THE LIFEWORTH REVIEW OF 2008

Olympian graft

May 11, 2009 by  
Filed under First Quarter

As well as the year that China first hosts the Olympics, 2008 marked the 30th anniversary of the beginning of that country’s programme of economic reform. The major social and economic changes that have occurred in those 30 years mean that corruption has become a major problem in Chinese society, as temptations have grown and social traditions declined. Thus, corruption has been a concern surrounding the Olympics. In January 2008, state media reported that 38 people were arrested in Beijing during 2007 in a crackdown on corruption connected to the Olympics. Beijing’s communist party chief Liu Qi, who also heads the Beijing Olympic organising committee, said the Games must be run in an ‘open and transparent’ manner, and previously ordered the stepping-up of audits and inspections on Olympic-related activities. The highest-profile Olympic graft case so far has yet to come to court. Liu Zhihua, a former vice mayor of Beijing, was fired in June 2006 after allegations of massive bribes concerning Olympic venues that cost more than a billion dollars to build.7

China has been increasing its anti-corruption drive in the past years, especially in major cities, where a number of scandals and shady deals involving top officials have been exposed. Wrongdoers have been fined, given jail terms or even death sentences. Such cases included the arrest of Shanghai’s party boss, who had been a member of the Communist Party’s Politburo, the power core in China, and the execution of the former head of the national food and drug regulation body. China ratified the United Nations Anti-Corruption Convention in 2005 to curb the flight of corruption officials who abscond with public funds abroad. It even participated in the anti-corruption initiatives of the Asia-Pacific Economic Cooperation and the Organisation for Economic Cooperation and Development (OECD), although it has not yet signed the OECD Convention on Combating Bribery.

Minxin Pei: corruption in China is a high-return, low-risk activity

Minxin Pei: corruption in China is a high-return, low-risk activity

Despite this stream of high-profile efforts to align national with international anti-corruption initiatives, Minxin Pei, director of the China programme at Carnegie Endowment, a Washington-based policy study group, revealed in his report that, in reality, only a ‘small proportion’ of officials tainted by corruption are punished. He told journalists that ‘The odds of an average corrupt official going to jail are at most three out of 100, making corruption a high-return, low-risk activity.’8

Pei’s report, entitled ‘Corruption Threatens China’s Future’, showed that, despite the Chinese government’s more than 1,200 laws, rules and directives against corruption, implementation has been inconsistent and ineffective.9 Analysts explain that China, as an economy, has been undergoing profound structural change. The general lack of obedience to the law is attributed to increasing market competition and the growing domestic economic gap. After the collapse of the promised cradle-to-grave life-long protection, many citizens doubted that their hard and honest effort under the new open-market economy would be enough to provide a decent income. According to the Asia Times, business people assume that, if they have bought political backing, they can get investigations into their affairs called off and stories in the state media killed.10

In the 2007 Transparency International Corruption Perceptions Index, China ranked 73rd out of 156 countries. It was, however, a few notches higher than China’s 78th place the year before. The index tracks how business people perceive corruption in a country. China is not the worst in Asia, but it’s in the company of many much poorer countries, such as Laos.

Pei is not convinced that corruption is just a stage in China’s development. He believes rather that it is actually a failure of political reform:

The Chinese government has consistently resisted steps to further reduce the role of the state in the economy, increase judicial independence and mobilise the power of the media and civil society, even though international experience shows that only such full-fledged efforts can root out systemic corruption.11

But, because of China’s one-party system, these channels don’t exist. Local Chinese party secretaries have sweeping control over the local media, legislatures and courts, breeding corruption and abuse of power.

Pei said that the direct costs of corruption, which could be as much as $86 billion each year, posed a ‘lethal threat’ to the country’s economic development. He acknowledged that corruption has not yet derailed China’s economic rise, sparked a social revolution, or deterred Western investors. ‘But it would be foolish to conclude that the Chinese system has an infinite capacity to absorb the mounting costs of corruption. Eventually, growth will falter.’12

