Some Responsibilities Of International Business

COLONEL ROYCE:

Reverend Sir, distinguished guests, gentlemen

Samuel Johnson, when asked by a lady why he defined pastern as the knee of a horse in his dictionary, replied "Ignorance, madam, pure ignorance"-I should like to set this up as a defence for any errors I may make regarding the manufacture, use and nature generally of nickel.

The encyclopedia tells us that nickel obtained its name because the copper and silver miners in Saxony found that ore containing this substance gave them a great deal of trouble and when smelted produced a brittle, unfamiliar product which they called kupfernickel after old Nick and his mischievous gnomes and when a man named Cronsted isolated nickel itself in 1751, he applied the name of kupfernickel or copper nickel--since abbreviated to nickel, the word which we use today. As you will be aware, Canada is a leading producer of nickel in the world and the International Nickel Company is, of course, the largest producer in Canada by a wide margin. It is, I think, safe to say that without nickel, iron and steel in its various forms would be much less useful to us and, of course, some 70% of all the stainless steel produced has a nickel content.

The Company of which our speaker today is the chief executive has, even in the last ten years, made a capital investment of more than half a billion dollars while outlays for research alone run some $15,000,000 per annum. Payrolls in Canada exceed $150,000,000 per year and more than $300,000,000 in foreign exchange is earned annually by International Nickel.

Many of you in this room are well aware of the tremendous contribution the Company makes to Canadian industry but, as the name implies, this is an international company and while its principal operations are in Canada, it also operates in a number of other countries. Our speaker will have something to say in a moment regarding the manner in which International Nickel discharges its responsibilities in Canada and elsewhere but it seems necessary at this time that we recall the estimates made not so long ago that Canada would require to import approximately 20% of her capital requirements if she would maintain an acceptable rate of growth over the next fifteen years. This seems to me to be the crux of the matter. We are not able to produce enough capital to finance our own developments-we should neither be ashamed of this nor too apprehensive for the same pattern has been followed by countries such as ours for many years. Over the years other countries in the same position have reached acceptable compromises with those providing capital and have preserved their sovereignty in the process. I have no doubt that Canada will manage this as well. Unfortunately, our recent behaviour is reminiscent of the situation described by one of the restoration authors who wrote of the case in which a young man is found in bed with a lady of flexible virtue when her husband appears. The husband says "And what are you doing here, sir?" Whereupon the lady turns and says "Yes, what are you doing here?" And rising from her couch she assists her husband in kicking the young man downstairs! In view of the efforts made to attract investment from outside the country in the post-war era, the comments made recently by a number of people--some of whom should know better--might well confuse our friends in other countries.

Our speaker today is the Chairman of the International Nickel Company of Canada and has been with the company since 1935, moving through the various posts from assistant secretary to director, vice-president and in April, 1960, chairman of the board and chief officer. Mr. Wingate has a multitude of directorships and, in Canada, is a Director of the Bank of Montreal and the Canadian Pacific Railway Company. A patron of the arts, he is also deeply interested in good works of various kinds. He is a Director of the Public Health Research Institute of the City of New York, the American Hospital of Istanbul, a Trustee of Carleton College, Northfield, Minnesota, and of the Annuity Fund for Congregational Ministers. He is a Member of the Congregational Board of Ministerial Relief. Active in a wide number of organizations, he is a Member of the Council of the Association for the Aid of Crippled Children, a Member of the Canadian-American Committee of the National Planning Association, the Canadian Council of the National Industrial Conference Board and the Canadian Institute of Mining and Metallurgy to name only a small fraction of his responsibilities. Our speaker was born in Turkey where his parents were missionaries. He graduated from Carleton College, Minnesota, and the University of Michigan Law School.

Gentlemen--may I present Mr. Henry Smith Wingate, learned in the law, a patron of the arts, tireless in charitable endeavour, an executive of international reputation and unexcelled eminence in the field of business.

MR. H. S. WINGATE:

It is a great personal, as well as corporate pleasure, to appear before such a distinguished group. Canada is our home-and we are proud of it. For sixty years all of our mining and smelting operations and the great bulk of our employment have been here. But Inco's markets are mainly outside Canada. Of necessity, more than a good bit of our operations and activities are and must be in other parts of the world. Also, while we are exploring heavily in Canada, our search for resources has taken us to other parts of the world, and as time goes on, we expect to have sizeable operations there as well as expanding Canadian operations here. Precisely because we are a Canadian-based international company--because Canada is our home--we believe we have a special obligation from time to time to share with our friends our thinking on how we are carrying out our operations, not only here, but also away from home. I appreciate the opportunity you have given me today to do just that.

