Corporate Security Responsibility?: Corporate Governance Contributions to Peace and Security in Zones of Conflict

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Corporate Security Responsibility? Corporate Governance Contributions to Peace and Security in Zones of Conflict

Edited by

Nicole Deitelhoff and Klaus Dieter Wolf

Global Issues Series General Editor: Jim Whitman This exciting new series encompasses three principal themes: the interaction of human and natural systems; cooperation and conflict; and the enactment of values. The series as a whole places an emphasis on the examination of complex systems and causal relations in political decision-making; problems of knowledge; authority, control and accountability in issues of scale; and the reconciliation of conflicting values and competing claims. Throughout the series the concentration is on an integration of existing disciplines towards the clarification of political possibility as well as impending crises.

Titles include: Berhanykun Andemicael and John Mathiason ELIMINATING WEAPONS OF MASS DESTRUCTION Prospects for Effective International Verification Mike Bourne ARMING CONFLICT The Proliferation of Small Arms Roy Carr-Hill and John Lintott CONSUMPTION, JOBS AND THE ENVIRONMENT A Fourth Way? John N. Clarke and Geoffrey R. Edwards (editors) GLOBAL GOVERNANCE IN THE TWENTY-FIRST CENTURY Malcolm Dando PREVENTING BIOLOGICAL WARFARE The Failure of American Leadership Neil Davison ‘NON-LETHAL’ WEAPONS Nicole Deitelhoff and Klaus Dieter Wolf (editors) CORPORATE SECURITY RESPONSIBILITY? Corporate Governance Contributions to Peace and Security in Zones of Conflict Toni Erskine (editors) CAN INSTITUTIONS HAVE RESPONSIBILITIES? Collective Moral Agency and International Relations Brendan Gleeson and Nicholas Low (editors) GOVERNING FOR THE ENVIRONMENT Global Problems, Ethics and Democracy Beth K. Greener THE NEW INTERNATIONAL POLICING Roger Jeffery and Bhaskar Vira (editors) CONFLICT AND COOPERATION IN PARTICIPATORY NATURAL RESOURCE MANAGEMENT Ho-Won Jeong (editor) GLOBAL ENVIRONMENTAL POLICIES Institutions and Procedures APPROACHES TO PEACEBUILDING Alexander Kelle, Kathryn Nixdorff and Malcolm Dando CONTROLLING BIOCHEMICAL WEAPONS Adapting Multilateral Arms Control for the 21st Century

W. Andy Knight A CHANGING UNITED NATIONS Multilateral Evolution and the Quest for Global Governance W. Andy Knight (editor) ADAPTING THE UNITED NATIONS TO A POSTMODERN ERA Lessons Learned Kelley Lee HEALTH IMPACTS OF GLOBALIZATION (editor) Towards Global Governance GLOBALIZATION AND HEALTH An Introduction Nicholas Low and Brendan Gleeson (editors) MAKING URBAN TRANSPORT SUSTAINABLE Catherine Lu JUST AND UNJUST INTERVENTIONS IN WORLD POLITICS Public and Private Robert L. Ostergard Jr. (editor) HIV, AIDS AND THE THREAT TO NATIONAL AND INTERNATIONAL SECURITY Graham S. Pearson THE UNSCOM SAGA Chemical and Biological Weapons Non-Proliferation THE SEARCH FOR IRAQ’S WEAPONS OF MASS DESTRUCTION Inspection, Verification and Non-Proliferation Andrew T. Price-Smith (editor) PLAGUES AND POLITICS Infectious Disease and International Policy Michael Pugh (editor) REGENERATION OF WAR-TORN SOCIETIES David Scott ‘THE CHINESE CENTURY’? The Challenge to Global Order Marco Verweij and Michael Thompson (editors) CLUMSY SOLUTIONS FOR A COMPLEX WORLD Governance, Politics and Plural Perceptions Bhaskar Vira and Roger Jeffery (editors) ANALYTICAL ISSUES IN PARTICIPATORY NATURAL RESOURCE MANAGEMENT Simon M. Whitby BIOLOGICAL WARFARE AGAINST CROPS

Global Issues Series Series Standing Order ISBN 978-0-333-79483-8 (outside North America only) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England

Corporate Security Responsibility? Corporate Governance Contributions to Peace and Security in Zones of Conflict Edited by

Nicole Deitelhoff Head of Research Team, Peace Research Institute Frankfurt, Germany and

Klaus Dieter Wolf Deputy Director, Peace Research Institute Frankfurt, Germany

Editorial matter and selection © Nicole Deitelhoff and Klaus Dieter Wolf 2010 All remaining chapters © respective authors 2010 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2010 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-0-230-24184-8

hardback

This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 19 18 17 16 15 14 13 12 11 10 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

Contents Figures and Tables

vii

Foreword and Acknowledgements

viii

Notes on Contributors

x

Abbreviations 1

2

3

4

5

6

7

8

xiii

Corporate Security Responsibility: Corporate Governance Contributions to Peace and Security in Zones of Conflict Nicole Deitelhoff and Klaus Dieter Wolf

1

Here’s to Peace! Governance Contributions by Companies in Rwanda and the Democratic Republic of Congo Moira Feil

26

Oil Companies in Nigeria: Emerging Good Practice or Still Fuelling Conflict? Melanie Zimmer

58

Calling on Peace: The International ICT Sector and the Conflict in the Democratic Republic of Congo Linda Wallbott

85

Walking the Extra Mile: Corporate Contributions to the Peace Process in Northern Ireland Andreas Haidvogl

106

Travelling for Peace: The Role of Tourism in the Israeli–Palestinian Conflict Susanne Fischer

130

Chartered Companies: Linking Private Security Governance in Early and Post Modernity Klaus Dieter Wolf

154

Private Security and Military Companies: The Other Side of Business and Conflict Nicole Deitelhoff

177

v

vi Contents

9

Business in Zones of Conflict and Global Security Governance: What has been Learnt and Where to from Here? Nicole Deitelhoff, Moira Feil, Susanne Fischer, Andreas Haidvogl, Klaus Dieter Wolf and Melanie Zimmer

202

Bibliography

227

Index

256

Figures and Tables Figures 1.1

Governance contributions relevant to peace and security

12

1.2

Embedding of factors examined to explain corporate governance contributions to peace and security

17

Tables 1.1

Empirical focus: Corporate governance contributions in zones of conflict

15

2.1

Corporate governance contributions to peace and security in Rwanda and the Democratic Republic of Congo

42

4.1

Characteristics of committed companies

96

5.1

Corporate governance contributions to peace and security in Northern Ireland

123

5.2

Number of employees

124

6.1

Corporate governance contributions to peace and security in Israel and the Palestinian territories

145

Willingness and capacity of the host state

215

9.1

vii

Foreword and Acknowledgements In the age of global governance the boundaries between public and private, domestic and international have become more and more blurred. Non-state actors, such as civil society groups and organizations, business companies but also terrorist networks, operate increasingly across borders. Transnational corporations, in particular, are often deeply involved in zones of violent conflict. Their role is, however, highly ambivalent. On the one hand they may be the very sources of conflict and fuel violence, on the other hand they can – or at least have the potential to – make important governance contributions to peace and security in zones of conflict. Against this background of privatization and transnationalization of peace and security the Research Group ‘Corporate Security Responsibility’, or in short CSecR, has been set up in Programme Area ‘Non-state Actors and Transnational Peace Governance’ at the Peace Research Institute Frankfurt (PRIF) to study these questions. This volume provides a first synthesis of the group’s research. It results from a research project directed by the editors and conducted by the authors of this book since 2005 on the role of transnational corporations in zones of violent conflict. We are grateful to the German Foundation for Peace Research (DSF), the Fritz Thyssen Stiftung and the Frankfurt Cluster of Excellence ‘Formation of Normative Orders’ for their financial support along the way. In chronological order, DSF funded a kick-off workshop at PRIF from 29 September to 1 October 2005 which gave the group an excellent opportunity to discuss the state of the art with international experts on the role of business in conflict zones and to identify areas for our own research efforts to focus on. In addition, Susanne Fischer received a PhD grant from DSF. The Fritz Thyssen Stiftung provided the main funding for the project, without which this research would not have been possible, including almost all of the field research done by the group’s members. The Cluster of Excellence ‘Formation of Normative Orders’ not only funded the language editing but also enabled us to invite all contributors to an authors’ workshop at Friedrichskoog in August 2008 which was regarded by all participants as a kind of final breakthrough. On behalf of all contributors to this volume we want to thank their interview partners for their cooperative attitude. The unique expertise of viii

Foreword and Acknowledgements ix

the interviewees allowed valuable insights without which our research would have been fruitless. Susanne Fischer’s individual thanks also go to the Minerva Foundation for the financial support of her field research. Moira Feil would like to thank Prof. Dr. Susanne Buckley-Zistel for her expert advice on research in Rwanda. As the editors of this volume, we highly appreciated the group spirit among all contributors, their persevering commitment and intellectual input in developing an overall conceptual framework for all chapters. Not to mention the barefoot tour through the mud-flats by the North Sea refuge of our authors’ workshop in the summer of 2008. Parts of this project were presented and discussed at many national and international conferences and workshops. It is impossible to do justice to all those colleagues whose valuable comments we received on these occasions. However, we are particularly grateful to Virginia Haufler of the PRIF Scientific Advisory Council for her continuous empathetic advice and encouragement. The series’ editor, Jim Whitman and our publisher, Alexandra C. Webster organized a very efficient review process and the reviewers’ comments proved extremely helpful. Last but not least, we would like to thank Julia Ebling, Linda Wallbott (thanks for inventing ‘CSecR’!), Eva Burkard, Oliver Westerwinter, Jessica Seiler and Janneke Rauscher for their research assistance, Stefanie Herr for editorial assistance and Larissa Moore for language editing. Frankfurt am Main, June 2009 Nicole Deitelhoff Klaus Dieter Wolf

Notes on Contributors Nicole Deitelhoff is Professor for International Relations at the Johann Wolfgang Goethe University Frankfurt, Germany and Project Director at the Peace Research Institute Frankfurt (PRIF), Germany. She is also one of the Principal Investigators of the Cluster of Excellence ‘Formation of Normative Orders’. She currently chairs the IR section of the German Political Science Association (DVPW). Among her recent book publications are: Überzeugung in der Politik. Grundlagen einer Diskurstheorie internationalen Regierens, Suhrkamp: Frankfurt (2006); and Was bleibt vom Staat? Demokratie, Recht und Verfassung im globalen Zeitalter (co-edited with Jens Steffek), Campus: Frankfurt (forthcoming September 2009). Recent articles include ‘The Discursive Process of Legalization. Charting Islands of Persuasion in the ICC case’, International Organization, 63: 1 (2009); ‘The Business of Security and the Transformation of the State’, TranState Working Paper No. 87, University of Bremen; ‘Parliaments and European Security Policy: Mapping the Parliamentary Field’, in Nicole Deitelhoff, Dirk Peters and Wolfgang Wagner (eds), Parliamentary Control of European Security Policy, Oslo: RECON-Report No. 6 (2008); ‘Ohne Private Sicherheitsanbieter können die USA nicht mehr Krieg führen – die Privatisierungsdimension der RMA’, in Jan Helmig and Niklas Schörnig (eds), Transformation der Streitkräfte im 21. Jahrhundert, Frankfurt: Campus (2008); and ‘Corporate Security Responsibility: A Conceptual Framework for Comparative Research’ (co-authored with Klaus Dieter Wolf and Stefan Engert), Cooperation and Conflict, 42: 3 (2007). Moira Feil is a researcher at the Peace Research Institute Frankfurt, Germany, and a PhD candidate at Technische Universität Darmstadt, Germany, specializing in global governance, corporate social responsibility and transnational corporations operating in conflict zones and fragile governance contexts. She is also a research fellow and project manager with Adelphi Research, where she has worked extensively on interactions of natural resource management and environmental change with development, security and peace building for the public and private sector. Susanne Fischer is a researcher at the Peace Research Institute Frankfurt, Germany and a PhD candidate at Technische Universität Darmstadt, Germany. Her research interests include global governance, transnational x

Notes on Contributors xi

corporations and corporate social responsibility. In her thesis she explores the role of the tourism industry for peace and development in zones of conflict. Andreas Haidvogl is Research Associate at the Peace Research Institute Frankfurt (PRIF), Germany and a PhD candidate at the Technische Universität Darmstadt, Germany. His current research interests include global governance, non-state actors in world politics, business in zones of conflict and corporate social responsibility. He is currently completing his doctoral thesis on the role of private corporations in the peace process in Northern Ireland. Linda Wallbott is Research Associate at the Cluster of Excellence ‘Formation of Normative Orders’ at Johann Wolfgang Goethe Universität Frankfurt and a junior lecturer PhD Candidate at the Institute of Political Science, Technische Universität Darmstadt, Germany. She has been involved in research on corporate social responsibility and transnational proliferation of human rights. She is working on her dissertation on the relation between natural disaster prevention, peace building and aspects of justice and democracy in the course of vulnerability assessment. Klaus Dieter Wolf holds the Chair for International Relations at Technische Universität Darmstadt, Germany. He is also the Deputy Director of the Peace Research Institute Frankfurt (PRIF), Germany and one of the Principal Investigators of the Cluster of Excellence ‘Formation of Normative Orders’. He was President of the German Political Science Association (DVPW) from 2003–2006 and has been Non-North American Member of the Governing Council of the International Studies Association (ISA) from 2008–2009. His recent book publications include: Education in Political Science. Discovering a Neglected Field (co-edited with Anja Jakobi and Kerstin Martens), Routledge: London and New York (2009); and Staat und Gesellschaft – fähig zur Reform?, Nomos: Baden-Baden (2007). His recent articles are ‘The Potential and Limits of Governance by Private Codes of Conduct’ (co-authored with Thomas Conzelmann), in Jean-Christophe Graz and Andreas Nölke (eds), Transnational Private Governance and its Limits, Routledge: London and New York (2007); ‘Emerging Patterns of Global Governance: The New Interplay between the State, Business and Civil Society’, in Andreas G. Scherer and Guido Palazzo (eds), Handbook of Research on Global Corporate Citizenship, Edward Elgar: Cheltenham (2008); ‘Corporate Security Responsibility. A Conceptual Framework for Comparative Research’ (co-authored with Nicole Deitelhoff and Stefan

xii Notes on Contributors

Engert), Cooperation and Conflict, 42: 3 (2007); and ‘Private Actors and the Legitimacy of Governance Beyond the State: Conceptual Outlines and Empirical Explorations’, in Arthur Benz and Yannis Papadopoulos (eds), Governance and Democratic Legitimacy: Transnational, European, and Multi-Level-Issues, Routledge: London (2006). Melanie Zimmer is a researcher at the Peace Research Institute Frankfurt (PRIF), Germany, and a junior lecturer at the Institute of Political Science, Technische Universität Darmstadt, Germany. Her current research interests include the role of business in zones of conflict and developing countries, self-regulation in global governance and nonstate actors in international organizations. She is currently working on her doctoral thesis on the emergence and diffusion of corporate social responsibility standards in the extractive industries.

Abbreviations ADF AFDL ALIR BRIC BSAC CCTV CDA CEO CIS CNDP CNOOC CNPC CSecR CSR DDR DoD DoP DRC DRV ECOMOG ECPAT EIA EIC EICC EITI EO E-TASC ETNO FDLR FFI FPR

Allied Democratic Forces (Uganda) Alliance des Forces Démocratiques pour la Libération du Congo-Zaire Armée pour la Libération du Rwanda Brazil, Russia, India, China British South Africa Company Central Chinese Television Collaborative for Development Action Chief Executive Officer Commonwealth of Independent States Congrès National pour la Défense du Peuple China National Offshore Oil Corporation China National Petroleum Corporation Corporate Security Responsibility Corporate Social Responsibility Disarmament, Demobilization and Reintegration Department of Defence Declaration of Principles on Interim Self-Government Arrangements Democratic Republic of Congo German Travel Association Economic Community of West African States Monitoring Group End Child Prostitution, Child Pornography and Trafficking of Children for Sexual Purposes (US) Energy Information Administration East India Company Electronic Industry Code of Conduct Extractive Industries Transparency Initiative Executive Outcomes Electronics Tool for Accountable Supply Chains European Telecommunication Network Operators Association Force Démocratique de Libération du Rwanda Fauna and Flora International Front Patriotique Rwandais xiii

xiv Abbreviations

FSC GAO GDP GeSI GSG GTZ HBC HDI HSE ICG ICT IFC IPE IRA ITU IUCN MDG MEND MNC MONUC MOSOP NEITI NGO NILT NNPC OECD PLO PNA PPP PR PRDP PSMCs RCD RCD–ML RPA RSLMF RUF SADC

Forest Stewardship Council (US) General Accounting Office Gross Domestic Product Global e-Sustainability Initiative Gurkha Security Guards German Technical Cooperation Hudson’s Bay Company Human Development Index Health, Safety and Environment International Crisis Group Information and Communications Technology International Finance Corporation International Political Economy Irish Republican Army International Telecommunication Union International Union for Conservation of Nature (UN) Millennium Development Goals Movement for the Emancipation of the Niger Delta Multinational Corporation Mission de l’Organisation des Nations Unies en République Démocratique du Congo Movement for the Survival of the Ogoni People Nigerian Extractive Industries Transparency Initiative Non-Governmental Organization Northern Ireland Life and Times Nigerian National Petroleum Corporation Organisation for Economic Co-operation and Development Palestinian Liberation Organization Palestinian National Authority Public–Private Partnership Public Relations Palestinian Reform and Development Plan Private Security and Military Companies Rassemblement Congolais pour la Démocratie Rassemblement Congolais pour la Démocratie – Mouvement de Libération Rwandan Patriotic Army Republic of Sierra Leone Military Forces Revolutionary United Front Southern African Development Community

Abbreviations

SCWG SI SINOPEC SOMIGL SPDC SSR TI TNCs TOI UN UNDP UNEP UNESCO UNITA UNWTO USD VOC VP WBCSD WTO WWF

Supply Chain Working Group (GeSI) Sandline International China Petroleum and Chemical Corporation Société Minière des Grands Lacs Shell Petroleum Development Company Security Sector Reform Transparency International Transnational Corporations Tour Operators’ Initiative for Sustainable Tourism Development United Nations United Nations Development Programme United Nations Environment Programme United Nations Educational, Scientific and Cultural Organization União Nacional para a Independência Total de Angola United Nations World Tourism Organization US Dollar Vereenigde Oostindische Compagnie Voluntary Principles on Security and Human Rights World Business Council for Sustainable Development World Trade Organization World Wide Fund For Nature

xv

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1 Corporate Security Responsibility: Corporate Governance Contributions to Peace and Security in Zones of Conflict Nicole Deitelhoff and Klaus Dieter Wolf 1.1 Introduction We are ready to boycott beverage companies at universities if they are alleged to be involved in or ignore maltreatment of labour union workers in Latin America1 and we refuse to purchase oil from companies that are not willing to comply with environmental protection standards when disposing of their defunct oil platforms.2 We expect Chinese suppliers to refrain from using toxic ingredients in producing child toys.3 In summary, we believe that companies, no matter where they operate or sell their products or services, should at least comply with, if not go beyond, existing international social, environmental and labour standards, and human rights more broadly. Usually referred to as corporate social responsibility, commitments and practices by business companies rose during the late 1980s and 1990s. Public expectation, so it seems, demands more of it, particularly in areas where the state fails to provide fundamental collective goods or protect basic normative standards. There has also been public outrage over companies financing police and military forces within zones of conflict and weak governance.4 Many people are surprised to hear that more than 100,000 employees of private security and military companies are currently contributing to public security in Iraq (Deitelhoff 2008b; Deitelhoff and Wolf 2009). Thus, while we have come to expect companies to take over responsibilities in general, at the same time there are concerns about how far such private contributions to the provision of collective goods should go, specifically concerns about their limits and nature. The particular unease associated with the latter examples certainly stems from the fact that they are located within the policy field of security, an area closely connected to the very idea of the modern state. 1

2

Corporate Security Responsibility

In many accounts, most famously that of Weber, security lies at the heart of the modern state (Grimm 2002: 1299), not only because the monopoly of force came first in its formation and it took the state a long time to establish it against private competitors,5 but also because of its potential effects on society and the individual. Security sheds light on the Janus face of the state, being the protector of society but at the same time its greatest threat, as well as having the power to unleash unlimited violence upon it (Zürn and Leibfried 2005: 4). Embedding legal and democratic processes restrains this power but does not destroy it. The nasty, brutish face of the Leviathan still lurks behind the civilized, even bureaucratic processes of modern nation states. Concerns over private actors operating within the field of security are thus not particularly surprising as they give rise to worries of an unleashing of this inherently unconditional power to destroy. However, transnational corporations (TNCs) are operating in areas in which they are increasingly confronted with violent conflict environments and voluntary or involuntary withdrawal of the state from the provision of security. This development can only be understood against the background of a general change in the nature of conflict, often associated with and definitely accelerated by the end of the Cold War. Today, about 90 per cent of all armed conflicts are intra-state civil wars. They challenge the authority of governments or take place in territories where domestic consolidation processes, such as nation building or democracy building, have not yet succeeded (Daase 2003: 177; Möckli et al. 2003a: 51). The institutions of the state fail to provide public security, either because they lack the resources or because they profit from insecurity themselves, as in the case of the so-called shadow or over-extended states (see Reno 2000: 47). These ‘new’ wars (Kaldor 1999) led to a perpetuation of war economies in which fighting seems to be equally determined by political and economic motives. The general spread of zones of conflict and violence has also increased the political pressure, by the international community and transnational civil society alike, on TNCs operating in zones of conflict to contribute to peace and security. In search of global competitiveness, TNCs have accessed new markets and invested huge sums of money in developing transition countries in order to gain access to natural resources or to reap the small profit margins of cheap labour (Avant 2005: 180–1). The direct (material) and the indirect (reputational) costs of this business strategy have increased sharply with the spread of conflict zones (Rieth and Zimmer 2004a: 17). After all, many companies, not only in the extractive industry, have in fact been involved in conflicts in many

Nicole Deitelhoff and Klaus Dieter Wolf 3

ways, be it by financing conflict parties (often in an attempt to appease all potential future authorities in a country), by trading conflict-related goods (for instance the infamous blood diamonds) or by simply exploiting the regulatory gaps left by weak or failing state authorities (Banfield et al. 2003: 4; Berdal and Malone 2000; Renner 2002; Sherman 2001). TNCs are confronted with the opportunity to realize profits, the risks of incurring substantial war damages and rising security costs and of being publicly associated with bloodshed and human rights violations.6 The choice between not investing in the first place, withdrawing from a conflict zone or contributing to a more predictable and secure business environment is a pressing one for TNCs, albeit in varying degrees. Simply to withdraw may no longer be a viable option if one assumes the further spread of zones of terror and costs of conflict.7 Still, TNCs are rather reluctant to engage in governance contributions so closely associated with the state (Bais and Huijser 2005: 40–1; Feil et al. 2008: 31; Maresca 2004: 127; Ottaway 2001b). Why should TNCs, whose main motivation is to maximize their profits, be expected to contribute to a collective good as delicate as peace and security in the first place? And if there are reasons to do so, what determines the potential engagement of TNCs in zones of conflict? What can and should TNCs contribute to peace and security in these zones? This volume focuses on corporate governance contributions to peace and security in zones of conflict to arrive at a general picture of the types of governance contributions to be expected from TNCs and to draw some general conclusions as to what determines their contributions. To this end it comprises a range of comparative empirical case studies on businesses in zones of conflict. The aim is to contribute to closing the gap in academic research on what could be called ‘corporate security responsibility’. Security got on the political agenda of the international community shortly after the recent shift to partnering with TNCs began. The very first policy dialogue of the UN Global Compact was on ‘The Role of the Private Sector in Zones of Conflict’. It offered a forum for companies to discuss the risks and negative impacts associated with their operations in zones of conflict, to promote the principles of the Global Compact in these zones and to proactively counter corruption and bribery, regarded as drivers in many conflicts (Fort and Schipani 2004: 17–18; Wolf et al. 2007: 296–7). In 2004, the UN Security Council took up the issue and established a working group on the ‘Role of Business in Conflict Prevention, Peacekeeping and Post-Conflict Peace Building’.8 In 2006, the OECD published guidelines for companies operating in weak zones

4


of governance (OECD 2006) and the Group of Eight (G8) world summit in Heiligendamm in 2007 referred to the role of the business sector in global governance (Feil et al. 2008: 5). TNCs are increasingly expected to comply with existing national and international regulations and to proactively attempt to change the governance situation in their host states, forcing their host governments to abide by the same international standards or even to proactively engage in conflict resolution (Maresca 2004: 127; Ottaway 2001b: 51). These political announcements and expectations have been fuelled and strengthened by civil society movements. Companies have become the target of a whole range of campaigns and protests during the last decade. The most wellknown among them are the ‘Blood diamond’ campaign, focussing on the business sector’s fuelling of the conflicts in Angola, Sierra Leone and the Democratic Republic of Congo by purchasing from and trading diamonds with conflict parties (Bone 2004; Smillie et al. 2000), and the ‘Publish What You Pay’ campaign, challenging extractive companies to disclose their payments to host governments to counter the lack of transparency in money flows (Deitelhoff and Wolf 2009; Fort and Schipani 2004: 17). As part of the academic global governance debate and under the heading of corporate social responsibility, research on business governance contributions has focused on ‘low politics’ sectors, such as social, health and environmental politics. In so far as corporations’ activities in zones of conflict have been addressed by Peace and Conflict Studies, the main interest was to highlight negative impacts on peace and security (section 1.2). In order to close the gap left by these two approaches, the focus across a range of cases is on corporate governance contribution to peace and security (section 1.3). In discussing the current state of research, some factors can be distilled that might be of particular relevance in assessing the conditions under which companies will contribute to peace and security and in what way (section 1.4). Given the unsatisfactory state of available research, contributors were asked to cast their net widely to discover other potential influences as well (section 1.5). In this vein, a number of case studies on different conflicts, different industries, companies and different time periods are included to avoid selection bias on crucial variables. Finally, a short overview is given of the content and findings of the case studies and the general findings on corporate governance contribution to peace and security in zones of conflict. With the focus on security-related governance contributions of TNCs, we do not intend to advocate a brighter picture of the involvement of TNCs in zones of conflict but rather to


analyse an empirical phenomenon and a widespread political expectation not yet systematically investigated. However, normative questions arising from the involvement of TNCs in governance contributions to peace and security are also discussed. In this respect, the interplay between the public and the private spheres and the broader legitimacy questions arising from it are addressed.

1.2 Business and conflict: The ‘Untapped Potential’9 of business contributions to peace Private business has only recently received attention within academic debates in international relations – at least as an actor in its own right. While the business sector has been the subject of research before, for instance, in the debate on transnational politics in the 1970s (see Keohane and Nye 1971, 1977)10 or in development studies (Evans 1979), it has often been perceived as a structural force. Research focused on the effects of international trade and foreign investments for development or international cooperation or on the influence the global economic system had on national foreign policies. However, research now focuses more specifically on business companies as actors in global governance. This shift from structure to agency within research on private business was at least partly a reaction to an altered social reality. Today, business corporations are not only seen as addressees of international regulations (being part of the regulatory problems confronting international politics) but also as partners in setting and implementing international regulations, and contributing to the provision of collective goods. The 1990s saw the spread of global governance activities where public–private partnerships and multi-stakeholder initiatives between states, civil society actors and business companies addressed a wide range of issues, from environmental problems to labour standards and human rights (Feil et al. 2008: 2). Private regulatory schemes such as industry codes of conducts have also increased dramatically (Hall and Biersteker 2002; Cutler et al. 1999). An essential catalyst for this shift was the accelerated speed of globalization and denationalization of trade, communication and political regulation. Regulatory problems have long lost their exclusive attachment to national borders and regulations. They cut across national borders and increasingly affect and result from the activities of non-state actors (Zangl and Zürn 2003; Zürn 2002). Consequently, political regulation has denationalized itself as well, reaching into transnational and global realms and to non-state actors, such as civil society and private business

6


actors. Economic globalization has challenged the political steering capacities of individual states and even of inter-governmental governance systems already in existence at the international level. It has thus increased the need to make use of the problem-solving potential of private business actors to address regulatory problems. Governance initiatives such as the Global Compact, the Extractive Industry Transparency Initiative (EITI) and the Forest Stewardship Council (FSC) are all examples of a general willingness within the business sector to share responsibilities for global governance (Ottaway 2001b). With the increase of public–private partnerships and multi-stakeholder initiatives the role of private companies in governance initiatives has developed as well. While their inclusion was initially confined to either the input phase of governance, such as agenda setting or programme development, or to the output side of governance for norm implementation and evaluation, it has now expanded into the core of the decisionmaking process in governance initiatives. Increasingly, states share the production and provision of collective goods with private actors. In line with that, research on private business in global governance has flourished as well. It has looked at the emergence of private authority and its effectiveness and legitimacy as well as the mix of public and private governance contributions in various, mostly low politics, issue areas (Cutler et al. 1999; Hall and Biersteker 2002; Haufler 2001b; Wolf 2005b). Specifically, the responsibilities of corporations within and beyond core business operations and their contribution to collective goods were discussed under the heading ‘corporate social responsibility’ (CSR).11 However, this expansion of research on and empirical trends of corporate governance contributions in terms of a more comprehensive inclusion of private actors in the different stages of the policy-making process is not matched by a similar trend in terms of entering new and more delicate policy fields, such as security. TNCs seem to be as hesitant in engaging in peace and security governance in zones of conflict, as the academic world is in debating business in global governance. 1.2.1 Research on business and conflict The involvement of companies in conflicts and their relationship to issues of security governance have been researched in peace and conflict studies but mostly with a focus on negative impacts. One branch of research within peace and conflict studies critically investigates how businesses cause destabilization and prolong conflict in order to maximize profits by selling arms, providing military services, financing repressive governments or rebel movements, exploiting the regulatory


gaps resulting from the decline in public authority or trading in conflict relevant goods (Berdal and Malone 2000: 11–12; Elwert 1997; Ganser 2004: 64–9; Rufin 1999). Even more to the point, the bulk of literature on business and conflict has focused on illegal business activities such as human or drug trafficking, arms trade and smuggling. Newer studies have concentrated on a particular type of business actor and their activities in conflicts. Studies on the activities of private security and military companies (PSMCs) that have specialized in the provision of security services to clients (Avant 2005; Chesterman and Lehnhardt 2007; Mandel 2002; Singer 2008) flourished. Infamous cases, such as PSMCs actually fighting in civil wars on the African continent during the 1990s, have particularly given rise to fears that PSMCs mark the end of the state and public order in many African regions (Chapter 8 in this volume; Leander 2005; Muthien and Taylor 2002). In contrast, there are hardly any case studies that analyse how corporations have contributed proactively to the provision of public security (but see Ballentine and Nitzschke 2004; Haufler 2001b; Wenger and Möckli 2003).12 Thus, the potential contribution by business to peace remains largely ‘untapped’ (Wenger and Möckli 2003). From a theory-guided interest in generalizing across sectors, it is all the more astonishing that research on contributions by the private sector to global governance has largely been confined to the realm of low politics. Security is obviously a tough case for private self-regulation as a meaningful complement to, or even substitute for, public governance. Therefore, there is no real basis from which systematic knowledge can be generated about the conditions and extent to which private corporations can fulfil the role expected of them in the political discourse. Confronted on the one hand with corporations’ undisputed contributions to destabilization, to fuelling, prolonging and taking commercial advantage of violent conflicts, and on the other with high-flying expectations of their potential contributions to security (see Gerson and Colletta 2002; Nelson 2000), the question concerning the circumstances under which private actors can make meaningful contributions to peace and security needs to be investigated within the framework of a comparative research agenda. 1.2.2 Private actors – public roles? The lack of comparative research might simply be an indicator that there is hardly any empirical evidence that companies are able or willing to contribute to peace and security in zones of conflict. However, this assumption is challenged by the high relevance that the international

