Possible Scenarios of Regulation and Activism in the Context of Globalization

How regulatory patterns unfold in the future will be determined by how corporations respond to the new dynamics of regulation and activism emerging today. Companies already manage a diverse array of constituents, including governments, nongovernmental organizations, consumers, and the public, in addition to their own shareholders. As such, value-building companies that find creative ways to address broad social concerns and cooperate with interest groups may be better positioned for future success than those with a singleminded pursuit of the bottom line. But regulatory trends will also depend on the power and reach of governments. As regulatory issues grow increasingly complex and overstretched, governments run headlong into their own demographic crises. The result is that quality and efficiency could decline, and regulators may see eroding public support for government oversight. At any rate, corporate executives looking for a single prescription are not likely to find one.

Big Brother Is Watching

Instead, business leaders must prepare for a range of possible scenarios. The first scenario, big brother is watching, envisions a hardening of the trend toward empowered governments and strident anti-corporate activists around the world. Periodic scandals at prominent global corporations do not help. Thousands of people see jobs disappear as their companies suffer market setbacks, and stockholders watch as their investments shrink. The stock markets remain unfriendly territory for the majority of corporations—and between a wary public and outraged advocacy groups, the rest of society does not provide much support, either.

In response, governments expand their oversight and impose increasingly tight restrictions over the private sector, at the same time that taxes and fiscal spending are on the rise. The growing clout of regulatory agencies helps them recruit talent and overcome the retirement-driven brain drain, often by hiring directly away from industry. Compliance costs for most companies rise dramatically, and companies that survive find they are in a cost-cutting race to the bottom. Some escape offshore to take advantage of less cumbersome costs and restrictions, but the difficulty of selling goods and services back to highly regulated home markets makes this a limited option. At the same time, activist groups keep close tabs on overseas operations by monitoring corporate activities and publicizing anything untoward through the media. In short, firms face intense pressure from above and below, and only those that are able to cut back and make their organizations “lean and mean” survive.

Partial Restraint

A second scenario, partial restraint, offers a more hospitable environment in which corporations, governments, and activists find a middle ground. Occasional threats to national security continue to bubble up around the world, reinforcing the need for government oversight, while at the same time revealing its limitations. Tight budgets and a limited pool of talent help check government power, and most regulation remains moderate and rational. While efforts at self-regulation produce a mixed bag of results, large global companies become more attuned to volatile public opinion and do a better job of reacting to activist pressure, by strategically choosing times to fight and times to concede. An uneasy truce develops, with activists monitoring corporate behavior and corporations tinkering with a wide range of partnership, certification, and charity efforts, in addition to better business practices. As scandals wane, public attitudes toward corporations gradually soften.

Chicago Boys II

A third possible scenario is called Chicago boys II. It imagines a future in which global corporations experience a new boom and largely unfettered markets abound. As notions of corporate social responsibility spread throughout the ranks of business, corporations overcome the cynicism greeting them at the turn of the century. Big companies project increasingly transparent, responsible images, convincing larger segments of society that the private sector is aware of important issues and stands ready to act as responsible players in their communities. Having overreached in previous years, once-powerful government regulatory agencies are cutting back. With no major security concerns on the horizon, they reduce both budgets and personnel and begin streamlining regulation, often in cooperation with the private sector. Activists remain a powerful force, but they more often work in partnership with corporations, who look to third parties to validate their sound business practices, adherence to emerging social and environmental norms, and socially responsible community initiatives.

As is the case with all of our scenarios, each outcome depends upon multiple, interacting factors. Strict regulations and a reversal in globalization, for instance, could create an inhospitable climate for global business. Alternatively, regulatory flexibility and strong consumer confidence could create powerful conditions for global business to reach new consumers in far-flung markets.