How companies like the NBA could benefit from ‘corporate diplomacy’

What is your explanation of why the NBA, or Blizzard, or any company in this position right now, cares with so much weight what Chinese customers think of their brand?

Looking ahead, China is a huge source of potential growth, and all these companies are getting valued not just on what they’re selling today, but what they will be selling in five years, 10 years. Access to the Chinese market is part of their business model [and] business plan, and something they’re really counting on.

Why do you think U.S. brands are so protective of Chinese customers but not necessarily Canadian or Mexican customers, even though they’re bigger export markets? I don’t know that a company would have the same reaction.

It’s about future customers, not current. You have to look at the growth market. That’s one factor. The other is that I don’t think Canada and Mexico would react similarly; there’s certainly some Mexican customers sensitive to companies invested in or selling to immigrant detention facilities. Those companies are probably facing lost sales in Mexico. 

You have to understand how core this is to the Chinese national identity. I’m not trying to excuse what they’re doing, but I’ve had discussions in my class with Chinese nationals who say, ‘You just can’t understand the importance of centralized control. If things get fragmented and the party loses control, it could be chaos, it could be civil war, it could set China back decades,’ and they’re taught that from elementary school on. The power of stability, of control. And this is something that’s very core to their identity that they feel threatened by, and don’t really tolerate dissent or open voice. I can’t think of anything close to that in a Canadian or Mexican context.

From the company perspective, what are key considerations that, say, Blizzard would have to look at when weighing options of revoking prize money for the winner’s Hong Kong support, as they did? You have the DIPLOM (Due Diligence; Integration; Personal; Learning; Openness; Mindset) framework in your book. How does it fit into that?

On one level, you have to look at how much money and potential revenue you’re getting from people who are more sympathetic to Hong Kong, and people who are more sympathetic to the [mainland] Chinese perspective. This is essentially a financial calculation. There are some companies not selling in China, or who have strong ties to Hong Kong, who can come out on one side of this or another. Most companies find the mainland China market dominates, so that cost calculus drives them toward what the Chinese want, or saying what they want, and I think that’s really problematic. 

I think there’s a limit to the corporate diplomacy framework which focuses on this financial case. I highlight that there are a lot of win-wins where you can pursue values and value, but this is a case where, if you do the financial calculations, you might censor free speech, and I wouldn’t feel great about that. I think this is a moral or ethical point about speech or rights that goes beyond the simple cost-benefit calculation at the heart of corporate diplomacy.

Early in your book, you say that even though the framework exists for corporate diplomacy, few companies execute it well. Why do think that is?

Because it’s so cross-functional and requires coordination among sales, operations, finance, government affairs, marketing—these are silos that don’t typically talk well to each other or collaborate. So, I think it’s really hard to get these people in the same room and on the same page. They’re all working on their own problems in isolation and it’s a real challenge to collaborate and come together, and I think that continues to be true.

Thinking about the corporate diplomat, is that a role that will become increasingly more common as we go forward?

I’d like to think so. It’s exactly the kind of person who would have given more sensitivity training to employees of the NBA, and owners of the NBA about what the cost-benefits are of coming down on this, and it’s the person who connects the dots across those functions and makes sure that it speaks in one voice or at least has thought through the issues.

It seems like it’s similar to when a politician hires an ethics person. They’re paying them to tell them what they don’t want to hear. I imagine that has to be tricky for businesses to reconcile that.

Well, it can be what you don’t want to hear, but, alternatively, a pathway to avoiding risks or maximizing gains. For example, I think that highlighting how many jobs you’re creating in the U.S. is a political strategy and one that can pay off to foreign companies. Paying attention to politics is not always a negative. It’s not just about staying out of markets or controversy. There is a lot of focus on risk-avoidance, but there’s also real opportunities for revenue growth.

For a company like Blizzard right now, what is a good next step for them to remedy their new brand problems? They have a whole bunch of new game reveals … their strategy seems to be to overshadow the negative publicity with those. But is that a sound strategy?

