Why global firms like Sony have to mind their own diplomacy

Sony Pictures Entertainment began on Thursday a web release and limited screening in US theatres of the satirical movie, The Interview. This follows threats from hackers of attacks against any cinema showing the movie, whose fictional plot includes a plan to assassinate North Korean dictator Kim Jong-un.

This latest twist in what has become an international diplomatic incident follows a significant cyberattack on Sony Pictures Entertainment, allegedly by Pyongyang.

The incident has put Sony Pictures Entertainment, the US subsidiary of Japanese-based Sony, in the international diplomatic spotlight. First, the firm was condemned by Pyongyang for making the movie, which it claims undermines the "dignity of [the country's] supreme leadership".

Second, US President Barack Obama and others in the political and artistic communities have criticised Sony Pictures Entertainment's original decision to postpone, or possibly cancel, release of the movie because it appeared to give in to the demands of the cyberattackers. Obama said: "We cannot have a society in which some dictator someplace starts imposing censorship."

This intriguing episode underlines the potential for business decisions, whatever their motivation, to become intertwined with foreign relations among states and companies. In effect, the traditional public-sector concerns over public policy and private-sector concerns over corporate affairs become blurred in sometimes thorny issues in politics, human rights and/or the law.

To be sure, this is nothing new, but it appears to be increasing in incidence and salience. This is driven in part by globalisation, and also the growth of key industries, including new technology.

For example, during the Egyptian "revolution", which overthrew Hosni Mubarak from power, the regime forced some telecommunications companies to temporarily shut down their networks. Also, Google and Twitter collaborated on a "tweet to speak" programme that was used as a platform by some anti-Mubarak protesters.

Last year, Google unintentionally sparked a diplomatic row when it changed the name on its "Palestinian territories" home page to "Palestine". The move prompted an immediate Israeli government complaint. Israeli Foreign Ministry spokesman Yigal Palmor asserted that "Google is not a diplomatic entity, which begs the question why they are getting involved in international politics and on the controversial side".

To be clear, new technology firms are not alone in experiencing issues from working with diverse political authorities across the world. Indeed, internationally focused companies in many other industries, ranging from energy and resources to fast-moving consumer goods, have long been confronted with challenges.

In this complex (sometimes uncharted) territory, firms and indeed entire industries can attract high profile scrutiny. For instance, members of the European Parliament passed a resolution in February 2010, following the disputed Iranian presidential election of 2009, that called on EU institutions immediately to "ban the export of surveillance technology by European companies to governments and countries such as Iran".

To be sure, various international codes of conduct, including the UN Guiding Principles on Business and Human Rights already exist and reinforce the corporate social responsibility practices of individual firms. However, some of the most enlightened companies have recognised the need for a more decisive shift towards what is termed strategic corporate foreign policy.

Corporate foreign policy aligns a firm's external affairs activity - including media relations, risk management, corporate social responsibility, government affairs and operational planning - in a clear, strategic framework.

Examples where firms occasionally have gaps include horizon scanning to anticipate and plan for social, economic and political opportunities and risks. Firms may also need clearer internal guidance in decision-making, protecting stakeholders (including customers), and/or remaining faithful to corporate values.

The relentless march of globalisation, with the interconnections it brings, means that few international companies will escape these pressures completely. And owing to proliferation of media and the influence of civil society and related stakeholders, the actions of firms are increasingly under the microscope.

For companies that are pro-active and invest in their capability, the prizes (both in terms of mitigating risk and seizing opportunity) can be significant. And for those that are perceived to misstep, the fallout can be increasingly damaging, both for their reputation and also for the financial bottom line.

Andrew Hammond is an associate at LSE IDEAS at the London School of Economics. He is a former a special adviser to the British government