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Tuesday, May 27, 2003
INSEAD, Fontainebleau, France
Hosted by the Research Group on Global Financial Governance, the Guido Carli Association, the G8 Research Group, the EnviReform Project, INSEAD, the Club of Athens-Global Governance Group, le Comité pour un Parlement Mondial, Futuribles and the Académie de la Paix
As the twenty-first century unfolds, the intensifying pace of globalization is calling into ever more serious question the traditional approaches to governance at the corporate, national government, and international levels.
Within the corporate community, the old model of national firms based in national markets regulated by national governments is fading fast. The recent dot.com boom and bust and the outbreak of corporate accounting scandals in the United States, along with the debt burden of financial institutions in Japan and Europe, have led to demands for major reforms of the corporate sector so that firms might effectively perform their role as rational economic actors underpinning the G8 and global growth (Fratianni, Savona, and Kirton 2003). At the same time, globalization is forcing firms to radically alter longstanding production, marketing, and management strategies in order to survive and thrive in a more densely interconnected world (Lawton 2001). And as national governments still struggle with fiscal deficits, and concentrate scarce budget resources on a new generation of security threats, firms are being asked to meet ever higher and broader standards of corporate responsibility to cope with the social and environmental concerns, on a global scale, that an empowered citizenry demands (Kirton and Trebilcock 2003).
As a result, national governments are confronting stronger demands for new ways to regulate "their" corporations, both to fulfill their social responsibilities and to generate growth in an increasingly competitive world. Yet globalization is also limiting government's ability to regulate their corporations, beyond the onerous demands that the new twenty-first century security concerns have imposed. Moreover, even the most powerful national governments are losing faith that the historic, publicly supported models of corporate governance that served them so well for so long are adequate to the new age (Brean 2001). The "insider" institutional model favoured by Japan and Germany now seems to be a recipe for inefficiency, inflexibility, stagnation, and deflation. Yet the "outsider" market model long heralded by the United States, Britain, and Canada, and now being introduced in the new Russia, no longer appears to be a certain recipe for vibrant growth, leapfrogging productivity, and good jobs, as it seemed in the buoyant 1990s. National governments know they need to change and are starting to do so, with the United States and France leading the way. Yet all major governments are looking to one another for the proper ways to act, both so they can discover a better model and because they know their neighbours' choices will decisively affect how well their own approaches will work.
The result is an enhanced need for international co-operation, not only to harmonize or otherwise reduce friction between different national systems (Ostry 1997), but now to define collectively the best way for all to proceed in the new age. Yet this new need and ensuing effort come at a time when the international institutions that have long led such an effort -- those of the Organisation for Economic Co-operation and Development and the United Nations -- face new challenges of their own. In all these established organizations, firms are demanding a greater and more direct role in international governance, even as other sectors of civil society demand a similar role for themselves to offset the disproportionate power that they claim business already has (Hajnal 2002). At the same time, the international institutions know they need the participation and resources that business and the other stakeholders bring. From United Nations Secretary General Kofi Annan's Global Compact, through to the work of the International Monetary Fund, the Financial Stability Forum, and other financial institutions in developing codes and standards, a substantial start has been already been made.
Yet larger issues remain at the forefront of both corporate and public concern. In the most general terms, should the emphasis be placed on a freely functioning market place, guaranteed by transparency, stakeholder accountability, and voluntary standards? Or does the new globalizing era require a new generation of intergovernmental institutions and regulation, comparable in magnitude to, but far different in design than, the United Nations-Bretton Woods galaxy created more than half a century ago? In the field of international finance, the issue is highlighted in the current debate over the need for a formal, global Sovereign Debt Restructuring Mechanism, beyond the collective action clauses in bond contracts that the private sector and governments such as Mexico prefer. In the field of international trade, the outstanding question of how much and how firms' intellectual property rights should be overridden by public health concerns expresses the dilemma as well. And in the field of environmentally sustainable development, it arises again in the Kyoto Protocol's demand for hard law requirements with targets and timetables, as opposed to the Johannesburg Conference's preference for public-private partnerships and a voluntary, market-based approach. Even in the reigning political-security question of rebuilding Iraq, the instinct to write off accumulated debts for the new government on an ad hoc basis, at the request of a few sponsor states, competes with the call to create a new intergovernmental regime with firm rules and independent judges to determine which of the world's many debt-burdened governments can fairly secure their claim.
It is thus not surprising that the issues of corporate and public governance, and their interconnectedness, have increasingly commanded the attention of the Group of Seven and Group of Eight major market democracies over the past few years. At their June 15, 2002, Halifax meeting, the G7 finance ministers called on Russia to "strengthen the financial sector, improve corporate governance and the investment climate, and combat money laundering and terrorist financing" as the key to its self-sustaining democratization and growth. Immediately afterward, the G8 leaders, in their G8 Africa Action Plan, welcomed "the adoption on June 11 by the NEPAD Heads of State and Government Implementation Committee of the Declaration on Democracy, Political, Economic and Corporate Governance" and called for "strengthening public financial management and accountability, protecting the integrity of monetary and financial systems, strengthening accounting and auditing systems, and developing and effective corporate governance framework."