Hu Jintao: corruption could destroy the Communist party

Hu Jintao: corruption could destroy the Communist party

At a meeting of the Central Commission for Discipline Inspection (CCDI) in January 2008, Chinese premiere Hu Jintao echoed much of this critique, warning that increasing levels of corruption could eventually destroy the Chinese Communist Party. He reviewed various regime changes across the world since the 1960s. Other than those due to foreign interference, he said the two main factors were the ruling party’s corruption, and social problems associated with economic recession.13 At the meeting special efforts were outlined in the fields of environmental protection, food and medicine safety, work safety, and land appropriation: areas where corruption has particularly direct impacts on the general population. In addition, supervision will be intensified on the management of social security funds and the special fund for poverty and disaster relief, an issue that came into light later in the year after a catastrophic earthquake.14

That many ordinary Chinese are concerned about corruption was highlighted just a few weeks before Hu’s speech, when the new website15 of China’s National Bureau of Corruption Prevention (NBCP) crashed soon after it was launched, ‘as Chinese people logged on in their droves to complain about corruption among the official ranks’. An NBCP official, who declined to be named, confirmed to Xinhua the breakdown had occurred because ‘the number of visitors was very large and beyond our expectations’.16 The scale of the problem indicates that firms in China will need to leapfrog the development of corporate responsibility in the West from compliance and philanthropy to become involved in promoting good governance (as ‘corporate citizenship’ means to some people).

» Foreign direct corruption

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines.
(Page numbers for this section are available in the pdf download and hardcopy.)

Movement East?

May 10, 2009 by  
Filed under Second Quarter

Simon Zadek of AccountAbility: challenged conference delegates to engage with emerging economies

Simon Zadek of AccountAbility: challenged conference delegates to engage with emerging economies

At the same Net Impact conference, Simon Zadek of AccountAbility encouraged younger delegates to think about why they were interested in the conference. Perhaps in the future being a CSR manager in a company such as Motorola could be an important role to play; or perhaps not, he mused. He challenged delegates to consider what the challenges of tomorrow’s world will be, rather than focusing on what has emerged over the last decade. The emerging corporations on the world stage are from Brazil, India, China and Russia, he explained, and engaging them is key.

This view is shared by other Western practitioners, such as Jane Nelson,38 with Harvard University, who has emphasised that India and China need to embrace corporate responsibility or other efforts are futile. Policy Advisor Eddie Rich,39 of the Extractive Industries Transparency Initiative, agrees that the influence of companies from these countries is key to the effort against corruption worldwide. It was promising, therefore, that the IBM study of CEOs found that Asian respondents were placing higher importance on their social responsibilities than those from other regions.

As a contribution to the UN Principles for Responsible Management Education working group on Research Priorities, in April 2008 Lifeworth conducted a survey of the 4,000 subscribers to its bulletin on CSR about their view of the future of research needs on responsible business. Respondents considered that the most important regions for future CSR research are in Asia. Other regions with emerging nations were also ranked highly, as shown in Figure 7 (available in pdf download and hardcopy versions only, from Lifeworth’s bookstore).40

Jane Nelson: India and China need to embrace corporate responsibility or other efforts are futile

Jane Nelson: India and China need to embrace corporate responsibility or other efforts are futile

Dr. Zadek wondered out loud whether it would be the Chinese oil firm Sinopec, rather than Shell, that would have more influence on sustainable development in years to come, for good or ill, and whether Net Impact delegates would seek jobs in the more challenging companies and environments in order to maximise their influence. ‘What’s your appetite?’ That question encourages us to reflect on whether corporate responsibility is emerging as a profession or social movement, or both. If processes of professionalisation dominate, with codes and qualifications determining what is considered appropriate, will that help or hinder the transformative potential of people working in this space? Many of those people speak of being part of a movement: a search for ‘corporate social responsibility movement’ delivers 13,700 hits on Google.41 If it is a social movement, what are the implications for priorities of work, and of research?

The field of social movement studies is large, and draws on experiences as diverse as the civil rights movement, the feminist movement and the environmental movement. The basic insights of these historical experiences and analyses are that people in a movement benefit from developing an understanding of common values and goals. They benefit from a sense of shared identity, from knowledge of the repertoires of action that movement participants use, and the elites that they engage with. They consider methods of entryism into those elites and the dangers of co-optation, because they recognise the role of power in both shaping the problems they seek to overcome and the opportunities for change. Consequently, they discuss strategies for influencing the political opportunities they can seize, and choose terminology on the basis of its potential to mobilise people and create deeper change. People participating in movements often recognise particular convening processes, networks and organisations as key to the movement’s success and evolution. In light of this context of the history of social movements, the corporate responsibility movement, if there is such a thing, still has some way to progress. The limited evidence of gender consciousness and solidarity among women working in corporate responsibility, discussed above, may be a symptom of a movement that does not yet know itself. Whether the outcome of networks such as Net Impact will be the socialising of business, rather than merely the business of socialising, is yet to be seen. The potential for a movement to emerge and have a historic impact on society is explored in more detail by the lead author of this review in The Corporate Responsibility Movement.42

» Hungry bubbles

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines.
(Page numbers for this section are available in the pdf download and hardcopy.)

