HKS Mossavar-Rahmani Center for Business & Government

Between 34 and 46 million people worldwide are now living with AIDS, with approximately 4.2 to 5.8 million new infections in 2003. While Sub-Saharan Africa is home to roughly two-thirds of these infections, the epidemic is growing quickly in other parts of the world, including three of the world's largest countries: Russia, China and India.' Public health experts, economists, and demographers agree that this is a problem of massive proportions, likely to have a disastrous impact on human lives, as well as on fragile economies. According to UNAIDS, the virus will have killed 3 million people in 2003. For all of these reasons, businesses should have a natural interest in HIV/AIDS since the disease will have wide-ranging effects on their workforces, and more broadly, on their customers and the long-term demand for their goods and ser-vices, particularly in the face of globalization efforts. A recent World Economic Forum survey of nearly 8000 businesses covering 103 countries provides evidence for this intuition. The survey demonstrated 47% of firms felt that HIV/AIDS is having or will have some impact on their business. Clearly, businesses operating in places like South Africa with an adult prevalence rate of 20.1% — the highest in the world-cannot ignore HIV/AIDS.

Business leaders in almost every industry sector face a complex and challenging set of economic pressures, political uncertainties and growing, often contradictory, stakeholder expectations.

Despite an improvement in economic conditions, severe constraints remain on costs and prices, increased 'off-shoring' of jobs is a concern in a number of major economies, and trade tensions are challenging global growth prospects. Geopolitical uncertainty shows few signs of abating and non-traditional business risks, from international terrorism to global climate change, health concerns and the impact of aging populations, continue to grow in both quantity and complexity.

New skills and approaches are needed by business to manage and mitigate these risks, and to achieve what Booz Allen Hamilton has termed 'enterprise resilience' - the ability and capacity to withstand systemic discontinuities and adjust to new risk environments.

Where does collaborative governance fit within the sprawling spectrum of models for structuring collective action? Taxonomy is among the most instinctive, and the most treacherous, of human activities. Both the task itself, and its hazards, may be most visible on taxonomy's home turf of biology.

Consider, for example, the problem of classifying furry herbivores with longish ears, a hopping gait, impressive fecundity, and anxious dispositions. The description holds for rabbits, hares, coneys, pikas, African hyraxes, and (less precisely) for kangaroos, wallabies, and a number of other animals. Should we consider this collection to be an integral category, or simply as disparate instances of convergent evolution toward what is, after all, a pretty sensible design for creatures a little ways down the food chain? And if it is a distinctive class, what niche does it fill within the animal kingdom? The ancient Hebrews lumped rabbits with camels, as ruminants with uncloven feet and hence not kosher.

Linnaeus, the father of modern biology, categorized rabbits and their ilk with rodents, based on similarities of dentition and diet. In the 20th century the distinguished taxonomist George Gaylord Simpson also linked rabbits and rodents, though he conceded that this designation was ""permitted by our ignorance rather than sustained by our knowledge.""2 Amherst biologist Albert E. Wood framed one of the more plaintive titles in the hard sciences for his mid-century Evolution article ""What, If Anything, Is a Rabbit?"" Many of Wood's colleagues took up his question in subsequent decades, with inconclusive results. (Only with the advent of DNA analysis did scientists learn that rabbits are less related to rodents than they are to whales, and share recent ancestry with the primates. The rabbit turns out to be far removed from the squirrel, in other words, but a rather close cousin to you.)

Over the past twenty years, scholars from both the Kennedy School of Government and Harvard Business School have worked with public sector executives to develop a concept of "strategy in the public sector". The symbol of this idea became a "strategic triangle", the purpose of which was to focus the attention of government managers on three complex issues they had to consider before committing themselves and their organizations to a particular course of action:

• First, what was the important ""public value"" the organization sought to produce? • Second, what ""sources of legitimacy and support"" would be relied upon to authorize the organization to take action and provide the resources necessary to sustain the effort to create that value? • Third, what ""operational capabilities"" (including new investments, innovations and alliances) would the organization rely on (or have to develop) to deliver the desired results?

