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Corporate Governance Best Practice

This Chapter Covers

  • Corporate foreign policy (CFP) is an outgrowth of multiple corporate practices that arise when companies gain a distinct identity separate from the individuals who formed them and from the state that initially granted their legal existence.

  • CFP is a strategic function that utilizes an array of practices, including risk management, corporate political strategy, corporate responsibility, public relations, and business–government relations.

  • The aim of CFP is to enable a company to navigate political, social, and moral pressures and opportunities in order to ensure its sustainability and fulfill the obligations to which it is subject.

  • CFP must address three forms of power projected by a company and projected on to it by others, especially by governments: sharp power, the physical capabilities that a state can use to impose its will; sticky power, which typically is economic; and soft power, the power of ideas and values.

  • Most CFP examples pertain to the extractive and technology industries, but any company that is affected by global economic, legal, and social changes has an interest in CFP whether it has fully realized it or not.

Analysis

Corporate foreign policy (CFP) is an outgrowth of multiple corporate practices that arise at a time when companies gain their own, distinct institutional identity separate from the individuals that originally formed them and the state that initially granted their legal existence. A small entrepreneurial firm may be an extension of a single or small group of individuals’ economic, political, and moral interests. Larger firms may adopt the perspective of the nation state that provided them with incorporation. Yet, over time—and especially as firms expand to conduct business in a wide variety of countries—the history, tradition, and culture of an entity will result in a distinct institution with unique aims and interests (Avi-Yonah, 2005).

Companies use a variety of framing and assessment practices that comprise aspects of CFP. Depending on the particular company, the full-fledged practice of CRP could occur under a variety of names and organizational functions. Yet the complexities faced by companies in a global market challenge the capability of any of these traditional functional rubrics, suggesting that a more robust and integrated approach may be beneficial to, and indeed required by, 21st-century companies.

CFP can be defined as a mindful, strategic function that utilizes an array of firm practices, including but not limited to risk management, strategy, corporate political strategy, political corporate responsibility, legal affairs, human resources, compliance, public relations, and business-government relations. That function’s aim is to position the company as a distinct, independent entity within a field of play alongside of other governmental, business, and NGO institutions with a mission to navigate a widely defined market that includes political, social, and moral pressures and opportunities as well as more traditional economic markets in order to ensure the sustainability of the firm and meet the obligations to which it is subject.

Examples

In an oft-noted example, during the Arab Spring Google and Twitter defied the edicts of Egyptian President Hosni Mubarak to create a “speak to tweet” application that allowed protesters to communicate, while Facebook permitted steaming videos and messages from Cairo’s Tahrir Square. In contrast, Vodafone and France Télécom complied with government shutdown orders, and when their services were reactivated only pro-Mubarak messages were permitted to be sent to their customers (Hare and Fort, 2011). Nokia Siemens and Blackberry, along with Google, Twitter, and others, had previously been subject to issues relating to disclosure of information to governmental authorities, a situation which became major news in the summer of 2013 with the revelations of Edward Snowden and the United States’ demands for information from tech companies (Hammond, 2013 a & b).

Companies in the extractives sector find themselves immersed in the vagaries of geopolitical unrest as well. First Quantum Minerals invested heavily to extract copper and cobalt in the southeastern part of the Democratic Republic of the Congo, only to have its license revoked. Similarly, BP has proactively tried to manage the impact of its actions in the Republic of Azerbaijan (Davis, 2013). Freeport-McMoRan Copper & Gold has long been known as a company that has taken a strong role in working with local populations to achieve living wage standards and protection of human rights (Sethi et al., 2011).

Of course, companies have long practiced lobbying and various kinds of influence-promoting activities, sometimes within legal boundaries and sometimes outside of them. Beyond such activities, companies may proactively attempt to influence constructive change in societies as well. The SiThaMu social integration program in Sri Lanka explicitly sets itself out to be one that brings together competing—sometimes warring—factions in the island to work together as fellow employees. Similarly, during the Northern Ireland “troubles,” the Confederation of British Industry actively promoted the cause of peace by demonstrating a peace dividend that would result if the violence stopped; similar to SiThaMu, a nonprofit called Futurways intentionally populated its workforce with equal numbers of Catholics and Protestants to give them the opportunity to work together (Westermann-Behaylo and Rehbein, 2013). The US Secretary of State annually recognizes at least three American companies whose work overseas is so positive that it promotes good relations between the host country and the United States.

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Further reading

Books

  • Bobbitt, Philip. The Shield of Achilles: War, Peace, and the Course of History. New York: Alfred A. Knopf, 2002.
  • Fort, Timothy L. Business, Integrity and Peace: Beyond Geopolitical and Disciplinary Boundaries. Cambridge, UK: Cambridge University Press, 2007.
  • Fort, Timothy L., and Cindy A. Schipani. The Role of Business in Fostering Peaceful Societies. Cambridge, UK: Cambridge University Press, 2004.
  • Haufler, Virginia. A Public Role for the Private Sector: Industry Self-Regulation in a Global Economy. Washington, DC: Carnegie Endowment for International Peace, 2001.

Articles

  • Avi-Yonah, Reuven S. “The cyclical transformations of the corporate form: A historical perspective on corporate social responsibility.” Delaware Journal of Corporate Law 30:3 (2005): 767–818. Online: http://tinyurl.com/kywmt8z
  • Davis, Peter. “Corporate foreign policy.” OE digital, October 1, 2013. Online: http://tinyurl.com/khjo5mn
  • Ford, Jo, “Corporate foreign policy.” Private Sector—Public World, March 2, 2012. Online: http://tinyurl.com/kk3rucz
  • Hammond, Andrew. “Diplomatic firestorm underlines why ‘foreign policy’ is key for corporates, not just countries.” Huffington Post May 24, 2013a. Online: http://tinyurl.com/oasxrcr
  • Hammond, Andrew. “U.S. surveillance underlines importance of corporate foreign policy.” Japan Today, August, 29, 2013b. Online: http://tinyurl.com/mau3bly
  • Hare, Stephanie, and Timothy Fort. “Corporate foreign policy.” Unpublished manuscript, 2011. Online (work in progress): http://tinyurl.com/kgc98v2
  • Matten, Dirk, and Andrew Crane. “Corporate citizenship: Toward an extended theoretical conceptualization.” Academy of Management Review 30:1 (2005): 166–178. Online: http://tinyurl.com/ln3hgzx
  • Mead, Walter Russell. “America’s Sticky Power.” Foreign Policy March 1, 2004.
  • Oxford Analytica. “Foreign policy joins corporate toolkit.” February 15, 2011. Online: http://tinyurl.com/kfhagso
  • Scherer, Andreas Georg, and Guido Palazzo. “Toward a political conception of corporate responsibility: Business and society seen from a Habermasian perspective.” Academy of Management Review 32:4 (2007): 1096–1120. Online: http://tinyurl.com/k6byd4b
  • Sethi, S. Prakash, David B. Lowry, Emre A. Veral, H. Jack Shapiro, and Olga Emelianova. “Freeport-McMoRan Copper & Gold, Inc.: An innovative voluntary code of conduct to protect human rights, create employment opportunities, and economic development of the indigenous people.” Journal of Business Ethics 103:1 (2011): 1–30.
  • Westermann-Behaylo, Michelle K., and Kathleen Rehbein. “Corporate diplomacy.” Presentation at the 73rd annual meeting of the Academy of Management, August 9–13, 2013, Orlando, FL.
  • Business Diplomacy: Pursuing Public and Private Benefits and Promoting Dispute Resolution, George Washington University.

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