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GLOBAL CORPORATIONS, GLOBAL IMPACT

 

BROOKINGS GLOBAL EXPERTS

•    DAVID CAPRARA

•    JANE NELSON

 

 

 

 

 

T

he private sector is becoming a significant player—indeed, some might say the dominant player—in shaping the global economic and development agenda. Multinational corporations with operations span- ning the globe, and in some cases capacities and networks that match those of governments, have a particularly important role to play in helping to spread the opportuni-

ties of globalization and in mitigating some of its risks.

 

 

THE GLOBAL CONTEXT

Multinational corporations are driving the emergence of new markets, industries, technologies and business models as well as unprecedented cross-border financial flows and expanded global value chains. Some are also supporting innovative mar- ket-driven approaches and public-private partnerships with the potential to address challenges that have traditionally been the purview of the public sector—most notably in the areas of poverty  reduction,  economic  exclusion,  environmental

sustainability, humanitarian relief, health and human rights. At the same time, multinational corporations and their leaders are facing heightened public expectations and censure in terms of their negative impact in these areas, corporate governance scandals, and accountability for non financial performance—all in the face of unremitting competitive pressures and investor demands.

 

Though new market-driven approaches and public-private partnerships offer potential to mobilize untapped private sec- tor resources, networks and problem-solving skills, they also create new risks as well as governance and accountability challenges for both business and government leaders. This is especially the case when corporations are operating under conditions of bad governance, conflict, weak public adminis- tration, inadequate infrastructure or other governance gaps and market failures. The challenges of corporate responsibility and good public governance are nearly always intertwined, but they are particularly interconnected under such circumstances.

 

THE CHALLENGE

New business models, market mechanisms, and governance

BROOKINGS GLOBAL ECONOMY AND DEVELOPMENT               17

frameworks are needed to more effectively harness the oppor- tunities and address the risks of growing corporate investment in developing countries and engagement in global issues. New approaches, led by business or where companies partner with others, can play a crucial role in three areas:

 

>     To mobilize, reward and scale up the positive contributions that corporations can make, especially through innovations in their core business operations and investments, and through mobilizing corporate competencies, such as the skills of employees as part of volunteering initiatives and community investment.

 

>     To identify, mitigate and monitor any negative impact and externalities arising from corporate activities, through ini- tiatives such as industry-wide standards and guidelines, integrity pacts and multistakeholder monitoring and dis- pute resolution mechanisms.

 

>     To enable the private sector to play a legitimate role in improving the broader enabling environment at a national or regional level, in particular through efforts to strengthen public governance and public institutions, not only in the economic sphere but also in areas such as anticorruption and strengthening public health systems.

 

Designing and implementing these new approaches to engage corporations in an effective and accountable manner is a challenge for business and government leaders alike, as well as leaders of labor and civil society.

 

This is a leadership challenge that goes far beyond corporate compliance and philanthropy, although both have an impor- tant role. It requires the engagement of companies and their leaders at the most strategic level to harness their core compe- tencies and resources along the corporate value chain, and to mobilize business leadership at both the operational and policy levels. It requires regular communication and consultation with key corporate stakeholders, ranging from employees, con- sumers, investors and business partners to regulators, NGOs, foundations and local community leaders. It requires individ- ual corporations to identify and manage the key development contributions and risks arising from their own operations, while at the same time working with their industry peers and leaders in other sectors to tackle more intractable development challenges that require concerted collective action.

 

RECOMMENDATIONS FOR ACTION

Encouraging examples in these areas already exist and many more are emerging. There are more and more new individual business models and products, industry-wide efforts, and global multisector alliances and financing mechanisms—to

create greater economic opportunity, deliver services to low- income communities, respond to complex emergencies, uphold human rights, tackle global health challenges, manage the risk of pandemics, address climate change and water scarcity, support education reform and overcome corruption.

 

These examples are in the early days, and much needs to be learned about these innovations in terms of their drivers, their scalability and their impact, both on the companies them- selves and on the development challenges they aim to address. Yet they offer potential for helping to transform the develop- ment landscape, especially if they can achieve greater scale and incorporate more of the world’s leading corporations. Three recommendations for moving in this direction are as follows:

 

>     Increase collective efforts. Though it is essential that major corporations get their individual operations in order and focus on what they are best equipped to deliver, there is potential to scale up impact and address more systemic challenges through collective initiatives with other compa- nies, governments and development partners. These initia- tives can be focused on a particular country or region, a specific development challenge or policy, or a particular industry sector. Examples include: South Africa’s National Business Initiative; Philippines Business for Social Progress; Business Action for Africa; the Global Business Coalition Against HIV/AIDs, TB and Malaria; the Global Alliance for Improved Nutrition; the Extractive Industries Transparency Initiative; the Marine and Forest Stewardship Councils; the Equator Principles; and the Brookings Initiative on International Volunteering and Service.

 

>     Analyze initiatives that have achieved scale. A number of individual corporations and collective initiatives can claim to have achieved scale in tackling a specific development challenge or set of challenges at either a national or global level, in some cases reaching millions of people. These require greater analysis in terms of what has worked and what has not, and whether they can either be replicated elsewhere or scaled-up further.

 

>     Actively engage emerging market multinationals. There is an urgent need to better understand and partner with the emerging multinational corporations and state-owned enterprises from India, China, elsewhere in Asia, Brazil, Mexico, the Middle East and Africa, especially those that are investing heavily in other developing countries. The growing reach, impact and influence of multinational cor- porations, both individually and collectively, are unlikely to diminish. The leadership challenge is to develop new business models, market mechanisms and governance frameworks that serve the public interest while making sound business sense and that mobilize corporations with-

 

 

18          BROOKINGS GLOBAL ECONOMY AND DEVELOPMENT