Wharton Leaders

Governance Issues for Multinational Corporations

While the restrictions and costs of Sarbanes-Oxley Act were frequently disparaged at the Economic Summit, speakers agreed that the ethical considerations facing multinational companies were increasingly complex, notwithstanding onerous U.S. reporting requirements.

“Was there some benefit to Sarbanes-Oxley? Probably yes. Was it an overshoot? Probably yes,” said Arthur Collins, WG’73, Chairman and CEO of Medtronic, at a Friday plenary session moderated by radio host John Resnick. “A huge amount of time on an audit committee or board of directors is taken up on compliance issues without knowing whether it effects ethical behavior.”

He advocated applying a uniformly high set of ethical behavior regardless of local laws. Jon M. Huntsman Sr., W’59, H’96, founder of Huntsman Corp. and a co-panelist, agreed. “To have any policy that varies from country to country would be almost immoral,” he said. “Word spreads if one is ethical. I pulled operations out of one country because bribes were the rule. Huntsman Corp. left, but since then we have never been invited to participate in that behavior in other sites. It’s important to be above the fray.”

If corporations don’t hew voluntarily to ethical principles in regard to financial practice, environmental concerns, and human rights, global regulatory bodies may emerge to enforce those principles, according to Tom Donaldson, Mark O. Winkelman Professor and Professor of Legal Studies and Business Ethics. “The idea of single market regulated and overseen by a global body is fraught with difficulties, but the train is on the tracks,” he said.

Collins commented, “I think it’s a long time in the future where we have one market. It’s a reality that the U.S. will be a significant power in the future but not the only one. We better wake up and deal with it.”

In Rajat Gupta’s earlier remarks, he had professed that the body for global governance already existed. “The common perception in the U.S. is that the United Nations is ineffective, but if we didn’t have one, we would create one,” he said. “It would behoove us to make it more efficient rather than abandon it. The global governance mechanism must evolve, and the UN is at the core.”

He cited the Global Fund — created by the UN but independent of it — as an example of a successful international institution.

Battle for Limited Natural and Human Resources

Speakers identified competition for resources as a factor that threatened growth.

“Society is using natural resources at unprecedented rate, and the demand will continue to intensify,” said Gupta. “How do we sustain the environment and drive robust growth?”

The growing demand for declining natural resources such as water and petroleum will put pressure on another precious resource: talent. Energy supply will not keep up with demand without innovation, and the continual supply of scientists and business minds will be required to produce and commercialize those new technologies.

Michael Milken, WG’70, founder of the Milken Institute, whose keynote address followed Siegel’s at Friday’s lunch, commented, “This century will be defined by the competition for human capital.”

The developed world will be able to grow its economy by continually driving innovation, but it won’t — and can’t — corner the market on innovation. For the global economy to grow, the young population of the developing world — its most valuable of assets — will not just be the hands that produce goods and pocketbooks that purchase them, but the minds that produce innovative ideas and products as well. The prodigious talents in the developing world must be fostered through education as well. Milken said that historically, the countries that invest the most in educating their populations have the most successful economies, and those that don’t suffer.

Milken gave two contrasting examples. In 1960, Singapore and Jamaica were similar — tropical island nations with few natural resources and per-capita incomes under $2,000 per year. Jamaica emphasized an economy based on agriculture and tourism, while Singapore invested in education and technology. Today, Jamaica’s per-capita income has barely doubled, while Singapore’s is more than $31,000.

Already, said Gupta, the battle for talent and labor pools has reduced the limitations of geography. “While there is currently a divide between job categories that have globalized and those that haven’t, the divide is narrowing. The demands of labor have changed.”

In the developed world, the battle for talent and commodification of many goods means cultivating and retaining the brightest employees to stay competitive. Said Joel Cantor, WG’89, CEO and Founder, Gulf Atlantic Real Estate Companies, at the “Competitive Strategies” panel, “Differentiation of products and services is essential. How do you come up with an exciting product so consumers will pay higher margins?” In Cantor’s business of real-estate development, that means producing unique designs with dramatic architecture and innovative mixed-use plans.

“Smart people are a dime a dozen,” says Cantor. “What matters is creativity. It’s a challenge in real estate to make the product stand out, and we have a constant need for creative people who can do that.”