Global Corporate Citizenship

Working With Governments and Civil Society

Klaus Schwab

From Foreign Affairs, January/February 2008

Summary:  Global corporate citizenship means that companies must not only be engaged with stakeholders but be stakeholders themselves alongside governments and civil society. 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.

KLAUS SCHWAB is Executive Chair of the World Economic Forum.

A FRAMEWORK FOR ENGAGEMENT

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.

Five core concepts -- corporate governance, corporate philanthropy, corporate social responsibility, corporate social entrepreneurship, and global corporate citizenship -- define the different types of business engagement. Corporate governance is more than the way in which a company is run. It means that a company complies with local and international laws, transparency and accountability requirements, ethical norms, and environmental and social codes of conduct. Every company is subject to some form of governance; otherwise, it would not have the basic license to operate. The central issue is the quality of this governance. An enterprise either complies or does not comply with the laws and standards that apply to it. Good corporate governance means that the company's conduct meets or exceeds what is required on paper -- not doing any harm because it is following the rules and possibly even doing good by going beyond the mandated minimum. Corporate governance is how a company behaves when nobody is looking. Without good corporate governance, no other form of corporate engagement is credible.

A key part of corporate governance is the development and implementation of internal programs to promote ethics, moral standards, and socially acceptable practices. These should include respect for human rights and adherence to labor standards, as well as in-house efforts to prevent bribery and corruption. This can be especially difficult for companies in jurisdictions where the rule of law is weak and what is acceptable may not be clear. Many companies now publish standards of business conduct that guide their decision-making and set the parameters for their professional relationships worldwide.

More than 3,000 companies in about 120 countries have signed on to the UN Global Compact, a framework of ten core principles to guide business behavior in areas such as human rights, the environment, labor practices, and corruption. Launched at the forum in 1999 by then UN Secretary-General Kofi Annan, the UNGC has become a powerful force for promoting good corporate governance, even though it is strictly voluntary and based on self-assessment. Companies that lag in reporting their progress are delisted; last year, 500 were cut. Another example of good corporate governance is subscribing to the Global Reporting Initiative, a program to institute international guidelines for sustainability reporting, the publishing of an organization's economic, environmental, and social performance and impact. The GRI was launched in 1997 by NGOs in the United States with the support of the UN Environment Program. Today, over 1,000 organizations, including many corporations, use the GRI guidelines to assess their sustainability practices.

Good corporate governance should not be seen as only a compliance issue. Companies should be actively involved in the development of standards and practices, adapting them continuously to the requirements of global markets and public expectations. New areas calling for tighter governance rules include executive compensation and the transparency of new financial instruments such as hedge funds and private equity funds.

REACHING OUT