Investors and human rights risk

How is the investment community -- especially institutional investors -- dealing with human rights risks in investment portfolios? What do they need most in order to pursue this agenda?

Most attention in the 'business and human rights' field is on the operations and supply chains of firms of various sorts. Until recent years there has been somewhat less attention to the all-important entities in the financial sector that invest in (or indeed insure) corporate activity.

Such actors are capable, in principle, of exerting very considerable influence over the behaviours of fundee businesses -- that is, preventive and remedial conduct in relation to human rights impacts of business activities. Indeed if there is to be some notable transformative shift corporate social (and enviro) impact it is perhaps more likely to come from what investors do or require than from other stakeholders (governments/regulators, or consumer/citizens -- accepting these groups shape each others' conduct).

Today was the deadline for submissions to the UN 'Principles for Responsible Investment' consultation on a framework (here) for shaping and guiding how investors implement respect for human rights into their pre-investment, portfolio management / screening / engagement, and exit processes.

My own submission covered a range of issues on which investors -- who of course vary significantly as a broad class -- will continue to need further practical guidance, including stuff tailored to the very different types of finance and investment entities and products.

• Some of that guidance must be drawn from / shared by responsible financial sector actors themselves as they implement, learn from and refine their practices on human rights risk. For example, it is remarkably difficult to find publicly available model examples of instructions on screening investees for human rights risks, although these do exist, and investors can resort to tools such as Parametric's one on forced labour (using the MSCI basis).
• Among other things, my submission suggests PRI and others can do more work to develop practical examples, model provisions, case studies, hypotheticals. The consultation paper reads as a very conceptual piece but the aim is to inform and equip investment sector actors: the more practical examples (from / for different investor types) the better.
• The aim is also to persuade investment sector actors. People in corporate responsibility talk a lot about the 'business case' for respecting human rights (in addition to the principled basis for doing so). We see expansive claims that conducting human rights due diligence (HRDD) is an effective proxy for generic commercial and business disruption risks. The PRI paper likewise says that HRDD will "often pick up issues that, left unaddressed, would go on to become financially material..." and that "assessing a company’s human rights due diligence process can therefore also be a good way to assess its overall governance and potential future financial risk..." This is potentially persuasive. But where is the evidence, the examples, the compelling 'business case'? This 'risk proxy' argument needs more meat to engage effectively with financiers and investors as a discerning and analytical group of people.

There is one issue I think will continue to trouble investors and their advisors, and which the 'business and human rights' field (scholars, activists, etc) has not itself perhaps quite come to terms with. This is the perennial vagueness -- or is it constructive ambiguity -- around terms such as 'adverse human rights impact' or 'negative human rights outcome'. The PRI paper talks of investors avoiding activities that 'remove or reduce someone's ability to enjoy a human right'. I can get my head around this -- but I am a law professor. This language strikes me as incredibly broad in ways that is potentially unhelpful for those trying to make investment decisions. Many things one does can impact rights or reduce enjoyment thereof yet not necessarily provide a coherent basis for responsibility let alone liability. I do wonder whether the credibility (for want of a better word) of the business and human rights project is undermined by these sorts of open-ended potentially very wide-ranging terms: how are investors to work with them?

Jo

For some primer resources on investors and human rights, see Investors for Human Rights and this guidance for institutional investors (on the OECD scheme). A range of more specific guidance exists, e.g. within Australia's superannuation sector, or on particular human rights risks (e.g. modern slavery).

'Due Diligence' and Human Rights Risk

Whether or not there truly is a 'new social contract' between business and society, the trend towards grounding 'business and human rights' principles in national-level legislation continues to strengthen.

This week came news that over 20 significant companies and business organisations issued a joint statement welcoming the European Commission's April announcement that it is committed to exploring the introduction of mandatory corporate human rights (and environmental) due diligence laws.

There have been various calls for such laws, and some EU member countries have introduced or are exploring them.

No doubt this supportive, engaged stance by business actors is partly driven by the desire by leading firms both to cement their advantage and for a more level playing field: larger established firms (especially brand-sensitive ones) can only benefit requiring competitors or putative competitors to adhere to and invest in the same enviro, social and governance (ESG) standards as the incumbent players do. There are other incentives and drivers, not least the need for firms to incorporate systems to respond to the increasing orientation of institutional and other investors (e.g. see here). Some firms are also supportive out of a sense of inevitability: such laws are inevitable, we may as well have pan-EU coherence rather than a patchwork of national legislation. Some firms accept research that ties ESG performance with protecting or even increasing a firm's value.

Yet one question I ask my 'business and human rights' Masters students online this week is whether it matters, ultimately, if business / investor support for or engagement in legislative schemes is motivated by 'instrumental' (rather than 'intrinsic' value) considerations or purposes.

I ask this since a critical perspective might be that legislated 'due diligence' requirements (and perhaps more so mere reporting requirements that only imply undertaking internal due diligence processes) do not necessarily transform internal corporate management culture. At least, we remain unsure about the conditions under which this internalisation of values might take place, while such schemes can risk becoming process-oriented rather than preventive and problem-solving in nature.

There will be a robust debate about how such laws deal with penalties, and with remedy for affected groups -- but my ever-practical students are probably right in seeing support for such a regime as a very positive development.

Jo

See for example this blog series on mandatory human rights due diligence, and here for the recent comprehensive study in part underpinning the Commission's approach.

  

Business and Human Rights in Verse: Poem 3

This is the 3rd in a mini-series of attempts to approach themes of 'Business and Human Rights' in verse. The 1st was 'Big Data' and the 2nd 'Supply Chain' (see previous two posts).

‘Dance the Guns to Silence’: some Business and Human Rights in verse

Dr Jolyon Ford

Associate Professor of Law, Australian National University

                                                                                                                                                November 2018

III.

Extractive

They came at night. It matters not,

What they did exactly, it does not matter.

Let us not try say what they took or did:

The gun will serve the highest bidder.

Across the valley the rotors’ throb

Tells us he comes to see the mines.

Beneath the ridge the scarred land drops

To where we sit and wait in lines.

The low hills crouch, they have given up.

The land is beaten down.

It too has learned this will only stop

When all sign of struggle is gone.

There is no dawn that brings them home,

No song of comfort sung.

They exist only if we remember them,

When all is said, and all is done.

From the camp we hear the shift bells ring,

This is not a place for dreaming.

You will not hear our voices sing,

But nor will you hear the screaming.

In this rich earth, a richer dust concealed,

Though we dig, it is not for truth.

Grass in the breeze where the scar has healed,

Mocks their futile defiant youth.

Some system did all this for gain,

And made our rivers burn.

It took our very soil away

And so our soul in turn.

And so here now we that remain

Mine the seams of lessons never learned,

Listen to the scoured land in its pain,

Wait without hope for their ghosts’ return.

                                                                                                                                 

Cambridge MA, 31 Oct. 2018

Extractive Industries and Conflict Risk

In what circumstances can the discovery and/or development of large-scale mineral resources bring countries or communities together, consolidating peace rather than driving conflict?

This question is the subject of the recently published Chatham House report 'Investing in Stability' (here).

As co-authors we found this a tricky subject area, filled with counter-factuals, definitional minefields, and serious methodological problems: how do we measure in what ways major resource projects increase or mitigate conflict risk? How do we attribute 'peace-positive' events or processes to the conduct of firms or others? How do we define 'peace' (net peace? local or national? etc) and who gets to do so? And so on.