8


community attributes to companies’ contributions in this area and by governance initiatives and cases in which companies have actually contributed to security, such as the Kimberley Process Certification Scheme to combat the trade of conflict diamonds or the ‘Voluntary Principles on Security and Human Rights’ developed by the US and the British governments partnering with the biggest oil companies, such as Shell and BP.13 Still, the expectation that private business companies that are private in form and purpose should intentionally contribute to a collective good so closely connected to the very idea of the modern state is puzzling. As the famous economist Milton Friedman once put it, ‘the social responsibility of business is to increase its profits’ (Friedman 1970). This extreme position, which still informs the shareholder value theory of corporate responsibilities (Melé 2008: 55–62), highlights the idea of a narrow market rationality for the business sector in which shareholder value determines business strategies. It speaks to the traditional notion of a neat separation between the public and the private sector within the confines of the state, where the state is responsible for providing public goods, while the business sector supports this provision by generating wealth and economic development within society. However, the general increase in public–private partnerships and multistakeholder initiatives in global governance witnessed in the last decades raises doubts about this neat separation. Increasingly, the state is overburdened with the task of providing collective goods and has come to share this responsibility with private actors, civil society and business, thus giving rise to a seemingly new phenomenon: the co-production of governance or statehood, blurring the line between the public and the private sphere (Schuppert 2008). One could even question whether this development is so novel or whether it is a return to ‘normal’ conditions. Historically, the co-production of governance between state and nonstate actors has been quite common practice – even in security issues. The practice of renting mercenaries to fight on one’s behalf in conflicts or the state delegating trading monopolies and a whole range of core state functions to the chartered companies of the sixteenth to eighteenth centuries are cases in point (see Chapter 7 in this volume). The often appraised golden age of the nation state of the 1960s and 1970s, defined by the convergence of its basic dimensions, the monopoly on force and taxes, the legal constitution and the provision of democratic legitimacy and welfare production at the national level (Leibfried and Zürn 2005: 10–11), might be the exception to the rule. The difference to today’s involvement of private business actors in the provision of collective goods is the type of involvement, relying on soft forms of governance


and an invitation to the business sector instead of a delegation. What is clear, however, is that the state is no longer the exclusive source of collective goods or authority in global politics, either substantially or formally, if it ever was. Similarly to developments within modern nation states (at least within in the OECD world), the state does not necessarily lose ground but shifts its position and becomes a kind of manager of interdependencies or enabler of collective goods (Genschel and Zangl 2008; Mayntz 2004). With this shift in the state’s role, the expectations business corporations are confronted with have changed as well. For companies it is no longer really possible to focus simply on profit maximizing and the outwitting of competitors, given expectations of social responsibility as corporate citizens. Business today has to operate within a public framework characterized not only by public law, which is more than thin at the global level, but by a richly textured environment crowded with public actors, such as states and international organizations, civil society movements, customers, shareholders and, last but not least, other companies as well (Wolf et al. 2007). All of these actors bring with them particular challenges, role conceptions and normative standards for the conduct of business operations. Under these conditions, a narrow market rationality is far more complex as companies have to take into account the costs incurred by consumer boycotts or adverse campaigning if a company is seen to be involved in conflicts, or costs imposed through the threat of legally binding legislation (Conzelmann and Wolf 2007). These expectations and costs thus alter companies’ cost-benefit calculations to a remarkable degree. This is not to foreclose the possibility that companies might even be motivated by a logic of appropriateness, that is, an intrinsic belief in the rightness of a contribution to collective goods, as is assumed within social constructivist theorizing. There are numerous examples of philanthropic engagement by private companies throughout history right up until today, as recent examples such as Ted Turner or Bill and Melinda Gates show. The point rather is, no matter what motivations lay behind instances of ‘doing good’, the external incentives to engage in the contribution to peace and security are ever-increasing. Even if it is safe to assume that the provision of collective goods might never become the primary goal of business (Scherer et al. 2007: 7–9), there could well be a business case in contributing to peace and security in a manner similar to the voluntary self-commitments of private corporations in fields such as the environment, health, education and human rights (Dunfee and Fort 2003: 579, 582, 594; Fort and Schipani 2001: 33; Scherer and Palazzo 2007: 32).

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1.3 Conceptual clarifications The shifting of the state’s role in the provision of public goods and the need for corporations to extend their notion of what constitutes a business case beyond the simple focus on profit maximization imply a readjustment of the relationship between business and responsibility but also between business and governance. Debates on normative business ethics (Crane and Matten 2006) about the values driving business decisions have long been taken up by business. They help corporate decision-making to better ‘understand, conceptualise and legitimise the moral status of corporate policies, strategies and programmes’ (Crane and Matten 2007: 53). For responsible global corporate citizens, what is ‘right’ or ‘wrong’ is no longer defined in terms of a utilitarian business ethics theory only, but also in moral categories referring to fundamental rights and obligations, such as comprehensive stakeholder involvement. What constitutes corporate ‘responsibilities’ is one of the ‘grey areas’ that go beyond legal compliance and thus fall into the domain of business ethics. To whom, for what, and why should corporations be responsible? The answer offered by the above-mentioned shareholder value theory of corporate responsibilities has been more and more challenged in the age of globalization when outsourced manufacturing ‘created significant labor and human rights issues in developing countries […] weakening the economies of local (home) communities and taking advantage of the disadvantaged systematically’ (Waddock 2008: 51). Normative political philosophy (see Beitz 1979; Pogge 2002) provided additional support. In her ‘social connection model of responsibility’ (Young 2008) Iris Young picked up on the observation that social processes connect people around the world, generating structural injustice and, hence, moral relationships with certain obligations the degree of which rises with the degree to which the vulnerability of the others is affected. Empirically EITI, the Global Compact with its more than 6,000 corporate signatories, or the FSC clearly signal that the self-perception of having beyond-profit responsibilities is ‘being incorporated into the mainstream of business practice’ (Waddock 2008: 52). The participation of corporations in such collective self-regulatory initiatives reflects the new interplay between public and private actors in setting, developing and implementing collectively binding rules and norms related to the provision of collective goods in the transnational sphere. Corporate governance, once confined to establishing internal governance structures within a business firm, thus merges with global governance. The implications of this new interrelationship between these two previously separated spheres of


corporate policies – a separation also reflected in two completely different bodies of literature – are still unclear. From the perspective of economics its challenge lies in the potential infiltration of public concerns and values, such as democratization (see Thompson 2008), into the business sector, which may result in a new ‘theory of the firm’. From the perspective of global governance research it raises the question of the potential and limits of private contributions to political order in general. Although some conceptual contributions exist about how and why business actors engage in conflict zones and under what conditions they are likely to contribute successfully to peace and security,14 the current state of research on the role of business in conflict still suffers from a lack of reference to generic concepts. To begin with, the dependent variable needs to be clearly defined to allow for systematic comparison within and between empirical case studies. For example, most of the literature uses the catch-all term ‘conflict prevention’ to cover contributions to security in pre-conflict, actual conflict and postconflict situations (Carbonnier 1998; Rieth and Zimmer, 2004a: 1, 4, 8; 2004b: 81; Wenger and Möckli 2003: 27, 32). However, it may be useful to distinguish between these phases of a conflict to explain and assess certain forms of corporate engagement in providing security. The lack of positive case studies may also reflect the yet unclear and diffuse understanding of what actually constitutes a successful corporate contribution to conflict prevention, peacekeeping and post-conflict peace building. It is therefore necessary to clearly delineate the dependent variable underlying all contributions to this volume. 1.3.1 Corporate governance contributions to peace and security in zones of conflict15 What are the behavioural options for companies operating in zones of conflict? At the onset of conflict companies might simply go on doing business, take advantage of regulatory gaps or of the turmoil of a conflict, or they may withdraw. Although all these options would certainly not be neutral activities and could have negative or positive consequences for their environment, none of the actions qualify as a governance contribution to peace and security. Governance contributions, in the context of this work, must have a political quality in the sense of involving sustained unilateral or collective policies and activities that work towards the creation and implementation of collectively binding rules and norms related to the provision of collective goods. For example, some CSR activities, such as the development of industrywide environmental standards, may well be considered as governance

12


contributions according to this analytical distinction, while other CSR activities, like a one-off philanthropic payment to an environmental fund, do not qualify as governance contributions.16 The political quality of companies’ engagement has intensified with the increasing scope of addressees along the way from internal corporate governance to corporate contributions to global governance. Governance contributions are also characterized as intentional (see Mayntz 2008: 45; Rosenau 1992: 5) efforts to regulate societal problems. The focus in this volume is therefore not on contributions that are merely by-products of companies’ business operations. A further characteristic of corporate governance contributions is their voluntary nature. According to the definition used here, behaviour that is required by law and enforced by the state cannot be considered as a governance contribution. Governance policies and activities by business corporations must go beyond this. In many conflict zones the state is not able or willing to implement the rule of law. In this context of state failure, if a company makes reference to existing laws and behaves in compliance with these laws, it voluntarily and independently contributes to governance. This would also be the case if behavioural standards that fill regulatory gaps in the country of operation are established and put into practice. The focus is further narrowed down to corporate governance contributions that are relevant to peace and security (Figure 1.1).

Indirect contributions to peace and security

Security governance Corporate governance contributions

CSR

Figure 1.1

Peace and security

Governance contributions relevant to peace and security


Such governance contributions have to directly or indirectly address the level of violence in an environment characterized by imminent, ongoing or only very recently terminated interactions of physical violence. The empirical chapters of this volume will show that this can refer to an entire country, a region within a state, or a trans-boundary area. The identification of governance contributions to peace and security is of utmost interest because this is what states fail to provide in conflict zones. This also implies that we are primarily interested in corporate contributions to the provision of security as a collective good. Even within this focus the security relevance of corporate governance contributions in zones of conflict may differ: 1

2

They can be intended to directly address the level of violence in conflict zones. In this narrow sense security governance refers to issues such as security sector reform as well as disarmament, demobilization and reintegration efforts. It might also include corporate involvement in peace negotiations and the handling of public and private security forces where this affects a broader public or communities. They can also be intended as indirect contributions to peace and security through other policy fields, for example by addressing underlying causes of violent conflict. The empirical studies in this volume take into consideration three neighbouring policy areas which are identified as relevant for peace and security in this broader sense: political order, socio-economic governance and the socio-cultural sphere. In the dimension of political order governance contributions aimed at promoting democratic structures and the rule of law, the protection of human rights, the promotion of civil society, and anti-corruption and transparency are the focus (Schneckener 2005: 21). The socio-economic dimension covers ‘the generation and distribution of material wealth’ (Rittberger and Zangl 2006: 121; Schneckener 2005: 21). In this field contributions to transforming war economies, combating poverty and bridging social divides are of interest. It also encompasses management of the environment and natural resources as well as health and education (Collier et al. 2003; Verstegen 2001). In the socio-cultural dimension corporate engagement that deals with the legacies of violent conflict and aims at establishing a culture of peace is addressed. This can include a free and independent media, reconciliation initiatives and peace education (Assefa 2001; Howard 2005; Vienings and van der Merve 2001).

This understanding of indirect governance contributions related to peace and security holds the risk of creating an all-inclusive concept,

14


considering every governance contribution as conflict-relevant which would generally also fit under the CSR umbrella. Therefore, the different policy fields are reviewed on a conflict-by-conflict basis to assess which topics are of relevance within a specific conflict context (Wolf et al. 2007: 302). For example, a sophisticated environmental policy involving water provision to a broader community is only considered a governance contribution relevant to peace and security if water distribution and access are a source of conflict in the specific case. By concentrating on corporate governance contributions that fall under either category (1) or (2), the analytical boundary between the broader general CSR agenda and the focus on corporate contributions to peace and security is not blurred. In principle, security-related private governance contributions in conflict zones may be analysed as output, outcome or in regard to their impact. While output refers to policies (the individual or collective commitments of corporate actors) and outcome to activities (the behavioural changes resulting from such commitments), impact analysis can address the degree of problem solving resulting from behavioural change. One could consider the latter as the politically most relevant of the three; after all, it is impact that we have in mind when we consider bringing the private sector into conflict prevention and peace building. Therefore, the decision to focus on corporate engagement (consisting of policies and activities) in security governance in this volume needs some justification. The output dimension allows us to observe whether corporations have clearly articulated policies on security in a conflict zone. Therefore, the intentionality of security-related corporate engagement can be investigated more explicitly here than elsewhere. The scope of commitments (global, national or local, unilateral, multilateral) can be examined. Output is relatively easy to handle in analytical terms, for example by looking at statements of individual companies or codes of conduct and regulatory mechanisms to which a group of companies has agreed, perhaps also involving other public or private actors. The outcome dimension goes beyond analysing such formal commitments and asks whether companies actually change their behaviour. The impact dimension is much more difficult to handle in analytical terms. Measuring the impact of corporate contributions to peace and security in zones of conflict has problems of multi-causality and counterfactual reasoning (for an overview see Underdal 2004). Against this background the focus is on analysing the potential and limits of corporate governance engagement in zones of violent conflict rather than trying

Nicole Deitelhoff and Klaus Dieter Wolf 15 Table 1.1 Empirical focus: Corporate governance contributions in zones of conflict Pure CSR in zones of conflict

Policies (outputs)

Activities (outcomes)

General corporate governance contributions in zones of conflict

Corporate governance contributions in fields relevant for peace and security in zones of conflict

Direct:

Indirect:

(a) ‘security governance’ in a narrow sense

(b) political order (c) socialeconomic dimension (d) socio-cultural dimension

Impact

to analyse and assess its impact systematically. Admittedly, this choice is to some extent a pragmatic one that values analytical accessibility and soundness higher than what may appear to be of more immediate political relevance. However, the findings based on this focus are far from politically irrelevant. Table 1.1 highlights the common focus of the empirical chapters in this volume in the darkened cells of the matrix.

1.4 Explaining and evaluating corporate governance contributions to peace and security17 After having specified the empirical focus as ‘corporate governance contributions to peace and security in zones of violent conflict’, we still need to address factors that could be relevant in explaining corporate engagement in conflict zones and normative categories by which the legitimacy of private actors’ governance contributions can be measured. 1.4.1 Explaining corporate governance contributions Potentially relevant factors are the role of company, production and conflict characteristics, and the characteristics of the political, social and market environments in which a corporation is operating. Company characteristics, such as the relevance of size (varying from small local firms to big TNCs), form (varying from family-owned companies to those listed on the stock exchange) and organizational structure

16


(there may be departments within companies that could enhance the receptiveness of firms to public expectations), will be explored. The ‘blood diamonds’ example demonstrates that the image and visibility of a product must be considered as a potential reason for a company to engage in security-relevant governance activities. Similarly, the length of the supply chain could influence the likelihood of a company contributing to peace and security. Production type could make a critical difference to material costs as well. Due to the long-term relationship between production cycle and return on investment, the costs of withdrawing from a conflict zone are presumably very high in the primary sector, that is, the extractive industry. In summary, the physical proximity of core business activities to conflicts and how immediately corporations are affected by them influence a company’s incentives to contribute to peace and security. The way that conflict characteristics affect corporate governance contributions to peace and security varies with the conflict issue, phase and intensity. The issue of a conflict, crudely speaking, refers to what the fighting is about. Intrinsic conflict issues, such as ethnicity or religion, appear complex and sometimes insoluble. However, if economic factors, such as greed or grievance (Collier and Hoeffler 2000), are prominent in the conflict, for example in economies of violence, there may be more leverage for private-sector engagement. The greatest amount of business activity might be expected at the conflict stage or in post-conflict peace building. The political, social and market environments of corporations in their home and host states can be expected to play similarly important roles. Corporations operate in a stakeholder environment crowded with public actors (states and international organizations), other non-government actors (such as civil society, customers, investors and shareholders) and other companies that are not only rivals and competitors but potential cooperation partners as well. The very concept of ‘market rationality’ is changing its meaning in an increasingly normatively enriched environment. Costs may be incurred through the activities of private and public actors, for example direct costs through boycotts and adverse campaigning by civil society activists, reputational costs by being associated with bloodshed and violence, and transaction costs incurred by the failure of the state to provide a predictable legal and regulatory environment for business operations (see Conzelmann and Wolf 2007). All of these external incentives and disincentives play an even more important role for business in conflict zones. There is no general legal framework guiding the operations of companies in conflict zones


Corporation

Production

Conflict

Political, social, market environment

Figure 1.2 Embedding of factors examined to explain corporate governance contributions to peace and security

(Banfield et al. 2003: 56). Some host countries are characterized by the absence of an effective state monopoly on power. This can involve increasing costs, such as material damage to the company’s local production assets (facilities, machinery and oil pipelines) or loss of staff. It can also result in higher insurance and security payments to avoid the possible risks mentioned (Wenger and Möckli 2003: 107–9). Legal liabilities are also included in the opportunity cost structure of conflict (Ballentine and Nitzschke 2004: 39; Renner 2002: 60). Companies that are unwilling to practice good corporate citizenship risk reputational costs, consumer boycotts, legal liabilities, loss of market share, falling stock prices and alienation from their stakeholders (Banfield et al. 2003: 16; Möckli et al. 2003a: 51; Rieth and Zimmer 2004a: 17; Wenger and Möckli 2003: 114–15). The pursuit of goals that are in the public interest (Ballentine and Nitzschke 2004: 50) might also depend on the political culture in a company’s region of origin (Pauly and Reich 1997) and on the likelihood of public shaming at home. The market environment might also have an influence on a company’s decision to contribute to peace and security. Companies operating in highly competitive markets may try to avoid the costs of contributing to the provision of collective goods. As Haufler (2001a: 24) has suggested, oligopolistic markets, in which only a comparatively small number of firms exist, may improve the probability of contributions. Figure 1.2 indicates the mutual embedding of the factors to be explored in this volume to explain corporate governance contributions to peace and security. 1.4.2

Normative considerations18

Conceptual clarifications have so far covered the empirical focus and the range of potential explanations for corporate governance contributions

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to peace and security to be explored in this volume. Yet to be clarified is possible normative objections to the involvement of private actors in governance processes. Such objections to governance contributions by private and, in particular, business actors usually start from the argument that these actors have certain characteristics which disqualify them from taking on public functions. Firms are usually organized in a hierarchical and non-democratic fashion and, unlike governments, they are not obliged to act in the public interest. They cannot be held responsible by the institutional checks and balances of a democratic political system. Therefore, except when it may make sense to include them in order to profit from their technical expertise or to buy off their opposition, they should be kept out of governance processes. In zones of violent conflict, especially when they are characterized by the absence of an effective state monopoly of power, this picture becomes even more complex: on what grounds should business actors claim the private political authority to make governance contributions of their own? A mandate handed down by a corrupt regime in a host country could hardly provide the necessary legitimacy. There is no supranational authority which delegates governance functions to private actors and oversees their implementation. In fact, what we observe as security-related private governance engagement today (different from the early modern period, see Chapter 7 in this volume) is not taking place in the context of public delegation of governance competencies, but rather as a form of self-mandating which at the utmost is invited by states and international organizations via public appeals to the responsibilities associated with corporate citizenship. We will therefore not approach and evaluate private governance contributions to peace and security in zones of violence as if they are ‘a favour handed down by public authorities’ (Kooiman 2002: 83), but as a necessary private contribution to the governability of societies in which the state is unable or unwilling to govern. This necessary contribution requires sources of legitimate authority that are not tied to formal delegation of competencies by the state or by interstate agreements. Such normative criteria are addressed in the concluding chapter, Chapter 9.

1.5 The case studies The chapters of this volume contribute to research on the potential and limitations of corporate contributions to peace and security in zones of conflict. Given the unsatisfactory state of academic research on this


topic, we cannot start to test the pre-specified clusters of potential explanations discussed above without first being able to draw upon reliable empirical evidence of corporate contributions to peace and security.19 In order to generate theoretically sound knowledge we therefore decided to cast our net widely and proceed inductively, applying the pre-specified clusters of variables but leaving room for the identification of other crucial variables along the way. We chose cases with different company and production characteristics, political, social and market environments, and conflict characteristics to avoid a replication of the selection biases of the existing research.20 The empirical case studies in this volume cover the extractive industry (Chapter 3) but also include companies from other production industries (food and beverages, aviation; see Chapters 2 and 6) and the service industries (telecommunication, tourism; see Chapters 4 and 6). As highlighted above, the bulk of the literature refers to the catch-all concept of conflict prevention to analyse corporate governance contribution (Carbonnier 1998; Wenger and Möckli 2003: 27, 32), giving rise to the question whether it makes a difference if a conflict is still taking place or is already at the stage of post-conflict peace building. Thus, we cover different phases and types of conflict that companies are confronted with, cross regions from Sub-Saharan Africa to the Middle East and Europe, and trace developments over time. Variation between and within the case studies allows us to derive generalizable propositions on the conditions under which companies are most likely to contribute to peace and security and to assess their overall potential and willingness to contribute to these goods in the first place, whether directly or indirectly. Needless to say, the research cannot stop here but needs to proceed to the testing of hypotheses. However, given the premature stage of research in this field, this is a first and necessary step in this research process. Guided by these considerations, this volume contains the following case studies: In Chapter 2 Feil investigates two companies from the food and beverage industry operating in Rwanda and eastern Democratic Republic of Congo and their governance contributions to peace and security. Despite being surrounded and affected by violence and insecurity, both corporations categorically reject contributing to security governance, that is, public security beyond their own operation and staff. Regarding indirect governance contributions to peace and security, both companies have policies and activities in the political order realm, such as human rights, rule of law, transparency and anti-corruption. The corporation in Rwanda engages more elaborately in the dissemination

20


and implementation of such norms beyond its own company. Both companies also engage in socio-economic activities, but only the corporation operating in Rwanda has substantiated and sustained their activity to the extent of a governance contribution. The similarities in the findings appear to be influenced by the companies’ size and product, which are related to brand, image and reputation considerations. Corporate culture and ownership structure also appear to be of influence: both companies take on policies and identity, including international norms, from the group level. Conflict and governance contexts explain some differences in the companies’ governance contributions. The concentration of violence and insecurity leads to difficulties for production and in return reduces the level of governance contributions. When governance contributions are made in post-conflict phases, the governance context and actors seem to influence corporate engagement. In particular, Feil’s study shows that governance contributions by companies are fostered by a developed governance framework and strong governmental implementation, rather than by governance gaps in failing states. Chapter 3 by Zimmer analyses companies involved in the oil industry in Nigeria. Much has been written about the role of natural resources and extractive industries in zones of violent conflict. The literature has rarely focused on governance contributions by oil companies or how to explain them. Zimmer’s analysis suggests that companies have a variety of policies and activities in place that are directly or indirectly relevant to peace and security. Companies such as Shell have not only been affected by violent conflicts but they have been drawn into local security governance over time (because security provisions for the company have almost inevitable effects on the local population). However, this is not true for all oil companies, especially those operating offshore that are not threatened by large-scale violence. Regarding indirect contributions to peace and security, most companies nowadays address issues such as human rights, transparency and environmental standards. Companies have also joined multi-stakeholder initiatives such as the Voluntary Principles on Security and Human Rights and the Extractive Industries Transparency Initiative. In addition, they intend to contribute to socioeconomic development through community programmes. The chapter also includes some instructive findings on ‘laggard’ Chinese companies. Analysis of their CSR reports indicates that they rarely have policies in place and that they do not report major CSR activities in Nigeria. Zimmer’s case study highlights the significance of the societal and political environment in which companies operate. Local protest and global civil society activities brought the plight of people in the Niger Delta


onto the global agenda in the mid-1990s and targeted oil companies for their behaviour and relationship to the then non-democratic regime in Nigeria. These events had a lasting influence on the debate about the responsibilities of oil companies, even beyond the targeted companies. The political environment in host and home states also matters. First, home state governments can encourage companies to engage beyond fulfilling minimal legal requirements. Proactive CSR public policies seem to encourage proactive CSR behaviour by companies in their operations abroad. Second, the political context in host states also influences company behaviour; a shadow of hierarchy, however minimal, seems to be necessary to encourage companies’ engagement. In Chapter 4 Wallbott analyses the role of the information and communications technology (ICT) sector in the context of the conflict in the Democratic Republic of Congo. In particular, the second Congo war (1998–2003) was shaped remarkably by disputes over natural resources. Prominently, the ore coltan and the mineral tantal that can be derived from it have been regarded as a synonym for the interdependence of war economies, export of natural resources and the prolonging of conflict. Tantal is used as a semi-conductor within high-performance condensers and ferrous alloys and is of strategic importance to many industry sectors that distribute products of final consumption. Hence, some companies at the end of the production chain felt constrained to produce written and/or oral statements that clarified their respective point of view on the problem, as well as the specific corporate policies and prospects with reference to the conflict at hand. This willingness, however, seems to be limited to members of the ICT-sector and herein predominantly to mobile phone manufacturers. Departing from these big-sample empirical findings, the chapter identifies various factors that could explain the diverging corporate engagement: Hierarchically enacted binding rules seem to keep companies from producing additional statements on the regulated issue. On the other hand, a vibrant civil society and high public pressure in the home state push a company’s willingness to contribute to peace and public security in zones of conflict. Finally, a company structure that institutionalizes the reflection of normative concerns within the strategic and operative formulation of management processes appears to favour governance engagement. In Chapter 5 Haidvogl examines the activities of Bombardier Aerospace in Belfast, an established British aviation company taken over by a Canadian conglomerate for the peace process in Northern Ireland. Empirical evidence shows that the company makes no contributions to security governance. However, through its engagement in the issue

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areas of fair employment and community involvement the company provides indirect governance contributions to peace and security in the dimensions of political order and socio-economic issues. In order to reveal the causes influencing the corporate behaviour Haidvogl uses a two-stage comparison. The engagement of Bombardier Aerospace in Belfast is compared over time and contrasted with the behaviour of two other companies doing business in Northern Ireland. The investigation shows that on a structural level the legal environment in the host state, the momentum of corporate citizenship and the new post-conflict environment are the most important drivers for corporate engagement. However, not all companies are affected equally by those structural changes. Rather, the analysis reveals how specific company characteristics, such as size, organizational structure, reputation and corporate culture, influence their governance contribution to peace and security. In Chapter 6 Fischer deals with the role of the tourism industry in peace and security in zones of violent conflict. As many destinations have been or are actually confronted with political instability or violent conflict (for example Turkey, Egypt and Thailand) it is expected that tour operators have a strong interest in peace and security at their destinations. Fischer investigates the engagement of three German tour operators (TUI, REWE Touristik and Studiosus) in Israel and the Palestinian Territories. Her empirical findings show that – despite high expectations – no corporation contributes to security governance directly. Nevertheless, all three corporations contribute to peace and security. However, these governance contributions vary greatly. These findings can be explained by combining several factors: The similarities concerning security governance contributions can be best explained by the regulatory environment in the home state and the sector’s ‘product’, the journey, which implies a certain image, pushing all three tour operators towards positive engagement. In contrast, the market ranking and segment as well as the corporate structure function as enabling or restricting conditions, explaining the variances in the design of the corporate governance contributions. Higher expectations concerning direct contributions to security governance are disappointed because of the sector’s ability to withdraw from ‘critical’ regions easily. To align the findings to the broader picture of the involvement of private business actors in the provision of collective goods, historical case studies are also included. In Chapter 7 Wolf analyses the political role of chartered companies from the sixteenth century to the eighteenth century. Rather than relying on the golden-age nation state as an appropriate point of departure to assess the potential and limits of corporate governance


contributions to peace and security, Wolf shows that the private–public performance of security governance has a long tradition. In fact, postmodern and early modern constellations show striking parallels, particularly in outsourcing public functions to private entities. Very similarly to the modern states’ response to the challenges of late twentieth-century globalization which threatened congruence of social space and political space, the early modern state at the beginning of the seventeenth century tried to cope with the growth of transnational economic and social transactions by sharing responsibilities with private actors. The future of the modern state may in fact depend upon learning from its early modern past to outsource public responsibilities to private actors. In Chapter 8 Deitelhoff focuses on outsourcing and contracting of states to private security and military companies to contribute to peace and security in conflict zones. The contracting to PSMCs by a weak state (Sierra Leone in the 1990s) and a strong state (the United States in Iraq) are compared to delineate the commonalities and differences between PSMCs and TNCs. The analysis traces the kind of governance contributions PSMCs provide, that is, direct security or indirect contributions in other policy fields. The findings indicate that PSMCs contribute to security governance more directly than TNCs, as their activities usually directly address the organization or use of force. However, that does not necessarily lead to a higher or more positive impact on the provision of public security in the zone of conflict or on state consolidation. Instead, empirical evidence suggests that PSMCs, while being effectively able to end violence in the short term, further undermine state consolidation in the long run. With these temporal and type-related expansions, general conclusions are drawn on the changing relationship between the public and the private sectors and its likely consequences for the future. In Chapter 9 the findings on corporate governance contributions to peace and security in zones of violent conflict are comparatively generalized and evaluated. By enlarging this systematic account, the final chapter outlines an agenda for future research on the role of business in conflict.

Notes Parts of this introductory chapter draw on earlier publications of the research group at PRIF, in particular Feil et al. (2008), Wolf (2009) and Wolf et al. (2007). 1. Coca Cola faced boycotts at several universities in 2005 after it became public that the company ignored the murder of labour union leaders at their bottling plants in Colombia. See http://www.corpwatch.org/article. php?id=11925 (date accessed: 22 November 2008).

