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.

Compared to just a decade ago, it is now common for businesspeople to talk about social responsibility and the importance of being good corporate citizens. Many business leaders today consider it critical to engage with shareholders, the communities in which their companies operate, and others affected by and interested in what they do. The diverse activities needed to respond to these expanded duties are widely referred to by the catchall phrase "corporate social responsibility." It incorporates a host of concepts and practices, including the necessity for adequate corporate governance structures, the implementation of workplace safety standards, the adoption of environmentally sustainable procedures, and philanthropy.

Blanketing these various responsibilities with the single term "corporate social responsibility" is an oversimplification that has led to a great deal of confusion. It is necessary to distinguish between the different types of corporate activities, so that the work companies do to engage in society is fairly recognized and appreciated and companies are better able to benchmark themselves against the performance of different enterprises and learn from example. A better understanding of engagement requires separate definitions for corporate governance, corporate philanthropy, and corporate social responsibility as well as for an emerging element: corporate social entrepreneurship, that is, the transformation of socially responsible principles and ideas into commercial value.

Above all, a new imperative for business, best described as "global corporate citizenship," must be recognized. It 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.

THE FACTORS AT PLAY

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.