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Legitimacy Issues in Corporate Public Diplomacy

  • Kirsten MogensenEmail author
Living reference work entry

Abstract

Transnational corporations negotiate with stakeholders in host countries to build long-term, trustworthy relationships. Such corporate diplomacy activities aim at creating economically and socially sustainable business solutions. The sub concept, corporate public diplomacy, refers to collaborations and negotiations directly with civic society. Based on a review of scholarly, peer-reviewed journal articles, where the authors use the term “corporate diplomacy,” this article identifies four topics of special interest for discussions on legitimacy in diplomatic processes involving civic society: (1) Who can be perceived as legitimate representatives of civic society? (2) To what extent is it legitimate for corporations to seek political power and fill government gaps in host countries as well as in international politics, considering that the public has not elected the CEOs? (3) How do transnational corporations, from an ethical perspective, handle legitimacy issues related to the many different ideologies expressed by people in the countries where they operate? and (4) How do corporations deal with disparities in power and expertise so that representatives from civic society, who generally do not have as much technical expertise and economic power, perceive the processes as well as the solutions as legitimate? Much of the literature on corporate diplomacy is either conceptual papers or macrolevel analyses of corporate behaviors in relation to world politics. So far, few case studies have been published. More case studies would be helpful in creating insight into the processes of transnational corporations’ long-term negotiations and collaboration with civic society and in locating legitimacy issues related to practice.

Keywords

Transnational corporations Civic society Power disparities Public protests Anti-corporate activism 

Introduction

Transnational corporations’ investments sometimes spark protests from people living on the lands where corporations intend to build factories, mines, or hydro dams. Well-known examples are the Indian Niyamgiri Hill range, where villages after years of anti-corporate protests voted against plans to mine bauxite – the primary raw material for aluminum (Kraemer et al. 2013; Seetharaman 2018) – and the Myanmar hydropower project in Kachin (Myitsone Dam) that would produce clean energy but was suspended by government after years of public protests (China Daily 2011; Sun 2012; Mogensen 2017).

For corporations, such cancellation or suspension of planned projects is expensive. For people in the affected areas, the uncertain years of protests mean that they cannot look to the future in peace and communities are disrupted. During the years of protests, local people in India and Myanmar were outraged about the prospect of being moved from their ancestral lands, the threatening undermining of their traditional livelihood, and the lack of respect for places of spiritual significance to them. Similar arguments are heard around the globe, just to mention that Brazil’s indigenous people staged protest against loss of rights and land (Peres and DiLorenzo 2018), Native Americans protested against the Texas pipeline (Levin 2017), and Australians protested against a proposed Carmichael coalmine in Queensland (Hancock 2017).

When corporations undertook the initial expenses, related to the constructions in India and Myanmar, they had already negotiated successfully with relevant governments, and, as such, they were in the belief that their projects were legitimate. However, some people clearly did not find the projects legitimate. When they protested, they experienced closed doors and treats rather than an invitation to negotiate. It seems like the corporations did not perceive such protesters from civil society as legitimate actors in the corporate diplomacy related to their investments.

When corporations engage with stakeholders in other countries, this engagement may take the form of public relation, commercial diplomacy, and corporate diplomacy depending on the context and issues involved. While the first two aim at winning the public support for corporate products, ideas, and plans, the concept of corporate diplomacy implies a much deeper involvement with the public (Ali 2009; Ordeix-Rigo and Duarte 2009). Public relations, commercial/economic diplomacy, and corporate public diplomacy are interrelated concepts, and the practices share many techniques (Tam and Kim 2017). However, the emphasis is different. Respectively, keywords are perceived legitimacy (Vos 2011; Weber and Larsson-Olaison 2017), attraction (Ruël 2013; Nye 2014), and collaboration (Agmon 2003; Mogensen 2017). A number of legitimacy issues are involved when powerful corporations negotiate with less powerful actors such as governments and other stakeholders – including the general public – in smaller, poorer, and less powerful countries (Strange 1992, 1996; Agmon 2003; Ottaway 2009; Bloom 2016; Garsten and Sörbom 2017).

