Theme 5: New Research on Corporate Risk in Conflict Zones

[Peace Through Commerce]

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A discussion moderated by Raymond Gilpin,U.S. Institute of Peace Visit Biographies for more about presenters

What does the latest research on corporate risk in conflict zones?
Corporations face serious issues when they decide to operate in conflict-sensitive zones. This session focuses on the managerial issues associated with engaging in such business from a perspective of risk and decision-making.

Presentations:
Research on Corporate Risk in Conflict Zones
Watch the three videos and join the discussion with presenters below.

	Kathleen A. Getz, Senior Associate Dean for Academic Affairs and Jennifer M. Oetzel, Associate Professor of International Business American University "Responses to Violent Conflict: CSR, Risk Management, or Something Else? Some Empirical Evidence"(7:46)			Charles Koerber, Doctoral Candidate, Department of Strategic Management & Public Policy, George Washington University "Corporate Responsibility Instruments and Guidelines: Current Implications and Future Possibilities for Peace Through Commerce"(4:12)

	Liesl Riddle, Associate Professor of International Business and International Affairs and Tjai Nielsen, Assistant Professor George Washington University "Diaspora Investment Motivations in Post-Conflict Countries"(2:47)		Papers MNE Strategic Intervention in Violent Conflict: Variations Based on Conflict Characteristics Kathleen A. Getz and Jennifer M. Oetzel American University Corporate Responsibility Standards: Current Implications and Future Possibilities for Peace Through Commerce Charles Koerber George Washington University Investing in Peace: The Motivational Dynamics of Diaspora Investment in Post-Conflict Economies Tjai Nielsen and Liesl Riddle George Washington University

Discussion: How can corporations mitigate the risks associated with doing business in conflict or post-conflict areas?
Questions
1. Do the costs of operating in high-risk, conflict environments make it less likely for corporations to be socially responsible?
2. What practical steps could corporations take to help promote peace in the fragile environments?
3. Is corporate social responsibility an additional cost for businesses? How could these costs be mitigated?
4. Does investing in corporate social responsibility help reduce business risk?

[Tim Fort]

Hi Everyone,

This week marks the mid-point of our eConference and focuses on "where the rubber meets the road." That is how corporations face issues when they are in the middle of a conflict zone.

Our moderator this week is Raymond Gilpin, who directs the Sustainable Economies Center of Innovation at the United States Institute of Peace. This is a new focus for USIP and Raymond has provided groundbreaking leadership in the analysis of the issues directly related to this week's theme. I'm delighted to have him moderating this week's session.

Tim

Timothy L. Fort, PhD, JD Exec. Director, Institute for Corporate Responsibility Lindner-Gambal Professor of Business Ethics George Washington University School of Business
Professorial Lecturer, George Washington Law School

[Raymond Gilpin]

Welcome to this week’s discussion of corporate risk in conflict zones. If you have not already done so, I will encourage you to browse through the preceding sessions; some of which already discussed some dimensions this issue. Economic recovery and an improved quality of life in most fragile states requires significant investment in infrastructure, mining, manufacturing, the service sector, forestry and agriculture. However, significant risks in these areas (political, security, social and economic) impose additional costs to investors – making some less likely to support social projects via corporate social responsibility (CSR).

Should CSR be viewed as an additional cost? Or should it be internalized within the business plan as a risk-mitigation strategy? New research in this topic suggests that CSR investments could improve local ownership, help integrate the local economy and prevent delays/disruptions in production. Others question whether these investments should be made by host governments or the corporations. There may be some merit in distinguishing different types of risk and determining optimal mitigation strategies.

I invite you to review the video presentations and materials in this session and share your thoughts on this timely topic of great importance. I look forward to your contributions.


Best,

Raymond

[Stefanie Singer]

I highly believe that CSR should be internalized within the business plan. CSR is about managing your business to achieve both commercial and social benefit. In essence it's about managing your social, community and environmental impacts to help you improve results, reduce risks and enhance your reputation. It is also about growing your business in a way that has value for everyone connected to it. Customers and clients are influenced by a company's reputation in social and environmental areas. The employment market is competitive and good recruits want to work for and stay with companies that care. Social performance increasingly influences investors' decisions, as the ethical investment market grows evermore quickly.

