And this too shall pass. An era of globalization has passed. For the past twenty-five years, globalization was moving along a trajectory of weakening national borders, and an ascendancy of attention to economic growth and trade over other concerns in international policy discourse. The discourse was even moving towards creating institutions for adjudicating disputes between businesses and national governments that would sit above the purview of democratically elected governments.
Beneath the spreading of finance, investments, trade, and multi-national businesses across a ‘flattening’ world, other forces had been gathering strength and have now risen to dominate public attention—issues of inequalities within societies, insecurity, and concern that policies are being made by an established elite of corporates and governments which has been out of touch with the concerns of citizens. National boundaries are going up again. Multi-lateral trade agreements are unwinding. Forces of ‘protectionism’ and ‘populism’ are on the rise around the world.
Businesses cannot carry on as they were. During the quarter century of the old globalization, now passing, the norms, practices, and regulations for governing businesses were oriented towards shareholder capitalism. The focus of good corporate governance was on responsibility of boards and managers to financial investors. The performance of corporations was judged almost entirely by the shareholder value they created. In this paradigm, not surprisingly, boards and managements would be expected to find ways to avoid taxation and to optimize global supply chains to increase profits regardless of parochial issues of local jobs and responsibilities to the governments and citizens of the corporations’ parent countries. In this paradigm, the business of business should be only business, and the purpose of business must be to make more money for investors.
The new era of globalization requires a new paradigm for business. It requires the implementation of new norms, practices, and regulations for governing businesses that are oriented towards stakeholder capitalism. The need to develop a new stakeholder paradigm for businesses has been touted by many thought-leaders. However, the discourse about this paradigm has been peripheral so far to the substances of corporate governance and government policies. We believe that it must be brought into the center of attention of business leaders and that they must take a leadership role in shaping the new norms and regulations. Otherwise they will be subjected to reactionary, and ill-thought through, restrictions and regulations that governments will be forced to implement under public pressure.
Examples of demands for, and even implementation of reactionary regulations are increasing. The Dodd-Frank Act was a reaction to the consequences of the freedom given to the financial industry. In the UK, there was pressure to regulate executive compensation to reduce perceived excesses. More recently, the pharmaceutical industry’s long-standing defense of IPR seems to be crumbling in the USA, India, and elsewhere under wide-spread public pressure. And, even new-age businesses such as Uber and Facebook, are confronting demands for their regulation in several countries, with issues of their broader responsibilities to stakeholders and not only to their customers and investors.
It is becoming clear that the norms and regulations in any one country for the new paradigm for business responsibility will not, and cannot be universally applied in all countries. National governments will be expected by citizens to respond to the national context, and not subject themselves blindly to multi-national rules (The EU, WTO, etc.). The new norms and regulations must be developed and applied in each country with the participation of its own stakeholders.
India must develop solutions for business responsibility in the new globalization. Indeed, India may be a good laboratory for ideas that may stimulate developments elsewhere too. India has encouraged the private sector since the reforms of 1991 and intends to continue doing so. However, India continues to lag in the eradication of poverty. Inequalities have increased and, of late, the economic disparities within Indian society have become glaring with the attention in the media to the compensations and life-styles of business leaders. If Indian business leaders do not pro-actively shape solutions for business responsibility that meet the requirements of India’s faster, more inclusive, and more sustainable growth, they are very likely to be subjected to restrictions and regulations that may further dampen their desire to invest and grow their businesses.
How should good solutions be developed for business responsibility in the ‘new globalization’?
New solutions must be developed through a process of systematic deliberations amongst the principal stakeholders: business leaders of course, and government, and also other stakeholders. The participation of stakeholders other than business is essential since it is their concerns that are challenging norms and regulations that to their minds have been developed mostly between business and government. Hence the anger with ‘the Washington swamp’, and with the ‘business-government establishment’ and with ‘crony capitalism’ in many countries.
The question is who will take the lead in stimulating and sustaining a good process of deliberation in India?
