CEOs and foreign policy.

AS GLOBALIZATION has been effected by earth-girdling corporations, many CEOs have metamorphosed into something resembling heads of state. With sales greater than the budgets of many nations, these CEOs find it easier to arrange meetings with President Hu Jintao of China than do the prime ministers of some of their allies. And CEOs have their equivalent of the presidential cabinet. There is the minister of finance (CFO), the head of central intelligence (CIO), the minister of labor (vice president, human relations), the minister of culture (vice president, marketing) and the minister of defense (vice president, sales). Yet few, if any, companies have a secretary of state.

True, there is the vice president of public affairs, but he or she is almost invariably a lobbyist focused rather narrowly on tax, trade and regulatory issues. Typically a former member of Congress, congressional staffer or executive branch official with a legal background, this person spends a lot of time working on legislative matters and meeting with officials from the trade, commerce and agriculture departments of the United States and other key countries. But few are to be found talking to the National Security Council or the foreign and defense ministers of the major countries about foreign and national security policy. For instance, does any U.S. CEO have input into U.S. Middle East policy? And were any consulted beforehand about the wisdom of invading Iraq?

This is an increasingly serious weakness for global corporations. The great myth of the past decade was that globalization would occur more or less automatically as a result of market forces, and that it would create worldwide prosperity. That, in turn, would lead to global democratization and then to eternal stability and peace--because everyone knows that democracies don't go to war with each other.

The problem is that this myth is just that--a myth. In fact, globalization inevitably takes place in a cultural, political, social environment. Moreover, the process of globalization is suffused with values, and by its very nature accelerates the meeting of different sets of values, which can easily result in clashes. The tensions and potential conflicts inherent in the dynamics of globalization are of great and perhaps decisive importance to business, and thus should be as much the focus of attention as the corporate R&D strategy or marketing and finance plans.

Consider for a moment the consequences for international business of the U.S. approach to the wars in Afghanistan and Iraq. In the wake of September 11, there was an outpouring of sympathy and support for the United States all over the world--especially in Europe. America's NATO allies voluntarily invoked Article Five of the treaty (an attack on one is an attack on all) and immediately dispatched emissaries to Washington to offer troops and military and financial assistance. The response they received--"we'll call you when we need you"--was hurtful and created bitterness and resentment of U.S. arrogance in Europe. The U.S. rejection of the Kyoto treaty on global warming and the unprecedented "unsigning" of the treaty on the International Criminal Court only worsened matters. Suddenly, in Europe's eyes, it was the United States that was acting like a "rogue nation."

The United States' insistence on carrying out a preventive attack on Iraq in the face of opposition from the U.N. Security Council--and much of the world--reinforced this feeling even further.

This anti-American sentiment has serious consequences for business. In Europe, it has hardened the resolve of officials to oppose U.S. wishes in a number of areas. In terms of export tax rebates, the European Union is threatening to impose sanctions to the tune of $4 billion if the U.S. fails to comply quickly with World Trade Organization rulings. U.S. efforts to achieve relaxation of restrictions on imports of genetically modified foods have also run into hardening attitudes. What's more, the Europeans are looking critically at competition policy issues affecting Microsoft and others. And just as Americans took to eating "freedom fries," so Europeans have taken to boycotting McDonald's and drinking various clones of Coca-Cola.

Of perhaps even greater significance is the impact of U.S. Middle East policy throughout the Muslim world and Asia. The U.S. is seen as hostile to Islam, not only in the Arab countries, but also in the Muslim belt that stretches through Pakistan, India and into Indonesia and Malaysia. This is the result of the free hand the U.S. appears to have given to Israel in its relations with the Palestinians coupled with the invasion of Iraq, which is widely seen as unnecessary and motivated by a desire to weaken Islam and gain control of Iraqi oil. Of course, these countries won't stop doing business with Americans, but they will increasingly look for alternatives.

The big winner is China. While the U.S. focuses on fighting terrorists, China has been quietly negotiating free trade agreements with most of Asia while greatly stepping up its imports from other Asian nations. As one Asian trade minister told me, "China is like a new sun in the solar system," implying that it is beginning to displace the U.S. While the U.S. was seen as a friend in the past, it is now China that is seen as friendly and the U.S. as hostile, bullying and arrogant.

None of this is good for American CEOs. Yet they have mostly seen these matters as beyond their influence. Indeed, they have even been afraid to question national leaders for fear of retaliation through the regulatory or international trade processes. While such fear is understandable, it pales in the face of the fear CEOs should have of the consequences of policies that will make it harder for them to do business abroad. It is time for CEOs to begin having real secretaries of state. Boeing has recognized this by naming a former U.S. ambassador to Russia, Thomas Pickering, as senior vice president for international relations. Others should follow suit.

Instead of just lawyers, CEOs should be looking for global affairs executives with language and regional knowledge along with personal contacts. Experience in government should be considered just as valuable as that in sales or engineering. And such executives should regularly be discussing key U.S. strategic issues with the grand strategy players here and abroad. In this way, CEOs may be able to turn some of the mythical benefits of globalization into reality.