Corporate Statecraft

CORPORATE STATECRAFT
George Haynal
2012-2013 PAPER SERIES NO.5
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Corporate Statecraft
Transatlantic Academy Paper Series August 2013
George Haynal1
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction: The State-Like Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Some 21st Century Challenges Demanding Corporate Statecraft . . . . . . . . . . . . . . . 4 The New Challenge of Maintaining Legitimacy . . . . . . . . . . . . . . . . . . . . . . . . 8 The Core Competence of Corporate Leaders . . . . . . . . . . . . . . . . . . . . . . . . . .14 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
George Haynal is an Aurea Foundation Fellow with the Transatlantic Academy. He is also professor of corporate and diplomatic practice at the Munk School of Global Affairs at the University of Toronto. He was a career diplomat in the Canadian foreign service, including an appointment as consul general in New York. He was subsequently vice president of international and government affairs for Bombardier Inc, a global manufacturer of civil aircraft and rail.
Executive Summary
lobal corporations (in particular those based in the North Atlantic and its emanations) are as vulnerable to the political, social, economic, and physical environment as they are integral to it. They rely on stability in the rules that determine competition, even as the existing systems of state-based multilateral disciplines is under challenge. They rely on social stability in a wide diversity of often unstable and fragile polities to sustain long-term investments in plant, workforce, and markets. They rely on predictability in the economic environment, including the swatches of that environment under corporate management, to sustain vital flows of capital. They rely on predictable access to sustained access to raw materials, technology, and energy simply to operate. Critical to being able to benefit from all these positives is corporations need for legitimacy, or acceptance by those who set the rules under which they operate. The source of legitimacy used to be the state and its political and regulatory arms. Today, the license to operate comes not just from the state, but from a far more diverse set of authorities. Some, such as consumers and investors, have direct power; others rely on social media, with the capacity to shape the views of those who do exercise it. Corporations are also increasingly on their own, no longer able to put the state between themselves
and the outside world. They must deal with the decline of their states capacity to balance to their interests against other demands in policymaking at home, and to defend them in an increasingly unstable, diverse world where the fulcrum of economic power is shifting away from the North Atlantic order. They must also operate in a climate of increasing transparency and accountability demanded by a technologically empowered Demos, one which escapes the control of the state. While they possess elements of virtual sovereignty, corporations do not yet, as a rule, engage with challenges in this external environment at a level that reflects either their capacity or their interests. This paper argues that they must do so, not necessarily from some sense of social obligation but because their vital self interest is engaged. To do so, they need to integrate management of the outside into their business model, just as states integrate the management of the foreign environment and the domestic realm in their statecraft. This paper argues not only that corporations need to adopt a form of statecraft, but that to do so, they need to develop the diplomatic culture and tools it demands. It also provides some practical ideas on how that might be done.
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Corporations are powerful independent players in the global system, not dependencies of state actors or equal partners in civil society.
Introduction: The State-Like Corporation
wide and deeply influential discourse has been focused in the last decades on whether and how states should manage their affairs in a more business-like way. A parallel but disconnected discourse has developed around the notion that corporations should act with a greater degree of sensitivity to their social responsibilities, i.e. act more philanthropically. It would be more fruitful in pursuit of that end to urge global corporations to be more state-like in their conduct because, in a rapidly mutating global distribution of power, global corporations are becoming ever more like states than state dependencies like other components of civil society (though most do not yet understand it themselves).1
They control territory (in cyberspace and along global supply lines), issue a form of citizenship (their mobile global workforces inevitably have a divided loyalty to their state of formal citizenship, but also to the global corporations that employ and otherwise most directly affect their welfare and that of their families), issue money (in the form of credit and financial instruments), have legal systems of their own (e.g. in the form of private arbitration systems), and have independent security responsibilities (for their own property, but also for vital public infrastructure, and the protection of international trade corridors). They are, in short, powerful independent players in the global system, not dependencies of state actors or equal partners in civil society. How then, to encourage them to assume responsibility for their impact on the broader social, economic, and physical environment? It is the thesis of this paper that corporations should be encouraged to recognize themselves as the statelike actors they are. Autonomous as they are, they rely, just like states, on both stability and fluidity in the external environment to thrive and survive. They rely on positive reciprocity with the broader world for stability, inputs of labor materials and capital, protection from predatory competition, and access to markets for their products. In short, they are vested in the external environment, not as a matter of sentiment, but of vital self-interest. At the heart of corporate statecraft, like the statecraft of governments, lies the imperative for sharing responsibility as the best and least costly way to pursue their own welfare. The Corporate Environment of the 21st Century: Civilization, Jungle, or Frontier? Corporations, like other entities and individuals, will always seek the most favorable rules and restrictions under which to operate, but most
They have clearly articulated purposes (at the core of which is operating profitably) that are set out in their constitutions (charters of incorporation). They are held to close account for meeting their mandate by invested stakeholders. Unlike NGOs, they wield direct power (rather than just influence) vis-a-vis other powerful entities globally, including states. Global corporations are, in a number of ways, sovereign, in the sense that they are in some growing measure free of jurisdictional constraints and are obliged to defend their interests independent of systems and state disciplines. They are mobile; able to invest and operate globally.2
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This is a personal reflection based on a combination of career experience as a practicing diplomat, often focussed on the intersection of the public and the corporate realm, and subsequently as a senior executive engaged in that realm. While it is, therefore, not an academic endeavour, I have benefitted enormously from a wide range of readings, some of which are reproduced in the bibliographical annex to this paper States, which are trapped in territory and dependent on corporations to generate wealth required to sustain their own stability, increasingly court, rather than constrain corporations (though this is not always the case in states where the economy operates as part of or under close control of the state).
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accept societys limits on their behavior (if sometimes reluctantly). They appreciate, implicitly at least, that their chances for extended survival are infinitely better in stable, rules-based systems that balance competing interests than those that tilt too far in any particular direction, and are thus both unstable on the short term and doomed to tip over in the long run.3 Even the most responsible corporate leaders can have difficulty respecting the rules in cases where they consider systems of constraints to be weak, stilted, or absent. Business leaders frequently argue (often retrospectively when caught out) that such environments are the jungle, and that once in the jungle, there are three ways to survive: operate by the laws of the jungle, quit the jungle, or (as they have too often maintained is a quixotic option) try to tame the jungle. The choices are, of course, not that straightforward since the three approaches are not mutually exclusive. This is especially the case in what is emerging as the global system in the 21st century. It is no longer the North Atlantic order, but neither is it the jungle. Rather, it is an environment made up of a patchwork of traditional understandings; more or less effective jurisdictions and their institutions; contending global powers; empowered, informed, and cynical publics; empty legal space; lawlessness; and a parallel, frontier world in cyberspace. Corporate Statecraft: A Definition The growing impact of corporate decisions on this increasingly complex environment, on one hand, and corporations growing vulnerability to it, on the other, demand that corporate leaders focus as much on safeguarding their relationship with the broader
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environment as on effective internal management. I would argue that they cannot afford to continue to regard their proper role in the public realm as reluctant rules-takers. They need, as a matter of vital self-interest, to raise their engagement with the public sphere to something more akin to statecraft, that is to say, an approach to managing their affairs akin to that which modern states seek to practice, including: the synchronized management of internal and external affairs; the reconciliation of the long and the short term in tactics and strategy; the husbanding of resources and their deployment in accordance with priorities and in response to the unexpected; the management of external constraints and the maximization of cooperative opportunity through diplomacy (engagement with power beyond their direct control); and maintenance of legitimacy and consent of constituents/stakeholders. This paper notes some of the dynamics that corporations will need to address in developing their statecraft, with a focus on how they might most effectively conduct their diplomacy, and roughs out a few suggestions for how to go about doing so.
