Image Credit: Hugo A. Sanchez/©Gulf News

Sony Pictures Entertainment began, yesterday, a limited screening in US theatres of the satirical movie The Interview. This follows threats from cyberhackers of 9/11-style attacks against any such cinemas 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. Despite US assertions that there is evidence from the FBI that the North Korean regime was behind the cyberoffensive, the latter has criticised the US government for “spreading groundless allegations” and warned of “grave consequences” following the US administration’s refusal to accept its offer of a joint inquiry into the incident.

While Barack Obama said the cybermove was not an “act of war” by Pyongyang, as Republican Senator John McCain has declared, he has pledged that Washington will respond proportionately at a time and manner of its own choosing. To this end, it is reported that the US is considering putting North Korea on its terrorism list, which could trigger US sanctions and there is uncertainty over whether Washington may have been responsible for the major internet outage that North Korea suffered last Monday and Tuesday.

The incident has put Sony Pictures Entertainment, the US subsidiary of Japanese-headquartered multinational Sony, in the international diplomatic spotlight. Firstly, the firm has been condemned by Pyongyang for making the movie, which it claims undermines the “dignity of [the country’s] supreme leadership”. Secondly, Obama and others in the political and artistic communities, have criticised what appeared to be Sony Pictures Entertainment’s original decision to postpone, or possibly cancel, release of the movie for appearing to give into the demands of the cyberattackers. In the words of the US president, “We cannot have a society in which some dictator some place starts imposing censorship”.

This unfolding episode underlines the potential for business decisions, whatever their motivation, to become intertwined with foreign relations among states and companies. In effect, blurring the traditional public and private sector concerns of public policy and corporate affairs, respectively, in sometimes thorny political issues, and human rights and/or legal issues.

To be sure, this is not a new phenomenon by any means, but nonetheless appears to be increasing in incidence and salience. Partly, this is driven by globalisation and also the growth of key industries including new technology.

In the new technology area, alone, several firms have also been caught in controversy in recent years. During the Egyptian revolution, which overthrew Hosni Mubarak, some telecommunications companies for instance were forced by the regime to temporarily shut down their networks. Meanwhile, Google and Twitter collaborated on a ‘tweet to speak’ programme which was used as a communications platform by some anti-Mubarak protesters.

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 extractives, to fast moving consumer goods, have long been confronted with challenges too.

In this complex (sometimes uncharted) territory, firms (and indeed entire industries) can attract high-profile scrutiny. For instance, Members of the European Parliament (MEPs) passed a resolution in February 2010, following the disputed Iranian presidential election of 2009, which 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 toward what has been 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. Recognising the need for an unusual mix of core competencies (e.g. in advanced diplomacy) in some of these corporate functions, capability (including tools, training and infrastructure) can be enhanced where any gaps exist.

Other areas of examples of capability where firms occasionally have gaps include foresight and horizon scanning to anticipate and plan for social, economic and political opportunities and risks. Firms may also need clearer internal guidance for determining decision-making, protecting stakeholders (including customers), and/or remaining faithful to corporate values, especially in fast-moving, unpredictable, crisis situations in countries with weak democratic credentials.

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

For companies that are proactive and invest in their capability, the prizes (both in terms of mitigating risk and seizing opportunity) are potentially ever more significant. Yet, for those which are perceived to misstep, the fallout can be increasingly damaging, both reputationally and also for the financial bottom line.

Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics, and a former UK Government special adviser.