In the following paper, the authors apply this "strategic triangle" to corporate strategy, focusing on the question, "what would it mean for our conceptions of corporate strategy if we started thinking that corporations, too, had to be more systematically concerned about their wider 'legitimacy and support'? In recent years there has been a sharp escalation in the social roles corporations are expected to play. Companies are facing new demands to be accountable not only to shareholders, but also to other stakeholders such as customers, employees, suppliers, local communities and policy makers. As a result of this changing business environment, the authors argue that the concept of organizational strategy developed for government agencies may work as well or even better than traditional business models when applied to business organizations. At a minimum, this is probably true for private sector organizations that operate in intensely politicized environments, or that depend on maintaining a certain kind of social credibility and legitimacy in order to be successful in consumer and investor markets.

The concepts of social responsibility (CSR) and corporate citizenship have been part of the business lexicon and the focus of academic study for many years. Over the past decades, however, they have grown to encompass a more complex, multi-dimensional and global set of issues, with strategic implications for both business leaders and policy makers. This process has been driven by a combination of factors.

Discussions of US foreign policy have become intensely politicized. Especially in an election year, few safe havens remain for reasoned discourse that seeks to reflect on current and past practice solely to draw lessons for the future. I am pleased to be in such a venue today, and am immensely grateful to Goldman Sachs for enabling us to exchange views on issues of national and global concern - and to honor, thereby, the memory of Michael Mortara.

My subject today is American unilateralism and its relation to the world of global governance. I am not interested in routine unilateral acts, which are a universal practice of states. By unilateralism I refer to the currently held doctrinal belief that the use of American power abroad is self-legitimating: requiring no recourse to the views or interests of others, and permitting no external constraints on its self-ascribed aims. And by global governance I mean the shared norms, institutions and practices by which the international community seeks to manage common challenges. Are the United States and global governance on a collision course? If so, how did that come to be, and what are its consequences - for the US and for the international community?

For many investors, especially those with fiduciary duties, climate change and its risk to investment portfolios are a new, complex, and rapidly changing challenge. On September 23, 2004, 43 participants convened for a unique workshop for pension fund trustees to explore the connections between fiduciary responsibility and the risks to investments posed by global climate change. Working with Harvard faculty, attorneys, pension fund leaders, and other experts, the trustees explored what they can do - consistent with their fiduciary duties - to address the financial risks and investment opportunities of climate change.

This article draws attention to a fundamental reconstitution of the global public domain: away from one that for more than three centuries equated the "public" in international politics with sovereign states and the interstate realm, to one in which the very system of states is becoming embedded in a broader and deepening transnational arena concerned with the production of global public goods. One concrete instance of this transformation is the growing significance of global corporate social responsibility initiatives triggered by the dynamic interplay between civil society actors and multinational corporations. The UN Global Compact and corporate involvement in HIV AIDS treatment programs are discussed as examples. The analytical parameters of the emerging global public domain are defined, and some of its consequences illustrated by the chain of responses to the Bush administration's rejection of the Kyoto Protocol by a variety of domestic and transnational social actors.

Companies today are under intense pressure to rebuild public trust and to be competitive in a global economy. To do this they must act with greater accountability, transparency and integrity, while remaining profitable and innovative. They must engage with activists as well as analysts, cooperate as well as compete, manage social and environmental risks as well as market risks, and leverage their intangible assets as well as their financial and physical assets. We have studied sixty multinational companies that are taking a lead in responding to these challenges. Drawing on their experiences, we present seven business disciplines that move the concept of corporate responsibility beyond the boundaries of compliance, public relations and philanthropy, to become a more integral part of corporate governance, strategy, risk management and reputation. Applied broadly, this values-driven approach offers companies new opportunities for value creation, benefiting not only shareholders, but employees, customers, communities, and society at large.

In the following pages we look at some of these innovative approaches. Based on this year's survey of participants in the World Economic Forum's Global Corporate Citizenship Initiative (GCCI), the report profiles over 40 diverse partnerships - all of them involving one or more members of the GCCI. Between them, these alliances have engaged thousands of different partners around the world, and leveraged millions of dollars in cash and in-kind resources. The most effective initiatives have mobilized core corporate competencies and are focused on addressing the development challenges that create the greatest risks and opportunities for the participating companies.

The message is clear. Multiple stakeholder partnerships are neither easy nor a panacea.

They often have high transaction costs and are difficult to establish and sustain. Many are new and untested. Yet, they offer an important new approach that has the potential to drive innovation, improve governance, raise living standards, and provide opportunity to millions of people. They deserve continued support, engagement, and evaluation from business leaders.

