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?

[Gaylord KABONGO BOOTO]

The first thing we have to keep on our mind is that " conflict or post-conflict areas" always have an other kinds of lives which are very different than lives in non conflict areas. In this case, operating under conflict environments needs to have a large idea of what are the basics of life in the concerned zone and what can be, in a very short time, a possible dramatic case which can considerably detroy what we are building or we want to build in that zone.
Surely, CSR elements can positively influe situation in a context of production and market. But we must not loose the nature of under conflict or conflict areas operating markets that is the very high possibility of risk ( high-risk) which can strongly affect the effectiveness of a corporation, when , before deciding to operate in one or other field, they did not take care of this aspect and they did not try to understand the tendances of the ongoing market. This needs an adjusted evaluation of each element, basing on CSR element with a very large view of the market and its evolution.
Corporate Social responsibility may lead to many benefits and than can be considered as an additionnal coast for business as an investment for those who, in the begining of their activity,did not take into account the CSR concept element. Integrating CSR element may ask some additionnal coast, but the result, when appling correctly CSR element into the corporate strategies, is more interresting than this coast. Investing in CSR help reduce business risk because of correct evaluation of business and related parameters. CSR concepts, can also be understood as a correct satisfaction of stakehilders; and basing on this interpretation we understand that the integration of CSR in one corporate strategies means that we chose to work for the best and for every parts. Each part, direct or indirect related one, has interrest on what is done and than is to bring what he can to lead things in the best way on his restricted operation sectors.
In very fragile or fragile environments, building sustainable competitiveness by using frame work to integrate CSR into corporate strategies can lead to a promotion of peace when operating in underconflict areas. Many times, we saw corporate in our countries (underdevelopments ones in Africa specially) reviewing in high the coast of their products when we live in a critical situation, for example during a war context. The question is to know if this is one helping strategy for promoting peace or complicating citizen life's ,when we know clearly that under such situations people who from the begining is poor, without anything to survive in quiet situation,has no way to find ressources to face this highing of prices. this is frequently met in our countries, and it lookes like multinationals operator need those kind of situation to sell their product, in very strong prices to poor people. But, by the incorporation of CSR elements in corporate strategies, in a critical context or under conflict environment, CSR and the poor can also be amplified to find with other elements, how to keep the meaning of the economic activity trying to give satisfaction to all stakeholders taking into account the state in wich is the concerned areas. We have also to recognize the availabity of correct Institutions to help CSR diamond case to have way to be operational.

[Alana Rediker]

Corporate social responsibility today is at many times an obligation to a firm in order to protect their image. Addressing the question whether investing in CSR helps reduce risk, I would argue that it is most important to prevent risk. It is essential for firms today to take indirect action and voluntarily help the conflict zones that it is involved in before they risk damage on their own image by ignoring the issues at hand.

Companies have such an obligation because of the shift from international government power to multi-national corporation power as described by Mr. Koerber. With this power comes responsibility and these firms no longer have the question of whether to get involved or to not if they are striving for a positive company image (which in turn affects risk to the company). For example, companies doing business in Sudan were strongly encouraged to boycott doing business there. Had companies not exercised corporate social responsibility in removing all support from a corrupt party (even before the conflict), their company image was in great risk of becoming tarnished. Do you think situations can still exist today where companies operate in conflict zones at the profit of the corrupt while still maintaining a positive image?

[Chuck Koerber]

To build upon AIana’s comment there was a recent Wall Street Journal article (3/23/09 Private but Public) by Valente and Crane that describes the role some corporations are playing in providing services in developing countries which are usually provided by governments in more developed countries. http://online.wsj.com/article/SB123739493828172921.html
To the extent these types of activities are crucial to a company’s ability to produce goods and services they appear to be the type of integrated CSR activities that are needed to create a reduction in risk for the firm and to make a contribution to reducing the potential for additional conflict.

[Raymond Gilpin]

Chuck:

Could you comment on challenges related to the universality and enforceability of international CSR initiatives. Some of the examples you discussed during the November symposium would be great.

Best,

Raymond

[Chuck Koerber]

I would be happy to Raymond. I think there are number of challenges and lots of open questions—some of which we have been brought up already.

Although there are a few corporate responsibility codes or standards (I use the terms pretty broadly) that address issues of conflict and peace directly (e.g., Voluntary Principles on Security and Human Rights, Kimberley Process Certification Scheme) many of the standards adopted by businesses do not. But many attempt to shape business behavior in ways that we think will create peace in the long run. With hundreds of standards in existence business are faced with conflicting demands from various stakeholders and overall standards fatigue. Each standard has a specific history, context, and stakeholder group advocating for it. This creates challenges and opportunities.

Evidence from voluntary environmental programs (mainly using data from the United States) suggests that voluntary initiatives that lack enforcement mechanisms are less effective at changing firm behavior. This begs the question of how do you build in effective enforcement mechanisms especially given the many different types of issues firms face in areas prone to conflict.

