the 2024 election, that it would have lots of impacts on people, obviously, as well as the business environment and capital flows. He's been ringing the alarm on this for a while.

We saw other investors, Seth Klarman, a hedge fund job post, Ken Chenault, the former CEO of Amex, and others. Many in Leadership Now's membership signed this letter saying, look, we're really worried about what January 6 means. What happened on January 6 and what that means for trust in our system and the rule of law, and it's hard to imagine a more direct threat to American business.

Why is the political system not working?

We all feel viscerally that it's really a barrier to American competitiveness over the long term. So they did polling of Harvard Business School alumni over the years. This is looking at comparing 2011 and 2019 polling. And what that polling alumni basically said is that people see the political system and the education system and the healthcare system as basically areas that are diminishing American competitiveness. And what this report talks about is that those are the foundations of competitiveness. At some point, they will come to hurt your system in a significant way. And I would argue, unfortunately, we're seeing the effects of that more and more, and businesspeople are seeing that. And it's evident in all kinds of ways.

Whether it's the clash we've seen in Florida over the speech of companies. Whether it's, of course, internationally around Ukraine. I always find it a little ironic that we have both sides of the speech debate, whether Twitter doesn't give enough speech or Disney's exercising too much speech, or how companies are responding to the Roe decision. Very much businesspeople are in the hot seat and many CEOs are in the hot seat because the system is not working for people and everyone's kind of looking for leadership from somewhere to answer these challenges. And that's playing out in lots of ways.

Barrons said it well, that CEOs didn't make the wrong decision, but it's still their problem to solve. So there's a feeling in business that government is not able to respond, so now business is asked to fill the role.

When we look at the data, there are, the data suggests, serious threats to the health of American democracy. That that deterioration of democracy is a genuine risk to business. What we're seeing right now is that as long as democracy is unstable, the demand for business leadership is going to continue to grow.

So there's not an easy way to escape it, should one want to. But there are roles a business can play in upholding democracy.

And there is a role for all of us to play in that as citizens and as executives.

What does the data tell us about the threats to the state of American democracy?

One of the most core ways to look at this is through the trust in government, which has continuously trended down since the 1960s. And is pretty stubbornly low in the 20s across administrations now. This is from Pew, long term research that they've been doing polling of American people.

Another way to look at it is the function of Congress. We see that it just continues to decline down from 750 to 250 bills. The left-hand chart here on enacted, so the productivity of Congress, the delivery of the product to Americans continues to go down. And not only is the amount of product, so to speak, in terms of policy going down, but we don't see any correlation between the preferences of citizens and the policies come out. This is actually relatively old data.

There's some refreshes happening. This looks at academic work that said, what is the correlation between policy a citizen wants and how likely it is to get passed. And what that straight line means is basically, whether it's extremely popular or extremely unpopular, it has the same likelihood of getting passed. And that's really worrying. I mean, maternity leave is a great example.

84% of Americans support paid maternity leave, but we have not had policy progress on it. We were close in this last Congress, but it has not happened. We also have a talent problem, right. So if you think about it, this is a business. We just looked at policy delivery, which is weak, so product, so to speak. Now, if we look at talent, we see a lot of stagnation in talent and politics. We might see a little bit of movement in the next coming years because we're going to have a lot of retirements, for instance, in Congress, but still, you've seen very little talent turnover. The average age of a committee chair in Congress is now 69. And, of course, we've had dramatic change in our economy and society over the last 20 or 30 years. It's not shocking that Congress has been ill-equipped to respond to that.

We've tried to understand the system; we've tried to understand the resources in the system. We looked at the products and the policies, the talent, and then where's the money going. And especially over the last decade, there's been a proliferation of ways that money is flowing into the system after the Citizens United decision, which is really hard to unpack. From the way we've looked at it, we see $72 billion dollars that's influencing the political system as a whole. Sounds like a big number, but philanthropies - $400 billion here. But still, it's a lot of resources. That goes across both things like traditional campaign spending (PAC, Super PACs, candidates, about $20 billion in the last cycle) but also a whole set of organizations that influence the system in various ways. It doesn't mean they're directly spending on candidates, but they influence through lobbying, through their members and otherwise.

So the Chambers of Commerce, which is a 501c6 category. Chambers of Commerce, other business associations, unions, and some regular nonprofits as you would think about them that also do policy work. There's a variety in the system but I think that 501c6 number is important, that $16 billion because it's a reminder that while Chambers of Commerce are kind of an old fashioned type of entity, they actually remain very influential both in a national level as well as in states and cities across the country in the political system.

