The Legacy Of The Twin Cities Region
Lessons For The Global Frontier

Dominic A. Tarantino
Chairman of Price Waterhouse World Firm Limited

Thank you, Win. It is indeed an honor for me to address the Annual Meeting of the Minnesota Center for Corporate Responsibility (MCCR). It is a very good feeling to be among business leaders who, for a good long time, have willingly and ably addressed both the business and social challenges of our times - and where progressive activism on the underlying issues has had a well recognized global reach. With this in mind, I have entitled my remarks tonight The Legacy Of The Twin Cities Region: Lessons For The Global Frontier.

Confronting Ethical Challenges

Ben Franklin once said, "If you want your work done, go. If not, send." There's a message here for businesses confronting the ethical challenges of the global economy. If we want our work done, we have to go. We can't send government. We can't send the church. We can't send social activists. Yes, all these groups have a role to play. But business now has more clout, resources, expertise and incentive than these other institutions, as well as unprecedented ability to operate across boundaries.

As an article I read recently put it, business ethics comes down to personal responsibility and critical mass. We need plenty of both. Global business ethics is no longer just a matter of playing by the rules. It's a matter of making the rules to ensure that the global economy reaches its full potential and everyone gets a piece of the pie. Enough business leaders must take personal responsibility to create the critical mass to get this job done.

Ripple Effect of Globalization

When I talk about everyone getting a piece of the pie, I don't mean just the big multinational corporations. I mean national, medium-sized and local companies. I mean the Twin Cities region and its inhabitants. Globalization causes positive ripple effects throughout the regional and national economy. And cyberspace will enable any company of any size to tap the global marketplace.

But there are serious problems to overcome before this ideal can become a reality. Bob MacGregor has been educating me about the Twin Cities and MCCR. Your traditions of self-reliance and interdependence are a perfect blueprint for global action. Your business leaders take personal responsibility for ensuring that their companies serve the best interests of all their stakeholders. They recognize the interdependence of the global economy and the local economy, of economic success and social responsibility, and of business and community.

I was frankly surprised at the Stanley Foundation's suggestion that corporations in this region are paying too much attention to global events and not enough to local urban problems. Today it's nearly impossible to separate the two. Just about any urban problem you can name is affected by globalization. In order to compete on a global basis, the region and the region's businesses must solve these problems. On the other hand, in order to solve these problems, the region and the region's businesses must be able to compete on a global basis.

The Caux Round Table (CRT)

Applying individualism and interdependence to global challenges is hardly a novel idea. The Caux Round Table is way ahead of me. It's a long way from Minneapolis-St. Paul to Caux-Sur-Montreux in Switzerland. It's a short conceptual leap from individual responsibility and interdependence to the ideals of human dignity and kyosei [living and working together for the common good] that are the foundation of the Caux Principles for Business. Considering the role MCCR played in developing the Caux Principles, that's no surprise. The Caux Principles are now the most widely accepted code of business standards in the world, and that is a significant achievement. Nevertheless, the Principles are still just that -- principles. The time has come to act on those Principles. I think the Round Table has just taken a big step forward in its new position paper. More about this later.

In the global environment, ethical activism is not always greeted with open arms. We've all heard the objections. Rule of law is a Western concept that Western countries and companies want to impose on non-Western cultures in order to gain competitive advantage. It goes something like the following:

• Efforts to protect human rights in authoritarian states represent cultural imperialism.

• Efforts to establish minimum standards for health, safety and worker compensation are both cultural imperialism and an anti-competitive plot.

• Bribery is a way of life in many cultures, and a failure to bribe equates to a failure to compete.

• Recycling displaced employees is not my company's job. My company's job is to find cheap labor, even if it's half a world away.

• Cyberspace is the last bastion of individual freedom. It should be off limits to political and commercial control.

The Stanley Foundation says that the relationships between moral absolutism and cultural relativism, ethics and economics, and private wealth and common wealth need not be hostile! I agree 100 percent.

