Communications of the ACM

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have withdrawn (for example, via priva-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.