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2. Shell experienced severe losses from a Europe-wide consumer boycott after it initially refused to dismantle its defunct oil platform, Brent Spar, onshore. 3. Many Chinese workers lost their jobs in 2007 after major US and European companies cancelled their contracts with Chinese suppliers after a public outrage over toxic ingredients in the paint used to colour toys such as Barbie dolls. See http://women.timesonline.co.uk/tol/life_and_style/women/ families/article2284323.ece (date accessed: 22 November 2008). 4. Examples include Coca Cola and BP in Colombia as well as oil companies operating in Nigeria. 5. However, private actors were never completely abandoned in security (Grimm 2002: 1301), be it in the form of privateering or chartered companies during the sixth, seventeenth and eighteenth centuries (Chapter 7 in this volume; Ortiz 2007), various mercenary activities over the centuries (Thomson 1994) or private support personnel accompanying the state’s armed forces at all times (Schaller 2007). 6. In 72 countries the security risk of investment is rated as medium at least (Nelson 2000: 1). 7. This applies in particular to the extractive industry, whose local investments are not that easily withdrawn. In addition, although it might be morally appropriate and congruent with the demands of NGOs, disinvestment could also contribute to catalysing existing conflicts through economic decline (Rittberger 2004: 22). 8. See UN Doc. SC/8058 (date accessed: 9 November 2008). 9. This phrase was first used by Wenger and Möckli (2003). 10. Transnationalism receded into the background in the 1980s but was revived in the 1990s (see Risse-Kappen 1995). 11. CSR describes the voluntary activities of companies where the activity is not mandated by law and therefore goes beyond legal compliance. Such voluntary activities focus on the triple bottom line of economic, social and environmental impacts of business operations and have to be applied to core business activities (European Commission 2001; Rieth and Zimmer 2004a: 13). 12. Additionally, there is a range of studies on business and conflict arising from activist and more policy-oriented circles. See for instance Banfield et al. (2003); Nelson (2000). 13. See www.voluntaryprinciples.org (date accessed: 9 November 2008). 14. These discussions were elaborated in an earlier publication (see, with further references, Wolf et al. 2007: 298, 301–14). 15. The conceptualization of corporate governance contributions in zones of conflict was elaborated further in earlier publications. See, with additional references, Feil et al. (2008: 6–9). 16. Rooted in the business community, the CSR concept covers a much broader range of company activities which only partly fall under the category of governance. Thus, we decided to eschew its use as a central concept in our research and instead refer to corporate governance contributions to peace and security. 17. For additional references see Wolf et al. (2007). 18. Elaborated and applied in more detail in an earlier publication by Conzelmann and Wolf (2007).

Nicole Deitelhoff and Klaus Dieter Wolf 25 19. The existing selection bias does not allow for a systematic identification and testing of independent variables and causal mechanisms (Ballentine and Nitzschke 2004: 35; Banfield et al. 2003: 27, 66; Ganser 2004: 74; Rieth and Zimmer 2004a: 2). Hypotheses about the specific conditions under which private corporations are most likely to contribute to peace and security in zones of conflict are still far from clear-cut and cannot be systematically assessed at this stage. 20. For instance, a large part focuses on the extractive industry. This might not be surprising given the visibility of these companies and their products but it also produces a selection bias as the extractive industry displays some unique features. It usually has high sunk costs, limited possibilities of withdrawing from conflict regions given the location of the natural resources they want to extract, and are highly visible (Bennett 2002: 405; Maresca 2004: 123–4; Sherman 2001). As these features do not play out in the same intensity for many other industries, it is important to include different industry sectors and branches within them to arrive at generalizable propositions about companies’ contributions to peace and security.

2 Here’s to Peace! Governance Contributions by Companies in Rwanda and the Democratic Republic of Congo Moira Feil 2.1 Introduction Rwanda and the Democratic Republic of Congo (DRC) in central Africa have experienced some of the most brutal wars in recent history. The interconnected dynamics of recent violence in these countries is closely associated with the economic dimensions of war. Businesses have played a highly destructive role in financing, prolonging and enabling the war in the DRC. However, some corporations present in these countries pursue business interests that are unrelated to the conflict dynamics. They have the same interest in a peaceful operating environment as most businesses anywhere else in the world. Neither management studies, peace and conflict research, nor political science research have so far paid much attention to these kinds of corporations in conflict zones. Existing evidence linking the business sector to the public good of security, both from academic and applied research, has particularly highlighted worst practice examples and mainly focused on extractive industries. Frequently referenced examples of this natural resources– business–violent conflict nexus include oil production in Nigeria, Angola and Sudan, ‘blood diamonds’ in Angola and Sierra Leone, and coltan extraction in the Democratic Republic of Congo (see Buhaug et al. 2003; Le Billon 2001; Renner 2002; Ross 2004b).1 While these cases have been important in revealing the role of business in triggering, fostering or prolonging violent conflict, they also present a sample that is too biased to give an overview of average business engagement in zones of conflict (Wolf et al. 2007). On the other hand, business notion of corporate social responsibility (CSR), corporate citizenship and increased awareness and management of reputational risks are just some areas that link business activity to 26

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more general security considerations.2 Excluding sections of industry directly profiting from war and violent conflict, most of the private sector is interested in the security of its production, trading, market environment and employees – in short, in effective, security governance (see Ballentine and Haufler 2005; Haufler 2001a; v. Pierer 2004; Wenger and Möckli 2003). Against this background this chapter explores how companies in zones of violent conflict contribute to peace and security governance and discusses some initial explanations for the empirical findings. The aim is to contribute empirical evidence of non-partisan companies in an under-researched industry sector to help fill the research gap and identify whether security is a hard case for global governance assumptions regarding private-sector contributions. Research on the governance contributions by corporations operating in zones of violent conflict is a new field of study with only limited research results to draw on and no detailed models to test (Wolf et al. 2007: 294–6). This chapter therefore relies on a loosely comparative case-study approach to answer the research questions introduced above (see section 2.2 for further information on the cases and approach). After giving a brief overview of the conflict contexts in section 2.3, the governance contributions of the two case-study companies are reviewed in section 2.4, applying the analytical framework introduced in the introductory chapter to this book. The comparison shows that neither company engages in security governance while both engage in various contributions that are indirectly relevant to peace and security, particularly in political order and socio-economic areas. Both companies have similarities, in particular the adaptation and implementation of group policies and group CSR programmes, such as the HIV/AIDS programmes. They also reveal differences: Alpha (a pseudonym) adopted a group policy on its conflict context and Beta (a pseudonym)3 was unable to develop some activities due to the ongoing violence surrounding its operations. The empirical information for these case studies is drawn from several sources, including the companies’ own reporting (sustainability reports, annual reports and grey literature), interviews with company representatives at headquarters and local operations in conflict zones, interviews with stakeholders and information from other sources, such as media articles and civil society reports. The local information was gathered during field research that enabled interviews with representatives of Alpha and Beta, other businesses, civil society and donor institutions. Some initial explanations for the similarities and differences of corporate governance contributions by both case-study companies are

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discussed in section 2.5. Explanations for similarities include the size of both companies and significance of their product, which relates to brand/image as well as reputation risks, corporate culture, ownership by the same group as well as group leadership and diffusion of norms regulating corporate social responsibility and behaviour through the ownership structure. As regards the differences in corporate engagement, the security and host state governance context appears to be of central influence: Physical closeness, damage and the bottom line alone do not motivate contributions towards governance, as neither case contributes governance directly to peace and security despite being severely affected by violent conflict. Instead, the conflict density, made up of proximity, ferocity and duration of violent conflict, seems to explain the difference in corporate engagement. In the post-conflict phase, the question of whether those in charge implement the existing governance framework for the provision of security and other governance fields becomes a major influence on corporate governance contributions. The high-risk, uncertain and politically unstable governance context of the eastern DRC appears to reduce the level of engagement in governance contributions by the corporate case analysed here, contradicting the general assumption that governance gaps foster corporate governance contributions. Before the discussion of these results, the company case studies and the research approach will first be introduced.

2.2 Two companies from the food and beverage industry Companies that are physically present and producing in areas affected by violent conflict make the most interesting case studies for researching corporate contributions to governance related to peace and security. By having longer-term investments, sometimes with high sunk costs, even transnational corporations (TNCs) think twice about withdrawing from a production site when violence erupts (Bais and Huijser 2005). They further have to consider the security of staff and relations within the community and to host state governments when they make decisions regarding their operations and their engagement beyond doing business. These are some of the reasons why most research on ‘business in conflict’ has focused on extractive industries, which are bound to operate where they can exploit natural resources. However, by focusing attention on one industry sector the potential observations on corporate engagement are limited, leading to a bias in the whole debate (Wolf et al. 2007). Because corporations operating in conflict contexts are

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particularly relevant to this research but at the same time it is pertinent to avoid the selection bias of existing research, two companies from the food and beverage industry, one operating in Rwanda and the other in the DRC, are analysed. The industry of interest operates in a highly competitive global market dominated by a few major players.4 The OECD market is largely saturated by existing products, resulting in a need to expand into other markets and continuously create new products. As for many other industries, China presents the most attractive market owing to its population size and increasing purchasing power. However, Africa is also of interest as a small but growing market, with potential customer purchasing power being the main barrier to market development. In many Sub-Saharan African countries some of these beverages (especially indigenous versions) are rooted in culture and tradition. The industry is characterized by long-term investments, as establishing a production site requires considerable financial investment, a well-organized supply chain for raw materials and distribution, as well as some skilled labour. Companies in this industry sector frequently produce locally for the local market. The first case analysed is Alpha, which started operating in Rwanda in 1959, prior to the country’s independence. The company has been a top national taxpayer for a long time, directly employing 570 people in 2007 and ensuring income for many more subcontractors in distribution, logistics and supply.5 Alpha is a 70 per cent subsidiary of Group Delta, with the government of Rwanda owning the other 30 per cent. It has production sites in Gisenyi and Kigali as well as distribution centres throughout the country. One valuable asset of this company is its quasi-monopoly of the Rwandan market, which arguably it might loose if it withdrew. According to existing research, a company’s industry sector has a large influence on corporate decisions to invest, produce and contribute towards governance in conflict zones (Berman 2000: 31; Bray 2005: 3–7; Carius et al. 2005: 51–4). In order to answer the second research question and explore other explanations for corporate decisions and behaviour, a very similar second company, Beta, was chosen from the same industry sector. By selecting a company from the same industry sector but one operating in a different conflict context, it is possible to highlight the influence of the operating environment – both regarding the specific conflict and broader host state governance environment – on corporate decisions, policies and activities.6 Beta operates in the DRC and is a subsidiary of the same corporate group as Alpha.

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As the DRC is too vast, multi-faceted and inconsistent to function as a research context, the main focus is on the corporate behaviour of Beta in North and South Kivu.7 Beta has been operating in the DRC since 1923 and is continuing despite the ‘difficult socio-political environment’ (company website). Ninety-five per cent of its shares are owned by Delta, the rest are privately owned. The company has production sites in Boma, Bukavu, Kinshasa, Kisangani, Lubumbashi and Mbandaka, as well as distribution centres throughout the country (including Goma). It employed approximately 1100 people in 2005 (third party press report)8. The facility in South Kivu directly employs 207 people and has service contracts with 500 people in logistics, transport, distribution and so on (Interview #12, Bukavu, 20 August 2007). The two companies are majority subsidiaries of Group Delta, which is one of the top five global industry leaders, producing 119.8 million hectolitres of its main beverage with revenue of €12,564 million and a net profit of €1119 million, and employing 54,004 in 2007.9 It invested early in Africa and by 1960 was the market leader.10 During the research period (1990–2007), Alpha and Beta operated during extremely violent wars in which millions lost their lives, had to flee, were raped, violated and robbed. The next section gives a brief overview on the conflict contexts in Rwanda and the DRC.

2.3 The conflict contexts: Rwanda and Democratic Republic of Congo The conflict background, developments and environment introduced here serve analytical and empirical aims. The influence of the conflict on corporate governance contributions will be analysed in section 2.5 drawing on this description, while in section 2.4 the root causes and key drivers of the conflict indicate those governance contributions that indirectly relate to conflict. This very brief overview is highly consolidated and can only give an impression of the complexity and interdependence of the conflicts in Rwanda and the DRC. 2.3.1

Rwanda

The period of conflict discussed here can only be understood against the background of Rwandan history since colonial rule. The systematic deprivation of economic, social and especially political power of the Hutu majority was greatly intensified by first German and then Belgian colonial rule.11 Around the time of independence from Belgium (1962),

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the tensions culminated in a civil war, when the Hutu majority of 80–90 per cent rebelled against the ruling Tutsi elite. The Belgian forces, which had previously supported the Tutsi ruling elite, changed sides and in the ensuing coup d’état in 1961 the Hutu took control of the country. Many Tutsi fled to neighbouring countries from where they made repeated military attempts to regain power in Rwanda. The civil wars of 1959 and 1961, as well as the repeated fighting after 1963, led to a death toll of an estimated 105,000 people, of whom the vast majority were civilians (3000 military casualties).12 In the 1960s, Rwandan Tutsi exiles staged some insurgencies from outside Rwandan borders (especially Burundi) which were met with further bloody reprisals: ‘Between December 1963 and January 1964, an estimated 10,000 Tutsi were killed in Rwanda and the last of the Tutsi politicians still in office were systematically eliminated’ (Waught 2004: 28). The insurgencies and repeated fighting also had negative impacts on Rwanda’s economic development. The genocidal massacres of the Hutu elite by the Tutsi government in Burundi in 1972 further fuelled fear and antagonism in Rwanda (Debiel 2002: 341).13 In the late 1980s, Rwandan President Habyarimana openly stated that the country was not capable of absorbing significant numbers of Rwandan (Tutsi) refugees wanting to return from neighbouring countries. He based his argument on Rwanda’s high population density and the weak Rwandan economy in the wake of the coffee price downturn, but clearly took into account – or instrumentalized – the ethnic implications of such a decision which was in breach of international law (Waught 2004: 23–4). Subsequently, the Tutsi-led Front Patriotique Rwandais (FPR) invaded Rwanda from Uganda in 1990.14 During the civil war of 1990–1994 the FPR established control over the northern part of the country to some degree. Habyarimana’s regime received military support from Belgium and especially France. Within the political circles of Rwanda the presence and threat of the FPR accelerated radicalization and the development of ‘Hutu extremism’, undermining President Habyarimana’s governmental control (Waught 2004: 15). In an atmosphere of failing Arusha Peace Agreement talks, the plane holding President Habyarimana (and Burundian president, Cyprien Ntaryamira) was shot down approaching Kigali airport on 6 April 1994 by unknown culprits (Ruzibiza 2005: 469). This attack triggered a previously organized genocide. Hundreds of thousands of Tutsi, tens of thousands of moderate Hutu and many indigenous Twa were killed in only 100 days (Debiel 2002; Mamdani 2001: 283) before the FPR took control of the country.15 The lack of interest and accumulation of poor decisions by the international community contributed

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to the disastrous extent of the conflict. As a result, Rwanda was stripped of its educated elite and institutions. In the run-up to the genocide, radical branches of the Rwandan government systematically exploited the socioeconomic divide between the Hutu and Tutsi for political agitation. The government was further marked by a high level of corruption. The FPR established a transition government with reference to the Arusha Peace Agreement of 1993 but made some crucial amendments, significantly enhancing its own influence.16 In practice, state power rested with the vice president, Paul Kagame, who was also minister of defence and became president of the FPR in 1998 (Wegemund 1998: 280; Weiss 1994: 280; 1995: 286). Regarding civil and political rights, the Freedom House Index considers Rwanda ‘not free’, as for example government agencies threaten critical non-government organizations (NGOs) by claiming they spread genocide ideology.17 Since 1994, the government’s stance on anti-corruption has been stringent and has resulted in continuous improvement on the World Bank Governance Indicators,18 though corruption remains an issue. The International Finance Corporation’s (IFC) Doing Business ranking rates Rwanda at 139 (of 181 countries), with the ‘enforcing contracts’ index rating at 48, a further indication of efficient and effective governance implementation.19 Rwanda is the most densely populated country in SubSaharan Africa. Combined with its hilly terrain, traditional small-scale farming and property rights, this puts significant pressure on livelihoods in rural area and fosters antagonism between land uses, such as pastoral and agricultural. The issue of competition over land, land ownership and the resulting division of socio-economic privilege was exploited to mobilize the genocide (Bächler 1996: 473–9; Wyss 2006: 8–17). After the genocide many of the fleeing génocidaires and the Hutu public in fear of revenge attacks crossed the border into the Democratic Republic of Congo then Zaire. From there, the Force Démocratique de Libération du Rwanda (FDLR) led incursions into Rwanda that continued to cause casualties and insecurity in the western province of Rwanda until Rwandan troops pursued the Hutu rebels deep into Zaire. Since 1998, the conflict has no longer been carried out on Rwandan territory but instead continues to create violence and insecurity in the eastern DRC (see below). Rwanda today enjoys a high degree of security, which is considered a beneficial investment factor. 2.3.2 Democratic Republic of Congo As in Rwanda, the violent conflicts in the DRC are partly a colonial legacy. The conflicts since the mid-1990s are usually divided into the

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following major phases of changing constellations and alliances. The first is the civil war against the regime of Mobutu from October 1996 to May 1997. During this conflict, Laurent-Désiré Kabila led the rebel group, Alliance des Forces Démocratiques pour la Libération du CongoZaire (AFDL), which was supported by various groups, including the Banyamulenge, a Tutsi minority settled in eastern DRC since the eighteenth century. By September 1996, troops from Rwanda, Uganda and Burundi were intervening occasionally in eastern Zaire. Rwanda wanted to pursue the Hutu extremist militias that had fled to eastern DRC after the genocide and which were leading incursions into western Rwanda from bases in eastern DRC. Rwanda also wanted to end Mobutu’s support for Hutu groups. By backing the AFDL against the government of Mobutu, Rwanda, Uganda and Burundi established control over the border towns of Uvira, Bukavu, Goma, Beni and Bunia, including their surroundings. The so-called ‘petit Nord’ was occupied under the joint military rule of Rwanda and Uganda (Bucyalimwe Mararo 2003: 178, 186; 2006: 263–4).20 After the AFDL overthrew Mobutu in May 1997 and installed a government, it fostered populist sentiment by turning against the Banyamulenge and Rwanda. As a result, a new conflict constellation found the Banyamulenge and Mobutuists fighting the new government in their guise as the Rassemblement Congolais pour la Démocratie (RCD). This second rebellion again started in the east. The second conflict phase, from August 1998 until July 2002, is marked by various rebel groups as well as neighbouring armies fighting for power and influence over specific regions of the country.21 This particularly affected resource-rich areas in the eastern DRC, which provided an incentive and the means to further fuel the conflict (Johnson and Tegera 2005; Renner 2002; Ross 2004b; Tegera 2002). The rebellion conquered important towns in North and South Kivu and established control over a territory well beyond Kivu.22 Despite this, assaults from the government, the Mayi-Mayi militia and uprisings of the local population, Kivu and the surrounding region remained under the administration of the RCD and its factions, essentially leading to a divide of the country (Tull 2000: 195–6; 2002: 217; 2003: 192). After the Pretoria Peace Agreement with the DRC on 30 July 2002, Rwanda officially withdrew its troops from the DRC, allegedly maintaining influence in a more covert way through the RCD (Tull 2002: 213, 217; 2003: 192; Wegemund 2002: 311). An agreement in December 2002 established a power-sharing transitional government among the five parties of the Inter-Congolese Dialogue (government, opposition

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parties and civil society) and enabled national reunification of the DRC. However, the regional armed power struggles endured. Some of the disputed territories were occupied by the United Nation’s mission MONUC, which installed posts and buffer zones (Bucyalimwe Mararo 2006: 281; Tull 2002: 215; 2003: 186; 2004: 219). Despite the Peace Agreement and elections, the Kivus remain unstable and insecure, with more stable periods being interrupted by renewed escalations of violence. Between 2006 and the end of the research period in 2007, the main obstacle to a peaceful settlement were rebel activities led by General Laurent Nkunda’s Congrès National pour la Défense du Peuple (CNDP), which is closely connected to the question of security for the Banyamulenge and repatriation of Rwandan Hutu. The repeated escalation of violence and attacks was caused by and further exacerbated intercommunity tensions over the root causes of the conflict in Kivu. The tensions surrounded the issues of citizenship and inequitable access to natural resources and economic opportunities (Boshoff 2008; ICG 2007: 17). Indeed, the exploitation of natural resources presents an economic incentive for rebel groups to continue operating in the region. While the first fully democratic elections in 2006 raised hopes for the development of democratic governance, little has been achieved in developing the effectiveness of governance or establishing the rule of law. The DRC ranks in the lowest ten percentile for all six World Bank governance indicators, with governmental effectiveness and rule of law continuously scoring lowest (despite some modest improvement in regulatory quality). In these indicators the DRC lags behind all of its neighbouring countries.23 In the IFC’s Doing Business ranking, the DRC is ranked last of 181 countries. The DRC is also considered ‘not free’ by Freedom House, which summarizes that ‘corruption is rampant throughout the country, particularly in the mining sector’.24 Transparency International’s Corruption Perception Index ranks the DRC 171st of 180 countries. Corruption combined with a highly centralized state system and a complete lack of transport infrastructure remain systemic obstacles to governmental effectiveness.25 The deficit in governmental effectiveness includes the army, which is marked by ‘indiscipline, low pay and poor motivation’ (Boshoff 2008; ICG 2007: 16). Against this background the following section reveals governance contributions by both companies operating in these environments, in order to assess whether and how they provide some contribution to security governance.

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2.4 Governance contributions to peace and security? Operating during these violent conflicts, both Alpha and Beta reveal an array of governance contributions to various policy fields. Due to restricted space in this chapter, only a selection of those most relevant to peace and security is presented here. Contributions to governance where an indirect link to peace and security is not evident have been omitted. 2.4.1

Alpha in Rwanda

Company Alpha does not contribute any direct security governance that reaches beyond the company scope but does contribute an array of indirect security governance. 2.4.1.1 Security governance Company Alpha rejects any involvement in direct security governance, as conceptualized in the introduction to this book (Chapter 1). Since Alpha’s code of ethics forbids any involvement with political or religious parties, whether through sponsorship or otherwise, it refrains from all activities it considers ‘political’ or part of the public domain, which includes governance contributions to collective security. MF: ‘It is, like you mentioned, in the interest of business to have a secure environment. So, was [Alpha] in any way involved in creating security in that post-genocide time?’ Corporate Affairs Manager, Alpha: ‘No, we are focused on our business and we make sure that our personnel is working in safe conditions’. (Interview #2, Kigali, 3 August 2007) The company employs a security officer who deals with internal security issues and works with a security service provider but who does not engage with wider security topics or concerns. This passive stance is supported by anecdotal evidence: after a brutal and very violent attack on a bus carrying employees (36 dead, 27 injured) in January 1998, the company merely took internal measures, notably stopping the night shift, while buses to transport employees were guarded by the public police (Interview #1, Europe, 27 June 2007; additional company source). The company refrained, for example, from commissioning private security or military companies (PSMCs) to secure the border areas with the DRC. Instead its actions made the government aware of its own security

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problem, since cutting the night shift meant less production and tax generation. 2.4.1.2

Indirect governance contributions to peace and security

In the realm of indirect security governance, company Alpha is very active in Rwanda. The company has strong policy commitments and engages beyond local law and into the realm of political order. The company’s group publishes its Human Rights Policy on its website. It endorses the Universal Declaration of Human Rights and states that it ‘will not cooperate, actively or passively, directly or indirectly, in any violation of human rights’ and that it ‘support[s its] employees if third parties violate their rights’. Against the background of genocide, a clear stance on human rights can be one way of promoting peace. By publishing this policy in all countries of operation it wants to ensure that all employees are aware of their rights. The Human Rights Policy is re-referenced and expanded in other policy documents, such as the group’s Supplier Code (2005), which contains a human rights section, as well as working conditions (health and safety, working hours, etc.), allowance for negotiations leading to collective agreements, and a rejection of child, forced or bonded labour. Similarly, the rule of law within the country of operation is strictly adhered to by the group and re-stated in Alpha’s Code of Ethics. This modus operandi became apparent, for example, when Alpha reacted to the disappearance of three employees in Rwanda in 1998. In this incidence, Alpha submitted a formal inquiry to locate them and determine what allegations were being made against them. By writing letters pointing to official, legal procedures the clandestine arrests were brought to light, informing relatives of where the accused where being held and what allegations were being brought against them. The company then retreated again, merely keeping a close eye on the trial (additional company source). Arguably, the economic significance of Alpha would have given it some leverage to lobby for the release of its employees, but instead the behaviour of Alpha supported the state’s monopoly of force and rule of law, important building blocks for peace in Rwanda. A strict and transparent implementation of the rule of law is also seen as an important way to curb corruption. The issue of corruption is generally taken seriously by company Alpha in all areas of its work. Recruitment, for example, follows a predefined standard which begins with a test and includes interviews. The formal, written testing of knowledge and skills required for vacancies is considered a mechanism to combat favouritism and nepotism. Similarly, suppliers are informed

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prior to submitting an offer that corruption will not be tolerated and their offer will be considered by a transparently organized panel of seniors. Alpha considers itself to be a corruption-free company and enjoys a reputation of taking anti-corruption seriously, though it cannot ensure 100 per cent adherence at all times in practice. The stringency of implementation of Alpha’s anti-corruption rule could be seen as contributing to governance as it reaches beyond the company in its application to all subcontractors and is a visible commitment by one of Rwanda’s most significant private sector representatives. Alpha’s code of ethics forbids any involvement with political (or religious) parties, for example through sponsorship. Alpha’s Code of Ethics (2006) covers corruption, fraud prevention, conflict of interest, gifts, utilizations of company’s property, chain aspects (that is, supply chain management), donations and assistance, publicity/sponsorship, child labour and consultation (information about and questions on the code), as well as recruitment and staff relations. Staff, suppliers and distributors participate in a presentation and question and answer sessions on the code of ethics. All staff members receive a copy of the code as well as the company’s alcohol policy (supplied in English, French and Kinyarwanda) and have to sign both to confirm that they understand and will adhere to these policies when they sign their employment contracts. Alpha is further seeking to spread the adoption of such codes through the director’s role in the national manufacturers’ Association of Industries in Rwanda.26 The company responds positively to other companies’ requests and questions about the code. The government ombudsman was invited and his deputy attended the launch of Alpha’s Code of Ethics. As Alpha was the first company to launch such a code in Rwanda, it is widely held as having influenced the government’s move to also launch a code of ethics for government officials. This number and quality of policies regarding political order is exceptional in the Rwandan context. Alpha’s policies cover core areas of human rights, rule of law and transparency/corruption. They are accompanied by practical and concrete implementation processes, which appear to be generally effective. Furthermore, their scope is broadened to include stakeholders and interested third parties, additionally increasing their scope. They are indirectly linked to peace as they strengthen rights and the rule of law, thus fostering non-violent means of conflict settlement. Alpha also contributes through socio-economic activities in health, education and the environment, ranging from sponsoring a school in

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the adjacent community (building, teaching materials, etc.) to treeplanting activities and donations to relief funds. Of these activities, some are systematic and sustained and are therefore considered governance contributions. One prominent example is the way Alpha integrates local economic development into its core business activities by sourcing local products from small-scale farmers in cooperatives. The company acquires local agricultural produce by supplying the seeds to the farmers and buying the crop at a fixed price slightly above the going market price. The company implemented a scheme for 5500 farmers and their dependants (a total of 35,000 people) to join the national health insurance scheme, ‘Mutuelle de santé’. In this three-year scheme, the company cooperated with a European NGO and the farmers to support the farmers’ families to pay for the health insurance. In the second year, the contributions are jointly paid by the farmers and Alpha, while the farmers take full ownership of their own contributions in the third and following years. While Alpha clearly requires the agricultural produce for its own production, it could arguably supply this more easily by purchasing it from neighbouring countries. At the same time this scheme allows the company to better control the quality of the grain, an important asset to the company’s own product. The expansion of the scheme to include the ‘Mutuelle de santé’ component certainly reaches beyond core business activity and contributes to the health of suppliers and their families. The health situation in general does not particularly relate to the conflict in Rwanda. This scheme however, supports life expectancy and the very basic livelihood security of the rural poor, a particularly marginalized group. It therefore targets a socioeconomic divide that reinforces the group identity divide at the root of the conflict. While company Alpha has a broad portfolio of socio-economic activities, its supply chain development is a governance contribution. The sometimes-elaborate socio-economic activities only relate to one general policy by Alpha’s group, stating its ‘moral obligation’ towards the local community and country within which it operates. Alpha’s activities in socio-economic governance are therefore not based on specific policies but instead relate to its corporate identity and self-perception in general. Alpha has no socio-cultural governance policies or activities in place. To summarize, Alpha’s doctrine of remaining apolitical results in security governance inactivity. Throughout the conflict escalations in Rwanda, the company has tried (and not always succeeded) to protect its

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employees but has remained passive about broader security governance provision. Nevertheless, Alpha pursues corporate policies and activities that are of the highest international standards, unparalleled in Rwanda and clearly beyond legal obligations. Some policies and activities relate to policy fields that are considered conflict relevant in the Rwandan context, including policy and behaviour regarding political order, such as human rights, rule of law and transparency/corruption. Another governance contribution relevant to peace and security is Alpha’s development of and involvement in its local supply chain, securing a regular income and basic health care for subsistence farmers. It therefore targets a socioeconomic divide previously exploited to mobilize genocide. 2.4.2 Beta in eastern Democratic Republic of Congo As a subsidiary of Group Delta, company Beta equally refrains from engaging in political activity. Similar to Alpha, Beta engages in a range of activities, some of which are carried out through the company’s foundation. Of particular interest are the governance activities contributing to peace and security through operations in North and South Kivu.27 2.4.2.1 Security governance Beta contracts a security company to safeguard its operations but does not contribute directly to what is conceptualized as security governance in the introduction of this book. Security sector reform (SSR), disarmament, demobilization and reintegration (DDR) measures are crucial to the management and settlement of the many warring armed groups in the eastern DRC (section 3).28 However, Beta considers these issues part of the public domain and entirely separate from its activities. 2.4.2.2 Indirect governance contributions to peace and security In the category of political order, Beta is subject to the same group policies as Alpha, such as the Human Rights Policy and Supplier Code. Group Delta’s Code of Conduct has been in place at Beta since March 2007, though its implementation is challenging. For example, implementing an anti-corruption policy in an environment where government employees are simply not being paid presents practical and moral challenges.29 At the same time the civil servants without regular salary payment are the key clients for Beta’s product, so Beta has an interest in their liquidity. The code of conduct exists in a written form and is communicated to staff through training. The current reach of the code of conduct and obstacles to its implementation make it difficult to assess the strength of this governance contribution, though its emphasis on

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anti-corruption and human rights clearly makes it relevant to peace and security in Kivu. In terms of socio-economic governance contributions, Beta engages in some classic CSR or philanthropic activities, only some of which are governance contributions. As in the whole of Group Delta, Beta also has in place an HIV/AIDS project since 2003–2004, including a public–private partnership (PPP) with the German Technical Cooperation (GTZ) that highlights prevention and information.30 The sustainability and reach of this engagement makes it a governance contribution but it does not contribute to peace and security in a broader sense within this conflict context.31 Similarly, Beta’s charitable foundation is active in maternity health and targets youth by providing furniture for schools, staging a youth orchestra competition (in Kinshasa) and donating money and medical supplies for orphanages, hospitals, senior citizens’ homes, street children, and so on. While this engagement provides important services to the community, it appears too sporadic and unsystematic to be categorized as a governance contribution, as defined in this analysis.32 Unlike Alpha, Beta’s production site in South Kivu does not source through an organized supply chain, such as the one Alpha has in place which creates economic prospects for subsistence farmers.33 According to local management, the local surroundings are too insecure to make such an endeavour possible.34 Instead, Beta’s Kivu production sources raw materials from traders who are able to adapt flexibly to escalations of violence in certain areas or temporary political developments, for example when Rwanda closed its border in the past. Another problem with sourcing locally is the legacy of war, in which existing infrastructure has been destroyed by the fighting or the economic consequences arising from it. For example, a local sugar factory and a local rice factory that Beta had sourced from have either shut down or been destroyed.35 While engagement by Beta in local sourcing would clearly open economic perspectives to specific target groups, such as young males who are still being recruited into rebel groups and militias, the lack of security in the rural surroundings of Bukavu and Goma still strongly inhibits agricultural activity, creating a vicious circle.36 Beta’s activity in the socio-cultural sphere is represented by its foundation, which was going to sponsor a music concert under the umbrella of ‘Operation Peace in DRC’, a government initiative launched by the prime minister in support of the conference for peace, security and development in North and South Kivu. The concert was intended as a platform to raise awareness of the ongoing lack of security in the eastern provinces, to speak out against hate and violence, and to raise funds

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for victims and vulnerable peoples in Kivu. The concert was scheduled for 29 December 2007 but was cancelled by the Kinshasa city authorities at short notice. Nevertheless, Beta’s head of marketing staged a PR event at which the company and the intended headliners of the concert, two Congolese music stars, handed over cheques to a bank in order to fulfil their pledge to the population in eastern DRC despite the cancellation of the concert. While one single activity cannot be considered governance, the fact that Beta actively sought out links with security and peace presents an exception in its overall apolitical approach. By answering the call of the government, the company clearly identified with a government initiative and therefore one of the conflict groups. It remains to be seen whether this has consequences for their operations in eastern DRC and whether the company will in future repeat activities that advocate peace. In sum, Beta does not directly engage in security governance, despite continuously being confronted by a lack of security in its daily operations. However, it engaged in a CSR activity that highlighted the corporation’s sensitivity towards the problem of war. Beta has shown some engagement in indirect governance contributions but most are either not governance contributions in the sense applied in this research or not even indirectly linked to peace and security. Beta implements all of Group Delta’s policies and activities and beyond that engages in philanthropic CSR activities. This prioritization is typical for CSR in Africa, where philanthropic engagement is much more crucial in providing basic public services than in developed countries (see Visser 2006). Nevertheless, Beta has not systematized such engagement to the extent that it constitutes a governance contribution. The interviews made apparent that resources are tied up by continuous risk management and the effort of operating in an environment of violent conflict and weak public governance. 2.4.3 Comparison of governance contributions A comparison of the two case studies first reveals that neither corporation is contributing in the area of security governance (see Table 2.1). The policies and activities in italics and brackets do not fulfil the criteria applied in this research for governance contributions, as presented by Wolf and Deitelhoff in the introduction to this book. In other words, they are not governance contributions because they merely provide a private good or because they only occur sporadically. General governance contributions that are not related to security within these specific conflict contexts are omitted from the table.37

Corporate governance contributions to peace and security in Rwanda and the Democratic Republic of Congo Security governance

Alpha in Rwanda

Policies

(Emergency policy)

Activities

Beta in eastern DRC

Policies

Activities

(Emergency policy)

Governance contributions in other fields related to peace and security Political order

Socio-economic

Group policies (human rights, supplier code); own code of ethics

(Group website with statements on CSR approach)

Implementation among own staff through communication and training; extension of code of ethics to suppliers and distributors; spread of policy through national business association

Support of subsistence farmers through supply system PPP for health insurance adoption. (Other activities related to group health policy, education, etc.)

