Conflict Minerals: Which Game Console is Most Violent?

With the holiday season upon us and one semi-new (Nintendo) and two completely new (Microsoft and Sony) video game consoles on the market, consumer interest is . While you may be thinking of blasting away virtual opponents playing Call of Duty 107 or whatever version they have nowadays, pause for a moment and think of the more than 5 million persons estimated to have died in the Congo in various conflicts. For, many elements you find in consumer electronics--including video game consoles--are sourced from mineral-rich mines there: tantalum, tin and tungsten.

Instead of Call of Duty 107, Congo is home to true-to-life civil war, foreign invasions, warlords, child soldiers, sexual crimes and so on piled atop a humongous body count that is still increasing. To fund these endless wars, proceeds from minerals--"conflict minerals"--have picked up their share of the (bloody) tab. While there are monitoring mechanisms in place that allow consumer electronics firms to gauge their reliance on dodgy Congolese sources, compliance is oftentimes voluntary and thus subject to wide variation.

So, which then are the most peaceful and violent video game consoles in real life? Watchdog group Raise Hope for Congo ranks MNCs by the measures they use in ensuring their products do not contain conflict minerals. Note that scoring high or low does not necessarily mean that their products have a high or low proportion of Congo-sourced conflict minerals, but rather that its share cannot be accurately determined because they do not keep tabs.

Microsoft (X-Box One) is greenlighted with a score of 30, meaning it has "taken proactive steps to trace and audit their supply chains, pushed for some aspects of legislation, exercised leadership in industry-wide efforts, started to help Congo develop a clean trade." Sony (Playstation 4) scores a 27 having joined some global initiatives but has not yet traced its supply chain for links to Congolese conflict minerals. Worst of all, Nintendo (Wii U) score a big, fat 0. Despite the ostensibly more family-friendly nature of its games as opposed to the blood-and-gore soaked titles of the other consoles, it is the bottom of the barrel:

What would Bowser do? If you look at the list, American companies generally rank highest, South Korean ones are in the middle, and the Japanese fall towards the back of the pack. I would believe that it's a function of activism insofar as most of them operate in the United States. Why South Koreans are more receptive than the Japanese to such entreaties makes me wonder, though.

Still, you'd hope Nintendo did a better job on the CSR end given that they are not exactly setting the sales charts on fire.

Read More

Make a Killing? US FTAs and Big Tobacco

There is a debate surrounding the pending Trans-Pacific Partnership expansion about whether participants' policies aimed at curbing tobacco use will be dismantled in the name of free trade. Large American tobacco companies--collectively known as "Big Tobacco"--have certainly not shied away from using texts of trade liberalization measures in faulting curbs to their unfettered access to emerging markets.  Outgoing New York Mayor Michael Bloomberg has been especially vocal about what he believes is a major assault on global health led by the United States.

As per current TPP drafts, some argue that negotiating LDCs will be made to relent on the sorts of public policies that have proven effective Stateside in reducing smoking:

The proposal put forward by the US Trade Representative (USTR) last week in Brunei would reduce prices for US tobacco in low- and middle-income countries and make it more difficult for these countries to enforce anti-tobacco policies like package warnings and advertising and marketing restrictions.   This proposal would impact the nine TPP countries – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States -- six of these fall into the World Health Organization’s Western Pacific Region, which had the highest smoking rate among men in 2009. 

To put the implications of this proposal into perspective, consider these two points: Tobacco use caused 100 million deaths in the 20^th century.  If current trends persist, it is projected to cause 1 billion deaths in the 21^st century.  More than 80% of those future tobacco-related deaths will occur in low- and middle-income countries (LMICs). Tobacco use in the United States is steadily declining, due largely to widespread anti-tobacco campaigns and stringent anti-smoking policies – the same kinds of policies that the TPP will make difficult to enforce in developing countries.

So, why is the US effectively hindering the export of its good anti-tobacco policies to the LMICs that need them most?  A few key issues have risen to the surface during this debate. A “carve-out” for tobacco – where tobacco would simply be excluded from the terms of the TPP agreement – was proposed by Malaysia and makes sense. But the USTR worries that a carve-out would set a precedent that could be used to block a variety of other US exports on health grounds.