The focus in this chapter is on corporate public diplomacy, which is one aspect of the broader concept corporate diplomacy. In international relations, public diplomacy is a concept used to describe when a government engages directly with the public (Cull 2009; Memis 2010; Khakimova 2013; Seib 2013; Chang and Lin 2014; Mogensen 2015). In the transnational business world, the concept of corporate public diplomacy implies that management negotiate directly with civil society representatives (Mogensen 2017). As an example, corporations may engage civic society in an open discussion on how best to solve specific societal challenges in the hope to find solutions that are experienced as beneficial by both the corporation and the public. From an economic viewpoint, such direct negotiations are especially meaningful in situations where political opposition threaten to suspend or delay projects as experienced by, for example, China Power Investment Corporation (CPI) in Myanmar (Lwin 2015) and Vedanta Resources in India (Seetharaman 2018).

In the hindsight, “corporate public diplomacy – that is, collaboration with the general public in a host country through negotiation directly with civic society” (Mogensen 2017) might have saved the corporations for millions of dollars in wasted investments. Furthermore, at least in the case of Myanmar, analyses indicate that a profitable, sustainable solution could have been found though negotiations and co-creation activities with civil society.

This article will not elaborate on the economic perspective but instead discuss four other types of legitimacy issues related to “corporate public diplomacy.” A search on EBSCOhost in May 2018 shows that the broader term “corporate diplomacy” has been used in less than 30 English language peer-reviewed journal articles and they form the core for this review. Many are conceptual papers, such as Asquers’ (2012) cognitive-linguistic analyses inspired by George Lakoff, and several others discuss corporate diplomacy at macrolevel (e.g., Strange 1992, 1996). Case studies focusing on corporations’ diplomatic activities with civic society are rare, but most of the scholarly literature on corporate diplomacy point to legitimacy issues that are relevant in dealing with civic society, and they will form the basis for discussion of corporate public diplomacy in the rest of this article.

The Concept of Corporate Diplomacy

As foreign direct investments and international trade grew after WW2, scholars, politicians, and practitioners with international relations discussed the need for transnational corporations to develop and practice diplomacy (Herter 1966; Strange 1992; Trice et al. 1995). However, up to the turn of the century, the use of the concept “corporate diplomacy” in academic peer-reviewed journals seems to have been limited to the use of scholars studying corporate history. Miner (1969) introduced the concept in a study of the St. Louis-San Francisco Railway Company back in the 1880s, and Smith (1976) a few years later used it in his study of “The Millspaugh Mission and American Corporate Diplomacy in Persia, 1922–1927.”

When the international engagements grew rapidly in the 2000s (WTO 2014; World Bank 2016), the concept was adopted by scholars in business management. An early adopter was Steger (2003), who called his book Corporate Diplomacy: The Strategy for a Volatile, Fragmented Business Environment, and while it was not an academic article, a review was published in the strategic management journal Long Range Planning. A few years later, Steger co-authored a journal article about corporate diplomacy (Amann et al. 2007). Steger and his team defined corporate diplomacy:

Corporate diplomacy refers to the attempt to manage the business environment systematically and professionally, to ensure that business is done smoothly, with an unquestioned license to operate and an interaction that leads to mutual adaption between corporations and society in a sense of coevolution. (Amann et al. 2007)

Amann et al. emphasized strategic as well as institutional legitimacy theory in their discussion of four cases of corporations faced with pressure from external forces such as NGOs. The cases involve reputation management, and as such, it could be read as not much different from the public relations and social responsibility activities that were covered under already know terms. However, in the hindsight the definition contains some words that imply a much deeper engagement with society, including “mutual adaption” and “coevolution,” both of which require negotiations. The word “unquestioned” also requires an agreement with the local communities, because a project can hardly be considered unquestioned if local people protest.

