Corporate Governance at the Crossroads

Why the rise of China’s and India’s mid-sized cities is a conundrum for the green economy movement

When archaeologists recently announced they had just discovered the ape-like remains of our primitive ancestors in South Africa it was hailed as homo sapiens’ “missing link” – the genetic bridge between modern humans and our older less evolved predecessor. Yet perhaps it was not the only missing link to be found in 2011.

As a panel speaker at the 11th International Conference on Corporate Governance convened by the Institute of Directors India and the World Council for Corporate Governance in London during October, it was refreshing to hear how leading Eastern business powerhouses like Tata are shaping new international best practice on corporate responsibility. What was most striking was the recognition that this shift in world GDP away from the West and toward the East and South brought with it new obligations for them in terms of the well-being of the rest of the planet. In particular, whether sustainable economic growth was possible and what the implications of this for corporate governance could be.

Developing a number of scenarios over the next decade, my conference paper looked beyond populist issues such as integrated sustainability reporting, to propose that a major source of risk and conflict will be the interface between the green economy and urban development. That is, like with eco-labelling in the 1980s and social audit in the 1990s, if things go badly with the transition to a green economy, it is big business which – wrongly or rightly – will be blamed for its failing. More specifically, big business could find itself in the unenviable position of being accused of “asset stripping” communities.

How so? Well, let us start with a few facts about population shifts and trade patterns. According to the McKinsey Global Institute cities account for 53% of global population, 80% of global GDP and so produce 75% of global CO2 emissions. Consequently, a new generation of public-private partnerships (PPPs) are emerging to help deliver major low-carbon urban infrastructure to ensure economic growth is as green as possible (e.g. rapid surface transport, district renewable energy schemes and smart grids, etc.). By 2025 says the Institute “mega cities” (a population of more than 10 million inhabitants) like New York and Paris will be yesterday’s news, as migration means the momentum switches to “mid-sized cities” (a population of between 150,000 and 10 million inhabitants) in China (e.g. Guiyang), India (e.g. Surat) and Latin America (e.g. Cancun). Naturally, companies will follow the trade, bringing with them much-needed new skills and investment. So far, so good: everyone wins? Or is corporate governance lagging behind?

I would argue that big business is repeating the errors of the past if it does not consider more fully how this new wave of “low-carbon urbanisation” PPPs are best governed. After all, these energy and water and transport-related projects are huge, affecting the lives of millions. So, for instance, are costs and profits shared fairly? Will this help alleviate poverty? Does this lead to an upgrade in local skills and long-term well-paid labour? Who owns the intellectual property rights? How flexible are these multi-general contracts?

In solving this conundrum, any green economy movement needs to bring together big business (e.g. BT, Cisco, GE, IBM, Phillips), respected parties from the OECD and UN, with elected city majors, trade unions and NGOs in order to map out how these new PPPs are to be designed and monitored. This way we can best understand who the winners and losers really are, and how to smooth the transition to a green economy.

In short, this is about being pro-business, but anti-weak governance. Business after all is only a reflection of society, at its best and at its worst. The smartest business leaders will intuitively understand this.

An article by Philip Monaghan, October 2011

Sustainability in Austerity Philip Monaghan is a writer and strategist in the fields of economic development and environmental sustainability. He is Founder & CEO of Infrangilis and the acclaimed author of the books How Local Resilience Creates Sustainable Societies (out February 2012) and Sustainability in Austerity (2010).

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