There are certain moral absolutes that cut across all cultures. Respect for human dignity. Freedom from pain, want, suffering and oppression. Integrity. Honor. Compassion. Generosity. These are just a few of the basic values that define a civilized society. We will encounter different interpretations and applications of these values in different cultures. But you won't encounter disagreements about their desirability.

Experience also shows that creating public wealth by providing community services and improving the social and educational infrastructure increases private wealth. Business cannot flourish in the midst of poverty, ignorance, disorder, disease, and lawlessness. I think former Dayton Hudson, CEO, William Andres summed it up perfectly when he said, "A stable, healthy community is not just good for the bottom line. It is the bottom line."

So our mission is to create a stable, healthy global community out of an untamed global frontier. Perhaps I should say frontiers. Each emerging market is a new frontier. And cyberspace is the wildest frontier of all. Should we accept this mission? I don't think we have a choice.

Business will have to cross some frontiers of its own in order to successfully complete this mission. We will have to think in radically different terms. Some call it "thinking out of the box." I see it as thinking beyond boundaries -- national, cultural and corporate boundaries, the boundaries between the public and private sectors, and the boundaries of "It's never been tried" and "It can't be done."

Four Challenges

Frontier-style thinking will be needed to address four challenges:

• Establish "rule of law" in emerging markets;

• End business bribery;

• Police cyberspace; and

• Confront the have/have not dilemma.

The Rule of Law

Let me elaborate on each of these challenges-first, establishing the rule of law in emerging markets.

Some emerging countries see rule of law as an attempt by the Western democracies to create mirror images of themselves. But, despite cultural differences, no country can achieve a true market economy without rule of law. Rule of law is essential not only to attract foreign investment, but to encourage the growth and development of domestic enterprises.

At a minimum, rule of law must cover the following areas:

First is the making and honoring of contracts. In many emerging markets, business is conducted through personal relationships or with state owned enterprises. But business by hand shake or fiat will not work for large enterprises that drive a market economy and must compete in global capital markets, and joint ventures may bring together partners from all over the world that have no prior relationships. Written agreements backed by effective procedures for recourse are a must.

Second is the protection of property. This must include not only tangible property but intellectual property. In fact, intellectual property protection will likely be more important in the global "knowledge economy."

Third is protection for basic human rights and worker rights. Let's dwell on this a bit. These are the issues that really raise protests of "cultural imperialism." But countries that want to develop competitive market economies cannot abuse their most important asset, their human capital. They must ensure that workers are not forced to labor for long hours in intolerable conditions for less than a living wage.

It's true that workers in many developing countries believe their most important right is a job that pays a decent wage by their country's standards. And it's true that the need for political stability may require a gradual rather than sudden shift in the relationship between individuals and the state. Nevertheless, there are prescribed international standards (United Nations Declaration of Human Rights and the International Labor Organization) for human decency and worker rights, and there is no excuse for failing to aspire to these standards.

More and more multinational companies are refusing to let "cultural relativism" cause ethical paralysis on worker rights. They are working with developing country governments and suppliers to establish reasonable rules on health, safety, compensation and child labor, and they are enforcing these rules. My firm is helping a number of multinational companies monitor their foreign suppliers' compliance with agreed standards. This is one example of the highest and best use of the modern Golden Rule, "Those who have the gold make the rules." Multinational companies have the gold. They should ensure that foreign suppliers follow reasonable rules on workers' rights.

But the effectiveness of gold has its limits. Changing human rights practices is an area where businesses must be aware of the risks and tread cautiously. Nevertheless, judicious efforts to bring about change can be made in alliance with governments and social, religious and academic institutions. And you don't necessarily have to leave home.