Since then, scholars within different fields, including management, strategy, corporate communication, public relations, marketing, branding, international relations, and history, have used the concept in various contexts. More recently, scholars have suggested that corporations should take on new roles and try to solve problems that governments have not been able to, which means that they take on a more political role. As an example, Ordeix-Rigo and Duarte (2009) suggest that “corporate diplomacy is aimed at positioning the company or a group of companies as institutions” and that by “taking over some of the traditional state functions (…) they are also acquiring the status of interlocutor in an non-governmental environment.” Mogensen (2017) writes that corporate diplomacy “is a relevant concept for activities which transnational corporations engage in, when they perceive an opportunity or a problem in a host country and try to develop a sustainable solution in collaboration with relevant stakeholders at all levels, including civil society.”

Scholars have, for example, discussed (1) who are involved in diplomatic negotiations with corporations, (2) how these corporate diplomacy activities relate to government diplomacy, (3) what issues can be handled through corporate diplomacy activities, and (4) how they differ from related concepts.
  1. 1.

    Actors can be other businesses – foreign competitors and business partners, more or less powerful (Miner 1969; Asquer 2012), foreign governments (Strange 1992; Agmon 2003; Miller 2009; Asquer 2012; Jackson and Dawson 2017), international organizations (Pedersen 2006), NGOs (Amann et al. 2007; Mirvis et al. 2014), and foreign publics (Macnamara 2012; Mogensen 2017). A few history scholars also talk about corporate diplomacy when corporations are engaged in negotiations, damage control, and lobbying in their home country (Miner 1969; Schroeder 2011), but that is the exceptional use of the concept. In general, corporate diplomacy is used in connection with transnational negotiations.

     
  2. 2.

    When corporations work in foreign countries, they can have different links to their national governments. Before WW2 it was common that colonial powers appointed corporations as government representatives in other countries (Smith 1976; Ali 2009; Ottaway 2009; Westermann-Behaylo et al. 2015), and in a smaller scale, corporations are still appointed national consultees in areas where the establishment of an embassy is considered too costly. However, after WW2 the role of embassies in promoting the interests of corporations has developed. Such trade or commercial diplomacy recognizes the importance of the home government and the common interests between national governments and national corporations when they want to expand on foreign markets (Amann et al. 2007; Asquer 2012; Holden and Tryhorn 2013; Ruël 2013). On the other hand, corporations and individual citizens can also help create soft power for their national government if public abroad admires them (Ali 2009; British Council 2012; Tam and Kim 2017; White 2015) or harm the soft power of a nation if they undermine the trust in the country’s core values (Miller 2009). While such cooperation centering on national interests is still the trend, some large corporations have started to claim independence from national governments, insisting that they are truly transnational and that they can do better alone than when linked to a national government (Ali 2009; Westermann-Behaylo et al. 2015). Management literature discusses when it is in the interest of transnational corporations to dissociate from national governments (e.g., Wang 2005). The relationship between a national government’s diplomatic efforts and those of other actors is, in other words, not always in harmony (Miller 2009). This disharmony raises the questions of (1) who are the legitimate representatives of a nation and responsible for its image and (2) if it is legitimate for transnational corporations to act independently when its home country is involved in a territorial dispute with a host country (Tam and Kim 2017). These issues will not be discussed further in this article.

     
  3. 3.

    Scholars use the concept of corporate diplomacy in different contexts of which some seem very close to public relation concepts and others imply actual negotiations where the result is “a negotiated solution rather than perfect market equilibrium” (Agmon 2003). Examples of the first are that corporate diplomacy is used in an effort to “bring about mutual understanding and respect among people and cultures” (Wang 2005), “win the hearts and minds of external stakeholders in support of an organizational mission” (Henisz 2016), and reduce “nationalistic antagonism in overseas markets” (Wang 2005). Examples of the latter are transnational corporations’ negotiations with states for better infrastructure (Agmon 2003), with other businesses to maximize their combined opportunities (Miner 1969), with civil societies to find solutions to societal problems (Mogensen 2017), and with all stakeholders to fill governance gaps and solve conflicts (Westermann-Behaylo et al. 2015).

     
  4. 4.