In other words, how exceptional is tobacco based on health grounds? The fear is that all sorts of products would be excluded by other countries and dilute the FTA. Left unresolved, the tobacco issue may even spoil TPP negotiations altogether:

The White House has tried to finesse the issue, recently proposing that the TPP agreement acknowledge tobacco as a health concern but otherwise treat it no differently from other products. That compromise has satisfied no one. Health advocates are furious that the White House dropped its previous proposal for a stronger tobacco control exception in the TPP agreement. The business community opposes any special treatment for tobacco. With that controversy spilling into the press and threatening the conclusion of the TPP talks—the Obama administration's signature international economic initiative [...]

As the tobacco industry's tactics on trade shifted, the controversy reignited. Tobacco companies began using trade and investment agreements to file legal challenges to block new cigarette labeling and advertising restrictions. Australia is fighting four different trade and investment cases against its cigarette packaging law. Similar cases have been filed against Norway and Uruguay and threatened against Togo. Investment disputes are expensive and the outcomes can be unpredictable. Many developing countries do not have the expertise or resources to fight. Even New Zealand and Canada backed away from planned tobacco regulations in the face of litigation threats.

 Thomas Bollyky of the CFR's suggestions in making a limited exception seem to make sense:

• This exception must explicitly encompass the full range of tobacco control measures addressed under the Framework Convention on Tobacco Control and permitted under U.S. laws.
• This exception should be limited to nondiscriminatory tobacco control measures. An exemption from legal challenge cannot serve as a pretext for TPP countries to favor domestic cigarette producers. This condition is consistent with overall U.S. trade policy and the terms of the 2001 U.S. executive order on tobacco and trade.
• This exception must not include the cross-reference that exists in most U.S. trade agreements to the health exceptions in World Trade Organization agreements. Such references might inappropriately interfere with tobacco litigation already filed under those other agreements against Australia and other TPP countries.

My take is that fair warning is appropriate concerning the possible effects of cigarette smoking and ought not to be sacrificed to a distortion of the term "liberalization." Consumer interests are not well-served by hiding the facts about the health consequences of cigarette smoking and arguing otherwise is a sham. Smoke if you must, but do so while knowing the possible consequences.

Add this to the already lengthy list of obstacles to TPP. 

Read More

Cola's Final Frontier: Coke v Pepsi in Myanmar

He thought he was the King of America
Where they pour Coca-Cola like vintage wine

In 1986 Elvis Costello penned the lyrics above to the first song of his album King of America, "Brilliant Mistake." I thought it was pretty crafty way back when, but even then, the snobbery against drinking carbonated beverages was their cultural unsophistication as Costello intoned. Nowadays, of course, we are more concerned with the unhealthy amounts of sugar and caffeine they contain. Such concerns have caused cola consumption to steadily fall Stateside since 2005, but it remains a highly saturated market with the average American drinking a whopping 714 8 oz servings of carbonated beverages in 2012.

Supersaturation of the home market has caused both Coca-Cola and Pepsi to take on a two-pronged strategy. The first is developing ostensibly healthier drinks. The second, of course, involves going abroad in search of new or undersaturated markets. Reflecting the latter concern, it is unsurprising that the current heads of these venerable American brands are foreign-born and that they gained their reputations by growing business abroad: India-born Indra Nooyi has been Pepsi CEO since 2006 and Turkey-born Muhtar Kent has been Coca-Cola CEO since 2009.

Together they have been duking it out in cola wars waged around the world in a battle for carbonated supremacy. Compared to the 714 colas each American consumes, there is room for much sales (and waistline) growth elsewhere. Nowhere is this competition as intense in Southeast Asia as Myanmar. Returning to this market for the first time since Eisenhower was president after decades-long US sanctions were lifted. Coke finds challenges and opportunities in equal measure. While Pepsi was first to re-enter Myanmar last year, it has had to up its pace in market development with the entry of Coke by signing new bottling agreements. Over a third of Pepsi revenues are now in the developing world. OTOH, Coke's Muhtar Kent compares Myanmar opening up to the world to the fall of the Berlin Wall, and fellow MNC Unilever likens it to "another Vietnam" in terms of possible future returns. (Should we be glad that "Vietnam" is now shorthand for promising new markets as opposed to unpromising battlefields?)

The stage is thus set for another battle royale for the hearts and waistlines of the Burmese consumer. (Coca-Cola counters with CSR efforts on the latter point, though.)  Indeed, the only ones losing out economically may be domestic firms that grew during the years of international isolation (see the clip above). Local firms are going into a cost-leadership strategy from what I can tell while ceding the foreigner / upscale segments to the MNCs. Either way, there may be no greater beverage grab of this magnitude to come for years unless North Korea opens to the world, too.
***

NPR has a very interesting write-up concerning Myanmar's isolation: Coca-Cola went back to its promotional strategies during the 1800s to account for ways to gain product attention in a "media dark" environment:

[Southeast Asia Marketing Director Shakir] Moin says he started to go back in the Coca-Cola archives. He was looking at how the company marketed its product before the internet, before TV, even before radio. Eventually he found his perfect model for Myanmar, place where nobody knew anything about Coke — Atlanta, 1886.