Group policies (human rights, supplier code, code of conduct); whistle-blowing procedure

(Group website with statements on CSR approach)

(Statement to raise awareness of ongoing violence in eastern DRC)

Implementation among own staff through communication and training

(Activities related to group health policy, education, etc.)

(Sponsoring of concert to raise awareness of ongoing violence in eastern DRC)

10.1057/9780230277052 - Corporate Security Responsibility?, Edited by Nicole Deitelhoff and Klaus Dieter Wolf

Socio-cultural

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Table 2.1

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Despite the conflicts and security situations clearly being or having been destructive to business operations, neither corporation considers the area of security – beyond their own operation and staff – to be a possible topic for engagement. In fact the very first and only time either company openly stated the need for conflict resolution occurred just before the end of the period considered for this research. The way the issue was raised, as a cultural event, also represents the only engagement of Alpha or Beta in the socio-cultural category. It remains to be seen whether this is a one-off response to a government campaign or indicates a new trend in engagement. The second result is that the policies and activities of Alpha and Beta cluster around political order and socio-economic dimensions. They have some similarities, in particular the adaptation and implementation of group policies and group CSR programmes, such as the HIV/AIDS programmes. Some differences are also apparent between the companies. Alpha and Beta have adopted group policies for their operating contexts, with the result that Alpha is still considering how it can apply the whistleblowing procedure without inviting abuse. Alpha has developed governance contributions through its supply chain, which is impeded in Beta’s case by the ongoing lack of security. Explanations for these similarities and differences in Alpha and Beta’s policies and behaviour are explored in the following section, highlighting the different operating contexts in terms of the conflict and the governance environment.

2.5 Some explanations for corporate behaviour in conflict zones The governance contributions of the two companies mainly reveal similarities but also some differences. As the two companies are from one industry sector, corporate, product and production characteristics appear to explain some similarities. The differences derive from the different operating environments, with both the security and governance contexts clearly restricting or enabling the provision of governance contributions. 2.5.1

Explaining similarities

Several factors explain the level, kind and timing of the evident corporate engagement. In both cases the companies reviewed are prominent corporations in each country because of their size, household name and end-consumer product. First and foremost, these factors led to negligible

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damage of the companies’ production facilities during violent conflict. Government groups, rebels, militias and other warring parties all have an interest in keeping operations going, both for the sake of the product and the taxes or duties they seek to levy. After the chaos of war, the size and the combination of brand, image and reputation of the products make Alpha and Beta very visible in their respective countries. In return, they are faced with expectations of integrity and exemplary behaviour, both concerning their core business and broader social engagement. Representatives of Alpha and Beta argued in this way when being questioned about the level of engagement beyond their core business. In view of the fact that they both hold a dominant, quasi-monopolist market position as sole producers of beverages in their region or country, it could be argued that such considerable engagement would not be necessary. However, in response to this Alpha and Beta’s representatives explained reasons for the policies and activities mentioned above, which can be summarized as corporate culture. Deriving from the group’s corporate identity, there is a self-perception within Alpha and Beta that clearly fosters engagement. In line with theoretical conceptions of corporate citizenship, representatives of Alpha and Beta simply consider it part of their companies’ identity to be involved. On the other hand, the kind of engagement and the question of how it is implemented are clearly related to corporate structure. Most striking in this respect is both companies’ reluctance to contribute to security governance, quoting the group policy of remaining apolitical. The group determines some common policies and activities, particularly in the realm of political order. Alpha and Beta’s key policy contributions in this realm derive from the group level and both implement them through communication and training. While Alpha has more thoroughly rooted its code in the local context by asking employees for feedback and translating the code, Beta appeared to want to apply the group policy locally.38 In both cases, the translation of a global governance contribution to the local contexts met challenges, leaving the local companies to resolve discrepancies between international norms and local perceptions. Delta’s subsidiaries exchange best practice and learn from each others’ experience in this regard, but there is no evidence of a local experience having led to a global policy or governance contribution. Global governance therefore ultimately appears as a top-down process in this case. In the socio-economic realm, Group Delta was one of the first companies to provide anti-retroviral treatment for employees and their dependants. These are meanwhile universal activities carried out by

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all subsidiaries, including Alpha and Beta. The general timing of this engagement can in turn be explained by increased CSR awareness and socialization; in other words, norm development and adaptation by Delta. International debates and Group Delta’s CSR leadership clearly explain the similar timing of some Alpha and Beta policies and activities, such as the codes of conduct and anti-retroviral treatment. The interaction of international norm development, group corporate culture and leadership (at group and country level) clearly plays a role in what issues are on the agenda at what time. Yet the group’s structure is sufficiently decentralized to allow for individual adaptations, in particular to local contexts. The difference in implementation of the whistleblowing procedure is an example of this. In the following, the extent to which the context – and particularly the conflict – can explain differences in corporate policy and behaviour will therefore be explored. 2.5.2

Explaining differences

Despite these similarities in engagement and its explanation, there are important differences to the contributions of Alpha and Beta, particularly relating to the quality and quantity of governance activities in the socio-economic and political order realms. As highlighted in the introduction, the choice of Alpha and Beta, two companies from the same industry sector and in the same company group, allows a discussion on the role of their operating context. Drawing on existing literature and plausible assumptions, the influence of the operating environment on corporate governance contributions is discussed, differentiating between the immediate security and general governance contexts of operations. First, the level of security is highlighted, particularly whether and how conflict proximity and phases influence corporate policies and decisions. The second factor of the operating environment that appears influential is the level of broader governance provided by the host state.39 2.5.2.1 Conflict context (level of security) One important explanation for the difference in behaviour between Alpha and Beta is the conflict context within which the companies operate. Violence plays out differently in the two conflicts: in Rwanda, all civilian Tutsi and moderate Hutu were targeted in the genocide, while in Bukavu in eastern DRC the violence against civilians appeared more sporadic and arbitrary (see section 3). Another difference is the concentration of violence, which combines different conflict characteristics, particularly proximity, duration and intensity or ferocity.

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The conflict context can thus be explored through two dimensions that relate to levels of security: conflict proximity and phase. While conflict proximity is a matter of ‘space’ and the physical closeness of the conflict, the conflict phase is a temporal categorization of the conflict environment. 2.5.2.2

The influence of space: Conflict proximity

The existing literature on businesses in conflict zones refers to the proximity of a conflict as crucial to a corporation’s general operations: ‘The perceived geographic reach of a conflict is by far the most important factor in determining whether an MNC [Multinational Corporation] will operate in a conflict-affected country’ (Berman 2000: 28).40 This could probably apply similarly to governance contributions, both from a sociopsychological and from a rational–utilitarian perspective. Banfield et al. (2003: 15) state: ‘The “business case” for adopting a [conflict-sensitive] approach acknowledges the direct and indirect costs that are imposed on companies when operating in conflict zones’ (see Nelson 2000). The socio-psychological aspect is more about a heightened awareness of the conflict and how employees are affected. In terms of the influence of a conflict’s proximity on corporate engagement, it is assumed that the smaller the distance to violence, the more immediately business is affected and therefore the more corporations will provide a contribution to the public good security. In both companies’ cases, violence related to the conflict immediately affected operations, though in different ways. Alpha had to abandon the production site and headquarters,41 and half its staff were either killed or fled.42 While its offices were looted, its production facilities were basically untouched. For Beta’s operations in eastern DRC, only the transition period at the beginning of the occupation by Rwandan troops in 1996 resulted in an interruption of operations. Employees fled temporarily (with some joining the rebellion/resistance) but within two weeks 132 of 327 employees had returned. To the best of the corporation’s knowledge there were no employee victims, but two security guards from a subcontracted security company and soldiers guarding the corporation were killed. As in Rwanda, the office was looted but the actual production facilities remained largely undamaged. Beta was one of only two corporations in Bukavu to have continued production. Although the war continued, company operations also continued, with changes that appeared more administrative than substantial: due to the division of the DRC that resulted from the conflict in the East of the country, production and distribution in Kivu had to operate

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independently of the headquarters in Kinshasa. In practice this meant that the taxes the company paid were taken by those in charge locally instead of being forwarded to the national government; that company financial flows had to be organized ad-hoc as bank transfers across the dividing lines were not possible; and that the supply of raw materials had to come through new channels. For both Alpha and Beta the violent conflict was immediately present at different points in time and for different durations. Despite this, neither Beta nor Alpha contributed to security governance, which weakens the conjecture that closeness alone leads to increased engagement. However, the difference in the concentration of violence – which combines the duration and intensity or ferocity with proximity – seems to influence the level of corporate governance contributions. Complete devastation raged in the 100 days of the Rwandan genocide but security was created relatively quickly after the change of government. In Kivu violence is ongoing, with phases of escalation and relative calm. Uncertainty remains the order of the day. The levels of security and evaluation of security risks therefore appear to influence corporate contributions to governance. It appears that actual and perceived levels of security have a particular bearing on whether companies contribute governance (at least indirectly) towards peace and security after the formal end of a conflict. Therefore, it is necessary to assess what influence the different phases of conflict have on corporate governance contributions. 2.5.2.3

The influence of time: Conflict phases

Conflict phases are sections of a timeline of the conflict cycle or conflict dynamics, and are generally understood to influence the scope and feasibility of activities undertaken by any third actor in a conflict zone.43 For this analysis violent conflict is divided into three phases: preconflict, violent escalation to manifest conflict (war or genocide) and post-conflict.44 The pre-conflict phase is rather ambiguous as it can only be determined in hindsight. Corporate risk assessments might recognize heightened tensions, increased violence and erosion of institutions that would have the capacity to mitigate the escalation, but it is unlikely that corporations will proactively contribute governance towards peace and security during this phase (Wolf et al. 2007: 309–10). Regarding the manifest conflict phase, the Collaborative for Development Action (CDA) states: ‘Companies think conflict resolution is too big a job. They think corporate involvement in peace-building means establishing peace in countries that are at war. The terms

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“peace” and “conflict” are unclear for most corporate managers, and companies generally think of them as macro-level issues, referring to nationwide conflict, or longstanding issues that they cannot, and should not, try to affect’ (2003: 3). The outbreak of widespread violence and civil war shatters organized processes and disrupts established patterns of life and work. In this phase it is unlikely that corporations develop programmes and schemes that constitute governance contributions to peace and security but they may engage as ‘business diplomats’ (Avant 2005; Bais and Huijser 2005; Haufler 2005): in particular, companies that have an important standing in a conflict-affected country, usually due to their size as taxpayer and employer, may use their networks on all sides of the divide to negotiate specific objectives. However, in such precarious times the objective of such negotiations is most likely to be the safety of their staff and operations. Such business diplomacy may be a contribution to conflict management but would not aim to provide a public good or governance contribution. During post-conflict phases, contributions by corporations can be expected (Bray 2005: 2–3; Wolf et al. 2007: 310). While their operation remains their priority (reconstructing if necessary, dealing with supply shortages and shattered markets), the destruction and fragility of any post-conflict setting makes a broader engagement in reconstruction more necessary. This includes both the need for conflict-sensitive business practices as well as broader contributions by corporations to governance. Both Alpha and Beta had various CSR practices in place prior to the conflict, notably related to education and health. Both companies do not carry out a systematic or regular assessment of the conflict situation, but instead rely on their tightly knit informal network for relevant information, as these statements by representatives of Beta and Alpha reveal: Nothing ever happens without you having heard the rumbling, or without a ‘pre-phase’. It’s a continuous build-up of pressure […] It is building up a network of contacts. We are not politically entangled, but we do have relations with everybody. (Interview #1, Europe, 27 June 2007) I don’t think you can control, you can’t know exactly what is happening […] We assess with the help of NGOs present, with embassies present, and our own observations also. (Interview #2, Kigali, 3 August 2007)

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Besides the relationship of senior management with local elites and contacts, the spread of operations and diffusion of distribution centres and warehouses allows both companies to keep ‘an ear to the ground’. The information feeds into safety decisions, primarily for its staff (ex-pat and local), and is therefore used in a purely reactive way. There is no indication that this information helps shape Alpha’s or Beta’s contributions to CSR and governance. During the manifest conflict phase, both companies struggled to remain operational. In Rwanda the operation was shut for a few months in 1994, while the operation in DRC/Bukavu was only abandoned for about one month over the long period of conflict and occupation.45 Both companies have a general crisis management policy which applies in all crises, including strikes, political crises or escalations of violence.46 The priority during manifest conflict phases, as confirmed by all interviews with company representatives of Alpha and Beta, is first the staff, then second the operations (including the community surrounding it). Broader governance contributions to peace and security do not rate a mention in interviewees’ narratives of these situations. The post-conflict phase, by contrast, appears to have a strong influence on corporate activity and engagement. After the evacuation from Rwanda, Alpha tried to start production as soon as possible and through this resume its broader engagements in CSR and governance. Besides its own business prospects and requirements, Alpha is driven by the general speed and pressure for reconstruction and development in Rwanda: The local influence is that there is an extreme sense of urgency, and that we have almost the feeling like okay now every year, not like it could be the last year, but every year we have to maximize the opportunity and the potential, and next year we will see again, but we try and stretch everybody very much. And that sense of urgency might not be very present in other countries, where stability is a reality for so long. (Interview #14, Kigali, 23 August 2007) Despite having to restart operations with only half the staff in 1994, Alpha almost reached pre-1994 levels of production in 2007. The general drive for national development and pressure to contribute to it appears to partially motivate the governance contributions made by Alpha. These contributions are not, however, designed to specifically address the post-conflict context in process or content.

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Another result of the post-conflict context is the heightened awareness of corporations of the conflict issue. While ethnic divides have been a point of contention in Rwanda since its independence, the postconflict context results in more stringent recognition of this issue in corporate operations. This is evident particularly in the transparency in the process of recruitment and the adaptation of the whistle-blowing procedure to the local context. In Rwanda this development is hardly surprising in view of strict regulations against ‘divisionism’ (for example the Rwandan constitution, Preamble, Article 33, Article 46). As mentioned above, Beta continued operations with less interruption and entered the post-conflict period better equipped: ‘In 2004, the plant in Bukavu, with a capacity of 300,000 hectolitres, had a sales volume of 220,000 hectolitres, despite its location in a rebel-controlled area’ (Press report). Violence is ongoing with frequent escalations throughout the formal post-conflict phase since the peace agreement in 2002. While the specifics of the post-genocide setting in Rwanda coupled with the strong political leadership and enforcement appear to influence the contributions to governance by Alpha, the continuous lack of security and regulation implementation could also be a reason why Beta contributes less governance. It is important therefore to turn to the governance context to further develop explanations for the different governance contributions by Alpha and Beta.

2.5.2.4

Host state context (level of governance)

Besides the level of security, the operating context includes the level of sophistication and implementation of the governance framework within which a country operates – most notably national law and governmental cohesion (capacity and willingness). Both in Rwanda and the DRC, governments collapsed and were replaced during the manifest conflict phases. The post-conflict governmental contributions to governance are, however, very different in each context. The introduction to the conflict contexts above already indicates that Rwanda has a stronger governance framework than the eastern DRC (section 2.3). The difference is pertinent in governance implementation: Rwanda represents an authoritarian approach, while in the eastern DRC the state is practically non-existent. In this respect the evidence from Alpha and Beta appears to contradict the general assumption that corporate governance contributions are more likely to develop to fill governance gaps than in well-regulated environments (Cutler 2006; Haufler 2001b; Wolf 2005a). While this may be the case at the global level, in

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the context of an extremely weak government or state, such as eastern DRC, it did not result in more governance contributions by Beta. On the contrary, the Rwandan, post-conflict strong state combined with a secure operating environment resulted in more and more elaborate governance contributions by Alpha. The cases of Alpha and Beta therefore show that both the host state regulatory framework and government (as a governance actor and implementer) influence the likelihood of corporate governance contributions. This finding supports the notion of a ‘shadow of hierarchy’, which highlights the government’s role as particularly influential even in ‘new modes of governance’, in which other actors are integrated, including the private sector (Börzel 2008: 125–7). The finding further emphasizes governmental agency besides the structural regulatory environment. The structural conflict factors cannot be separated from the conflict actors and their power relationships, such as government and opposition. Indeed, Bermann (2000: 29) offers an alternative categorization of conflict along these lines: ‘…territorial conflict, in which effective control over the region is in the hands of the opposition; incursional conflict, in which control remains with the government, but the opposition engages in frequent armed incursions and withdrawals; and terroristic conflict, in which the government’s control is firm, but the opposition can engage in isolated incidents of violence. […] nearly all MNCs are unwilling to sustain or initiate operations in areas of territorial conflict’. Both Alpha and Beta present a different picture, continuing operations during and after control of the geographical area of their operation was taken over by different conflict parties. They were able to continue or restart their operations and engagement because they were neither a target nor a party to the conflict. In this respect, both cases are different from examples from the extractive industries. If the corporation is not a target of violence, business considerations, such as the level of demand and market for the product, securing the supply chain and so on, decide whether a corporation continues its operations under the rule of the opposition or rebels. Since the regulatory framework remains (laws, taxes, etc.), a company can continue operating even if the governing group has been replaced by violent means. Alpha and Beta continuously referred to the legal environment as the first point of reference for all corporate activity, not the government (the group in force at any given time). The legal regulation is applied irrespective of who benefits (for example occupation of eastern DRC or regime change in Rwanda). Those in charge take measures to secure operations to benefit from taxes and products. For example, during

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the occupation of eastern DRC the rebels gave Beta a tax reduction for bottle import, enabling it to continue operating. The decision of those (even temporarily) in charge defines the company’s room to move. Against the background of the two case studies above, it appears that a reliable and stable governmental partner increases likelihood of corporate contributions to governance. While a weak and fragile government is not necessarily bad for entrepreneurship and business activity, neither does it foster governance contributions by corporations. Both companies exhibit engagement in response to governmental initiatives or triggers, irrespective of the government’s power.47 To summarize, conflict and governance contexts explain some of the differences between the two companies’ behaviour. These contexts influence the companies’ governance contributions indirectly through their core business. The proximity of violence matters for operations as it can lead to interruptions but it does not appear to trigger any kind of engagement. Conflict phases can also explain some behaviour. During manifest conflict phases the corporations examined here focused on securing staff and operations. Engagement in the sense of governance contributions became most evident during post-conflict phases. However, these contributions also depend on the governance context and actors. In particular, a developed governance framework that is being implemented by a strong government appears to make governance contributions by corporations more likely than the context of a failed state and governance gaps.

2.6 Conclusions The two corporations operating in Rwanda and eastern DRC respectively do not contribute to security governance, based on the narrow definition of security. Perhaps the willingness and capacity of corporations to contribute governance towards peace and security has been overemphasized. If ‘companies think conflict resolution is too big a job’ (CDA 2003: 3), this seems to include individual governance contributions towards peace and security. For the companies analysed here, acknowledging different political actors (even opposing conflict groups) is justified as a necessity to continue operating; directly targeting the conflict is, however, strictly rejected as interfering with political competence. The empirical results imply that governance contributions directly targeting peace and security are not on the corporation’s agenda for engagement. Security is considered to be within the realm of the state – even if the state is not providing it. The companies discussed

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here do, however, have policies and activities in political order and socio-economic areas, which they do not consider political. Depending on the specific context, such activities are nevertheless indirectly linked to peace and security. The case studies analysed in this chapter further reveal how the governance contributions depend on corporate operations – the heart of all corporate activity – making the core business a variable that configuratively affects the way the conflict context influences corporate governance contributions. The willingness and capacity for corporate contributions to governance appear to depend on a higher level of security than merely doing business. This essentially reduces governance contributions to benevolent add-ons in times of relative stability instead of contributing governance to proactively support the creation of a more stable and safe operating environment. Given a minimal security level, for example in the post-conflict phase, a willing and capable governmental counterpart appears to influence the extent to which a corporation will contribute towards governance. The analysis therefore prompts a new look at the host state environment, essentially separating the government – or those (temporarily) in control – from the regulatory or legal operating environment. Further research on this could systematically take account of government and other group’s agency besides structural governance framework considerations of the host states, comparing fragile or failed states to authoritarian ones. In conclusion, the case of security raises the question of whether global governance paradigms can be used to address any topic. While it is clear that corporations will never solve violent conflicts alone, this research questions whether they may be considered to play any role or whether the following statement by one manager holds true for all: ‘We are working with a more or less legitimate government, we pay our taxes and that’s where it stops’. Further research on both corporate and civil society actors is necessary to determine whether contributions to peace and security remain an exception to global governance theory, which postulates an active role of actors other than the state. From such a perspective TNCs present particularly intriguing cases as they reveal interactions and dynamics between multiple levels: international norm development and global governance contributions from safe headquarters as well as norm translation to local levels, where the international norms may clash with local cultures and their immediate security concerns. The particularities of conflict zones and the influence of conflict characteristics on corporate governance contributions additionally highlight the need for global governance concepts to be localized and to

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better integrate the complexities of specific contexts. In particular, the outcome from this research showing that governance gaps in conflict zones result in fewer governance contributions by companies deserves some more detailed attention and further research, as it contradicts the general assumption of global governance research that corporations become active in response to governance gaps.

Notes 1. Columbite-tantalite (coltan) is used to produce heat-resistant semiconductors in chips for mobile micro-electronic devices, such as laptops and mobile phones, as well as jet engines and rockets. 2. An increased awareness of reputational risks is, for example, evident in the recent trend of extending business conduct standards to the supply chain (Amaeshi et al. 2008; Carius et al. 2005). 3. Both companies, Alpha and Beta, abide by their group’s policy that requires them to remain anonymous in scientific research. 4. See http://www.economist.com/displaystory.cfm?story_id=2970183&CFID= 593221&CF TOKEN=73812403 (date accessed: 3 January 2006). 5. At the time of research, Alpha was planning to carry out an economic impact assessment to identify the exact economic and employment impact of its operations. 6. Adding a second choice also increases the reliability of the observations made in regard to governance contributions. 7. During the division of the country, the eastern part of the DRC experienced a different conflict context to the rest of the country and Beta a different operating environment (section 3). 8. Another press report provides the figures of 600 employees and 6000 family members for 2004. An increase in employees between 2004 and 2005 is probably due to the economic upturn and increased volumes of production but it is not possible to determine the exact number of employees. 9. According to the group annual report 2007. Employee figures are pro rata annual average. 10. According to group website, section on history. 11. In the pre-colonial feudal system, the Tutsi represented the ruling elite and royal family, sharing the same language and culture with the Hutu. The German colonial power associated each group with superior and inferior ethnic and racial characteristics, which was further enhanced and enforced by the Belgian authorities by introducing ethnicity-based identity cards, enforcing racial quota and disadvantaging the Hutu and Twa. For a historical analysis on Hutu and Tutsi identity creation and development as antagonistic racial, ethnic and political identities, see Mamdani 2001 (especially Chapters 2 and 3). 12. http://www.sozialwiss.uni-hamburg.de/publish/Ipw/Akuf/kriege_archiv.htm (date accessed: 12 December 2007). 13. In this ‘selective genocide’ an estimated 80,000 to 300,000 ‘intellectual’ Hutu were murdered, including everyone with primary education (see Mehler 1995: 241). Approximately 20,000 Hutus fled to Rwanda.

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14. An estimated half-a-million Rwandan Tutsi refugees were living in neighbouring countries by 1990 (Waught 2004: 10). In Uganda they were not well integrated and were later persecuted by the Obote regime, leading many of the Rwandan Tutsi living in Uganda to join Museveni’s rebel campaign against Obote in the late 1970s and first half of the 1980s. Some, such as Paul Kagame, received high-level military training and held senior positions in Museveni’s army and government before defecting to their own campaign on 1 October 1990 (Waught 2004: 24–6, 36, 39–41, 46–9). 15. Estimates of those killed during the genocide vary. ‘Between ten and fifty thousand Hutu, and between 500,000 and a million Tutsi’ (Mamdani 2001: 5). Most estimates only list Tutsi and Hutu, neglecting the significant loss of Twa. There are no official figures or recognition of violence against the Hutu population during and after the FPR invasion (Buckley-Zistel 2006; see also http:// www.olny.nl/RWANDA/Lu_Pour_Vous/O_Nyirubugara_Souvenirs_ oublis_au_ Rwanda.html [date accessed: 25 June 2008]). Human Rights Watch estimates the death toll of that period to be around 20,000 to 40,000. 16. The former government party was excluded and the posts allocated to it were claimed by the FPR, who then held eight of 20 ministries and the presidency. The powers of the president were significantly enhanced (from representative to executive tasks) and the post of the vice-president was created and assigned to FPR member Paul Kagame. Additionally, the transition period was extended from 22 months to five years. Decisions were made by a small elite group within the FPR. Political opposition existed only in exile. Consequently, the government and the parliament (in which the FPR only held 13 of 70 seats) were marginalized. In 1997, the allocation of ministries among the parties was altered in favour of the FPR (Reyntjens 1997: 1, 4, 7; Wegemund 1997; Weiss 1994: 279–80). 17. See http:// www.freedomhouse.org/template.cfm?page=22&year=2007&cou ntry= 7259 (date accessed: 28 April 2008). Since 2003, Rwanda has returned to its pre-genocide ranking by Freedom House, indicating a slight upward trend since the genocide, but remaining within the ‘not-free’ category. 18. See http://info.worldbank.org/governance/wgi2007/sc_chart.asp (date accessed: 28 April 2008). 19. For the IFC’s ‘ease of doing business’ ranking for 2009, see http://www. doingbusiness.org/economyrankings (date accessed: 26 November 2008). 20. See also Minorities at Risk database for chronology of events and occupations in eastern DRC: http:// www.cidcm.umd.edu/mar/chronologies. asp?regionId=6 (date accessed: 26 November 2008). 21. Under the Southern African Development Community (SADC) mandate, troops from Angola, Zimbabwe, Namibia and Chad took part in the Congo conflict. Additionally, Kabila cooperated on a military basis with rebel groups in Uganda, Burundi and Rwanda that were already involved in conflicts against his opponents. 22. The area of occupation was divided into the Rwandan and the Ugandan zones after tensions between Rwanda and Uganda led to further fractioning of the RCD. The Rwandan-backed group became the RCD-Goma while Uganda supported the RCD-Kisangani (RCD-ML). The period from 1998 onwards is marked by progressive splits in the RCD. These divisions reflect the different objectives of Rwanda, Uganda and the local population.

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23. http://info.worldbank.org/governance/wgi2007/sc_chart.asp (date accessed: 15 October 2008). 24. Freedom House Country Report 2007: Democratic Republic of Congo (see http://www.freedomhouse.org/template.cfm?page=22&country=7308&year =2007 [date accessed: 13 October 2008]). 25. Transparency International 2008: Corruption Perception Index (see http:// www.transparency.org/news_room/in_focus/2008/cpi2008/cpi_2008_table [date accessed: 13 October 2008]). 26. The members of this manufacturing association are local tea and coffee growers, apart from company Alpha. 27. The policies are general ones and some activities are carried out by Beta’s country management in Kinshasa. In particular, information on the organization and specifics of operations are focused on the Kivu context. 28. Such measures are an important part of the UN mission’s mandate (see http:// www.monuc.org [date accessed: 18 December 2008]). 29. The legal system suffers from the same problems of underfunding, resulting in the paying of judges by plaintiffs and accused, irrespective of the ruling. The issue of need-driven v. greed-driven corruption is too complex to elaborate here. 30. Traditionally, all of Group Delta’s operations in developing countries had their own health service for staff and relatives. Delta was one of the first to distribute anti-retroviral medicine through these centres to all staff and relatives. The service is still available to those who lose their jobs, for example through restructuring measures or technological adaptations. 31. While basic health care is a poverty indicator and so relates to underlying conflict drivers, the link between the specific dynamics of the conflict over power in Kivu and the corporate HIV/AIDS programme is too loose to categorize such an effort as a governance contribution towards public peace and security. Needless to say its contribution is crucial from a personal or human security perspective. 32. It is unclear which, if any, of these philanthropic activities is carried out in Kivu. 33. Beta’s country manager is trying to source local produce for other production sites in the DRC. 34. A medical company based in Bukavu, which produces anti-malaria medication and sources the quinine locally, faces similar problems when access to their plantations is impossible due to a lack of security (see http://www.zeit. de/2008/46/M-Aids-im-Kongo [date accessed: 8 November 2008]). 35. The rice factory is said to be at a stage of early recovery with very low productivity and insufficient quality for Beta’s production. 36. This is not to imply that agricultural activity, which is widely carried out by women, would solve the conflict in eastern DRC, though creating economic prospects for young males would be an important contribution. 37. An example is Alpha’s contributions to primary education. Levels of education in general can clearly relate to violent conflicts, and unequal access to education opportunities clearly played a role in increasing group divides in Rwanda. However, it would be overstretching the concept of security-relevance if the corporate provision of an individual primary school

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40.