Specifically, I want to review some of the problems and responsibilities of international business. In doing so, I am naturally going to reflect the thinking which arises from our experience and which guides my own company's operations. But I feel that the subject is of interest to business leaders and, indeed, to the wider public.

This interest stems from the fact that we live in a world where, increasingly, all business is becoming international in scope. How effectively business performs in this broadened role certainly will have a great deal to do with its own success. But I anticipate it will also have a great deal to do with shaping the course of our children and those who follow them over the next several decades.

I do not think that this latter suggestion is too extravagant an expectation. It is widely acknowledged that the direction taken by the less-developed countries in Latin America, Asia and Africa will be profoundly influenced by their success or failure in fulfilling their hopes and their expectations, and that investments and fresh energies flowing in from outside sources must play a very large role in this. Similarly, the cohesion and strength of the Western world will be greatly affected by whether we can continue to advance economically and whether at the same time the gap between the richer and poorer nations can be narrowed significantly and progressively without sacrificing human dignity and authentic national interests. In these significant and perhaps fateful tests of our Western political and economic system, international business will play an extremely important role.

Viewed on the basis of more ordinary self interest, the readiness of business managers to look beyond national borders is bound in the years immediately ahead to make a considerable difference in the growth curves of individual enterprises. No large business organization can afford today to turn its back on the world even if it has a continental market at its door. Nor can any firm rest content with traditional methods because "we've always done it or made it this way." We are in an era of rapid change. The future belongs with those who see and understand the relevant new factors and act accordingly.

There are important truths which are sometimes concealed by familiarity. So at some risk of labouring the obvious, may I touch briefly on two basic respects in which the modern world is different from what it was when we entered World War II.

In the first place, although it is deeply divided politically, the world has become very much of a geographical entity. Transportation and communications advances have shrunk distances to a fraction and have drastically intensified our contacts with other nations-and other cultures.

The second, but perhaps not fully appreciated force at work in our time is an acceleration of the pace of events. Since the beginning of World War II, world political power has been thoroughly redistributed. The Thousand Year Reich and the Empire of Japan have vanished. The two great power blocs have inherited the arena, and Red China is rising to complicate further the calculus of relations with the Communist world. Meanwhile, since 1950 alone, 49 new nations have come into being and have staked a less than silent--less than patient--claim for political and economic attention--a claim which is being vigorously joined by other developing nations around the globe.

There probably has never before been a period of comparable turmoil and achievement. Most of us would agree that the cumulative impact of technology, the increasing diffusion of knowledge, and the political forces unleashed by the war itself have all been contributory factors. But the reasons are less important, I think, than recognition of the vital fact that the tide of events is moving powerfully and with great rapidity. It is doing so not only in great affairs of state but in the ambitions and hearts of men everywhere, including those in the business world.

Interdependence is increasing, and it is going to keep on increasing. At the same time, the margin between today's solutions and tomorrow's problems is decreasing. Recognition of these trends and the enormous speed at which they are moving is as much an imperative of business leadership as it is of world political leadership.

The central task of those of us in business remains what it has been throughout the modern era--to find profitable ways of linking resources in one place with markets in another, to assemble and put to work capital from willing individuals and institutions wherever they may be located, and to attract people with the necessary skills and talent from wherever they are to wherever they are needed.

The central task remains unchanged, as I have said, but it has grown considerably more complex. Increasingly, the linkage is between resources in one continent or country and markets in another. Increasingly, investment capital flows across national borders, and the ownership of international industry is shared by a large number of individuals and institutions in various countries. Increasingly, technical know-how, the ability to efficiently organize an operation and the will to take decisions and get things done must be transported to project sites far from home.

The resulting complications present certain very serious problems for the international businessman, and some of them are different in kind, not merely in degree, from the familiar problems of domestic business.

For while throughout the adult lifetime of all of us here, it has been part of successful business performance to try to reconcile the interests of various groups of people with different expectations and different needs, a great many new factors enter the equation when a corporation begins to operate in more than one national environment.