Most businesses compete either on price, level of quality or service as their competitive advantage. Non-profit organizations often use efficiency, values of service or societal benefit to generate their competitive advantage. Today consumers, investors, governments and even employees have become more sophisticated and more aware of good corporate behavior, or lack thereof. In this new business environment, a company's reputation has become one of its most valuable assets, and CSR has become one of the key components of corporate reputation. Positive CSR experiences build confidence and goodwill with stakeholders. Many organizations have developed clear CSR efforts as strategic branding and management approach in achieving a win-win outcome.

Investors are becoming more concerned to invest in company’s that act with good corporate governance and social responsibility. Increasingly, a company’s performance as a responsible business is key to its financial and stock market standing, helping to protect it from instability and share price volatility. A company’s human and intellectual capital is one of its most valuable assets. Good workplace conditions and relations can help a company to attract, keep and develop human capital, keeping operations and staff morale high. Community involvement can play a complementary role in developing new skills set, encouraging participation, sharing and team spirit in the workplace as well. More than ever, CSR in conflict zones are so important right now. CSR is becoming a very important part of business practices. Do you think companies will begin to further incorporate CSR internally or fight it?

[Katie Crimmins]

I would consider CSR to be an essential instrument for reducing business risk in conflict and post-conflict areas. Today, even in stable areas of the world, CSR should be an integrated element of any business plan. It's become expected that businesses take part in socially responsible projects and uphold themselves as good corporate citizens. CSR has become an important to quality for most stakeholders. Businesses are being considered more and more of an active part of society and thus, are expected to take an active role in social issues.

In a conflict or post-conflict area, these ideas should hold strong. When operating in such a risky environment, companies must employ CSR to establish good relations with the surrounding community. I would expect relationship within the community to be crucial to minimizing risk. However, I also have to wonder whether or not participation in CSR and increased involvement in the conflict stricken community in which a might operates could increase risk. I'd be interested in hearing more opinions on this topic.

[Jennifer Oetzel]

Hello Katie. You raise an excellent point in your comment. There is no doubt that increased involvement in conflict stricken communities can pose additional risks to firms. That is one reason that firms may be more likely to collaborate with other organizations or private sector firms when they do take action. By collaborating, firms can share the responsibility of engagement and the risks and benefits associated with it. Furthermore, engagement doesn't have to mean that the firm is taking an active role in conflict negotiations. It may be that organizations collaborate to help those affected by the conflict or lobby the host country to address the problems related to the conflict. Alternatively, firm involvement may simply mean that organizations rethink their internal policies, such as their human resource strategies, so that they do not aggravate the conflict further (e.g., employment policies that inadvertently favor one ethnic/religious group over another).

[Katie Crimmins]

Thanks for replying, Jennifer! I noticed those points in your video discussion. It does make sense to me that firms would want to collaborate with ngo's and nonprofit organizations in order to lessen risks, but in terms of your point on "sharing the blame," how much can this actually help?

Also, in terms of collaboration, are these partnerships traditionally designed in a way in which the firms fund the efforts and the ngo's or nonprofits make the decisions and execute the efforts? I understand the benefits of this kind of model, but I'd also like to see firms increase their direct involvement in CSR. It seems to me that a great deal of CSR efforts become situation in which firms throw many at a cause and consider that to be sufficient.

[Jennifer Oetzel]

Katie - As you pointed out earlier, there is always a risk involved when trying to address conflict, despite the fact that inaction may actually be the greater risk.

In cases of prolonged conflict, it may be that diplomatic efforts have failed and so-called experts on conflict resolution have been unable to stop the violence. In that type of situation managers' efforts to lobby the host government, for instance, may also fail. In that case, individual firms may prefer to share the risk of failed action with other organizations. That is what I meant by sharing the blame.

On the other hand, firms bring unique resources and bargaining chips to the table that diplomatic individuals and groups do not have. Private sector firms often provide jobs, generate revenue, and promote economic development. Their economic clout may given them power that other actors in government or the non-profit world do not have.

Regarding your second point, we are beginning to understand what firms are doing and who they are working with but I do not believe we can say what is typical behavior yet. Although I believe firms have actually been doing quite a bit to address conflict for some time now, this is such a new area of research that we are still trying to determine which firms are engaged and what they are doing. My guess is that there are a wide variety of arrangements - some where the NGO makes decisions, others where it is purely a private sector effort.

