George Haynal on Corporate Statecraft

OpenCanada talked to the professor of global practice at the Munk School about re-imagining the relationship between corporations and sustainability.
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February 24, 2013

The role of corporations in encouraging sustainable development is often tied to the concept of “corporate social responsibility,” or CSR, a term that differentiates socially responsible behaviour from a corporation’s standard mode of operating. But is this a useful concept? OpenCanada sat down with George Haynal, Professor of Global Practice at the Munk School, University of Toronto, and former senior Canadian diplomat and public servant, to discuss his advocacy of “corporate statecraft.” We asked Haynal to define the concept and explain how it can be more effective than CSR in injecting the imperative of sustainability into corporate decision-making; why effective corporate statecraft demands socially responsible, sustainable behaviour; and why global corporations that fail to internalize this will inevitably lose their “licence to operate,” and increase their probability of failure.

Define corporate statecraft.

My working definition of statecraft is applicable to any organization. Among its attributes are four inseparable elements: the synchronized management of internal and external affairs; the reconciliation of the long and the short term in tactics and strategy; positive engagement with the external environment in the furtherance of interests and in compensation for vulnerabilities; and the execution of responsibilities it has assumed or has had imposed upon it.

Only the most far-sighted corporations practice this form of integrated statecraft now, but all deploy at least some elements – if often in unstructured form, and under other names. Many emphasize the short term excessively, and most focus on their internal issues too much, to the exclusion of the external environment. But this is changing. More and more corporations, especially those engaged in the global economy – and in multiple settings – are beginning to internalize the fact that in an environment where power and authority are assuming new forms, and the established, North Atlantic based order is losing dominance, it is critical that they take a more comprehensive view of how they manage their place in an increasingly complex world, get the balance right between their short and long term interests, and seek ways to ensure a convergence between their interests and those of broader society, especially in those newly emerging, rapidly mutating  economies where they operate.

You have argued that, for any corporation, to conduct business efficiently is to behave in a socially responsible way. If this is the case, what purpose does the idea of corporate social responsibility serve?

It’s futile to demonize “business” as being innately anti-social. The conduct of business is, in fact innately social: It consists of co-operative effort, of transactions and exchanges that flow through human networks. Corporations are therefore social actors, whether they see themselves as such or not. All social actors, including corporations, carry responsibility for the impact of their actions on others. The question is how that responsibility is discharged. Most corporations act within the law and with respect for society’s dictates, but there is no question that in some environments and in some circumstances, corporations can be predatory and exploitative, as can individuals and organizations of different kinds. And just like individuals, corporations can be more or less conscious of their own reliance on society at large. Those that do realize that their own success depends on the health of the environment in which they operate are the most advanced in the practice of integrated statecraft. They act not out of altruism, but from an understanding of their own self interest.

One measure of a corporation’s level of “responsibility” is whether it is largely a vehicle for quick returns, or if its core goal is to be around for the long term. A business model focused on the long term depends not just on the capacity to innovate and manage efficiently– it also demands the maintenance of an organic, enabling relationship the economic, social, technological, and political environment. Finally, it relies on the security of its “licence to operate” –the explicit and implicit permission to do business that is granted by public authorities, but also by wider society, acting through markets and social organizations.

The outside is, in short, as critical to success as the inside. Only healthy, stable societies can provide sustained demand, reliable access to raw materials, innovative technologies, and productive workforces. And it is only stable, rule-based government that can provide a “level competitive playing field”. It follows that corporations have a real interest in fostering good governance as well as comity where they operate.

In case this sounds too much like pixie dust, I should mention that I do agree that many corporations do not yet see their interests so deeply connected with those of their host environments. The fact is, however, that more far-sighted corporations, especially those operating globally, do accept, and are acting on that proposition. This is increasingly true as evidence mounts that corporate failure can often be caused not just by a corporation’s own actions, but also by failures in the ecosystems within which they operate, such as governance breakdowns, environmental collapse, and social instability.