    Corporate diplomacy as a concept has evolved from government-to-government long-term relation building and negotiations, and mostly, the concept is used in contexts where transnational corporations are strong enough to negotiate directly with other powerful actors outside their home country. Scholars have discussed how corporate diplomacy differs from other concepts like economic and commercial diplomacy, negotiations in general, international relations, and business diplomacy (Asquer 2012; Rüel and Wolters 2016). Parallel to government diplomacy, corporate diplomacy is the responsibility of the top management (Pedersen 2006; Ali 2009), and it “requires engagement, two-way conversation, transparency, and hopefully win-win negotiations with a mix of interests” (Mirvis et al. 2014). Public diplomacy has evolved from the diplomatic communication from one government to foreign publics (Wang 2005). As a concept, it implies engagement, networking, and listening, but not negotiations, with the general public (Cull 2009; Mogensen 2015). Scholars have therefore struggled to describe the differences between the visible conduct of public diplomacy and of other concepts like public relations, propaganda, lobbying, relationship marketing, and nation branding (Pedersen 2006; Tadajewski 2009; Asquer 2012). Only after 2000 have scholars tentatively included civil society as relevant participants in genuine negotiations, and Mogensen (2017) suggests that “corporate public diplomacy” is a relevant term for cooperation and negotiations directly with civic society.

     

The Concept of Legitimacy

This article recognizes two ontologies of corporate legitimacy. Both are reflected in the literature, usually without elaboration; however since this article combines both types of study in the review, it is necessary to introduce a way of distinction:
  1. 1.

    Citizens’ perception of the corporation’s legitimacy. This is linked to the socially constructed image of its activities – a social construction that is usually negotiated between the corporation and its social relations. Evaluations of this socially constructed image will in this chapter be referred to as “perceived legitimacy.”

     
  2. 2.

    The actual conduct of corporations and its impact on society. The discussions refer to this ontological level whenever legitimacy is discussed without the prefix “perceived.” In a perfect world, citizens have a transcendent view that allows them to evaluate the legitimacy of corporations based on their actual behavior, and there would be compliance between the ontological levels; however in the real world, some corporations manage to create a legitimate public image while behaving illegitimately backstage (Goffmann 1959). Examples are regularly uncovered by journalists and NGOs. In our imperfect world, there are also companies who behave perfectly good but are unjustifiably accused of illegitimate behavior. For these reasons, the perceived and the ontological levels of legitimacy are often not coinciding.

     

In the following discussion, Boltanski and Thévenot’s (2006) six orders of worth, market, industrial, civic, domestic, inspired, and fame, plus Patriotta et al.’s (2011) green order of worth will be used as common reference without further elaboration. The framework is produced with social construction of justification in mind; however, the orders of worth refer to fundamental human values, and the categories of orders can therefore be used in discussions of legitimacy as well as perceived legitimacy. Even if the reader does not know the framework in detail, the meaning will be clear from the context in which it is used.

While there are many legitimacy issues involved in corporate diplomacy, the following discussion will be structured around four main topics that seem especially relevant when corporations cooperate with civil society in host countries:
  1. 1.

    Legitimacy of civil society representatives

     
  2. 2.

    Legitimacy of corporations as political actors

     
  3. 3.

    Conflicting ideologies

     
  4. 4.

    Imbalance in power and expertise

     

Legitimacy of Civil Society Representatives

When corporations engage with civic society on controversial issues, many actors will claim to speak on behalf of the community. In the cases of Myitsone and Niyamgiri Hill, outspoken protesters included, among others, the affected villagers, people from surrounding areas and towns, people living further away but fearing that their livelihood would be affected by the constructions, national politicians, surrounding countries that feared that the constructions would impact power balance in the region, national and international anti-corporate activists, artists, and individuals who enjoyed personal exposure from linking to a popular movement.

