Global Economics

Engagement vs. Divestment


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

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.

Britain's Premier Oil (PMO.L) also left Myanmar partly under pressure. At the time of leaving, it had implemented programs to provide training in human-rights monitoring to the military and to government employees. It also financed community investment projects, managed by Save the Children USA, that are among the best-run such programs I have ever evaluated. And it had engaged with opposition leader Aung San Sui Kyi, who agreed that responsible business would have a critical role to play in rebuilding the country when democracy returned.

The business vacuum in Myanmar was highlighted in May when the country was hit by a devastating cyclone. Around the world, responsible businesses often work with humanitarian partners to deliver relief after natural disasters. Having such networks in place could have made a big difference in Myanmar, whose ruling junta initially refused assistance from the U.N. and Western countries. Instead, a handful of companies, including French oil group Total and express-delivery company DHL, found themselves battling the odds to deliver humanitarian relief via their limited channels. If Western business had stayed and maintained a diligent approach to human rights, thousands might now have decent jobs, to the benefit of their families and communities.

BOUNDARIES OF RESPONSIBILITY

China presents a different kind of dilemma. Unlike Zimbabwe and Myanmar, there's little chance that multinationals will leave this booming economy. Yet with the Beijing Olympic Games about to begin, top corporate sponsors are in the spotlight.

One example is General Electric (GE). As the official Olympics provider of water treatment services, it recently announced it would donate two treatment systems to provide clean drinking water for more than 60,000 residents in Dongguang City and its environs. GE says the project "will strengthen our ability to further help China and other nations leapfrog traditional infrastructure challenges to deliver clean water to hundreds of millions of people in the world's remote communities." Such initiatives, which apply the company's core competencies to address sustainable development, clearly show why responsible business should be encouraged to engage with governments, even when we disagree with those governments on human-rights issues.

GE is also working with other companies, including Honeywell (HON), United Technologies (UTX), and IBM (IBM), to help the Chinese government design and install one of the most comprehensive public surveillance systems in the world. The system, which will be deployed at Olympic venues and in the subway and airports, uses GE's powerful VisioWave technology, which automatically alerts security personnel to suspicious and fast-moving objects.

Clearly, protection of Olympic athletes and visitors is paramount. However, it's not hard to imagine that the Chinese authorities, with their well-documented track record of detaining journalists, lawyers, activists, and religious practitioners, could use this technology to infringe on citizens' rights. This underlines the need for responsible business. GE has as its overarching goal for 2008 implementing human-rights considerations in GE's operating cycles. In line with this, Bob Corcoran, vice-president for corporate citizenship, says GE "secured the US export licenses and worked with the Chinese customer to make sure that the equipment is used for its intended purpose, during and after the Olympics."

PART OF THE SOLUTION

How far should the boundaries of corporate responsibility extend? There are no easy answers. But responsible business clearly has a role to play in high-risk emerging economies. Across-the-board divestment makes neither economic sense nor humanitarian sense. Companies, if they stay, can become part of the solution by following these recommendations:

Develop business principles based on the U.N. Global Compact

Establish a human-rights policy supported by training and monitoring systems and empowering of local managers.

Create an ethical supply-chain management system.

Work with expert third parties to audit activities and suppliers.

Engage on human-rights dilemmas and solutions with internal and external stakeholders.

Build relationships with employees and address humanitarian flash points, such as hunger or disasters.

Develop sustainable social investment programs with employees' families and local communities.

Engage in dialogue with host governments to promote transparency.

Build trust with home-country government and avoid communicating with politicians via the media.

Communicate regularly with civil society organizations and the media in Europe and the U.S.


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