They cannot afford to continue to regard their proper role in the public realm as reluctant rulestakers. They need, as a matter of vital self-interest, to raise their engagement with the public sphere to something more akin to statecraft.
The question of what reciprocal responsibilities they have for perpetuating the systems that sustain them, however, is the focus of much controversy. In this paper, I come down on the side of those that argue for mutuality as a matter of corporate self-interest.
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Corporations will need to learn how to manage their long-term interests in an environment defined by this less capable, less legitimate, and hence less stable democratic state.
Some 21st Century Challenges Demanding Corporate Statecraft

disaffection, disappointment, and disengagement by citizens. Changes in political discourse, social norms, and advances in ICT also enabled the often efficient and economic downloading, networking, and privatization of certain service functions, including the provision of critical infrastructure, health, and safety regulation and physical security. These were traditionally provided on a monopoly basis by state agencies, thereby introducing a further and controversial argument for the end of big government, the one that had become the norm in modern societies. Their cumulative effect has been to diminish the reach and, more critically, the legitimacy of the democratic state. Corporations will need to learn how to manage their long-term interests in an environment defined by this less capable, less legitimate, and hence less stable democratic state. They need to understand that a critical feature of this lesser state will be that it will be less able to provide certainty in regulation or constancy in policy. At home, a wobbly democratic state, susceptible to short-term demands from vocal politicized constituencies, will be less able to balance corporate interest with that of other segments of society, provide less effective constraints protecting them from their own faulty behavior, or to mitigate the consequences in case they engage in it. The state will also be less able to balance corporate interest against those of other claimants for resources and advantage, or to insulate corporations from direct, crisis-driven intervention in the conduct of their affairs. Internationally, the lesser state will have a diminished interest in, and less capacity to shape, global trade, security, regulatory, and investment regimes that respect OECD norms, and hence to defend their corporations against predatory global competition.
The Disintermediation of the Democratic (Welfare) State he gradual disintermediation of the democratic (welfare) state is eroding its capacity to help corporations manage complexity in the external environment. That states ongoing displacement may be a disjointed trend, but it is hard to deny. A number of mutually reinforcing phenomena are at work disintermediating the state. Neo-conservative arguments against excessive state involvement in Western society, which provided a philosophical, but not a compelling political challenge to the welfare state during the Cold War, became, in some countries, a more compelling political force on the collapse of the Soviet model. Cutting back the state was presented, perversely, as one way to collect the peace dividend that democratic societies awarded themselves in their (in the end, brief) moment of ideological supremacy. Growing fiscal imbalances and the need to correct distortions caused by some social programs may have been the stuff of neo-conservative critiques of the welfare state, but they are also real, and have obliged governments (sometimes with extreme reluctance) to reduce the intensity and reach of the state into society. These attempts at retrenchment, in turn, serve to weaken the states legitimacy among those disappointed with its failure to meet (ever expanding) expectations. Citizens have taken advantage of ubiquitous information and communications technology to engage in forms of political organization that challenge not just individual governments but the very legitimacy of the institutions of representative democracy that produce them. The new transparency has also brought to light widespread rent-seeking behavior among those in charge of political and bureaucratic arms of the modern state, with revelations of such behavior intensifying
Corporations may, in other words, find the state weakened if not missing in action, when they need it. What will they have to do to replace it? They will, for one thing, need to be far more sensitive to the broader ramifications of their own actions. As more and more public goods are delivered by the corporate sector and as corporations come to build and manage more and more of the infrastructure of modern life, they will be held more and more directly responsible for how they manage their own affairs, including, in particular, how they manage the risks inherent in their intense reliance on complex technologies to do so. Failure of a single institution operating critical infrastructure (whether in finance, energy, or communications) due to malfeasance or avoidable error can have immediate and severe knock-on effects on not just corporate, but the public interest. Catastrophic social and ecological consequences of corporate error can threaten the license to operate of an entire sector. It follows that corporations need as stable, responsive, and resilient a state system as possible. Rather than basing their statecraft on trying to circumvent, and thus further reduce, the democratic state, it will be in the interests of corporations to help reinforce it, at the same time ensuring a high level of probity in their own governance (e.g. in the form of credible systems self-regulation, transparent, and efficient delivery of privatized public services). Their statecraft, in other words, will need to be based in an acceptance of citizenship with its obligations, not just its privileges, if they are to retain the broad legitimacy that they require to operate in ever expanding spheres of activity with direct social consequences. Building this form of corporate citizenship will be challenging enough in established democracies; it will be substantially more difficult elsewhere. This has been and continues to be the case in
unstable polities, but a more complex challenge arises from the opening of what had been centrally controlled state economies that have large, mature state machinery, but that have not yet been harnessed to democratic political values and the impartial, independent rule of law. In most Soviet bloc polities, what would be considered ordinary market activity in industrial democracies had been treated as criminal conduct. As the states absolute control of the economy collapsed, what followed was sometimes an indiscriminate decriminalization of all (including substantially criminal) economic activity. Politicized systems of regulations, erratic, personality-driven political decision-making, and systemic corruption requires corporations (sometimes with the support of their own home governments) to develop sophisticated new means to manage regulatory and political risk, build and sustain operations, ensure returns on investments, attract capital, develop and manage human resources, protect intellectual property, grow markets, and ensure the adequacy of physical, human, and governance infrastructure. Intermesticity4 The rapid mutation of political borders, and indeed of the notion of sovereignty, poses another challenge for corporate statecraft because it is eroding the system of disciplines and understandings on which corporations rely to provide the external stability they require to conduct business. What drives intermesticity, the environment characterized by the erosion of the political, policy, and regulatory boundaries between national and subnational realms, and
Rather than basing their statecraft on trying to circumvent, and thus further reduce, the democratic state, it will be in the interests of corporations to help reinforce it.
