The Increasingly Political Role of Business

Recent articles in Foreign Affairs and The McKinsey Quarterly, promote the idea that businesses have a clear responsibility—increasingly a very political one—to the community beyond its shareholders.

In Foreign Affairs, Klaus Schwab, the Executive Chair of the World Economic Forum, writes, “Above all, a new imperative for business, best described as "global corporate citizenship," must be recognized. It expresses the conviction that companies not only must be engaged with their stakeholders but are themselves stakeholders alongside governments and civil society. International business leaders must fully commit to sustainable development and address paramount global challenges, including climate change, the provision of public health care, energy conservation, and the management of resources, particularly water. Because these global issues increasingly impact business, not to engage with them can hurt the bottom line. Because global citizenship is in a corporation's enlightened self-interest, it is sustainable. Addressing global issues can be good both for the corporation and for society at a time of increasing globalization and diminishing state influence.”

Schwab writes that state power has shrunk. “At the same time as state power has declined, the influence of corporations on communities, on the lives of citizens, and on the environment has sharply increased. This fundamental shift in the global power equation means that just as communities and citizens look to government for answers and leadership, so now they target corporations with both requests for help and criticism for wrongdoing.”

Similarly, in an interview published in The McKinsey Quarterly, with the head of the Council on Foreign Relations, Richard Haass observes that “Today, the environment that business leaders operate in is fundamentally different than it was a generation or two ago. It’s far more political. There is a conceit in the business and management literature that businesses face the toughest problems and have a lot to teach the rest of us. But the reality is that the environment business leaders operate in is increasingly political. It is global and it involves tremendous transparency, greater accountability, independent stakeholders, less freedom to maneuver, and an inability to narrowcast messages. That sounds a lot like politics. Businesses actually have a lot to learn.” Businesses should look to government for clues.

Both Haass and Schwab see a wider role for the CEO now than in the past. Haass tells MQ, “There is a slightly hermetic quality to management books that doesn’t quite capture an increasingly political, transparent, and demanding reality. Too much of the business literature operates within the confines of the firm, inside the balance sheet, or inside headquarters. That is important and necessary, but insufficient....The new role involves nothing less than a fundamentally different way of doing business. It is about dealing with a wider and more powerful group of stakeholders and constituencies and being proactive, not reactive, with them.”

Areas where businesses should assume a stronger social role include the lag between globalization and global arrangements, climate change, how best to integrate a rising China and a rising India into that region and the world, and the Middle East, which contains enough issues to keep anyone occupied. Haass adds, “The uncomfortable reality is that there is no shortage of subjects worth thinking and writing and speaking about if your business happens to be assessing political, economic, and strategic risk and suggesting what to do about it.”