Leading from the front

Since their creation in 1976, the OECD Declaration on International Investment and Guidelines for Multinational Enterprises have reflected the expectations of signatory countries and their citizens as to how international companies should operate and relate to governments. The OECD Declaration, of which the Guidelines are an integral part, aims to improve the climate for foreign direct investment. At the same time it seeks to encourage good conduct and the positive contribution that multinational enterprises can make to economic, social and environmental areas in the countries where they operate.

From the beginning, global companies have seen the Guidelines as a way of reflecting the robust management systems they have put in place over the years. It is the quality of these systems that gives legitimacy to companies’ operations worldwide, and the Guidelines provide businesses with an opportunity to communicate those standards globally. That is no less true today.

In the beginning, the Guidelines were addressed to a short list of countries and relatively few multinationals. Now, there are 33 countries in the OECD and elsewhere, and thousands of companies that identify themselves with the Guidelines. Clearly, government is speaking to a broader, more diverse, more geographically dispersed audience than it imagined, and one that reflects a wider range of cultural norms.

Fortunately, we business people deal with such complexities every day. We have a pretty good idea of what works and what doesn’t. The larger, more established international firms are accustomed to striving for the leadership qualities that are the staple of a well run business. At the very centre of that effort are the considerations spelled out in the OECD Guidelines relating to management systems. These cover how the management and employees of the company interact with each other, their shareholders and creditors, their customers and suppliers, their communities and governments and the environment.

During the past 25 years, the original Guidelines have come to be largely reflected in the management of leading multinational firms. However, just as the global dynamic of the marketplace has accelerated and business models are in a constant state of change, the expectations of governments and their citizens have also changed. Hence the review. The business community was an active participant in bringing the Guidelines into line with today’s world.

On the whole, the management systems of leading businesses remain a match for the new Guidelines. This should not be too much of a surprise, since good conduct is a condition of sustained business growth.

The challenge for businesses is to ensure that their example shines bright enough to provide a clear path for what is now a much larger and expanding population of international traders and investors. The Guidelines are a tool to accomplish that.

The Guidelines have wide agreement, but they have always been voluntary, and with good reason. We do not live in a cookie cutter world where global commandments fit every one in every country. There are no signs that the quest for political diversity and individual human fulfilment are abating. To be a good corporate citizen, a company must adapt to local customs, as well as following the laws and regulations in every area the firm operates. This can mean dealing with hundreds of national, provincial and municipal governments.

That does not mean that we do not bring our management systems with us around the world. We do and we will. One important job for government is to make clear to its citizens that it has asked business to take a lead with respect to implementing the Guidelines. Implementation must go forward with full recognition of the complexities and diversity of the global marketplace. The processes and procedures put in place to accomplish this must be clear in their integrity and discipline, and not condone abuse. We will need the good faith of all parties to ensure this.

But most importantly, let us not forget that the private sector plays a fundamental role in society, for all citizens, in the creation of wealth and the spreading of prosperity. In developing countries, foreign direct investment is an essential component of growth, and a passport to join the global marketplace. It is no surprise therefore that many developing countries are rapidly liberalising their investment regimes.

It is also widely recognised that right behind the very welcome influx of jobs brought in by new investment is the wholesale import of modern management systems, know-how, technologies and skills. The best Italian practices will flow to Sweden and the best of Sweden will flow to the United States or to Egypt, and so on around the globe. We have much to learn from each other and much to contribute to the global economy. These are the very issues addressed in the Guidelines.

Clearly, any negotiated or recommended improvement in a country’s public policy environment, as it pertains to business, is an essential part of the growth of the world economy. Business counts on government for a great deal, but the public should not expect to see business fulfilling the government’s role.

Efficient, modern investment feeds into the host country’s productivity, bringing a higher standard of living. If a business, whether newly created or modernised, can think of the world as its marketplace, rather than a village, a city or even a region, it can bring welcome financial flows into the host country from customers in hitherto unexplored overseas markets.

When economists at the OECD study the dynamics of growth around the world, there is remarkable agreement that the absorption of technology into the systems, processes and operations of the economy as a whole is an essential element. This implies that, as governments grasp this fundamental change, one can expect a massive further investment in technology in developed and developing countries that will bring a further increase in global growth.

We are living more and more in a global world. The Internet economy is opening all national borders and is starting to create the same market conditions everywhere. The prospects are exciting, for government and business alike. A new wave of investments could bring wealth and jobs all over the world. It would reduce poverty, regional imbalances and unemployment. It would create a real information network among all human beings. And it would help to build a knowledge society where intelligence and skills are the strategic resource. The Guidelines should be implemented with these targets in mind.

©OECD Observer No 225, March 2001 

Economic data

GDP growth: -9.8% Q2/Q1 2020 2020
Consumer price inflation: 1.3% Sep 2020 annual
Trade (G20): -17.7% exp, -16.7% imp, Q2/Q1 2020
Unemployment: 7.3% Sep 2020
Last update: 10 Nov 2020

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