Foreign direct corruption

May 10, 2009 by  
Filed under First Quarter

As corruption at home is tackled, attention has turned to the role of Chinese businesses in corruption scandals around the world. In February 2008, the Philippines media and legislators were desperately trying to find one relatively unknown forestry official named Rodolfo Lozada. He was supposed to give a tell-all testimony in a senate investigation about a botched telecommunications deal between a Chinese supplier and the Philippines government, but evaded his summons by going abroad and was then whisked away by authorities when he returned. He appeared two days later, at 2:30 am, on live television, to recount who abducted him, how he was persuaded and bribed by government officials to keep silent about his involvement in the controversial deal, and how his conscience made him come clean.17

Certainly, Lozada could not claim to be an angel. During his senate testimonies, he admitted profiting from kickbacks on government deals through his friendship with the economic planning secretary who approved the telecommunications project. He said this project would have been pushed through with little or no attention if the kickback had been limited to the agreed $65 million. But various individuals—apparently emboldened by the alleged willingness of the Chinese suppliers to pay extra—wanted to bloat the project’s worth to $330 million so they could pocket up to $200 million. He said the economic planning secretary asked him to ‘moderate their greed’.18

Philippines President Gloria Arroyo: tainted by ZTE scandal

Philippines President Gloria Arroyo: tainted by ZTE scandal

The project involved a nationwide broadband network that would link government offices and allow the education ministry to beam instructional materials to far-flung public schools isolated by mountain ranges or located in islands. Whistleblowers, including Lozada, named an election official and the husband of Philippines president Gloria Arroyo as project ‘facilitators’ (political backers). President Arroyo signed it days before the May 2007 national election when her allies, who would ensure she would not be impeached, won majority seats in congress.

The failed project’s main beneficiary would have been Zhong Xing Telecommunication Equipment Company Limited (ZTE), one of China’s biggest telecommunication makers. ZTE, a partly state-owned company, is growing its emerging-markets portfolio and the supply contract with the Philippines government would have been a coup. But vocal Filipino critics from civil society, academia and the media have criticised the ZTE contract with their government, arguing that it violates several Philippines laws, including rules that call for competitive bidding for government procurement contracts. Whistleblowers recounted during the senate investigations how the ZTE officials wined, dined, provided women entertainers to, gave free trips to, and paid an advanced ‘facilitation’ payment of about $41 million to their Filipino political backers who helped them clinch the deal. Eventually, President Arroyo not only nullified the deal but also suspended other Chinese-funded projects in the country worth some $2 billion.

Had the Philippines’ active and free press and dynamic civil society not exposed ZTE officials’ actions to clinch the broadband project, bribery and corruption may just have been hidden away as a business-as-usual inevitability. So, is this an indication of how Chinese state-owned companies are bringing their economic ambitions to the developing world?

It is not often that cheap, long-term loans from China encounter public wariness in a beneficiary country. China has also been generous in dispensing loans, some interest-free or as outright grants, to poor debtor African states that embraced no-strings-attached financing for electrification, highways, railways, hospitals and schools. Such financing is in stark contrast to the austerity demands and long list of social, environmental, human rights, fiscal policy, publicly declared political affiliation, and ethical requirements of multilateral agencies, such as IMF and the World Bank. China announced that, through its Export and Import Bank, it will ramp up infrastructure and trade financing to Africa to $20 billion over the next three years and that it would also write off unpaid debts. In return, not only did China outflank the United States, Japan and the European countries in clinching supply deals on oil and other minerals from these natural-resource-rich but development-poor nations, it also means serious business for some 800 Chinese state-owned enterprises (SOEs) now active in the continent.19

ZTE is considered as one of China’s ‘National Champions’, backed by China’s fat foreign exchange reserves that are funnelled through state-owned lending channels, which then lend de facto subsidised, low-cost funds to ZTE’s customers.20

In China’s telecommunications industry, two giant equipment companies have emerged: Huawei and ZTE. They seem to be a study in contrast on Chinese companies’ outbound investments.

