It is well-documented that one factor in China's emergence as a global business leader has been the nation's theft of intellectual property from American companies. In May 2022, it was reported that Chinese hackers stole trillions in IP from 30 countries, including the United States, predominantly from the pharmaceutical, energy, and manufacturing industries.

On the frontlines of this undeclared war of ideas are the CEOs of American businesses, who face two competing pressures: to deliver short-term gains for the sake of their jobs as well as shareholders, which means doing business with China on its terms, or to look further down the road and take measures to protect their companies' long-term survival against China's efforts to illegally obtain IP. Often, CEOs prioritize the first at the expense of the second, which may only embolden China to continue its deceptive business practices.

Below, Noelle Borao, a researcher at the University of Denver with extensive experience in U.S.-China affairs, explains why CEOs are reluctant to address China's threat and how they can take steps to address it for the benefit of their companies and shareholders.

What are the pressures that CEOs of American companies face that are causing them to ignore or be unaware of what China is doing?

CEOs face what is referred to as agency conflicts?: reconciling shareholder interests with management (or agents') interests, and firm interests with national interests. For example, publicly held firms are required to produce quarterly earnings reports of their performances. This is important because shareholders - both institutions and individuals - have the right to know how their investments are performing.

However, these quarterly updates can make it difficult for operators to run their businesses successfully because more often than not, successful initiatives require sufficient time to materialize, and three months are often insufficient.

So, executives may often bow to pressure from analysts and shareholders who are intent on judging them on short-term metrics rather than long-term performance. Will CEOs care about what happens in three, five, or ten years if they believe they need to take actions to increase their firms' stock prices or protect their jobs today?

Is there any validity to their short-term outlook and to their prioritization of the short-term over China?

Yes, their reasons can be valid because our system incentivizes short-term thinking and behavior. Even so, at some point short-term commercial interests and long-term security interests converge, as we are seeing today.

The danger of ignoring China, whose government is intent on attaining global power through IP theft, is clear: (relatively) free enterprise cannot function where there is authoritarian control. In its simplest form, authoritarian control relies on business, society, and the legal system, etc. to stand down in order to keep autocrats in power. Over time, autocrats who want to remain in power at any cost do not want to be challenged by new talent, new ideas and new leadership. So, in order to remain in power, they do what it takes to keep entrepreneurs, innovators, and executives down.

How can CEOs work with shareholders to understand the growing threat and therefore reduce shareholder pressure so that they can focus on the big picture and not the short term?

One way the private sector has done this is to align purpose-driven businesses with the benefits of unleashing the power of the private sector (free markets), so we have to give them credit for that. For example, there are many businesses that promote sustainability, equal opportunity, and human welfare and wellness.

However, as it relates to the business of innovation, many high technology products created today by innovative companies have dual-use applications, which are those that have both private use and military uses. So, if we are not careful about these powerful technologies getting in the hands of the wrong governments, we are working against our own interests.

After all, what good would all the capital in the world do if each of us, as individuals, did not have our basic human rights? CEOs must make this case with shareholders and vice versa. This is why I say business interests and national interests go hand in hand.

What is one thing that you recommend that CEOs do for their companies that will continue working with China?

Corporations must convince the Chinese government to change course. They must be willing to say, We will not put our facilities here if you do not play by international norms. If you keep stealing our innovations to use them to empower a regime bent on suppression and oppression, we will no longer partner with you. If you steal our innovations to later drive our own companies out of business, we will not partner with you. We will no longer transfer knowledge to your country if your objective is to keep people down rather than to mobilize them to be responsible global citizens.

There are plenty of things businesses can do to foster better behavior from regime leaders.

Is there a particular mistake you have seen businesses make when working with China? What could be the solution?

Yes. Culturally in America, we are transparent and honest (in relative terms). China's leadership has historically lacked transparency, so you see this passed down in ways our peoples do business.

Westerners assume too many similarities in our cultures, and we are more idealistic. Consequently, we leave ourselves very vulnerable to others to exploit our open business culture. This exploitation occurs in the way of spying, stealing, and influence campaigns or disinformation, for example, often from those we seemingly trust. This makes the insider? threat one of the gravest threats to both business and national security.

It is imperative, then, that CEOs, new and experienced, engage with China with their blinders off. If they prioritize their companies' long-term interests, understand the historical context for where we are today, and are smart rather than desperate about commercial opportunities, that may go a long way toward impacting what our world looks like 5-10 years from now.

Noelle Borao is a researcher (University of Denver) whose focus is innovation under the tent of U.S.-China affairs. She is also a graduate of several distinguished programs for senior executives and advises senior executives in government, business and academia.