Juan Luis Manfredi Sánchez
Professor at the University of Castilla La Mancha
Corporate diplomacy is the instrumental development of strategy to guide relations between the public authorities and private organisations. It entails defending interests by using tools typically found in diplomacy. Companies become diplomatic entities, without detriment to other conventional activities used in international economic relations. Corporate diplomacy is the task of the chief executive to the extent that it requires an understanding of globalisation, the need to acquire new skills and competences, extend the network of influence and modernise management tools. The management staff of the 21st century have to increase their range of skills and competences. It is not enough to understand financial statements, it is also necessary to know how to speak and communicate with the various conventional and digital audiences, to have an understanding of multiculturalism, to learn how to manage in uncertainty, to welcome technological disruption and to have an enterprising spirit every day of the year. Good managers are those that are capable of leading, negotiating and communicating, these being tasks that are inherent in diplomacy. The future of corporate management lies in developing this kind of managerial intelligence, which is adapted to real rather than imaginary globalisation, and experiences its complexity.
Corporate diplomacy makes sense when we look at the four basic functions of diplomatic activity: representation, negotiation and the protection and promotion of interests. When transferred to the sphere of private organisations, we understand that diplomacy entails establishing relations with third parties (with the capacity to take action or make decisions) in order to resolve both one’s own and others’ problems, create common working frameworks and generate trust. It is indeed a question of transferring a function that was reserved for State policy to the area of business management. In the international arena, diplomatic activity has ceased to be the monopoly of states in the face of the rise of stellar mayors and cities, corporations, NGOs and networks of shareholders.
Representation is the first function. Until now, the role of chief business directors, whether CEOs or corporate capital representatives, focused almost exclusively on internal management, with small incursions into the institutional sector and public opinion. This traditional role is insufficient to tackle today’s problems, where the role of the most senior executive is a leadership one and is much more political and visible. It is no longer possible to drive the development of business objectives by granting an interview here and there or by giving an annual speech to the general assembly of shareholders. The bottom line now depends on more elements, and the reputation determined within the framework of public communication is of course one of these elements. In the whirlwind of ideas, our proposal has to be distinguished with arguments and accurate facts, not just with isolated actions.
Negotiation is the capacity to reach agreements that can be sustained over time and that are capable of creating specific, solid competitive advantages. The diplomatic function hinges on the ability to engage in dialogue with the various stakeholders, who probably pose different problems and wishes. Here the role played by the human dimension is a key one: the ability to understand matters on a personal basis. The role played by the chief executive, the CEO, or whatever name is used in each organisation, is absolutely critical. It is not a question of being nice to everyone, but of having a specific personality that reflects the values of the company. Coherence makes it easier to ensure success than unfurling a host of communication activities that are not sincere. The personality of the chief executive is a diplomatic asset that varies depending on the nature of the company. In a family business, the chief executive promotes specific values, uses the weight of history as leverage, and sees continuity as being a powerful asset. Personalism is the order of the day. On the other hand, listed companies can change their profile and orientation much more easily, which gives them agility and speed. However, the new executive does not allow other assets to be captured such as tradition, history or ties with the region.
This element determines how relations are established and how resources are managed at any given time. Game theory has to be overcome, at least in its reductionist view of a zero sum game. Our experience tells us that personal strategies that advocate a result which accommodates the interests of all the parties perform better in the long run. Long-range vision will result in the good reputation of the company and its legitimacy to operate in the market. Sensu stricto, the imposition of wills only leads to sporadic victories, but not to the creation of value. I can draw a lesson from chess: the company’s overall position (regarding accounts and agreements) is more important than the last move made, which might have been a waiver or a bad tactical decision.
Corporate diplomacy is not a specific lobbying activity, and here I disagree with the ideas of Susan Strange (2000). The British scholar puts more weight on relations between companies and governments, an interpretation that omits some of the elements of current strategy. In their relations with governments, organisations aim to influence a country’s economic and industrial policy. A second modality might be the establishment of relations with other companies in the same sector in order to establish alliances, build coalitions, or undertake new projects. Strange links this activity to lobbying inasmuch as it points to exerting pressure on the legislator as a recurrent measure. Thus, it is possible to influence regulations in one way or another.
She is indeed right when she notes the need to know how to manage relations with regulators at their various levels of operation (local, national and international). Specifically, it entails finding out the needs of the legislator and of the environment affected, as well as how to interpret changing trends. On another level, it is necessary to find out how global unions influence labour decisions. Depending on the industry or the market, their ability to influence negotiations may be significant.
