By Klaus Schwab
From Foreign Affairs , January/February 2008
This Article has been abridged by GlobalGovAffairs.com
Global corporate citizenship expresses the conviction that companies not only must be engaged with their stakeholders but are themselves stakeholders alongside governments and civil society. International business leaders must fully commit to sustainable development and address paramount global challenges, including climate change, the provision of public health care, energy conservation, and the management of resources, particularly water. Because these global issues increasingly impact business, not to engage with them can hurt the bottom line. Because global citizenship is in a corporation’s enlightened self-interest, it is sustainable. Addressing global issues can be good both for the corporation and for society at a time of increasing globalization and diminishing state influence.
Today’s corporate engagement in society is the inevitable result of a number of factors. First, the role of the nation-state has diminished. In early modern Europe, the church’s power over people was undermined by the emergence of the sovereign state; in the contemporary world, no single government can do everything. Even the military might of most states depends in large part on the supplies and support provided by private industry.
The intensified pace of globalization due to advances in technology is the most significant factor in the weakening influence of the state. Fast transportation links and the speedy flow of information have negated the relevance of geographic borders. Whether it is poverty in Africa or the haze over Southeast Asia, an increasing number of problems require bilateral, regional, or global solutions and, in many cases, the mobilization of more resources than any single government can marshal.
The limits of political power are increasingly evident. The lack of global leadership is glaring, not least because the existing global governance institutions are hampered by archaic conventions and procedures devised, in some instances, at the end of World War II. Sovereign power still rests with national governments, but authentic and effective global leadership has yet to emerge. Meanwhile, public governance at the local, national, regional, and international levels has weakened. Even the best leaders cannot operate successfully in a failed system.
As state power has shrunk, the sphere of influence of business has widened. Companies get involved in the health of workers, the education of employees and their children, and the pensions that sustain them in retirement. Corporations have an impact on everything from air quality to the availability of life-saving drugs. They have become integral to the survival of governments and the political stability of nations and regions. The ranks of transnational and global companies are increasing. Even small and medium-size high-growth enterprises, many of them from developing countries, have become global in approach. Consequently, at the same time as state power has declined, the influence of corporations on communities, on the lives of citizens, and on the environment has sharply increased. This fundamental shift in the global power equation means that just as communities and citizens look to government for answers and leadership, so now they target corporations with both requests for help and criticism for wrongdoing.
The deepening engagement of business must also be seen in the context of the emergence of a more active civil society. Civil society has taken on a more prominent role in international media since the 1992 UN Conference on Environment and Development in Rio de Janeiro. There has been a proliferation of nongovernmental organizations (NGOs), including several that are global in scope and presence. The focus of much of the civic action of NGOs has naturally been corporations. After an initial confrontational approach, some of the toughest critics have come to appreciate that many business leaders — of small and large corporations, in developed and developing economies — are sincerely engaged in society. Many civil-society organizations now focus on working with business instead of confronting it.
The case for corporate engagement in society is compelling, and business leaders must look carefully at how their companies are engaged, consider what more they can do, and act. The World Economic Forum has developed a framework to help business leaders in this task. It grew out of three decades of providing a platform for companies to engage in society. In 1971, the forum first identified the stakeholder concept — the idea that a company has a clear responsibility to the community beyond its shareholders. Two years later, at the annual forum meeting, the stakeholder concept became the cornerstone of the Davos Declaration, which articulated the fundamental principles of a corporation’s social and environmental responsibility. Since then, the forum has actively promoted these ideals and further developed the concept of corporate engagement.
Businesses frequently miss the true benefits of an integrated strategy for effective corporate engagement. Sharpening definitions of the concept of corporate engagement is critical to making the business sector understand and practice it better. Clarification is also important to ensure that the general public better appreciates the complex challenges companies face and can assess how effectively or not they address them.
Global corporate citizenship entails focusing on “the global space,” which is increasingly shaped by forces beyond the control of nation-states. Global corporations have not only a license to operate in this arena but also a civic duty to contribute to sustaining the world’s well-being in cooperation with governments and civil society. Global corporate citizenship means engagement at the macro level on issues of importance to the world: it contributes to enhancing the sustainability of the global marketplace.
Global corporate citizenship refers to a company’s role in addressing issues that have a dramatic impact on the future of the globe, such as climate change, water shortages, infectious diseases, and terrorism. Other challenges include providing access to food, education, and information technology; extreme poverty; transnational crime; corruption; failed states; and disaster response and relief. Each of these problems is global in scope, even if the solutions may be locally focused.