How do we balance the desire for universality (e.g., to address issues of basic human rights) but leave room for creative CSR that engages the local community and meets the unique situation at hand as Raymond, Scott, and Devon have mentioned? This also gets to the issue of the how the CSR standards are created and implemented—and in part the reason for the existence of so many standards. Firm size is also a big factor as large MNEs tend to get involved with these types of standards much more than local and small businesses—perhaps due to difference in priorities, knowledge, and resources.

Some wonder if there is a tradeoff between enforcement based standards and aspirational standards (e.g., UN Global Compact)? Do enforcement base standards create only a floor for CSR while aspirational standards help firms stretch and create more creative and locally focused initiatives? Would it be possible to create standards that combine both? Is the new ISO 26000 an attempt?

Standards that include enforcement mechanism tend to lead to the creation of detailed rules (e.g., the history of accounting rules in the United States) as those subject to potential enforcement want bright lines to follow. If local engagement, specificity, and creative CSR are desired perhaps more aspirational standards that provide guidance on how firms can and should engage with local communities and governments are what we need to create the conditions needed for peace. The flip side being the lack of enforcement provides cover for those firms seeking a quick reputation bump without integrating the principles or processes into their organizations--perhaps ultimately undermining the integrity of the standard and those organizations associated with it.

[Alana Rediker]

This article offers some interesting points about businesses becoming involved in the government role in conflict areas. It seems that the question is not only how businesses can avoid becoming involved, but more when they become involved how will they ever get out? The community can become dependent on the actions of the business and consequently the business becomes stuck. So how can a businesses do good with an option to leave?

[Chuck Koerber]

Or perhaps they could transition from serving as a replacement to government to working with government and providing needed goods and services. As Jennifer and Kathy note in their work sometimes the investment is so great and long-term the option of leaving isn’t on the table. Many are nervous with the thought of businesses helping build capacity and background institutions but with the right partnerships and collaboration (and in the absence of an organic local effort) I’m not sure this is the worst alternative.

[Stefanie Singer]

I think that CSR is conflict zones is not a top priority--mostly due to the economic downturn that so many are facing. Even though corporations are taking actions in order to lower their costs--I think that it makes the need for CSR in these conflict zones even more important. Perhaps corporations can partner with each other to combate some of the conflicts. CSR is not just about giving money--its about the corporations caring. Firms need to re-think their operations and how they go about their practices internally an externally.

[Jennifer Oetzel]

This reply relates to comments by both Alana and Stefanie.

I agree with Alana that preventing risk events before they happen is a critical goal. Traditionally, however, businesses have had a reactive approach to risk events of all kinds; they prefer to avoid countries characterized by risk in the first place and when that doesn't work, exit in the face of crises after they occur. As we all know, that is not a realistic strategy. Unfortunately major risks are occurring in many countries all the time and the most effective approach is working to address problems before they develop into crises.

For firms to develop an effective response to conflict, or potential conflict, they must rethink how they manage risk. This requires companies to go well beyond traditional notions of CSR that rely on philanthropic donations. Companies must see that developing ties to the community, working with parties affected by the conflict, the government and any other organization or entity that can promote stability and peace, is good for their business.

Kathleen Getz and I mention in our video that we conducted a survey - in collaboration with the UN Global Compact and International Alert - on business response to violent conflict. We have now finished analyzing our data and one clear outcome is that stakeholder pressure - such as pressure from the media, NGOs, and consumers - can push firms to engage in conflict reduction (and perhaps ultimately to conflict prevention). This suggests that both domestic and international stakeholders can play a major role in getting firms involved and perhaps helping them to see how their actions may affect the (in)stability of the countries where they operate.

Also, managers are rarely experts on conflict resolution or the complex social-economic-political dynamics in a country. Organizations and stakeholders with expertise in these areas can help firms to understand exactly what they can do in a particular conflict situation, how various parties relate to one another, and at a minimum, how the firm can avoid exacerbating existing tensions.

[Mary Knoop]

I agree with the statement concerning CSR as it pertains to money. I also believe that CSR is much more than money and that it truly requires the sincere care of a corporation for its success. I think that CSR needs to be integrated into post conflict zones immediately following conflict in order to restore economic growth in a socially responsible way. In Dr. Riddle's paper dealing with diaspora foreign investment in post conflict economies she outlines the different motivational dynamics, two of which were social motivations and emotional motivations. I feel that these motivations have the ability to breed socially responsible business practices due to their sincere and deep running loyalty to their country of origin. Also, if diaspora are working to increase the conditions in their home country they are more willing to implement socially responsible policies and practices in order to provide continued success for themselves and members of their communities.

[Solomon Brayant Mpapale]

Dear All,

Thank you very much for these very good and ample issues on CSR and conflict management.

1.The first question addresses risky operating environments for businesses.This is critical but it also presents moral,legal and strategic issues and in some cases, questions of the sovereignity of the nation state arise as well.