This knowledge of the environment in which a company operates might be the only way of anticipating change. For this reason, in my opinion, it is not only a question of monitoring legal activity but also of taking preventive action to reduce risks and conflict with the public authorities. The monitoring activity is reactive and cedes leadership to third parties, resulting in an increase in uncertainty. Precise knowledge of the political and social evolution of the key authorities an organisation has to take into account when designing its strategy turns out to be more competitive. This is what managerial intelligence is all about.
Protection is materialised in two areas of the organisation. First and foremost, the people, who are the driving force behind internationalisation. The diplomatic experience needs to be used to weave a network of professionals that can combine the strategic decisions taken by the centre with their tactical application in each of the target markets. The network that manages to combine ambassadors, secretaries, attachés, youngsters and veterans. Each country requires a differentiated formula. Even more, protection involves exiting the country in the case of emergency, the ability to link up with the country’s police and defence services, and knowing how the intelligence services work. The second axis of protection is the global supply chain. No matter what the activity is: global production, distribution and consumption processes link up the geographic blocs of free trade. It is essential to protect the various situations in order to avoid being overwhelmed by a crisis, an emergency, a power outage, or a rise in sea level. This global vision of resources widens safety system requirements and orientates managerial intelligence towards the protection of what is irreplaceable: people and raw materials.
The promotion of the company’s interests has different dimensions. Globalisation has given new prominence to chief executives. Transparency, instant communication, social networks and new media have made companies and their executives influential players. The public arena demands that executives become leaders and adopt a decisive role in changing the environment, in new creative capitalism.
Corporate diplomacy is a function that is typically found in managerial innovation in the 21st century. A presence in the public arena, as well as the impact of the action taken in this area on the bottom line have given new meaning to the idea of collaboration and relationships with third parties. This constitutes a qualitative leap in the stakeholder theory, so popular in the 1990s. Following the publication of the book by R. E. Freeman “Strategic Management: A Stakeholder Approach” in 1984, many companies and analysts gained an understanding of externalities, the management of relations with third parties and the need to design a strategy that considers the consequences of our business decisions. Transformation gives more value to public opinion, which is so manifest in any decision. Anyone affected, equipped with their mobile phone and handheld camera, can provide an account of inappropriate behaviour. The public space of the company is more extensive and, of course, cannot be controlled exclusively by the business.
Negotiating with external agents, establishing strategic alliances in various parts of the world, manoeuvring via offensive or defensive coalitions and having the best available information on those aspects that are deemed to be key for decision-making is a real challenge when the market boundaries no longer merely coincide with the domestic market and a handful of other countries. The new global village multiplies exponentially the need for a constant stream of information, for a continuous presence and for management tools of proven effectiveness. At the same time, corporate transparency has become an essential aspect for operating in the market. There has been an increase in demand for corporate responsibility under various guises.
The profile of the business leader with the almost absolute power of yesteryear has evolved into the need for a new type of leadership that is much more focused on understanding, persuasiveness, and efficiency in seeking out potential agreements. In short, the whole range of characteristics that form part of managerial intelligence. Just as hard power has evolved towards new territories, the “imperial CEO” that prevails in the US market has ceased to be a benchmark. Empathy, the ability to listen and an understanding of diversity in globalisation are now required. This is what moving from management to leadership entails. Corporate diplomacy is therefore spawned to cover leadership needs in global organisations. Corporations are now aware of their greater autonomy from the public authorities and of the shortcomings of the latter in contributing to the swift and diligent resolution of their conflicts and crises in other markets, following the usual pattern of international diplomacy and, at the same time, of national diplomatic services. In the first place, those who contribute to the company’s reputation, perception and credibility by offering knowledge that coincides with reality and fluid dialogue are all the social agents concerned.
It is a very complex context. The corporate diplomat acts like an orchestra conductor searching for harmony. He or she is guided by managerial intelligence, not only by the bottom line or the earnings bubble for each quarter. This type of leadership favours a presidential style, the prominence of the entrepreneur that projects their personality, weaving a network of contacts at the service of the business and generating an atmosphere of trust. Senior management accompany decisions, but if the aim is for private diplomacy to be successful, it should have the backing and involvement of the chief executive.
To sum up, as far as corporate diplomacy is concerned, the executive becomes a kind of statesman, a person capable of uniting individual wills. In an open, competitive market, the leading entrepreneur plays another game – the one where they try to be better informed, have a better position and a better reputation. Corporate diplomacy can contribute to innovation in the management model and equip the board of directors with the tools required to make the leap to the global economy. 2016 may be a decisive year.