Necessarily, the international businessman seeks to base his decisions primarily on sound economic grounds in order to survive and achieve a maximum degree of efficiency, growth and stability for his organization. Yet he must face up to hard problems, such as the one arising when a facility in a small, developing country with only a few industries is merely one unit out of a number of units of the international company in all countries; and when the success of the operations of that single facility may be far more important to that country than the importance to another country with many industries of the international company's similar facility there.

National interest and aspirations sometimes give rise to demands which are inconsistent with ordinary essentials of efficient management. Particularly when international businessman ventures outside of the Atlantic Community, it is frequently dangerous for him to assume that we will encounter sufficient or timely recognition that the free enterprise system is of great service to society and that interference with business decisions should be held to a minimum. In many areas of the world, private enterprise-particularly if it has a foreign nationality-is viewed as a specially selfish interest whose motives are suspect and whose every action must be closely watched.

Because this attitude is so often met, international businessmen sometimes respond with exasperation to assertions of national interest which conflict with their own business judgments. Without denying that there are occasions on which this exasperation may be fully justified, I think it is also important to acknowledge that national needs, national goals, and national customs are very serious and legitimate forces--and they have a proper claim for recognition from any businessman in any country in which he operates.

Some of the problems that grow out of the difference in viewpoint, dependent on whether one looks at a problem from a strictly national view divorced from business realities, or from a strictly business view divorced from national realities, can be difficult to reconcile. I think it is worth mentioning several of the problem areas because this will suggest how crucial it is to achieve some sort of solution.

For example, it is essential to a business to have assurances of the amortization of its investment and withdrawal of profits not needed for modernization and expansion. Yet many new or underdeveloped countries are desperately short of foreign exchange as well as of capital and quite understandably welcome the inflow but not the outflow of funds-quite understandably they may lose sight of the fact that the inflow was dependent both on development of the outside market as well as on the domestic production.

Balance of payments problems can be a source of difficulty likewise to the capital-supplying countries so that the desires of international corporations to respond to overseas opportunities may conflict, as in the United States, with efforts there to restrict direct investment outflows so as to minimize its immediate adverse balance of payments.

From the standpoint of an international corporation and its success in launching the foreign venture, it is important to bring in needed technical and managerial personnel and to import such specialized equipment of its own choosing as may be required for a particular project. On the other hand, some countries are understandably impatient to have their own experts trained and placed in well-paying positions immediately.

I think that you will agree that these illustrative but incomplete items of opposing considerations are very real, and that in each case there are legitimate interests and considerations on both sides.

Reconciling these considerations is--to put it mildly--no easy task. Indeed, a thorough reconciliation is probably not possible, though with respect to individual problems there are steps which would clearly alleviate the principal difficulties. For example, over a period of years a corporation which works hard at the task can certainly train large numbers of local technicians and local managers, some of whom may rise to positions of authority, not only in the local subsidiary, but in the parent firm. Similarly, local capital when it exists can be given an opportunity, either through stock purchases or other appropriate means, to participate in the ownership of the local enterprise or of the parent firm.

But the problems I have outlined vary in their tractability. Some of the more difficult problems do not appear to lend themselves to a single solution or even a set of solutions. But this does not mean that they are unsolvable.

So long as each group and each interest make an effort to understand the other's essential requirements, and so long as each is willing, as exigencies allow, to adjust and to compromise, I believe that some form of accommodation will generally prove to be feasible.

Obviously, this spirit must be mutual. But from the viewpoint of international business, it seems to me that there are several basic principles of operation which will aid materially in developing a climate for understanding. These are the principles, incidentally, that Inco attempts to follow in its international operations:

First, projects must be planned on a long-term basis and must be of benefit to the nation involved and its nationals, as well as the company. The quick profit simply cannot be the foundation of a successful international business operation; a proper objective is profitability resulting from stabilized operations through the years. Furthermore, mutual benefits must be implicit in the approach. Just as a corporation cannot initiate or continue an operation which is destined to be unprofitable, so no country with power over its own affairs can be expected to offer its hospitability to a firm which offers no hope of making a long-range contribution to national interests. Once a commitment is made to a long-term effort with shared benefits--a commitment attitude as well as resources--a number of subsidiary developments necessarily follow and fan out, involving the establishment of lasting relationships with local people, local industry, and local communities. These are bound to improve the prospects for systematic understanding.