Back then the hot advertising trend was wall posters. Moin noticed that in the beginning, Coke didn't use the posters to talk about friends or happiness or style. It talked about what the product tasted like. It simply described it. Moin pulled out two words in particular that would form the core of his Myanmar campaign — "delicious, refreshing." Those two words from the 1800s are now on the Myanmar bottle, and on the billboards and fliers that advertise the product.

Moin pulled another trick from the early days of Coke. They offered free samples. Samples has brought people into the pharmacy soda counters in Atlanta in 1886, now free samples attract crowds at Buddhist festivals in Myanmar. It's a way to get people to taste the product, but just as importantly, it's a way to show off Coke at its best.

Read More

Can 'Impact Investing' Whitewash JP Morgan Malfeasance?

Financial services titan JP Morgan is many things to many people given its vast size. Bank regulators currently know it best for the nefarious activities of the so-called 'London Whale' whose losing bets have caused the firm billions of dollars in losses. There's also this new controversy over the House of Morgan hiring Chinese princelings or offspring of Chinese elites to curry favour among PRC movers and shakers. When you're as large as they are, you cannot but help attract attention

More recently, I came across someone from this same bank writing about 'impact investing' or socially aware investing. Now this idea has several similar terms. Some call it 'philanthrocapitalism' which is a mouthful. Regardless, the question is raised: given the scale of corporate malfeasance JP Morgan stands accused of--especially with the 'London Whale' brouhaha--does impact investing help whitewash bank malfeasance?

Attached to all this fervor is a fair amount of confusion about what impact investing actually represents.  Is it investment, philanthropy or both?  Simply put, impact investing is the deployment of capital with an expectation of financial return, where the success of the investment is also contingent upon achieving a stated social or environmental goal.  For example, at JPMorgan Chase we are committing capital—more than $50 million to date—to private equity funds that will deliver us an appropriate financial return while simultaneously improving livelihoods for underserved populations around the world.  If we are not successful in both ambitions, then we do not consider it a successful investment.  Impact investing, therefore, represents an innovative way for socially and environmentally-conscious individuals and organizations to invest their capital to improve their communities while earning a return that meets their financial objectives.

There is a central theme underpinning the potential of impact investing: the creation of economic value and social value are not necessarily mutually exclusive.  Market-based approaches to critical social and environmental challenges do exist or can be developed, and those interventions can attract private sector capital.  This provides a significantly larger, complementary source of capital alongside of philanthropic budgets and increasingly limited public sector resources.  Financeable interventions can satisfy a range of objectives—from mitigating climate change to creating jobs in agricultural communities to providing health care for underserved people—attracting a broad population of investors interested in creating change.

Obviously, $50 million is a drop in the bucket compared to the incidences of bank malfeasance JP Morgan is accused of. Still, it's a good start. What you'd like to see is for 'impact investing' to move more into mainstream banking activities, especially as it conducts more business in the developing world. That said, it is unlikely that bank regulators will call off their scrutiny of this bank. So no, this newer and more honourable ethos  has yet to filter down in the future. For now, it is whitewashing whose efficacy is limited by reams of bad press.

Read More

CSR: From 'Blood Diamonds' to 'Conflict Minerals'

In 2006, there was a movie entitled "Blood Diamonds" starring Leonardo DiCaprio (before he became blubberized and American-sized) that brought popular attention to the titular cause. For those of you covering corporate social responsibility (CSR), the issues should be familiar: Repressive governments and militiamen have been accused of using proceeds from the mining of these diamonds to fund their bloody conflicts in Africa. Nowadays, the cause celebre is the Democratic Republic of Congo. 

As it turns out, diamonds are but one product of extractive industries which have been identified in funding African conflicts. The problem that many American firms perceive with proposed Securities and Exchange Commission (SEC) laws is that many of these other minerals are found in everyday products you find at the strip mall--the archetypal symbol of American consumerism: canned goods, lightbulbs, jewelry, MP3 players, flat-screen TVs and so on:

Big retailers including Target and Wal-Mart may largely escape a costly new rule that requires U.S.-listed companies to disclose whether their goods contain so-called conflict minerals that are blamed for fueling violence in central Africa. Retailers lobbied to be exempted from the requirement, which will affect manufacturers of a range of products, including smartphones, light bulbs and footwear.

