Companies have a big role to play through investing in developing economies, especially post-conflict zones
In an extract from his new book Responsible Leadership: lessons from the front line of sustainability and ethics, Mark Moody-Stuart considers how companies can help sustainable progress in developing economies. Here, he takes the example of Sudan, and asks how investment and business activity from foreign companies helped during the traumatic period leading up to the separation of South Sudan. Later, he examines the value of clear state legislation and how voluntary initiatives, such as the UN Global Compact, can help companies frame their activity.
The direct local impacts of the China National Petroleum Company’s operation in southern Sudan was clearly positive in terms of employment, training and development of livelihoods both in the company’s supply chain and outside it, as well as medical care. The area was clearly sensitive, and without practical precautions and considerations there is clearly the possibility of exacerbating conflict – whether through impact of security, unbalanced employment, disputes over land or distribution of benefits. Provided this is handled carefully [however] the main argument that critics can and do level at such operations is that, while the revenue does benefit the country, it also supports the state and its often suppressive security apparatus.
This argument came to the fore in 2011 in relation to the events in North Africa, Egypt, Yemen and the Gulf countries with particular emphasis on Libya and Colonel Qaddafi. It is not new and was certainly in the minds of those attending a workshop in Khartoum in 2010. [This workshop was one of a series held to help develop guidance for signatories to the UN Global Compact and the Principles for Responsible Investment working in sensitive regions.]
Professor Elias Nyamlell Wakoson, state minister for international cooperation in the unity government of Sudan, formed as a result of the comprehensive peace agreement, was one of the ministers who attended the entire workshop in Sudan. He admitted that he had only planned to come to the opening but had found it so interesting that he stayed throughout.
Jobs for peace
He made the point at the meeting that while security was indeed a major component of central government expenditure, the dream of a big “peace dividend” as this security began to be gradually wound down was just that, a dream. Peace had been bought in many cases by paying militias to lay down their arms. However, this was a short-term solution; unless within a few years jobs could be created for former combatants the temptation to take up arms again would be very strong. Sudan desperately needed investment, including foreign investment, not just into the oil industry but also into agri-businesses and other enterprises.
The minister mentioned in his interventions the fact that in other parts of Africa what was first seen as illegitimate could be transformed over time into something stable and legitimate, without dwelling unduly on the past. In the UK we have after all seen something similar take place though the peace process in Northern Ireland, with extremists on both sides becoming leading members of the government. Some months before the workshop, President Omar al-Bashir of Sudan had been indicted by the International Criminal Court for crimes against humanity (in my view, while this was just it was also counterproductive).
Elias told of attending a meeting of African governments accompanying President Bashir shortly after the president had been indicted. After the opening ceremonies, Bashir had left the meeting, leaving Elias to handle the rest of the meeting on his behalf. Elias said that the minute Bashir had left, the meeting spent hours debating the indictment, with arguments on all sides. The business of the meeting made little progress. Elias said that in the end he had to point out to all at the meeting that he himself had been an opponent of Omar Bashir in the civil war. However he was now a minister in a government of national unity and President Bashir was his president. He pointed out that Omar Bashir was like a man carrying a basket of eggs. If people kept jostling him, he would sooner or later drop the eggs and there would be broken egg everywhere. He felt that the time had come to get on with the business.
Those were wise and moving words. In the subsequent referendum provided for in the comprehensive peace agreement, South Sudan overwhelmingly voted to split from the north; Omar Bashir has said that he would respect the outcome of the referendum and while the split has been contentious, and in some cases violent, full-scale war has been avoided. There are many issues on the movement of people, the sharing of revenues and the transit of oil to the north that still need to be resolved. Both parts of Sudan need support and investment now more than ever. There is an important role for responsible businesses investing in such difficult countries.
Voluntary approaches versus legislation
From the outset, the UN Global Compact has been a voluntary movement. Signatories take it upon themselves to embed the ten principles in their day-to-day operations. This is not a light commitment. They must have support at board level to make the commitment and when they sign they commit to reporting publicly on their progress. This exposes them to the scrutiny of the public – consumers, NGOs, the media, shareholders, their own employees and anyone interested in their operations and the way they go about their business. The contents of such reports are often verified by independent third parties, but even where they are not it would be a brave CEO to put in the public domain deliberately inaccurate information. There are many watchers and the power of consumer disenchantment or wrath is formidable.
In spite of this there is a significant body of opinion, particularly in parts of the NGO movement, which considers that legislation is necessary and, since one cannot trust national governments to put in place sufficiently tough regulation or to police and enforce it adequately, the legislation must be somehow be made international and be enforced through extraterritorial judicial processes.
