These Days, Big Companies Need Foreign Policy Too

Sony-North Korea incident underlines that multinationals need to consider the world at large.

AP

On Saturday, the North Korean regime offered to host a joint inquiry with the United States into the cyberattack on Sony Pictures Entertainment, which followed the firm’s production of a satirical movie depicting a plot to assassinate the dictator Kim Jong-un.

Pyongyang firmly denies any involvement in the cyber-assault, but U.S. President Barack Obama asserts the FBI has evidence that Pyongyang was indeed behind it. Obama also pledged that Washington will respond at a time and manner of its own choosing. The North Korean regime for its part accuses the U.S. of “spreading groundless allegations,” and warned of “grave consequences” if the Obama administration refuses the offer of a joint inquiry.

The incident put Sony Pictures Entertainment, the U.S. subsidiary of Japanese-headquartered multinational Sony, in the international diplomatic spotlight. It found itself condemned by North Korea for making a movie that undermines the dignity of its leadership; and by Obama, and some in the artistic community, for appearing to give into the demands of cyber-attackers making an attack on freedom of expression.

Sony Pictures Entertainment CEO Michael Lynton denied capitulation to the hackers and blamed the launch's cancellation on movie theater owners refusing to show the film, after the hackers threatened 9/11-style attacks. Lynton says his firm is looking for an alternative distribution platform.

Thus Sony, a company, found itself embroiled in a diplomatic storm. In the era of globalization and technological advance, when it comes to public policy, the traditional public and private sector boundaries sometimes no longer apply.

Caught in controversy

Several firms have also been caught in controversy in recent years. During the Egyptian "revolution" that overthrew Hosni Mubarak from power, some telecommunications companies for instance were forced by the regime to temporarily shut down their networks. Meanwhile, Google and Twitter collaborated on a "tweet to speak" program which was used as a communications platform by some anti-Mubarak protestors.

In another instance, Google unintentionally sparked a diplomatic row last year after changing the name on its "Palestinian territories" homepage to "Palestine." Palestinian President Mahmoud Abbas reportedly called it a "victory for Palestine and a step toward its liberation," while the Israeli government complained to the firm. Israeli Foreign Ministry spokesman Yigal Palmor, for instance, asserted that "Google is not a diplomatic entity, which begs the question why they are getting involved in international politics." Comparable things have also happened to internationally-focused companies in other industries, ranging from energy and extracts to consumer goods.

In this complex (sometimes uncharted) territory, firms (and indeed entire industries) may find themselves under the political spotlight. For instance, members of the European Parliament passed a resolution in February 2010 following the disputed Iranian presidential election of 2009, calling on EU institutions immediately to "ban the export of surveillance technology by European companies to governments and countries such as Iran."

When codes of conduct aren't enough

To be sure, various international codes of conduct, including the UN Guiding Principles on Business and Human Rights, already exist and reinforce the corporate social responsibility practices of individual firms. However, some companies have recognized the need for a more decisive shift toward what has been termed "strategic corporate foreign policy."

Corporate foreign policy aligns a firm's international activity, including media relations, risk management, corporate social responsibility, government affairs, and operational planning, in a clear strategic framework. Based on the need for an unusual mix of core competences (such as advanced diplomacy) in some of these corporate functions, capability (tools, training and infrastructure) can be enhanced where any gaps exist.

Many firms need better skills at foresight and horizon scanning at an international scale; and they may also need clearer internal guidance for decision-making, to protect shareholders and customers while remaining faithful to corporate values, especially in countries with weak democratic credentials such as Egypt.

Meanwhile, owing to proliferation of media, and the influence of NGOs and related stakeholders, the actions of firms are increasingly under the microscope. And the march of globalization means that few international companies will escape these pressures completely. Better to prepare and invest in capability than to risk fallout likely to be damaging, for both reputation and bottom line.

Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics, and a former U.K. Government Special Adviser.