It is not surprising, then, that issues of corporate and public governance will be at the centre of the agenda of the 2003 G8 Summit, taking place in Evian, France, on June 1-3. That summit, the first in the new cycle, will deal specifically with a French government proposal to strengthen corporate governance, in the wake of the Enron and other scandals that broke on the eve of the G8 Summit in Kananaskis in 2002. The French will seek ways to strength corporate responsibility and build a responsible market economy. The British will mount an Extractive Industries Transfer Initiative (EITI), designed to increase transparency as large sums of money flows from resource industries to the coffers of national government, which recurrently appear at the international financial institutions seeking concessional loans and debt relief. On the road to Evian, at the G8 finance ministers meeting, France plans to raise the issue of regulating international credit ratings agencies, with the aim of securing a transparent, accountable set of principles, agreed to by the agencies themselves, to deal with potential conflicts of interest among one of the remaining unregulated components of the international financial industry.
The Evian Summit will deal as well with the G8 and global economy, and the need to reform the banking and financial sector in Japan and Germany as part of an enhanced effort to generate global growth. In its larger development agenda, it will privilege sectors such as water, where the practices of the world's major multinational firms, in public-private partnerships, take centre stage. And in the political-security field, from combating terrorism through controlling weapons of mass destruction and preventing conflict, to the construction of a new Iraq, corporations also have a critical role to play. Throughout the Summit agenda, corporate and public governance, and their coherence, is the central issue in play.
To explore these issues, this conference focuses on four central questions. First, what forms of corporate governance are most desirable for the globalizing world of the twenty-first century? Second, what forms of public governance are most appropriate in this new age? Third, how well are the world's leading national governments, gathered in the G8, pioneering the needed policies and practices? Fourth, how well has, and how can the G8, working by itself or with and through other international institutions, help governments and corporations work together to design and deliver a superior approach?
These questions are dealt with through six successive sessions. Session I, "Globalization's Challenges for Governance," looks in turn at the governance challenges facing the corporate and public sectors, and those that their combination creates. Session 2, "Corporate Governance: Contributions and Challenges," looks in detail at the prevailing and prospective approaches to corporate governance in North America and Europe, the broader patterns of foreign direct investment in the triad and beyond, and the even broader issue of the growth in population and technology in the new international order and disorder. Session 3, "Public Governance: Challenges and Contributions," turns attention to public governance, in the critical global fields of trade, finance, the environment, and development. Session 4, "Governing Globalization: Principles and Pathways," looks more broadly at how prevailing and prospective practices of global governance are adequate to governing globalization in the economic and social fields. Session 5, "G8 Contributions and Challenges: From Kananaskis to Evian and Beyond," then looks specifically at the G7/8, and its contributions to corporate and global governance in the past, present, and future. Session 6, "Conclusion: Coherence in Global Governance: Bringing Corporations and Governments Together," synthesizes the major points of consensus, remaining debates and analytical and policy challenges ahead.
To address these questions, this conference includes the contributions of 18 leading scholars. They come from virtually all G8 countries, from the academic disciplines of management studies, economics, political science, and environmental studies, and from the university, research, business, national government and international organization communities. This group features those who have, or have had, senior-level experience in both the corporate and government sectors, and are thus able to compare and integrate the experience of these all-too-often separated worlds. They also balance and bridge the worlds of continental Europe on the one hand, and the larger Atlantic and Pacific community on the other, across which the gulfs can often seen and be very wide indeed.
References and Related Reading
Brean, Donald (2001), "Corporate Governance: International Perspectives," in Guiding Global Order: G8 Governance in the Twenty-First Century (Ashgate: Aldershot), pp. 223-244.
Fratianni, Michele, Paolo Savona, and John Kirton, eds. (2002), Sustaining Global Growth and Development: G7 and IMF Governance (Ashgate: Aldershot).
Giscard d Estaing, Olivier (2003), "Plaidoyer pour des taxes mondiales," Le Monde March 29.
Hajnal, Peter (2002), Civil Society in the Information Age (Ashgate: Aldershot).
Kirton, John and Michael Trebilcock, eds. (2003), Hard Choices, Soft Law: Voluntary Standards in Trade, Environment and Social Governance (Ashgate: Aldershot).
Lawton, Thomas (2001), "The New Global Electronic Economy: Consensus, Confusion, Contradictions," in John Kirton and George von Furstenberg, eds., New Directions in Global Economic Governance: Managing Globalisation in the Twenty-First Century (Ashgate: Aldershot), pp. 39-60.
Ostry, Sylvia (1997), The Post-Cold War Trading System: Who's On First? (University of Chicago Press: Chicago).
Prakash, Aseem and Jeffrey Hart, eds. (1999), Globalization and Governance (Routledge: New York).
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