The Rise of Corporate Diplomacy (Finally!) Michael D. Watkins

Successful product innovation always involves a healthy dose of good timing. Emerging customer needs and available technical solutions must be in alignment if entrepreneurs are to gain traction. Come to market too early, and you have a great solution but no pressing need for it. Come too late, and someone else has beaten you to the punch.

The same is true in the world of ideas, as I have discovered recently in my own work on corporate diplomacy, which I’ve defined as the role senior executives play in advancing the corporate interest by negotiating and creating alliances with key external players including governments, analysts, the media and non-governmental organizations (NGOs). Though I have been working on the subject for close to a decade, it has only recently begun to take off. In the March 2007 issue of World Business, for example, there is a feature called “Spot the Future” that lists “10 issues that will undoubtedly affect your organization.” My work on “The Manager Diplomat” clocks in at #3. There’s also been a big upsurge in the requests I’m getting to speak on the topic.

It’s gratifying to have this happen, but it’s also interesting that it is happening now. I spent the early 1990s at the Kennedy School of Government studying great international diplomats: Shimon Peres and the Oslo peace process, James Baker and the building of the first Gulf War coalition, Richard Holbrooke in Bosnia, and Robert Gallucci in North Korea. I also spent some time working with the Peres Center for Peace in Tel Aviv helping to teach conflict resolution to emerging leaders from Egypt, Israel, Jordan, and the Palestinian Authority. When I moved to the Harvard Business School in late 1990s I created a second-year MBA course called Corporate Diplomacy and taught it for five years. Along with former congressman Mickey Edwards, I wrote a book on the subject called Winning the Influence Game: What Every Business Leader Should Know About Government. At the time, the book sold about 12 copies. It was a solution looking for a problem.

But this past January I got a call from a large pharmaceutical company asking me to speak to 150 government relations people, all of whom would be given a copy of the book. I spoke on the need to institutionalize the diplomatic mind-set throughout their organization, and to equip line managers at all levels to help shape the external environment. More requests to speak from other companies followed.

Why is this happening? The rise of corporate diplomacy is a global phenomenon, but it’s being driven by different forces in different regions. In the United States, one driving force is the decline of the imperial CEO resulting from the constraints imposed on senior executives by Sarbanes-Oxley and activist boards. There was a great article in a recent Wall Street Journal, “After the Revolt, Creating a New CEO,” that captures the magnitude of this shift. For example, Jim McNerney, the new chariman, president, and CEO of Boeing, is quoted as saying “I’m just one of 11 [members of the board of directors] with a point of view. I have to depend on my power to persuade.” Another fascinating article in the New York Times details the multitude of diplomatic challenges confronting Tony Hayward, the new group chief executive of BP.

A second driving force is the dramatic upsurge in M&A activity, driven by rising stock market valuations and decreasing barriers to merger activity. It takes a lot of diplomatic skill not just to strike deals, but to shepherd them successfully through a thicket of regulatory approvals and stakeholder challenges. Think, for example, about the trouble that XM and SIRIUS are facing in their effort to merge, or the surprising role that the United Steelworkers union is playing in influencing mergers in the steel industry, or the challenges Exxon is facing in keeping its alliance deals in Russia intact.

In the rest of the world, the rise in corporate diplomacy is being fueled by a combination of growth, globalization, and an increasing realization by business executives that they have to play an active role in influencing governmental rule making and in shaping public perceptions. I spent a week in Malaysia recently, and I was told by the chairman of a leading telecommunications company that only recently had the industry realized that some measure of cooperation (legal, of course) was necessary to establish appropriate rules governing growth and competition in the industry. Throughout the region, dramatic growth and increasing democratization are resulting in a sea change in business-government relationships. More and more executives are realizing that diplomacy has to be in their toolbox.

Do you have thoughts about the rise of corporate diplomacy or examples of successes or failures? Please share them.

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