As the global economy increasingly thrusts big business into conflict with pressure groups and NGOs, demand has risen for a new academic discipline - 'corporate diplomacy'. Tony Durham reports.

Globalisation has opened a new arena in which the main actors in international power games are not just states, but corporations, non-governmental organisations and supranational regulators such as the World Trade Organisation. For some years, international relations courses have put business on their syllabuses. Now business schools are teaching the broader set of skills that are required to survive in this new environment.

But by encouraging businesses to behave like quasi-states, are business schools responsible for subverting the democratic process? Michael Watkins, an associate professor at Harvard Business School, believes so, although he argues that corporations should temper their efforts to influence the political process by ensuring that they operate within the law.

Watkins, who has made a career out of telling business people how to pressure governments, now teaches a popular elective course on a subject he calls "corporate diplomacy" - a term he thinks he may have coined. Compared with other business buzzwords, it has been slow to spread through the meme pool, but perhaps its time has come.

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Watkins studied international negotiation at Harvard's Kennedy School of Government in the 1980s and came to the business school full of ideas about deal-making, coalition-building and crisis management. Diplomats were good at these things. Managers generally were not, he says. Law schools are also good at teaching negotiating skills: for American lawyers, much of the action unfolds outside the courtroom - plea bargaining is routine in criminal cases, while civil matters are often settled by mediation or arbitration. Harvard Law School has been teaching negotiation since the 1970s, and Watkins acknowledges his debt to legal academics there and elsewhere.

Corporate diplomacy answers a need created by globalisation, the communications revolution, the upsurge of joint ventures, mergers and acquisitions, the rise of NGOs defending human rights and the environment, and the shift of regulatory power from governments to global organisations such as the WTO and the World Intellectual Property Organisation. It is nothing like the old world in which management had just a few well-defined relationships - with workers, customers, suppliers and shareholders. It is much more like international politics, with its shifting alliances, pragmatic deals and sudden explosive crises.

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A striking feature of the new environment is the changing relationship between business and NGOs. Since the Nestle baby-milk boycott - launched in 1974 - NGOs have campaigned against corporations that they claimed were causing ill-health, harming the environment or infringing human rights. A gloves-off confrontation is easy. The choices are much more difficult when a corporation asks a charity to help it clean up its act. Many companies now have social audit, business ethics, "stakeholder dialogue" or "corporate social responsibility" programmes and are seeking engagement with NGOs rather than confrontation.

NGOs recognise the inconsistency of demanding that corporations mend their ways and then refusing to help. But they are cautious about approaches from big business. "A lot of corporate engagement is what we call greenwash," says Lucy Michaels, a researcher at CorporateWatch in Oxford. "Donating money in a very high-profile way to an environmental project to show your commitment to green issues - if you are extracting oil, or mining, or into intensive farming, it seems like a very small trade-off."

The new style of engagement is exemplified by the Ethical Trading Initiative. A group of companies, trade unions and NGOs has teamed up to investigate the conditions under which the goods in high-street stores are produced. The aim is to end child labour, forced labour and unsafe working and bring working conditions up to basic standards. Safeway, Sainsbury's, Somerfield, Marks and Spencer and other well-known retailers are working with charities such as Christian Aid, Oxfam, Save the Children, War on Want and the World Development Movement.

But Barry Coates, director of the WDM, warns that NGOs should be wary of getting too close to corporations. "Business lobby groups such as the WTO are trying to limit the degree to which governments can regulate business. That is very dangerous."

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Coates believes that NGOs should support stronger government regulation. "That is the ratchet we need. Otherwise we are only as good as our last campaign."

Another changing relationship is that between corporations and governments. According to Anthony Hopwood, dean of Oxford's Said Business School, "the relationship between business corporations and states is one that is increasingly active and increasingly important for many reasons, but not one that is well analysed, researched or discussed."

Last autumn, the business school and St Antony's College ran a series of eight lectures on "Corporate foreign policy", with speakers from BP, Shell and the WTO, and academics including the historian Niall Ferguson.

Adair Turner, vice-chairman of Merrill Lynch Europe, chose the provocative title "Should corporations assume state-like international responsibilities?" and dismissed the notion sharply. Business should stick to making profits, he argued, and governments should regulate business. But Turner, former chairman of the Confederation of British Industry, conceded that the classical liberal model falters when companies operate "in weak, failed, corrupt and easily bullied states".

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The most radical voice was that of Ed Mayo, who said that corporations pose a threat to democracy through their political influence and economic power. Mayo is director of the New Economics Foundation, a London think-tank that campaigns for international debt relief, new forms of finance and sustainable economics.

Watkins welcomes ethical debate in his classes, and he has found ways of confronting business students with questions they might not raise of their own accord by encouraging cross-registration from places such as the Kennedy School and the law school. He says: "A sizeable minority, for example, is concerned about the influence business exerts over government." One of the visiting students from the Kennedy School works for Medecins sans Fronti res and helped organise the opposition to the drug companies at the WTO Doha summit in November.

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Watkins points out that big business is pretty good at the influence game already. Smaller businesses and not-for-profit organisations need to catch up. "I am all in favour of levelling the playing field. I am happy if good NGO people learn how to do this, too."