Penn State Smeal News: Media Coverage June 2003
Global Trends; Growth Of Democracy, Corporate Governance And
Will Shape Multinational Firms Over Next 25 Years
Multinational companies need to pay attention to three major trends in the field of governance over the next 25 years: the spread of democracy; corporate governance; and the influence of nongovernmental organizations on multinational corporations. Multinational companies that fail to do so will jeopardize their futures.
Democracy will continue to spread in the world and create long-term improved conditions for market-based economies. The spread of democratic societies tends to create for multinational companies a clean, fair and efficient governance environment, which is structured and strengthened by each government's commitment to, and practice of, a series of international rules in political, economic and societal areas.
More and more countries adopting international rules will present a larger and better arena for multinational companies to run and grow at home and abroad, an environment where capital, labor, commodities, technology and information can flow more freely across the borders of nation states. No single business can afford to ignore or lose this kind of opportunity. Beyond that, multinational companies should work actively to promote legal and judicial reform and challenge governments to become more transparent and predictable.
Excessive business regulation and complex procedural systems usually result in the abuse of power and the slowdown of business activities. The quick expansion of the global market put enormous power in the hands of multinational companies. In 1999, among the top 100 economies of the world, 46 were corporations instead of nation states.
Nonetheless, in the wake of the scandals of Enron and WorldCom, people realized that the accountability and transparency of corporate governance could never be overemphasized. Corporate governance will be more accountable and transparent in the next 25 years. Business leaders of the multinational companies should once again focus on the fundamentals of their businesses, such as personnel, systems and sound investment, rather than make reckless moves or resort to questionable business models, such as Enron changing from a solid utilities company to a dangerous energy trading company.
Multinational companies need to update their risk management systems, dealing with not only the financial risks but also the commercial, policy, safety and ethical risks. Additionally, they ought to hire and promote more employees who are willing to tell the truth, challenge the decisions and put their credibility and careers on the line in the interest of their companies, just like the three courageous women who were honored by Time as People of the Year 2002.
More accountable and more transparent corporate governance will create a new set of business values. Business leaders will not just make money for their stockholders; they are expected to work for the interests of all of their stakeholders—employees, customers, suppliers and communities in which they operate. Failure to address the concerns of any of the stakeholders would be costly, if not disastrous.
The third trend of governance is that nongovernmental organizations, such as Greenpeace, will play increasingly important roles and impose greater influence on government and multinational corporations. There are 2,091 nongovernmental organizations that hold consultative status at the United Nations, compared with 928 in 1991, and 41 in 1948.
These NGOs contribute information and expertise, advocate policies on behalf of their interests and help implement those policies through various international institutions. Estimates show that NGOs channel more than 15 percent of total overseas development aid.
Over the next 25 years, I predict these NGOs will have more resources to expand their activities and will become more confident of their power and more confrontational. They will be better organized, more media savvy, more active as stakeholders and more connected by the Internet and telecommunication technologies.
Meanwhile, government and corporations will expect nongovernmental organizations to meet the similar accountability and transparency standards.
NGOs themselves need to keep the balance between volunteerism, which is the defining character of NGOs, and the professionalism that is necessary for NGOs to operate competitively in the nonprofit environment.
To set up constructive relationships with NGOs, I recommend that multinational businesses report to the public their environmental and social performance on a regular basis and design, manufacture and distribute products that address public concerns about environment, resources use and health. More importantly, they must learn how to work with NGOs to promote internal reforms, improve profitability, enhance reputation and, in many cases, earn their tickets to the emerging markets.
Whether and how well multinational corporations can grasp the opportunities and avoid the risks relating to these trends will determine their fate in the first quarter of the 21st century.
Fariborz Ghadar is director of the Center for Global Business Studies at Penn State, University Park. He specializes in global corporate strategy and implementation, international finance and banking, and global economic assessment.
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