The Securities and Exchange Commission had proposed an earlier version of the rule that would have applied to retailers carrying products sold under their own brand names (store brands alike Archer Farms at Target or Kirkland at Costco), but which are typically produced by outside contractors. On Wednesday, however, the SEC voted 3-2 to adopt a final rule that would exempt companies that don't exert direct control over the manufacture of such products.

The rule, which was mandated by the Dodd-Frank financial overhaul, have been a source of friction between the SEC and companies ever since the law was passed in 2010. Companies have said the requirement would be burdensome and expensive. Indeed, the SEC on Wednesday sharply raised its estimate of the rule's financial impact, saying it would cost companies a total of $3 billion to $4 billion upfront, plus more than $200 million a year. The SEC initially had said the cost of compliance would be just $71 million. It said it revised its estimate based on comments from the business community and others.The SEC estimates around 6,000 U.S. and foreign companies would have to comply with the conflict-minerals rule, which covers products containing tin, tantalum, tungsten and gold [my emphasis].

NGO Global Witness is naturally dismayed with the SEC ruling. It should be pointed out here that the conflict minerals law will need to be implemented eventually to meet OECD standards. The point of the law, of course, is to discourage funding ongoing conflicts instead of caving in to powerful retailer's associations:

Global Witness is disappointed that the rule will allow companies to describe the origin of their minerals as ‘undeterminable’ for a period of two years – or four years for small companies.

“The minerals trade is fuelling violent conflict and human rights abuses in the eastern DRC and delays in implementing the law postpone the moment at which companies take responsibility for the impact of their purchases, jeopardising efforts to stop minerals funding conflict, and seriously undermining the aim of the law. By allowing companies to say ‘I don’t know where my minerals are from’, the regulators are effectively inviting issuers to evade all of the substantive measures required by the law. The incentive for companies to plead ignorance will be overwhelming,” says Global Witness.

Meanwhile, SEC staff made it clear that the Organisation for Economic Cooperation and Devel- opment’s (OECD’s) five-step due diligence framework is the benchmark against which companies’ due diligence should be measured.

So this "grace period" may be one of obfuscation as dishonest firms simply say they cannot identify where their tin, tantalum, tungsten and gold comes from in cases where they do indeed come from conflict-ridden regions.That said, others even argue that the law may instead have the effect of depriving poor communities of their livelihoods due to overzealous policing.

Read More

Asshat Stripping: RBS' Fred Goodwin De-Knighted

Pardon the title but I thought it appropriate for the subject matter. At any rate, here's something you don't see everyday. Typically, HM Queen Elizabeth knights not only those who've worked to improve social conditions in the Commonwealth alike Sir Bob Geldof and Sir Bono but also captains of industry. Of the latter we've had many Great British Industrialists who've been knighted--especially during the New Labour years. In 2004, one of those who were knighted was none other than the Royal Bank of Scotland's erstwhile agent of moral hazard, Fred Goodwin, for his 'services to banking." That was when New Labour was still in power and the neoliberal turn towards financialization of the British economy was still regarded as something favourable in the inner sanctums of the UK elite. It's taken some time, but it seems that the political winds in the growth-free UK have shifted enough to make this remarkable declaration come true. To be sure, it's been long-awaited one.

The winds of change are always blowing, and they just carried Fred away. I suppose that making the taxpayer foot a GBP 45.5 billion bailout (about $71.4B) can make even Her Majesty the multibillionaire several times over cringe. And of course there's the not-insignificant matter of putting the financial health of the nation into dire straits while placing one of its largest industries into disrepute.

The official announcement goes as follows:

It will soon be announced in the London Gazette that the Knighthood conferred upon Fred Goodwin as a Knight Bachelor has been cancelled and annulled. This decision, not normally publicised in advance, was taken on the advice of the Forfeiture Committee, which advised that Fred Goodwin had brought the honours system in to disrepute. The scale and severity of the impact of his actions as CEO of RBS made this an exceptional case.

In 2008 the Government had to provide £20bn of new equity to recapitalise RBS and ensure its survival and prevent the collapse of confidence in the British banking and payments system. Subsequent increases in Government capital have brought the total necessary injection of taxpayers' money in RBS to £45.5bn.

