Business & Human Rights: Corporate reputation costs associated with conflict

CORPORATE REPUTATION COSTS ASSOCIATED WITH CONFLICT
The following vignettes illustrate some of the companies that have faced reputation damage due to their real or perceived activities in conflict prone or conflict-ridden countries:
PepsiCo, Heineken, Carlsberg, Unocal, ARCO, Premier Oil and others investing in Myanmar (Burma). These companies have been targeted by a variety of pressure groups such as the Burma Action Group and the Free Burma Campaign (FBC). FBC is an international, internet-based coalition of NGOs, trade unions and private individuals focused on pressurising multinational companies to divest from Burma. The campaign is reviewed in more detail on page 78. In the past two years over 30 major multinational companies have divested from Burma, partly as a result of the reputation damage and lost business they were facing in their European and North American markets. In its 1997 report No Hiding Place: Business and the politics of pressure Control Risks Group notes that, “the prime lesson of the (Burma) case study is that the politics of a once isolated country now have repercussions for governments and business in a much broader political arena. ... Burma will remain a high political risk for international companies on its own account, but also because of the potential repercussions on the activities of such companies in the US... Western companies investing in other pariah states must expect to face hostile publicity and potentially NGO boycott campaigns – in their home countries.” De Beers and other players active in the African diamond trade. These companies have been targeted by the Fatal Transactions campaign. This is a consumer campaign consisting of four international human rights organisations which was launched in October 1999 to alert the public to the links between the global diamond trade and the funding of conflict in African countries such as Angola, Sierra Leone and the Democratic Republic of the Congo. It is reviewed in more detail on page 83. In early 2000, De Beers bowed to pressure and announced that it would begin issuing written guarantees that its stones do	“not include any diamonds which come from any area in Africa controlled by forces rebelling against the legitimate and internationally recognised government of the relevant country.” Although the company’s sales had not been damaged by the campaign, in fact had achieved record levels over the millennium period, the Financial Times quoted a Johannesburg-based mining analyst as saying, “..there were signals that the campaign could have escalated and seriously damaged De Beer’s image. They have decided to heed the warning signals, partly because, as the world’s largest producer, they had a moral responsibility to act”. (8) The Dabhol Power project in India. This joint venture between Enron, GE, Bechtel and the Maharashtra State Electricity Board has been the focus of campaigning by Human Rights Watch. Major emphasis has been placed on the role of Enron, which owns a 50% stake in the project. In this case the company is being campaigned against not for investing in a pariah or war-ridden state (indeed India is the world’s largest democracy), but for complicity in violent conflict and human rights abuses at a local or situational level. In a report published in 1999 (9), Human Rights Watch accuses the company of paying the salaries of state employed police forces who have been responsible for beatings, arrests and other forms of repression against local communities and activists opposing the investment project. Human Rights Watch has called on not only Enron and the governments of India and Maharashtra State to account for these abuses, but also public and private financial institutions that have funded the project. These include: Bank of America, ABN Amro, a group of Indian banks and the US Export-Import Bank. Over the past year Enron has taken steps to develop operating procedures, hire professionals and implement management systems to improve the rigor and scope of its corporate social responsibility agenda.	Talisman Energy in Sudan. This Canadian oil company has been the subject of an official investigation ordered by the Canadian Minister of Foreign Affairs, following growing international pressure over its operations in Sudan, which are part of a consortium with the Sudanese, Chinese and Malaysian state oil companies. The Canadian government established a commission in 1999 headed by John Harker, an African specialist and former government adviser to investigate the situation. An official report was made public in early 2000 and concluded that the company’s investment in Sudan had strengthened the capacity and willingness of the Islamist Sudanese government to wage war against Christian and tribal rebels in southern Sudan.(10) The report pointed to the use of the consortium’s airstrip by the Sudanese military and stated that, “The evidence we have gathered, including the testimony of those directly involved, directs us to conclude that oil is exacerbating conflict. ...There has been and probably still is major displacement of civilian populations related to oil extraction ...Sudan is a place of extraordinary suffering and continuing human rights violations, even though some forward progress can be recorded, and the oil operations in which a Canadian company is involved add more suffering.” (11) The company’s stock price had been weighed down during the fact-finding process by bad publicity and concerns over the future of Talisman’s operations in Sudan. It rebounded, however, after the report was released and the Canadian Foreign Minister Lloyd Axworthy decided not to impose sanctions on the company. At the height of the controversy the company did agree to sign up to a code of conduct developed by other Canadian companies operating internationally.