Building public sector capacity and overcoming systemic obstacles to address HIVIAIDS in affected and high-risk countries are two of the most important and complex leadership challenges faced by national governments and the international community. Depending on the country and situation, they require a combination of short-term crisis management and 'quick fixes', with the often painstakingly slow. and multi-dimensional process of building human, institutional, organizational and communications capacities and infrastructure to strengthen national planning, budgeting, public awareness, and health systems over the longer-term. This in turn calls for both political leadership and commitment from the top of government, as well as dedicated and appropriately trained and supported public health practitioners, public managers and community leaders at all levels of society.

In my remarks this morning, I want to draw attention to growing parallels between corporate governance and state governance, specifically between institutional features that are now becoming considered for corporate America and institutional features that have long been a mainstay of governmental institutions in the United States. Corporate governance, I want to suggest, is becoming structured much more like public government. This structure may well be critical for enhancing trust in corporations and capital markets, but it may come at some cost to other important values. Corporate governance is major issue for society and the economy, so we ought at a minimum to be conscious of the direction corporate governance reforms are heading.

This paper develops a conceptual framework for companies to manage the emerging social risks they encounter as they go global, and of the contribution of corporate social responsibility (CSR) programs to managing those risks.

Globalization offers many opportunities to companies, but also poses novel sources of uncertainty and risks. Multiple business indicators show that the level of uncertainty for corporate leaders has increased, due in large part to: • Large extended enterprises made up of independent organizations but with tremendous pressures to grow and perform as a unit; • Rapid rates of change in technology, connections and information flows as a result of globalization; and • Problems in managing scale using methods rooted in controlling all decisions across the entire extended enterprise.

The result of the greater interdependencies and hidden vulnerabilities that businesses now face is an increased number of uncertainties in corporate decision-making. Current network-based operating models highlight the growing importance of the extended enterprise by establishing greater connectivity among and between stakeholders across the globe. This connectivity has also created entirely new stakeholders and requires innovative forms of risk management.

Business activities that boost public sector capacity are profitable and socially responsible. They are profitable because a competent, well-managed public sector creates and sustains rapid economic growth. They are socially responsible because improved public sector capacity enhances governance that is essential if private businesses are to expand and prosper.

Public sector support for private enterprise and industry has a long history. Contract enforcement, the maintenance of law and order, tax incentives to stimulate particular activities, grants for employee training, support for study tours, and financing of infrastructure are just a few examples. Yet, across most of Sub-Saharan Africa (hereafter Africa), the boot is on the other foot. Public sector capacities (human, organizational, institutional, and financial) are limited, the result of too little reform, over-stretched agendas, and decades of slow economic growth. In high HIV prevalence countries, these capacities are declining.

From Asia to the Americas, business leaders are under intense pressure to rebuild public trust, manage new and unfamiliar risks, respond to rising societal expectations and remain profitable and competitive in a global economy. As a result, the subject of corporate citizenship is in the spotlight as never before. In leading companies, it is moving beyond the boundaries of legal compliance, public relations and philanthropy, to become a more integral part of corporate governance, strategy, risk management and reputation. Values-driven performance, aimed at protecting existing corporate value and creating new corporate value, and backed by rigorously evaluated and publicly reported targets and metrics, is becoming a defining feature of the world's best-led companies.

Over the past two decades, the forces of economic globalization, political transformation and technological innovation have increased the global reach and influence of the private sector. The UN estimates, for example, that the number of transnational corporations almost doubled from 37,000 in 1990 to over 60,000 today, with some 800,000 foreign affiliates and millions of suppliers and distributors operating along their global value chains. This process has conferred new rights and created new business opportunities for global corporations and large national companies, while also exposing weaknesses in national and global governance structures. It has also resulted in new competitive pressures and risks, and led to increased demands for greater corporate responsibility, transparency and accountability.

One of the oldest bits of legal folk wisdom is that environmental, health and safety laws are only as strong as their enforcement by public regulators and private citizen suit litigants. In this article, I argue that this piece of folk wisdom is false. The everyday world of market transactions - purchases and sales of stock and other corporate assets by investors, as well as consumer transactions - significantly enhances the incentives created by regulatory and legal enforcement. Regulatory compliance costs and potential regulatory sanctions for non- compliance are felt in virtually every transaction involving the purchase, sale or restructuring of a company or its assets. Whether deals occur at all, and the price negotiated in such deals, is very often a direct function of the underlying regulatory regime within which firms operate.