I am not someone who believes that progress will be made simply by relying on the goodwill of people and companies to do the right thing. In all areas we need laws. The history of the development of laws governing working conditions is a case in point. Some enlightened employers such as the Quaker business people in the UK in the late-18th and early-19th century and pioneers such as Henry Ford who saw the need to pay his workers well, not only to keep them happy but also to turn them into potential purchasers of his products, began to improve pay and conditions for their workers. When coupled with many battles by organised labour and unions for better and safer working conditions, this demonstrated that such changes are beneficial to both the workers and the companies.
Workers benefit from better working and living conditions, while the company benefits from improved quality and productivity. However, in each case, while such innovations are accepted by a few companies at first and are then followed by other companies who see the benefits, there are always a large number of companies that are unresponsive or even deliberately obstructive. It will always be necessary in the end to follow up with regulation and legislation to ensure that the recalcitrant tail is forced to adopt the new standards.
The place for such legislation is in the nation state, where it covers all companies, large and small, national and international. Attempts at international or extraterritorial legislation catches only the large international companies, which are often not the worst offenders.[i]
This is not to say that international efforts that result in protocols and treaties such as the UN Montreal Protocol on Substances that Deplete the Ozone Layer (1989) or the (Land) Mine Ban Treaty (1997) are not valuable, but in the end it is national legislation that generally has to provide for enforcement. Experience in the six decades since the acceptance of the Universal Declaration on Human Rights, and in later international agreements on labour standards and the environment, shows that the challenges are in the implementation in individual companies and in the day-to-day workings of companies and other organisations.
In his excellent guidance on Business and Human Rights, the UN Special Rapporteur John Ruggie rightly puts the responsibility for the Protect part of his Protect, Respect, Remedy trilogy firmly on the state, while focusing the need for Respect and Remedy on companies (see box).
But what of the frequent laggard cases where local legislation is inadequate, perhaps obstructed by vested interests, or where legislation exists but is not effectively enforced, or where corruption of either the enforcers or the judiciary allows the unscrupulous to avoid the legislative constraints?
To achieve an eventually satisfactory outcome the emphasis must be on working to improve national legislations and enforcement. This seems to many people to be an impossibly slow and quixotic task. The value of responsible international companies in such situations is that they can and do follow international standards, showing the way to other companies and encouraging the population by demonstrating that one can run a non-corrupt business with good working conditions and high environmental standards. This is where the UN Global Compact Local Networks come in – both as a forum for exchange of ideas and practices and also as a coalition representing different sectors that can work with a government to improve standards, or try to push it into doing so.
Objectors argue that it would still be useful to have international or extraterritorial legislation to ensure that at least those international companies working in such laggard countries are forced to apply international standards. I believe that many of the so-called voluntary initiatives and standards are becoming in fact quasi-mandatory for global companies.
Standards such as the Voluntary Principles on Security and Human Rights, or standards developed in order to prevent degradation of forests for agriculture, or practices developed by the International Council on Mining and Metals get picked up and incorporated into the Performance Standards of the World Bank Group. Through the Equator Principles, another multi-stakeholder initiative adopted by the banks that finance almost all private sector projects, companies seeking such project finance must adhere to these standards. Similar pressure will be exerted on a company by those of its shareholders who are signatories to the PRI. In this way international companies are pushed by a web of agreements into compliance.
This extract is taken from Sir Mark Moody-Stuart’s new book Responsible Leadership: lessons from the front line of sustainability and ethics [http://www.greenleaf-publishing.com/productdetail.kmod?productid=3924], published by Greenleaf, and reproduced with permission.
The Protect, Respect and Remedy Framework rests on three pillars:
Protect. The state duty to protect against human rights abuses by third parties, including business, through appropriate policies, regulation, and adjudication.
Respect. The corporate responsibility to respect human rights, which means to act with due diligence to avoid infringing the rights of others and to address adverse impacts that occur.
- Remedy. Both state and business responsibility to provide greater access by victims to effective remedy, both judicial and non-judicial.
Source: Summarised from United Nations, Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework (New York/Geneva: United Nations, 2011; www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf).
[i] Studies show that pay and working conditions in international companies are normally superior to those of purely national companies, and that applies to many working standards as well. See, eg R.E. Lipsey, ‘Home- and Host-Country Effects of Foreign Direct Investment’, in R.E. Baldwin and L.A. Winters (eds.), Challenges to Globalization: Analyzing the Economics (National Bureau of Economic Research Conference Report; Chicago: University of Chicago Press, 2004): 333-82; wage comparisons from page 345 onwards; individual chapter available at www.nber.org/chapters/c9543.developing economies Employee engagement Human rights Leadership Sir Mark Moody-Stuart