Establishing adjunct governance fo- ests.
ests. We disagree, however, that such ef-
rums of strategic stakeholders not only
provides a cost-effective way for organi-
zations to establish the multiple and re-
enforced “outside-in” links the authors
describe; it also protects directors. It was
because German and Japanese compa-
nies obtained these additional advan-
tages from their stakeholder forums
that Porter recommended the inclusion
of stakeholders in the governance archi-
tecture of U.S. firms in his 1992 report,
Capital Choices.
Stakeholder forums can be designed
to provide directors with a systemic pro-
cess to carry out their most fundamen-
tal fiduciary duty: to direct and monitor
management. Nonexecutive directors
cannot creditably carry out these basic
roles with due diligence, vigilance, and
care unless they obtain feed-forward
and feedback intelligence independent
of management.
If the stakeholder forums are consti-
tuted independently, as is the practice in
Germany and Japan, the duties and cost
of management could be simplified
and the need for auditing stakeholder
reports eliminated, yielding further
savings. The responsibility for being
“attuned to the evolving concerns of
stakeholders, and mitigating existing or
anticipated adverse effects from busi-
ness activities”would be shared with the
stakeholders to protect the corporate
reputation.
Shann Turnbull
Principal
International Institute for Self-Governance
Sydney, Australia
Porter and Kramer respond: Lee Preston
accurately points out that companies
often try to manipulate the regulatory
context through aggressive lobbying,
which can run counter to society’s inter-
tries” (October 2006) present real op-
forts are desirable or should be labeled
an “important strategic option.” Lobby-
ing may forestall market forces and in-
flate profits in the short run, but it does
not provide a sustainable competitive
advantage. On the contrary, preserving
artificial conditions frequently leads
companies to make the wrong strategic
choices. Many industries that success-
fully delayed regulation in their home
countries have since fallen victim to
changes in the political environment or
to foreign competition. U.S. automakers,
for example, lobbied effectively against
higher mileage standards for their cars,
only to suffer dramatic reversals as they
lost touch with the needs of the global
marketplace. Manipulating the regula-
tory environment is a good example
of win-lose thinking rather than the
shared-value approach we advocate.
We agree with Shann Turnbull that
stakeholder forums can be a valuable
source of guidance for corporations and
can contribute to corporate governance.
We caution, however, that responding to
stakeholders is not enough to enable
a company to integrate social consider-
ations with its strategy. Stakeholders
may be aware of the harmful impacts of
a corporation’s value chain, but they are
far less likely to understand the compet-
itive and societal advantages that a com-
pany can achieve by integrating social
considerations into its core strategy.
Emerging Giants: Building
World-Class Companies in
Developing Countries
I don’t doubt that the product and
factor voids that Tarun Khanna and
Krishna G. Palepu identify in their arti-
cle, “Emerging Giants: Building World-
Class Companies in Developing Coun-
hbr.org
portunities for future emerging giants.
However, my 35 years of working in de-
veloping Asia – as well as my role as a
(non-Muslim) member of the Interna-
tional Advisory Panel of the World Is-
lamic Economic Forum, the business
and economic face of the 57-member
Organization of Islamic Conference, and
our recent discussions in Islamabad –
suggests that not all voids are created
equal, and not all provide a solid foun-
dation for regional expansion. Unfortu-
nately, we see large national firms gain-
ing domestic advantage principally by
exploiting their informal access to the
host government. In exchange for a
range of “favors,” including most com-
monly “black” or undisclosed payments
to the ruling party ahead of elections,
these companies use their privileged ac-
cess to acquire protected market posi-
tions in regulated sectors such as finan-
cial services and cellular telephony.
So-called national ownership is then
used to protect corporate underperfor-
mance in businesses with both formal
and informal links to the government.
Even Khanna and Palepu’s premise
YEL MAG CYAN BLACK
that national firms can exploit their
deeper insights into local product and
resource markets (as in the examples
of Jollibee and Haier) or their superior
access to local resources (witness Info-
sys, Tata Consultancy, and Satyam Com-
puter Services) may require further
research. Examples such as India’s Ma-
hindra and Mahindra’s prize-winning
Scorpio SUV and Haier’s tiny washing
machines and vegetable cleaners may
be on the surface compelling, but
when the underlying economics of
such businesses are peeled apart–not al-
ways a trivial exercise – some clear pat-
terns emerge: First, in many developing
countries, accounting systems are not
| April 2007 | Harvard Business Review 133