The report proceeds on the basis that while energy and mining firms have increasingly clear responsibilities in ensuring conflict-sensitive operations and practices, the principal responsibilities are those of governmental authorities.

The tricky fact is that in fragile and contested states and situations -- the topic of this report -- governmental capacity is by definition very low or compromised. This increases the onus on responsible firms (and their financiers and insurers) to decide how, when and indeed whether to pursue large-scale projects in areas where the historical and political context makes it very difficult to see resource extraction and related revenues as capable of contributing to peaceful outcomes and processes. 

Jo

Africa, 'rising powers' and responsible investment

'The private sector' covers a huge variety of actors. Debate on responsible business, and on engaging business in development, can tend to gloss over this.

The vast majority of stuff written on these topics clearly has in mind only large Western listed companies, yet seldom clearly states this focus-choice, and even then treats such entities as a fairly coherent class. 

There is not enough attention to how different industry and finance sectors have very different incentives, regulatory levers, risk-appetites (etc) in terms of responsible and/or conflict-sensitive business conduct. Within sectors too there is typically significant variation among in how different firms deal with these issues, including variation among firms of the same 'nationality': there is too little good research that demonstrates how this is so (Luke Patey's Sudans oil sector work 2005+ is an example / exception).

Likewise, as argued previously -- and despite the first-glance attractiveness of the proposition -- there is insufficient empirical basis for the assertion that listed OECD-country firms generally have a superior enviro, social and governance footprint in developing countries than Chinese and other firms.

Evidence-based arguments on such things are vital to wider strategic debates about leveling the regulatory / responsible business playing field among foreign investors in Africa. Awareness of the varying capabilities, propensities, motives etc of different business sectors and firms is a good place to start in the advocacy, design, implementation and monitoring of responsible business mechanisms.

This week I'm at a DFID-sponsored workshop of a longer-term project on mega-projects, 'new powers' (BRICS) and conflict prevention in Africa. One of the (academic) questions I think that our research must engage with is the relevance of investors' national origin, ownership (state or private), form of incorporation, etc., to their varying amenability to regulatory overtures intended to mitigate conflict risk and other social harms.

This is a link (here) to a recent paper making the somewhat contrary point, too: that from Africa's perspective it matters not whether investors are Norwegian or Nigerian, Chinese or Canadian. What matters is their capacity and inclination in fact to contribute, within what can reasonably be expected of them, to inclusive, peaceable and sustainable development.

Also this week are two similar events in London on country and corporate uptake of the UN Guiding Principles on Business and Human Rights, adopted three years ago this month. One event looks at 'due diligence' requirements. The other I'm attending and looks at the contribution of multilateral schemes to compliance with such standards in conflict-affected or at-risk areas (see #bizconflict).

Like some of the re-emerging debate on the necessity for, desirability and feasibility of an attempted negotiated treaty on (the state duty on) business's human rights responsibility, such events in the past have often (to my mind) featured well-meaning advocates who tend to speak of 'business' or 'the private sector' as some alien out-there but coherent social force rather than a dizzying array of commercial actors and interests which happen not to be governmental or non-profit. Hence the sense that advocacy and regulatory design could account more cleverly for variation by sector and other criteria.

Such events also naturally focus on Western listed privately-owned firms. But they thereby risk omitting those state-owned (and other) firms from 'rising powers' whose activities are of high significance to development in sub-Saharan Africa. When attention at such events does turn to the latter, the assumption is that Chinese and other firms have poorer records on relevant social impact and development indicators. Again, this assumption lacks a solid empirical basis.

The first step to influencing responsible business activity is to understand 'business' and how it is operating in fact -- wherever it is from.

Jo

'Engage or fail'? Stakeholders in African investing

Africa investment risk advisers can sound good and play it safe by merely stating the obvious.

Yet the obvious is never pure and rarely simple. If it were otherwise, such advisers would find little demand for their services.

A recent report by FTI Consulting warns that investors in Africa risk failure if they do not 'engage' with government and social stakeholders: here.

Two remarks here. The first is that this is not new insight. The report calls itself -- and the strategy of engagement -- 'a new approach' to risk management in Africa. Well, not quite.

True, directly invested firms, especially in time- and capital-intensive sectors such as mining, have over time shifted towards seeking positive social impact, rather than just attempting neutral impact, mitigating negative impact, or not considering local impact at all. They have faced pressure to do so, on various fronts. To shift effectively they have had to re-conceptualise their relationship to host governments and communities. Some have also sought to see this embedded-ness as a value-creating exercise not just a risk-managing one. Still, it is a bold consultancy that presents as a new idea the notion that firms might further their objectives by engaging their host governments, and might protect and enhance their long-term value proposition by deepening their social license to operate through various forms of local inclusion, investment, outreach and disclosure.

The second remark is that consultants do their clients a disservice to simply state the obvious ('engage with stakeholders' ...) as if (a) the process of doing so will be self-evident, (b) the consequences of enhanced engagement are always manageable and foreseeable, (c) the identity of relevant stakeholders is clear and (d) these stakeholders are passively awaiting engagement by corporates and have no mixed feelings or motives of their own. None of these is typically the case in fact.

True, responsible firms with long-term plans in African localities would be well advised to pursue more deliberate, strategic and intensive stakeholder engagement. But the FTI report frames this as a risk-management strategy, when in fact the process of expanding and deepening links to host governments and social groups is neither easy nor risk-free. Few serious firms in Africa would read such a report and say 'Thank you -- it had never occurred to us to reach out locally'. They are far more likely to say 'Yes but it is hard, who is who, what do stakeholders really want, is this our role, where does it expose us?' and so on.

Reports such as FTIs make it seem as if not engaging is risky, but simply 'engaging' solves all social and political risks. That is far from obvious. 'Engaging' can itself become the source of (ok often manageable) risk. It assumes governments and communities speak with one voice, know what they want, understand firms' viewpoints, etc. Now these things are better handled by firms adopting an explicit pro-engagement mindset, actively seeking to find shared ground with authorities or other stakeholders, or delineating the extent of their responsibility. But merely calling on firms to 'engage with stakeholders' tells them nothing about how to do so, and suggests a far easier, smoother process than ever exists in fact.

I say all this partly because of my own fatigue (and my perception of generalised fatigue) at the constant refrain about 'engaging'. It heavily marks the whole area of sustainable / responsible business, and of cross-sector cooperation on development issues. My own blog goes on about it. So does a policy brief I wrote, published last week, on engaging the private sector in peaceful development in Africa. Yet I think a healthy dose of realism is required.

We use 'engage' as a short-hand, convenient phrase in the context of business-government-social relations because our intuition and ideals tell us it is better (for development impact, risk management, etc) than non-engagement. Yet it is far easier to call for than to do. Too few in my field seem prepared to admit this, as a recent post in effect noted, as did another post on enthusiasm for the act of public-private 'partnering'.

Last week's post made the same point in relation to NGO-business collaboration: on balance productive and advisable, but hardly a smooth ride.

Jo

Post-script:

The FTI report's mini-poll of WEF-Africa attendees does reinforce a good point: foreign investors in Africa have a long way to go in communicating better with / to local stakeholders. In previous posts (see 'Corporates, Communities, Communicating' here) I've noted that firms involved in the bumpy African growth story can improve their messaging about the nature of the constraints they face, their limited ability to meet social demands, the delineation of their responsibilities from those of government, and so on. High expectations of firms (individually and as a class) are a source of risk, both directly and in feeding arbitrary and/or populist-placating fiscal demands and regulatory actions.

