Around the world, the coronavirus pandemic has not only devastated public health, but exploded assumptions of competence and good intentions of government. Few could be optimistic of a swift reversal in circumstances. In this transformative period, corporations generally and global entities in particular must work to hold onto decency, tolerance and ethical conduct. For businesses, this means not merely being legally compliant but reaching beyond to exert leverage in areas like access to justice and promotion of the rule of law which have customarily been responsibilities of the state. Certain organizations are already moving in that direction.
A significant moment came in August 2019, when nearly 200 CEOs of leading U.S. companies discussed redefining the purpose of business and its role in society. In a joint statement issued by the Business Roundtable, the CEOs broke with long-held orthodoxy on the primacy of shareholder value. Instead of managing purely in the financial interests of equity holders, they proposed instead that businesses should invest in employees, protect the environment and deal fairly and ethically with suppliers. This is the essence of stakeholder engagement. Innovative measures of value like John Elkington’s “triple bottom line”—people, planet, profit—are gaining ground relative to value measured in stock price alone.
This quiet evolution—from shareholder to stakeholder primacy—has important ramifications both for the present and future crises, and for the role of private dispute resolution.
The statement from the Business Roundtable marks a shift away from Milton Freidman’s 1970 proclamation that “the social responsibility of business is to increase profits.” But it also illustrates a longer-term trend. Shareholder value’s chief exponent, former General Electric CEO Jack Welch, on the basis of his own experience, arrived at similar conclusions in 2009, acknowledging that shareholder value is a byproduct and not an end in and of itself. Declaring it “the world’s dumbest idea,” Welch recognized its potential for triggering corporate myopia, AND, by implication, accepted a view in which the corporation has broader range of responsibilities.
Face the Change
What changed? First, decades of globalization divorced businesses from their local communities and then produced corporate entities with revenues and influence on a scale larger than those of some states. Waves of privatization at the same time led corporations to assume responsibility for functions previously performed by the state. Thus, time-honored demarcations between business and government began to blur. Recognizing this shift, in 2008 John Ruggie, the United Nations (UN) Secretary-General’s special representative for business and human rights, proposed a framework in which state obligations to protect against abuses should be matched by obligations on business to respect the same.
At an international level, various soft law initiatives like the UN Global Compact, the European Union’s (EU) Multi-Stakeholder Forum and later the European Alliance for Corporate Social Responsibility offer guidelines for corporate self-regulation that serve as reference points without being legally binding. They nevertheless incorporate international law instruments on human rights and labor rights (UN Global Compact), specifically the Universal Declaration of Human Rights and the 1998 International Labour Organization’s Declaration on Fundamental Principles and Rights at Work.
Enforcement, however, falls to individual states, which, for reasons of competitive advantage, have been reluctant to enforce international obligations domestically. However tepid the obligations, the law, then, is a fickle instrument with which to effect overdue change.
Moreover, the present context is different from the world for which Ruggie’s framework was designed. Populist nationalism and isolationism have surged in the absence of big political ideas that in decades past have vied for supremacy. And while effective in gaining and holding onto power, this lack of direction, alongside preoccupations with identity, race and military prowess, is a pointless distraction from the cold reality of tackling present and future crises.
Society, then, must look elsewhere. The trust, civility and collaboration necessary for commerce have long bound hostile communities in mutually supportive endeavor. Business therefore should shoulder more of the burden, and exert leverage and influence where government has withdrawn. Some businesses will, but many can’t or won’t. Part of the difficulty is not necessarily the malign intentions of business, but rather the practical matter of accountability.
Alternative Dispute Resolution
Stakeholder management is a lot messier than simply maximizing profit. Who is responsible to whom, and for what? Managing competing stakeholder interests is an unending source of conflicts of differing intensities. Shareholders might want you to drill for oil in the Arctic, but environmental interest groups, local residents and some employees may be opposed. To whom should business listen, and how?
Reconciling competing interests among groups, individuals and corporations is familiar territory to a growing global body of mediators. The skills, principles and aptitudes honed over decades of commercial mediation can, and should, be brought to bear in social and political contexts, rather than limited to contractual bust-ups, as an alternative to court. In so doing, and by providing expeditious and affordable dispute resolution, private-sector solutions serve and strengthen the rule of law.
Stakeholder management necessitates a reconciliation of political, economic, social, legal and environmental interests. If corporations are to successfully counter political headwinds and enhance conditions necessary for cross-border, cross-community trade, engagement with competing interest groups is not only desirable but unavoidable.
Facilitating these negotiations is not only key to overcoming the current crisis, but in providing a space for expertise and evidence, rather than emotion and opinion, future and greater crises might be averted or diminished. Government must still play a role, but in setting higher standards and exerting influence, the private sector, alongside a coalition of willing institutions and individuals, must start to define a better future.