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 / Fourth Quarter 2002 / Issue 29(originally published by Booz & Company)


Globalism without Tears: A New Social Compact for CEOs

Indeed, business and other leaders must rethink how they can collaborate to further the public interest on a range of critical issues. I know that a definition of “the public interest” is elusive, but let me explain what I have in mind. First of all, the public interest is not simply the sum of the private interests, which are often self-serving and short-term. Nor is a market economy the same as a market society; prices and competition should not govern everything.

Moreover, in a highly sophisticated, market-oriented nation such as the United States, the public interest cannot be defined by democratic voting alone or by the judgment of officials responding to opinion polls. American society is more complicated than that. It needs interest groups; it needs political parties. And, given the powerful role that business plays in U.S. society, the nation needs a level of leadership from corporate America that goes beyond that of an interest group and considers public policy from a more strategic perspective. It needs chief executives who can explain to the government and the public the effects of various policies on the economy over the long term, spell out the risks and rewards of different policy choices, and identify who and what these policies will affect. It needs leaders who can look at the overall economic system, examine ways to strengthen it, and recommend national and international policies that will expand open markets and promote democracy — two conditions that reinforce each other. It needs, too, business executives who can expose and condemn the business practices that undermine effective capitalism.

Power and Obligation
Here is one example of what is needed: A revitalized notion of what global citizenship is all about — or should be about. It is easier to talk of good corporate citizenship, however, than to live up to the obligations. Since legal systems differ around the world, and since many developing countries have not established laws and enforcement mechanisms as elaborate as those in the United States or Europe, the definition of corporate citizenship on a global scale is anything but straightforward. The difficulty for many CEOs is encapsulated in this kind of thinking: “I operate in a hypercompetitive global marketplace. My primary responsibility is to be profitable in order to serve my shareholders. I have to obey the local laws, of course. I must also follow the laws imposed by the country in which I am headquartered, if they apply overseas. But if I go beyond that — if I pay wages or uphold environmental standards that are higher than those legally required in a foreign country, and if that causes my company to be less competitive than my rivals and hence to be less profitable, am I doing the right thing?”

This kind of question reflects some intractable real-world dilemmas. Suppose an American oil company is operating in Colombia, a country wracked by violence. The company hires security guards to protect its facilities. The service is effective in protecting the company, but it violates the norms of human rights in the United States — although not the de facto standards in the tough neighborhood in which it operates. What should an American CEO do?

Consider another example: You are the CEO of a major American financial institution, and you are asked to bid on the financing of the Three Gorges dam in China. The U.S. Export–Import Bank and the U.S. Overseas Private Investment Corporation — arms of the U.S. government — have decided not to participate, having determined that the new dam will displace hundreds of thousands of people and damage the surrounding environment. But gaining closer relations with the government of China is a major strategic objective of your company, and participating in the underwriting of what may be the world’s largest public financing project would be highly profitable and hence of benefit to your shareholders. You have also received reports prepared by consultants who say that building the dam would, over time, benefit millions of people in the region. How do you decide what is the right thing to do?

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  1. Jeffrey E. Garten, “From New Economy to Siege Economy: Globalization, Foreign Policy, and the CEO Agenda,” s+b, First Quarter 2002; Click here.
  2. Amy Cortese, “The New Accountability: Tracking the Social Costs,” New York Times, March 24, 2002; Click here.
  3. Geoff Dyer, “Biotech Sector Urged to Focus on Problems of Poor Countries,” Financial Times, June 12, 2002; Click here.
  4. Alison Maitland, “Human Rights and Accountability,” Financial Times, June 13, 2002; Click here.
  5. Roger L. Martin, “The Virtue Matrix: Calculating the Return on Corporate Responsibility,” Harvard Business Review, March 2002; Click here. 
  6. Business Partners for Development, Putting Partnering to Work, April 2002; Click here.
  7. Global Reporting Initiative, Sustainability Reporting Guidelines on Economic, Environmental, and Social Performance, June 2000; Click here.
  8. Manufacturers Alliance and National Association of Manufacturers, U.S. Manufacturing Industry’s Impact on Ethical, Labor, and Environmental Standards in Developing Countries: A Survey of Current Practices, April 2001; Click here.
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