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Establishing adjunct governance fo-

rums of strategic stakeholders not only

provides a cost-effective way for organi-

zations to establish the multiple and re-

enforced outside-in links the authors

describe; it also protects directors. It was

because German and Japanese compa-

nies obtained these additional advan-

tages from their stakeholder forums

that Porter recommended the inclusion

of stakeholders in the governance archi-tecture of U.S. firms in his 1992 report,

Capital Choices.

Stakeholder forums can be designed

to provide directors with a systemic pro-

cess to carry out their most fundamen-

tal fiduciary duty: to direct and monitor

management. Nonexecutive directors

cannot creditably carry out these basic

roles with due diligence, vigilance, and

care unless they obtain feed-forward

and feedback intelligence independent

of management.If the stakeholder forums are consti-

tuted independently, as is the practice in

Germany and Japan,the duties and cost

of management could be simplified

and the need for auditing stakeholder

reports eliminated, yielding further

savings. The responsibility for being

attuned to the evolving concerns of

stakeholders,and mitigating existing or

anticipated adverse effects from busi-

ness activitieswould be shared with the

stakeholders to protect the corporate

reputation.

Shann Turnbull

Principal

International Institute for Self-Governance

Sydney, Australia

Porter and Kramer respond: Lee Preston

accurately points out that companies

often try to manipulate the regulatory

context through aggressive lobbying,

which can run counter to societys inter-

ests.We disagree,however, that such ef-

forts are desirable or should be labeled

an important strategic option. Lobby-

ing may forestall market forces and in-

flate profits in the short run, but it does

not provide a sustainable competitive

advantage. On the contrary, preserving

artificial conditions frequently leads

companies to make the wrong strategic

choices. Many industries that success-

fully delayed regulation in their homecountries have since fallen victim to

changes in the political environment or

to foreign competition.U.S.automakers,

for example, lobbied effectively against

higher mileage standards for their cars,

only to suffer dramatic reversals as they

lost touch with the needs of the global

marketplace. Manipulating the regula-

tory environment is a good example

of win-lose thinking rather than the

shared-value approach we advocate.

We agree with Shann Turnbull thatstakeholder forums can be a valuable

source of guidance for corporations and

can contribute to corporate governance.

We caution,however, that responding to

stakeholders is not enough to enable

a company to integrate social consider-

ations with its strategy. Stakeholders

may be aware of the harmful impacts of

a corporations value chain, but they are

far less likely to understand the compet-

itive and societal advantages that a com-

pany can achieve by integrating social

considerations into its core strategy.

Emerging Giants: BuildingWorld-Class Companies inDeveloping Countries

I dont doubt that the product and

factor voids that Tarun Khanna and

Krishna G. Palepu identify in their arti-

cle,Emerging Giants: Building World-

Class Companies in Developing Coun-

tries (October 2006) present real op-

portunities for future emerging giants.

However, my 35 years of working in de-

veloping Asia as well as my role as a

(non-Muslim) member of the Interna-

tional Advisory Panel of the World Is-

lamic Economic Forum, the business

and economic face of the 57-member

Organization of Islamic Conference,and

our recent discussions in Islamabad

suggests that not all voids are createdequal, and not all provide a solid foun-

dation for regional expansion. Unfortu-

nately, we see large national firms gain-

ing domestic advantage principally by

exploiting their informal access to the

host government. In exchange for a

range of favors, including most com-

monly blackor undisclosed payments

to the ruling party ahead of elections,

these companies use their privileged ac-

cess to acquire protected market posi-

tions in regulated sectors such as finan-cial services and cellular telephony.

So-called national ownership is then

used to protect corporate underperfor-

mance in businesses with both formal

and informal links to the government.

Even Khanna and Palepus premise

that national firms can exploit their

deeper insights into local product and

resource markets (as in the examples

of Jollibee and Haier) or their superior

access to local resources (witness Info-

sys, Tata Consultancy, and Satyam Com-

puter Services) may require further

research. Examples such as Indias Ma-

hindra and Mahindras prize-winning

Scorpio SUV and Haiers tiny washing

machines and vegetable cleaners may

be on the surface compelling, but

when the underlying economics of

such businesses are peeled apart not al-

ways a trivial exercise some clear pat-

terns emerge: First, in many developing

countries, accounting systems are not

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