The adjective intermestic was used by James Rosenau in his description of foreign policy issues that, in terms of congressional politics, were intrusive enough to be treated as domestic in character. It is a neologism, used, more generally to allude to the blurring of the lines between domestic and international policy.
indeed between the domestic and international spheres? Successive rounds of multilateral and other trade arrangements moved on from removing tradeinhibiting barriers at borders (tariffs) to restricting those behind them (non-tariff barriers, a class which include regulatory and policy discretion, measures that are often within the scope of subnational rather than national governments). The result is to have made borders juridically and politically less relevant, or in some cases, redrawing the balance of power between national, subnational, regional, and multilateral jurisdictions. Some federal (and some previously unitary) states are, in any event, devolving responsibilities to the sub-national level, driven by concerns about their own capacity to manage linguistic and cultural differences or in response to local demands for control over resources. Changes in the economy and society have also challenged established (often constitutional) notions of where political responsibility is ultimately most effectively exercised. The most dramatic such shift is in the relationship between the municipal and superior levels of government. The vast majority of both people and economic activity continues to gravitate to cities and away from the countryside, with growth in activity and employment away from (rural) agriculture to (urban) services and manufacturing. The demands for social and physical infrastructure, regulation, and policing are all consequently gravitating in this direction, while formal political responsibility often lags, or, as bad, is the subject of constitutional confusion. The ICT revolution has also helped enable this process of devolution. Information technologies make it possible for large swatches of the services sector to be conducted entirely free of geography,
Significant attributes of national sovereignty have either withered, migrated upwards or downwards been assumed unilaterally by a dominant polity, are the subject of a confused evolution, or simply evaporated over the last 30 years.
and merchandise trade to be restructured along value chains rather than within geographically defined constraints. They have also made possible the rise of a new Masonic class of knowledge worker, globally mobile and able to avail itself of increasingly liberal access to citizenship among courting jurisdictions. This class of global citizens regards political borders as a subject of arbitrage, rather than absolute loyalty. The growing willingness of dominant polities, particularly the United States, to exercise supraterritorial (universal) jurisdiction over the conduct of global corporations is another feature of intermesticity. Any company that is publicly traded or operates in the United States is subject to U.S. laws relating to corporate governance, most particularly, as Siemens discovered,5 to corrupt practices, wherever they occur. Global corporations, most of whom perforce have a substantial proportion of their business in the United States, cannot afford to dismiss these rulings, no matter where they are domiciled. Lastly, it is worth noting the phenomenon of the phantom state, polities that are either powerless or controlled by rogue actors, criminal or otherwise, where formal rules are observed only in the breach. Significant attributes of national sovereignty, in sum, have either withered, migrated upwards (to regional, plurilateral, and multilateral institutions and arrangements) or downwards (to the subnational level) been assumed unilaterally by a dominant polity, are the subject of a confused evolution, or simply evaporated (into cyberspace) over the last 30 years. Yet many of the issue areas that have or should have migrated to new players continue to be critically important to corporations,
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In 2008, Siemens reached an agreement with the U.S. government to pay a fine of $800 million for violating the Foreign Corrupt Practices Act. It paid a similar size penalty to the German government.
and so their diplomacy has become more complex just by dint of having to deal with more authorities. The challenge is compounded, furthermore by the increasing complexity of agendas to be conducted with them. Managing the traditional and already demanding mix of regulatory, tax, subsidy, tariff, and competition issues with clearly defined, fully sovereign democratic jurisdictions is straightforward but challenging enough. The corporate agenda with governments, however, now goes beyond these old issues, to include a growing range of subjects that are of vital corporate interest and where no public jurisdiction is able to manage in isolation. For the sake of illustration, these include issues related to: The development, retention, health, participation of the working population Citizens expectations and social solidarity The viability of knowledge (i.e. the development, deployment, and protection of intellectual property) Security (of global value chains, economic nodes, critical infrastructure, and cyberspace) Stresses on the physical environment (e.g. the availability of clean water, the risks inherent in extreme climate) Stresses on the human environment (e.g. pandemics, displaced persons) The rules of competition in globalized markets Not only are individual jurisdictions unable to exercise full sovereignty in these areas, even more
challenging, some of these areas now escape state management altogether. Global corporations have to supplement the state system, even acting on their own when the state system fails as a matter of self interest, given their own operational needs, if nothing else.6 Managing Intermesticity Corporations would do well to look to how governments manage in this complex universe. It is commonplace to observe that foreign policy always reflects domestic interests. But it is also the inescapable experience of states that no domestic file can any longer be managed without due regard to the external environment. There is virtually no department of government in a modern state that does not have direct foreign engagements, nor is there a head of government who is not challenged daily to reconcile the domestic and the external, to manage the states affairs intermestically. Corporations, occupying an ever more independent and powerful place in the global system and ever more exposed to outside scrutiny and expectations, also have to learn how to systematize management of intermesticity in the conduct of their own domestic affairs, (in governance, labor and environmental practices, product safety) and in ensuring that they are able to anticipate and respond to external events (political and social instability, regional security tensions, discontinuities caused by natural or human-caused disaster, and changes in interstate relations and understandings).
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Corporations would do well to look to how governments manage in this complex universe.
One particularly dramatic case in point is maritime piracy that demanded private sector remedies before the state system became an effective partner in protecting traffic off the Horn of Africa and elsewhere.
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Civil society is no longer just the sum of NGOs, but now includes the Demos the chaos of sometimes spontaneous, always vocal, and often articulate collectivities that can be quickly mobilized in cyberspace that act in the absence of, or despite representative institutions.