I note from the Stanley Report that the University of Minnesota has the highest enrollment of Chinese students of any educational institution outside China, and that the region's ties with China are strong. In our eyes, China is not exactly a bastion of human rights. Yet China's leaders themselves took the most decisive step towards change in this respect. They opened the country's borders and let capitalism in. Ironically, they did this to solidify their control. The ultimate result is likely to be much different. Some retrenching is being attempted, but the genie is out of the bottle.

Capitalism has earned its reputation for leading the way to democratization. It creates institutions and ways of doing things that eat away at totalitarian systems. The foreign people, goods and ideas that are rushing through China's open borders will facilitate the process. Chinese students at the University of Minnesota will absorb not only the new ideas and new ways of thinking that they are taught. They will absorb this region's attitudes and traditions and take them home.

Finally, rule of law requires enterprise accountability. Modern capitalism functions on the basis of a bargain between corporate enterprises and investors. Investors give corporate enterprises the capital they need to grow and prosper. In return, these enterprises are accountable for the use and stewardship of their investors' money, and for the fair distribution of the profits that accrue. The stock market crash of 1929 taught U.S. investors what happens in the absence of enterprise accountability. The result was the securities laws.

Investors in emerging market countries are also learning this lesson the hard way. Privatization of state-run enterprises has been rife with high risk and low reward. Aspiring capitalists have lost billions of dollars to fly-by-night companies. Former non-market economies are beginning to follow the U.S. example. But they need to do more than put laws on the books. They must develop an environment of accountability in which managers of corporate enterprises recognize and meet their obligations and investors understand and demand their rights.

End Business Bribery

The next challenge of the global frontier is ending business bribery. Business bribery is bad for the givers, bad for the receivers, and bad for the global economy. It tilts the level playing field, institutionalizes corruption, and takes billions of dollars out of productive use. It transforms market access into a question of who can pay the most. It can mire developing countries in debt by encouraging huge expenditures on unnecessary procurements. Even grease payments are a bad idea because they perpetuate the red tape and bureaucratic fiefdoms that gave rise to them in the first place.

Good steps to combat business bribery are being taken under the auspices of the OECD, the World Bank, the OAS, the European Community, and various international business and professional organizations, like Transparency International. Progress will likely be slow and inconsistent. Citizens in many developing countries are finally beginning to recognize the costs and consequences of this institutionalized corruption. But it is deeply entrenched.

Business leaders can increase the momentum of change. They can take personal responsibility and "just say no" to business bribes. Most countries where bribery is rampant already have laws against it. Global companies cannot preach rule of law in emerging markets and simultaneously ignore laws which they regard as inconvenient.

Policing Cyberspace

The third challenge is policing cyberspace. Unless this challenge is met, cyberspace will never reach its full commercial potential. How can it possibly do so? A partial list of current abuses would include copyright violation, theft, fraud of all descriptions, money laundering, industrial espionage, viruses, privacy invasion, hacking for fun and profit, and the duplication, alteration and destruction of records. Efforts to portray the Internet as a shoppers' paradise aren't helped by all those warnings about providing information at your own risk.

Waiting for government regulation of cyberspace will be like Waiting for Godot. Legislation to address only the problem of copyright protection is moving through Congress at a snail's pace. When and if it passes, it will reach only as far as U.S. borders and will still be difficult to enforce. The Clinton Administration has launched an effort to develop international standards for the Internet. But they will not be binding on any sovereign nation. They may well be obsolete before they are finalized. And it's a safe bet that those utilizing the Internet for fraudulent, illegal or antisocial activity will choose to ignore these standards. The technology to secure the Internet is evolving, but its use by government will be very controversial.

Once more, business is emerging as the logical source of effective action. One solution that has been proposed is the formation of "virtual communities." These on-line communities could consist of service providers that act as gateways to the rest of the Internet. They could be networks of corporations that are engaged in similar lines of business. Community members would have to abide by certain rules in exchange for receiving certain privileges and services, including security protection. Customers would be charged for access to the communities and the assurance of secured transactions.

