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.

Corporations are moving beyond the mandatory requirements of corporate governance. Corporate philanthropy has been on the rise in many countries in recent years. It includes cash contributions; grants; donations, including salary-sacrifice programs and the giving of products; services; and investments. Outright corporate donations to global initiatives, such as Médecins Sans Frontières, or money provided for relief operations after natural disasters also qualify. In determining what is corporate philanthropy, intention and context are key factors. Corporate philanthropy is engagement that does not go beyond writing a check or handing out donated goods. Social investing is a special form of corporate philanthropy, in which a company invests in organizations or programs that have broad social appeal, such as inner-city housing projects or funds for student loans. Instances of corporate philanthropy and social investing can also be instances of global corporate citizenship. If a cash contribution is linked to a company's active engagement in a global effort to address climate change, for example, then the charitable act is also an act of global corporate citizenship. And if a corporation takes an active part in the management of an inner-city housing project in which it has invested, then it is practicing both social investing and global corporate citizenship.

In the past, corporate philanthropy was the preferred way for corporations to give back to society. Today, business leaders recognize that companies can make more efficient contributions through active engagement. The framework developed by the forum encourages the stakeholder approach to corporate engagement and refers to this as "corporate social responsibility." This involves how a corporation responds to the expectations of its stakeholders -- the wide community of all the organizations and individuals that are in any way affected by or interested in its actions: shareholders, owners, investors, employees, suppliers, clients, consumers -- while trying to increase the company's value. Corporate social responsibility means addressing the wider financial, environmental, and social impact of all that a company does. It entails minimizing the negative effects of the actions of a company and maximizing the positive ones on stakeholders as well as on the communities in which the enterprise operates and the governments with which it must work.

Corporate social responsibility is measured through so-called triple bottom-line accountability, according to which a company reports not only on its financial results but also on what it is doing and what it is not doing in meeting stakeholder expectations of its environmental and social responsibilities. Nike, for example, has committed to achieving or exceeding its published baseline requirements for sustainability -- from design to manufacturing -- for all its footwear by 2011, apparel by 2015, and equipment by 2020.

Today, corporate social responsibility extends along the whole chain of value creation. For example, corporations must provide the necessary information, education, and training to suppliers and clients to ensure that a product or service can be effectively and safely used. In that regard, the global insurance group AIG offers customers financial-education programs to help them learn how to make the right investment decisions to meet their needs. Some business leaders will point to their corporation's engagement in a number of corporate social responsibility projects around the world, which they argue make the coporation a global citizen. But the sum of acts of local citizenship does not make a globally involved citizen; global issues must be addressed on a global scale.

Corporate social entrepreneurship is strictly defined as the transformation of socially and environmentally responsible ideas into products or services. The last decade has seen many individuals come up with innovative ideas to address the specific social and environmental needs of the communities in which they are living. The role model of these social entrepreneurs, Muhammad Yunus, the inventor of microcredit, received the Nobel Peace Prize in 2006. Today, pioneering enterprises integrate social entrepreneurship into their core activities by actively channeling their research-and-development capabilities in the direction of socially innovative products and services. Examples of corporate social entrepreneurship include Deutsche Bank offering innovative microfinance schemes or socially responsible investment products, the Toyota Motor Corporation producing a hybrid car, or Unilever empowering women to become entrepreneurs in rural India while at the same time raising awareness on the importance of hygiene and nutrition.

CITIZENS OF THE WORLD

Global corporate citizenship goes beyond the concepts of corporate philanthropy, including social investing; corporate social responsibility; and corporate social entrepreneurship in that it 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.