Second, as businessmen we must recognize that ultimately our success is dependent upon the support of the society in which we operate. Continuation of the right to engage and try to succeed in business ventures may depend crucially on our being acutely sensitive to local public opinion in fields which converge upon our business judgments. We must have a due appreciation of the public consequences of our actions. Within the limits of sound business practice, we should be prepared to explain to the public what we are doing and why. It is imperative to recognize that when a business organization achieves a certain level of economic significance or visibility, it becomes subject to a substantial measure of public curiosity and concern. To the extent possible, we should be prepared to talk candidly to a wider audience than the conventional triumvirate of shareholders, employees and customers. I am convinced that, if our motives and our achievements are understood, this, too, will improve the prospects for avoiding conflicts.

Third, the international corporation and its representatives must be prepared to identify with the aspirations of the people in the country involved. I do not mean merely that we must conform passively to local laws and customs, though this is important. Of course, our central contribution to the country involved is our providing direct and indirect employment opportunities, our stimulation of secondary and service industries, our bringing in of foreign exchange, and our making of profits from which to justify the investment-to plow into future stability and expansion--to contribute to the country's tax revenues. In addition to all of this, however, we must be willing to dig deeply into the society-to understand the values and the hopes of the people, to share their concerns, and certainly to put our talents to work to help solve their problems. Financial aid to higher education, cultural and worthy charitable projects, while often part of it, are but only a part of it. If we are to be accepted as local citizens, we must show that we regard ourselves as local citizens, that we are participants, not merely spectators. I, for one, am convinced that we can make other important social contributions in the countries where we operate if we put our imaginations to the task and if we are prepared to devote time and energy to community activities. Of necessity, this must be largely a matter of individual responses. But if management adopts an encouraging attitude and provides an effective example, I have no doubt that results would soon be felt.

Fourth, and perhaps most important, I believe that international business must scrupulously avoid interfering in the political affairs of foreign countries. I wish to be quite precise on this point. I believe that a corporation in order to function and serve effectively should present its views to political authorities on matters which directly or indirectly affect its operations.

It should, in other words, make representations to the government and acquaint the local public with the attitudes on issues relating to the treatment of investment, taxation, tariffs, labour policy, and the myriad of other matters affecting it. I believe also that local citizens who happen to be associated with the corporation in some capacity are entitled to participate in local politics if they wish-but not as spokesmen for the corporation.

Having said, however, what I believe the corporation and its local employees can do, let me now emphasize what I regard as prohibited territory. I believe that a foreign corporation has no licence to intervene in behalf of a particular party or a particular candidate. It has no licence to resist or advocate social reforms. And these same prohibitions extend not only to the foreign corporation but to foreign nationals in the corporation's employ.

To put it another way, we serve best the interests of the particular country in which we are operating if we are free to express our views on matters relating to our commercial interests, but we should not and must not seek to impose our views by political action. We must always recognize that the final authority in these matters resides with the people and government of the country which has received us.

I would not contend that the four principles which I have enunciated will solve all the problems which arise in a business organization operating in foreign countries. However, as I suggested earlier, we at Inco firmly believe that these principles can serve to create an atmosphere of mutual respect. Problems will continue to arise with frequency. But they can be compromised without the sacrifice of anyone's essential interests if the ground has been properly prepared and if all concerned recognize the mutual benefits which can be achieved through a harmonious resolution of the problems as they arise.

Canada is a large exporter, and thus Canadian firms have for many years been doing business in other countries in other parts of the world. This will continue and grow, and in many cases a straight export business will be complemented by operations of other types in other countries. Our purposes will be commercial, but in pressing our commercial ends, we are bound to have a significant effect on how less developed countries--many of them new entities--will develop and grow. I have in this talk tried to touch on some of the problems involved and some of the principles which I believe are apt for meeting them. Precisely because the successes or failures will have implications beyond the purely commercial side, I felt that this is a pertinent and timely discussion for a group such as this.

Central to Inco's thinking is that we will succeed to the degree that we are sensitive to the legitimate views of those involved, responsive to them, and are adaptable and imaginative in finding means of reconciling the many interests.

Thanks of this meeting were expressed by Lt. Col. R. H. Hilborn, M.B.E.