Theme 5: New Research on Corporate Risk in Conflict Zones

(Peace Through Commerce) #1
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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.

Nielsen

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)

Nielsen

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


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?

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(Tim Fort) #2

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

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(Raymond Gilpin) #3

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

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(Katie Crimmins) #4

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.

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(Jennifer Oetzel) #5

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).

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(Katie Crimmins) #6

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.

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(Jennifer Oetzel) #7

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.

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(Raymond Gilpin) #8

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

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(William Becker) #9

I believe that most people (especially those involved in this eConference) would agree with the notion that CSR is a necessary and worthwhile endeavor whose benefits far outweigh its costs. However, CSR - especially CSR in conflict zones - seems to have taken a backseat recently, due mostly to the rough economic times. Although I recognize that businesses everywhere are trying to cut their costs, CSR in these conflict zones is more important than ever before.

Do you think that businesses will ever fully realize the benefits of CSR in conflict zones, or do you think CSR in these areas will always take a back seat to company profitability as well as to CSR in more developed and stable areas? Although I know it’s a tough question, what do you think needs to occur for this change to actually happen?

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(Katie Crimmins) #10

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.

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(KennethBrown) #11

Dr. Riddle,

I found your paper on Diaspora Investment Relations very interesting; I know that the psychological benefit that comes along with the economic benefit holds a lot stronger than financial investment alone because I’ve seen it a lot in my own eyes. I have friends that work with funds to get people within their respective diaspora to contribute back to the country, and talking to him about it, the organization he works for sees great success. My only question is this: when certain individuals with a lot of resources and capital emigrate to different countries, I’ve noticed that they usually are proud to identify with the new country they’re in. For example, a man escapes from Sudan and starts a successful business in America, he can say to you, I’m a proud American. Is it more common or not that when things are bad on the other side of the fence, psychologically a good amount of people want to leave it behind? . I feel that sometimes people want to escape the transnational psychological origination that you speak of on page 15, maybe as a means of coping. I think that’s where the difference lies between a diaspora in an economically stable country compared to one that’s in a post-conflict nation.

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(Raymond Gilpin) #12

Kenneth Brown:

May I suggest the following publication:

Diaspora Networks and the International Migration of Skills: How Countries Can Draw on Their Talent Abroad,
edited by Yevgeny Kuznetsov (2006)

It focuses on innovative approaches to harness diaspora contributions in a variety of community settings.

Best,

Raymond

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(Michael O'Neal) #13

Raymond,

Many thanks for the CommDev references/conference presentations. Most useful!

Regards.

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(Hassan) #14

Hey William:
You bring up a good point about CSR taking a backseat due to the rough economic times. That is why it is important to “internalize” CSR into your business strategy rather than consider it charity at Raymond mentioned. Companies need to start looking at CSR as a cost-productive and sometimes even profitable aspect of their business plan. Businesses believe that CSR only raises costs without directly benefiting their companies. They, therefore, consider CSR charity. If they incorporated CSR into their business strategy in an effort to increase productivity, they would be able to clearly discern the benefits of CSR.

To answer your question, therefore, I do not think that businesses fully realize the benefits of CSR in conflict zones at present. In these areas, therefore, CSR is currently taking a back seat to company profitablity. These companies need to realize, however, that CSR is the wave of the future that it will start to be incorporated into business models sooner than they expect. Those companies that want to be successful, therefore, need to be proactive rather than reactive when it comes to CSR. They need to spot the trend of CSR becoming a pivotal part of business models in the future and create the bandwagon rather than jumping on it when someone else has already pioneered it.

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(Gaylord KABONGO BOOTO) #15

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.

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(Alana Rediker) #16

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?

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(Stefanie Singer) #17

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?

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(Stefanie Singer) #18

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.

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(Jennifer Oetzel) #19

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.

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(Solomon Brayant Mpapale) #20

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.

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