Corporations and human rights

This blogger was listening to his favourite programme From Our Own Correspondent on the BBC - easily one of the finest radio programmes the world has ever seen. One of my favourite correspondents, Humphrey Hawksley was filing from Hyderabad on the plight of those who work in brick kilns.  And then he casually hinted that British companies might somehow be held accountable for this ! This set me thinking on the thorny issue of global corporations (alright, the appropriate dirty word is multinationals ) and the issue of human rights.

What is a business corporation really responsible for ? - that it should not condone human rights abuses in its operations is indisputable. That is should likewise do so in its supply chain is also in principle correct, but in practice, where do you draw the line of its supply chain ?

Humphrey Hawksley was hinting at the following logic. Let us construct a hypothetical example. GlaxoSmithkline, a "British company", outsources its back office work to Genpact an Indian company. Genpact delivers this service from Hyderabad. They do so from a building that, let us say, they rent from one of the major builders. The builder, when he constructed the building, bought bricks from the local brick kiln. This brick kiln was abusing human rights - so Glaxo is responsible.

I can extend the logic further. The builder bought cement from L&T. L&T bought limestone , a raw material from a nearby quarrie. The transporter who moved the limestone, employed children as cleaners - so Glaxo is responsible.

There has to be some sanity and reasonableness in what you expect corporations to be responsible for. The issue has really arisen because nations, which are the prime guardians and  responsible for checking human rights violation in their territories, are abysmal in their jobs. This is  not just a third world problem only - American agriculture for example will come to a standstill if illegal Mexican workers paid less than minimum wage, working way beyond beyond an 8 hour working day and subject to sundry abuses were not in operation (Mr Preet Bharara -  please note ). Multinationals, the dirty word again, are soft targets. Therefore it is easy to go after them. In the case of the brick kiln workers, the Indian government and the Indian society is responsible - not Glaxo.

Equally, consumers are, largely unconcerned with anything else other than the price of their product. They want the cheapest price for a product, and if this was achieved by abusing the rights of a worker in a faraway land, tough luck . Why faraway land - every American who drinks milk has a greater than a 50% probability that he has condoned human rights abuse - somewhere in the milk producing chain in the US, an illegal immigrant was used and was exploited..

A test of reasonableness has to be applied when we hoist human rights responsibilities on corporations. Some principles are black and white - you will obey the law, you will not bribe, you will conduct your operation where safety of those working is accorded the highest priority, etc etc. You can also say that you will  demand your suppliers to conform to these and conduct periodic audits at major suppliers to verify that this is so.  But it s practically impossible to ensure that every supplier's supplier's supplier is adhering. Common sense has to prevail. For eg if Walmart is sourcing garments through an American agent, who in turn is sourcing through a Bangladeshi agent who in turn is buying from a garment manufacturer who has appalling conditions for his workers - you can reasonably say that Walmart should stop buying from them. It is the germane buyer even though intermediaries are involved, and it is a direct piece of Walmart's main business. But to say Glaxo should stop its operations with Genpact, because the building it is operating in was built using bricks whose supplier violated human rights  is carrying things too far.

Corporations have certainly been guilty of much evil in the past. They should rightfully be held to account. But when you forsake reasonableness in setting what you will hold them to be accountable for, you are violating their human rights ! After all, the learned wise men and women from the US Supreme Court have said that corporations are also people !!

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This is why business leaders are reviled

If you behave like this, you deserve to be cursed, reviled, and generally hated. Unfortunately many business leaders are exactly like this, which is why a business tycoon is considered by society as a figure to be loathed. The "this" I refer to is Stephen Elop, Chairman of Nokia being entitled to a $25m payout for the the sale of Nokia's handset business to Microsoft.

Nokia, as everybody knows, has been in dire straits for quite some time. In 2010, the Board fired its existing Finnish leaders and brought Stephen Elop, from Microsoft, as the CEO to "rescue" Nokia. Elop abandoned Nokia's operating system Symbian and tied its fortunes to Microsoft by adopting the Windows platform. It did not work and Nokia has continued to slide. During Mr Elop's tenure, Nokia's market capitalisation fell  by $ 14 bn - that's the amount Nokia's shareholders have lost. Finally Nokia has decided to sell its handest business to Microsoft for under $ 10 bn.

