Issues Management in the Global Economy: Moving beyond Being Just Multinational
Evans, John C., Defense Counsel Journal
The development of use of knowledge throughout a corporate enterprise is the way of the future and the route to its becoming a good world citizen
"GLOBALIZATION is where the market is going. They've seen the trend, and they've gone along with it." So said Mark Lynch of SBC Warburg Dillon Read in commenting on the activities of the United Kingdom household products company Reckitt & Colman. This is not an isolated observation. It applies across the board, from pharmaceuticals and biotechnology to household goods, from utilities to oil and gas and mining, from chemicals to engineering, from banking to insurance and from telecommunications to transport.
In common with many U.K. companies, Reckitt & Colman evolved by expanding first into the countries of the old British Commonwealth, recruiting locally and permitting local management a great deal of autonomy. A similar path was followed by the likes of Imperial Chemical Industries. These businesses were international, but not global. They did not pursue a coherent global strategy.
U.K. companies were not alone in evolving in this way. That pattern of evolution was inevitable in the early part of this century. The most significant factors influencing the ending of local or regional hegemonies have been the advances made in transport and telecommunications, making possible what was previously impossible. It is no longer necessary for locally based subsidiaries to be empowered and for the corporate headquarters to be nothing more than a financial holding company. The old system has given way to a global structure controlled from the U.K., the United States, Germany or Japan in such a way as to ensure continuity of supplies, consistency of product formulation, sharing of knowledge and global branding.
KNOWLEDGE IS POWER
We are beginning to see just how wide-ranging are the issues that require managing, ranging from product safety through protection of intellectual property rights to environmental, health and safety issues. Influences range from the political to the economic, and from the regulatory to the social to the technological. They are complex issues made all the more difficult in a world where enhanced communications not only enable a business to become global rather than international but also empower and enfranchise those who claim to have suffered harm.
Documents disclosed in U.S. litigation, more often than not without the benefit of any protective order, are now posted on the Internet, and so are accessible by or on behalf of potential claimants world-wide. There is no implied undertaking, as there is in the U.K., to use documents only for the purpose of the litigation in which they were disclosed. Failure to comply with regulatory standards, inconsistent submissions to regulatory authorities, failure to act in a manner advocated by interest and pressure groups--all these can result in the rapid dissemination of information, sometimes justifiably, sometimes not. There are examples of "scare stories" that have depicted global businesses as pariahs. If that happens, can lost ground be retaken?
While the Internet is anarchic, it does empower the individual. The same is sometimes said of the U.S. tort system. Just as one has been exported, so will be the other. In a globalized economy, to be frank, the ultimate globalization will be that of American law--or, perhaps more accurately stated, of the common law that fathered the U.S. tort system. Some commentators even go so far as to label "globalization" as "Americanization." Since the end of the Cold War, a tidal wave of energy, once concentrated in the national defense and government sectors, has been redirected into commercial life.
An individual in Malaysia exposed to some toxicological agent is more likely than ever before to seek a remedy. A judge in Guatemala, Peru or Zimbabwe is more likely than ever before to be offended by inconsistencies in the giving of warnings or in compliance with regulatory requirements as between, say, their countries and the United States. This inconsistency may even offend a judge in the United States, if jurisdiction is established there. What price the lifting of the corporate veil if globalization is made possible through greater direction and control from the centre?
AND KNOWLEDGE ENABLES
The availability of knowledge, whilst on one view to be recognized as a threat, is far better represented as an opportunity to be proactive and to anticipate and meet head-on the threats that arise from the dissemination of knowledge. After all, businesses must, by definition, know more than any adversary or interest group. The challenge is to use that knowledge to advantage so as to minimize, if not eliminate, risk.
We know about
* the development and maintenance of quality systems;
* the implementation and audit of the safety case for hazardous installations;
* the implementation and audit of environmental programs;
* the maintenance of Food and Drug Administration (or equivalent) compliance regimes;
* the review of labelling and advertising;
* the conduct of post-marketing surveillance.
In none of these areas, however, can risk be minimized without recognizing the need for, and the dimensions of, knowledge management. Knowledge in a vacuum is without value.
Knowledge is an asset capable of being shared within a wider community. There needs, however, to be a means or mechanism by which knowledge sharing can be achieved. This is necessary, for example, to avoid the danger of a company's intellectual assets going elsewhere. Less defensively, utilization of a company's intellectual assets will prevent the constant reinvention of the wheel.
In order to achieve this:
* tacit knowledge must be made explicit;
* tacit knowledge must be moved from individuals to communities;
* explicit knowledge must be moved from individuals to communities.
Knowledge that can be applied depends on a "cycle of change" that consistently evaluates
* the organization's core purpose and whether it is fulfilling this profitably in its chosen market place (where we are now);
* the process of creating a future for the organization founded on its core values and purpose (where do we want to be?);
* the capabilities and competencies to build a desired future and the appropriate competitive/tactical strategies to achieve it (how do we get there?);
* the implementation of change including the complex, cultural and human dimensions of change (getting there).