This is just how it plays out. And one example, which is Senate races, we've seen it, this hockey stick would look nice for our business, not so great is political spending, especially when in the same period, you had spending go up. So dramatically, the product being delivered in terms of effectiveness of government, etc, has only gone down. That's a dissatisfying disconnect between the money and the outcomes, that I think Americans are feeling, and we're probably all feeling. And that's why we have such a large cadre of Americans, which one of our important partner organizations who studies this calls "the exhausted majority", and they really look at the different elements of American society across not exactly the traditional political spectrum, but with some nuances. But you know, a lot of Americans still would like to see the system obviously work. They prefer compromise. They'd like us to come together.

Unfortunately, right now, that's not the part of citizens that are activated and the politically disengaged is the biggest category. You see that disengagement as a response to the system, among other things.

I will share some more on what that means for business.

Can you have capitalism without a well-functioning government, without democracy?

I think, based on the evidence and the preferences of Americans, you really can't see these two pieces de-linked. If you don't have rule of law, if you don't have an environment where people trust this system, it gets increasingly difficult for capitalism to work. And to the extent that there's concerns about how capitalism is working, it's really hard to fix it if you don't have a system that's able to help set rules of the game in a way that's consistent with what the citizens want.

We know that 45 of the largest market cap companies in the world are founded in democracies. And that's not an accident.

I had a good quote from a discussion I had with some academics this week, who said, look, if you look at advanced economies, they're all democracies. If you look at those countries that are emerging, but when you get to them, then you'll see a mix of autocracies and democracies. But for those most developed countries, the only example of a more autocratic regime would be Singapore, but all the others are democracy. It's not surprising that we see so much of the economy, global economy, sitting in democracies. And we also know that political instability is really bad for business, right?

So one, it's good to be in the democracy, and two, when you start having all kinds of instability, uncertainty around elections, etc, it affects business. There's a lot of good research out on there. This is from Ernst and Young, that looks at the past with capital, innovation, supply chain disruptions, not to mention the risk of violence, war, etc, going up.

So where are we globally?

The Economist Intelligence Unit has an indicator or an index called the Democracy Index. It rates countries on a variety of factors like civil liberties, functioning of government, political culture, etc, and in the last decade, 2011 to 2021, m any countries declined in their score on the index. The US is one of them. We just climbed from 17 to 26, being one of the lowest ranked countries in the OECD in terms of the strength of our democracy. This chart has a lot of orange and reds, including in large countries.

Whereas if you would have looked at a decade earlier, 2001 to 2011, it would have been the flip. It would have been a picture of increasing democracy across the globe. So we're seeing not the kind of correction we want to see in the global picture. And as we look at 2022, right kind of here and now, there's some very specific and visible risks that we're facing.

We're seeing lack of faith in elections, with many Americans believing victories are fraud. We see this information not only about elections but more broadly, really polarizing the environment, the media environment. We see bills being introduced in many states that put at risk nonpartisan elections, that would change election rules, that would make it harder to vote.

We do have an upcoming case. Some of you may have seen this. The Supreme Court is taking up a case this year, that would essentially change the way election laws are made at a state level so that state legislatures would be the final authority, and there would be no recourse to the courts at a state level. Which means basically, that state legislatures could gerrymander without recourse. They could change election law, which I think many legal scholars think is really worrying. And one of the things we're doing is we're submitting an amicus brief to the court on behalf of business leaders who are concerned that this would undermine business, create polarization through gerrymandering, and really hurt the business environment through uncertainty.

So based on that, there's three things that we're seeing as the most core types of threats to the system - projection solution and election results, use of political retribution against individuals or companies who don't agree with you, and political violence, which at a state level, in certain states, we are seeing election administrators quit because they're getting threatened.

We have a group of members in Wisconsin in Leadership Now who sent a letter to every election administrator in the state to thank them for their service because they've had to endure so much backlash and threats after the 2020 election. Speaking of Wisconsin, one of the things we do is we look state by state to really understand, because a lot of the laws that govern elections and the great risk are state by state. We have a state report card that among other things, you can find on our website, that looks at how states perform across all of these different factors, which we think is helpful, both so business leaders in the state can then know what needs to change and what they can be pushing for. And then also, as people are considering investing in their business in a new state, this can give an understanding of what's going on. The piece I want to close on is that this puts a lot of pressure on business to respond. Businesses are relatively the most trusted. I think what this looks at is Democrats versus Republicans level of trust. Democrats probably pretty equal across the different categories of government, media, etc. But for Republicans, we're seeing very low levels of trusted media, government, NGOs.