Proving improvement, evaluating value in Africa

As it matures, the 'responsible business' agenda requires (and exhibits) realism alongside idealism. Indeed, it is often by getting real that ideals are realised.

Disciples of the African investing story, positive version, in my experience use a discernible mix of head and heart: citing hard numbers (yield / return), but typically often overlaying it with something of an emotive appeal to be part of something bigger, the rise of a continent and its sustainable development. In extreme cases, this appeal smacks of a guilt-trip.

Yes, many objectively appealing investments in Africa are obscured by enduring unfair misconceptions. And talk of responsible investment in Africa goes over the heads of those whose approach (whatever nice noises they make about being part of Africa Rising) resembles that of the couple in Paul Simon's song: "Soon, our fortunes will be made, my darling / And we will leave this loathsome little town..."

But for the rest (beyond a limited set of mainly mandate-based institutional investors: pension funds, endowments, and the like), heart-based appeals to invest at all in Africa, and then to invest responsibly, will not get us far ... evidence of results will.

Is it too harsh to wish for a day when advocates of investing in Africa by reference to sustainability principles feel confident enough to pitch 'do so just because it works, not also or only because you (we) think it is right'?

The realism-idealism point is that the 'field' of responsible investment / business activity both needs and is increasingly marked by greater discipline and rigour: quantifying qualitative gains, proving improvement, measuring success, evaluating value.

This professionalisation of the wider environmental, social and governance (ESG) industry / discourse is both inevitable (if it is itself to be 'sustainable'), and a good thing. One does not have to be subverted to market considerations to accommodate them, and indeed to harness or leverage them in pursuit of sustainable development.

Hence the focus on aligning ESG considerations with 'core' business or investment ones (see here), on learning and speaking the language of positive value-creation (or at least no value impairment), the focus on positive value not just risk management or compliance or reputation-building or goodness, the focus on framing as need-to-do not nice-to-do, and so on.

However, there is still a need to go beyond saying these things work, to showing they do. Too much still involves treating it as obvious that ESG is value-adding, or pleas to disregard that 'it might not be but is still probably a good thing'.

The notion of 'responsible' investment is that it will do no harm, and of 'impact' investing is that it will go further and do some good. Explicit in at least the latter is proof of impact, but investment generally seeks proof of value, and the challenge is to get conceptions of 'value' to include ESG impact as a matter of course.

Socio-enviro responsibility will hopefully move beyond speaking about the falsity of people-planet-profit trade-offs. It must not just show the approach works and is right. It must aspire to show that ESG-based approaches work because they are right and just (not despite it, as an add-on).

Governments across Africa may regulate for greater ESG emphasis, but this is both unlikely and partly beside the point of responsible investment, which is about going beyond mere compliance, and increasingly (one hopes) about seeing ESG due diligence / impact as simply part of 'investment', without the 'r' word prefix.

Discussions had lately have involved whether there something particular about social and sustainability factors relating to Africa, and a particular way of doing business there in terms of ESG factors, development impact or context. Previous posts on 'Africapitalism' have asked this. There is the dynamism, optimism, leapfrog, frontier feel / phenomenon ... but there are also some pretty entrenched structural features of political economy, and Africa Rising is now over a decade old. (There is also the generic challenge of data reliability / availability in the region).

Arguably, if 'Africa Rising' debate is to mature further, it can certainly still seek to inspire new pro-social, sustainable ways of doing business and investment, but must strive to move beyond appeals. It must construct a case that shows how ESG-based approaches add or protect commercial value (at least in the long-term). This means not appealing by saying 'seek more than yield, make a difference' or on the faith that intuitively ESG-based approaches reduce political and other risk exposure. It means maturing beyond the insinuation that if you do not invest in Africa (at all / sustainably) you're neither with it nor a very nice person, and that if you divest you are hurting its children's future. (Much capital flows out each week to secure the future of someone, somewhere else).

In this sense, there is nothing new, nothing uniquely 'African' about all this. Along with an undeniable gloss of subjective, almost sentimental factors (that is, a degree of herd instinct behaviour), capital looks impassively for value propositions.

The challenge for those interested in inclusive, sustainable long-term growth in Africa that does not mortgage its environment and ecosystems is to move, swiftly now, beyond the binary of 'yield' or 'tree-hugging' and show why it works to filter one's investments and run one's business on an ESG basis. Hard proof, the empiricism to match (and sustain) the optimism.

"Faith..." as Paul Simon's song continues "... is an island in the setting sun / but proof, yes, proof is the bottom line for everyone..."

Jo

Corporates, communities, communications

The inimitable, irreplaceable Nelson Mandela will be buried this week.

 

Despite his message (or because of his distinctiveness), very few South Africans expect the leadership that has followed to rise to the same level, but one thing both government and the private sector in his country will nevertheless continue to struggle with is managing the high expectations of especially younger people in terms of job-creation and service provision.

 

Questions of expectations management arose this week at the 'governance of natural resources' session of the Blavatnik School's 'Challenges of Government' conference I attended  in Oxford (here). This focus was somewhat natural since the conference theme looked at issues of people-power and access and accountability and legitimacy. Yet even if that were not the theme, any contemporary discussion of governance and resources in Africa would need to focus strongly on expectations management issues by communities, governments and investors -- especially in countries that have only recently made significant discoveries of sub-soil mineral wealth.

 

Managing community and other expectations in the extractive sectors is not solely about communication strategies, but they are a big part of it. Firms would be advised not to confuse rolling-out social investment and responsibility strategies with handling short- and longer-term expectations: mollifying expectations is not necessarily managing them.

The challenge is not just aligning with community needs and wants those initiatives and investments that firms think would be and look good. It is also to communicate in credible, accessible ways information that helps communities understand realities such as the long timeframes between discovery and production, and between production and profit, or the difference between government's duties and corporate responsibilities, with all the delicate and political balances involved where the host governments at various levels also face and hold high expectations.

 

Firms still tend to focus on external audiences (the market, or activists back in the first world) in terms of their efforts towards communication strategies on corporate responsibility issues; one question discussed at the conference was whether that focus needs to shift more towards firms communicating what they are doing, can do, cannot do, etc., to (a) local community and government audiences and (b) internally with the firm in terms of explaining social engagement issues in ways that are shown to protect and enhance, not distract from, longer-term shareholder value.

 

Moreover, corporate responsibility issues (beyond the more narrow phenomenon of CSR programmes) arguably lie at the heart of firms' risk-management and value-creation concerns, especially in some sectors. Yet in many cases the issues are dealt with as aspects of corporate communications -- non-core and essentially addressed to external audiences.

 

This week saw the publication of KPMG's annual survey of corporate responsibility reporting (here). This follows trends in reporting on corporate responsibility (by over 200 of the world's largest firms, and the 100-biggest firms across 41 countries).

 

This does not necessarily reflect trends in corporate responsibility practices per se, including how these practices or the issues they represent are treated by boards and executives within these firms. Nevertheless, by assessing firms' reports against several criteria (including whether and how a firm's reporting shows how its management governs responsibility / sustainability issues within corporate governance), the KPMG survey does offer some insight into the extent to which these issues may be migrating from the relative periphery to more core areas of strategic and commercial consideration. One sign of that might be where a firm incorporates these issues into its general reporting to the market, rather than (or in addition to) distinct responsibility / sustainability reports.

