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Corporate Foreign Policy in Times of War

(originally published by Booz & Company)

Modern warfare cannot be thought of simply in terms of military engagements between nation-states fielding formal armies. Global economies don’t divide easily into war zones. Indeed, September 11 and the ensuing war on terrorism has jolted everyone — including business leaders — into a new appreciation of the risks of globalization. There will probably always be places where corruption, terrorism, and human rights abuses occur frequently, but companies that do business in different parts of the world can’t assume that the same standards for international conduct that guided them in times of relative peace will hold in times of war.

The challenges are clearly greatest for companies that do business in the most troubled countries. Trouble is not contained within borders, however; political and social instability in countries and regions affects the operations of enterprises near and far. Corporations everywhere must carefully consider their business risks in this new war on terrorism.

First, keeping workers and workplaces safe in politically sensitive areas can be difficult and expensive. Colombia and the Philippines are well known for kidnappings of foreign employees. As the United States and its allies combat terrorism, one may expect the risks to citizens of these and other unstable countries to increase.

MNCs need to adopt precautionary measures. One rule of thumb: Keep a close eye on the U.S. State Department’s Web site for terrorist alerts and security conditions abroad ( Investment decisions must also factor in the possibility that tomorrow’s crisis can hatch in a nation considered stable today.

Companies under United States jurisdiction may also face legal liabilities, such as those that stem from an 18th-century antipiracy law known as the Alien Tort Claims Act. Doing business overseas often involves working with shady governments, which could be considered implicit support for those regimes. In March, a U.S. federal judge allowed a lawsuit to proceed against the Royal Dutch/Shell Group of Companies for human rights abuses in Nigeria. The multinational corporation stands accused of helping the Nigerian government forcefully suppress political opposition. Activists have brought similar lawsuits against companies operating in Myanmar and Saipan. Companies doing business in these and other volatile countries — such as Afghanistan or Israel — need to adopt clear internal foreign policy measures to avoid the risk of similar legal exposure.

Risks to reputation in the marketplace are another worry. Think of De Beers, the South African diamond cartel, which was accused by boycotters of buying gems from countries in which civil wars were being fought, allegedly providing rebels with cash. Ultimately, to protect its reputation and market position, De Beers chose to wind down its gem-buying operations in Angola, Congo, and Sierra Leone.

Reputational risks highlight the ethical concerns regarding where and with whom enterprises conduct business. Consorting with pirates, slave traders, terrorists, or other hostes humani generis (enemies of all humankind) cannot be morally justified, even if international law cannot yet adequately address these wrongs. Even the appearance of business dealings with groups associated with global outlaws like the Al Qaeda network is enough to raise the ire of a sensitive and aware global citizenry.

These trends suggest that MNCs must take a different approach to analyzing international business opportunities and risks. Executives must look beyond such factors as the cost and quality of labor and natural resources to consider the character of governments and what they stand for.

This is especially important in emerging markets where standards of behavior and protections are evolving. With its admission into the World Trade Organization, China’s economic opportunities will grow. But any company doing business in China should have formal internal policies to ensure that human rights are not violated in its own operations, as well as a long-term policy of engagement to improve the legal and political system in the country.

Such policy safeguards and local engagement have always been smart; now they are essential. A coherent corporate foreign policy should steer a corporation away from complicity in moral wrongdoing that might be committed by its employees and those with whom they deal, including governments. A good policy should also explain what the company is doing, or plans to do, to help improve conditions in the country.

The war on terrorism and the antiglobalization movement have further exposed some of the important connections between political and corporate risk. Whenever a company does business with a corrupt or illegitimate government, it puts itself at risk economically as well as morally. The only rational solution is to develop an internal corporate foreign policy to manage these risks intelligently.

Eric W. Orts,
Eric W. Orts is a professor of legal studies and management at the University of Pennsylvania’s Wharton School. He is the author of “War and the Business Corporation,” published in the Vanderbilt Journal of Transnational Law (March 2002).
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