For the time being, the area outside these virtual communities would still be a lawless no man's land. But the days of the Internet as we know it may be numbered. Predictions are that the system will soon choke to death on its own traffic. This isn't surprising. It was never designed for the level and types of use it's getting.

When the Internet is resurrected, form will follow function. It could emerge as a variation on a public utility with user fees or tolls, just like telecommunications systems, turnpikes, and public transportation systems. The user fees will finance security and maintenance. Since the dawn of civilization, business development has concentrated at strategic points along key transportation routes. And business itself has been an agent of civilization. Business will bring civilization to cyberspace by catalyzing development at strategic points along the information superhighway.

Technology and Labor

The final challenge I want to talk about is the "have/have not" dilemma. Technology can eliminate the distance between senders and receivers of information, databases and users, buyers and sellers, and employers and employees. But it can also create an unbridgeable gap between "haves" and "have-nots" both within and among countries. This cannot be allowed to happen. "Have not" populations and regions represent a waste of crucial resources and a threat to the stability of the global economy.

Even the United States is confronting a serious have/have not split. The problem started with the bottom rungs of the career ladder. Many entry level jobs have simply been replaced by technology. Most other entry level jobs that pay a living wage require technological skills. Our public schools are woefully behind in teaching technological skills, and many colleges and universities are not much better.

Now "technology creep" has reached the middle rungs of the career ladder. Today many higher-paying white collar jobs can be transferred to cheaper labor markets via modem and telephone wires. U.S. companies can hire programmers in India at an annual salary of $12,000, as opposed to $40,000 or more here. Technology has redesigned not only the career ladder, but the ladder of comparative advantage.

Fully developed high wage economies like the United States must compete at the high end of the ladder. These days a middle class job is defined by the ability to acquire, apply and create knowledge. That doesn't mean coming up with a new theory of relativity. It means coming up with products that "know" when to do something -- like clothing that knows how to adjust to temperature changes, or tires that "know" when they need changing. It means developing knowledge-based production and distribution techniques and knowledge- based services. It means uniting technology with the brainpower and creativity technology can't replace.

The good news is that comparative advantage is no longer defined by boundaries. U.S.-based companies may look to India as a preferred supplier of basic programming. But global companies will look to the U.S. as a prime supplier of knowledge-based skills.

Many U.S. companies recognize that they have to help entry level workers and displaced white collar workers get on the new career ladder. The training budgets of some major corporations exceed those of many universities. U.S. companies are also expanding their involvement in K-12 and college education. Some suggest that this effort must be far more extensive and systematic.

On the other hand, Robert Kuttner, your speaker last year asserted that business can't do it all. He has a point. But the plain fact is that business is the best judge of what's needed to develop a world-class workforce. So business has to exert enough influence over public and higher education to ensure that those needs are met. Otherwise we'll be facing not just a gap between haves and have nots. We'll be facing a gap between people who are looking for jobs and jobs that are looking for people. The cost in terms of wasted resources, lost opportunities and social upheaval will be very high.

This pattern could repeat itself on a global level. The G-7 nations are drawing the blueprints for a Global Information Infrastructure. On the one hand, the GII conjures up a vision of global unity. On the other, it raises the specter of global fragmentation. Predictions are that the GII will bypass half the world. Ironically, the poorer countries that could benefit the most from being part of the GII are the ones in danger of being left out. They present a risk/reward ratio guaranteed to repel rather than attract the massive investment that is necessary.

Much of Africa could land on the wrong side of the have/have not split. The continent has two percent of the world's telephones. The existing telecommunications infrastructure is in such bad shape that major repairs are required before expansion can even begin. The costs will be astronomical. Telecommunications operations are state controlled, poorly managed, and often corrupt. In most countries the political and social infrastructure is in equally poor condition, and rule of law is virtually nonexistent. Recent media reports certainly confirm all of this.