In this article, we respond to calls by previous researchers to clarify the function of decentralized institutions by analyzing the strategic motives of individual actors. We investigated an important type of decentralized institution, certified management standards, and theorized that firms use these institutions to reduce problems that might arise with exchange partners that lack information or fear opportunism. We tested this theory using the pattern of certification with the ISO 14001 management standard.

Increasing economic opportunity, productivity and growth offers one of our best hopes for reducing poverty. As the Organisation for Economic Cooperation and Development (OECD) has commented, however, ""Increasing economic growth rates is essential - but it is not enough. The quality of growth - its sustainability, composition and equity - is equally important.""' A crucial element of such growth is creating jobs, income-generating opportunities and livelihoods for the poor. In particular, improving the access of small enterprises' to finance, skills, technology, information, sound business practices, legal rights and markets. In many developing countries achieving this goal requires effective partnerships and intermediaries that are able to address the market failures, governance gaps and institutional constraints that currently exclude or disadvantage most small entrepreneurs from accessing these public goods and business opportunities. Such partnerships are also essential in helping small enterprises to upgrade and integrate into broader production networks and value chains, which in turn is crucial for raising productivity and employment levels.

These partnerships include brokerage mechanisms, business linkage initiatives, hybrid commercial and social business models, innovative financing instruments, enhanced enterprise support services, and new types of alliances between companies, trade associations, governments, donors, academic institutions and non-governmental organisations. They offer great potential for promoting enterprise development, reducing poverty and helping to spread more competitive and responsible business practices along the value chain between large and small-scale firms. Yet such partnerships are relatively new and untested. They are currently few in number and disconnected from each other at the global and national levels. As such, they are limited in scale and effectiveness.

Increasing economic opportunity, productivity, and growth offers one of our best hopes for reducing poverty. As the Organisation for Economic Co-operation and Development's Assistance Committee (OECD DAC) has commented, however, 'Increasing economic growth rates is essential - but it is not enough. The quality of growth - its sustainability, composition and equity — is equally important.' Crucial elements of poverty reduction are creating jobs, income-generating opportunities, and livelihoods for the poor. In particular, growth must encompass improving the access of small enterprises to finance, skills, technology, information, sound business practices, legal rights, and markets. In Viet Nam, as in many developing countries, achieving the goal of reducing poverty requires effective partnerships and intermediaries that are able to address the market failures, governance gaps, and institutional constraints that currently exclude or disadvantage most small entrepreneurs from accessing these public goods and business opportunities. Such partnerships are also essential in helping small enterprises upgrade and integrate into broader production networks and value chains, which in turn is crucial for raising productivity and employment levels.

These partnerships include brokerage mechanisms, business linkage initiatives, hybrid commercial and social business models, innovative financing instruments, enhanced enterprise support services, and new types of alliances among companies, trade associations, governments, donors, academic institutions, and non-governmental organisations. They offer great potential for promoting enterprise development, reducing poverty, and helping to spread more competitive and responsible business practices along the value chain between large- and small-scale firms. Yet such partnerships are relatively new and untested. They are currently few in number and disconnected from each other at the global and national levels. Because of this, they are limited in scale and effectiveness.

Increasing economic opportunity, productivity and growth offers some of our best hopes for reducing poverty. As the Organisation for Economic Cooperation and Development (OECD) has commented, however, ""Increasing economic growth rates is essential - but it is not enough. The quality of growth - its sustainability, composition and equity — is equally important."" Crucial elements of such growth include creating jobs, income-generating opportunities and livelihoods for the poor. In particular, this involves improving the access of small enterprises' to finance, skills, technology, information, responsible business practices, legal rights and markets. In many developing countries achieving this goal requires effective partnerships and intermediaries that are able to address the market failures, governance gaps and institutional constraints that currently exclude or disadvantage most small entrepreneurs from accessing these public goods and business opportunities. Such partnerships are also essential in helping small enterprises to upgrade and integrate into broader production networks and value chains and to improve their labour and environmental practices, which in turn can help to raise productivity and employment levels. These partnerships include brokerage mechanisms, business linkage initiatives, hybrid commercial and social business models, innovative financing instruments, enhanced enterprise support services, and new types of alliances between. companies, trade associations, governments, donors, academic institutions and non-governmental organisations. They offer great potential for promoting enterprise development, reducing poverty and helping to spread more competitive and responsible business practices along the value chain between large and small-scale firms. Yet such partnerships are relatively new and untested. They are currently few in number and disconnected from each other at the global and national levels. As such, they are limited in scale and effectiveness.