The New Challenge of Maintaining Legitimacy

a strategy with serious potential for exacerbating, rather than managing mass political alienation. While the Demos has shown revolutionary potential for destabilization, it has not been possible so far to channel its energies into creating stable new polities. The direct impact of the Demos in developed industrial democracies, (as expressed in the Occupy movement or the Tea Party, or the rise of populist political parties in the U.K., France, and Hungary) and the growth of a culture of rebellious transparency within state structures as expressed, for instance, through Wikilieaks and the acts of individuals like Bradley Manning and Edward Snowden has already been significant in shaping policy and discourse. It has demonstrated the potential for more radical destabilization of polities in economic and social crisis (e.g. in Greece). More dramatic has been its role in brittle polities (as in the so-called Arab Spring). There, the Demos overthrew entire power structures, but did so without replacing them with a stable alternative. Global corporations that invested there, having relied heavily on the repressive stability provided by the old regimes, were uninformed about the social forces that overthrew them. They had to scramble to make peace with chaotic, fragmented, and temporary regimes, uncertain about the future, and not having anticipated Nassim Talebs black swan,7
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The Rise of the Demos ntil the ICT revolution began to reshape the global hierarchies of power, corporations rightly regarded the state as their only real political counterparty. Corporate statecraft involved the management of relations with the various deliberative, policymaking, regulatory, and judicial arms of government. Civil society in the form of NGOs, could not organize with sufficient sophistication, speed, or reach to be more than a sidebar in corporate strategy making. The corporate response to often contradictory, sometimes uninformed demands from civil society was, and in many cases is still, managed as a public relations/public affairs function, kept at arms length from essential business decisions. But it is no longer possible to maintain such a distant, defensive relationship with civil society, because it has been transformed by experience, education, and above all, the empowering and pervasive availability of communications technology. Even more compelling is that civil society is no longer just the sum of NGOs, but now includes the Demos the chaos of sometimes spontaneous, always vocal, and often articulate collectivities that can be quickly mobilized in cyberspace that act in the absence of, or despite representative institutions. The Demos is local and global. It can be swayed, but cannot permanently be repressed. It can express specific as well as general aspirations. It is anarchic, in that it often has no hierarchies or formal leaders. It can serve any cause, but is generally an expression of discontent, and is, as a rule, expressing discontent with those in power, both in the political and the economic world. It has already had dramatic impact in the political realm, having destroyed autocratic regimes (without necessarily producing sustainable replacements) and changed policies of established democratic states. Its presence has forced autocratic regimes to resort to extreme forms of information repression,
As succinctly defined in Wikipedia, the theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The theory was developed by Nassim Nicholas Taleb to explain: The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology; The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities); or The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs
often without established relationships to help them do so. Being disconnected from the turmoil beneath the surface, they had also not been engaged in assuaging it. Events in North Africa and elsewhere underline the need for a deep corporate diplomatic component to their statecraft, to anticipate and try to head off instability, and failing that, the capacity to come to terms with the new order (or chaos). Regimechanging crises are now a persistent feature of the broader environment. Corporations have to, again as a matter of self interest, decide what means they need to have to help avoid sudden systemic disruption, including how they might help anticipate or remove the sources of societal tension, including ecologically driven tensions, and create the means through which these tensions can be resolved. From CSR to Agendas Shared by Business and Civil Society Understanding and managing the power of the Demos is as complex a challenge for established civil society organizations as it is for corporations, as this new political force challenges the legitimacy of both. This may explain why some in the corporate and civil society worlds are beginning to move on from relationships largely shaped by competing interests to trying to build a shared agenda. It is, perhaps, no coincidence that the spread of the internet and the transmutation of the concept of corporate social responsibility (CSR) into that of sustainability have had parallel histories. The two, together, have the potential to enable a positive new relationship between organized civil society and the corporate world. While the notion of corporate social responsibility was innately confrontational, sustainability has given civil society and the corporations what is at least a common linguistic
platform on which to meet. A number of corporations and NGOs are now even working together in a number of settings (for instance in managing social and economic development initiatives associated with resource exploitation), something unimaginable 20 years ago. This is a start by a number of entities, but generally speaking, business and civil society interpretations of what sustainability means still differ; nor is there agreement on how to attain it. Shared agendas are in the early stages of evolution. While an increasing number of corporations are rhetorically committed to sustainability, the substantive response of most to calls for socially responsible behavior is largely confined to that narrow band of areas where there is already a complete coincidence between what corporate conventional wisdom accepts as good business and what civil society prescribes as social need (particularly the economic use of energy and materiel). The most active in attempting to bridge this gap are communities of consumer-oriented companies, such as Unilever, whose business success depends directly on consumer sentiment, which, in turn, reflects popular mores. In the 24/7 global news cycle, management of their brand demands constancy in demonstrating acceptable behavior on a universal basis or losing the emotional bond with their customers that is a critical aspect of their competitive advantage. While consumers are the most potent force for enforcing broad norms of corporate behavior (as demonstrated after the April 2013 Bangladesh factory collapse), other external powers are also shaping corporate culture. These include governments reacting to public pressure (Canadian legislation now seeks to establish norms for the behavior of Canadian mining companies in foreign jurisdictions), multilateral institutions (the World Bank blacklisting corporations for corrupt
While the notion of corporate social responsibility was innately confrontational, sustainability has given civil society and the corporations a common linguistic platform on which to meet.
Corporations, in these circumstances, have no choice but to take on an ever more direct responsibility for their own security.
practices, and the UN providing positive incentives through the Global Compact) expand this vector of commonality to other areas where their needs and the needs of broader society can be understood to converge. While some of the most far sighted among them are internalizing the challenge, a critical mass in favor of increased corporate investment in broader notions of sustainability has yet to develop. Until it does, a long, slow process of challenge and response between social actors and the corporate world will continue. But that process will be rough and full of crises created by the Demos. Corporate statecraft will have to go beyond the strategy of reluctant accommodation to external demands for acceptable behavior if they are going to be able to accommodate to its power. Corporate Stewardship of Critical Public Assets: Managing the Threats from Global Crime and Terrorism Corporate security is now as complex a challenge as state security with which it is increasingly entangled. The revolution in ICT has empowered criminal networks, clandestine state agencies, and terrorist organizations just as much as it has helped business and popular movements. To the traditional threats from terrorism and crime, which national authorities could address either behind their borders or cooperatively across them, much of this activity has no territorial expression, being conducted either in cyberspace or through global value chains that mimic those of the legitimate economy. Corporations cannot therefore continue to rely largely on the efforts of the state to protect them. The scope for and the challenges posed by statesponsored industrial espionage are now beginning to be well understood, and have stimulated cooperation between corporations and their home
governments, albeit a cooperation fraught with legal, moral, and practical complexity. Global criminality and associated terrorism poses even more complex business challenges. While their direct impact on corporate interests is calculable in terms, for instance, of lost intellectual property, disrupted services, risks of infrastructure instability, and theft, IT-enabled criminal/terrorist networks also discount political borders, and the rule of law that lies behind them, create criminal states where the writ of law does not apply, and infiltrate and extort legitimate business. Put another way, they undermine the systems on whose stability and predictability business relies, diminish the reliability of transport and information infrastructure networks that constitute global value chains and pose unprecedented challenges to internal governance. A further, perverse consequence of global crime/ terror is governments reaction. While increased government oversight of corporate governance and security is both accepted and unavoidable, a multiplicity of state security measures, most particularly border measures, cause bottlenecks in global supply chains and themselves negatively affect the conduct of global business. To add further complications that arise from the response to global terror and criminality, the security revelations from Edward Snowden among others indicate that their own states are obliging OECD-based corporations to share in surveillance of information flows, and in the process creating a new and hidden partnership of corporate and state structures. Corporations, in these circumstances, have no choice but to take on an ever more direct responsibility for their own security. They need to assure the integrity of their intellectual property, to protect the integrity of the critical infrastructure with which broader society is increasingly entrusting them, to safeguard their