The GII would bring Africa not only economic development, but sorely needed medical and educational resources and a greatly improved quality of life for its citizens. But many of the continent's leaders see the GII as tantamount to re-colonization by the industrialized North, and a threat to their political and economic dominance.

Nelson Mandela has proposed that the International Telecommunications Union become the driving force behind the extension of the GII. Many poorer countries see the ITU as more in tune with their needs than transnational groups dominated by the industrial powers. Under the ITU umbrella, the logical candidates for wiring Africa are global businesses willing to take immediate risks in return for access to the continent's human and natural resources and longer term lucrative markets. For their part, African leaders must understand that outside financing tied to legal, regulatory and structural reforms is their best hope for a linkage to the GII and the global economy.

Business Must Lead

As you have just heard, I believe it is business that must take the lead in taming the global frontier. Business must take the lead in establishing rule of law in emerging markets. Business must take the lead in stopping bribery. Business must take the lead in bringing order to cyberspace. Business must take the lead in ensuring that technology does not split the world into haves and have nots.

There it is still a role for national governments and multigovernmental organizations. But it's no longer the lead role. The feeling of powerlessness created by technology and the globalization of business has created a backlash. Many national governments are vainly trying to resurrect economic and cultural barriers. As a result, multigovernmental efforts to address global issues have become increasingly prolonged and contentious. By the time they produce a solution, the problem they were working on has either solved itself or become much more serious. And five other problems have popped up.

The leadership void left by the public sector is being filled in part by a network of increasingly influential non-govern-mental organizations. These NGOs are issue-oriented and acknowledge no national identity, ideology or agenda. Well established NGOs like Amnesty International and the Nature Conservancy are major movers and shakers on the global scene.

Global business is conspicuously absent from the roster of NGOs. Yet, if you took the combined resources of only the multinational companies in the Caux Round Table, you would dwarf the resources and clout of even the largest and best financed nonbusiness NGOs. It's true that individual companies and groups of companies are attacking global problems, but the approach has been largely ad hoc and random. Training is provided here, development assistance there.

A "superbusiness" NGO composed of large global companies could set the priorities, develop the plans, and marshall the resources required to address global challenges systematically. It could act in alliance with national governments and multigovernmental organizations, national and international business groups, international funding agencies, and other NGOs.

Let me present what I believe is an appropriate vision for a business NGO.

The solutions to complex global issues require the cooperative efforts of business, government and other institutions. Working alone, these powerful players are likely to fail. Working together, they can apply local models to international situations and find multifaceted solutions to complex problems. The partnership developed in many cities where businesses collaborate with local authorities, central government, education, emergency services and special interest groups can be adapted to global initiatives. Although the difficulties in achieving effective collaboration are likely to be daunting, business needs to take the initiative and persevere in this process.

Business needs to consider its role and approach in:

• Developing a coherent strategy for addressing global problems,

• Establishing a constructive business network embracing its principal world centers,

• Developing a dialogue with relevant public institutions,

• Mounting and funding agreed initiatives and action programs, and

• Monitoring and reviewing progress and outcomes.

Not by coincidence, this statement comes from the Caux Round Table's Position Paper. Also not by coincidence, MCCR played a significant part in developing the paper.

I could spend more time explaining why we need a superbusiness NGO. But I don't think this group needs convincing.

It all comes back to personal responsibility. The business leaders represented in MCCR and the Caux Round Table are no strangers to taking personal responsibility for the economic success of their companies and the well-being of their stakeholders and their communities. They just have to enlarge their stakeholder population and expand their concept of community to include the entire globe.

To paraphrase Ben Franklin: If we want to do the work of taming the global frontier, we have to go. There is no one we can send in our place.

Dominic A. Tarantino is chairman of Price Waterhouse World Firm Limited. Tarantino's speech was given at MCCR's Annual Meeting on May 20, 1997. He was introduced by Winston Wallin, Chairman Emeritus of Medtronic, Inc.

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