Both the Financial Services Authority and the Treasury Select Committee have investigated the reasons for this failure and its consequences. They are clear that the failure of RBS played an important role in the financial crisis of 2008-9 which, together with other macroeconomic factors, triggered the worst recession in the UK since the Second World War and imposed significant direct costs on British taxpayers and businesses. Fred Goodwin was the dominant decision maker at RBS at the time.

It's funny how the former Fred "The Shred" Goodwin who acquired his moniker for cost-cutting now has to pay the ultimate price in terms of honours by being himself asset stripped. He joins a not-so-illustrious list of others having this dubious distinction alike Comrade Bob Mugabe of chicken commercial fame and Romanian dictator Nicolae Ceausescu. Political misdeeds usually get you ejected more readily, but Sir Fred's business disaster was so huge as to be non-ignorable politically.

There's been a whiff of discontent--obviously from now old-line New Labour stalwarts--about the lynch mob quality of it all. Why pillory just Fred the Shred when there were so many others culpable in these financial misdeeds? I suppose it's to set an example. Then again, I'd personally prefer to have him hanged, drawn and quartered alike in the olden times--albeit for the modern high treason of the gravest sort of financial misdeed. Just as honours should go to the biggest contributors to the welfare of the Commonwealth, so too should they be removed from its most egregious offenders.

Unlike what some others say, it's not simply a boiling over of anti-business sentiment. There is a line that must be drawn when boundaries are crossed on the assumption of being too big too fail alike RBS during the global financial crisis. To those given more wealth or power on this earth comes more responsibility; that's all.

Indeed, it's a very British humiliation.

Read More

Comrade Bob Mugabe and the Dictator Fun Club

I'm a bit tardy here (apologies), but better late than never. Name the chicken restaurant chain and I've probably patronized it before: Kentucky Fried Chicken, Chick Fil A, Kenny Rogers Roasters, El Pollo Loco and so forth. Nando's is in a unique position of being a very international chain that isn't American. As we learn, however, its cosmopolitan nature isn't always an advantage. I was flipping through a recent issue of the Economist when the TV advertisement of the South African chicken restaurant chain entitled 'Last Dictator Standing' came to my attention (I too have consumed their poultry products since they have many branches in England):

Insulting dictators ought to be safe, so long as you do not operate in the same country. Nando’s, a South African restaurant chain, forgot that with an ad showing a Robert Mugabe lookalike glumly alone at dinner (after many of his fellow despots had been deposed [and perhaps more importantly, dead]). He reminisces about happy days shooting water pistols with Muammar Qaddafi, playing in the sand with Saddam Hussein and riding a tank, “Titanic”-style, with Idi Amin. The ad was broadcast in South Africa, where Nando’s middle-class target audience found it hilarious. But Nando’s also has restaurants in Zimbabwe. Threats ensued. Fearing violence against its staff there, the ad was pulled.

To be more exact, political youth groups linked to Mugabe threatened to harm Nando's employees in Zimbabwean outlets. The ad was also broadcast not only in South Africa but throughout the continent via satellite TV. (You also can't insult the head of state in Zimbabwean law.) Still, the corporate social responsibility angle is quite obtuse given that the aggrieved party is not exactly an exemplar of good governance. With his penchant for hyperinflation in the economic realm and even more unpleasant things in the security one, Mugabe is not a sympathetic figure to say the least. That said, he has gradually become worse in true Anakin Skywalker - Darth Vader fashion.

My, er...enjoyment of this Nando's commercial compared to the more straightforward if even more politically incorrect dumb blonde ad is curtailed though despite its IR angle. There is this thing called the willing suspension of disbelief that is said to enable enjoyment of fiction. However, when the events being depicted vary too far from established facts, the cognitive dissonance becomes too severe to overcome.

And so it is with this ad to an extent. While I appreciate that singing karaoke is an Asian stereotype, it is chronologically impossible for Mugabe to have joined Chairman Mao in this activity as a fellow dictator. For, Comrade Bob only assumed power in 1980 when Mao died in 1976. The same qualifier holds for Idi Amin who was ousted in 1979. Besides, isn't Mao responsible for the Cultural Revolution which aimed to expunge harmful foreign influences alike karaoke? Even more surreal is having Comrade Bob play on a swing set with South African apartheid-era Prime Minister P.W. Botha [?!] Why would an erstwhile leader of the pan-African independence movement away from white rule be frolicking with one of its most odious proponents? I suppose it's what got the Zimbabwean pro-Mugabe crowd most in a frenzy about the ad more than anything else.