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employees, maintain the credibility of their systems of governance, and secure the reliability of their value chains on the high seas and in cyberspace. While they will have to act on their own, they will also be compelled to enter into ever more intense and flexible partnerships with states and civil society. In order for them to be credible in doing so, they also have to take on a greater sense of responsibility in policing their own behavior, both in their own governance (they are a major player in the corruption of states), and in ending their collusion, unwitting or active, with international criminal organizations. Lastly, they also have to reconcile their obligations to protect the interests (for instance in privacy) of their stakeholders, and those imposed by governments. Balancing these various security related demands will continue to be a growing focus for corporate statecraft. The Clash of Empires 2.0 Global corporations have complex relationships with their multiple and overlapping home jurisdictions. They are legal creatures of their home state (but also of states where they are established). They are also beneficiaries of homestate sponsorship in their international activities and in many cases, agents of state interests. But the relationship is not one way. It has happened often enough (expressed most overtly in great power gunboat diplomacy in Asia, and U.S. state tutelage in Central America, and the continuing and complex geopolitics of energy now) that corporate interests were the tail that wagged the government dog. Global corporations, in short, compete not just with each other, but each others sponsor states, and states compete not just directly, but through their corporations. What is different about this competition today from even 30 years ago is that new members have forced their way into the club of great economic powers, formerly centered on the North Atlantic
(+Japan). China, India, Russia, and others (such as critical resource states in the Gulf, with leverage far in excess of their scope as economies8), each with their own great corporations, distinct cultures, political and security imperatives, and perspectives on competition, are now at the center of the world economy. They have changed the rules of global competition, and thus pose a whole universe of new challenges to corporate statecraft. These polities are more brittle than the liberal democracies; they are also far more directly involved in the economy, as constant economic growth is critical to their stability.9 They look to their pillar corporations as direct participants in ensuring that growth and support them accordingly, both in helping to make them more competitive in global markets and in securing a privileged position for them at home. They often make access to their own markets, in this context, contingent on foreign corporations serving policy purposes (e.g. the transfer of technology). Stakeholders in corporations based in these polities do not, furthermore, necessarily share traditional understandings about state-business relations, labor relations, competitive intelligence, IP protection, or norms of corporate governance. The competitive playing field, for instance in the global airline industry, has been transformed by Gulf-based airlines able to draw on unlimited financing and infrastructure investment by their governments, which see them as vital engines of the economy. Chinese state corporations, rightly or wrongly are often seen as enjoying both an unfair competitive advantage in access to capital as well as
8
Global corporations compete not just with each other, but each others sponsor states, and states compete not just directly, but through their corporations.
Some brittle polities that are global energy suppliers fall into this category. They possess both positive and negative leverage out of proportion to their size, in their influence over a critical input to the world economy, and in the threat posed by the possibility of their collapse The economic crisis in the EU may at some point, have the same implications for European states.
11
in the lighter constraints on their governance and broader behavior in third markets. China has also been accused of extensive industrial espionage and IP theft, suggesting a close collusion between state and corporate sector.10
Corporations benefit from the sponsorship of their home states when interstate relations are positive, and favorable treatment by a receiving country is part of the quid pro quo among state partners, but they become vulnerable when interstate relations turn sour.
Leveling the playing field for global competition in this environment poses a further challenge for corporate statecraft. In order to be competitive in new markets and remain so in their traditional ones, do companies circumvent or seek to reduce their own legal and cultural constraints, or do they and their (now relatively weaker) governments seek to spread acceptance of those constraints to their non-traditional competitors and their state sponsors? Individual corporations have chosen their own mix of answers, but the trend (driven by home regulators, organized civil society, activist shareholders)11 favors a long-term commitment to extending established rules of competition and corporate behavior on to the global level, not least because some corporations based in the new empires have their own business reasons for wishing an evolution in this direction. A Digression on the Paradox of the National Brand One aspect of how corporations are challenged to manage on their own in a world of clashing empires is in the management of their global identity. The mismatch between the way that sovereign states, particularly powerful states, conduct relations among themselves and the way that global corporations operate as domestic actors in multiple jurisdictions poses yet another set of
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challenges that of managing identity for corporations. Corporations benefit from the sponsorship of their home states when inter-state relations are positive, and favorable treatment by a receiving country is part of the quid pro quo among state partners, but they become vulnerable when interstate relations turn sour. In the most severe instances, their home government can oblige them to cease or restrict business in a hostile polity (Iranian sanctions being a case in point), and host markets can be closed to them as retaliation for acts committed by their home governments (for instance, Arab governments boycotts of Israeli corporations). Wearing a national brand can go wrong when popular perceptions of their home country turns negative. Japanese companies suffered in China as popular rage was stirred up for political reasons against Japan; American or Danish, or French firms suffered in Arab countries as popular rage erupted at perceived insults to Islam. For that matter, single incidents of unsafe exports have been used more than once against the importation of all Chinese manufactures in the United States. It is not clear how corporations can best handle the challenge of carrying national brands. They cannot overtly disavow their national identity, in part because they have most often used that identity (and the government support that comes with it) to help them establish globally. While their home states cannot do much to help them manage the fallout from frosty interstate relations, host governments also face a problem in how to take out their political pique on foreign investors (though they have less problem in expressing displeasure when it comes to foreign procurement). So, what is a multi-national enterprise to do to protect its global footprint from being trampled by interstate hostilities? One approach (most common for consumer product companies) is to be globally local, i.e. to adopt a local identity wherever
Though, in fairness, industrial espionage is also suspected to be of long standing among established OECD-based polities, the latest controversy aroused by the Snowden revelations being one indicator. And less directly by home governments (constrained perhaps by their own geopolitical relationships and afraid to diminish the competitiveness of their own global corporations by driving them too far).
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they operate, as well as to build a global brand separate from national identity. How they do so is a suggestive area for further research especially so in respect of how they safeguard their corporate brand from popular anger directed at their home country, as there are no ready channels to improve relations with the Demos. A Last Note on Systemic Challenges for Corporate Statecraft: There is a Lot More Coming This list of challenges to sustained business success is by no means exhaustive. Climate change will have an existential impact on the global insurance and construction industries. They are obliged to reassess their core assumptions about the nature of the risk they have to provision against, and are obliged to engage in the public policy sphere to ensure that they are allowed to respond appropriately. The same could be said of the impact of global demographics (e.g. the aging of populations, the
redistribution of spending power across regions) in shaping consumer markets and the nature of agro food demand. The interconnectedness of societies and the widely distributed capacity to travel are changing the tourism and hospitality industries and posing new pandemic risks. These and a multiplicity of other vertiginous changes in the environment, including in the digital and nano environments, means that business is engaged in a new game altogether, one that should create a powerful self interest in ensuring not just economic dynamism, but also sustainable social stability, equity in opportunity, predictability in risk management, and viability of the rule of law. Articulating the notion of such a broad gauged corporate self interest will require leadership culture of a new kind in the corporate world, one that accepts the management of complexity in the external environment as being as important a business function as resolving complication within.