Both have been feverishly expanding overseas and edging out their Western counterparts not only by being price cutters but because they understand that some developing markets have a ‘just give me the phone’ attitude, a far cry from, say, Nokia, whose customers are locked into the Finnish company’s standardised products and systems. But as CFO Asia described, there are key differences between the two. For example, Huawei is privately owned, while ZTE has a share structure that is an amalgam of public and state ownership (about half of the shares belong to state-owned agencies and senior management; the balance are listed in Shanghai and Hong Kong bourses). They also differ in style, and perhaps even in general approach. While both are headquartered in Shenzhen, CFO Asia described Huawei’s as a palatial Silicon Valley-like campus, while ZTE’s has the official feel of a government office. ZTE’s showcase lobby reportedly has LCD screens flashing pictures of government ministers and political leaders from Sudan, Eritrea, Niger, Algeria, Libya and Zambia where ZTE has already clinched equipment deals.

But perhaps the most telling difference is the overseas markets they have secured. Huawei has made inroads in the more lucrative developed markets of North America and Europe. It has won contracts with operators in France, Germany, Spain, the UK and Australia.21 On the other hand, ZTE’s sales executives have become wizards at selling products in the developing markets of Africa, Latin America and Asia.22

No wonder, then, that Huawei seems more attuned to the global standards of sustainability. In 2004, Huawei joined the UN Global Compact.23 On the other hand, ZTE reported on its website limited corporate social responsibility (CSR) goals, which focused more on product, supplier and philanthropic concerns.24 There was no mention of any ethical or legal standards that it vowed to uphold in its overseas transactions. In fact, consultancy firm CSR-Asia censured ZTE for vying to invest in a proposed cyber-city in Burma, which has a notorious human rights record.25

However, the mere fact that ZTE has begun to document its CSR goals is a step in the right direction. This could have been a response either to its need to project a caring image to outsiders, or conformity to government-led initiatives, such as those from the State Council’s State-owned Assets Supervision and Administration Commission (SASAC), which oversees and regulates SOEs, such as ZTE. In January 2008, SASAC issued an instructing document that aims to guide SOEs in fulfilling and reporting about their social responsibilities, and in turn improving their competitiveness and sustainability. This guideline was based on CSR issues revealed from SASAC’s in-depth study, which was initiated as a result of the ongoing and increasing debate on CSR in both the international and national arenas. It listed eight major CSR content points that SOEs should follow. While labour issues, product safety and environmental concerns are prominent in the document, at the top of the list is this: ‘Comply with laws and regulations, moral standards, business ethics, and industrial regulations and conduct their business honestly. They should . . . eliminate corrupted behaviours in all business activities’ [our italics].26

The failed ZTE contract in the Philippines, however, is a glaring contradiction between what is preached and what is happening in practice. How these CSR reports will contrast with actual progress and achievements on CSR issues such as corruption remains to be seen.

If corruption in China is exported elsewhere through loans and contract agreements, a twin threat occurs. If the return from a project is insufficient to pay off the loans, this could lead to bad debt, which in time might create a new debt crisis in emerging nations, with similar negative developmental impacts to the previous debt crisis fuelled by Western lenders. The costs of such a situation would also mount for China. It is in China’s best interest, therefore, that it safeguards the long-term viability of its overseas investments’ beneficiaries and promotes enlightened self-interest among the outbound Chinese investors. If it does not, then there are also risks to be faced, as future governments in foreign countries seek to penalise companies that bribed previous administrations.

Back in China, the head of the CCDI, He Guoqiang, said in January 2008 that ‘the key to winning our war against official corruption is to put punishment and prevention on equal footing’. He said, ‘We will place equal efforts in punishing crooked officials for their misconduct, as well as in establishing an anti-corruption system to get rid of corruption at its root.’27 Some consider one of those roots to be the shifting cultural norms in China, as Maoist Communism has been fundamentally transformed. Consequently, more Chinese leaders are speaking either overtly or implicitly about traditional Confucian and Taoist values. Some socially responsible entrepreneurs are even described as Confucian entrepreneurs.28 Confucianism, like all spiritual and religious traditions, has a mixed history in how it shaped, or was used to justify, forms of governance and trade. Its role in the future of China is unclear, and even more unclear is whether it will influence the way China does business with the rest of the world. The concept of Ren in Confucianism emphasises interconnectedness. A more conscious approach to the broader relations it has with all the peoples of the nations it is investing in may prove a wiser approach, in the long term.

