Engagement vs. Divestment

Forcing multinational corporations to pull out of totalitarian countries can yield disastrous results

by Alyson Warhurst

Multinational corporations operating in such countries as Myanmar, Zimbabwe, and China are easy targets for critics who accuse them of supporting totalitarian regimes. Of course, business should be accountable. But it is a mistake to undermine a responsible company's reputation through ill-informed "trial by media." In fact, forcing companies to divest their holdings in these countries could ultimately harm the very people who most need help.

Private enterprise is one of the best ways to lift people out of poverty. Private-sector investment in emerging economies has risen fourfold during the past decade, outstripping official aid programs by 10 to 1. Government engagement with many regimes has been ineffective—failing, for example, to get timely relief into Myanmar, achieve a U.N. Security Council decision on Zimbabwe, or influence Chinese policy on Tibet or Darfur.

When things go wrong in such countries, responsible companies should be allowed to make business decisions for themselves. By continuing to operate, they can offer economic lifelines to employees and local communities and provide channels for engagement with civil society and governments—however much we disagree with the policies or actions of the latter.

THE BRAVE DECISION

Anglo American (AAL.L), the London-based mining company, faces pressure from human-rights groups and from the British government to pull out of Zimbabwe. With the Mugabe regime now threatening to strip the company of licenses it holds on undeveloped mining claims, the pressure has only increased.

Should it go? That would be a pity. Anglo American has been in Zimbabwe for 60 years and has extensive business and social networks. And it has a good reputation. Year after year, verified reports show it is a responsible employer and corporate citizen. If it withdraws, its employees would suffer and its networks would crumble, reducing opportunities for business engagement with future governments. And if Anglo American leaves, the Mugabe government would seek investment from others—notably, from Russian and Chinese mining companies, which may have lower human-rights standards and lack transparency.

Not all companies make the brave decision to stay. British retailer Tesco (TSCO.L), after critics targeted it in a media campaign, announced on July 1 that it would no longer source products from Zimbabwe. Its Zimbabwean supply chain supported an estimated 4,000 workers. What happens to them now? Zimbabwe's economy is in shambles, pushing an estimated 5 million to the brink of starvation.

Rival retailers Waitrose and Sainsbury's (SBRY.L) continue to source from Zimbabwe. Mining company Rio Tinto (RIO.L), banking group Standard Chartered (STAN.L) and consumer-products giant Unilever (ULVR.L) still do business there. All are responsible companies.

If prices are fair, wages are just, working conditions are decent, transactions are transparent, and community initiatives are sustainable, should we not trust responsible global businesses to stay, so long as they operate by the principles we have asked them to adopt?

HUMANITARIAN PARTNERS

In Myanmar, divestment has had disastrous consequences. Under pressure from critics, such apparel makers as Adidas (ADSG.F) and Levi Strauss & Co. have closed factories or stopped sourcing from the country. Thousands who lost their jobs were women. Left impoverished and isolated, many have had no alternative but to join the country's growing number of sex workers. Surely, that is not what the critics intended.