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4
C
The problem is that while business leaders are judged by their success in solving problems and removing obstacles, complexity in the external environment is a persistent state, susceptible in most cases only to management, through discourse, compromise, and process.
The Core Competence of Corporate Leaders
omplication as expressed in the workings of multiple connected cogs, wheels, and springs in the mechanisms of a watch (or a corporation) is complexity contained in a framework. Complexity is complication without framework. The distinction is an important one in any discussion of corporations relationship with the broader public realm because most decisions that business leaders are used to facing relate to solving challenges within a defined universe of business technology, labor relations, competition and finance all of which they understand in depth and for each of which they have management mechanisms available. Their elemental goal is to ensure predictability and smooth out any issues that stand in way of doing so. They have been able to assume that the external environment, or the framework of rules, resources, social forces, economic, and financial systems to which they are exposed are managed by the state. But as the sway of the modern state becomes more tenuous, the complexity of the issues with which business is obliged to cope escapes the old frameworks. The problem is that while business leaders are judged by their success in solving problems and removing obstacles, complexity in the external environment (political, social, economic, security, and technological) is a persistent state, susceptible in most cases only to management, through discourse, compromise, and process. Business decisions now must take into account the erosion of the framework for managing complexity that they had relied on the state to provide, and get involved in managing it themselves. Their instrument for doing so is diplomacy. The External Dimension of Statecraft: The Conduct of Corporate Diplomacy For the purposes of this paper, I would define diplomacy as the management of the risks posed
by, and the maximization of opportunities latent in, power beyond an entitys direct control. In functional terms, it is a loop consisting of: The formulation of a foreign policy by an entitys leadership that is then executed through: The construction and maintenance of purposeful networks of influence in the external environment The generation of intelligence (i.e. purposeful and focused information) generated through these networks Branding, i.e. the establishment of positive pre-disposition to the interests and perspectives of the entity among those networks (and beyond, as required through public diplomacy) The anticipation of crisis, and the management of the unpredicted or the unpreventable Constant course adjustments in both internal and external policy based on ongoing assessments of the entitys long term interests and the external environment. The Purpose and Conduct of Corporate Diplomacy Though it is difficult to gather organizational data on this dimension of their hierarchies, relatively few corporations, to my knowledge, conduct their diplomacy in such an integrated way. The global energy majors have long histories, for better or worse, of a diplomacy that most closely reflects the comprehensive model, though they have often failed to anticipate systemic change in polities where they were invested. Consumerfocused corporations, for their part, try to manage something approximating a comprehensive
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diplomacy that incorporates relationships with both state and society. Suppliers of infrastructure like public transit similarly are obliged to engage on all fronts in order to secure their license to operate. Companies that combine these businesses, like GE, not surprisingly, conduct the most sophisticated diplomacy. While global defense industry players have highly developed relations with state authorities and extensive investment in PR, they do not appear to have broader relationships or engage with social and economic policy beyond their narrow areas of interest. All in all, diplomacy does not seem to be one of most global corporations core business functions. Rather, at best, it is an adjunct to it. The goal of lobbying, the most visible dimension of corporate diplomacy, is to secure the corporations license to operate12 from public authorities and to make that license the least costly and hence the most competitive possible. Reasonable enough as far as it goes. But that is not far enough to ensure long-term success. If they are to ensure their own sustainability in the mutating environment, the earlier section of this paper argues why they will have to engage more directly with public policy challenges, and to do so on a broader front. Their diplomacy will have to be dedicated not just to advancing short-term business agendas in the corridors of state power, but to bridging the corporations long-term interests with those of the heterogeneous set of license issuing powers that now populate the global economy. Beyond Summit Diplomacy One self-imposed limit on the diplomacy of many corporations seems to be that they see it as the CEOs personal domain, reflecting his/her personal style and priorities, rather than as a hard-wired component of the business model. Management
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of a corporations diplomacy in such a situation becomes a matter of the CEOs personal discretion (informed by whatever experience he or she has in the wider environment, and advice from the board13). The functions outlined above are executed by a mix of often lightly coordinated offices: the CEO personally and components of the public affairs branch, including local representatives, with others taking on different components of the role in their own sphere as they see fit, but largely outside a disciplined structure of responsibility. Those managing critical functions linking the corporation to the external environment, such as audit and risk, human resources, and supply chain management act in their own spheres, rarely integrated into a single effort, nor does the performance of diplomatic functions reach far down in the hierarchy. Corporations will need to move beyond this medieval form of diplomacy to one that reflects a more strategic conception of their own place in the 21st century. Integrated Diplomacy Effective corporate diplomacy requires structure and professional management. It must start, but cannot stay, at the top. The CEOs role as the ultimate interlocutor between the corporation and the outside world mirrors the role of heads of government. Heads of government conduct their personal diplomacy from the pinnacle of a whole structure of supports. CEOs cannot afford to do otherwise. They need consistent support both in
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Effective corporate diplomacy requires structure and professional management. It must start, but cannot stay, at the top.
Which incorporates both the regulatory permission to carry out business and political and financial support.
Boards of directors have many responsibilities, including the provision of wisdom on the external environment. While it is not a focus for discussion in this paper, it would be interesting to explore the degree to which boards actually help CEOs direct this aspect of corporations operations. The fact that boards are almost universally composed of elite representatives is one conditioning factor in the contribution they make (see below), as they, like the CEO, usually gain their view of reality from interaction with their (like-minded) peers. How many, I wonder, are in communion with the 99 percent, where systemic discontinuities originate?