41.

42. 43.

44.

45. 46.

47.

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in Rwanda were to be categorized as a contribution towards peace and security in light of the conflict dynamics and genocide. Beta’s code was only introduced some months before the end of the research period, with implementation and compliance still being developed. For Alpha and Beta the country of operation is also their home state. However, their majority shareholder is a multinational corporation (Group Delta) based in Europe. The term ‘host state’ is applied here as the decision on whether to remain operational or retreat is linked to this shareholder constellation and different from genuinely local companies. Berman (2000: 28–9) underlines his point with the following example: ‘In Algeria, armed conflict has mostly been limited to the coastal area north of the Atlas mountains. The majority of MNC operations are in the southern and south-western parts of the country, separated from the area of conflict by a large and sparsely inhabited area. As one executive put it, “our confidence comes from the desert”. In other countries, executives say they are willing to maintain operations in urban centers when armed conflict is limited to the countryside’. With each conflict group being interested in the company’s product and taxes, Alpha was at one stage of the genocide forced to continue producing in Gisenyi, where the RPF arrived later than Kigali (interview with former general manager of Alpha). The main production site in Gisenyi had to restart with 300 of its original 900 staff after the genocide (interview and published source). There are several conflict-phase models (three-phase, five-step, etc.) though they normally involve a pre-violence phase, escalation and violence, as well as some kind of agreement or resolution combined with de-escalation and a post-conflict reconstruction phase. ‘Post-conflict’ phases can be very unstable and unsafe: most violent conflicts re-erupt within ten years of their ‘post-conflict’ phase. The difference between violent conflict phases and post-conflict phases is therefore primarily that there is some form of formal settlement and that attention focuses on the reconstruction of physical and institutional structures. The ‘pre-conflict’ phase necessarily includes previous violent conflict. The determination of ‘pre-conflict’ is purely analytical and only relates to those violent escalations at the centre of attention here, that is, prior to 1994 in Rwanda’s case and 1996 in DRC’s case. Production at the site in western Rwanda stopped for two months, the one in Kigali, five to six months. Alpha organizes crisis management through a working group. The specific policy was not accessible but interviews revealed it to be a set of procedures and steps regarding communication with Group Delta and internal decisionmaking processes. Ironically, such corporate responses to governmental appeals in Rwanda have resulted in individual philanthropy instead of sustained governance contributions. For example, three subsidiaries of large international corporations operating in Rwanda reacted to the president’s public request for tree planting, but none of them developed a sustainable reforestation governance contribution.

3 Oil Companies in Nigeria: Emerging Good Practice or Still Fuelling Conflict? Melanie Zimmer

3.1 Introduction In 1990, the Ogoni people started protesting against oil production on their land by Royal Dutch Shell.1 In 1995, nine Ogoni leaders were executed after a trial without due process (ICG 2006b: 4f). The protest by the Ogoni people and the ensuing global civil society campaign brought international attention to Shell’s operations and other multinational oil companies in Nigeria. Shell in Nigeria became almost a synonym for corporate irresponsibility in oil production. Despite the transition to democracy in 1999, Nigeria is still troubled by violent conflict, not least by oil-related violence in the Niger Delta, the country’s oil-producing region. Oil companies are inevitably involved in the conflicts that surround oil, the determiner of much of Nigeria’s politics and its future. The oil industry’s investments in zones of conflict have been debated continually. Terms like the ‘paradox of plenty’ (Auty 1993) and ‘resource curse’ (Karl 1997) were coined to describe the inability of many developing countries to translate natural resource wealth into development for their population. There is evidence that oil has negative effects on democracy (Ross 2001) and that natural resource wealth influences the risk and duration of violent conflict (Berdal and Malone 2000). When operating in zones of conflict, oil companies usually attempt to continue their operations despite violence. The specific location of natural resource deposits combined with considerable sunk costs creates a big incentive for companies to stay (Bennett 2002: 405; Berman 2000: 32). Companies have been linked to conflict dynamics when they provide large revenues for repressive governance. They have been involved in corruption and forced resettlements. They have been responsible for substantial damage to the environment and the resulting negative impacts 58

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on local communities, as well as other human rights violations, for example through cooperation with security forces (Wenger and Möckli 2003: 4f). Considerable research has already been done on oil companies operating in Nigeria and other conflict zones. The research mainly focussed on conflict dynamics in the Niger Delta, company involvement and community relations.2 This chapter builds upon this previous research but differs in perspective in that it focuses on the governance contributions of companies. Oil companies have a bad image; it seems counterintuitive to question companies’ contributions to governance in Nigeria. However, the social responsibility of companies from the extractive industry is part of a growing debate, and some of those companies lead on sustainability reporting and global self-regulatory initiatives. This also raises expectations for governance contributions on the ground. As there is no systematic knowledge available that would allow hypotheses testing (Wolf et al. 2007: 297), an exploration of internal and cross-case variance is relied upon to gain insights into conditions that influence companies’ governance contributions. Select companies operating in Nigeria are analysed. Shell is the most important oil company active in Nigeria and has been there since 1937. Exxon Mobil started activities in the 1950s. Statoil made its first investments in 1992. Chinese companies have become active only in the last few years. Empirical data for these case studies are drawn from several sources, including academic and grey literature, company reporting, interviews with company representatives and various stakeholders, and field research in Nigeria in January and February 2008. Following a brief introduction to violent conflicts in Nigeria (section 3.2), the companies selected as case studies are introduced (section 3.3). A discussion of their governance contributions to peace and security reveals profound similarities and differences in their engagement (section 3.4). In particular, companies operating onshore were violently targeted and drawn into security governance over time. Companies also have a variety of policies and activities in place that address issues such as anti-corruption and transparency, environmental standards and the socio-economic development of their host communities. Civil society activities, the emergence and spread of ideas about the social responsibility of corporations, and the political environment that companies face in their home and host states are addressed as potential explanatory factors (section 3.5). The limits of corporate governance contributions to peace and security in zones of conflict are discussed in the concluding section (section 3.6): Governance contributions by companies are piecemeal and can rarely compensate for the long-term governance failure of

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governmental actors. Nigeria has a myriad of structural problems that can only be solved by sustained effort from many different actors.

3.2 Oil politics and violent conflict in Nigeria Nigeria is Africa’s largest oil producer. Oil accounts for over 99 per cent of export revenues and 85 per cent of government revenues.3 Oil reserves in the Gulf of Guinea belonging to Nigeria and adjacent countries are of strategic importance in times of increasing energy scarcity and so these countries attract considerable investments from the oil industry despite being chronically weak and unstable (Soares di Oliveira 2007). Nigeria is plagued internally by various violent conflicts. Its stability is essential to the stability and development of the West African region (Engel 2007). Following independence from Great Britain in 1960, the military determined Nigerian politics for most of the next 40 years, interrupted only by short periods of civilian governance. The newly independent Nigeria faced its first major civil war from 1967 to 1970, when the eastern part of the country declared its secession as the Republic of Biafra. The Biafran War caused between one and two million casualties as a result of fighting and famine (ICG 2006a: 7). The ownership of oil resources, ethnic cleavages and struggles for power played crucial roles. Commercial oil production started in 1958 and by the 1970s oil revenues ‘assumed strategic budgetary importance’ (ICG 2006a: 7), prompting rent seeking by elites and excessive corruption. Nigeria developed into a typical rentier state (Omeje 2006; 2008), no longer dependent on public support and the collection of taxes from its citizens. In 1971, the government started partial nationalization of upstream oil production, reorganizing production into joint ventures, establishing a close alliance between the state and oil multinationals (Frynas 2001: 30). Consecutive governments failed to provide a sound regulatory framework for oil production. Instead, the governments – particularly prior to 1998 but also today – have backed oil companies’ operations at any cost and have been willing to repress community protests against oil production (Ibeanu and Luckham 2007: 57). In the beginning of the 1990s, protests against oil production in the Niger Delta increased and gained international attention. Movements aimed to protest peacefully against the federal government and the oil companies. Communities demanded direct compensation, health services, educational opportunities and infrastructure and socio-economic development from companies as ‘surrogates for an absent or neglectful government’ (Ibeanu and Luckham 2007: 72). While peaceful protest continues, violence has

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proliferated. Communities and militant groups that have emerged target the oil industry, causing the temporary shut-down of companies’ operations and a serious loss of oil production; public violence and violent crime are widespread (Omeje 2006: 60–3). Most accounts of violent conflicts in Nigeria concentrate on oil-related violence in the Niger Delta, though violence is widespread throughout the country and societal conflicts in Nigeria are multifaceted and complex.4 Since the transition to democracy in 1999, three consecutive federal elections have taken place but democracy remains fragile, as violence and the irregularities surrounding elections in 2007 exemplified.5 According to the World Bank Governance Indicators, political stability has decreased since 1999.6 To discuss the details of various violent conflicts in Nigeria is far beyond the scope of this chapter (see, for example, Engel 2005). The exact number of conflicts is hard to determine; there are numerous actors involved and conflicts have different causes and scopes, ranging from community to nationwide conflicts (Engel 2005: 194).7 Suffice to say, the level of violence has increased in the last few years. The International Crisis Group reports that more than 14,000 people have died and more than three million have been displaced due to intercommunal conflict since 1999 (ICG 2006a: 14). At least two root causes of conflict can be identified that have led to increasing protests and oil-related violence in the Niger Delta: (1) the organization of the political system, especially the distribution of revenues; and (2) state failure and the ecological and social consequences of oil production. Firstly, Nigeria became a more and more centralized state after its independence; at the same time, revenue sharing between the federal level and the states became over-centralized (Anugwom 2005: 98, 100–2). Revenues have become a source of persistent conflict between states from the north and the oil producing south, between the federal government and the states, and within states. The states and the communities who bear the negative consequences of oil production perceive the existing distribution of revenues as unjust. The question of revenue sharing is further complicated by rent-seeking behaviour, a lack of transparency and corruption of elites at the federal, state and local levels. In 2000, the ‘derivation formula’ was changed in favour of oil-producing states, which now receive 13 per cent of revenues from oil production upfront (the percentage decreased from 50 per cent in the 1950s to only 3 per cent in 1993) (Frynas 2001). Different groups in the Niger Delta demand local control of resources or, at the very least, a greater share of revenues. Demands for local ownership of resources mirror the fear of domination that many ethnic groups have and overlap with conflicts over political influence (Anugwom 2005: 104).

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As regards the second root cause of violence, despite its oil wealth the Niger Delta suffers from severe poverty and other negative effects of oil production (UNDP 2006).8 The state fails to provide security and other basic goods for its citizens, despite the Nigerian state receiving a reasonable income from oil production (UNDP 2006). Oil production has changed ‘the ecological and social landscape of the Niger Delta’ (Boele et al. 2001; Engel 2005). The sensitive ecosystem has been damaged by oil exploration and production, oil spills, toxic waste and gas flaring (Jike 2004; Okoh 2007), problems that have been reinforced by neglect from governmental and business actors alike. The ecological damage caused has had an adverse impact on the health of the people living in the delta, as well as socio-economic consequences because people have traditionally made a living from subsistence farming and fishing (Boele et al. 2001: 76; Ibeanu and Luckham 2007: 65). ‘The objective condition of social deprivation provides a ready milieu for youth violence, activism, and rebelliousness’ (Jike 2004: 694). In particular, youth and communal groups attempt to achieve their political goals through violence (Ikelegbe 2001: 459) but they also resort to extracting money by taking hostages or by engaging in illegal oil-bunkering; thus, political violence turns into criminality. Companies and local governments sometimes tolerate or even support the activities of violent actors, using them to secure their own power base or to enforce government control. Given companies’ close relationship with violent conflicts in the Niger Delta and the legacy of their operations, corporate policies and activities in several fields are examined. They include company security and how they deal with security issues; protection and promotion of human rights (since human rights violations is a recurring theme); and anti-corruption and transparency initiatives (as the distribution of revenues is one of the main causes of conflict). Governance contributions to the socio-economic field are taken into account, including community relations, particularly activities aimed at fostering economic development and delivering basic services to citizens which helps to counteract causes of conflict such as poor socio-economic situations and feelings of marginalization among communities. Environmental issues are also discussed, as environmental degradation is closely connected to social deprivation in the Niger Delta.

3.3 Oil companies in Nigeria Many important transnational oil companies are active in Nigeria.9 Companies mostly operate in joint ventures or production-sharing agreements with the Nigerian National Petroleum Corporation (NNPC).

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In joint ventures, the Nigerian federal government, through the NNPC, typically holds a 55–60 per cent interest, while one or more international oil companies own the rest.10 Investments and profits are shared between partners; these agreements therefore give the host government considerable influence (Amadi et al. 2006: 58). The activities of Shell and Exxon Mobil (both operating a joint venture) and Statoil (which has a production-sharing agreement with NNPC) are examined. Findings on Chinese investments in Nigeria’s oil industry are also discussed. The analysis focuses on the policies and activities of companies after 1995, though historical references are made where necessary for an understanding of the context in which companies operate. 1995 was the year that the Ogoni Nine were executed, marking a turning point in the civil society campaign, which had a decisive effect on Shell in Nigeria and on the entire oil industry. Shell11 started exploration activities in 1937 and even held a monopoly on oil exploration, granted to them by the British colonial government (Amao 2008: 91f). In the 1950s, the ‘Shell monopoly’ was dissolved, though the company remains in a dominant position today. In Nigeria, Shell is active through several companies, the most important in oil production being the Shell Petroleum Development Company (SPDC). Shell has more than 4500 employees, 95 per cent of which is Nigerian, and its operations spread over 30,000 square kilometres and include more than 6000 kilometres of pipeline. In the 1990s, Shell was targeted by community protests and a large civil society campaign (culminating with the execution of the Ogoni Nine) for its irresponsible social and environmental behaviour and its cooperation with public security forces.12 Today, Shell is recognized as a company that has changed its approach (Ite 2007; Rieth and Zimmer 2004a). In the 1950s, other companies were allowed to enter Nigeria, among them the big US oil companies (predecessors of Exxon Mobil and Chevron). Exxon Mobil has three major subsidiaries in Nigeria engaging in upstream and downstream activities. Its Nigerian subsidiary, Mobil Producing Nigeria, began operating there in 1955 and is now the second largest oil producer in Nigeria,13 employing 1900 people, with Nigerians representing 96 per cent of the workforce. In contrast to Shell, its operations are almost completely located offshore. Statoil and the Chinese companies have become active in Nigeria only recently. Statoil (now StatoilHydro)14 was founded in 1972 by a Norwegian parliament decision to establish a base for a national petroleum industry in Norway. Partly privatized in 2001, the Norwegian state is still the majority owner of Statoil.15 The company started its

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operations in Nigeria in 1992 in a partnership with BP, but does not yet produce oil as it is still carrying out exploration activities. Statoil currently has 49 employees in Nigeria, of whom 95 per cent are Nigerian (Amadi et al. 2006: 12). From 2004 to 2006, the Dow Jones Sustainability Index ranked the company number one in sustainability for oil and gas companies. The company presents an interesting case in that it has initiated activities in Nigeria without, as yet, producing oil. China’s political outreach in Africa started around the same time as it formulated its ‘going out’ policy. This policy encourages state-owned enterprises to invest abroad by employing strategies such as domestic tax breaks or low-interest funding from state-owned banks (Reilly and Na 2007: 137f). The Chinese oil market is split between three big oil companies that are still majority state-owned: China National Petroleum Corporation (CNPC), China Petroleum and Chemical Corporation (SINOPEC) and China National Offshore Oil Corporation (CNOOC). Two of them are active in Nigeria: In 2006, CNPC won four oil exploration licences in an auction (the company also provides oilfield services);16 and CNOOC has acquired a 45 per cent interest in a Nigerian offshore oil field operated by French Total.17 The following section explores the policies and activities of these companies. The analysis is necessarily selective, highlighting those governance contributions that are most relevant to security and peace. CSR activities, general governance contributions, purely internal measures and supply chain management are excluded.

3.4 Oil companies’ governance contributions in Nigeria 3.4.1

Security governance

The security situation of companies varies widely, those producing oil onshore (such as Shell and Chevron) experiencing the most serious problems. The security arrangements of companies are ‘opaque’ (Avant 2005: 184): generally, oil companies rely on public security forces to protect their operations in Nigeria. Companies can ask for the supernumerary police (known as the ‘spy’ police) to be deployed to protect their facilities: ‘the Nigerian police force allows companies to maybe have a detachment of police, which they call the spy police. They are usually not armed […] They are there to guard our machineries and personnel, provide protection and all that’ (Interview #3, Lagos, 31 January 2008). The spy police officially belong to the Nigerian police force but it could be argued that oil companies are their de facto employers, as

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the companies pay them. Spy police are usually unarmed but some of them can carry arms upon request (ICG 2006b: 7f). Companies additionally rely on public security from the police, army and navy to protect their assets. Some forces might be regularly attached to company facilities and financially and otherwise supported by companies, including top-up allowances, housing and meals (ICG 2006b: 7–9; Omeje 2006: 80). Another common practice in the Niger Delta is surveillance contracts, where an oil company engages different groups from host communities, such as youth and influential people ‘to provide security services for the company’s oil facilities and services within their local domain on a contract basis’ (ICG 2006b: 10). 3.4.1.1 Company policies and activities Shell’s security problems (attacks on personnel, facilities and pipelines, as well as kidnappings) have caused the temporary shut down of operations (Omeje 2006: 75–7; Shell 2007: 7–8). Shell was the company most heavily criticized for its cooperation with public security forces and complicity in human rights violations in the mid-1990s. Facing protests, the company called upon public security forces, which then used excessive force. Shell was accused of complicity in the resulting human rights violations of the local population, including killing peaceful protesters (Pegg 1999: 475–7). The company provided logistics support to security forces and negotiated to import weapons for its spy police in 1995, though it decided not to do so (Human Rights Watch 1999; Pegg 1999). In addition, Shell has financially supported Nigerian security forces (Avant 2005: 184) and entered surveillance contracts with local communities.18 After the Ogoni crisis, Shell’s approach changed from a reactive to a more preventive approach to security. The company is now aware of the human rights implications of its security provisions and perceives its community engagement as a tool to prevent conflicts. Shell provides human rights and conflict resolution training for employees to be able to better respond when facing conflicts in communities (Shell 2007: 22). It joined the US and UK governments, NGOs and other companies from the extractive industries to develop the Voluntary Principles on Security and Human Rights (VP) in 2000 (Freeman et al. 2001). The Voluntary Principles are a global standard for companies’ dealings with public and private security forces ‘to guide companies in maintaining the safety and security of their operations, in an operating framework that ensures respect for human rights and fundamental freedoms’.19 Their implementation was discussed with Nigerian authorities during visits to Nigeria by VP delegates (Interview #4, 28 March 2008), though the

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principles have yet to be systematically implemented in Nigeria. This is challenging because the cooperation of governmental actors and public security forces is needed (Interview #6, London, 24 March 2009). Shell’s Group Security Standard, introduced in 2001, guides its security-related activities worldwide. It has since been revised to include the Voluntary Principles,20 which Shell has explicitly committed to implement in Nigeria. The company states that security and human rights training will be developed for officials from the Nigerian security forces (Mylonas 2008: 15). Shell is trying to establish safety and security for its own operations and personnel, thus providing a private good. However, by financing and supporting public-security forces and seeking to implement the VP, the company has also become involved in security governance, for better or for worse. Mobil Producing Nigeria has only limited onshore facilities, thus reducing security risks. The company has no permanent security arrangement for its offshore operations (Omeje 2006: 107). Like Shell, Mobil also uses spy police to protect its facilities on land, supplementing them with the Nigerian Police Force. The company pays the former directly, while the latter receive a substantial top-up allowance (Omeje 2006: 106). Mobil does not operate security-contract arrangements with its host communities, but has a security department that uses informants to gather information about potential threats (Omeje 2006: 107). The company emphasizes that the responsibility for protecting and enforcing human rights as well as for developing a legal framework for maintaining security is, and must remain, the responsibility of governments (Exxon Mobil 2007: 42). It supports the VP through the company’s Statement of Principles on Security and Human Rights (Exxon Mobil 2007: 42) but declined to participate in its development. During 2005 and 2006, the company rolled out a Framework on Security and Human Rights to majority-owned operating affiliates (Exxon Mobil 2007: 42). Statoil and the Chinese companies do not yet have large-scale operations, engaging only in exploration activities. This makes their current security situation less precarious. However, Statoil notes that: ‘The biggest blow to the reputation of oil companies over the past few years has probably been their association with the security forces assigned to protect their interests in conflict-prone or conflict-ridden countries’ (Statoil 2001: 63). The company states that it prefers not to engage armed security, but it has currently armed security personnel ‘at our Lagos office in Nigeria’ (Statoil 2003: 45). Statoil joined the VP in January 2003, which is reflected in its security policy. Looking at the sustainability reports of the three Chinese companies discussed above, there is

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a significant contrast in their respective policies and activities. CNOOC does not have policies and does not report on human rights, transparency and anti-corruption or security. The terms are not mentioned once in the company’s 2006 and 2007 sustainability reports (CNOOC 2006; 2007). CNPC mentions the security situation in host countries once: ‘In some regions, the public security is not stable’ (CNPC 2007: 43). The company only reflects upon how to ensure the well-being of employees and their families. It also reports that it has set up health, safety and environment (HSE) agencies in several countries, including Sudan, Chad and Nigeria: ‘CNPC improved its emergency response plan and strengthened its safety evaluation, enabling it to solve many safety issues and reduce risks to its overseas projects and staff. All overseas project companies conducted a great deal of HSE training based on the characteristics of the host country’s environment’ (CNPC 2007: 32). There have now been reports of kidnapping of Chinese experts from an oil field and threats voiced by MEND (Movement for the Emancipation of the Niger Delta, a rebel movement active since 2006) against Chinese companies (Ogen 2008). 3.4.2 Governance contributions related to political order Anti-corruption and transparency measures have been emphasized as important steps to address the resource curse phenomenon and for revenues from resource exploitation to benefit the economic development of societies. A recent study by Transparency International (TI)21 ranked Shell as a high performer in terms of transparency, meaning that the company goes beyond existing mandatory regulations in establishing transparency. For its operations in Nigeria, Shell received ‘very high above country average scores’ (TI 2008: 15, 21). Exxon Mobil is listed in the category ‘low performance’ and ranked as ‘very below country average scores’ for its operations in Nigeria (TI 2008: 15, 21). Statoil belongs to the group of high performers with ‘high above average scores’ in all its countries of operation (TI 2008: 21). Shell has developed anti-corruption policies and committed to initiatives such as the Transparency International Business Principles.22 It is a global supporter of the Extractive Industries Transparency Initiative (EITI).23 Nigeria was the first country that officially committed to implementing EITI in 2003. Subsequently, a National Stakeholder Working Group was founded as the governing body to steer the Nigerian Extractive Industries Transparency Initiative (NEITI) and oversee implementation. Shell’s Country Chair is a member of this working group.

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In 2007, the NEITI Act was passed and signed by the then president, Olusegun Obasanjo.24 While publishing data is now obligatory for companies in Nigeria, Shell’s support for EITI at the global level and NEITI in Nigeria are voluntary contributions to governance. Exxon Mobil25 states that the company ‘is committed to honest and ethical behaviour and opposes corruption by supporting transparency’ (Exxon Mobil 2007: 40). The company supports the EITI at the global level and was elected to the EITI Board. The company states that it supports several different national EITI processes, for example in Azerbaijan and Chad (Exxon Mobil 2007: 41f). Corruption is also a focus of Statoil’s CSR strategy:26 ‘We promote transparency and fight corruption, believing that this is vital to ensure good governance and promote effective markets and sustainable development.’27 Statoil signed the World Economic Forum’s Partnership Against Corruption Initiative, thus committing to zero tolerance of corruption and bribery and to developing and maintaining effective programmes for implementing this commitment (Statoil 2004: 50). Statoil has supported EITI since the founding conference in London in 2003. It is an easy and not very costly governance contribution for companies to support EITI or NEITI. In interviews, stakeholders recognized the initiative as an important step in creating transparency about oil revenues but they rightly questioned whether NEITI helps people in the Niger Delta or solves violent conflict. NEITI does not cover the flow of revenue from the federal to the state and local levels, nor how governments spend money (Interview #1, Abuja, 18 January 2008; ICG 2006b: 25). With regard to governance contributions to political order, it is worth mentioning Statoil’s activities in the realm of human rights. A human rights clause was included in its statement of values in 2003 and it has been a member of the Business Leaders Initiative on Human Rights since 2004.28 In Nigeria, the company decided in 2002 to support three human rights projects to ‘provide legal assistance to people complaining of human rights abuses, divert troubled youth from a potential criminal career and train Sharia judges’ (Statoil 2002: 45). Statoil financed a Nigerian NGO from 2003 to 2005 to train northern Nigerian Sharia judges in Nigeria’s international human rights commitments. Some 450 judges in seven northern states were trained (IPIECA 2009). Despite the fact that Statoil only financed this programme, the support it demonstrates is exceptional because there was no obvious need or pressure on the company to engage in such a sensitive issue. Statoil signed a collaboration agreement to operate an exploration licence with

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Petrobras and Ask Petroleum in 2006. The agreement is exceptional in that the partners agreed that all business activities were to be based on the UN Global Compact’s ten principles on human and labour rights, environmental protection and anti-corruption.29 3.4.3

Socio-economic governance

3.4.3.1 Development Oil companies have become important developmental actors in the Niger Delta, due to the Nigerian federal and state governments’ failure to bring about development and provide basic resources for people in the Niger Delta (Ite 2004; UNDP 2006). Oil companies allocate considerable financial and other resources to local development projects and make additional financial contributions to the Niger Delta Development Commission, a governmental agency responsible for development in the Niger Delta. Shell commits to sustainable development, integrating economic, environmental and social considerations into business decision-making and acknowledges responsibilities for local communities in its General Business Principles.30 The company considers poverty to be one of the main factors that induces instability in the Niger Delta: ‘In our view, there are three major factors at the root of instability in the Niger Delta – unfulfilled aspirations for political recognition and influence, poverty and historical neglect, and criminality’.31 Shell invests large sums of money in its community development programme, for example USD53.3 million in 2006 and USD68 million in 2007 (Shell 2007; 2008). These programmes are located in the oil-producing regions of the Niger Delta where Shell is operating. Community programmes started back in the 1960s but were more limited in scope (Frynas 2001: 41). The approach changed from ‘community assistance’ (essentially giving gifts to communities) to ‘community development’ in 1997 and to ‘sustainable community development’ in 2003 (Ite 2007). The sustainable community development approach is characterized by a more participatory approach to ensure sustainability of projects and the use of partnerships (Ite 2007: 4). Shell’s community development today covers four areas: health care, education, youth development and economic empowerment and business development.32 Shell has built strategic partnerships with organizations such as UNDP, USAID and Africare to implement different programmes (Shell 2007). It also negotiates ‘global memoranda of understanding’ with communities to establish long-term, transparent relationships (Idemudia 2007: 10; Shell 2007). Protests and demands voiced by groups in the Delta

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or Niger Delta in the 1990s and continuing until now make it obvious that these programmes were not and are not accepted by communities as sufficient compensation for the oil taken from their land and for damage caused by oil production (Ite 2007: 3f). Exxon Mobil has also pursued community development programmes (Exxon Mobil 2003: 18). Activities are limited to the host communities and therefore to four local government areas in Akwa Ibom State and Bonny Island (Omeje 2006: 112). In 2002, the company formally shifted its emphasis from community assistance to capacity building and economic empowerment (Idemudia 2007: 12). The basic elements of Mobil’s community development programme are provision of education, workforce development and employment, health, basic rural infrastructure, and agricultural development (Omeje 2006: 108f).33 Statoil has also contributed to socio-economic development. It cooperates with NGO Pro Natura International to foster development in the the Akassa community. According to an environmental impact assessment, the Akassa community is the most likely to be hit by an accidental oil spill from Statoil’s exploration activities, according to an environmental impact assessment the Akassa community. Since 1997, Statoil has supported a programme of activities conceptualized and facilitated by Pro Natura International. Its aim is to achieve food security and improved living standards for the Akassa people. The core areas are: (1) human resource development (promote health, adult literacy and women and youth development); (2) natural resource management; (3) poverty alleviation and micro-credits; (4) infrastructure through micro-projects (health care, education and other infrastructure); and (5) institutional development and capacity building in health, education and the environment (WBCSD 2005: 1–2). It follows a participatory approach, which means the community itself owns and manages the project and small teams from the communities do most of the work. Statoil and BP support the project primarily through financial contributions. Statoil plans to end its commitment in Akassa in 2011, by which time the community is expected to be self-sufficient. Assessments of community development programmes vary widely. While some acknowledge corporate efforts to provide basic services and induce development, others barely see the point (see, for example, Christian Aid 2004). ‘Corporate development work has had some good results but failed, incomplete and unsustainable projects have become Delta landmarks. White elephants – empty clinics and schools lacking staff or equipment, hulking, empty water towers with broken or missing pumps and pipes – are visible throughout the region’ (ICG 2006a: 12).