It's too bad Nando's isn't going to include Kim Il-Jong in a follow-up advert with all the controversy. Now that's a real contemporary of Comrade Bob's who's gone on to...I don't quite know where atheists of his sort go. Besides, why feature Chairman Mao instead of true contemporaries alike Zaire's Mobutu Sese Seko, the Philippines' Ferdinand Marcos, Chile's Augusto Pinochet or Panama's General Manuel Noriega--certainly recognizable figures to any international audience?

I guess the song gets it right, though:

Oh my friend we're older but no wiser
For in our hearts the dreams are still the same

Read More

BlackBerry's Latest Banishment Threat - Indonesia

The sheer difficulty of cracking BlackBerry encryption has made several states wary of the Research In Motion service operating in their countries. As a compromise on national security-esque grounds, the Canadian firm RIM has located its servers within the countries that raise such concerns instead of at home--most famously the UAE:

Last year, the UAE threatened to suspend BlackBerry Messenger, email and web browser services unless RIM worked out a way to locate its encrypted computer servers in the country so the state could get access to email and other data -- the same access it says the United States, Russia and other states have.

That concession granted to some, it appears Indonesia is now complaining about how Singapore was made the location of RIM's Southeast Asia servers instead of the region's largest nation and largest user of the popular BlackBerry service. The mooted penalty for this betrayal of sorts is (once again) banning BlackBerry from operating in Indonesia. Via the Jakarta Post:

The Indonesian Telecommunication Regulation Body (BRTI) says that it may have to end the BlackBerry Messenger (BBM) service on all BlackBerry after the smartphone’s manufacturer, Research In Motion (RIM), opted to build a server in Singapore rather than in Indonesia.

“Because RIM has not been cooperative, it is possible that we will soon end BIS (BlackBerry Internet Service) and BBM service. BlackBerry therefore, would just be like other cellular phones,” BRTI member Heru Sutadi told The Jakarta Post on Friday.

The Indonesian government claims that, aside from the usual national security request, RIM indicated that it would build the server in Indonesia before its act of info-treachery:

In September, RIM made a commitment with the government to carry out four agreements by Dec. 31. One of the agreements called for the establishment of a server or a data center. Although the agreement did not specify where the server would be built, the government felt that RIM should make Indonesia a priority as it was home to the most BlackBerry users in Southeast Asia, far exceeding the number of users in Singapore.

The government’s insistence on having a server built in the country was mainly due to security reasons, Heru said. Currently, all data exchanged through the BIS and BBM is processed in Canada, the home of RIM, which makes it impossible for the government to monitor and protect data sent by its millions of Indonesian users.

“With the condition as it is now, we warn that the country’s users to be cautious about using BlackBerry because the data exchanged is not safe or cannot be guaranteed of its safety,” he said.

While the idea that Indonesian users are more at risk now that RIM servers are in Singapore than they were before when the servers were in Canada is risible, I remain a believer that information flows within a nation remain a state's prerogative despite insipid notions to the contrary. Insofar as we haven't moved past notions of state sovereignty to something akin to world government, firms must play by national rules for better or worse.

To be sure, the longstanding presence of active separatist movements and terrorist groups may make Indonesia more legitimately entitled in raising information security concerns. It's too bad that Indonesia appears to want punishing RIM for commercial reasons as well. But, it's a price you have to pay in a world where extraterritoriality does not apply.

Read More

CSR in Iran? My Way or the Huawei (Router Mfg)

There's an interesting article in the WSJ on the recent pullback of Chinese router manufacturer Huawei from doing business with Iran. Given the perceived willingness of Chinese firms to go where Western MNCs dare not roam due to limitations on investing in certain bogey nations alike (yes) Iran, Myanmar and North Korea, this occurrence is eye-opening at the very least. That is, are even Chinese corporations (with government ties, no less) subject to international pressure regarding Iran's alleged nuclear programme, human rights abuses and so forth?

Chinese telecommunications- equipment maker Huawei Technologies Co. said it will scale back its business in Iran, where the company provides services to government-controlled telecom operators, following reports that Iranian police were using mobile-network technology to track down and arrest dissidents.

Shenzhen-based Huawei will "voluntarily restrict its business development there by no longer seeking new customers and limiting its business activities with existing customers," according to a statement Friday on the company's website. It said the company was making the move due to the "increasingly complex situation in Iran." Company spokesmen declined to elaborate.