 

The report is worth a read. In an ideal world firms and governments are managing problems, not just managing (through communication strategies) expectations about problems. In the real world, the latter will continue to matter a great deal to firms invested in places where formal reports of the sort surveyed by KPMG do not necessarily speak to the issues that lead to political and security pressures on firms and the governments that host them.

 

Jo

 

'Good business' in Africa: governance of corporate responsibility

What is more significant in determining the social, environmental or governance impact of larger businesses operating in Africa -- their host government or their home government?

 

During our mid-September conference (see here and previous post), in the Africa political economy discussion group, one delegate asked whether firms from any particular countries were notable for generally doing 'good' (socially responsible) business.

 

We often field questions seeking to define and unlock the formula, strategy, approach, style of firms from Brazil, Turkey, China and so on increasingly doing business in Africa -- questions which assume that such firms display distinct, recognisable attributes on the basis of their national origin, or even that it is possible to attribute a single nationality to many larger firms. Implicit in such questions is often a sense that firms 'from' some jurisdictions are likely to be better corporate citizens abroad than others. A previous post noted that such claims are intuitively appealing but often lack empirical backing -- see here.

 

In reacting to the conference question my first sense was to say that the origin or home of a firm may not be as important as the will and ability of the host government to encourage or ensure responsible investment activities.

 

My particular interest lies in fragile and conflict-affected states. Here, even if interested in promoting responsible business conduct or able to spare the capacity to do so, such governments may fear that placing demands on firms would make the proposition of investing too onerous: it is hard enough attracting responsible firms to risky places (even if many activities to mitigate social impact would also reduce political risks).

 

In weakly governed settings the significance of self-regulation and non-state (or external) sources of regulation increases. That is -- to address the conference question -- the weaker the host government's regulatory capacity, the more the home origin of a firm may matter in terms of whether it feels pressure or inclination to act responsibly.

 

In theory, self-regulation can obviate the need for a capable state across both mandatory (but not enforced) and voluntary activities. For voluntary commitments this is especially, but perhaps really only, where there is sufficient alignment with core business objectives. Transitioning these undertakings to something more formal and systematic generally takes more than goodwill on the part of a single firm or pressure from certain groupings.

 

As a very good, short, recent paper points out, the governance of corporate responsibility -- call it the regulation of self-regulation -- may ultimately depend on the powers of a regulatory state. These powers and the incentives for using them vary across investment-sending and investment-receiving states: the prospects for doing 'good' business in African settings will very often depend on very localised factors and is more complex than labelling certain countries better at being good.

 

Jo

'Africapitalism': doing good by doing well

That corporations and individuals can 'do well while doing good' seems pretty obvious.

It is nevertheless a notion and neat catch-phrase central to new approaches to the role that business should play in society, or perhaps to what should count as a 21st Century definition of 'success' in business. Such approaches are variously described as progressive capitalism, stakeholder capitalism, creating shared value, triple bottom line (people-planet-profit), and so on.

Implicit in the idea of 'doing well while doing good' would seem to be that businesses make efforts to have a net pro-social impact. It connotes moderating / improving their social, enviro and governance footprint, and suggests both supplementing core business activities with explicit social contributions, as well as directing those core activities towards registering a wider range of impacts than the traditional 'bottom line'.

It is interpreted, of course, to contrast with Milton Friedman's retort that a business has no social responsibilities other than to seek profit: on this view, businesses do good (improve social conditions) when they do well, but their only responsibilities, as such, are to their shareholders, employees, tax-collectors and regulators. In any event the latter relationships mainly involve legal duties, not mere 'responsibilities'.

The idea of 'doing well by doing good' is perhaps a bit distinct, at least conceptually. It connotes a firm that prospers materially as a direct result of its pro-social contributions: improving its brand through philanthropic outreach, or attracting the best talent by developing a reputation for great social awareness, and so on.

Then there is the notion of 'doing good by doing well...'.

The latter appears to be the essence of 'Africapitalism' -- renewed discussion of which in last week's Gaurdian prompted this post.

Nigerian banker Tony Elumelu promotes Africapitalism as the (unquestionably sound) idea that Africa's development should be African-led; it should focus not on aid or government actions but on developing conditions conducive to free enterprise; government's role should be minimal and facilitative -- because by unleashing entrepreneurial spirit and commercial potential, African countries will inevitably improve the developmental conditions of all in society; business has a commercial interest in doing good (building more peaceful, healthy, educated, prosperous societies) because this creates conditions in which business may prosper further. The commercial incentive to do well can foster all manner of innovations that might make life for many Africans easier, more secure, less exclusive; more gender equal.

The focus should be on removing obstacles to African-driven free enterprise and profit-making, Elumelu suggests, because this will "touch" society in transformative ways not achievable under present conditions. By enabling Africans to do well, much social good will result.

There is much that is appealing, to my mind, about this approach. Elumelu reiterates the much-heard (and somewhat true) refrain that Africa need not mimic other societies but can leapfrog others' experiences and development stages, so as to develop its own variety of socially-embedded and communally-conscious capitalism ... in essence, a sort of Ubuntu Inc.

Yet Elumelu will know that Africa is not a blank slate. For every 'leapfrog' opportunity is a 'lag' effect from past and existing patterns of relations between business, government and society. Pervasive features of its various countries' political economy militate against any automatic 'trickling down' effect from the success of some; these bottlenecks cannot simply be dismissed by referring to Africans' greater propensity for familial and communal sharing as the basis for what will perforce emerge, organically, as a more benign capitalism. Income inequality in Africa's fastest growing economies is growing, not narrowing, for instance.

Elumelu is not Friedman reincarnated, nor is he just Africa's Michael Porter. The debate he has led this decade is a much-needed one; it is hard to argue against the reform thrust he proposes, given the myriad obstacles to building a successful business in many African settings. A more dynamic, capable, bigger, richer locally-owned private sector promises jobs, promotes pride in Africa's self-upliftment, and would give African governments the revenue sources to deliver better services and social support. The current momentum behind looking to the private sector for a lead creates many opportunities simultaneously to tackle development and sustainability challenges afresh.

Yet calls for reforms to free up profit-making opportunities and minimise predatory rent-seeking are not new. Perhaps a more interesting practical debate is how the local private sector (assisted by donors and foreign firms, where appropriate) can help build state capacity to tax and distribute fairly and transparently. Philanthropy is one thing, but absent such capacity and will by the state, doing very well in Africa will not do most people much good.

Jo

See some related posts: after this year's African 'Davos' (here); taxation and corporate responsibility in Africa (here); and last week's post on business and development in Africa (here).

See a recent Elumelu speech and his thoughts in more detail (here and here).

The US, China and investing in Africa's development

This week Nigeria's president is in China, and last week the US president ended a week-long Africa trip.

Both the Obama visit and the China-in-Africa story raise questions about maximising the sustainable development benefits of prevailing high levels of foreign commercial interest in Africa, while mitigating any harmful inherent or incidental effects.

The last decade's growth in the quantity of foreign investment, trade, loan financing and other commercial interest in Africa has not always been matched by its quality.

By 'quality' I refer to developmental indicators that lie behind high headline GDP growth rates: foreign investment has not necessarily decreased inequality or insecurity, nor necessarily increased inclusivity, institutional capacity, or the integrity of governance processes (one could list other metrics, but I ran out of words beginning with 'i'...).