It is perhaps true to say that few industries derive greater benefit from knowledge management than the pharmaceutical industry. New product development and the life cycle management of products once developed can generate greater value across many different markets if there is a drive towards a more extensive use of knowledge management.
Knowledge management throughout the life of a pharmaceutical product allows manufacturers to generate regulatory submissions simply, efficiently and consistently. The knowledge can be held electronically with world-wide access to an archive, so permitting the use and re-use of information and streamlining the management of the regulatory process. Electronic submissions will operate in the future to improve communication with regulatory authorities, perhaps enabling a manufacturer to close the gap on a competing product. Cost savings will follow, but the biggest single advantage of a single regulatory document infrastructure world-wide, at least in terms of the management of risk, will be the creation of an audit trail that evidences compliance at every stage of the manufacturing and selling process.
The effective management of knowledge enables a company to "tell its story." It then becomes a question of judgement as to whether the story is told reactively, perhaps in the context of litigation or of proceedings instituted by the regulatory authorities, or proactively, with a view to anticipating the activities of pressure and interest groups and, in a sense, helping to set the parameters for a media debate on "scare stories."
WAY OF THE FUTURE?
Look at the example of the Shell Oil Co. It suffered through a public furor, fueled largely by Greenpeace and the media, over the planned disposal of the Brent Spar oil storage facility in the North Sea in 1995. This was followed by criticism of the company's role in Nigeria following the execution of an activist, Ken Saro-Wiwa. Shell believed, with good cause, that it acted honorably in both cases, but it nevertheless accepted that its media responses were inadequate, so much so that it effectively lost the debates before they began. This caused Shell to look in the mirror, and it now has a Corporate Social Accountability Team in London, which recently published The Shell Report 1998: Profits and Principles--Does There Have to be A Choice?"
The frontispiece to the report is couched in the following language:
We care about what you think of us. We want you to know more about how we work and how we strive to live up to our principles. This report is part of a dialogue, and we will continue to seek your views.
Note the desire to disseminate knowledge about the business. Effective knowledge management and the dissemination of that knowledge are likely to be catalysts for a transformation in the company's image. True it is that such efforts at transformation will be acknowledged as nothing more than window-dressing by certain sections of the environmental movement, but the report illustrates with considerable clarity how a multinational company may seek to respond to the confusion over exactly what is--and is not--expected of business, bearing in mind the forces of globalization, rapid improvements in technology and a dramatic change in world order.
The report deals head on with the criticism that multinationals are overly concerned with profit and fail to take their broader responsibilities seriously--for examples, to defend human rights, to protect the environment, and to be good corporate citizens. It recognizes that the debate is taking place in the context of a fast-changing world, characterized by global communications and diminishing respect for established authority, the professions and social frameworks. It further recognizes that, faced with this uncertainty, people are withdrawing their trust in traditional institutions unless it can be demonstrated that faith is warranted--what has been called a move from a "trust me" to a "show me" world.
The Shell report is illustrative of the potential for companies to "tell their story" in this "show me" world. This strategy helps identify the parameters for debate, and in doing so disseminates the message that global companies have five areas of responsibility. Shell identifies these "stakeholders" as (1) shareholders, (2) customers, (3) employees, (4) those with whom it does business and (5) society.
Every Shell company has adopted the group policy and procedures on health, safety and environment. But global standards may not always be achievable. The principle of different standards is enshrined in a United Nations agreement (Principle 11 of the Rio Declaration of 1992), which makes it clear that national environmental standards have to be effective but recognizes that "standards applied by some countries may be inappropriate and of unwarranted economic and social cost to other countries, in particular developing countries."
Shell companies do not hold themselves out as operating in an identical manner around the world. Some standards are, however, global. The importance of human life is the same world-wide, and Shell operates to the same standard in the areas of occupational health and safety. Moreover, each Shell company has adopted and will conform to the statement of general business principles and health, safety and environment policy, thus providing a minimum global standard or "safety net" against the abuse or inadequate exercise of governmental authority.
Shell's fundamental message is that there does not have to be a choice between profits and principles. Without profits, no private company can sustain principles, and without principles no company deserves profits. The two co-exist and are symbiotic. The Shell report may well be perceived as a blueprint for the future. Beyond that, one thing is certain, the process which brought the report into being will itself need to be subject to the "cycle of change."
The emerging themes, although global in nature, also are capable of being applied on a local level. They are relevant to the business dealings of all corporations, large and small, multinational and domestic.
IADC member John C. Evans leads the mass tort practice group at the London firm of Ashurst Morris Crisp. He is a graduate of Cambridge University, joined Ashurst Morris Crisp in 1979, qualified as a solicitor in 1981, and became a partner in the firm's Litigation Department in 1988. He is experienced in defending individual and group action claims and his practice extends to the co-ordination of defense strategy throughout Europe and beyond.…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Issues Management in the Global Economy: Moving beyond Being Just Multinational. Contributors: Evans, John C. - Author. Journal title: Defense Counsel Journal. Volume: 65. Issue: 4 Publication date: October 1998. Page number: 490. © 1999 International Association of Defense Counsels. COPYRIGHT 1998 Gale Group.