Often the affected villagers do not have the capabilities required to engage in campaigns, e.g., they speak only a local language and have no experience with media handling. In the analyzed cases, the most outspoken protesters came from outside the villages. They were better educated people with contact to media, e.g., artists. Because villagers can hardly create international attention around their resistance without such supporters from outside, they are needed in the process, but they are not legitimate representatives of the villages unless they are appointed by them. While the villagers tend to emphasize values from the domestic order of worth – link to the ancestral land, local heritage, spirituality, and traditions – the outside supporters are not attached to the land and can easily move on, as in the Niyamgiri Hill where one of the most outspoken protesters changed his mind and appeared officially as a supporter of the project after the corporation gave him a scholarship (Kraemer et al. 2013).

However, people from outside the affected villages can be perceived as legitimate stakeholders, if they have interests in the project or are affected by the consequences. For example, a hydropower station can create clean energy to millions of people, and, therefore, the interests of the villagers must be balanced with the interests of the larger community. Ideally, a solution can be found where the hydropower station is placed so that it can produce energy and be profitable and will not harm places that the villagers find sacred. In regard to mega projects, other countries may also be legitimate stakeholders. As an example, neighboring countries can fear that a foreign superpower – e.g., China in Southeast Asia – gets too much influence on regional policy if it controls major resources like hydropower dams and other infrastructures through its transnational corporations (Mogensen 2017).

Legitimacy of Corporations as Political Actors

This section will briefly discuss legitimacy issues related to three corporate roles that the literature has described:
  1. 1.

    Engagement with stakeholders

     
  2. 2.

    Representing home country

     
  3. 3.

    Broader political role

     

These three will now be discussed:

Ad 1

It may seem obvious that transnational corporations are legitimate actors in diplomatic activities involving them, including negotiations with stakeholders at all levels.

However, governments may not always find it appropriate that corporations negotiate directly with civic society, because they perceive themselves as the one legitimate negotiator on behalf of their country. For example, in Myitsone, the Chinese investors said that the Myanmar military government, with whom they had originally negotiated, did not want them to negotiate with the villagers (China Daily 2011). Governments can fear that negotiations will be complicated by the involvement of representatives from civic society, e.g., anti-corporate activism and lobbying in favor of the project, and that there will be lack of confidentiality during the negotiations. It can reasonably be argued that democratic governments are elected as representatives of the common will, while civic society are not. The extent to which civic society can be considered legitimate partners in negotiations will therefore depend on moral reasoning in the specific case.

Ad 2

The conduct of transnational corporations and their home countries mutually affect the perceived legitimacy of each other (White 2015; White and Kolesnicov 2015). Today, some corporations insist that they are truly international and therefore have no home country, or they try to distinguish themselves from the home country’s foreign policy. However, mostly, transnational corporations benefit from and contribute to the home countries’ brands, and they are to some extend representatives of that country. Referring to Kochhar and Moelleda (2015), Tam and Kim (2017) write that transnational corporations (TNCs) “serve an important political function as corporate diplomats of their countries of origin.” Tam and Kim conclude that: “Corporate diplomacy should be practiced not merely for TNCs to gain legitimacy in foreign countries in which they operate; it should be practiced as a political function because of the association between TNCs and their countries of origin.” Such a political function will, of course, affect civil society in the host country.

Smith (1976) names American Secretaries of State in the 1920s as “architects of corporate diplomacy,” all working toward open doors for American investments throughout the world. It also included Washington’s protection of American enterprises in other countries and contributed with corporate-friendly experts to administrations in other countries. As an example, Smith describes how the American economist Arthur C. Millspaugh worked as Director General of Persian finances between 1922 and 1927 and, at times, had “dictatorial powers.” Eventually, an increasing number of Persian officials opposed him, because he and his staff “were not willing to accommodate Persian customs,” “his disregard for the dignity of government (…) overshadowed all of Millspaugh’s good qualities,” and the Shah wanted to be the sole ruler of Persia. Smith’s historical account demonstrates how corporate diplomacy lacks legitimacy when the dignity of the people and its government is not respected, even if the foreigners believe that they create a win-win situation.