» Targetting change

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines.
(Page numbers for this section are available in the pdf download and hardcopy.)

Beyond the Western financial crisis

May 9, 2009 by  
Filed under Third Quarter

‘The credit crunch is creating a new world order in banking and finance . . . It’s a world in which the Chinese state, if it co-ordinated the investments of its cash-rich institutions, could end up owning more-or-less the entire financial system of the US and the UK.’ That was the view of BBC business editor Robert Peston.44 Although the financial crisis seemed global, the origins began in the highly leveraged West, and posed a greater long-term threat to the economic systems of post-industrial economies than to rapidly industrialising ones. Looking forward on how this period of history—what we now refer to as ‘the credit crunch’—will be appraised, the term ‘Western Financial Crisis’ might be a strong candidate. If a New Financial Order is emerging, it is clear that China will play a significant role in how it is formed.

Mark Leonard: China is emerging as an intellectual power.

Mark Leonard: China is emerging as an intellectual power.

Mark Leonard of the European Council for Foreign Relations said, ‘it’s not just economic and military power that’s shifting from west to east. China is emerging as an intellectual power. It’s coming up with its own ideas, which are very influential, which other people are copying.’ He explained that ‘the debate we’re having about managing China’s rise has got a mirror image in China, where they’re having an argument about how to manage the west’s decline. In the US, they’re talking about what mix to have of containment and engagement, to try to get the China that they want. But what’s interesting is that the Chinese are thinking about how they can shape an America that is organised in a way that benefits their interests.’45

Some worry about the growing role of China on the world stage; others welcome it. As expected, the focus of the world’s attention on the Summer Olympic Games in Beijing led to widespread coverage of China’s poor human rights record and its occupation of Tibet, and PetroChina’s oil investments in Sudan, which human rights campaigners have long argued is complicit with genocide occurring in the Darfur region.46

With calls for Olympic boycotts made by some campaigners falling on deaf ears, the London Times (which is owned by News International, a company with significant investments in China) collected together a series of articles on its website examining some weaknesses in anti-China arguments. One Times commentator noted that ‘The lowlife double standards that informed Western views of the vicious Easterner 60 years ago are being rehabilitated in the modern era by human rights activists, who are calling on Western democracies to put pressure on China over its occupation of Tibet and its human rights abuses.’ The logic of this argument about racially motivated fears was somewhat confused when the author added ‘the West has no moral authority to lecture anyone, including China, about rights and democracy. Here in Britain, free speech has been curbed through the creation of new thought crimes (see the Racial and Religious Hatred Act).’47

A more compelling pro-China argument rests on indications that some African nations are increasingly welcoming and voluntarily preferring Chinese state-led investment projects over Western private investment. South African-based commentator Janine Erasmus reported in September 2008 that ‘China has become Africa’s third-largest trade partner, after the US and former colonial power France. According to a report by China’s General Administration of Customs, bilateral trade between China and Africa will exceed R803 billion ($100 billion) in 2008, two years earlier than predicted.48

‘The trend is attributed to escalating shipments of natural resources to China, especially crude oil, mainly from Sudan, Chad, Nigeria, the Republic of Congo and Angola, metals from Ghana, Gabon, the Democratic Republic of Congo, Zambia, and South Africa, as well as cobalt and other minerals. At the same time, goods manufactured in China are increasingly sought after by African consumers. During the first half of 2008, exports to China from Africa rose 92 percent to R240 billion ($30 billion), while the continent imported goods to the value of R184 billion ($23 billion), an increase of 40 percent according to the Chinese customs authority.’

