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HOW TO CONTROL THE MULTINATIONALS A Question and a Response By GEORGE W. BALL Senior Partner, Lehman Brothers How legitimate is the power of a multinational company to make decisions that have a measurable impact on the economic life of the foreign countries in which it does business? Can a national government be expected to sit calmly while an absentee corporate management 5,000 miles away is able, by its decisions, to affect the prosperity over which that government presides? We solved this problem of legitimacy within the United States by interpreting federal regulations to govern the practices of a Delaware company, for example, whether it be operating in Texas, Wisconsin, or in its own jurisdiction. In other words, we provided an overall central authority. But when a multinational company operates away from its country of domicile, there is no international authority to which it must be accountable. Governmental intervention at the local level offers no solution, since it usually impairs the ability of the company to deploy its resources freely. Yet, when either a domiciliary or a host government tries to extend its jurisdictional reach beyond its own boundaries, conflict and confusion is inevitable. I suggested in London seven years ago that we give thought to creating an international authority with the power to issue charters that would effectively denationalize our world companies—charters under which corporations would become accountable to an international commission charged with the enforcement of an international companies law. By accepting such accountability, the international company would gain the protection of certain explicit constraints that would define the power of signatory states to interfere with its operations. This was a far-out suggestion intended not for today but for the day after tomorrow. I had nothing more in mind than to inject one more idea into the teeming marketplace of theory and controversy. Certainly, what I proposed was not the only way to approach the emerging predicament. But, sooner or later, we shall have to come to grips with this question—before nation states impose their own solutions at the local level. For that way lies chaos. The unique genius of the multinational company depends on the international mobility of all factors of production. Restrictions or conditions unilaterally imposed by national governments can only destroy the special values that such a company offers. Yet we will pay a heavy price if we do not find a way to safeguard those values—because the multinational company, as it is now developing, is quite clearly the best mechanism anyone has so far suggested for utilizing all of the world's resources efficiently. That is a point even the most xenophobic among us can no longer afford to overlook. At a time when we are to understand that the world's raw material reserves are shrinking, we had better do whatever is necessary to preserve the multinational company as an instrument for efficiently using our finite stock of resources. Otherwise, we risk a Malthusian debacle on a global scale. By HERBERT C. KNORTZ Executive Vice President and Comptroller, ITT The case for control of the multinational corporation appears to have been pre-judged and erroneously concluded. Indeed, one wonders whether "control" is the proper medicine for the patient in question. However, if we assume that control is essential, in what form might that control become operative? There are several possibilities: a) National Rigidity. The host country would look upon a multinational corporation as a second-class citizen, and through such restrictions as tariff walls, credit penalties, labor union constraints, and industry limitations force out all but the most efficient multinational practitioners. b) National Tolerance. It is possible to conceive a form of control that would treat a multinational corporation as a complete citizen of the host country. The multinational "country of origin" would not follow its corporate citizens into new areas of the world. Multinational corporations would probably like to operate in this atmosphere. c) Expanded Supervision. Under this concept, rules and regulations would be established by groups of trading partners, as illustrated by the European Economic Community. The difficulty is that the regional groups derive power only to the extent that their regulatory desires are duly supported and legislated by the national members. d) Preliminary Review. A multinational seeking to enter a country or a line of business within a country would be required to submit its approaches to a reviewing agency for approval—such as in Canada and Argentina. e) Control by Penalty. The multinational would be on record with a specific program covering such items as the number of employees, a relationship between sales price and government price indices, and the maintenance of specific capital ratios. Escrow bank deposits could insure the availability of penalty remittances. Actually, there is some evidence that it is not that the multinational corporation is unnaturally large, but rather 34
How to control the multinationals: A Question and a response
Ball, George W.
Knortz, Herbert C.
International business enterprises -- Management
Tempo, Vol. 21, no. 1 (1975), p. 34-35
|Source||Originally published by: Touche Ross, & Co.|
|Rights||Copyright and permission to republish held by: Deloitte|
|Format||PDF page image with corrected OCR scanned at 400 dpi|
|Collection||Deloitte Digital Collection|
|Digital Publisher||University of Mississippi Library. Accounting Collection|