Such presumed links between investment-related growth and multi-indicator developmental gains require measurement and research; one aspect that requires more data is whether there are, in fact, relevant qualitative differences (seen from the perspective of Africa's inclusive and sustainable development) between investment from OECD and non-OECD countries.

The China-in-Africa story of course has myriad dimensions. This blog's interest is the business-government-society nexus: there is scope for further empirical research on the nature and efficacy of Beijing's current attempts to regulate the social, environmental and governance (ESG) impact of both state-owned and quasi- or non-state Chinese commercial initiatives and businesses in Africa.

A related question is whether -- and in what ways -- the ESG impact of Chinese firms (or funded projects) is materially different from US, EU, Japanese or other OECD firms (or indeed those from the BRICS, Gulf and other regions). It is often assumed that Western firms' ESG performance in Africa is bound to be superior because of their greater exposure (especially if listed) to regulatory and reputational pressures at home; it is also assumed and that this exposure constrains Western firms' commercial performance (competitiveness) relative to firms hailing from countries that pay less attention to how their companies behave abroad.

Statements by senior US officials reminding Africans to be wary of 'new' (Chinese and other) partners play off or play into such assumptions. They may be well-founded, and indeed they are assumptions that inform some of my previous posts (for example, here) on home-state regulation as an issue in strategic competition for access to African resources.

Such assumptions have an intuitively sound ring to them. However, they are largely working assumptions, sometimes laced with presumptions about the relative moral high ground of Western firms that might not be borne out by facts; if we are to be honest, more research is thus needed on whether there is any clear categorical connection between the national origin of a firm (sometimes, with globalised commodity firms for instance, a rather artificial linking) and its inclination to engage in social investment or to refrain from doing harm. Do we know in fact whether Canadian firms operating in Africa invariably have a superior net ESG impact and corporate responsibility profile than Chinese ones?

Turning to the Obama visit, it highlights the significance of a related trend relevant to this blog's subject-matter:

Policymakers For development/aid policy types in the West, austerity is catalysing a re-think about both 'the private sector's development role' (the role of the private sector in helping meet development goals) and 'private sector development' (the role of development agencies in developing local private commercial activity and/or improving the investment climate, not for its own sake but as a means to achieving traditional development goals).

Private sector For their part, firms are seeing African developmental needs and aspirations as a source of opportunity. Perhaps the biggest 'i'-word in contemporary Africa -- whether viewed as a matter of human development or from the (narrower) perspective of investment risk/opportunity -- is 'infrastructure'. Deficits in 'hard' infrastructure such as ports, roads, rail, electricity deter investment, but also represent an investment opportunity, either to meet pent-up local demand or to facilitate access to exportable natural resource opportunities. It is an issue closely tied to the China-in-Africa phenomenon. Obama's visit announced the 'Power Africa' initiative to fund US engagement in improving electricity generation and distribution on the continent.

There are reasons for some scepticism about the nexus between private commercial ventures and pro-development outcomes. Investors cannot and should not displace government obligations. But much of the scepticism goes too far; there is surely far more reason for those interested in African development to see tremendous opportunities for harnessing the self-interest of firms (and the strategic competition of superpowers) in pursuit of pro-social development goals.

Ultimately, too, debates over whether US or Chinese investors are more socially responsible and responsive in Africa can often miss the point, as I've argued elsewhere. The question is not so much the source of foreign interest, but the capacity and willingness of recipient African governments to ensure that private gain is not at the expense of the public interest.

Jo

ps - my first blogpost reflected on the difficulty of talking simplistically about 'the private sector' including where state-owned firms are increasingly active across Africa: here.

The G8 and Africa: trade, tax and transparency

Since the last post earlier this month, the most significant development at the nexus of business and society in sub-Saharan Africa has probably been last week's G8 summit, where the UK government promoted its 'Three-Ts' agenda (trade, tax and transparency).

This weekend a far smaller meeting took place here in Oxford, organised by the University's China-Africa Network (OUCAN) on 'Emerging Powers in Africa'.

The two very different events are related in at least one sense ... efforts in Western countries to regulate for more transparency in the way that companies interact with developing country governments still have some way to go in making a stronger case for such regulations among industry members that must compete with firms from settings, such as China, which do not impose such requirements.

One dimension of the UK government's agenda has been promoting greater transparency by UK-based extractive industry firms on what these firms pay to host governments. Africa accounts for many of the settings where shortcomings in government revenue transparency are a major issue for donors and lenders, local and transnational advocates, and increasingly for firms themselves (often at the behest of their financiers and insurers).

The G8 meeting followed shortly after the European Parliament voted on June 12 on laws (that will take effect in 2015) requiring European oil, gas, mining and logging firms to disclose payments above 100,000 euros made to host governments in relation to accessing or extracting natural resources -- even if the host government's laws prohibit such disclosure. The European regulatory initiative follows the US Dodd-Frank Act (which applies only to US listed entities' disclosure of payments) and reflects many years of 'publish-what-you-pay' advocacy and extractive industry transparency initiatives, the most notable of which was first supported by the British and other governments.

There are many dimensions to this topic, and what follows is only one thought-line.

One does not need to be an apologist for the extractive industries to acknowledge the force of their various arguments questioning such regulations.

One is the risk that Western firms subject to such requirements might be unable to compete for access to resources with less scrutinised, less scrupulous, and perhaps more socially indifferent firms from China and other 'emerging' powers. One can call this the 'Talisman factor', after the Canadian operator that withdrew, partly under pressure at home, from Sudan's conflict-affected oil sector; its concessions were taken up by firms with far less incentives to implement progressive environmental, social and governance norms.

One sees insufficient efforts by regulators (and their political principals at forums like the G8) to develop persuasive lines of argument about the strategic merits of such transparency regimes, in addition to their moral rectitude.

Late last year I blogged on the place of values and principles such as transparency in strategic competition for natural resources (here). It was a post calling for greater suasion on why such transparency regimes matter and why firms should embrace them.

Aside from indisputable matters of principle about the importance of revenue transparency, it is possible to make an argument that regulating for payment disclosures is not materially different from regulating for disclosure of other latent liabilities or political risk triggers. The market appreciates such information and, over time, appreciates those firms that are candid about disclosing material risks.

This sort of persuasion is important since regulatory compliance -- as experience shows and theory argues -- is far easier to secure where an industry accepts that the overall regulatory objective is of long-term value to it as a matter of business strategy (in addition to being warranted on the basis of being a responsible member of society).

That is, in order to get support from CEOs and boards we tend to speak of the need to make the 'business case' for voluntary corporate responsibility outreach. But making a 'business case' also matters for issues of compulsory regulation, because making it improves the prospects of fuller compliance.

The extractive industries are formidable forces when it comes to shaping the content of regulation, which should not be deferential to industry as a matter of course. Yet it seems hard to deny that politicians -- and the academics who advise them -- have not spent enough time acknowledging the commercial-strategic reality of collective action problems and the lack of a level regulatory field when it comes to strategic competition for natural resources. This means that they insufficiently frame moves to regulate revenue transparency in ways that persuade Western firms that these will improve those firms' long-term strategic positions.