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Companies run community development programmes mostly in areas where they operate. Corporate efforts should be acknowledged. The non-acceptance of programmes and lack of trust among stakeholders are at least partly a result of corporate failures as companies have designed projects badly and repeatedly broken promises. In communities where companies engage, expectations are higher (Eweje 2007). Some also suggest that even the best community engagement by companies might lead to further demands from communities because a culture of dependency has developed over time. Additionally, corporate efforts might be accompanied by unintended consequences; for example, the provision of goods and services to some communities might induce conflict with neighbouring, not provided for communities. 3.4.3.2

Environment

Environmental issues are also important to consider in the Niger Delta. Enormous environmental problems, such as routine gas flaring and oil spills, fuel the socio-economic deprivation of the population (Ottaway 2001b: 46). Shell has committed to minimize its environmental impact but, in seeking to comply with existing laws, it takes the national legislation as the benchmark for measuring its performance (Shell 2007). Available research and interviews with civil society organizations in Nigeria show that it is hard to evaluate Shell’s behaviour. Stakeholders seriously challenge the company’s commitment, particularly when it comes to the implementation of commitments at the local level (Interview #2, Abuja, 05 February 2008 and Interview #4 Lagos, 12 February 2008; also Omeje 2006: 93–6). Conflicts about compensation for communities after oil spills are common. Companies are obliged to clean up spills but they have to make compensation payments to communities only if spillage occurs due to bad maintenance. If ruptures occur due to sabotage, protest or oil theft, communities do not receive compensation. Conflicts arise over the cause of oil spills, with communities tending to blame bad maintenance by the oil companies, and oil companies tending to argue that oil spills are due to vandalism. Exxon Mobil states that it works under the industry’s highest standards of environmental management (Exxon Mobil 2007: 21) but also refers to national legislation: ‘Wherever we operate, we meet local regulations for environmental performance, and where there are no local regulations, we operate to standards that we believe are protective of the environment’.34 Oil spills are problematic for Mobil to a lesser degree because it has limited onshore infrastructure, which minimizes its contact with communities. Nevertheless, Mobil recorded one of the largest oil spills in

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Nigerian history in 1998 when a pipeline connecting a production platform to one of its terminals ruptured. The incident released some 40,000 barrels of oil, polluting about 20 coastal communities. The company’s response was judged to be reasonably satisfactory (Omeje 2006: 114–7). Another widespread environmental issue is the flaring of gas, a byproduct of oil production that causes serious harm to the affected population. According to government estimates, Nigeria loses revenue of USD4 million per day due to gas flaring. Shell and Exxon Mobil both acknowledge the problems associated with this practice (Exxon Mobil 2007: 18; Shell 2007: 13–4). During a recent public hearing, the Ministry of Petroleum proposed 2010 as the new deadline for phasing out gas flaring, while oil companies suggested 2012 or 2013 as a realistic deadline, not least because of funding constraints (Ogriki 2009). It is easy to blame companies for these issues but the bulk of funding needs to come from the NNPC (in other words the Nigerian state) because of the joint venture agreements. Statoil’s policy is to do zero harm to people and the environment. However, because the company has no major operations on the ground it does not create environmental problems that would put the company’s policies on trial. Shell, Statoil and Exxon Mobil all have environmental policies in place though their implementation is disputed. By taking local laws as a point of reference, companies do not voluntarily contribute to governance in this area. CNOOC makes only one reference to Nigeria in its sustainability report, referring to the protection of whales in the Gulf of Guinea (CNOOC 2007: 9). The company reports on its engagement in education initiatives, poverty reduction and disaster relief, though the geographic focus seems to be almost exclusively on its operations in China. CNPC reports on donations, disaster relief and community relations in the public welfare section of its report. The focus is again on activities in China but the company also reports on education projects in Sudan and Kazakhstan and on its efforts to establish a ‘harmonious oil region’ through community development in Ecuador (CNPC 2007: 45). There are no reports of activities in Nigeria. 3.4.4 Summary on governance contributions All companies care about security as a private good first as their interest is to protect their staff and facilities. By making payments to public security forces and providing logistic support, companies become involved in security governance. This is most obvious in the case of Shell and is a result of increasing security threats against the company

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(Avant 2005: 184). After 1995, there was an increased awareness among companies about the potential negative impacts of security arrangements. This is exemplified by the fact that Shell, Exxon Mobil and Statoil are members of the Voluntary Principles on Security and Human Rights. None of the companies has the intention or capacity to tackle broader conflict and security issues in the Niger Delta. Companies make indirect contributions to peace and security in the Niger Delta through engaging in political order, mainly in anti-corruption and transparency initiatives and supporting NEITI and EITI at a global level. Companies have also become developmental actors by implementing or supporting community development programmes. The difference in size and design seem to be mainly a function of the size of the companies’ operations. The cases of Shell, Exxon Mobil and Statoil indicate that there might be a kind of standard model emerging, including the topics on which companies should have policies and need to report. The companies have environmental policies and procedures in place, though the legal framework seems to be more important in this area and corporate policies and activities are therefore not governance contributions. Shell’s and Statoil’s approaches seem to be the most proactive and they are the most transparent in their reporting. Shell has published an annual ‘Nigeria People & Society Report’ since 1998 and Statoil reports on its Nigerian operations in its sustainability reports. In comparison, Exxon keeps a lower profile (Skjaerseth 2003). Its reports are more aggregated and there is less information available on the specifics of the Nigerian operations. As has been shown, corporate governance contributions are contentious issues and are much debated by stakeholders, mainly due to the bad record of oil companies in Nigeria and the lack of trust among local and global stakeholders. Compared to the three above-mentioned companies, the Chinese companies’ policies cover few issues. They rarely report on specifics of operations outside China. All companies, including the Chinese, display a trend of committing to self-regulatory initiatives in the last ten to 15 years. Even Chinese companies started publishing sustainability reports in 2006 and have recently joined some CSR initiatives, such as the World Business Council on Sustainable Development (WBCSD) and the Global Compact.

3.5 Explaining company behaviour Why has Shell become more heavily involved in security governance than the other companies? Why do Shell, Exxon and Statoil all contribute

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(albeit in varying degrees) to political order and socio-economic governance? Why is Exxon Mobil’s approach more reserved? Why are the Chinese companies reluctant to get involved? The following section discusses some factors that help explain companies’ governance contributions. While industry and company characteristics certainly influence companies’ engagement, the discussion here focuses on how the political and societal environments in Nigeria and companies’ home states influence governance contributions. 3.5.1 Security risks and companies’ facilities Companies prefer not to engage in security governance and perceive public security to be at the core of state responsibilities (Feil et al. 2008). Shell’s and other oil companies’ involvement in security governance goes hand in hand with state failure to provide a sufficient level of security and protect against company vulnerability where they have large facilities and staff targeted by violence. The size of facilities and their geographical spread in the Niger Delta makes companies vulnerable to protest and violence. Onshore oil production in Nigeria consists of wells, platforms and a large network of pipelines. The number of pipeline incidents arising from vandalism rose to more than 3000 per year in 2006 and 2007 (NNPC 2007), though the reliability of these numbers is difficult to assess. The US Energy Information Administration (EIA) estimates that 20–25 per cent of oil production was closed down before the 2007 elections (EIA 2007). According to the same source, Shell has the majority of closed-down production, followed by Chevron and Agip (all three are mostly producing onshore). ‘And we are cut off indeed, mostly because we are there in the Niger Delta and that’s where the fight is taking place. Oil has been targeted, oil facilities have been destroyed, most of them onshore. […] That’s just as simple as that’ (Interview #3, Lagos, 31 January 2008). The security situation of companies operating offshore (such as Exxon Mobil) is different, making security a less precarious issue. Offshore oil production has been labelled as ‘the future of Nigerian oil production by allowing multinational operators to avoid security risks inherent to the unstable Niger Delta region’ (EIA 2007: 3). Over time, the balance has shifted from all onshore production to increasing offshore production. Today, two-thirds of oil production is onshore and one-third offshore (EIA 2007: 3).35 Protests and security risks have led companies operating onshore, such as Shell, to become more involved in security governance than companies operating mainly offshore. However, exposure to security risks in the Niger Delta does not explain why Shell and other

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companies have changed their approach to security and why companies contribute to governance in political order and socio-economic fields. 3.5.2 State failure and the transition to democracy One conjecture found in literature is that companies are more likely to contribute to governance in failed and failing states and in weak regulatory environments (Wolf et al. 2007). Companies operating in Nigeria were confronted with state failure at the local level: ‘We had to engage in issues that we didn’t have to engage ourselves in before because in developed countries the state takes care of governance and human rights issues. That is putting it [in] a simplistic [way] of course’.36 The conjecture that state failure leads to corporate governance contributions deserves closer attention, as it is not state failure alone that induces companies to engage. The political environment during consecutive regimes did not provide incentive for voluntary engagement by oil companies. Instead, it gave companies carte blanche to do what they liked: there was not even a shadow of hierarchy that might have encouraged corporate governance contributions (Börzel 2008). The political climate in Nigeria has slowly changed since the transition to democracy. Oversight of the oil industry has become a much-discussed issue and a number of regulatory reforms have taken place.37 The oil companies react to government efforts and support government initiatives, as the government is an important partner for them; one example is the establishment of NEITI. Companies seem to be reluctant to engage in areas where they are not sure that their engagement is welcome. But companies should not and cannot be in the driving seat […]. Whether it is for security or development, it’s the government that should be in the driving seat, because that’s the role of government; companies should make a contribution. (Interview #3, Lagos, 31 January 2008) In this sense, it is a stable framework and a reliable government partner that can positively influence corporate governance contributions, especially at the macro level, rather than state failure (see Exxon Mobil 2007: 41; Interview #6, London, 24 March 2009). 3.5.3 Civil society: Local protest and global norm-entrepreneurship It is not the political environment in Nigeria but the societal environment that has led companies to contribute to governance. Much of the CSR

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literature assumes that civil society plays a role in influencing companies and that pressure from civil society organizations leads companies to acknowledge their social responsibility, which might then foster corporate governance contributions (Haufler 2001b; Spar and LaMure 2003). In 1990, the Ogoni people formed the Movement for the Survival of the Ogoni People (MOSOP) to ‘peacefully confront both the oil companies and the military regime’ (Ibeanu and Luckham 2007: 65). The Ogoni Bill of Rights articulated the plight of the Ogoni people and asked for compensation and a fair share of revenues from oil production. From 1992 until 1995, MOSOP protests and occupation of oil installations escalated (Boele et al. 2001: 76–80). The Abacha regime waged a systematic campaign of state violence against them. Nevertheless, other communities, and youth especially, followed, organizing and voicing their demands. ‘Nigeria has been unique in its vigorous grassroots protests against the petro-state and oil multinationals’ (Ibeanu and Luckham 2007: 64).38 Brutal oppression by public security forces became an untenable option for companies subject to protests when global civil society took up the cause of the Ogoni people and the broader issue of oil company operations in the Niger Delta. After the Brent Spar and Ogoni crises, Shell conducted a general review of its policies and activities. Its business principles were revised in 1997 to include a commitment to sustainable development and human rights (Shell 1998). At the local level, Shell redesigned and extended its community programmes (Ite 2007). The protests and the ensuing campaign against Shell in Nigeria were landmark events and had an effect not only on Shell but on other companies as well. Statoil’s activities can then be interpreted as a risk management strategy to avoid public outrage: ‘We had a wake-up call with the Ken Saro Wiwa case. We were there. Other companies were targeted in the international media, but Statoil was in the Norwegian debate in a way. A lot of people got very critical about how we could be in Nigeria, when human rights violations took place. It became clear that both from a moral view point and also in order to protect reputation and manage the risks we face, we needed to move beyond our sphere of influence and do something with problems in society at large’.39 The effects of global and local civil society activities on Nigeria must also be seen in the larger context of campaigns against oil companies in other zones of conflict, such as Unocal and Total in Burma, Lundin Oil in Sudan, BP in Columbia and Exxon Mobil in Indonesia. The pressure from civil society on specific companies varies: among the companies operating in Nigeria, Shell has attracted most of the negative attention. Through various campaigns, the whole oil industry has come under pressure to prove their social licence to operate.

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Generally, civil society organizations have acted as norm-entrepreneurs by questioning the prevailing idea that the only social responsibility of business is to make profits (Friedman 1970). Civil society has contributed to the establishment of sectoral self-regulatory initiatives: the ‘Publish What You Pay’ campaign that targeted the extractive industries preceded the founding of EITI. The Voluntary Principles are a reaction to a series of NGO reports that revealed the ambiguous cooperation between extractive industry companies and public and private security forces (Freeman et al. 2001). These global initiatives also indicate a trend that continues at national and local levels: dialogue processes and partnerships between civil society organizations and companies. EITI and the Voluntary Principles are both organized as multi-stakeholder initiatives that include NGOs and companies. Most companies also have some form of dialogue with NGOs. Global ideas brought into the debate by civil society actors and norm-diffusion processes would help to explain the similarity of policies and engagement in different companies. It is not a new idea that civil society activities have varying effects on companies, depending upon the target’s vulnerability and the connectivity of new norms to previously established ones (Price 2003). Reputational concerns and the protection of a brand are incentives to avoid campaigns, take on responsibility and contribute to governance (Wolf et al. 2007: 305). Within the oil industry, this reflects the division between upstream and downstream activities. Companies that have downstream activities are closer to the consumer and therefore are more sensitive to boycotts (Rieth and Zimmer 2004a). Shell, Statoil and Exxon have well-known brands. Shell and Exxon Mobil are present in more countries than Statoil, whose presence is limited to service stations in northern Europe (Statoil 2001: 48). Chinese companies seem to be a somewhat different case. Domestic civil society is organized differently in China and these groups have mostly looked at CSR domestically and not at Chinese engagement abroad. Additionally, Chinese companies have only recently entered into the global domain and CSR has only recently come into the Chinese debate and been embraced by the government, which is still the majority owner of the companies (see below). 3.5.4 Home states influencing companies’ governance contributions Home states have been reluctant to use their regulatory power over company behaviour abroad. This was exemplified by the debate over a code

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of conduct for transnational corporations in the 1970s and 1980s, the closure of the UN Centre on Transnational Corporations in 1993 and very recently during the debate over the Draft Norms on Business and Human Rights. It is often stated that transnational companies have become truly global organizations. However, their home state and nationality still influences aspects of their behaviour (Pauly and Reich 1997). Beyond establishing regulation, home states have a socializing influence on companies and can encourage companies to engage in voluntary frameworks. The influence of the home state gains further importance when looking at state-owned companies. 3.5.4.1

Home states encouraging voluntary commitments

The first obvious correlation is that three companies (Shell, Exxon and Statoil) are EITI supporters, as are their home countries (the UK, the US and Norway). The UK’s former prime minister, Tony Blair, co-initiated EITI in 2002. Norway has hosted the newly established EITI secretariat since 2007. The development of the Voluntary Principles on Security and Human Rights was initiated by the US and UK governments. The major US and UK companies were involved from the very beginning. Officials from the two governments drafted the principles (Freeman et al. 2001). The governments of Norway (Statoil) and The Netherlands (Shell) joined the initiative soon after the initial drafting phase. China and Chinese companies are not involved in these initiatives. In general, different home states have different government CSR public policies. The United Kingdom is a rather proactive state where the government has CSR policies ‘focussed on enabling and facilitating the CSR-relevant behaviour of private actors’ (Bertelsmann 2007: 9–10, 32). Much in the same vein, it has been argued that the high level of norm entrepreneurship among UK companies in collective self-regulation initiatives can be explained by the non-adversarial, ‘partnership-type relations prevailing between business and government’ (Flohr et al. 2008: 17f). The situation in the United States is different because governmental engagement in CSR is relatively weak and fragmented (Bertelsmann Stiftung 2007: 35). US companies are reluctant to engage in self-regulation because they fear that their self-regulatory commitments could be used against them for litigation in US courts. The US approach to law and policy implementation has been characterized as ‘adversarial legalism’ (Kagan 2003). Consequently, ‘American companies have no history of working in collaboration with government and of taking on public functions, such as setting of rules for their own behaviour’ (Flohr et al. 2008: 20), which might help explain Exxon Mobil’s more cautious approach.

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3.5.4.2 State-owned enterprises and their home states Statoil and the Chinese companies have been going global lately. Statoil started activities outside Norway early in the 1990s, the Chinese companies more recently. Nevertheless, the two companies’ approaches could not vary more, with Statoil being rather active and the Chinese companies not. Norway’s welfare state is characterized by comprehensive legislation, for example in the fields of health and safety at work, equal employment opportunity, environmental protection, and reporting. The discussion about CSR has focused on the engagement of companies in their operations abroad and issues such as working conditions and fighting corruption (Kvåle 2007). Moreover, income from oil production partly finances the Norwegian welfare state and Norway considers itself to have a successful oil history. Norway and Norwegian firms believe they can share lessons learnt and best practice with other countries, as stated by a Statoil representative: ‘I think it is also a reflection of the fact that we are a Norwegian oil company and we are a child of what most people would call a successful oil history. Oil has been a blessing for the Norwegian society because the opportunities that oil has given this society have been well spent’.40 The argument of its specific Norwegian identity is also mirrored by Statoil’s sustainability reports (see, for example, Statoil 2001: 49). Chinese companies have lately entered into a national and global dialogue about CSR. The Chinese government initially objected to CSR as a Western idea and an imperialist concept. However, it has recently embraced the concept and is now trying to adapt it to the Chinese context (Bertelsmann 2007: 14) by linking it to the newly adopted leitmotif of ‘harmonious society’, to which CSR is seen as a company’s contribution. This is reflected in Chinese CSR reports, as companies try to establish a ‘harmonious organization’ or community development to establish a ‘harmonious oil region’.41 The State-Owned Assets Supervision and Administration Commission published CSR guidelines for stateowned enterprises in 2008.42 The guidelines state that companies are expected to comply with laws and regulations, to be active participants at the community level and to engage in philanthropy (Chahoud 2008; Ho 2008). The fact that a guideline for CSR has been developed shows that the agenda of state-owned oil enterprises is influenced by discussion of the topic by state bodies. It is not only regulation in the home state that influences corporate governance contributions, but setting incentives for companies’ engagement as well. It is also plausible to assume that previously stateowned companies are even more likely to externalize policies from their

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home states than are shareholder-owned companies, though the exact mechanisms at work require further scrutiny. 3.5.5

Summary

Various motivations and factors influence governance contributions. There are multi-causal and complex dynamics at work; an outcome could be explained by many different constellations of factors. Taking Shell and Statoil as examples, both are rather proactive and have a wide variety of policies and activities. The case of Shell shows that a mixture of pressure from below (community protest) combined with global civil society activities and a relatively proactive home state have influenced its approach. Statoil’s approach seems to be influenced by its Norwegian identity and the idea of transferring positive Norwegian oil experiences to other states. Additionally, the company is aware that Norwegian and global civil society watch the company’s activities abroad without the company having been the target of a major civil society campaign. Exxon Mobil has been less affected by violence and community pressure in Nigeria because of the location of its oil production. However, the company faced a civil society campaign because of its operations in Indonesia.43 The more legalistic approach of its home state (the US) might lead to a more reactive stance and the company disclosing less information. Both state-owned companies are definitely influenced by their home governments. Particularly in China, the state has a major influence on the strategy of its big oil companies and their behaviour abroad. These are preliminary conjectures that should be analysed more thoroughly by examining causal mechanisms and other case studies.

3.6 Oil companies: Emerging best practice or still fuelling conflict? Oil companies contribute to governance in Nigeria in various fields, including security, political order and socio-economic policy. Several self-regulatory initiatives have emerged and been embraced by companies during the last ten to 15 years. Companies have initiated and re-designed local projects to secure their social licence to operate. Company engagement should certainly be acknowledged. However, to focus on companies’ governance contributions tells only part of the story. Company governance contributions are by definition voluntary and companies can choose the fields in which they want to engage. The broader picture of oil companies’ behaviour needs to be taken into account, including core business operations, those areas

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where companies do not contribute to governance and the impact of companies’ engagement. The case of the Nigerian oil industry indicates that even well-meant governance contributions could fuel conflict and cannot compensate for bad standards in core business. The developments during recent years and the increasing engagement by companies in governance point in the right direction. The findings on corporate governance contributions highlight the importance of companies’ political and societal environment in home and host states and their potential to influence companies’ governance contributions. In this sense, companies are social actors that are part of the economic sphere and are influenced by and react to societal expectations. The potential of corporate governance contributions to peace and security should not be overestimated in the Nigerian context. Societal conflicts and problems in Nigeria are deeply rooted; violence and underdevelopment in the Niger Delta and beyond are the result of years of neglect and mismanagement. Companies can certainly play a role (Ottaway 2001b: 53f) but they stress that the main responsibility for development and solving conflicts lies with the government. Companies do not feel responsible for public welfare and policy development in an encompassing sense. If this were the expectation, companies would necessarily fail: ‘No matter what it does, Shell cannot pacify its Nigerian and international critics, because what they want is beyond any single actor’s capacity to deliver: a democratic, decentralized, efficient Nigeria, respectful of human rights and the environment’ (Ottaway 2001b: 47). Many interviewees from civil society expect the Nigerian government to take over governance functions and public goods, paid for by revenues from oil production, and to set and implement standards for oil companies (Interview #2, Abuja, 05 February 2008; Interview #4, Lagos, 12 February 2008). They do not expect oil companies to behave responsibly without proper regulation and enforcement.

Notes 1. The Ogoni people, one of the smaller ethnic groups living in the Niger Delta, accused Shell of cooperating with the government in depriving the Ogoni of their resources and a fair share of revenues. Shell was forced to cease operating there in 1993 and has never resumed production in the area. In 2008, the Nigerian government decided to replace Shell as an operator of the concessions (ICG 2008). 2. Including Ibeanu and Luckham 2007; Ite 2004 and 2007; Omeje 2006.

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3. http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/ NIGERIA EXTN/0,menuPK:368906~pagePK:141132~piPK:141107~theSitePK: 368896,00.html (date accessed: 18 May 2009). 4. Nigeria has over 250 ethno-linguistic groups and numerous religious communities. The three biggest groups are Hausa-Fulani in the north, Igbo in the south-east and Yoruba in the south-west. While the north is predominantly Muslim, the east is Christian and the west ‘almost evenly split’ (ICG 2006a: 1–2). Conflict lines are not clear-cut. Ethnic and religious identities have become political instruments in struggles for influence, political power and economic resources (ICG 2006a). 5. http://www.freedomhouse.org/template.cfm?page=363&year=2008 (date accessed: 12 January 2009). 6. http://info.worldbank.org/governance/wgi/index.asp (date accessed: 13 May 2008). 7. http://www.ucdp.uu.se/database (date accessed: 7 August 2008). 8. The Niger Delta Development Report discovered that those local communities without oil facilities in the Nigeria Delta are socio-economically better off than those with oil production facilities (UNDP 2006: 2). 9. These include Royal Dutch Shell (Great Britain / Netherlands), Chevron Texaco and Exxon Mobil (both USA), Total (France), ENI/Agip (Italy), Statoil (Norway) and lately Chinese companies as well. 10. The NNPC does not operate joint ventures; they are operated by international oil companies who have responsibility for operations on the ground and ‘maintain managerial control’ (Amao 2008: 94; http://www.nnpcgroup. com/jvoperation.htm [date accessed: 2 December 2008]). 11. Shell operates in more than 110 countries and employs approximately 104,000 people (Shell 2007: 3). 12. For a summary of the allegations against Shell, see Human Rights Watch (1999). 13. http://www.exxonmobil.com/Africa-English/PA/Operations/AF_OP_Nigeria. asp (date accessed: 15 January 2009). Exxon Mobil is the world’s largest publicly traded integrated petroleum and natural gas company. The company has exploration and production licences in 36 countries and employs 81,000 people worldwide (Exxon Mobil 2007: 12). 14. Statoil and Norsk Hydro’s oil and energy segment (both Norwegian firms) merged in 2007. 15. As of 31 December 2006, the company had 25,435 employees and exploration and production activities in 15 countries (see www.statoil.com [date accessed: 31 July 2008]). 16. http://www.cnpc.com.cn/eng/cnpcworldwide/africa/Nigeria (date accessed: 15 January 2009). 17. http://www.cnoocltd.com/UploadFile/NewsFile/67f7b252-d9c6-48ee-a2ea5be2a172c8f3.pdf (date accessed: 15 January 2009). 18. The practice of ‘communitizing security’ has been criticized for further fuelling conflict, rewarding violence and disturbing traditional community relations (Omeje 2006: 90–2). 19. www.voluntaryprinciples.org/principles/index.php (date accessed: 12 May 2009).

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20. See www.shell.com/home/content/responsible_energy/working_safely/ security_and_human_rights/security_human_rights_02042008.html (date accessed: 18 May 2009). 21. The study evaluates 42 oil and gas companies for their current policies, management systems and performance in areas relevant to revenue transparency in their upstream operations, based on publicly available information. Revenue transparency is relevant in three areas: payments to host governments, company operations and anti-corruption programmes (TI 2008). 22. Shell’s main policy documents are the General Business Principles and its Code of Conduct. The Business Principles are further detailed in Shell’s new Code of Conduct launched in 2006. The commitments are applicable to all Shell operations worldwide, including Nigeria. Both documents are available at www.shell.com/sgbp (date accessed: 18 May 2009). 23. The former British Prime Minister, Tony Blair, co-initiated EITI in 2002. Before this, an NGO campaign asked companies to Publish What You Pay to their host governments. EITI requires governments to publish what they receive and companies to publish what they pay (www.eitransparency.org [date accessed: 18 May 2009]). 24. ‘With this, Nigeria became the first EITI-implementing country with a statutory backing for implementing EITI’ (www.eitransparency.org/Nigeria [date accessed: 18 May 2009]). 25. Exxon Mobil’s main policy document is its Standard of Business Conduct that guides the company’s management systems, available at www.exxonmobil.com/files/corporate/sbc.pdf (date accessed: 12 March 2009). 26. The main policy document is ‘We in Statoil’. According to Statoil’s CSR strategy from 2005, the three focus areas are transparency, human rights and labour rights, as well as local spin-offs, meaning furthering sustainable economic development in countries where it operates, for example by working with local suppliers, infrastructure development, education and professional expertise (Statoil 2005: 57). 27. www.statoilhydro.com/en/environmentsociety/society/pages/transparen cyandanti-corruption.aspx (date accessed: 18 May 2009). 28. The Business Leaders’ Initiative on Human Rights was founded in 2003 and explores how human rights can be integrated into a business framework. More specifically, the initiative committed to road testing the content of the UN Draft Norms on Business and Human Rights – www.blihr.org (date accessed: 12 March 2009). 29. http://www.statoilhydro.com/en/AboutStatoilHydro/Worldwide/Niger/ Pages/GlobalCompact.aspx (date accessed: 18 May 2009). However, it is unclear how this commitment will be implemented. 30. www.shell.com/sgbp (date accessed: 18 May 2009). 31. www.shell.com/home/content/nigeria/about_shell/issues/security/security. html (date accessed: 12 March 2008). 32. www.shell.com/home/content2/nigeria/society_environment/dir_ community_development.html (date accessed: 12 March 2008). 33. The company makes quite some effort to address the health situation in Africa, including Nigeria (Exxon Mobil 2007: 46f). The support for health-related

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34. 35. 36. 37.

38.

39. 40. 41.

42.

43.

Oil Companies in Nigeria projects is a focus area of the corporation, though it is not directly relevant to peace and security and will not be discussed in more detail. http://www.exxonmobil.com/Corporate/about_operations_environmental. aspx (date accessed: 18 May 2009). Some of the violent groups are so well equipped nowadays that they also threaten and attack companies’ offshore facilities. http://www.unhcr.se/se/how_i_can_help/pdf/statoil_screen.pdf (date accessed: 15 January 2009). Examples indicating a slight change include anti-corruption initiatives. Additionally, different movements now use the Nigerian court system to sue companies (see Amao 2008). In contrast to the ‘earlier and more idealistic generation of Niger Delta activists’, the use of violence is more common today and often goes along with criminal activities (Ibeanu and Luckham 2007: 64). http://www.unhcr.se/se/how_i_can_help/pdf/statoil_screen.pdf (date accessed: 15 January 2009). http://www.unhcr.se/se/how_i_can_help/pdf/statoil_screen.pdf (date accessed: 15 January 2009). See, for example, CNPC’s homepage for its activities towards ‘Building a Harmonious Community in Ecuador’ http://www.cnpc.com.cn/en/ environmentsociety/public/case/ Building_a_harmonious_community_in_ Ecuador.htm (date accessed: 18 May 2009). This commission is a ministry-like bureaucracy which, as the sole owner of state-owned enterprises, holds a majority of stocks where state-owned enterprises are listed on the stock exchange (Reilly and Na 2008: 141f). A lawsuit under the Alien Tort Claims Act is ongoing (Renner 2006).

4 Calling on Peace: The International ICT Sector and the Conflict in the Democratic Republic of Congo Linda Wallbott

4.1 Introduction The Great Lakes region in Central Africa is one of the most conflicttorn regions in the world. Mary Kaldor characterizes it as being part of a fast-growing group of states called ‘bad neighbourhoods’ (Kaldor 2007: 183–6) which are characterized by parasitic social constellations and war economies.1 Rebel groups, warlords, regular armies and governments use the illegal extraction of natural resources as a means to keep a steady flow of money that can then be used to prolong conflict. In the Democratic Republic of Congo (DRC), a country that has been exposed to devastating conflicts for more than a decade, the mixed crystal coltan attracted the interest of parties to the conflict. Coltan is necessary for the production of all kinds of processors within technological products such as consoles, mobile phones, notebooks, domestic appliances, and military, automotive and medical equipment. By 2008, with a new surge of violence, the extraction and sale of coltan and tantalum (the metal derived from coltan and used as a semi-conductor) was no longer regarded as the most important conflict-fuelling natural resource. Today, other resources such as cassiterite, tin and gold play a dominant role in North Kivu.2 Disputes over coltan sources shaped the conflict process, especially during the second Congo war (1998–2003), also referred to as the first African World War, to the extent that the mineral was the synonym of the conflict and corporate involvement. By the end of the 1990s, the international public had become increasingly aware of the importance of coltan to the conflict process in the DRC, pressuring transnational companies, especially manufacturers of tantalum-containing end-devices, to justify their actions. In the aftermath, some of these companies produced ‘corporate governance 85

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contributions to peace and security’. However, not all corporate end-consumers distributing tantalum products have been equally committed. It is mainly companies in the information and communications technology (ICT) sector that have been active, while others have remained silent. There is also variance in the governance contributions by ICT sub-segments. Based on these observations and against the background of public and academic demands for a role shift of private actors to engage as co-performers of governance functions (see Chapter 1), this chapter aims to identify those factors that seem to make a difference to the willingness of a company to provide governance contributions to peace and public security. The range of actions by transnational corporations in the resource extraction and prolongation of conflict in the DRC is not very impressive, especially in comparison to the Kimberley Process of 2003 that was a reaction to the financing of war by diamond extraction in Angola, Sierra Leone and Liberia. In the case of the DRC, there is no collective corporate initiative on the coltan issue, nor are there meaningful observable corporate activities on the ground.3 Not every coltan trading company directly or indirectly involved in the conflict has produced a policy statement on the issue. This chapter focuses on the output dimension of corporate governance contributions to peace and security (see Chapter 1 for an elaborated conceptualization) for two reasons. The first relates to the political and economic circumstances that prevail in the DRC. Corporate behaviour can hardly be observed empirically, let alone traced back analytically to specific causes. This is due to the weak transparency in extraction processes and distribution/trade routes of natural resources. A possible congruence between formal statements that would indicate the acceptance of some kind of responsibility, thus referring to the rule-making aspect of global governance, and actual behaviour is generally hard to prove. The main protagonists under investigation here, namely companies of the international ICT sector, determine the second reason. ICT companies have two main fields of activity: the production and provision of mobile and general communications infrastructure and network services, and the sale and marketing of ICT products. As producers of end products, they are usually not on site in the DRC. Therefore, only minor sunk costs are at stake. While it is conceivable that ICT companies do launch activities related to peace and security within the zone of conflict, the focus is on company policy statements on security in the DRC – possibly regarded as ‘soft’ reactions – in the period from the second Congo war until

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November 2008, because this comes as close as possible to their indirect involvement. Sectoral and unilateral corporate activities are examined on the basis of publicly available data, reports and interviews with public and private actors. The chapter is divided into three main sections: section 4.2 contains a description of the conflict at stake and the role of the economy and the extraction of natural resources. Section 4.3 deals with the distinct governance contributions by transnational companies in this context. In section 4.4, possible explanatory factors are generated for the divergent company commitments observed. The major findings are threefold. Firstly, a company’s home state comes into play on regulatory and societal levels. Hierarchically enacted binding rules seem to keep companies from producing additional statements on the regulated issue. On the other hand, a vivid civil society and high public pressure in the home state push a company to contribute to peace and public security in zones of conflict. Finally, a company structure that institutionalizes normative concerns within the strategic and operative formulation of management processes appears to favour governance engagement.

