past few decades. Corporate diplomacy
has always been important in some locations. National borders are a fairly
recent human invention. The Peace of
Westphalia in 1648 created the basis for
national self-determination and sovereignty, and throughout the 17th and
18th centuries, the Hudson Bay Company in North America and the East
India Companies in India operated as
company-states. They had authority to
acquire territory, coin money, maintain
forts and armies, make treaties, and administer justice. These functions of the
state were carried out by private companies before colonial administration
took over. Establishing and maintaining this took corporate diplomacy.
Corporate Diplomacy Hotspots
History gives pointers to corporate diplomacy opportunities and challenges. Corporate diplomacy matters irrespective of whether governments are
present or absent. Governments present in regulated industries require
corporations to seek license to operate
and to comply with standards. Energy,
mining, and infrastructure are good
examples of such sectors, and companies in them have strong government
affairs departments. Such sectors often are seen to embody national interest, and corporate diplomacy with
host country governments is vital. The
distinction between diplomacy and
corporate diplomacy can be blurred.
In 2013, Argentina expropriated the
assets of Repsol YPF, the Argentinian
subsidiary of the Spanish oil company.
The Spanish parent used diplomacy
with the government of Spain to pressure the government of Argentina for
compensation. The failure of the Chinese oil company CNOOC to acquire
the U.S. company Unacol in 2005 was
due in part to failed corporate diplomacy when the U.S. Congress framed
this acquisition as the Chinese state
acting behind CNOOC. The company
learned its lesson and successfully
acquired Nexen in Canada. Through
corporate diplomacy, both YPF and
CNOOC reframed existing rules on
national security.
Where governments do not exist, or
have withdrawn (for example, via priva-
tization or outsourcing) rule making
and rule enforcement by businesses are
also important. Government outsourc-
tablish international organizations to
harmonize rules. The world is far from
flat, however. General Electric encoun-
tered this when its 2001 plan to acquire
Honeywell was approved by the U.S.
regulators, but faced fierce opposition
from the European Commission. The
enforcement of competition policy dif-
fers from country to country.
The recent history of liberalization
and globalization points to the rising
importance of corporate diplomacy.
Since the end of the Cold War, national
governments lost autonomy in a global-izing economy. They are sharing powers
with businesses, international organizations, and nongovernmental organizations.
1 There is a steady decline in
corporate income taxes, from 49.1% in
1981 to 32.5% in 2013 on average in Organisation for Economic Co-operation
and Development (OECD) countries.
States reduce taxes to make their locations more attractive to foreign direct
investment, but in the process render
themselves less resourceful to solve social problems. Business corporations
engage in ‘regime shopping’ before
choosing locations. Tax breaks raise
public expectations that businesses
will help solve societal problems. Civil
society creates the rules of the game on
‘fair taxes,’ not government or business
alone. Public protests against tax avoidance caused Google to pay the U.K. government £ 20 million in voluntary taxes
in December 2012. This was a climb
down by Google CEO Eric Schmidt, who
earlier said that paying less tax was “just
capitalism.” Businesses that fail to engage proactively in corporate diplomacy
are criticized and cannot establish their
legitimate role in society.
This is not just a phenomenon of the
The recent history
of liberalization
and globalization
points to the rising
importance of
corporate diplomacy. C
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