Jo

ps -- see also my previous recent posts on taxation and corporate responsibility in Africa (here) and corporates, contracts and clarity (here).

ps -- my colleague Hannah Waddilove blogged last week on the G8 summit in relation to African governments' revenue-raising dilemmas: see here.

Corporations, contracts, clarity: from Congo to Cape Town

Last week was full of interesting events for a blog reflecting -- as this one does -- on regulation and responsibility, risk and reward in Africa.

Here are just two thoughts -- one is on possible side-effects of greater contract and revenue transparency measures affecting major listed companies; the other is on the wider question of the private sector's role in Africa's development.

'Public company as public good'

Friday's cover story and lead editorial in the influential Financial Times covered the (not that new) allegations, in the just-released 'Africa Progress Panel' report, of how the Congo-Kinshasa (DRC) government sold major state mining assets at significant undervaluation; the effect has been unrealised public revenue from the national natural endowments of a country whose alarming poverty and under-development levels belie its significant below-the-ground resource wealth. This is a country whose mineral wealth makes strangely ironic the phrase 'dirt poor'.

The controlling interests in one major listed firm involved in this DRC drama are considering de-listing it from the London bourse; both the US and EU are easing in regulations requiring mining firms domiciled there to report publicly on what they pay to host governments.

Campaigns for greater revenue and contract transparency are hard, on many levels and in principle, to disagree with. (The Panel's report decries the public revenues that go unrealised in Africa each year through various evasive transactional measures by firms; its not an over-statement to say that those interested in glamorous impact on advancing financing of Africa's development should eschew conventional debates and take on the less headline-y, bean-counter complex but nevertheless vital topic of taxation: how it is levied, how its proceeds are used).

Yet for all the merits of the transparency trend, there are some other dimensions. Almost exactly a year ago I blogged on whether one unintended consequence of (otherwise laudable) greater stock exchange regulation of responsible investing might be to accelerate the trend of increased preference for more private and more opaque corporate forms -- and so end up decreasing rather than increasing aggregate transparency on major deals: see here.

(See also these posts on corporate form and responsible investing: here; and the wider context for transparency regulations -- strategic competition for minerals in Africa: here ... in this context there is also a question of whether regulatory proliferation will necessarily achieve its pro-social objectives: see here; last week's Economist noted how much consulting and legal advisory work new regulations on such issues have generated from firms unable to digest what counts as compliance.)

The private sector and Africa's development

Last week saw the 'African Davos' -- the World Economic Forum (WEF Africa) in Cape Town.

On one hand, it is striking how businessperson-policymaker summits have embraced vocabularies that for over a decade have been standard issue within the field of pro-poor development; thus one WEF panel looked at how the private, public and civic sectors could work together on "strategies to mitigate vulnerability and enhance resilience of African societies".

This sort of conversation may partly reflect austerity in donor countries but is no doubt to be welcomed -- see a recent post on the private sector's role in the post-2015 successors to the MDGs: here.

On the other hand, I am still struck by how new and surprising many people seem to think it is that the private sector might have some role, responsibility or interest in meeting development aspirations and needs (beyond being good employers and diligent tax-payers -- although there's a strong argument that after that the onus is on government to deliver public goods).

Thus a good friend who participated in the WEF and whose background is traditional development rather than business, was pleasantly surprised to learn how companies all over Africa are doing some pretty dynamic and interesting things towards its development -- doing well while doing some good. Perhaps one day this will no longer be surprising: the private sector, as this blog chimes, inhabits a public world.

'Business and Society Monitor'

Finally, if interested in these issues here is a link to our firm's new, free, quarterly email service monitoring macro-trends in corporate responsibility and sustainability, in the context of the changing role of business in society: sign up (and spread around) -- here.

Jo

Corporate (re-)entry, sanctions and risk: the Myanmar / Burma example

Geopolitics, universal values and corporate strategies intersect where firms decide to (re-)enter 'transitional' states emerging from relative international isolation.

Previous posts have discussed African settings where bilateral or bloc-mandated sanctions apply (from Sudan and Eritrea in the Horn of Africa, to Zimbabwe and Madagascar in southern Africa), but this week's post looks at Myanmar (Burma).

On April 22 the EU lifted all its remaining trade, economic and personal sanctions on Myanmar (bar the arms embargo) in recognition of its reforms towards greater inclusivity and political space.

So I asked my Oxford Analytica colleague Herve Lemahieu -- who follows the country closely -- a few questions about the issues where risk, regulation, reputation and responsible business conduct meet in post-sanctions Myanmar:

JF: What have been historical (1990s and on) patterns of Western corporate engagement and how quickly is this changing?

HL: “Two decades ago, Western companies were rushing out of Myanmar under pressure from shareholders and activists. Pepsi Cola, Apple, Levi Strauss, Unilver, Texaco, Carlsberg, Heineken, Disney and Hewlett-Packard were just a few of the big names to exit the country following high-profile campaigns. In the mid-1990s and into the early 2000s, Western economic, financial and political restrictions, in place ever since the failed pro-democracy uprising of August 1988, were steadily ratcheted up and bolstered by consumer and civic pressure groups discouraging all trade, investment and tourism.

There is little evidence that this boycott had much more than symbolic value. Twenty years of military rule and Western sanctions allowed a narrow, state-linked business elite to thrive while hitting the general population the hardest. The West lost influence while allowing Asian competitors an open field. Rather than acquiesce in Western calls for sanctions or add to pressure for regime change, Beijing and ASEAN favoured the military regime's own top-down transition and seven-point roadmap to ‘discipline flourishing-democracy’.

Many western observers failed to recognise what the military regime was trying to do during its two-decade rule because it did not conform to categorical ideals of democratisation. However, the integration of opposition leader Aung San Suu Kyi and her National League for Democracy (NLD) into the fold of the country's ‘disciplined democracy’, in which the military remains the most influential de-facto and constitutional powerbroker, has been judged ‘good enough’ for Western businesses to rapidly return to one of Asia’s last remaining frontier markets.”

JF: Are corporate engagement strategies out of line with diplomatic ones, and does it depend on whether Western or other company / government?

HL: “Government and corporate policies are now, broadly speaking, mutually reinforcing. Most Western governments have conceded that sanctions exercised only limited political leverage over the previous military regime, and are opting instead for pragmatic engagement to secure political and commercial goals in the country. For their part, many companies have learned from past experience to become more risk-averse and reputation-conscious as they prepare for market re-entry. However, there are still nuanced differences in the economic diplomacy espoused by different capitals, with varying private-sector implications:

· Japan has led the field in normalising ties and increasing its commercial presence in Myanmar -- something political liberalisation now allows it to do at far less cost to its international reputation.

· The EU has today agreed to follow Norway, Australia and Canada by permanently lifting sanctions, rather than conditionally renewing their suspension.

· That leaves the US the only country to maintain curbs on the country as part of its piecemeal ‘action-with-action’ approach of easing sanctions through presidential waivers.

Corporate and diplomatic strategies still clash in as much as US business leaders have complained that Washington's policies require extensive compliance paperwork and present legal/reputational uncertainty, while European and Asian rivals gain first-movers advantages. Many US multinationals are undeterred, including Coca-Cola, General Electric, Hilton Worldwide, Visa International and MasterCard which have all entered Myanmar in the past six months.”

JF: Is there a case for saying that corporate engagement at this time helps support wider reform / transition in Myanmar? What counter-arguments do you hear among those watching the country?