Elop's contract when he joined Nokia, had a change of control clause - that is if some company bought out Nokia, he would be entitled to a payout. This is not unusual in CEO contracts - for if the company is bought out, the first act of the new owners would be to sack the CEO. So the change of control clause and a payment is acceptable.

What is ridiculous is that Elop and Nokia are using this clause to justify the $ 25m payout to him. This is absurd. Elop came from Microsoft; within 1 year of his coming he tied Nokia's fortunes to Microsoft by adopting the Windows platform. Then he orchestrates the deal to sell the business to Microsoft; as part of this deal he returns to Microsoft and is now front runner to succeed the retiring Steve Ballmer as Chief Executive of Microsoft. For doing this he gets a payout of  $ 25 m in addition to the salary he has been drawing for the years he was in Nokia.

There is a huge uproar and even the Prime Minister of Finland has weighed in. No doubt, as the outrage spreads, Nokia will be forced to reconsider and Elop himself might be pressured by public opinion to forgo this payout.

Why do business leaders and companies do such stupid things. Elop is a very bright man by any account. But what he clearly lacks is grace and a sense of right and wrong. He is a rich man and does not "need" this $ 25 m. Wouldn't he have liked to have gone down as a saviour of Nokia - he found a home for its business which otherwise might simply have had to go into bankruptcy. Beyond a point is money so important, or would you like to leave a legacy, earn respect and go down in history as a "good man".

Instead Elop will be remembered as a greedy , money grabbing, no scruples carpetbagger. Whatever he does in Microsoft in the future will forever be tainted. Did not Elop, a career Microsoft veteran learn anything from Bill Gates,a stellar example of how to be rich ?

Why are business leaders like this ? Does greed overwhelm all virtues ?

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The Eighth Deadly Sin

Alongside  wrath, greed, sloth, pride, lust, envy and gluttony - the seven deadly sins - should surely be added "money". For it is now proving to be a deadly sin even in the Vatican.

News came out on Wednesday that all forms of plastic money - ATM cards, credit cards, debit cards, etc have stopped functioning in the Vatican. So if you want to visit the Sistine Chapel, you have to fork out cash for admission - cannot wave your plastic.

This has happened because the Bank of Italy (Italy's Central Bank) has suspended all electronic operations by banks inside the Vatican in exasperation at the Vatican's continued inability to follow anti money laundering and anti terrorist financing regulations. This has been going on for a long time - the Vatican does not meet the anti money laundering requirements that all countries have to meet and has not been able to set this right for years.

Part of the problem is "Ramamrithamisque". Regulations demand all sorts of KYC forms and it is quite likely that the Holy Fathers have not been rigorous enough in filling 74,432 forms - their minds being, hopefully, absorbed with higher matters. Here, my sympathies are with the Vatican.

But the other half of the problem is serious. The Vatican, as indeed many successful religious organisations are, is a huge business enterprise. In this, they must follow laws that seek to curb international crime. But they usually turn a blind eye to where their money comes from , and this is an unpardonable eighth deadly sin.

This problem is not unique to the Vatican alone. Every religious organisation, I dare speculate, would fail the test of anti money laundering. Much of their finances are murky, shady, and accounting rigour, transparency and tightness of control is conspicuous by their absence.  If you stretch the argument, is it right for the Tirupathi temple,to accept donations from every scoundrel who goes and makes an offering of a fraction of his ill gotten wealth as appeasement ?

Religious organisations have to be whiter than white. These days, they are as much business organisations as religious ones, commanding large capital and cash flows. Excuses that they are solely concerned with matters temporal, won't fly. They must meet every test of international law, as all of us are expected to. Failing which they must be blacklisted, as the Bank of Italy has tried to in a small way.

"In God we trust" cannot be an empty slogan.