Transnational corporations may be tempted to use their technical and economic resources to help solve problems in a country but then, as a by-product, influence politics and negate the authority of the legitimate (elected) government. It is relevant to discuss, if power founded on money and expertise legitimize such a political role, and if so, what the difference is between the new norms for corporate diplomacy and the Millspaugh example.

Ad 3

This leads to the recent discussion of whether transnational corporations should play a more extended role in solving problems across the world. In the literature, this discussion does not focus on aid and development programs, like those sponsored by Bill & Melinda Gates Foundation, but on how corporations intervene in societal problems beyond “narrowly confined commercial interests” (Riordan 2003, quoted by Macnamara 2012). Scholars do not agree on the extent to which corporate leadership should play an extend role in the political sphere.

The following discussion implies a distinction between the economic and the political spheres, even though these are social constructs and not all scholars agree with the distinction (Deblonde 2001). Deliberative democracies have developed different norms and standards for the two spheres. The norms for the economic sphere are similar to the market and industrial order of worth, e.g., price, cost, technical efficiency, expertise, and monetary, while the norms for deliberate democracies are civic, e.g., collective welfare, equality, solidarity, fundamental rights, rules, and regulations (Patriotta et al. 2011). From this perspective, it is a responsibility for national governments to create rules and limitations for corporate world, so that, e.g., the economic sector contributes to the collective welfare, that citizens can trust financial institutions, and that the food products do not contain too much poison.

It may seem obvious to include corporate world in the formulation of such rules and regulations, because they have the expertise, an argument drawing on the industrial order of worth. For example, Sako (2016) writes that corporate diplomacy is relevant both where there is a functioning government and that it is “equally needed where governments are absent due to deregulation or weak law enforcement capacity (…) a mind-set that sees the role of business as working with governments to create societal roles that governs the conduct of business.”

The question, of course, is to what extent such rules formulated by the corporations also satisfy the public’s ideas of how society should be organized. Corporate leaders are, after all, not elected by the public, but by the shareholders, and unlike democratic elected politicians, CEOs cannot be exchanged by the public. Worldwide, the growth in corporate power (Bloom 2016; Garsten and Sörbom 2017) seems to have been in parallel with a growth in – quoting The Guardian – “gap between the super-rich and the remainder of the globe’s population” (Neate 2017, see also Shorrocks et al. 2017). Some scholars have analyzed cases, where the environment was damaged by corporations (Schroeder 2011; Mirvis et al. 2014), but there are few known cases where corporations, solemnly out of idealism, have strengthen the civic and green values (environment friendly, sustainably) in host countries. Corporate social responsibility activities are generally introduced, because customers find corporate ethics important and not out of idealism.

Increasing the political role of corporations, Westermann-Behaylo et al. (2015) suggest that “corporate diplomacy can play a role in resolving social or political conflicts” such as peacemaking and peacebuilding, especially in “less developed and potentially conflict-prone host countries.” Other scholars also point to the larger societal role of transnational corporations in host countries (Ordeix-Rigo and Duarte 2009; Mirvis et al. 2014). This thinking seems to cast corporate CEOs as patrons and the citizens of host countries as clients. While there is no doubt that the corporations have power and expertise, it is conflicting with the civic values of equality. Such thinking, therefore, leads to moral questions such as: Why do people with access to money and technical expertise have a legitimate right to more influence in the political sphere – national or international – than other citizens? And what is the evidence that they will use their economic and technical strength in the interest of the collective welfare if it conflicts with the interests of their shareholders? So far, the literature on corporate (public) diplomacy has not attempted to answer these questions.

Henisz (2016) writes that for good historical reasons, citizens are often suspicious of foreign managers, who are not familiar with the local language, culture, and societal norms, so to build trust and legitimacy, they need not only to demonstrate their economic legitimacy but also to build sociopolitical legitimacy. In Myanmar, analyses of communication between corporation and the local community showed a conflict between the villagers’ domestic and the corporation’s international norms (Mogensen 2017). The corporation would refer to international standards and goals, while the protesters would refer to the domestic order of worth, e.g., the value of living on their ancestral lands and in accordance with traditions. Such conflicts in worldview may for a time be hidden, using measures like persuasion and economic incentives like job creation and infrastructure, but, from a legitimacy perspective, the conflicts about fundamental values are not easily solved, which leads to the next topic about the legitimacy in imposing foreign values on the public in host countries.