15
Corporations must, among other things, aim for greater openness to non-elite interaction, i.e. conduct public diplomacy like a number of modern states are doing.
their public and private diplomacy. While their public pronouncements, media interviews, investor road shows, and formal meetings with decisionmakers are usually carefully prepared and their communication closely managed, these prepped events are almost exclusively focused on the short term and on immediate business, limiting the impact of CEO intervention in the public discourse, and that is discounted at best as reflecting a narrow self interest. To move beyond that selfdefeating public diplomacy requires that the CEO be provided with consistent and thoughtful public policy advice that reflects more than the corporations immediate interests. They must also be able to reach out beyond their comfort zone to be able to understand the environment in which they conduct business. Given how they must ration their time, most of a CEOs critical corridor diplomacy (i.e. informal interaction) is usually with senior decisionmakers in business and government. This sort of professional socializing can serve as comforting validation, but over-reliance on this sort of elite interaction can lead to a form of willful ignorance. It creates a closed loop exchange of views among people with similar interests and backgrounds. It can also be deceptive, as elite interaction exposes CEOs only to those from different societies whose world view is largely compatible with their own and which should always be tested against dissenting opinions. Over reliance on summit diplomacy also fails to generate the kinds of networks that corporate sustainability demands because it fails to engage the broader circle of non-elites, and counter elites,
from which (sometimes sudden) changes in the distribution of power emanate.14 How to move beyond this outdated model? Corporations must, among other things, aim for greater openness to non-elite interaction, i.e. conduct public diplomacy like a number of modern states are doing. Public diplomacy, done well, is more than public relations. It involves open communication with anyone who wishes to engage in it. It has been conducted by governments with and through the media, academia, think tanks, cultural channels, and community groups, in short, any medium that provides a shared platform for dialogue, and has been indispensable both to reputation management and confidence building with broad non-elite constituencies (NGOs, crowdsourced opinion, counter elites in rigid polities). It also provides diplomatic services with non-elite perspectives and innovative ideas. Done properly, it could do the same for corporations. That will require the involvement of many layers of their hierarchy, including the shop floor. A corporation operating in multiple environments relies on local representatives to generate the intelligence, sustain the networks, and manage issues in the public realm in individual settings. Almost inevitably, those representatives, whether employees or agents, are members of local elites, or expatriates who operate as part of local elite
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Fora in which summit diplomacy is often conducted, such as the World Economic Forum, while valuable in themselves, sometimes can mislead corporate leaders, most of whom are unfamiliar with culturally alien environments, into believing that they are in communion with valid representatives of other cultures and polities by providing them with opportunities for interaction with credible interlocutors from foreign societies. The problem is that Davos Man can be an illusion, a cosmopolitan representative of what are often extremely thin and fragile elites, but are also often enough a facade, behind which in his own home setting, that person conducts his affairs according to alien codes of propriety, which he does not necessarily reveal when he is on his best behavior.
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structures. They provide a critical, but insufficient link to dynamic societies. Other employees, embedded in multiple layers of society, can compliment it. The development in its workforce of an articulate loyalty and a capacity to express it in interaction with the community will be increasingly important in ensuring the long-term good will critical to the sustainability of a corporations local operations, even in its home jurisdiction. They are also an invaluable source of wisdom on the dynamics of their societies, wisdom that is not always available to those who observe these dynamics from the top. Senior business leaders will do well to draw on this wisdom, especially to help them understand social and political dynamics in (for the large part, alien) emerging economies in which they will increasingly be present. Global corporations also now have influential global counterparties in civil society, many of them in cyberspace. While most large companies dedicate resources to the development of the send function on the internet, it is comparatively more difficult for them to receive credibly, and even more so, to chat, largely because they are wary of being held to account by unaccountable interests if they engage in open dialogue. Some corporations that have recognized that being socially awkward on the internet limits their diplomacy are developing channels for web dialogue, such as personal blogs by senior executives. Their experiments are followed with considerable interest by competitors. Once a successful formula is found, corporate cyber diplomacy will become part of established corporate statecraft. Philanthropy is as important a tool of corporate public diplomacy as it was in Roman times, when the rich provided bread and circuses to retain the goodwill of both public and the state. Corporations spend vast amounts sponsoring cultural and
sports events as well as health, education, environmental, and scientific endeavors to buy goodwill. The choice and scale of these investments will need to be increasingly strategic to overcome public cynicism about motives behind it. Their philanthropy will need to be appropriate to be credible, focused in areas where there is a genuine convergence of interests between the individual corporation and the broader public to which it is addressed (money to stimulate interest in degrees in engineering makes immediate sense for a high tech manufacturer, while a Grand Prix sponsorship might not). The back story to their philanthropy furthermore will have to be articulated, justified, and communicated as both a business decision AND a valid engagement in public space if it is to create the kind of confidence and goodwill that it is intended to engender. Effective public diplomacy will, most importantly, also require knowledgeable engagement in the public policy discourse. With important exceptions, most corporate leaders (as I note above) avoid addressing issues beyond their immediate business concerns when speaking to the media, academic audiences, or civil society. They leave the function to agents, particularly to industry associations that articulate their views, but shield them from dialogue. This reticence, too, is dated. Business leaders have as much legitimate right to express informed opinions about issues of public concern as do leaders in other domains, especially so when they bring a unique pertinent perspective to bear. While it need not be the CEO who speaks, large corporations employ high quality executives of academic accomplishment and broad professional experience. They should be encouraged to become participants in the broader social discourse. Doing so would not only enrich that discourse, it would de mystify the corporation giving it a face and making it a more acceptable player in shaping public policy.
While most large companies dedicate resources to the development of the send function on the internet, it is comparatively more difficult for them to receive credibly, and even more so, to chat.
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Professionalize the Management of Corporate Diplomacy A Cabinet Office Governments are acutely conscious of intermesticity, i.e. that virtually no domestic issue can any longer be managed without regard to its impact in the outside world, and that no foreign engagement is without domestic ramifications. The strategic direction of foreign policy is increasingly being focused, therefore, in the office (the Cabinet Office) that serves the head of government, the sole effective level of authority to integrate domestic and foreign policy. Most far-sighted foreign ministries are, after decades of ever lessening relevance, once again being brought close to the center of power, but in a subsidiary capacity. No longer the dominant formulators of external policy, they are now part of an integrated top down system of statecraft managed from the center, employed as the eyes, ears, and hands of government in the outside world, bringing networks intelligence and cultural expertise to the center and executing the broad policies established there. They are becoming hubs of policy networks, the linguistic and culturally expert executors on the ground of general policy, and the facilitators of efforts by other expert parts of government in international arenas. But authority for broad directions remains at the top, and many other institutions play in the field. Corporations could do worse than copy the emerging new diplomatic structure of the state. Their diplomacy should be directed from an office (a cabinet office without line responsibility, but the ear of and reporting to the CEO), focused on the reconciliation of policies relating to the short and long term, and of the internal, (i.e. business policies) and the external environments. Diplomatic representation in the field should be among those that support this office, thereby
ensuring that its inputs are fully integrated into the strategic direction of the corporation.15 A Micro Foreign Ministry The actual management of external representation, however, need not lie in the cabinet office. It poses special day-to-day challenges best handled within an operational unit (depending on the structure, probably that responsible for public affairs or risk management), but with broad direction from and access to the center. This micro foreign ministry would help support direct engagement of the CEO and other senior executives in the public discourse with substantive advice as well as keeping operational units up and down the hierarchy informed about key public policy issues as required. Such an integrated approach to defining the corporations interests should permit a more assertive engagement in the public policy discourse than now seems to be the norm. Rather than relying, for the most part, on intermediaries such as industry associations and third party commentators to argue its perspectives, a direct engagement will permit the corporation to be in contact with a broader public, including nodes of influence that are outside the established political structures. Only an integrated approach will allow a corporation to be effective in both elite and public diplomacy. It is the only way to ensure that critics are engaged over time, not just episodically; that the corporation understands and engages on public policy issues of concern; and that its long-term strategies are ventilated early enough to ensure that their execution is well reconciled with broader
Rather than relying, for the most part, on intermediaries such as industry associations and third party commentators to argue its perspectives, a direct engagement will permit the corporation to be in contact with a broader public, including nodes of influence that are outside the established political structures.