Shell in Nigeria, BP Amoco in Colombia and Rio Tinto in Indonesia. These companies have been targeted by a variety of pressure groups, journalists and politicians due to the perceived and real impacts that their operations have had on violent conflict and human rights abuses in specific regions of each country. Shell’s activities in Nigeria, especially after the execution of Ken Saro Wiwa and 7 other Ogoni leaders in 1997, have been the subject of intensive international media coverage and campaigns by shareholder activists and NGOs. These included activities by Amnesty International and by Human Rights Watch, who published a report on Nigeria entitled The Price of Oil in 1999, with strong recommendations for action by the foreign oil companies. The Body Shop also ran a campaign on Nigeria which was highly critical of Shell. The criticisms levelled at the company by these different campaigns has centred around issues of: • environmental degradation; • lack of recognition for indigenous land rights, • loss of livelihood opportunities by local communities; • human rights abuses by paramilitary forces such as the Mobile Police and national security forces in the process of pretecting the company’s employees and assets; • lack of compensation to local communities; • minimal benefits to them from state oil revenues; and • failure on the part of the company to assert stronger influence on the government – both in general terms and on specific issues such as the Ogoni executions and revenue distribution. In response to these criticisms the company has embarked on an extensive process of stakeholder engagement in Nigeria and internationally and has undertaken far-reaching changes in certain policies and operating procedures including the revision of its business principles and implementation of a comprehensive Sustainable Development Management Framework.	BP’s operations in Colombia have also been the source of NGO criticism and negative media coverage, especially in the British press. The latter has been supported by the activism of a UK-based Member of the European Parliament, whose goal has been to get more stringent controls on multinational companies passed through the European Parliament. As with Shell, criticism has revolved around the socio-economic and environmental impacts of the company’s investment in the Casanare region of Colombia and the way it has handled its security arrangements. In 1999, in response to this criticism, the company engaged in an intensive dialogue with a group of UK-based development NGOs called the Inter-Agency Group (CAFOD, Christian Aid, Catholic Institute for International Relations, Oxfam UK and Save the Children Fund UK) – see profile on page 135. It has also reviewed and revised key policies and operating processes for Colombia and elsewhere. Rio Tinto’s investments in the Kelian gold mine in East Kalimantan and the Freeport McMoRan Grasberg gold and copper mine in Irian Jaya, have attracted negative attention from environmental and human rights NGOs in Australia, Europe and the United States. As with Shell and BP, Rio Tinto has also had its annual general meetings picketed by pressure groups. Criticisms have covered similar issues to those directed at the other two companies. In response Rio Tinto has also initiated stakeholder consultations and operational and policy reviews. In 1999, the company played a leadership role with other mining companies and the World Business Council for Sustainable Development, in establishing a two year study of ‘Mining and Sustainable Development’ which will review the socio-political as well as environmental impacts of mining activities in different parts of the world.	Each of these situations has created reputation damage for the three companies involved – unjustified as well as justified. They have also incurred heavy costs in terms of paying for local security, the kidnapping of personnel and contractors, and the disruption and closure of operations. Extensive management time and resources – at both head office and the local level – have been dedicated to responding to each local crisis, answering international criticisms, addressing misperceptions, rectifying problem areas, implementing new policies and management systems, and communicating progress. All of these cases have been instrumental in putting the complex linkages between business, human rights and violent conflict more firmly onto the corporate agenda. They have highlighted a number of critical issues and suggested lessons for future private investment – both for these companies and others in their industry sector. In the case of the three companies in question, they have led to a variety of practical and policy changes in the way they manage and account for their operations in conflict prone or war-ridden societies. All three companies now include an explicit commitment to human rights in their business principles and are playing a pioneering role on these issues in their industry and the private sector in general. Having said this, the examples continue to be a source of major challenge both for the companies themselves and for the stakeholders engaged with them. Some of these challenges are reviewed in more detail in later chapters.