One key advantage for China in what is often viewed as a ‘new scramble for Africa’ has been the ability of its state-controlled banks to finance infrastructure investment as part of its trading arrangements. In the Democratic Republic of Congo, China ‘is estimated to have pumped in $9 million for developing the mines and building roads and hospitals. In exchange it will be allowed to mine in the mineral rich Congo for 22 years. Despite heavy criticism from opposition parties the government has continued to defend the deal. It has described it as the “Marshall plan” it needed, to rebuild the country and ensure it reaches double digit growth levels.’49

When the mines reach full production capacity, China will be extracting 4,000 tons of copper from six mines. Deputy Minister of Mines Victor Kasongo told South African television that ‘It was important for Congo to have infrastructure to sustain. It is not by Congo’s fault [that] others couldn’t give us the money or access the market. So we had to take our own responsibility to bring growth forward. The China deal came to replace the promise we had with western countries.’50

According to the contract, China is expected to build close to 4,000 km of road connecting the country’s major economic hubs, 26 hospitals and improve 250 km of road in Kinshasa alone. Opposition members have criticised the deal, arguing that it favours Chinese firms who receive much of the building work. With China, Brazil and India tying up infrastructure or loan deals in several African countries, often in return for oil, metals and other commodity resources, concerns have been raised among traditional lenders such as the International Monetary Fund (IMF) and World Bank.

Dominique Strauss-Kahn: this new financial help must not destroy the original Bretton Woods policies

Dominique Strauss-Kahn: this new financial help must not destroy the original Bretton Woods policies

In response to these concerns African members of the IMF meeting in August 2008 in Mauritania issued a declaration pledging ‘greater transparency in their dealings with China and other so-called non-traditional sources of finance’.51 IMF Managing Director Dominique Strauss-Kahn told Reuters in August 2008 that ‘It is good news that there are new sources of financing, but we have to be very careful in order that this new financial help does not destroy the original policies of the Bretton Woods institutions’.52 A report released in July 2008 by the World Bank53 states that China, together with India and several Gulf nations, is financing a number of large infrastructure projects, such as hydropower schemes and transport schemes, across sub-Saharan Africa which may have positive impacts in the drive to reduce poverty. World Bank vice president for Africa Obiageli Katryn Ezekwesili has remarked, ‘China’s growing infrastructure commitments in Africa are helping to address the huge infrastructure deficit of the continent.’54

In an era of globalisation, it is natural that Western firms will face increasing competition around the world. What was perhaps unforeseen by Western policy-makers was the scale of the impact of state support for Chinese investment. Rosalind McLymont writing in the New Jersey-based Shipping Digest55 reports that ‘China’s two-way trade with Africa surged past $70 billion in 2007, compared with less than $1 billion in 1980, while US trade with Africa grew to about $85 billion from about $23 billion in the same period . . . Between 1998 and 2006, Africa’s exports to China increased 2,126 percent against 402 percent in exports to the United States. To facilitate those exports, Beijing set up most-preferential-treatment agreements with 20 African countries, including tariff-free treatment on 454 products imported from the least developed nations.’ She also noted that ‘With $1.7 trillion in cash reserves, compared to the United States’ $62 billion, Beijing has much more leverage for deals in Africa than Washington does.’

The scale of growing South–South cooperation and investment led by China represents a new challenge to traditional Western-led North–South investment. While some Western companies have responded to the corporate responsibility agenda by building infrastructure and increasing the transparency of their dealings with developing-country governments (for instance, BP in Angola), the willingness of private international capital to take long-term risks is more constrained than recent state-facilitated Chinese arrangements in Africa. One consequence is that, while Western hydrocarbon companies may have led the oil boom in African nations, as the centre of global economic power shifts ‘eastwards and southwards’ contracts for infrastructure and future development are increasingly going to Southern-based companies, with China, Brazil and India posing a growing challenge to Western dominance in world trade. Along with that will be a reduction in Western influence on the corporate responsibility agenda, as new challenges, views and initiatives emerge among a more diverse field of business activity.

» Rainbows in the storm

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines. (Page numbers for this section are available in the pdf download and hardcopy.)

Rainbows in the storm

May 8, 2009 by  
Filed under Third Quarter

As money was such a dominant issue in the third quarter of the year, let us round up some of the news in the socially responsible investing (SRI) field that caught our eye. Because, even though the financial crisis has overshadowed all other stories for all types of investors, there was no let-up in campaigns and news stories targeted at influencing socially responsible investors, particularly in relation to investments in countries with poor human rights records.

