Ball, George W.

Knortz, Herbert C.

English

eGrove (Univ. of Mississippi)

University of MississippieGroveTouche Ross Publications Deloitte Collection1975How to control the multinationals: A Question anda responseGeorge W. BallHerbert C. KnortzFollow this and additional works at: https://egrove.olemiss.edu/dl_trPart of the Accounting Commons, and the Taxation CommonsThis Article is brought to you for free and open access by the Deloitte Collection at eGrove. It has been accepted for inclusion in Touche RossPublications by an authorized administrator of eGrove. For more information, please contact egrove@olemiss.edu.Recommended CitationTempo, Vol. 21, no. 1 (1975), p. 34-35HOW 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 eco-nomic life of the foreign countries in which it does busi-ness? Can a national government be expected to sit calmly whi le 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 wi th in 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 jurisdic-t ion. In other words, we provided an overall central au-thority. But when a multinational company operates away from its country of domicile, there is no international au-thority 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 denational-ize our wor ld companies—charters under which corpora-tions would become accountable to an international com-mission charged with the enforcement of an international companies law. By accepting such accountability, the in-ternational company would gain the protection of certain explicit constraints that would define the power of sig-natory states to interfere wi th 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 wi th this question—before nation states impose their own solu-tions at the local level. For that way lies chaos. The unique genius of the multinational company depends on the inter-national mobil i ty of all factors of production. Restrictions or conditions unilaterally imposed by national govern-ments can only destroy the special values that such a com-pany offers. Yet we wi l l pay a heavy price if we do not f ind 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 util izing 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 t ime when we are to understand that the world's raw material reserves are shrinking, we had better do whatever is necessary to pre-serve the multinational company as an instrument for effi-ciently 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 ap-pears to have been pre-judged and erroneously concluded. Indeed, one wonders whether "con t ro l " is the proper medicine for the patient in question. However, if we as-sume that control is essential, in what form might that con-trol 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 or ig in" would not fo l low its corporate citizens into new areas of the wor ld . 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 Commu-nity. 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 wi th in 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 wi th 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 Recently two men esteemed in the business world pointed up one of the issues mentioned in Ian Bell's article on page 11. Should multinational corporations be controlled by the countries in which they do business, and if so, how? George W. Ball, former Assistant Secretary of State, spoke at the Harvard Business School Club of New York. Herbert C. Knortz addressed a symposium at the University of Virginia School of Law. The following are excerpted from their talks. that present political institutions are too narrow. There are indications that a universal wor ld needs an economic agency which reaches beyond the rule of individual coun-tries. Other structures of society are internationalizing, and perhaps it is time that there be a wor ld organization which wi l l regularize operating discipline and encourage high moral standards in international business. Various procedures currently exist for the investigatory review of many facets of international business. The exist-ing system of reviews might be expanded to cover such things as publication of financial statements, disclosure of interlocking directorates or agreements, public reporting of imports and exports, existence of monetary guarantees As the western world talks about the potential impact of a recession, the nations of the Middle East are experienc-ing a business boom. Surplus funds accumulating from the huge oil revenues are creating an Arab renaissance in trade and commerce. The Arab states that wi l l benefit are Lebanon, Syria, Jordan, Egypt, Iraq, Kuwait, Bahrain, Qatar, Oman, the United Arab Emirates, and Saudi Arabia. The latter seven states and Iran are the oil producers. Wi th such revenues available to develop the area, these nations have won the interest of business people through-out the wor ld. In putt ing an additional $65 bil l ion a year to work, the Arab countries are giving top priority to in-dustrial and agricultural projects on a massive scale. In this boom, both industry and agriculture wi l l be bottlenecked by shortages of skilled people. The Arab business community wi l l need the services of consultants, personnel training firms, and middle managers. Number one in the Middle East as far as requiring a business infra-structure is Saudi Arabia. Because of its in-ability to absorb the expenses of its annual budget, it would welcome, at a price, any services offered to it by the international business community. The second country which is of great promise in the Middle East is Iraq. It has a well-balanced and structured economy. It has oi l , water, vast areas of fertile agricultural land and is rich in mineral resources. The third country of promise is the United Arab Emi-rates, which is a federation of several emirates: Abu Dhabi, Sharjah, Ras El Khaimah, El Fujarah, Ajmam, and Um El for continuity of employment, registration of patents and licenses, and the nature of various funds for pension, train-ing, and medical benefits. In general, such "openers" would not be opposed by the multinationals. An international consulate service staffed by knowledge-able internationalists has been suggested. It could review and subsequently intercede wi th national governments to protect or comment on the business rights of the multina-tional trader. The multinational corporation customarily accepts responsibility for maintaining high standards of moral conduct and of economic efficiency. It asks only that it may proceed in a disciplined and effective manner to accomplish its mission in the wor ldwide community. & Quaiwam. United Arab Emirates recently has been ex-panding its oil explorations, and its discoveries are at a rate which would render the other countries envious. This country wi l l need to import manpower, and even residents, to utilize its enormous wealth. Lebanon, which has no oil resources, is one of the Arab countries which has enjoyed political stability. Its econ-omy is run by the free enterprise system. It has an effective bank secrecy law and is becoming the financial and busi-ness center of the Arab wor ld. These countries of the Middle East, which are financially wealthy and materially poor, need to translate their oil and paper wealth into capital and consumer goods and proj-ects. All this, together with either a very moderate taxation in some countries or no taxation at all in others, makes business opportunities in the area unlimited in scope and diversification. Moreover, the Arab government's attitude to private business varies from virtual non-intervention, as in Lebanon and Dubai, to moderate centralized planning, as in Syria and Egypt. It is up to the industrial nations to offer the Arabs items that they would be wi l l ing to accept. Offers of genuine basic industrial projects, technology, export-oriented in-dustry, and agricultural development projects would cer-tainly be attractive to them. Foreigners planning to enter and do business in the area should be advised to enter the market with a local partner to be totally secure. The local partner offers markets, cheap labor, and capital, whi le the contribution of the foreign partner is technology. & WHAT ARE MIDDLE EAST BUSINESS OPPORTUNITIES? By ADIB Y. KHOURY, Director, Touche Ross International, Lebanon 35 

How to control the multinationals: A Question and a response

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