4.2 The conflict zone The conflict in Congo is distinguished as two wars that can be divided along discursive and material lines at various levels (struggles over identity, power and material gains at the local, regional and national levels; Dunn 2005: 245). These wars constitute typical examples of the ‘new wars’ and are characterized by shadow-globalization and the existence of a civil war economy which is connected in many ways with the global economy, thus procuring the necessary resources for the continuation of war. In line with the popular greed theory, research on the conflict (Collier 2000; Humphreys 2005) has mainly focused on the relation between resource richness and the prolongation of the conflict. Following the overthrow of the Mobutu regime in 1997, the second Congo war broke out in August 1998 when Laurent Kabila, the leader of the Alliance des Forces Démocratiques pour la Libération du Congo-Zaire (AFDL), refused to comply with his Rwandan and Ugandan allies’ demands to demilitarize the Ugandan Allied Democratic Forces (ADF) and the Hutu militia of the Armée pour la Libération du Rwanda (ALIR). This refusal was offensive as Kabila had only come into power with the support of the Rwandan and Ugandan governments. At the same time, he was confronted internally with a ‘large number of disgruntled and powerful Congolese, who opposed [him] and were unhappy with the

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pace and extent of the government’s economic and political reforms’ (Nest 2006b: 24). In the aftermath, the rebellion of the Rassemblement Congolais pour la Démocratie (RCD), supported militarily by the Rwandan government that accused Kabila of backing the ALIR, tore apart the Kivu provinces surrounding Bukavu and Goma. After further internal struggles, the Southern African Development Community (SADC), of which DRC had been a member since 1997, finally appointed a fact-finding commission. Nevertheless, various rebel groups and military forces of DRC’s neighbouring countries entered into the war. In the end, the formation and dissolution of various coalitions led to the establishment of three military, semi-autonomous and competing zones of influence in the DRC that were all controlled by anti-governmental forces. A military standoff was reached in 1999. This situation was used as a window of opportunity for the international community to sign the peace agreement of Lusaka. However, the economic dimension of the conflict was inadequately taken into account (Grignon 2006: 67; Kisangani 2006: 99; United Nations 2002: 28, §152). The peace agreement could not prevent Rwandans in exile from founding the FDLR to overthrow the Tutsi-led Rwandan government.4 Since 2002, further peace negotiations and agreements followed (Sun City) and in June 2003 an interim all-party-government, including rebel movements, was formed under new president Joseph Kabila. Nevertheless, the conflict continues today. The data on the second Congo war are devastating: more than 2.7 million people internally displaced and 5.5 million killed. Among the latter, only 10 per cent died of the effects of direct violence, the rest from malnutrition and disease (Hayes and Burge 2003; International Rescue Committee 2007; Reuters AlertNet 2008). According to World Bank estimates, it will take another 52 years for the DRC’s gross national product to once again reach the level of 1960 (Kisangani 2006: 99). 4.2.1 Interplay of economy and conflict: The role of natural resources and coltan in the conflict process in the DRC According to Human Rights Watch, ‘there is a direct link between human rights abuses and the exploitation of resources in the areas in the DRC occupied by Rwanda and Uganda’ (Essick 2001). The extraction of natural resources by various groups led to prolongation of the dispute during the second Congo war, as ‘the profitability of resource looting for foreign governments, rebel militias, and individual officers substantially reduced their incentive to end the conflict. Even though a peace accord was signed in Lusaka in July 1999, it was not implemented until

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2002, in part because it forced foreign combatants to withdraw from the DRC, which hampered their ability to siphon off the country’s remarkable resource wealth’ (Ross 2004a: 53–4; see also Nest 2006a: 43).5 Part of this resource wealth comes from the DRC’s coltan reservoirs. Coltan is a Columbite-Tantalite-ore necessary for the production of tantalum (or tantal). Tantalum is among the five rarest metals in the world.6 The DRC has 80 per cent of Africa’s coltan reservoirs but had, except for the time of peak world market prices for coltan in 2000–01, only a minor share of the global market from 1998 to 2005 (Behrendt et al. 2007: 23–6). The majority is situated in the national parks of the provinces of East Congo, Kivu and Maniema, and can mostly be extracted manually. While, generally, landowners who want to work in the extractive industry are legally obliged to hold a licence, during times of conflict these licences were often distributed by rebel groups (Hayes and Burge 2003: 33; Behrendt et al. 2007: 27). Hence, coltan extraction is mainly illegal. It is assumed that about 90 per cent of the minerals extracted in the DRC come from small mining sites with a workforce of between 500,000 and two million people. Factors such as small-scale mining due to lack of alternative income sources, weak property rights, location of mining areas that are difficult to access (rainforest), open frontiers and inadequate infrastructure all promote their occurrence. In rural areas, coltan has even been used as a substitute currency (Moyroud and Katunga (2002); Hayes and Burge 2003). After the second Congolese rebellion in August 1998, the RCD quickly took hold of most former Somiki concessions, a Belgian–Congolese company that had traditionally held the majority of mining concessions in eastern Congo. The areas occupied by rebels quickly turned into informally independent economic spaces, detached from the Congolese central government. Here anti-governmental forces (by 2008 this included the FDLR) distributed controlling rights according to ethical cleavages. In 2000, the rebel group RCD-Goma assigned the monopoly on coltan trade to its related company, Société Minière des Grands Lacs (SOMIGL), to regulate trade and to maximize profits. By transferring the coltan to Rwanda, Rwandan forces are still strongly involved in the coltan business. Accordingly, there is usually no direct contact between Congolese coltan extractors and small-scale coltan merchants (comptoirs) and foreign companies. By dint of capturing East Congo, Rwanda had obtained an area 27 times the size of its own country, including 70 per cent of Congolese coltan resources (Bitala 2003). In the aftermath, the amount of coltan exports from Rwanda and Uganda rose dramatically – even though both countries do not possess noteworthy resources of this ore. Uganda exported 2.5 tons of coltan in 1996–97.

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Two years after the outbreak of the war, export rose to 70 tons (Essick 2001; Global Witness 2004: 20). The same pattern occurred in Rwanda. While the export of coltan was around 162 tons in 1999, it more than doubled in 2001, a time of high-scale coltan prices on the world market. In that year, Rwanda exported 378 tons of coltan, compared to a very small amount by the DRC. The Rwandan government, namely its military arm the Rwandan Patriotic Army (RPA), earned an estimated USD40 million through the export of Congelese coltan (Cuvelier and Raeymaekers 2002: 8–9; Nest 2006: 52).7 Sixty to seventy per cent of this was re-invested in the war. Ironically, trade of Congolese resources financed the occupation of Congolese territory.8 When the SOMIGL monopoly was dissolved in 2001, a privatized elite network had already been established, comprised of big-scale merchants, high-ranking personnel in the army and politicians.9 Shortly after the re-liberalization of the coltan trade, the initial 19 trade companies decreased to three, all operating as protégées of the Rwandan government. Simultaneously, a shadow-market had developed, accompanied by increasing armed hostilities between pro- and anti-governmental Rwandan and Ugandan forces in the coltan belt that runs from Bunia to Goma, and Bukavu and Kindu. External third party actors repeatedly made use of DRC’s natural resources, acting as ‘peace spoilers, in that their current, yet differing, interests and activities profit[ed] from the conflict situation and thus the absence of peace’ (Moyroud and Katunga 2002: 182). However, this does not preclude Congolese forces from responsibility for the conflict. While being less concerned with economic than political aims, the originally dominating security agenda was soon complemented by ‘hidden economic and financial agendas […] resulting from previous engagements in the knowledge of the richness of Congo’s natural resources’ (Grignon 2006: 67, 69; Moyroud and Katunga 2002: 182). According to the United Nations (UN) Panel of Experts, this holds true ‘for both government allies and rebel supporters’ (United Nations 2001b: 26, §148). Thus, coltan should not be regarded as the source of conflict but rather as a catalyser, the economic agenda of the conflict as one of its functions and the use of military force, in the end, as an economic instrument (Moyroud and Katunga 2002: 171; Nest 2006: 31). This is even more the case now as the original causes leading to the outbreak of the war are still valid: the districts in eastern Congo are still the scene of ethnically and politically motivated disputes between foreign groups. Their economic agendas, however, are not openly addressed, which in turn hampers efforts for sustainable peace.

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Having elaborated on the intertwined constellation of economic and political interests, the following section presents those companies that constitute the pool of potential contributors to corporate governance engagement related to peace and security in the DRC. Those companies that are actually active and their corresponding statements are portrayed.

4.3 Corporate governance contributions to peace and security in the DRC 4.3.1 Coltan-using industries: Equipment manufacturers and end-consumer sectors and their role in the DRC’s conflict The companies under scrutiny do not belong to a sector directly involved in the extraction and processing of coltan or the fabrication of tantalum. Instead, they come in at the end of the production chain, producing and trading products that contain tantalum. Tantalum is used as a semi-conductor to make condensers, ferrous alloys and cutting tools used in various industry sectors that make high-technology objects or produce everyday items for civil consumers. Those industry sectors include the automotive industry, the military sector, the communications and technology sector (digital cameras, laptops and mobile phones), the medical industry (hearing devices, optical products, cardiac pacemakers and chemical instruments) and the electronics industry (including domestic appliances like washing machines and dryers; see Behrendt et al. 2007: 22). For the electrical and communications technology sector in particular, coltan and tantalum are of extreme strategic importance, given the increasing miniaturization and accelerated modernization of technology, the transient nature of electronic devices and inadequate recycling of electronic waste. Seventy-eight per cent of available coltan/tantalum is used in these industries (electrical: 60 per cent; ICT: 18 per cent; Essick 2001; Hayes and Burge 2003: 19–22). Between 1995 and 2003, the appearance of new coltan consumers, such as the optical industry or the BRIC states (Brazil, Russia, India and China), led to a yearly growth in worldwide demand for tantalum of 8–12 per cent (Hayes and Burge 2003: 23).10 During a brief period of high prices for coltan/tantalum in 2000–01 (Cuvelier and Raeymaekers 2002: 5), the DRC accounted for 11.3 per cent of worldwide tantalum production (Hayes and Burge 2003: 23) when ‘a temporary shortage of colombo-tantalite had to be filled by any means, including buying coltan from the network of diggers controlled by armed forces. Whenever the companies had the opportunity for a regular and steady flow of production elsewhere, they turned away from the Congo’ (Kennes 2002: 605).

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End-customer industry sectors, probably with the exception of the military sector, generally do not undertake any direct business in the DRC. Hence, their relation with the extractive sector there is a primarily indirect one: resources are sold via multistage channels of commerce (business-to-business) and are processed by manufacturing companies that in the end sell the products to application and service (businessto-consumer) companies. Nevertheless, the companies at the end of the chain felt the need to speak out about the conflict in the DRC and the role of coltan and associated business activity. 4.3.2 Telling the story: Corporate statements on coltan and the conflict in the DRC In the following section an account is given of the written and oral governance statements related to peace and public security by equipment manufacturers and companies of end-product industry sectors. The voluntary production of corporate self-commitments regarding peace and security in the context of the conflict in the DRC is more or less confined to members of the ICT sector. For other industry sectors that distribute tantalum-containing products for end-users, there are currently no collective or individual statements. At first, the ICT hightech companies neglected their direct or indirect involvement in the Congo war by referring to their physical distance from the conflict. For example, Nokia manager Outi Mikkonen stated in 2001: ‘We first heard about this in April [2001] and immediately asked our suppliers if they used tantalum from the Congo. All you can do is ask, and if they say no, we believe it’ (quoted in: Essick 2001). The responsibility was placed on the extractive industry and the supply chain: ‘We don’t have an idea where [the metal] comes from. There’s no way to tell. I don’t know how to control it’ (Dick Rosen, Chief Executive of tantalum-producing company AVX, quoted in Essick 2001). While some companies were similarly reluctant to control their suppliers (‘where they get their raw goods is hard to determine’, Compaq spokesperson Arch Currid, also in Essick 2001), others refused to give any public statements at all (see also Wallbott 2008). Today, despite various collective and unilateral forms of engagement within the ICT sector that fit the criteria of self-commitment to peace and security in the DRC, there is no sector-wide policy. The main private-sector initiative, the Global e-Sustainability Initiative (GeSI), founded in 2001 and consisting of 23 members in 2008, aims to foster sustainability-driven cooperation and promote sustainable technology.11 GeSI works together with the United Nations Environment Programme

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(UNEP) and the International Telecommunication Union (ITU) and supports the research activities of Fauna and Flora International (FFI). Regarding corporate responsibility for peace and security in the DRC, GeSI issued the publication Coltan Mining in the Democratic Republic of Congo: How Tantalum-Using Industries can Commit to the Reconstruction of the DRC (Hayes and Burge 2003). Acknowledging that complex chains of contract and supply relations characterize the ICT sector, in 2003 a range of telecommunication operators and manufacturers established the GeSI Supply Chain Working Group (SCWG). One of the aims of this group is to promote and develop good practice ‘to measure, monitor and improve supply chain corporate responsibility performance across the ICT sector’. In doing so, its members respect generally recognized principles and seek to be consistent with recognized standards, codes and regulations (Global e-Sustainability Initiative Online). In 2004, North American-based electronic companies founded a similar institutional structure, the Electronics Industry Code of Conduct (EICC), which consists of 43 international members, not all confined to the ICT sector.12 GeSI and EICC signed a Memorandum of Understanding in 2005 and jointly developed a web-based data management tool, the Electronics-Tool for Accountable Supply Chains (E-TASC), to assess and manage corporate responsibility performance along members’ supply chains. However, this does not mean that suppliers of the extractive industry are always included in a company’s supply chain management (Steinweg and de Haan 2007: 5). The larger part of the collective activities mentioned refers to a broad and traditional understanding of corporate responsibility that encompasses corporate engagement for social and labour standards, but generally does not explicitly mention corporate responsibilities within zones of conflict, let alone in the specific context of the DRC. There is great intra-sectoral divergence in ICT companies’ unilateral engagement in the form of publicly available statements on their role in the conflict in the DRC. Among the 22 individual GeSI members (excluding the European Telecommunication Network Operators Association, ETNO), only five have a statement.13 Between 2002 and 2004, the GeSI members Deutsche Telekom, Vodafone PLC and Motorola published statements on the coltan/DRC issue and explained their Coltan Policy (Deutsche Telekom Online; Motorola Online; Vodafone Group 2003: 17). Ericsson followed in 2007 and Nokia in November 2008 (Ericsson 2007: 35; Nokia Online). Puzzlingly enough in this context, involvement in GeSI’s Supply Chain Working Group, which ‘boasts a membership of at least a dozen’ (Global e-Sustainability Initiative Online), is not necessarily congruent with the

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production of statements concerning the coltan/DRC issue. The companies themselves acknowledge in their individual statements that management and control of their supply chain constitutes an important aspect of peace and security affairs in the DRC. The same tendency appears even more strongly in the EICC. Out of its 43 members, only two, a subdivision of Sony, the Sony Ericsson Mobile Communication section14, and Samsung Electronics have published a statement on coltan/tantalum (Samsung Online; Sony Ericsson Online 2007). Altogether seven committed companies, described in Table 4.1, were identified. An assessment of the weight of their statements for peace and security shows that most companies do not cross reference to other policies, such as codes of conduct, in their specific statements on coltan and the DRC. All except one acknowledge that the mining is primarily illegal. However, when it comes to the role of coltan in the conflict in the DRC, the willingness to provide information diminishes. Even though the statements refer to one of the underlying causes of the conflict, only four companies explicitly mention the conflict in the DRC at all by referring to the political order in the conflict zone. Possible (co-) responsibility for the course of conflict is dismissed, as five companies emphasize that they are not directly involved in any business on the ground. Three companies’ statements mention the effects of (illegal) mining activities in terms of environmental damage and the endangerment of wildlife. All companies gave information on the approaches they choose. They are similar across the board and can be classified as indirect contributions to peace and security, with a focus on the socio-economic dimension and ‘the creation and implementation of collectively binding rules and norms related to the provision of collective goods’ (see Chapter 1). All companies request their suppliers become active in some way, mostly by refraining from purchasing coltan from the DRC market (five companies). A pledge to refrain from buying coltan from the Rwandan market as well would be necessary to keep credibility. Five out of seven proactive companies aim to strengthen research efforts to reduce and/or completely substitute the use of coltan/tantalum. This approach, just like the one that aims to eliminate trade relations with the Congolese coltan sector, could be regarded as withdrawing from the zone of conflict and addresses the weakness in the conflict’s economic dimension. Beyond that, five companies mention that their suppliers have to meet certain requirements, mostly related to social and environmental issues, and that the suppliers are obliged to verify that they respond appropriately and comply with those standards. Five companies report that they have a learning dialogue, training, regular contact and exchange

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of information with their suppliers. These measures are in line with civil society and UN demands for a responsible and more sustainable handling of the coltan market in the DRC. Taking into account that the binding force of the statements is minimal, it is even more striking that out of the 65 corporate members of GeSI and EICC (as of November 2008) only seven have produced any policies on the issue at hand at all. These companies come from various home states, all in OECD countries. There is an imbalance within the ICT sector concerning the willingness to make statements on the coltan/ DRC issue: while the four biggest mobile phone manufacturers worldwide (Nokia, Motorola, Samsung, Sony Ericsson; Gartner 2008; Strategy Analytics 2007) issued statements, only two of the world-leading telecom service providers (Deutsche Telekom and Vodafone Group PLC; ReportLinker 2008) did so. The majority of phone manufacturers, in contrast to the committed companies in the telecom service sector, rate the relevance of tantalum for the production of ICT technology as ‘very low’. This is even more puzzling since all companies are potentially challenged by conflict in the DRC; the same setting, the same issue and phase of conflict and the same state structure in the DRC.

4.4 Explaining corporate statements related to coltan extraction and the conflict in the DRC 4.4.1 Explanatory factor I: Regulatory influence of the home state In the following section the list of potentially committed companies namely all corporate GeSI/EICC members, is expanded to include companies from the world’s biggest ICT market, China, to include possible explanations resulting from a company’s social and political environment, in addition to actor and production characteristics. The pool of potentially committed companies comprised firms from 14 different home states.15 The companies that have actually been active on the DRC-coltan issue have headquarters in Germany (Deutsche Telekom), the UK (Vodafone, Sony Ericsson), the US (Motorola), Sweden (Ericsson), Finland (Nokia) and South Korea (Samsung). None of the GeSI/EICC members headquartered in China produced any statements on the matter or had any policy on security and its own engagement in any other conflict zone. The ICT market-leading Chinese companies that are not members of GeSI or EICC, namely China Telecom, China Mobile (the world’s biggest mobile phone network provider) and China

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Table 4.1

Characteristics of committed companies

Name of company

Collective initiative

Line of business

Products/Services

Home state

Market position 2007

Deutsche Telekom

GeSI

Telecommunications company/operator

Germany

No. 1 Europe, No. 4 global (telecom service provider/ operator)

Ericsson

GeSI

Motorola

GeSI

Telecommunications service provider Electronics manufacturer

Nokia

GeSI

Mobile phone manufacturer/ telecommunications service provider

Samsung Electronics

EICC

Consumer electronics manufacturer

Sony Ericsson

EICC

Vodafone PLC

GeSI

Mobile phone manufacturer Telecommunications company/operator

Supply of networks and services provision + hardware sales Supply of networks and services provision Mobile phone; mobile technology Hardware sales (mobile phones)/supply of networks and services provision (for other ICTproviders) Hardware sales (digital media, digital appliance, telecommunication) Hardware sales (mobile phones) Supply of networks and services provision + hardware sales

Sweden US Finland

South Korea

UK UK

No. 3 global (mob. phone manufacturer) No. 1 global (mob. phone manufacturer)

No. 1 global (chip manufacture); No. 2 (mob. phone manufacturer) No. 4 global (mob. phone manufacturer) No. 7 global (Telecom service provider/ operator)


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Unicom, remained silent on the issue in question, even though one Chinese GeSI member, Huawei, started operating network infrastructure in the DRC in 2006 (Huawei Online 2006). These companies seem to be rather unconcerned. There is one more puzzling observation: of the 43 EICC members, 16 have headquarters in the US. GeSI has seven out of 22 individual members from the US. However, out of a total of 34 US-based GeSI/EICC members, Motorola is the only one that issued an individual coltan statement. The relative passivity of US-based companies could be due to home state regulation in the US, acting as a substitute for unilateral corporate engagement in peace and security in the DRC. The United States House of Representatives, in contrast to the state agencies of the other home states represented in this analysis, enacted a Resolution in 2001 that suspended all coltan purchases from the DRC, Rwanda and Uganda (Pole Institute 2002: 9). The necessity for private companies to make self-commitments and produce additional statements on the issue might therefore be reduced. In China, CSR has generally played a secondary role in Chinese politics and economics (Bertelsmann Stiftung Online 2009; Lübcke et al. 2007: 33; Zu and Song 2008: 3). Classical firm-based shareholder-approaches dominate, to the disadvantage of more encompassing stakeholder concepts (Lübcke et al. 2007: 121). China’s entry into the World Trade Organization (WTO) in 2001 has brought more multinational corporations into China and has meant higher external requirements of good corporate practice. Against the backdrop of economic transformation and the social disruption associated with it (the burst of the ‘iron rice bowl’ that assured people’s minimal income, housing and social security), in 2004 China’s then president, Hu Jintao, set the strategic goal of ‘building a harmonious society’ in a holistic and ‘scientific development’ approach that aimed to tackle the imbalance between economic and social development (FIAS/ BSR 2007: 13; GTZ/RNE 2005: 21; Lübcke et al. 2007: 34). This concept was expanded in the Chinese government’s 11th five-year plan. The government strengthened its commitment to sustainable growth: ‘When in operation, the company shall abide by laws and administrative rules, adhere to social and business ethics, be honest and trustworthy, accept the supervision of government and the public and undertake social responsibility’ (Dietmar 2007). Even if the foundations of this primacy mirrors western CSR concepts (Chinese state-owned enterprises are said to be more engaged with CSR issues; GTZ/RNE 2005: 23; see also Chapter 3 in this volume), the Chinese government did not release a more encompassing official statement to target compliance with corporate social standards,

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certification or promote CSR, let alone business in conflict (Lübcke et al. 2007: 34–6). The government, being the responsible actor in determining China’s economic policy in this ‘avowedly socialistic regime’, seems reluctant to push ‘the external fashion defined as CSR’ onto the political and public agenda and instead ‘aims to free firms from social burdens’ (Zu and Song 2008: 3–4). Based on the assumption that rigid home state regulation can act as a substitute for corporate statements on peace and security, in the Chinese case the ‘harmonious society’ concept may explain the inactivity of Chinese companies domestically but does not explain why they have not produced any statements on the external context. Chinese companies are not subjected to any substantive regulation comparable to US-based enterprises. Even if binding home-state regulation impedes corporate engagement, it does not explain those that have remained silent. After all, this is the case for the 25 non-US companies that are members of EICC and GeSI, as well as for the Chinese ICT market leaders mentioned above, which have not produced any statement on the DRC and coltan. 4.4.2 Explanatory factor II: Company structure The management and organization of the ethical aspects of business within companies could make a difference to corporate governance contributions to peace and security, namely the formulation of a coltan statement. In fact, four of the seven companies that have issued an individual coltan statement possessed a specific cross-functional management unit or a functional equivalent consisting of more than one person within its headquarters. These are Deutsche Telekom (Corporate Citizenship & Sustainability Unit), Ericsson (Corporate Responsibility Director), Nokia (Corporate Relations and Responsibility Unit) and Vodafone PLC (global team of corporate responsibility managers). On the other hand, there are only two inactive companies with such a unit. One of them does not have any substantial input into the formulation of corporate policies and acts only as the general PR contact unit on CSR matters. There is significant empirical variance in this explanatory factor. Conceptually, the existence of such a unit could reflect the weight given to societal engagement within a company or the specific corporate culture that is expressed by this organizational structure. Corporate culture has proved to have a very strong influence on the definition of corporate governance activities (Bertelsmann Stiftung 2005: 12–15). At the same time, it can enhance a company’s receptiveness to external expectations and pressures. However, latest empirical research suggests that it is not so much the existence of specific units but rather the number of

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employees exclusively engaged with a topic that is positively associated with corporate activity in societal governance contributions (Bertelsmann Stiftung 2005: 20–2). Nevertheless, this finding does not circumvent the argument because it can be assumed that the number of employees that are working solely on issues of corporate responsibility increases with the institutionalization of a corresponding specialized unit. The specialized units deal with questions of corporate responsibility or possible conflicts of value resulting from corporate behaviour. They are interdepartmental units, their assessments and proposals overlaying all other company policies and thus composing the frame within which strategic and operative management should take place. A specialized unit that potentially acts outside the quantitative requirements of strategic and operative management is able to raise issues that are of normative concern to the company, even if they are not primarily measured against aspects of efficiency and efficacy. Societal problems induced by corporate dysfunctions and possible conflicts of value (such as the indirect conjecture between corporate business and the conflict in the DRC) can be recognized and analysed within such a unit and afterwards taken into account within the strategic and operative formulation of management processes. Research by the Boston College Center for Corporate Citizenship supports the view that higher-level leadership, dedicated department management and cross-functional teamwork all lead to a strong performance in general corporate governance contributions (Boston College Center for Corporate Citizenship 2008; CSR Newswire 2009). Following Ulrich, this ‘regulative idea of the corporate dialogue’ ideally leads to a coherent set of corporate goals and principles instead of selective corrective measures (Kreikebaum 2001: 50–5). Institutional structures have to make this dialogue possible (participative structures, creation of a symmetric situation of communication and so on). Steady maintenance of communication about corporate potentials between the management board and internal as well as external stakeholders is required. In terms of the variance in corporate behaviour, ‘company structure’ explains some of the behaviour in the group of non-US, OECD-based companies. Companies without a professional ethics unit were less normatively concerned about even indirect involvement in civil war. However, this still does not explain the lack of engagement by companies based in China. 4.4.3 Explanatory factor III: Public pressure in the home state and product characteristics For almost a decade, the conflict in the DRC and the role of natural resources, especially coltan, has been salient in the public discourse. In

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1999, the Security Council of the United Nations issued various resolutions on the conflict and the presence of foreign parties in the DRC (United Nations 1999; United Nations 2000; United Nations 2001c). One year later, after having deployed its Peace Mission (MONUC), the UN appointed a Panel of Experts that was instructed to submit a report on the illegal exploitation of natural resources and other forms of wealth in the DRC. Even if the panel’s work was controversial, it shed light on the issue and aroused international public interest. The panel’s four reports were issued in January and April 2001 and May and October 2002 and confirmed the strong resource component of the conflict. They even named 85 individuals and corporations that were accused of violating the OECD Guidelines for Multinational Enterprises. In the first UN Report of April 2001, these companies were identified as ‘the engine of the conflict in the DRC’ (United Nations 2001: 42, §215). Also in 2001, the UN called for an embargo on coltan and other natural resources, such as diamonds and uranium, from the DRC. From 2001 on, various NGOs published reports on the environmental and political consequences of illegal coltan mining activities in the DRC. The World Wide Fund For Nature (WWF) called for bans on mining in national parks and protected areas according to the IUCN Guidelines for Protected Area Management and the UNESCO Charter of 1999. In 2001, the year in which the world market price for coltan peaked, the Dian Fossey Gorilla Fund International proposed solutions. The regional economic and living conditions should be stabilized in a way that the population would not have to rely on depletion of natural resources in national parks. Accordingly, measures should be taken that supported the agricultural sector and controlled resource extraction (Behrendt et al. 2007: 40). FFI followed this path and spoke out against embargos as they supported the further increase in illegal mining activities, lobbying instead for a tripartite approach. Also in 2001, a Belgian coalition of NGOs launched an emotive campaign spectacularly named ‘No blood on my mobile!’. In light of these developments, the comparatively visible companies at the end of the production chain came increasingly under fire for indirectly supporting conflict parties in the DRC, thus leading to the prolongation of the dispute.16 Of all the industries involved in the production of end products, this mostly applied to companies in the ICT sector, especially manufacturers/vendors of mobile phones, and – to a much lower extent – also to parts of the electronics industry, as a new generation of computer games, consoles and microchips had contributed to the increased demand for coltan/ tantalum in 2001.

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It has to be recognized that this public discourse was conducted mainly in the western world. The civil society actors who shaped the debate about coltan and the DRC are all headquartered in OECD countries, where the campaigns were also launched (Dian Fossey Gorilla Fund International: USA; FFI: UK; WWF: Switzerland). On the other hand, Chinese newspapers and television stations (Newsagency Xinhuan, China News Service, Guangming Daily, Nanfang Daily, Central Chinese Television CCTV) show no evidence that the DRC/ coltan issue was raised at all. Chinese media are generally reluctant to report on CSR (Bertelsmann Stiftung Online 2009) and to criticize state-owned enterprises, such as those included in this analysis, except Huawei.17 The Chinese media campaign against foreign companies who criticize Chinese labour law; however, they generally do not report on western consumer boycotts or the development and certification of social standards (Lübcke et al. 2007: 34).18 Apart from this, it is hard for civil society to evolve in China.19 Using data on the NGO density in 2002 (Kaldor et al. 2003) as the baseline and taking the Freedom in the World Index on civil and political rights as a reference for the period 2002–2008, the findings are unambiguous: China attained by far the lowest NGO density: 0.0 (compared to an average of 25.6; see Kaldor et al. 2003: Rec. 15). Furthermore, while the other home states experienced an average increase of 38.1 per cent in NGO density between 1992 and 2002, China saw no surge at all. This result is underlined by the status of political and civil rights. In contrast to all other home states, China in this regard is evaluated as ‘not free’.20 Taken together, public pressure has been and still is weaker than in all other home states in this study. Against this background, it can be assumed that western ICT companies have produced many above-average coltan statements because they were in the crossfire of public criticism. Within our sample of committed ICT companies, the relatively better performance of mobile phone manufacturers – in contrast to general telecom service providers – can be explained by the greater public pressure put on them by campaigns, NGO activities and UN reports. Hence, in this case there is a strong correlation between product characteristics and the societal environment. Mobile manufacturers and telecom service providers are business-to-consumer companies and are relatively visible to the public. They face costly reputational damage when associated with negative development like the DRC/coltan issue. Each company’s product can be substituted quite easily with another’s. However, the focus of public campaigning was mainly on the mobile phone production companies

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that were subject to public scrutiny more often. This could explain why the four biggest mobile phone manufacturers worldwide have issued a statement on the conflict in the DRC and their role there, while only two of the world’s leading telecom service providers have done so. This kind of pressure is not present in all countries equally, which could account for one aspect of the geographical bias mentioned above. The Asian companies (GeSI/EICC members plus market-leading Chinese companies) without any coltan policy are the only ones headquartered in countries without public pressure.