Action on Zimbabwe was one such rainbow amid the financial storms. In June 2008, international concern about rigged elections and political violence led to renewed calls for companies to review their investments in the hyper-inflation-ravaged country. Standard Chartered, the UK-listed international bank, came under the spotlight following reports that the Foreign Office was investigating one case of a possible breach of EU sanctions.

The influential newsletter Africa Confidential alleged that Standard Chartered, together with Barclays and the insurance firm Old Mutual, was one of three British-based groups thought to have provided an estimated $1 billion (£500 million) in direct and indirect funding to Robert Mugabe’s administration. The Independent on Sunday quoted internal Foreign Office emails expressing concern about the bank’s activities, with one message stating ‘I’d say Standard Chartered is my prime concern. I’ve not asked them whether they’ve made any of these loan payments, but there’s a good chance that they may have been forced to do so by the Reserve Bank of Zimbabwe. Officials said that, if a sanctions-busting case is proven, ‘we will take appropriate action. We are determined to see that EU sanctions are properly enforced.’56

In July 2008, The Observer reported that Shell was considering pulling out of Zimbabwe ‘amid claims that President Robert Mugabe was reserving the distribution of fuel at petrol pumps for party supporters’.57 A study by London-based Ethical Investment Research Services quoted by the paper showed that Britain is the largest foreign investor in Zimbabwe with holdings in more than a quarter of the 82 companies that have their parents listed on overseas stock exchanges.

In response to public concerns, UK Prime Minister Gordon Brown asked companies doing business in Zimbabwe to ‘reconsider’ their position. The Foreign Office said this meant that they should look at board members and shareholders of their subsidiaries to see if regime members were directly benefiting.

While—in common with other long-standing investors in the country such as Unilever, British American Tobacco and the mining corporations Anglo American and Rio Tinto—Standard Chartered Bank pledged to stay in Zimbabwe, some non-resource companies with smaller commitments did respond, with Tesco announcing that it would ‘stop sourcing products from Zimbabwe as long as the political crisis persisted’; and the Mayor of London promised that London Transport’s ‘Oyster Card’ supplier EDS would not renew its contract with the Munich-based company Giesecke & Devrient, because the latter provided banknotes to Zimbabwe’s central bank. The communications company WPP meanwhile sold its 25% stake in Imago Young & Rubicam which had been advising the regime ‘for just $1 to the majority shareholder, Sharon Mugabe, who is also chief executive’.58

July 2008 also saw renewed focus on Western investments in Burma (Myanmar) with the publication of a new report by Burma Campaign UK, ‘Insuring Repression’, accusing foreign insurance companies of working closely with the regime’s insurance company to ensure that foreign businesses can operate in Burma.59 Sixteen companies were highlighted as their members or subsidiaries sell insurance to companies in Burma, including Lloyds of London, Hannover Re, Catlin, Atrium, XL, Tokio Marine, Sompo Japan and Mitsui Sumitomo. Johnny Chatterton, author of the report and Campaigns Officer at Burma Campaign UK, said, ‘By selling insurance to companies operating in Burma these companies are propping up a regime that rules through fear—raping, torturing and killing Burma’s civilians. These companies are putting profit before ethics, they are helping to finance a regime that less than a year ago was shooting peaceful protesters on the streets of Rangoon.’ The Campaign criticised the EU for failing to follow the US in imposing targeted financial sanctions that would prevent insurance companies from selling insurance to companies in Burma and praised a number of companies that have taken the decision not to provide insurance to companies there, including AIG, Allianz, AON, AVIVA, AXA, ING, Munich Re, SCOR, Swiss Re and Willis.

In July 2008, there was interesting news for those following the increasing public interest in and scrutiny of SRI funds when Pax World Management Corp. agreed to pay a $500,000 fine to the US Securities and Exchange Commission (SEC) because it had failed to follow its own socially responsible investing criteria over a five-year period, when two of its mutual funds invested in off-limits industries such as gambling and liquor, and oil and gas exploration. David Bergers, head of the SEC’s Boston office, said it apparently was the first case the agency has brought alleging violations by a mutual fund firm that purports to use social as well as financial screening criteria in making investments.60 After the failures at Pax, the socially responsible investment industry estimated by the US Social Investment Forum to hold more than $2.7 trillion in investor assets in 2007 could come under closer scrutiny.

» Rent-a-geek

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines. (Page numbers for this section are available in the pdf download and hardcopy.)