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In defence of business

The word business is nowadays accompanied by a metaphorical holding of the nose. Post the financial crisis, businessmen would probably rank just above bankers and below more traditional last placers like real estate agents, in the list of reputable professions. Readers of this blog would know that the author is a staunch defender of business and advocates the view that the profession is unfairly maligned. An earlier post had touched on this subject.

It was gratifying to read The Economist’s Schumpeter column, The Silence of Mammon, which argues that business people should stand up for themselves. The article recounts the two arguments it says proponents have put forth in defence of business – that many firms are devoted to good works and that businessmen have done more than any other institution to advance prosperity. It opines that these are not enough and puts forth three more arguments to counter the critics of business who have dominated the discussion on corporate morality – that business is a remarkable exercise in cooperation, that business is an exercise in creativity and that business helps maintain political pluralism. All excellent arguments, in an eminently readable article.

I wade into this debate with unbridled enthusiasm. I have little sympathy for those who taint businesses as immoral with a broad brush. At the cost of oversimplifying a complex matter, I set out a central theme in defence of business and industry.

I come from a poor country, India, and now live in another one, China . I have seen how degrading poverty is to humanity. And it is China that I want to present in defence of business. In 1981, 84% of China’s population of a billion plus was below the poverty line of $1.25 a day. In 2005, in the same China, the percentage of population below the same poverty line had decline to just 16% (source : World Bank working paper 5090). Yes SIXTEEN per cent. That equals to 700 million people who have climbed above the poverty line. We all know how this was done.

Show me any other way of pulling 700 million people out of poverty and I’ll abandon all defence of business.

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Dilemmas - IV

One final poser and I'll move on from this topic.

You discover something about a key supplier of yours that you didn't know before. He employs child labour.

Would you

1) Stop buying from him even though it may affect your business
2) Report his employing child labour to the authorities, but continue to buy from him
3) Ignore this, saying its his business and none of yours

If you work for a global company, you probably have no choice - NGOs will roast your company alive. (Remember Nike in China ?)

But , assume you are in a small local company. What will you do ?

Would your answer be different, if instead of discovering that he employs child labour, you discover one of the following

- He is cheating on VAT (excise, sales tax, whatever) and evading them , or,
- He is discriminating against women

Would your answer be the same ?

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Dilemmas - III

Today's poser.

You resign from your company and join another company. Your were happy with your previous employer and he treated you well - you are moving just because a better opportunity arose.

In your new job, you need to hire four good lieutenants. You know that if you approached your four buddies in the old company, they would join you (for they loved working with you). But if those four left too, the business in the old company would be seriously affected.

This is one of those cases where in different cultures, you'd get completely different first responses. In some cultures, this is not a dilemma at all - you'd just do it. In other cultures, this would be a complete no no.

But, as I mused before, I believe these are deeply individual decisions based on one's values and beliefs. There is no "right" answer.

Would you place the call to your buddies ?

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Dilemmas - II

Ethics are either black or white - there are no shades of grey in my view, as I posted before.

But there are some situations in business life where ethically it seems OK, but morally its not so clear. In such a situation, an individual's value systems determine what's right or wrong and there is no one right way.

Today's poser.

Does it matter what business the company you work for, is in ? If your company is an IT company or a soap company or a telecom company or a steel company, there is no issue.

But would you work for a cigarette company ? Would you work for a company that makes land mines ? Would you work for a company that buys "blood diamonds" from Africa ? Would you work for a logging company in the Amazon?

Or, does it not matter what business your company is in, as long as what it does is legal and you do your job professionally ?

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Dilemmas - I

Ethics are either black or white - there are no shades of grey in my view, as I posted before.

But there are some situations in business life where ethically it seems OK, but morally its not so clear. In such a situation, an individual's value systems determine what's right or wrong and there is no one right way.

I intend to post a few dilemma's over the next few days. I have no answers for any of them - each of you readers will have your own "right" way.

Here's the first of the them.

You've worked in a company for 10 years. You've wanted a key job, but are not getting it. Your company's direct competitor is offering you that position. Remember its your direct competitor, whom you have spent the last 10 years of your life fighting.

Would you take it ?

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