Interestingly, trust in business dropped 12% since 2016 for Republicans, and it went up once more for Democrats. It's actually the first time that Democrats trusted business more than Republicans, which is interesting and a reflection of what we're seeing in the broader environment. But we also know that there's business being called on to do a lot because it's trusted and it also is influential. Business is by far the biggest lobbyist in Washington, the US Chamber of Commerce and realtors, others.

Part of the question we've asked is, business is so powerful, how do we use that power to help democracy rather than hurt it?

And that's a whole series of things in terms of looking at political spending, lobbying, etc. that is influencing the system. And not always in a helpful way in terms of the strength of democracy. But other times, it is helpful, which I can talk a little bit about what that looks like. We know that consumers are going to continue and employees are going to continue to ask for leadership from companies on this as well. But there's some hope. There is real action that's been taken.

I think our first important step that we're working on, with many others, is attention and all of us, really understanding where we are and understanding the scope of things that can be done. Ukraine is an example where there was a very rapid, coordinated set of actions by companies because they and their employees and our customers all said, okay, this is a clear threat to democracy, threat to peace. And you saw a very rapid response. And we are seeing responses from companies to the current democracy situation whether it is enabling voting by employees and consumers, whether it's pulling backpack spending from election objectors as Microsoft did.

We are seeing some increasing kind of collective action.

We just worked with the Chamber in Detroit to endorse the ballot initiative in Michigan that will protect elections and voting. So we're continuing to see movement. But we think that needs to be ramped up pretty dramatically and in a more coordinated way.

What can companies and individuals do?

I think I'd argue that at an individual level, at a company level, it's kind of hard to stay out of this issue. I do think one thing we've seen a lot is that the company is getting hit on so many different issues. I think we'd make the argument that democracy, trust in elections, etc, is really foundational. And that's something where we could find common ground across a lot of organizations, even those that might be debating how to step in on other social issues. So things that can be done. Providing, restoring trust and promoting voting for employees, for customers for communities. Really understanding, what are the risk factors? What are the guardrails we all want to protect? You know, we want to protect that elections are legitimate. We'd want to prevent violence. What is the minimum almost criteria we want to protect? There is a lot of work going on to support different policies that make elections less likely to be undermined that supports voting. And then there's a whole innovation side of things, which I know I'm not talking that much about today, but which is updating the way voting happens. Things like final five voting, rank choice voting, objective redistricting, that once you end gerrymandering, like we have in New York for instance, all of a sudden are starting to see a lot more competition. I mean, your process was imperfect, and feel free to ask if you want, but the reality is, we have some amazing candidates running and dynamism, etc. because, you know, the district lines were in need of an update. And if that happened across the country, you would see a lot more dynamism. So New York just moved up on our democracy rating, because it ended gerrymandering in the state.

So the Electoral Count Reform Act will clarify the transition to presidential power to try to avoid some of the risk of another January 6. It's in Congress right now. And make it clear that the Vice President's role is ceremonial, that states can't send fake electors into the system, etc. And now there's bipartisan support for it. So the chance that this passes sometime between November and January is high and encouraging. It's definitely something we've been very engaged and engaging with Senate leadership. We worked with the Partnership for New York City, the big CEO group in New York came out on it a few weeks ago. And we've really seen appetite in the business community to support it. And then the other piece that we focus on is, how do you incorporate these types of issues into ESG, both in terms of improving governance of companies by having more transparency and political spending, understanding what that means. And it is something where we see advocacy groups also kind of pushing companies on their spending, etc

The talent question.

In 2018, we had a great new class in Congress, a lot of people got really motivated to run. You've seen some new talent enter for sure. At the same time, there's definitely structural barriers. Basically, if you're in Congress, this is particularly on the Democratic side, they're not totally inconsistent with a Republican, it's a hierarchy. So you wait your turn for 20 years to be a committee chair or other things. Once you're there, it can be a very frustrating place for talent. State level politics have different issues. They're often unpaid or partially paid or taking risks, and now with threats. But we think about this a lot on how do you really build strong talent pipelines? And I definitely believe it's possible.

There has been energy, there's the potential, but you really have to support candidates in a more comprehensive way for them to be able to run and succeed. And in a really messy system and feel supported when they could be taking real risks. I was just with the Governor of Michigan, Gretchen Whitmer, who was threatened with being kidnapped and killed as Governor. That's a scary prospect. But she also has an amazing group of women who are the leadership of the State, the Secretary of State, the Attorney General, and they're all grappling with this. And, I think, motivating each other to continue to provide leadership in the state.