When engaging in global corporate citizenship, companies should get involved in areas and in ways in which they can contribute meaningfully. The primary responsibility for meeting these global challenges still rests with governments and international organizations. But companies can contribute in an appropriately balanced partnership with the public sector and relevant civil-society groups. The right balance should be found among all the actors involved so that there is agreement on who should lead and so that progress is not stymied by infighting or a lack of direction. Business should not feel the need to overstep its boundaries or take on responsibilities that belong to the state.
Companies that practice global corporate citizenship do so either through thought leadership, that is, by providing the knowledge and technology essential to addressing a particular global problem, or through concrete action, that is, through the execution of a coordinated plan — or they do both.
Global corporate citizenship is an extension of the stakeholder concept and involves the corporation acting as a stakeholder in global society, together with government and civil society. Global corporate citizenship can be considered a long-term investment. Since companies depend on global development, which in turn relies on stability and increased prosperity, it is in their direct interest to help improve the state of the world.
When a company creates a coordinated strategy for corporate engagement in society, it is likely to practice different types of engagement at the same time. And a particular act by an enterprise may not fit just one of the concepts.
Enterprises should proactively mobilize a range of partners to effectively address global challenges. Lamentably, however, many business leaders are reluctant to accept that role. There are not only motivational but also practical reasons why business leaders shy away from social engagement. The proliferation of Web sites on the Internet and new media channels such as blogs and the rise of shareholder activism may prompt some business leaders to refrain from thinking beyond the next financial quarter. The “short-termism” these developments promote could lead some CEOs to assume that engaging in society is not worthwhile because the value of corporate engagement is typically realized only in the medium or long term. Moreover, fast-changing conditions in the market may result in “zapping,” or indiscriminate decision-making, in the same way that political leaders might zigzag on a policy in response to poll results.
Short-termism and zapping, as well as the growing challenges thrown up by the often painful economic transformations of globalization, can blur corporate vision. They may lead to paralytic management or a kind of corporate attention deficit disorder, whereby companies lose focus on the big picture. In such cases, companies may lose their motivation or willingness to engage in society. Corporate leaders may also be overwhelmed by the sheer magnitude and complexity of global challenges and the expectations of the public for them to assume partial responsibility for all the deficiencies of the global system.
This mindset must be changed. Corporations must engage on global issues while understanding that the business community cannot on its own solve global problems such as poverty, poor education, and inadequate health care. Governments and multilateral organizations cannot be discharged from their responsibilities to deliver such public goods. Each company can identify the particular set of societal problems that it is best equipped to help resolve and from which it can gain the greatest competitive benefit. When a well-run business applies its vast resources, expertise and management talent to problems that it understands and in which it has a stake, it can have a greater impact on social good than any other institution or philanthropic organization.
There are several conclusions that can be made about the practice of global corporate citizenship. First, global corporate citizenship must be a multi-stakeholder endeavour. The ultimate responsibility for addressing global issues lies with states and international organizations. Many governments recognize their limitations and are eagerly promoting public-private partnerships. Corporations should put aside any reservations they may have about partnering with governments and civil society as long as the initiatives in which they want to participate can be run properly and efficiently.
Second, for global corporate citizenship to be meaningful, effective, and sustainable, it must align with a company’s specific capabilities and with its business model and profit motive. This also requires the active involvement of CEOs and should reflect their vision of what is good for the corporation and society. If this happens, it is more likely that the enterprise will find ways of engaging that are compatible with its business objectives and beneficial for society as well. Corporations should, however, beware of being parties to grand declarations or general commitments to solve global issues, since such commitments can blur people’s perceptions of the distinct roles of the public and private sectors. The legitimacy of a corporation engaged in global corporate citizenship comes not from declarations but from results.
Third, global corporate citizenship should never be undertaken from a defensive or apologetic position. The ultimate role of business in society remains to do business. Global corporate citizenship should not develop from a bad conscience or a feeling that one must give back to society; it should be a feature of this globalizing world that stretches traditional boundaries. Global corporate citizenship is a logical extension of corporations’ search for a consistent and sustainable framework for global engagement — and one that adds value for both the companies and the global space in which they engage. It is a form of corporate engagement that can reinforce the positive role of business in society and enhance profitability in the long term. Indeed, global corporate citizenship integrates both the rights and the responsibilities that corporations have as global citizens. And in relying on a multi-stakeholder approach to tackling global problems, it can point out the way to new models of effective global governance that integrate business as a key stakeholder.