The Government of India, in the Ministry of Corporate Affairs, had recognized the need for a new paradigm of business responsibility ten years ago. It set up the Indian Institute of Corporate Affairs (IICA) with a charter to lead a process with participation of industry leaders and other stakeholders. Around that time, Satyam imploded. Satyam was a winner of the international Golden Peacock award for business responsibility because of its remarkable ‘CSR’ work. But its corporate governance proved to be very weak. Around that time too, Vedanta, another winner of the Golden Peacock award was having enormous difficulty in getting ‘public license’ for its plants in Odisha. Pepsi and Coca Cola were entangled in controversies with local communities regarding use of water for their operations, and pharma companies were tangled in multiple regulatory issues, regarding prices, IPR, and branding. Very clearly, new norms and regulations for responsible businesses were required on multiple fronts.
The fledgling IICA partnered with GIZ, GRI, CII, and others to conduct a process of consultation with stakeholders which produced the National Voluntary Guidelines (NVG) for responsible business. However, at the same time, under political pressure, IICA supported the misconceived development of the ‘2% CSR’ law as the solution for responsible business, which its partners in the NVG were rightly against. IICA is now run by retired by IAS officers. This experience has shown that the leadership of a process for new thinking cannot be with a government agency. It must have the support and the participation of government. But it cannot be beholden to government alone.
The industry associations--CII, FICCI, and others--are not able to provide the independent thought leadership. Their principal function is to lobby for business interests, and they do not have the personnel resources to support a high-quality process for developing new ideas. The conflicted interests within a business association became clear even in the NVG/2% CSR controversy. One wing of CII actively supported the NVG. But the mass of CII, staying on the right side of government, went along with the movement for 2% CSR, and provided many platforms to politicians and bureaucrats to promote the idea.
The leadership of the process required for developing norms and regulations for responsible business must be outside government and outside the established business associations also. So far, no platform exists for it.
Many boutique consultancies, some formed by academics, are evangelizing ideas of ‘conscious capitalism’, ‘triple bottom line’, etc. However, they are not deeply connected into the business-government-policy system for their ideas to be convertible into policies.
Think-tanks, such as NCAER, ICRIER, and ORF, are better connected with the policy establishment. However, they are interested in broader socio-economic issues and do not have sufficient understanding of business issues.
The Institutes of Management and Business (IIMs and ISB) would be closer to business but have so far not shown the capacity or interest to provide credible leadership for a process of public deliberations on new norms and regulations for business responsibility.
BCG can be a catalyst
A well-respected management consulting firm, such as BCG, would be well-positioned to step into this vacuum. BCG works with leaders of business and industry in all sectors. It understands their issues. BCG is also increasingly engaged with governments at the center and in the states on public policy matters. Also, BCG can provide the intellectual support that the deliberative process amongst stakeholders would require (which, for the record, IICA has been unable to provide).
The critical success factors for a process of deliberation amongst stakeholders that will produce good solutions are the following:
- The key stakeholders—business, government, and civil society leaders--must feel as equal partners in the process
- A small, core group of leaders must take responsibility to set up and support this process. Without a strong core, the ‘snowball’ of engaged stakeholders will not form and grow
- The process must be supported by a small group of high caliber ‘consultants/researchers’ to distil the ideas emerging, to find supporting evidence, and to search for knowledgeable people and ideas from elsewhere to feed into the deliberations
The design of the process, the composition of the core leadership group, and the size of the small support team, can be elaborated further. Before that, the first steps must be:
- An ‘in-principle’ adoption of the need for the process and its broad structure, as well as a willingness to develop it further, by BCG. (This idea should appeal to BCG because it serves a critical strategic requirement for all of BCG’s large business clients—and hence for BCG)
- An engagement by BCG of four or five business leaders in India with this idea to develop it further.
Some questions that will be examined during these initial steps, amongst BCG and these business leaders are;
- What will be the role of the core group? And, what resources of time, and financial support is it expected to contribute? (Initial thoughts: 4 or 5 business leaders, meeting four/five times a year to steer; support for operating expenses for the core team, and for participation of non-business leaders who are necessary and if any cannot pay their own expenses)
- How will some leaders of other stakeholder groups be engaged in the steering process to ensure that the process is not seen as only a business-driven process? (Initial thoughts: from the outset, the process must be seen to be ‘co-managed’ by other stakeholders along with business)
- Specifically, when and how should government be engaged? (Initial thoughts: There should be a couple of good connections into the central government—NITI? PMO? Government financial support if any provided should not damage the autonomy of the process)
- What will be BCG’s role in the process? What resources will BCG provide? (Initial thoughts: a few dedicated persons for ‘knowledge management’ and ‘process management’ will be essential)