Conflicting Ideologies

There is an ongoing discussion of how to overcome the differences in values between transnational corporations and their host countries in practice. There are different positions in that argument. One perspective is that corporations are responsible for improving life of people in host countries, while others find that they should adapt to values in host countries.

Transnational corporations can claim to have core values that they hold on to no matter where in the world they operate. Such values can, for example, be linked to human rights and democracy. For a corporation, it makes economic sense to act in accordance with civic values, because in the social media age, everything they do anywhere in the world contributes to their reputation, and ethical behavior makes their products more attractive to customers in some countries. When transnational corporations communicate an image of ethical behavior, it creates an expectation that transnational corporations will contribute to reducing human right abuses and other social problems in host countries (GlobeScan, reported in Mirvis et al. 2014). Corporate public diplomacy is from a normative perspective in line with Western democratic thinking.

However, some scholars question the right of transnational corporations to enforce Western values, comparing it to missionaries who have already for centuries tried to tell people in developing countries what to do. For example, Ottaway (2009) writes:

Can’t shut down Big Oil? Then browbeat companies like Shell and ExxonMobil into preaching the gospel of human rights and democracy to their developing-world hosts. As appealing as this strategy seems to global do-gooders, it won’t work.

Summarizing her argument, Ali (2009) writes about corporations trying to enforce Western values in other parts of the world: “they evoke an image of colonization and superiority.”

The alternative is to adapt corporate values to local norms. Tam and Kim (2017) write that “corporate diplomacy could enhance the legitimacy of TNCs in foreign markets” by “aligning their corporate values with the societal values of the foreign countries in which they operate.” It makes sense to adapt to cultural norms in host countries, for example, European countries expect transnational corporations from Africa or Asia to adapt to Western values when operating in Europe, but the same European countries do not appreciate if their corporations adapt too much to business norms in countries with, e.g., corruption and inhuman working conditions.

The conduct of business is affected by ideologies that differ. Some countries support free trade, while others do not. The vast opportunities faced by transnational corporations are based on free market principle, but when corporations control huge resources, it may be tempting from the perspective of a market order of worth to negotiate an agreement that prevent any other corporation from competing on equal term. However, from an ethical perspective, such behavior is questionable. Wang (2005) writes about multinational corporations (MNC) that “it is impossible, if not outright against free market principles, for any MNC to manipulate and control the competitiveness of a certain product category in a foreign market.” In a global society where corporations benefit from free market principles, a solution cannot be perceived as legitimate if it creates a monopolistic situation where local competitors are faced with unreasonable high entrance barriers to a market.

Often the discussions about conflicting values center around rich transnational corporations working in poor developing countries. However, Miller’s (2009) analyses of reactions to four US-based corporations aiding Internet-based censorship in China illustrate the core dilemma in a context where the actors are all powerful and based in rich countries. The USA and China differ in their understanding of human values related to free speech. The corporations act in accordance with market values; they want to sell their equipment. The power balance between them does not allow any of them to enforce their ideology on the other by use of coercion. When the corporations sell censorship equipment, their behavior reflects on the reputation of the USA. It sends two signals to people around the world: (1) that the USA’s insisting on free speech is relative and (2) that USA corporations have freedom to act in ways that are not in accordance with the nation’s official ideology.

As complex as it is when two superpowers are involved, the legitimacy issue becomes even more complex, when corporations negotiate with civic society. On the one hand, transnational corporations may express civic values such as democracy and free speech. On the other hand, many local societies rely on domestic and green values such as tradition, spirituality, and nature, as experienced by corporations in the Niyamgiri Hills and Kachin.