HL: Some Western politicians and lobby-groups have sought to portray Myanmar’s transition and the resurfacing of ethnic and religious violence as, respectively, evidence of the effectiveness of, and continued need for, conditionally withholding western business activity in the country. However, governments and voters alike are becoming more sceptical of their ability (or indeed the general desirability) to micro-manage political change through blunt economic polices implemented from half-a-world away.

As the logic for broad-brush 'complicity-by-general-association-or-presence' risk starts to recede for corporates re-investing in the country, risk will start to lie far more in particular relationships and actions that firms might take, such as labour relations, community and environmental impacts. Given the absence of well-developed physical, financial and regulatory infrastructure, the challenge will be for corporations to self-regulate, hedge risks, and assess their own ways in which they can contribute to the wider reform process.

Already, we have seen prospective and actual businesses drive the government’s efforts to adopt international standards, from labour rights to financial regulation and environmental protection:

· Nearly 400 government officials were sent to jail on corruption-related charges between mid-2011 and December 2012 (almost as many as political prisoners released in the same period). This includes a crackdown on the endemic practice of accepting or soliciting kickbacks and bribes to award contracts.

· The government is negotiating entry into the Norway-based Extractive Industries Transparency Initiative and will likely remodel its energy contracts according to the voluntary regime’s stringent requirements for financial transparency, environmental standards and corporate governance for the natural resources industry.

· Japanese trading houses – including Mitsubishi, Mitsui, Marubeni and Sumitomo – have spearheaded efforts to diversify away from the extractives sector by investing in the labour-intensive sectors, such as manufacturing, services and agriculture.”

My thanks to Hervé.

The Myanmar outcome came a day after the Bahrain Formula 1 Grand Prix, where the organisers (and indirectly, the sport's many sponsors) were forced to defend their decision to hold the race in the face of a campaign for greater political freedoms in the Gulf state. Politics, human rights and calls for sporting boycotts are nothing new, but there is no doubt that especially brand-sensitive corporates nowadays need to navigate these issues more swiftly, consistently and comprehensively.

For previous posts on this topic, see here (corporate engagement in ‘pariah’ states), here (entering 'closed' complex settings like Ethiopia) and here (reputational risk from mere presence?).

Jo

ps -- of note to a blog on this general subject matter relating mainly to Africa, the US Supreme Court last week rejected Nigerian plaintiffs' arguments that US courts should exercise jurisdiction (under the ATC Act) over claims against Shell for conduct allegedly occuring outside the US. In a future post I'll reflect on litigation strategies in the context of wider efforts to 'level the playing field' for responsible business activities by firms -- whether from the 'West' or 'emerging markets' -- in Africa.

Corporate dilemmas in Africa: geopolitics and reputational risk

Just as different firms and funds have varying appetites for risk in Africa, so not all firms are equally exposed to various types of risk. This is particularly true of reputational risk.

This short post reflects on how most sources of reputational risk in Africa will probably continue to come not from mere presence in a country -- even one that itself has a poor reputation -- but from the traditional sources of reputational risk such as supply chain (labour relations, community or environmental impact, or quality control) incidents.

When it comes to the significance of reputation (and so the importance of its degree of vulnerability), so much depends on the sector, the nationality of the firm (Western firms are more vulnerable, generally speaking) and the extent to which a firm has a transnational footprint where things like consistency and contagion-perception can matter.

Thus foreign banks interested in Angola face different reputational risks to foreign beermakers; while often arbitrary distinctions arise (especially where the business and political elite are small and entwined), they can be relevant: investing in palm oil in Equatorial Guinea does not, on the face of it, raise the same lay person's response as investing in oil there.

Why write about this now? Last week saw Uhuru Kenyatta sworn-in as Kenya's new president following the March elections. Given that for now he still faces trial before the International Criminal Court (and given that Sudan's president, another ICC indictee, was initially to attend his inauguration), much of last week's media coverage turned on what the ICC dimension in Kenya means for Western governments' dilemma -- torn between (on one hand) not undermining the ICC and all it stands for, and (on the other hand) their interest in engaging with a duly-elected, not-convicted-of-anything leader of a major and strategic African partner state.

It is also a state with good investment and economic growth potential. I've not seen any accompanying questions about the appropriateness of investment dealings, by private firms, with a government led by an ICC indictee -- corporate diplomacy or foreign policy, if you will.

In my view there is not really any issue in the Kenya case: it is very hard indeed to see that any firm will (or in principle should) suffer reputational damage simply from maintaining or initiating such links now; the risks, if any, lie far more in particular relationships and actions that firms might take, than any broad-brush 'complicity-by-general-association-or-presence' risk. By contrast the latter risk -- whether fairly or not, and partly because Washington maintains some sanctions -- probably obtains in relation to a country like Sudan.

Yet the private sector inhabits a public world where its decisions and actions will impact the public interest -- and vice-versa. Thinking in terms of distinct public and private spheres is limiting even just in a narrow corporate operational sense: this is not to say that the state (on behalf of the public) has a legitimate interest in all private dealings. Instead for companies at least it means being conscious that a particular firm's actions can (often quite randomly or arbitrarily) become seen as illustrative of big political debates -- suddenly, hashtags appear linking one's business in the public mind with narratives of crimes against humanity; likewise, seemingly small issues and events can become seen as linked to much wider stories.

Hence -- for those firms with reputational exposure -- the links between attempts to respect and protect the public interest, and what the public will likely take an interest in.

Jo

ps - see the first April post on public trust in firms -- a key element of reputation; see also, for instance, this post on corporate engagement in 'pariah' states -- here.

pps - in the last post related to this topic (here) I referred to a talk on 'corporate foreign policy' that my colleague Dr Stephanie Hare gave for our firm at the Chicago Council on Global Affairs. Here is a link to a podcast of her talk.

'Corporate foreign policy': phones and filters, norms and no-go's

Corporate or investor reputation is not only based on values but on how consistently they are applied.

In a networked, info-sharing world, this creates potential reputational (and operational) vulnerabilities for firms or financiers involved or interested across countries with varying democratic, human rights and governance/transparency standards.

The notion of multinational firms needing a 'corporate foreign policy' is strongly tied to the recognition that such firms may need a coherent and clear principled position on acute or chronic serious socio-political issues arising in particular countries of operation.

Beneath modern corporate responsibility frameworks is the tendency towards a normative assumption (or at least aspiration) that a firm's policies on social and governance issues are universal -- applicable wherever the firm operates; yet implicit in operating (and, especially, competing) across jurisdictions is the sense of a need for flexibility especially where engaging in situations where political space is more constrained and austere. (EU human rights law in other contexts refers to a 'margin of appreciation' afforded, there to states, in their local interpretation and application of norms).

It is easy to see that compromises reached in some places may expose a firm to allegations, back home, of laxity in upholding human rights or other standards -- while attempts (or perceived attempts) to promote certain values in a host country may expose a firm to awkward government relations. In hard cases, and faced with competitors for whom reputational risk is far less relevant, firms will think hard before risking their license to operate for the sake of bolstering their (global or local) 'social' license to operate -- even if in the much longer term it is conceivable that a principled stance on a country or issue may improve their strategic business position.

Three coming events prompt this re-visit to the 'corporate foreign policy' (CFP) question. First -- this week -- is a talk on the topic at the Chicago Council on Global Affairs by my colleague Dr Stephanie Hare. Second -- next month -- is another talk here in the UK. (The former promises to deal with issues such as the consistency question; the invitation for the latter seems to explain CFP as little more than 'do try harder to understand the nuances of your host country'...)

