THE NEED FOR CORPORATE DIPLOMACY

Business leaders are expected to be corporate diplomats but corporate diplomacy is not about turning businessmen into part-time politicians or statesmen. Rather, it involves corporations taking part in creating, enforcing, and changing the rules of the game that govern the conduct of business. It goes well beyond delegating external communications and lobbying to a public relations agency or a law firm.

Corporate Diplomacy is the proactive engagement of external stakeholders to win their hearts and minds in support of the creation of shareholder value. Corporate diplomacy is important because firms are increasingly looking for growth and revenue opportunities abroad in emerging markets, frontier markets and foreign markets. In these foreign markets, they are necessarily interacting with more stakeholders, stakeholders who vary in their economic philosophies and ideologies, who have different histories, different language backgrounds and different cultural backgrounds. The ability to deliver on the growth opportunities in these emerging markets requires successful interactions with more and more diverse stakeholders. It’s important to know how much these stakeholders can hurt you, how much they can help you and whether you can build and maintain a long-lasting relationship with them. It’s not just about talking to them. It’s not just about a communication strategy. It’s really rolling up your sleeves, working with them to obtain their goals.

Corporate diplomacy seeks to transform the place where business, politics and society collide from a source of nasty surprises or unexpected expenses to a source of value for shareholders and society. Realizing this vision requires staffers in the functions that contribute to corporate diplomacy, such as government affairs, communications and community relations, to move beyond the moral suasion that typically dominates diplomacy discussions, and embrace quantitative, data-driven decision-making.

It begins with the identification of external stakeholders, and the issues they care about, and pinpoints which of these issues offer the greatest potential for financial gains and losses.

Implementing a corporate diplomatic strategy then requires melding of this analytic approach with a traditional one steeped in an understanding of human behavior and the cultivation of personal relationships.

Relationships do still matter, and they must be nurtured in a manner that builds trust. The inevitable conflicts must be managed in a manner that does not damage relationships. Goals and achievements must be communicated, and all members of the organization must believe in, and support, these inter-related elements.

The challenge is to integrate the analytic and behavioral approaches and elevate the status, resourcing and power of these functions typically seen as cost centers or support roles. Data and analytical insight then can guide conduct in the field and deliver financial returns.

Corporate diplomacy begins with a deep analysis of stakeholders and what they want. Absent that, managers are left with little more than guesses. Corporate diplomacy rest upon a foundation of stakeholder analysis. A smart manager or team must identify the stakeholders (that is, outsiders who have a financial interest in the project or who care about it for political or ideological reasons), the resources they control, the reasons the project matters to them and the relationships between them. This information can come from more traditional sources, such as surveys or workshops, or (social) media monitoring.

Successful companies overcome the misconception that communication is primarily about being heard and realize that, by contrast, it’s actually about listening. A good communications strategy begins, not with your story, but with the story of your stakeholders. It puts them front and center. By helping them reach their goals, you demonstrate your trustworthiness and character. As part of your communication strategy, you should be forthright about your needs and what you can and cannot do on behalf of your stakeholders. If your project cannot survive, you cannot help anyone else.

Stakeholders must understand not only your constraints but also how you ascertain what you can and cannot do on their behalf. Without transparency on this topic, people will doubt you.

It is not enough to have good data and analysis if senior decision-makers do not seize the results and use them to evangelize for change. Even in the presence of this kind of support, lower-level employees must believe too. Change only happens if everyone who is involved commits to doing his or her job differently. Sadly, the most common success factors are outside of current managers control. They are either a strong founders’ imprint that inculcated externally-facing long-term values or having experienced a stakeholder related crisis that threatened the organizational’s survival. Either at the time of founding or in response to such a crisis, the leaders of these companies articulated a clear vision or policy statement enshrining the value of stakeholder engagement and built a system of financial and career incentives that showed these words should guide action. They also reinforce these incentives with symbolic rites such as inclusion in the intake training program, continuing education and recognition for deserving service.

In terms of success stories, ironically, some of the leaders are in the extractive industries largely because of the magnitudes of the losses they experienced in the past, they had to change their mindsets. Anglo American, Rio Tinto, Newmont, Anglo Gold Ashanti and other mining companies have all made enormous strides over the past decade as have Chevron and Shell.

Summary

The most successful multinational companies will be those that make expertise in international affairs central to their operations, adopting what can best be described as a corporate foreign policy. The role of corporate diplomacy is twofold: to enhance a company’s general ability to operate internationally and to ensure its success in each particular country with which it is engaged. The general international reputation of a company can be affected by its success or failure in any given country, and likewise a company’s ability effectively to enter newly attractive markets or gracefully exit from suddenly unappealing ones depends on its broader reputation. In the pursuit of those goals, companies can neither comport themselves like NGOs—beating the drum of a single moral issue and advocating resolution of that issue above all other priorities—nor act as substitutes for governments and attempt to provide local populations with all the public goods they need. Rather, they must cultivate wide and deep relations with both government and society. Wherever they wish to operate, they must identify the various stakeholders, understand which groups may be supportive of company goals and which are likely to protest or oppose them, and develop strategies to engage each constituency effectively.

Four key principles underpin an effective corporate diplomacy strategy

1. Develop your own foreign policy stance. The first principle of corporate diplomacy is that companies must develop their own approach to foreign governments, rather than manipulate or be manipulated by the policies of their home country. Companies that align themselves too much with their home government often encounter problems.
2. Where possible, develop a transnational character. The larger a multinational company becomes, the more important it is to develop a transnational character. That’s because when a company or an investor group is seen as having a clear national origin, it risks bearing the brunt of a political dispute.
3. Diversify your political relationships. Companies must engage all actors rather than attempt to mitigate geopolitical risk just through good government contacts (on the one hand) and good social practices (on the other). It is the dynamic relationship between the government, the business elite or oligarch class, and civil society that needs to be appreciated. In high-growth markets where domestic politics are particularly volatile, the internal balance of power between key actors in the economic and political spheres must be continually monitored. Companies need to be alert to fast-paced change in these relationships and be ready to adapt.
4. Don’t sabotage yourself. Political risk is not just something that happens to corporate bystanders. It can also be caused by inept company action, such as taking long-standing partners for granted or acting to advance shareholder value without regard to local circumstances. Companies need a genuine understanding of the political and foreign policy interests of the countries in which they invest so that they can be fleet-footed in responding to political change.

At bottom, geopolitical volatility is no different from other forms of volatility. As long as a company’s geopolitical assessment processes are comprehensive and its corporate foreign policy shrewd, business leaders should be able to navigate these challenging times. In judging the quality of a company, investors will continue to look at traditional indicators of commercial attainment. Increasingly, however, they will mark companies also on their foreign policy aptitude and their corresponding business resilience in the face of geopolitical shock.