Imbalance in Power and Expertise

Actors enter the negotiations with different resources, e.g., the largest corporations control huge resources compared to poor countries. Such inequality needs to be taken into consideration when discussing the legitimacy of the bargaining process (Strange 1992). Ali (2009) writes that executives should “avoid any temptation to take advantage” of the lack of resources and experience to negotiate effectively when dealing with developing countries, and similarly, the literature generally warns corporations against using their superior power and technical expertise to manipulate the public into agreements that contradict their interests, because such agreements are not socially sustainable in the long run. If the public is not included in the decision processes, they can make protests and boycotts and use their democratic rights during elections and/or shopping power to undermine an agreement.

Macnamara (2012) describes processes-related issues in his comparative analysis of corporate and organizational public diplomacy versus public relation. The following list of norms for corporate public diplomacy is derived from his argumentation:
  1. 1.

    Ongoing dialogue with publics, even “in the face of complete disagreement and hostility” (except during war). Long-term perspective and relation building that require patience. Interpersonal communication preferred.

     
  2. 2.

    Mechanisms in place to compensate for power disparities, e.g., meetings on neutral ground, equal size delegations, equal time in discussions, return visits, and – when relevant – equal votes.

     
  3. 3.

    Diplomatic etiquette, “ensuring courtesy and civility,” a preferable formal protocol with rules for meetings, e.g., reciprocal arrangements, turn-taking, and right to reply.

     
  4. 4.

    Acceptance of different interests and perception conflicts being not a sign of breakdown in the negotiations. It may not be possible to reach a win-win solution: “Even a ‘win-win’ position can sometimes involve publics having to give up their position to move to a mutually accepted position.”

     

To avoid misunderstanding, the concept of “win-win” solutions may need to be extended, so that negotiations leading to a satisfactory result can be considered win-win even when all stakeholders have had to move their position to a mutually agreed. As an example, in Kachin the corporation wanted to build a big hydropower dam at a place considered sacred by the public. Kachins suggested instead to build two smaller dams at nearby places. It was not the preferred solution from the corporate point of view, but it might have produced the needed electricity. If it worked, such a solution could have been perceived as a win-win, but the corporation was either not interested in negotiations with the public at that time or had been told by Myanmar’s government not to do it.

It may sound like a cliché to suggest that the stakeholders involved should perceive solutions as win-win, but the literature give examples. For example, Miner (1969) presents an analysis of the negotiations between the directors of two American railway companies in 1880–1882. While they were competitors, each of them celebrated the result as a great victory, because they both gained from the agreement. Miner (1969) writes that both “accomplished their ends by diplomacy not violence…the force used was diplomatic pressure and manipulation of interests, not cut-throat competition and rate wars,” and he adds that the negotiators from the two railroad companies later became well-known diplomats.

Conclusion

Based on a review of peer-reviewed articles on corporate diplomacy, this article has briefly discussed four areas of legitimacy issues: legitimacy of civil society representatives, legitimacy of corporations as political actor, conflicting ideologies, and imbalance in power and expertise.

Corporate public diplomacy is highly relevant in a global economy. When it fails, it is costly for corporations and brings misery to communities. However, academia has so far shown little interest in exploring this field empirically. The few existing case studies are interesting read, because they bring light to new aspects of corporate legitimacy. As a start, case studies could explore the practice related to the four topics of special interest for discussions on legitimacy in the diplomatic process involving civic society: (1) who can be perceived as legitimate representatives of civic society? (2) to what extent is it legitimate for corporations to seek political power and fill government gaps in host countries and in international politics, considering that CEOs are not elected by the general public? (3) how do transnational corporations handle legitimacy issues related to the many different ideologies expressed by people in the countries where they operate? and (4) how do corporations deal with disparities in power and expertise between them and the stakeholders so that less powerful and knowledgeable stakeholders perceive the solutions as legitimate?

While accepting that humans have different values, negotiations and cooperation may increase the chance of finding socially sustainable solutions and limit expensive delays and cancellations of projects due to local protests and anti-corporate activism.

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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Department of Social Sciences and BusinessRoskilde UniversityRoskildeDenmark

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