I think a lot of this is up to China right now. If China wants to keep using them as an example, I’m not sure there’s much they can do. Lay low, focus on their product, try to reach out to various parties in China with whom they have ties and ask how they can help—what quiet wins they can have in the coming weeks or months. But if China wants to maintain them as an example, they’re really stuck. The NBA, and Blizzard, and a few other recent examples are just warning shots across the bow, and tensions will soon dampen down and, unfortunately, going forward, there will be more self-censorship by U.S. and foreign companies, and fewer instances of outrage by China. Not that that’s a good outcome, but if I was a company in the U.S., that’s the best I’d hope for. Be a little more careful about what we’d say and still have access to the Chinese market.

Is there such a thing anymore as a corporation that’s not multinational? Should they all be behaving as if they are a multinational?

There are plenty of companies that don’t depend heavily on exports. So, many local service providers and local labor providers. They are still always going to be here. But there are a growing number of companies, especially in the tech and media space, that imagine themselves as having a global footprint even if they don’t really think through the implications. I think one of the best places to see the influence of things you’re talking about in a sophisticated way is in Hollywood and the extent to which Hollywood movies have really self-censored. You don’t see many Chinese bad guys or even movies that question the primacy of the Chinese Communist Party or the role of China in Asia or Africa, anything that would rile up China is self-censored in blockbuster movies. It’s astounding. There’s a limited number of films that get allowed access to China each year and that’s a huge customer base for Hollywood movies and they all want to be on that list.

Isn’t China going to control the message anyway whether a company is anti- or pro-China or not in their behavior? 

China also wants access to Western technology; they don’t want to be completely cut off. It’s not as if they want to build a wall and not let anything in, they just want to let things in on their terms. China is trying to get us to accommodate to [self-censoring], and if people aren’t willing to self-censor, they’ll have real problems and issues back home in terms of access to technology, products, and services. They want to push us, but not push us so far that we won’t self-censor or concede. They have control but not unlimited control. There is a point in which U.S. companies will just say no. ‘OK, we’ve got to rewrite our models and look away from China.’ That’s already happening, to some extent. You are seeing some reallocation of jobs away from China, supply chains away from China, because of the trade war. There already is a recalibration going on, but the question is, ‘How far will it go?’

There’s clearly someone in the room at any of these companies that can say, ‘By revoking prize money, you’re risking your entire brand identity in the process.’ It’s stunning no one would think better of it.

I think the problem is that the people with the political acumen and political skills don’t often have the authority or respect. So, you get these knee-jerk reactions from people closer to the problem. So, closer to the costs or closer to the lost revenue. And so that lack of corporate diplomacy, of integrated political function—there’s a recent whitepaper I wrote for EY, the consultancy on political risk management, and it really gets at this. EY-Wharton just launched together a Political Risk Lab, funding research on political risks we’re doing here at Wharton, and we wrote both a punchy online version and a PDF version that’s more detailed, but it really says there’s this missing function that’s bringing together people across all these different units and training them about the impact of politics across the business. That doesn’t really exist in that many places.

Who is the ideal candidate to consider hiring a corporate diplomat and give your book a look about this sort of thing?

I think what’s important is they not be someone with a government affairs background or political background. That’s what too many companies have done—they’ve relied on someone who doesn’t understand the business. To come in and manage the fires, to manage the relationships. What you need is someone who is part of a general executive rotation. If there’s a fast-track to get into the C-suite, that takes you across operations to mass marketing, where you get up to C level. It should include government affairs, public affairs. Those are increasingly central and strategic functions for a company so they have to be part of a standard executive job rotation. Everyone coming out of Wharton, everyone coming into companies, should have this experience. There are certainly going to be specialized people working under them. But at the senior level, top management teams need to have experience in corporate diplomacy … and not just rely on a subject matter expert. As soon as someone says, ‘We just rely on our subject matter expert or on our consultant,’ I know a company has or will soon have a problem like the NBA or Blizzard.