To your last point, I agree that true CSR is not simply writing a check. The whole thrust of this eConference is that firms should rethink how they operate and that CSR should be embedded in an organizations' practices. In order to reduce poverty and violent conflict, firms must think about these issues at a deeper level. I believe the benefits of doing so are tremendous for firms as well as the communities in which they operate.

[Jessica Reouveni]

Jennifer,

In your paper you discuss collaborative partnerships with NGO's and other non-profit organizations, and how they can be particularly effective because the NGO/non-profit often has skills and knowledge about the particular country and conflict. I was thinking about countries such as Zimbabwe and South Africa, which in my opinion fall into the category of what you describe as 'fragile states'. Specifically then, in these countries I was wondering about collaborations between MNE's and institutions such as NEPAD. NEPAD, The New Partnership for Africa's Development, seems to address many of the same issues as Peach Through Commerce (though specifically in Africa) such as escalating poverty and underdevelopment. Further, many of their principles are compatible, their first being "good governance as a basic requirement for peace, security and sustainable political and socio-economic development".

On the other hand, their goal is to address the problems by establishing partnerships between African people, and increasing African ownership and leadership. I was wondering what your thoughts were on this, because I feel like if there is no attempt to collaborate with NEPAD a situation may arise where MNE's in general become enemies of NEPAD. I'm sorry if I haven't articulated this particularly well, but I thought you might have some interesting insight into the notion that no collaboration, or unsuccessful collaborations, may increase conflict with local organizations and people.

[Raymond Gilpin]

Jessica:

May I suggest the attached paper which summarizes NEPAD's opportunities and challenges? You have probably seen it already, but I think it does a great job of presenting the issues -- particularly in the area of economic governance.

i am sure Jennifer will respond to your question regarding the collaboration and conflict.

Best,

Raymond

[Jessica Reouveni]

Raymond,

Thank-you, I actually hadn't read the entire thing before, and there were several things I found interesting, especially as they relate to this week's discussion.
On page 19 the paper discusses how having institutions is less important than having functioning institutions. It then poses the question of 'which institutions matter' and which institutional reforms have to be implemented and when. I was actually amazed at how similar this sounded to the research in Getz & Oetzel's paper. I think it's important though that NEPAD's research specifies that reform priorities, and therefore the needed initiatives, differ between countries. If they differ so much between just African countries, it's hard to imagine how different they must be between various countries on different continents.

Regardless, I am still a bit hesitant. Specifically, I was wary of the fact that in their discussion of international involvement, they specify that what they need is international financial assistance. Personally, I would be a bit reluctant to give financial assistance to NEPAD before seeing some concrete advancements especially in government behavior. Moreover, there's only so much that financial assistance and even the best of initiatives could accomplish in an unstable country with an unstable and corrupt government.

Below is an article from the SA news on NEPAD's accomplishments thus far... I was disappointed, though not completely surprised to find they aren't doing as well as expected.

http://www.iol.co.za/index.php?set_id=1&click_id=68&art_id=...

http://www.iol.co.za/index.php?set_id=1&click_id=13&art_id=...

[Raymond Gilpin]

Katie:

Thanks for your insightful observations. Your point about firms increasing their direct involvement in CSR is spot on! In my view, this would only happen when the firms stop viewing CSR as charity and internalize social investments in their business models. This was the theme of a recent event in Washington DC (16th April), which examined a valuation tool that does just that. It helps companies see how CSR could help mitigate risk and help the "bottom line";

Click here for conference presentations: http://www.commdev.org/content/calendar/detail/2381/

Click here for additional resources: http://www.commdev.org/section/tools/csr

[Katie Crimmins]

I completely agree, Raymond. Thanks for the helpful resources.

I recently came across this article:

ttp://money.cnn.com/2009/03/03/magazines/fortune/investor_daily2.fortune/index.htm

Basically, a Boston-based investment firm managed to avoid much of the economic turmoil that has rocked the financial industry because of their commitment to investing in solely ethical companies. I would argue that this firm isn't just investing ethically, but sustainably. It invests only in companies who do not harm the environment and who exercise true CSR.

Although this might not be completely relevant to this discussions theme, I think it's an interesting point to bring up: if more firms would subscribe to these guidelines for investments, incentives for truly socially responsible business models would be much stronger. Plus, such investments would encourage sustainable business practices and strengthen economic, social, and environmental sustainability worldwide.