To answer that question, i will use the example of Iraq(now) and some countries during the cold war especially in the continent of Africa.It is obviously very risky to operate business in conflict zones.However, the lure of quick and immoral profits from the so called "war economy" that thrives on booties has always made it possible for coporates to oparate in those climates.This has engendered irresponsibility.In Iraq,the occupation armies of the United States and its allies have hired close to 200,000 mercenaries from countries like Chile and soldiers from the former apartheid regime in South Africa,Eritrea,Ethiopia,Uganda and former soviet bloc countries operating under the pseudonym or euphemism of "private security contractors" to protect crucial oil installations and secure CEOs,engineers, World Bank and IMF Consultants,businessmen and diplomats from attacks.Two well known componies involved in this business are Blackwater Security Services based in North Carolina and Hurliburton Inc.These soldiers have curiously been exempted from Iraqi law in a curious and wierd immunity provision in Iraqi law that guarantees them virtual impunity.There is also a problem with sharing the oil resources and the politicians in tha country cannot agree on an oil law.That is a basis of Corporate Social Irresponsibility.

Elsewhere in Africa,Chinese and western energy firms practise the same malpractices.This is evident for example in Congo DR,Chad,and Sudan where allegations abound of wanton looting of mineral wealth which is smuggled to rich northern markets and recently a UN report exposed how high quality timber was being smuggled through Central African Republic, Chad and Cameroonian dense tropical rain forests and jungles by rebel militias to the Atlantic coast and thence to China where it is processed into expensive furniture.These fuels conflicts and violence over the control of the lucrative "trade routes" for example.The story of Nigeria.Liberia,Sierre Leone and Angola are also well known.The costs of hiring these mercenaries and bribing militias has therefore been used as the excuse to rationalize irresponsibility.The now (in)famous cynical quote by former president of the World Bank and then US Deputy Defense Secretary Pual Wolfowitz that Iraq was so rich in oil that it would finance its own reconstruction if war was waged best sums up this attitude.

2.To promote peace in fragile enviroments, i would propose that Corporations:Adhere to environmental concerns tha can cause conflicts because of degradation or scarcity arising from wanton exploitation,Fully compensate any victims of disasters,invest in eco-friendly concerns that promote alternative and efficient use of energy,hire locals in their investments,pay taxes and support legitimate govermments.In the same way,they should desist from supporting repressive regimes as for example Tamils in London recently demonstrated upto Marks and Spencer shopping malls demanding that it divests from Sri Lanka because it allegedly did business with that government to the detriment of the Tamils.The best medicine of all to invest in development of the areas of their jurisdiction like in infrastructure projects that create jobs.They should also be politically neutral.

3.CSR is indeed an additional cost to business but a neccesary one.It is the same as insurance or advertizing.It is therefore mandatory.These costs can be mitigated if componies invest prudently say in job creation so that sustainable development that results lessens the peoples' dependance on the industry and boosts the areas economy to ensure it can survive the departure of the business leaving behind a thriving city and not a ghost town.

4.Yes, investing in CSR helps reduce risks.As shown already, if businesses see ahead and are prudent, CSR helps build confidence with stakeholders that would naturally protect a business rather than let it die.For example,if the oil giants mining oil in the volatile Niger Delta in Nigeria could leave the place,how many ethnic Ijaws,Tsekeris or Ogonis,who have suffered from the exploitation of the mineral would regret the departure?It may indeed represent a loss only to the corrupt politicans,bureacrats and oil executives in Abuja.But on the other hand, the absence of a firm CSR regime has resulted into a bigger and very expensive but avoidable risks:The investment in mercenaries to guard the installations from deliberate vandalism and sabotage by militants,bodyguards to protect senior officials,including even the engineers who labour on site under guard,workers, and higher costs of insuarance and medical care to the employees who labour under risky and health threatening conditions,the stupendous costs of lawsuits,loss of corporate image and sometimes money needed to pay for large ransoms whenever hostages are taken,just to mention but a few.So just as reaserches have proved, investing in CSR reduces business risks.

Thank You all,

Solomon Mpapale,
London.

[Raymond Gilpin]

Solomon:

You raise a number of interesting points. One of which is the importance of using CSR creatively. This is broadly consistent with the comments posted by one of this week's panelists, Jennifer Oetzel (see above). Both companies and communities need to move away from traditional approaches to CSR --- which have yielded few sustainable results. In my view, if companies see CSR as risk-mitigating investments in the business climate and workforce, it would become easier for them to internalize both costs and approaches in their profitability calculations. For instance (using one of your examples), oil companies in the Niger Delta region could reduce shut-downs, delays and related costs through strategic CSR investments in infrastructure, services and human capacity. Of course, these investments must be complementary to local, state and federal initiatives. Such an approach will help them consider CSR more as part of their business models in high risk areas, rather than philanthropy demanded by outside pressure.

You also alluded to the need for companies to adhere to international standards. This raises the age-old question of enforceability. Most global CSR initiatives are self-policing with few (if any) real sanctions for non-compliance. Other contributors are absolutely right that civil society should demand compliance --- but, unfortunately, that is not always effective and requires significant momentum. Charles Koerber's paper (see the top of page one) outlines some of these challenges. Do you agree with his conclusions?

Best,

Raymond