This is why I find the concept of corporate social responsibility to have reached the end of its usefulness. It is based on the premise that corporations will only behave in a responsible manner if they are challenged by outsiders to do so. I would prefer to rely on “enlightened self interest” to sustain commitment to responsible behaviour. To use a trite comparison, it is one thing to eat your spinach when your mother forces you to, and another thing entirely to choose to do so on your own: It is much more likely that you will continue to eat spinach if you internalize the fact that it is really good for you.

Corporations may need to engage more fully with their external environments in order to survive, but we still see short-sighted business practices that undermine sustainable development. What can be done to encourage corporations to practice corporate statecraft, with the positive implications for the economic, social, and environmental spheres that entails?

There are three ways to encourage corporations to adopt statecraft (and its commitment to the long-term) as the model for managing their affairs, and they are mutually supportive.

One is prophylaxis, in the form of effective, thoughtful regulation by those in positions of public authority that establishes the limits of acceptable behaviour and protects corporations against both predatory competitive behaviour and their own failures of governance. But, as we have seen too often, regulation almost invariably lags behind behaviour, and penalties rarely constrain behaviour for long.

The second is external pressure by social actors. But this too, as I noted before, has its limits. Once the spotlight of negative attention moves on, there is little inducement to modify behaviour. 

Both of these forms of outside discipline will only be effective if they are, in fact, supporting an internally generated evolution in corporate culture. The corporate leadership itself must come to internalize the fact that the successful conduct of business requires associating the corporation’s interests with those of its broader environment.

Culture change is tough. It must begin at the top. It must involve all those with a direct interest in the corporation’s success – not just the employees (including those at the senior level who are most invested in how the business is run), but critically also the institutional investors and shareholders (and the board of directors that represent them) – as it is their interests and expectations that ultimately shape corporate behaviour.

In what direction are corporations heading? Are they starting to practice effective statecraft and thereby operate more sustainably?

There is no easy formula for getting this right, but I will suggest some elements of an approach. One is for corporations to take a lesson from governments and build their own capacity for the conduct of diplomacy – the toolkit of statecraft that governments deploy for maximizing co-operation and minimizing conflict with other powers (whether governments, communities, organizations). The conscious conduct of corporate diplomacy now is most often limited to the top. Though there are diverse offices responsible for managing public, government, and investor relations, these functions are ancillary to the core business and mostly restricted to issues of the short term. Only at the very top do the outside and internal universes meet in authoritative decision-making. CEO’s relations with political leaders and others in broader society tend, furthermore, to be episodic and unsupported. This is not good  enough.

Consider how diplomacy is practiced by states. A lot of work at many levels is done to make sure that the diplomacy of the heads of government is focused on the right counterparties, that the engagement with them is productive and that the messages are clear, and that these external engagements are integrated with domestic policy. It is also the case that their diplomacy is multilayered and conducted at many levels by diverse institutions of government.

The same should be true for corporations – especially the large entities that operate globally and often have more real power than political leaders of “sovereign” governments. They need to systematize their diplomacy and extend it below the most senior levels so that it is integrated into their business decision-making. To do that, they should have a dedicated unit, however small, with a seat at the senior decision-making level, to engage the corporation systematically with the social, economic, political, technological, and physical dimensions of its ecosystem.

It is also important that corporate decision-makers have the widest exposure possible to the diverse players now shaping the global environment. Going to Davos – as important as that may be ­– is not enough, as whatever else they do there, they will have few exchanges with those who do not share their worldview. Corporations need to use their own workforces at different levels  – including the shop floor – to understand what is going on in broader society. They need to use the social media both to reach out and to listen. They need to meet with non-business experts (and have such people on or near their boards). No corporate succession plan should allow executives to rise to senior decision-making positions if they have not spent some time outside their business units, in settings that exposed them to the wider world.

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