The action follows a front-page Wall Street Journal article in October that documented how Huawei's business grew in Iran following a pullback by Western companies after the government's bloody crackdown on its citizens two years ago. Iranian human-rights groups outside Iran say there are dozens of documented cases in which dissidents were traced and arrested through the government's ability to track the location of their cellphones—technology for which Huawei has provided support.

Activists hailed the company's decision, noting it was the first time a major Chinese company had decided to scale back its business in Iran. Until now, Iran has viewed its partnership with Chinese companies as a solid alternative to Western contracts.

"This is a significant milestone," said Mark Wallace, president of United Against Nuclear Iran and a former U.S. ambassador to the United Nations. "For the first time a major Chinese business is pulling back from Iran in the face of mounting international scorn for Iran's brutal regime." The New York-based group had been pressuring Huawei to leave Iran and had been communicating privately with the company for several weeks.

A spokesman for the U.S. State Department said it welcomed Huawei's announcement, adding that the U.S. "calls on all firms to exercise vigilance when doing business with Iran and ensure that any business does not contribute to the Government of Iran's ability to repress its own people."

That's all very well and good, but did the bleeding hearts brigade really persuade Huawei to curtail its activities selling routers to Iran that could help their government identify particularly vocal denizens--or is something else? Well, the article goes on to strongly suggest the latter possibility:

Executives at Huawei's highest levels have been discussing for months whether to scale back in Iran, according to people familiar with the matter. Those discussions gained in intensity in recent weeks, particularly after the Journal article, several people said...

Some Huawei executives in Shenzhen see operations in Iran as jeopardizing expansion opportunities in the U.S. and Europe, where the Chinese company has faced skepticism over its compliance procedures and dealings with countries that have pariah regimes. That was a driving factor behind the decision to dial back operations in Iran, a person familiar with the matter said. The Chinese company has held talks with consultants, lawyers and lobbyists from the U.S. on the issue.

Huawei is probably dialling back operations after finding out that Iran is not as lucrative an opportunity as once thought--or is already an exhausted one. As Jessie J sang, the Chinese don't need so much Iranian (money, money) at this point in time. There's also the matter of Huawei trying to establish a better reputation for itself independent of PRC state policy to consider and all of that protectionist "security"-related BS. Insofar as Huawei perceives US and European markets as being larger opportunities than doing business with Iran, well, let the human rights activists think they're having their "way."

I for one don't buy this story--though I have no qualms about using Huawei's routers instead of Cisco's and saving money in the process.

Read More

CSR: Milton Friedman Would OK Both Jobs & Gates

There's a much-read article taken from Harvard Business Review by Maxwell Vessel circulating on the Businessweek website. He argues that while the late, great Apple chief Steve Jobs and his Microsoft counterpart were both admirable business leaders, Bill Gates deserves to be idolized more for his subsequent philanthropic work after leaving day-to-day operations at MS:

As much as I love Apple, Inc, I would happily give up my iPhone to put food on the plates of starving children. Steve Jobs turned his company into a decade long leader in the truly new space of mobile computing. Bill Gates decided to eliminate malaria. Who do you think we should be putting up on a pedestal for our children to emulate?

To those familiar with the CSR literature, there is a false argument in place here that is exacerbated by the quotation above. Let me explain. Even the arch-critic of CSR Milton Friedman did not disapprove of do-gooding. Rather, he thought that devoting time and effort to worthwhile causes should be separate from the regular business of doing business:

[H]ow much cost is he justi­fied in imposing on his stockholders, customers and employees for this social purpose? What is his appropriate share and what is the appropri­ate share of others?

And, whether he wants to or not, can he get away with spending his stockholders', cus­tomers' or employees' money? Will not the stockholders fire him? (Either the present ones or those who take over when his actions in the name of social responsibility have re­duced the corporation's profits and the price of its stock.) His customers and his employees can desert him for other producers and em­ployers less scrupulous in exercising their so­cial responsibilities.

The important thing to remember, dear readers, is that neither Steve Jobs' Apple nor Bill Gates' Microsoft for that matter have devoted the bulk of their companies' activities to social causes per se. activity. While both Apple and Microsoft do conduct CSR-related activities--supplier audits for labour and environmental standards, for instance--that is pretty much par for the course among their peers. The purpose is primarily defensive in avoiding Nike-and-sweatshops-like entanglements.