The third event -- which ties these CFP thoughts to the sub-Saharan African settings that I follow -- is one I am attending, this week's Ernst & Young 'Growing Beyond Borders' Strategic Growth Forum, in South Africa.

Two large African countries that I do not expect attendees to ask or talk about much are Sudan and Ethiopia. This is despite their objective importance and the attention such African investment and business talks give to demographic factors as elements of frontier market attractiveness (Ethiopia has over 80 million people, Sudan over 30 million; Addis Ababa and the Khartoum-Omdurman conurbation are major African cities). At least among Western investors, there is little interest in either country in the consumer-facing sectors -- such as telecommunications -- so captivating investors elsewhere on the continent. Despite both having governments that strongly constrain free political activity, the two are not analogous -- Sudan is still subject to US economic sanctions, whereas Ethiopia is a key Western strategic ally in the region and something of a donor 'darling'. The countries' respective images are such that the CFP (reputational) implications of investing in Ethiopia are considerably less than those relating to Sudan.

Ethiopia's mobile phone and internet penetration rate is well below the east African average -- like other strategic sectors, activity is restricted to certain local elites and entities, while its authorities actively monitor and filter local telecomms and internet usage. As Dr Hare has noted, CFP concerns are often at their sharpest around cases where global firms with universalist brand aspirations are prevailed upon by less democratic authorities to restrict user services, for example in cases of domestic political (pro-democracy) crisis. Ethiopia is unlikely rapidly to liberalise (in a commercial sense) its telecomms sector; but should it begin to embark -- in the aftermath of the death of long-standing ruler Meles Zenawi -- on a new era of opening up some sectors of its tightly-controlled economy to foreign firms, new entrants will need to ask whether the degree of continued state interest in users' content, or the political stance of local partners, are compatible with any universalist aspirations or commitments that the foreign firm may have.

Firms have to do their own filtering if they are to decide their value stance, reputational or regulatory exposure, and how pragmatic they will be in trading-off certain principles and preferences.

The global and sector-specific normative framework is still evolving for responsible business conduct in cases of value-challenging political and economic governance dilemmas. Under varying (but arguably growing) degrees of public or regulatory scrutiny, firms and funds are deciding their own filter-gauge and normative threshold for what constitutes an acceptable set of choices and actions when confronted by value-laden dilemmas about their operations.

As I've argued before, the 'CFP' label can mask that these issues are not entirely new (think, for instance, of apartheid divestment campaigns and decisions). They are nevertheless one more issue on the risk dashboard when contemplating country entry, expansion or exit; where a country's political space is opening up, holding the promise of first-mover or hope-signaller advantage, it is one issue on the 'opportunities' dashboard corresponding to risk calculations.

Jo

See the most recent post on related issues (corporations and principled engagement in 'pariah' states, with links to other previous posts on CFP and on corporate 'nationalism') -- here.

CFP is distinguishable from -- but closely related to -- topics such as the use or attempted use states make of activity abroad by their corporate nationals for official foreign policy purposes and to defend or promote the national interest (private or state-owned corporations as witting or unwitting agents of state foreign policy).

Mining and development: 'A' to 'Z' of the 2013 Mining Indaba

The nature and extent of mining firms' role in meeting host country / community development aspirations is a daunting and complex topic.

This post comes from South Africa, where yesterday I attended the final day of the mammoth African Mining Indaba (investment conference).

The final day focusses on sustainability issues in large-scale mining -- but the 'A' to 'Z' title of this post over-promises, since I have no intention on summarising the conference.

I propose only to mention two thoughts I had while listening to experienced CEOs, the ICMM and others on sustainability / mining-for-development / mining-as-development issues. One ('A') is an Australia-related thought (or attempted analogy); the other ('Z') is Zimbabwe related. Mining has been a big part of the industrial history of both these vastly different countries that have in common only that I happen to have lived in each!

Scaling-up social investment

How do firms under pressure to improve livelihoods balance payments to appease individual workers (and so the collective labour-force), with large-scale social investment that benefits such a group but in a less direct fashion?

The Australia example is this. In 2009, in an effort to stimulate consumer spending and stave off recession, the government offered individuals small packages of cash that together amounted to billions of dollars. I was able to buy the predecessor to this laptop. Yet the pay-outs were criticised on the basis that one-off cash to individuals could not be justified relative to the large, once-in-a-generation infrastructure project that the same cash total could fund (with ancillary job-creation and other benefits).

Major South African platinum (and other) mining firms last year offered wage increases in response to stoppages partly caused by complaints about cost-of-living and access-to-basic-services issues in the mine site area. Such strategies may come at the cost of longer-term ones, where the same funds are used to build shared infrastructure (such as water and sanitation). The latter strategy raises a host of difficult, familiar issues about distinguishing corporate from government duties. Nevertheless, yesterday's discussion at times seemed apolitical: it will be intensely political, for example, to persuade local authorities in the Rustenberg area of South Africa to build (or allow companies to build) more permanent housing for a workforce that local residents sees as foreign (being heavily comprised of migrants from the eastern Cape, Lesotho and elsewhere).

Scaling up research on social investment

The Zimbabwe analogy is this -- and it relates to the need, in my view, for more research on the empirical links between social investment and reduced political risk.

It is routinely -- as at Indaba -- stated that increased corporate investment in social services builds the social license to operate, and it is inferred that this lessens the overall risk of sudden or catastrophic governmental interference with a mining asset. As well as reducing the prospects of local friction and resulting disruption (although spending and local procurement or hiring can create or worsen local grievances and competition, too), it is certainly arguable that investment that consolidates the social license also reduces the likelihood that a mining or oil/gas site will provoke local political energies that lead to national adverse political attention, thus putting the overall formal license to operate at risk of political scapegoating.

Yet this link is not a necessary one -- hence the need for more empirical studies. It is not necessarily the case (look at platinum firms' experiences in Zimbabwe recently) that a better social performance profile immunises a firm from high-level political pressures. Many of the processes at work are driven by issues and forces far bigger than an individual site or firm; the company's reputation and goodwill might be irrelevant in terms of how government treats it.

The actual Zimbabwe analogy I meant is from white commercial farming in the 2000s. Others have studied this far more closely, but it seems to me that there was no necessary link between farmers who had refrained from developing their workers' livelihoods (electrifying compounds, water, clinics, etc) and the likelihood of their properties being subject to formal compulsory requisition (or informal and illegal seizure by political elites or groups). Being a better citizen farmer might have helped reduce the scope for scapegoating any individual, but most farmers were at the mercy of a much wider and more complex, irresistible set of forces. In that process, their responsible actions in social investment terms often had little impact on whether they retained their property or not.

The point is that social investment strategies are both right, and make business sense. Yet more research is needed on the link between them and reduced political risk. Indaba speakers merely asserted this link.

So what?

Each year that I've been, the Indaba highlights how intensely political, ultimately, it is to enter another country and extract its resources. Navigating the risks and opportunities involved is part of my day job; thinking about the duties and dilemmas of the private sector (vis a vis government) is this blog's subject. No-one has a monopoly on solutions to these pressing, difficult issues.

Input welcome!

Jo

See previous posts on resource nationalism and other topics for discussion of related issues, both in South Africa's (rather unique, yet also not) context and more broadly.