15
Enterprise risk management systems, which had focused largely on production, supply, and market risks, increasingly have to integrate those posed by exogenous factors, such as political and social stability, religious and ethnic comity, transport and IT infrastructure vulnerability, staffing quality and availability, discontinuities in legal systems, environmental degradation, and scarcities.
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public interests, rather than becoming a source of unmanageable contention.16 A micro foreign ministry unit would also help to ensure that the corporations representatives in different settings do the job they were sent to do, providing a uniform standard of effectiveness in network building, intelligence generation, and branding across the world. It would help senior leaders to digest and disseminate critical intelligence and to have ready recourse to international networks as needed. It would also be able to act as an inspector general, to address the agency problem, i.e. to assure the observance of common standards of conduct for the corporations distant representation. Corporations, unlike most modern states, have the challenge of managing the behavior not just of their employees but that of agents who have no employer-employee relationship with them. Such an office would, in other words provide both effective use of diplomatic assets and mitigate the risks that attend them. A Mini Foreign Service The office would also help to build and sustain the notion of a foreign service to manage relationships in culturally and structurally diverse environments. Just as states, global corporations need trusted representatives in the field to help assure that their presence remains acceptable to local society, that they are aware of any potential threats to the stability and profitability of those operations, that the regulatory and legal frameworks under which they operate are, in turn, acceptable to them. These functions are now carried out by a variety of providers, including one-off hires, contracted agents, and operations executives who also carry the diplomatic responsibility. They are not always trained or
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effectively networked and integrated into the decision-making structure. Making corporate diplomacy a part of the career of all executives as they rise through the ranks,17 and encouraging some to make it a key aspect of their top level years, would enhance the performance of the role and spread the culture of diplomacy and the skills to perform it over the whole hierarchy of the corporation. By professionalizing the function and making it part of the core corporate structure, those performing it will also have more direct access to senior decision-making in the corporation and be able to support top executives more systematically in their diplomatic functions. Most important, such a structured approach to statecraft would help corporations to be real in their commitment to seek, define, and act on areas of common interest with civil society. The dialogue with civil society has been painful, often fraught with posturing, in large part because the two sides deeply mistrust each other. Building trust and confidence is a key function of state diplomacy. Structured corporate diplomacy, within the framework of a broader statecraft, would help to do that and help build the long-term partnerships between them on which the sustainability of both depends.
Building trust and confidence is a key function of state diplomacy.
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It is the most effective way for a corporation to help public authorities to help them.
As defense establishments do by giving their rising officers opportunities to serve as military attaches at some point in their career.
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5
I
The reality of perpetual and systemic global risk makes a compelling argument for statecraft.
Conclusion
ts fair enough to be skeptical about the prospects of corporate statecraft, a business model that looks beyond the quarter, equates the interests of leaders and shareholders with the long-term sustainability of the corporation, and, in turn, sees those long-term interests as inextricably tied to those of broader society. But signs of change are there to see. Waste and energy reduction, recycling of inputs, optimized workforce skills are already accepted as good business. Consumer companies go beyond this minimum because they understand the immediate impact of their behavior on their brand, and the impact of the brand on their livelihood. The notion that investing in social goods makes compelling business sense expands in environments where critical inputs (education, public health, basic inputs like clean water, infrastructure, security, and governance) are not reliably provided by the state. Corporations are compelled to provide these (Coca Cola invests in clean water) simply to operate. In doing so, they inevitably raise prevailing public standards. Similarly, mobile phone manufacturers and operators have an interest in the empowerment of women, who constitute a dynamic market for their products in many societies. The need to manage global value chains that overlap diverse cultures and jurisdictions also demands that corporations assume state-like responsibilities, such as assuring the security of global logistics against their misuse for terrorism or criminality. Similarly, corporate control of critical infrastructure, whose security is essential to profitability, also means that corporations assume a public responsibility for their secure operation. This dual responsibility applies equally, though in more complex ways to the cyber world. Corporations now control more information (and with data mining, use more of it) than any government in history. The need to protect the integrity of data is
critical to their business success, but is collaterally a major social obligation. Lastly, the reality of perpetual and systemic global risk makes a compelling argument for statecraft. Insurance companies are perhaps the most exposed to the risks posed by changes in climate, but all global corporations must deal with threats of instability, whether in regimes, public health, social structures, economies, or resource availability. They cannot afford to be passive in the face of these challenges for long. Either they accept that they are part of a global system of risk management, or they risk becoming victims of the unanticipated and the unavoidable. It is a matter of self interest, the most powerful of motivators. There is also hope from another quarter. Corporations listen to two voices above all: the market and shareholders. The demands of both reflect changes in popular culture. Customers, exposed through the media to corporate behavior worldwide, already have gone some way, as I noted, in shaping the conduct of companies that rely on consumer acceptance. The lowest price is a compelling but not sufficient attraction of customer loyalty, as the products consumers use reflect their own social values. But even corporations only indirectly in touch with consumers feel popular reaction to offensive behavior, through social acceptance and government sanctions. Transparency has only intensified with the advent of social media. Shareholders, too, may also become a more vocal source of pressure for long termism (though this is still to be shown empirically), as an increasing proportion of corporate shareholding moves into the hands of institutional investors like pension funds and insurance companies whose stakeholders own demands are for steady, long term returns. My conclusion is that while skepticism is justified, it is reasonable to expect that self interest and
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social dynamics will continue to drive a closer convergence between the corporate and the public interest. Much, however, remains to be done before that convergence is the norm.
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CORPORATE STATECRAFT

2012-2013 PAPER SERIES NO.5

Introduction: The State-Like Corporation

Some 21st Century Challenges Demanding Corporate Statecraft

The New Challenge of Maintaining Legitimacy

The Core Competence of Corporate Leaders

Building trust and confidence is a key function of state diplomacy.

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