Rather, what does set Bill Gates apart is that he devoted his post-Microsoft work to funding socially beneficial initiatives alike coming to terms with HIV/AIDS, tuberculosis and malaria. In a Friedman-friendly way, he did not plow Microsoft's retained earnings into philanthropic ventures. They instead conducted using his own funds (along with those of other fellow billionaires, it should be added) and on his own time. Here's Friedman again:

Of course, the corporate executive is also a person in his own right. As a person, he may have many other responsibilities that he rec­ognizes or assumes voluntarily–to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. He may feel impelled by these responsibilities to de­vote part of his income to causes he regards as worthy, to refuse to work for particular corporations, even to leave his job, for example, to join his country's armed forces.

If we wish, we may refer to some of these responsibilities as "social responsibilities." But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are "social responsibili­ties," they are the social responsibilities of in­dividuals, not of business.

In essence, Milton Friedman would have approved of both Steve Jobs and Bill Gates. Yes, Microsoft's stock has not done as spectacularly well as Apple's in recent years, but hey, it's not as if Gates still runs the show there. Returning to the first quote above from the article's author, it is thus far-fetched to assume that buying Microsoft products instead of iDevices will better serve the cause of saving the world. Again, separate MS (the company) from Bill Gates (the philanthropist). In Friedman's terms, investing in Apple stock should even prove to be the more humanitarian action insofar as it would provide a socially responsible citizen with more capital to do good deeds--hopefully as a principal and not just as an agent.

Read More

Clare Short, New Mining Transparency (EITI) Chair

Here's a worthwhile initiative I may not have mentioned yet that should nevertheless gain more attention for the work it does. I suppose that it's only fitting that an initiative that was launched by Tony Blair (in 2002) should now be chaired by none other than his bete noire Clare Short. If you remember, Clare Short was the international development secretary (head of DfID) from when New Labour took the reins of power in 1997 to May 2003 when she resigned this post to indicate her disgust over UK participation in the Iraq invasion. Those were some days; dare I say when Brits still used to dream about the future.

In the meantime, let it not be said that the Extractive Industries Transparency Initiative (EITI) has been less than active. Devised to help follow the money in mineral-rich countries--it is hoped that doing so will help reduce chances for corruption and channel revenues to more productive purposes. That is, to reduce the resource curse so common to countries blessed with abundant resources.

Something promising is that mining firms are actually calling for EITI to monitor activities in countries where they have mining operations--a phenomenon similar to that in any number of other industries such as tea production (the Ethical Tea Partnership). Here is a snippet from a recent interview of Clare Short:

In your own work with international development issues, you have occasionally been a severe critic of extractive industries in developing countries. Can you now say that there are positive signs of a genuine will among oil and mining companies to change their behaviour and to be more open in their dealings – especially when working amid the weaker regulatory environments of developing countries?

There are many places where resource extraction has not delivered adequate benefits to local people. It remains true that resource-rich countries on average have more poverty than comparable non-resource rich countries.

A growing number of companies have woken up to the reality that in order to succeed in the long term, transparency is the way to go. They have learned the hard way about the risk involved in operating in countries where there is little trust and also the risk of corrupt practices which breach their domestic law. To mitigate these risks, and because they know that it is the right thing to do, companies are now working with governments and civil society in organisations such as EITI. In several countries, it is the extractive companies that are calling upon the national governments to act more transparently, and to implement the EITI standard.

I’m encouraged by the number of companies that are supporting EITI. I hope that this is a reflection of a desire to be part of the solution. But there are still many companies that do not really favour transparency and are only willing to permit very limited reporting, and maybe see the EITI as a fig leaf rather than a route to full transparency. Of course, governments can require fuller reporting, and some are doing so.

It's me here again. Also note that while EITI may not receive much press notice in North America, it is being widely implemented, with 35 countries signing up to it and a dozen having already being declared EITI-compliant...

Would you expect EITI compliance to become a global standard any time soon?

With 35 countries implementing the EITI [standard] and more joining, EITI is making good progress towards becoming a global standard. It is critical that countries don’t just stop at compliance: they can use the EITI platform to debate wider issues affecting their country. That might be bidding, contracting, operating, allocating or spending. It might be that the reports can go deeper to list payment-by-payment, or physical volumes or sales. It might be that the principles can be applied to other sectors – for example, forestry, fisheries or agriculture. We are seeing innovations in countries that really want to use the EITI as a route to better management of the whole of their extractive sector, thus improving the benefits of the sector to the citizens of their countries. To me, that is even more important than being a global standard.
-------------------------------

One hopes this tough, principled Brummie politician is just what the EITI needs to move its programmes forward.

Read More