4.5 Conclusions The general aim of this chapter has been to identify factors that influence a private company’s willingness to contribute to peace and public security in zones of conflict. Leaving aside an examination of the actual manifestation of corporate activity on the ground, it focused on explaining the output dimension of corporate governance contributions. To answer this question, the role of the information and communications technology sector in the Democratic Republic of Congo during the last decade was analysed. Natural resources always played an important role for the extension of the conflict in the DRC. Around 2000, during a time of peak world market prices, the illegal extraction of the ore coltan, the primary substance for the metal tantalum, was a source of enormous profit for various parties to the war. There were three major empirical findings. First, while many endproduct industries are dependent on tantalum, mainly companies from the ICT sector and its collective initiatives, Global e-Sustainability Initiative (GeSI) and Electronic Industry Code of Conduct (EICC), issued statements on the relation between resource extraction, the prolongation of the conflict in the DRC and their own responsibility. Those who made such statements referred to their indirect involvement in the conflict and their efforts to call their suppliers to account. Second, mostly mobile phone manufacturers and, to a minor extent, general telecom service providers acted proactively. Finally, a geographical bias was noticed in that companies exclusively from the OECD world and only one US-based company produced any statement on the DRC/ coltan issue. In three steps, explanatory factors were identified for the divergent corporate engagement. In the first step, the home-state regulation of the various companies was analysed. It was shown that, in the eyes of the companies, the existence of legally binding rules in their home

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state renders additional corporate commitments unnecessary. This was the case for all US-based companies, except one, which constitute the biggest member group within the two aforementioned collective initiatives. However, this did not answer the question of why there are non-US inactive companies in the OECD, nor did this factor explain the inactivity of Chinese companies. Here, ‘company structure’ was relevant as the inactive companies do not possess ethics units. The final step referred to potential and actual public pressure within a company’s home state combined with product characteristics. It explains the observable bias of engagement within the ICT sector and the relatively strong engagement by mobile phone manufacturers. It provides an explanation why companies from China remained silent on the DRC/ coltan issue. Last, but not least, it is plausible that regulatory and societal factors within the home state have an additional effect: the former constitutes the enabling or limiting conditions for the latter, which, nevertheless, could also trigger the first. Hence two basic global governance assumptions seem plausible: companies become active when facing regulatory gaps – but only so when they are confronted with civil society actors and intense public pressure.

Notes 1. Other regions that are part of this group are the Balkans, the Caucasus, Horn of Africa, West Africa and Central Asia. 2. See Global Witness (2005) for further information on cassiterite in the DRC; also Reuters AlertNet (2008). Some authors hold the view that the export of natural resources in general and even the ethical and cultural components are of declining relevance to the prolonging of the conflict process nowadays. In fact, the importance of illegal import activities is said to be increasing, as is the conflict circling around power disputes between the rebel movement of the Rwandan Force Démocratique de Libération du Rwanda (FDLR) and the ethically mixed Congolese Congrès National pour la Défense du Peuple (CNDP) (Doevenspeck 2008; Johnson 2008). 3. See Wagner (2007) for information on a pilot project by the German government that aims at the establishment of a certification scheme for selected raw materials, including coltan, on the basis of a mineralogical fingerprint (Certified Trading Chain, CTC). 4. See Human Rights Watch (2007) and Global Witness (2008) for the role of FDLR in today’s conflict and (illicit) resource depletion, especially in the eastern DRC. 5. The Consulting Group Raw Materials Groups ranks the DRC among the six resource richest countries in the world (Behrendt et al. 2007: 26). According to Worldbank data, natural resources business traditionally accounts for about 75 per cent of all export revenues and 25 per cent of DRC’s GDP

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6. 7. 8.

9.

10. 11. 12. 13.

14. 15.

16.

17. 18.

Calling on Peace (Hayes and Burge 2003: 28). The DRC is an example of the paradox of plenty, where extreme richness in resources correlates with a low Human Development Index (HDI). In the DRC, the level of unemployment is 85 per cent and the poverty percentage is about 80 per cent. In 2005, the DRC was ranked at position 168 (out of 177 countries) on the HDI, while the HDI value in 2000, when the second Congo war was at its peak, was the lowest since the economic recession in 1975 (Human Development Index Online). If today’s consumption of tantalum remains unchanged, sources will only last until approximately 2037 (IWK 2008). Other authors speak of USD20 million monthly between 1999 and 2000 (Giambrone 2006: 23; Montague 2002: 112). The Rwandan president Paul Kagame, who established a ‘Congo desk’ within the Ministry of Foreign Affairs to take care of extractive activities in the DRC and to network with international clients, characterized the war as ‘selffinancing’ (Montague 2002: 112; see also Ballentine and Nitzschke 2005: 1). The following persons are known as intermediary actors in this ‘network war’ (Raeymaekers 2002): the arms and Congolese gold-trader Aziza Gulamani Kuslum, the Chief of the General Staff of the Rwandan army, James Kaberebe, and the families of the Ugandan and Rwandan presidents Museveni and Kagame (Bitala 2003; Raeymaekers 2006: 5). Global Witness speaks of a 38 per cent increase in global coltan consumption from 1999 to 2000. For a list of contemporary members see http://www.gesi.org/index.php? article_id=44 (date accessed: 18 May 2009). For an updated list of members see http://www.eicc.info/membership.html (date accessed: 18 May 2009). As of 25 November 2008, the Coltan Statement by the former GeSI member O2 Europe plc was not included because in 2005–06 the company became a wholly-owned subsidiary of Telefónica SA which did not produce any statement that would qualify as a corporate governance contribution to peace and security in the way conceptualized in this volume. For Sony’s organizational chart see http://www.sony.net/SonyInfo/ CorporateInfo/Data/organization.html (date accessed: 18 May 2009). These are Canada, China (including China/Taiwan), Finland, France, Germany, Italy, The Netherlands, Singapore, South Korea, Spain, Sweden, Switzerland, United Kingdom and the United States. Prominent examples of coltan processing companies that found themselves under heavy attack are H.C. Starck and Cabot Corporation (see Hayes and Burge 2003: 36). Individual companies involved in the extraction, transportation and processing were generally able to stay in the dark. Officially, 100 per cent of Huawei’s shares are owned by diverse shareholders, namely 80 per cent of the company’s employees (Seith 2007). Of course, it has to be taken into account that there is no free press in the People’s Republic of China. The estimation that the Chinese press is comparatively worse off follows from the results of the Freedom of the Press Index for this chapter’s period of analysis (see http://www.freedomhouse. org/template.cfm?page=16 [date accessed: 18 May 2009]). Between 2002 and 2007, China and Singapore were the only countries accommodating

Linda Wallbott 105 headquarters of ICT companies included in the sample above that had the status ‘not free’ for their media. All others were evaluated as ‘free’. 19. Two suitable indicators to assess this potential are the Freedom in the World Index and the value of ‘Organizational density of NGOs per million of population year’. The former ranks countries according to the range of guaranteed political and civil rights (Freedom House Online) while the latter considers the number of NGO secretariats in one country in relation to every million of inhabitants (Kaldor et al. 2003: Rec. 15). 20. Freedom House: Freedom in the World Index: http://www.freedomhouse.org/ template.cfm?page=1 (date accessed: 18 May 2009).

5 Walking the Extra Mile: Corporate Contributions to the Peace Process in Northern Ireland Andreas Haidvogl

5.1 Introduction Northern Ireland has undergone a successful peace process after nearly 30 years of violent conflict. The people in Northern Ireland today live in the most peaceful times since the beginning of the Troubles in the late 1960s. Hand in hand with the peace process was a significant upswing in the Northern Irish economy. Many companies from within the UK and from overseas made enormous investments in Northern Ireland. While there is no doubt that the peace process was a precondition for business to flourish, does this nexus also work the other way around? What did business contribute to peace in Northern Ireland? The Northern Irish business community recognized the link between the violent conflict and the weak economic situation at the beginning of the 1990s and became actively involved in promoting the peace process. In 1994, the Northern Irish department of the Confederation of British Industry published a paper, ‘Peace – A Challenging New Era’, that contained a strong economic rationale for peace in Northern Ireland. The paper outlined that the cessation of violence would have a very positive impact on the Northern Irish economy, that is, a ‘peace dividend’ (Confederation of British Industry–Northern Ireland 1994). In 1996, when the peace process was about to collapse, major business organizations formed the Group of Seven to collectively advocate for peace and a revitalization of the peace talks. The Group of Seven invited parties to the conflict to peace talks, discussing the mutual dependence of peace and economic prosperity and provided unofficial shuttle diplomacy. By giving the peace process a new momentum from an economic perspective, business made profound contributions to the peace process in Northern Ireland (see Banfield et al. 2006; Ben-Porat 2006: 231–40; Rettberg 2006). With 106

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business associations taking such an active and positive stance towards the peace process, the question arises of whether individual companies doing business in Northern Ireland followed suit. Do individual companies contribute to peace and security in Northern Ireland as well? This chapter explores the policies and activities of individual business companies related to the peace process in Northern Ireland to assess the extent of corporate governance contributions to peace and security as well as the conditions required. An analysis of three companies draws on interviews with company representatives, business people and experts in Northern Ireland, as well as company policy papers, websites and media articles. Within- and cross-case comparisons suggest that companies can and do contribute to peace and security and that the level of corporate governance contribution is influenced by company characteristics and the structural environment in which companies operate. Following a short introduction to the history and legacy of the violent conflict and the peace process in Northern Ireland (section 5.2), the chapter focuses on three companies with varying levels of engagement. The main empirical reference case study is Bombardier Aerospace, an aviation company active in Belfast for more than 70 years. Bombardier is one of the most important players and contributors to the Northern Irish economy. Although the company makes no direct contributions to security governance, its policies and activities in the realm of political order and the socio-economic dimension are immense (section 5.3). Tracing the policies and activities over time reveals significant changes in the company’s engagement that correlate with changes in the legal environment in Northern Ireland, the spread of the idea of corporate citizenship and the turn to a post-conflict setting. However, this finding needs to be qualified by comparing Bombardier with two other companies: Kuehne + Nagel, a globally operating logistics company, and Epsilon (a pseudonym), a medium-sized firm in the automotive supply industry. Although operating in the same structural and social environments, these companies differ in their engagement and are much less active than the reference case of Bombardier Aerospace. This highlights that while the structural environment creates incentives for companies to engage, company characteristics, such as their size, organizational structure, image/reputation and corporate citizenship culture, seem to determine a company’s level of engagement (section 5.4). Especially in a case like Northern Ireland, which is characterized by a functioning state regulation, one could imagine that there is not much room left for companies to engage in voluntary contributions to

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peace and security. However, as the findings highlight, some companies ‘walk the extra mile’ (section 5.5).

5.2 The violent conflict and the peace process in Northern Ireland The conflict in Northern Ireland is between the Catholic republican– nationalist and the Protestant unionist–loyalist communities, who struggle over political, social, economic and cultural issues (see Kandel 2005: 36; Mac Ginty and Darby 2002: 11; Moltmann 2002: 2).1 The root cause of the conflict is ‘the existence of two competitive communities in the same territory whose differing views concern the legitimacy of the state and its boundaries’ (Ben-Porat 2006: 202).2 In 2001, Northern Ireland had 1.7 million habitants, 44 per cent Catholic and 53 per cent Protestant community background.3 Broadly, the Catholic republican–nationalist community demands equality in political and social issues and strives for the reunification of Ireland, while the Protestant unionist–loyalist community wants to preserve their former economic and political positions of privilege and see Northern Ireland strongly entwined politically with the UK. Both parties to the conflict have different perceptions of the conflict issues that have arisen over the centuries. While the Protestant community defines the conflict mainly in constitutional terms, the Catholic side frames the conflict as a struggle for self-determination, as well as political and social equality (Mac Ginty and Darby 2002: 11). Social inequalities and discrimination against the Catholic minority was, and still is, primarily reflected in unequal access to the labor market (Heaton and Teague 1997; Osborne and Shuttleworth 2004: 1). Empirical data about the composition of the Northern Irish workforce reveal that Catholics are more likely to be employed in low-paid jobs and are affected above-average by unemployment (see Russel 2004).4 The question of how to achieve equality and the reunification of Ireland has divided the Catholic community into two factions, nationalists and republicans. At the political level, the republicans are represented by the Sinn Féin party, which has a strong commitment to the reunification of Ireland and withdrawal from the UK. The paramilitary wing of the republican side, the Irish Republican Army (IRA), and some of its splinter organizations fought an armed battle against the British. The nationalist side, politically represented by the Social Democratic and Labour Party, has a more moderate and pragmatic perspective. The Protestant community generally perceives itself as British and wants

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Northern Ireland to be politically embedded in the UK. The Protestants have divided into two camps, the Loyalists and the Unionists. The Loyalists, represented by the Democratic Ulster Party, have a strong, uncompromising view on commitment to the UK. They formed several paramilitary organizations to fight against the Catholics. The Unionists, represented by the Ulster Unionist Party, share the general Protestant agenda but have more moderate and pragmatic views. In 1967, Catholic civil rights activists founded the Northern Irish Civil Rights Association to call for an end to the discrimination of the Catholic community. The violent conflict between the two parties started when the civil rights activists clashed with loyalist extremists while arranging demonstrations in early 1969. The situation escalated in August 1969 when the Northern Irish police, the Royal Ulster Constabulary, was unable to stop street battles in Belfast and Derry (Londonderry). The government in London decided to send British military units to Northern Ireland. Violence did not stop for 30 years. From 1969 to 1998, the conflict caused more than 3000 casualties and approximately 40,000 wounded. Two-thirds of the victims were civilians.5 As a political result of the violent conflict, devolution – the right to self-govern – ceased, the Northern Irish political institutions were suspended and Northern Ireland was governed directly by the British government. This political situation persisted – interrupted by a few short periods – until 2007. After many failed initiatives, the Belfast Agreement, also known as the Good Friday Agreement,6 of 1998 represented the breakthrough in the peace process. The parties agreed to a new structure of government to ensure equal political participation rights for all groups within a system of consociational democracy. Further core elements were the agreement to achieve political goals without the use of violence and to break from their paramilitary organizations. However, practical implementation of the agreement was problematic. In 2006, after many years of stagnation, the British and the Irish governments initiated the St Andrews Agreement. This agreement reinforced the central pillars of the Good Friday Agreement and aimed to restore the political institutions of Northern Ireland and create a new government. On 26 March 2007, representatives of the formerly hostile political parties, the unionist Democratic Ulster Party and the republican Sinn Féin, agreed to form a joint government. Finally, in May 2007, devolution was restored to the Northern Ireland Assembly. Today, Northern Ireland is regarded as an example of a successful peace process (Moltmann 2007: III). Despite all the inherited burdens of the conflict, it seems that the parties have finally settled their conflict.

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But although people in Northern Ireland live in the most peaceful time since the beginning of the conflict, paramilitary groups are still active and responsible for acts of violence and organized crime, albeit on a much lower level than before the peace agreement (Darby 2006).7 The recent terrorist attacks in March 2009, when members of IRA splinter organizations murdered two British soldiers and one Northern Irish police officer, demonstrate this point dramatically. The main persisting problem is the structural cleavages that divide Northern Irish society. Segregation between the two communities still exists (Shirlow 2006) and sectarianism and discrimination are prominent problems in Northern Ireland (Moltmann 2002: 30–45). The violent conflict has ended but societal patterns still reflect the conflict divides. Specifically, unequal access to the labor market and social deprivation persist in Northern Irish society. Bombardier Aerospace in Belfast has made many governance contributions to peace and security in Northern Ireland that address these societal patterns.

5.3 Governance contributions to peace and security by Bombardier Aerospace in Belfast The first aviation company worldwide, Short Brothers (‘Shorts’), formed in 1908 in Battersea, UK. In its early years the company constructed flying boats for civil and military purposes, turning primarily to the production of small cargo aircraft from the 1960s. In 1936, the company established its first factory in Belfast, Northern Ireland. By 1948, the company operations and headquarters were solely in Belfast. In 1989, the Canadian company, Bombardier, took over Shorts and integrated it into their subsidiary, Bombardier Aerospace. Today, the production facility in Belfast designs and manufactures nacelle systems, fuselages and flight controls. In 2007, Bombardier Aerospace Belfast employed more than 5000 people8 and generated a turnover of GBP463 million.9 Its parent, Bombardier, is a listed global corporation and is one of the biggest producers of small aircraft and rail vehicles worldwide. Their headquarters are in Montreal, Canada. In 2007, Bombardier employed approximately 60,000 people worldwide and generated revenues of USD15 billion (Bombardier 2008). Bombardier Aerospace is one of the most important players and contributors to the Northern Irish economy.10 In 2007, the company was the fourth biggest employer and the biggest manufacturer in Northern Ireland.11 It has a long-standing history in the UK, especially in Belfast, where it has been active for more than 70 years.

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Bombardier Aerospace is very active in corporate social responsibility (CSR) issues. Examples of this activity include an energy and waste management strategy that focuses on the management of energy consumption and non-hazardous waste, and its membership in Arena Network Northern Ireland12 and the Opportunity Now Network.13 None of these activities relate to the conflict, however, so they are excluded from the analysis, as are its charitable and sponsoring activities, such as contribution to Marie Curie Cancer Care in Belfast14 or its many activities in the education sector (Belfast Telegraph 2005). Policies and activities are only taken into account when they either relate to the level of violence directly (security governance) or indirectly contribute to peace and security by addressing causes and drivers of the conflict, such as social deprivation and discrimination issues. 5.3.1 Contributions to security governance Bombardier Aerospace does not contribute to security governance in the sense conceptualized in Chapter 1. None of its policies or activities relates directly to the post-conflict situation or directly aims to reduce the level of violence in Northern Ireland. However, its fair employment and community involvement are indirect governance contributions to peace and security in the dimensions of political order and socioeconomic issues. 5.3.2 Governance contributions related to political order The company is very active in the field of fair employment, that is, the creation and guarantee of a neutral working environment (political order). The Code of Ethics and Business Conduct released by Bombardier in 2005 outlines some general guidelines on employment practices. The code states that Bombardier and its subsidiaries must treat all staff fairly, ethically and respectfully. The company commits to promoting equal employment opportunities regardless of age, gender, race, religion and citizenship, in accordance with the specific law of the host country where the company operates. The corporate harassment and personal security policy protects all employees from harassment, bullying and victimization in the workplace (Bombardier 2005: 12). In its Corporate Responsibility Roadmap, the company aims for a workplace environment that ‘fosters fairness, respect and diversity’ (Bombardier 2007: 4). Bombardier is a member of the United Nations Global Compact and thus committed to its ten principles, one of which covers labor rights. Principle six of the Global Compact states that ‘[b]usinesses should uphold the elimination of discrimination in respect of employment

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and occupation’.15 In addition to these general commitments of its parent, Bombardier Aerospace provides an employee handbook that contains specific rules and regulation about the relationship between the employer and the employee, such as employment, contracts, industrial law and general, everyday dignity in business interactions. The handbook, which all employees receive, stipulates equal opportunity measures in all parts of the recruitment process (Bombardier Aerospace 2002: 37). To secure neutrality and anti-discrimination, the company commits to creating and maintaining a neutral working environment ‘in which no employee feels under threat or intimidated because of his/ her sex, marital status, age, disability, religious belief, political opinion, race or ethnic origin’ (Bombardier Aerospace 2002: 38). The company is committed to providing a working environment that is free from any kind of harassment based on religious belief or political opinion. The activities the company undertakes to address fair employment are in accordance with its policies. The employee handbook states that any employee who fails to meet the company code of conduct will go through disciplinary procedures that range from oral and written warnings to the dismissal of the employee (Bombardier Aerospace 2002: 31–3). The handbook defines three categories of misconduct (misconduct, serious misconduct and gross misconduct). All of the above-mentioned actions regarding harassment, discrimination and victimization described in the company’s fair employment and anti-discrimination policies are regarded as gross misconduct, which is dealt with rigorously. In order to ensure fair treatment of job applicants, regardless of their religious, political and community background, the company introduced several mechanisms into its recruitment process. To ensure that no single person can treat applicants unfairly, job candidates undergo a panel interview instead of the previous one-on-one interview. All people sitting on this panel have to be trained in interview techniques and briefed on the anti-discrimination legislation. The company has standardized recruitment documents, interview assessment sheets, interview scoring and the need to report reasons for selection or non-selection of candidates solely on the grounds of their qualifications for the job. All these procedures are designed to make the recruitment process more transparent and comprehensible. Bombardier Aerospace’s fair employment activities are partly prompted by the law but are also voluntary. Northern Ireland has some of the most elaborate employment legislation in Europe, reflecting its conflict history. The Fair Employment and Treatment (Northern Ireland) Order of 1998 regulates that employers have to create and maintain

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a neutral workplace where everyday discrimination is banned and provide equal opportunities to employees regardless of their religious belief or political opinion and their community background.16 The law prohibits direct and indirect discrimination, as well as any form of victimization and harassment in the workplace. Employers have to register with the Equality Commission, monitor their workforce for community background composition and submit annual monitoring reports to the Equality Commission. In order to find out if fair employment is provided, employers have to undertake specific periodical reviews of the composition of their workforce and their employment practices. In cases where equality of opportunity is not offered, employers have to take affirmative action to bring about the necessary changes required to achieve fair employment. The Fair Employment Order is a law that provides guidelines. The aim and structure of fair employment are legally binding but the way employers endorse these demands, that is, the specific mechanisms addressing fair employment, is up to the companies themselves. The law does not require many of the activities the company undertakes, such as the outreach activities in the advertising of vacancies. The company advertises vacancies in schools and community groups. Bombardier Aerospace’s advertisements acknowledge the underrepresentation of Catholics in its workforce and explicitly welcome applicants from the Catholic community. The company undertakes these steps on a voluntary basis. Although companies doing business in Northern Ireland cannot actually avoid the fair employment issue (there are strong penalties), how they apply the principles is not defined in detail by the law. However, there are companies like Bombardier Aerospace that walk the extra mile beyond what the law demands. The commitment and behavior of Bombardier Aerospace regarding anti-discrimination and equal opportunities are closely linked to the post-conflict situation because they relate to the enduring drivers of the conflict. As previously mentioned, the social and economic discrimination of the Catholic community, especially unequal access to the labor market, was seen as a main cause of the conflict. Osborne and Shuttleworth stated that ‘fair employment policy and issues of equality have been at the heart of the conflict and its resolution’ (Osborne and Shuttleworth 2004: 1). Discrimination in the workplace has always been an issue, albeit a small one, on the conflict agenda. Most employees, Protestants and Catholics, perceive their workplace as a neutral space. Recent data from the Northern Ireland Life and Times (NILT) 2007 survey shows that

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97 per cent of the employees interviewed think that their workplace should be a neutral space, and 88 per cent say that their workplace is a neutral space. Nevertheless, many people would still avoid workplaces situated in areas dominated by the opposite community: data from the opinion poll reveal that approximately one-third of people with a Catholic background would avoid applying for a job in a mainly Protestant area – and vice versa.17 However, by the creation of a neutral workplace and ‘by nourishing a sense of community both within the company and in the areas where the company is located’ (Fort and Schipani 2004: 26), business can make some contributions to the peace process in Northern Ireland. As a managing director of a medium enterprise stated: ‘[I]nternational companies involved in conflict situations […] can be a very positive force to bring people together where they may live in their separate ghettos or different areas and they don’t directly interact with each other. But they do experience each other socially, culturally and other general conversational things in the normal working day’ (Interview #11, 28 January 2008). These corporate contributions addressing fair employment are, without doubt, relevant to the peace process, even though their impact may be limited. 5.3.3 Governance contributions related to socio-economic issues Another focal point of Bombardier Aerospace’s activities is community programs, especially its activities in the Employers Forum which can be characterized as contributions to peace and security in the field of socio-economic issues. Bombardier Aerospace manages some of its community engagement activities within its membership of Business in the Community Northern Ireland, a UK-based organization founded in 1982 that provides a platform for companies to engage in CSR activities. Within its four main pillars of engagement – the environment, community, workplace and economy – Business in the Community initiated a variety of collective projects. In the UK, more than 800 companies are members of the organization, covering 85 per cent of the FTSE 100, which is the UK stock market index of the 100 most highly capitalized companies. The Northern Ireland branch of Business in the Community was established in 1989 and has 230 member companies.18 Bombardier Aerospace is very active in the organization and involved in a number of projects within the network. The company’s vice-president and chief executive officer, Michael Ryan, is chair of the board of the Northern Ireland branch of Business in the Community. Bombardier Aerospace was also a member of the PerCent Club, in which members committed to spending at least

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1 per cent of pre-tax profit to community projects; the Bombardier Aerospace Foundation in Belfast raised this proportion to 2 per cent.19 The company’s commitments to community engagement are outlined in its Corporate Responsibility Roadmap, in which Bombardier commits itself ‘to be a responsible corporate citizen’ (Bombardier 2007). The roadmap states: “While we operate in the global community, we have long recognized the importance of volunteering and contributing locally. Our Donations and Sponsorships Policy guides our philanthropic efforts, focusing on core sponsorships in youth and education, community outreach, science and technology, and arts and culture” (Bombardier 2007: 4). Bombardier Aerospace realizes its community policies through its activities in the Employers Forum, an education initiative for long-term unemployed, established by Business in the Community Northern Ireland and the company. The Forum was founded by the business community and is solely funded by the private sector. A cross-section of employers supported the initiative by establishing sector-specific clusters, each led by an employer. The Employers Forum is a collaboration between employers, local training organizations and the education sector. Bombardier Aerospace leads the engineering cluster, in partnership with Belfast Metropolitan College. The aim of the Employers Forum is to help disadvantaged people from deprived areas by providing training, work placements and employment opportunities to reduce the barriers to gaining work. Since 2003, more than 500 people, that is, 90 per cent of the long-term unemployed who completed the training program, were re-integrated into the labor market; of these, Bombardier Aerospace recruited 45 people (Equality Commission for Northern Ireland 2007: 6). The Employers Forum was set up as a direct response to the report and recommendations of the West Belfast and Greater Shankill Task Forces. Initiated by the Northern Ireland Minister for Employment, Trade & Investment and the Minister for Social Development in May 2001, the aim was to formulate recommendations to reduce social deprivation in West Belfast, an area that suffered from a much higher level of unemployment, poverty and economic weakness than the rest of the city. The key recommendations of the Task Forces were: getting more people into employment; creating more jobs; offering training programs for those unemployed who want to get back into the labor market; and establishing infrastructure programs addressing regeneration and development (West Belfast and Greater Shankill Task Forces 2002: 19). Bombardier Aerospace was directly involved in the work of the task forces: its director of Public Affairs, who has chaired the Employers Forum since October 2001, was

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a member of the West Belfast Task Force while the director of organization and development participated in the Greater Shankill Task Force. The Employers Forum is trying to reduce unemployment and poverty in areas of high social deprivation, acknowledging ‘the fact that high levels of unemployment and inequalities in employment were seen as one of the fundamental issues contributing to the outbreak of what we call the Troubles in the late 1960s’ (Interview #6, Belfast, 11 June 2008). In fact, areas with high levels of deprivation in Northern Ireland overlap with areas of high levels of political violence (see Fay et al. 1999: 145). The Task Forces’ report notes that the ‘West Belfast constituency, covering most of the wards in both Task Force areas, is distinguished by its high share (almost 40%) of all the deaths that occurred within the city related to the Troubles and by the heavy exposure to violence, particularly during the period 1969–80’ (West Belfast and Greater Shankill Task Forces 2002: 16). The corporate activities of Bombardier within the initiative amount to governance contributions to peace and security because they address important causes and drivers of the conflict. Bringing the people who live in these areas back into work and enhancing their economic situation is a contribution to the peace process in Northern Ireland. 5.3.4 Bombardier’s policies and activities over time Bombardier Aerospace’s engagement in terms of governance contributions, related to peace and security or not, was zero prior to 1983. Things changed in 1983 when Shorts started to address the fair employment topic. Then in 1989, when Business in the Community established its bureau in Northern Ireland, Bombardier Aerospace was one of its first members and started its engagement within the network. Another important step was the founding of the Bombardier Aerospace Foundation in Belfast in the mid-1990s. The foundation has established itself as a frontrunner in corporate CSR activities and has become an example of best practice within Bombardier (Interview #5, Belfast, 11 June 2008). Bombardier Aerospace has further strengthened its engagement through institutionalization and professionalization. In 2001, as a member of Business in the Community Northern Ireland, the company helped start the Employers Forum. According to a statement from a company representative, Bombardier Aerospace is at its most active stage of CSR today. Its corporate responsibility culture is well developed and has become an integral part of the daily business (Interview #5, Belfast, 11 June 2008). Its chief executive officer, Michael Ryan, stated that ‘there has never been a more important time to be socially responsible or to demonstrate a commitment to

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key stakeholders’ (The Irish News 2008: 39). Bombardier Aerospace has changed significantly over the last 25 years, transitioning to much broader and stronger engagement.

5.4 Explaining corporate governance contributions Even though Bombardier Aerospace does not contribute to security governance, the company has several policies on political order and socioeconomic issues that have been implemented. The Employers Forum directly addresses socio-economic issues of poverty reduction, social inequality and economic development. Within the fair employment activities of Bombardier Aerospace, anti-discrimination addresses the dimension of political order. However, Bombardier’s performance has shifted dramatically over time, revealing several turning points. In this section, several factors are considered to account for the pattern of engagement. As a first step, the structural (legal and social) environment to which companies doing business in Northern Ireland have had to respond is considered as a possible explanation for the evolution of corporate governance contributions. This is complemented by a comparison with two other companies. In explaining individual engagement it highlights the importance of company-level factors such as size, organizational culture, image/reputation and corporate citizenship culture. 5.4.1 The political and social environment The company’s turn to governance contributions can be attributed to the investigation of Short Brothers, along with other engineering companies in Belfast, by the then Fair Employment Agency (now called the Equality Commission for Northern Ireland) in 1983. The agency’s report revealed that the company did not give equal opportunities to job applicants. The investigation sensitized the company to the issue of fair employment for the first time and was the starting point for further engagement. The company recognized that there was a strong imbalance in the composition of its workforce and in the proportion of job applicants from disadvantaged people with a Catholic community background. In response, the company changed the format and the processes of recruitment. The company’s Equal Opportunities Manager stated: ‘It [the Fair Employment Agency report] made us look at many things about ourselves, about the organization and the way we run the organization’ (Interview #6, Belfast, 11 June 2008). The company changed its behavior as a result of the report and fair employment legislation (updated in 1989 to be much stronger than that implemented in 1976).

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As one interviewee stated, ‘the anti-discrimination legislation has had a major impact, and particularly the fair employment legislation made us – and many, virtually every employer in Northern Ireland – look more critically at themselves and the way they go about recruitment and selection’ (Interview #6, Belfast, 11 June 2008). Thus, the changing legal environment – that is, the implementation by the government of legislation on the fair employment issue – was a strong incentive for Bombardier Aerospace to become active in this field. A second, more general watershed in the corporate environment, however, was the growth of the idea of corporate citizenship. In general, this concept deals with the social role of companies and the relationship between business and society (see among others Crane et al. 2008: 25). Corporate citizenship has emerged as a prominent term in academic and business communities (Altman and Vidaver-Cohen 2000: 1; Matten and Crane 2005: 166). The term became firmly established in 2002 when a task force of business leaders from globally operating companies signed the joint statement ‘Global Corporate Citizenship: The Leadership Challenge for CEOs and Boards’ (World Economic Forum 2002). In this document, business leaders recognized that ‘many people are still facing high levels of inequality, insecurity and uncertainty, as well as new sources of conflict, environmental decline and lack of opportunity’. Faced with these challenges, the signatories believed that they had ‘an important role to play, in partnership with others in the public and private sectors and civil society, to help spread the benefits of development more widely by the manner in which we pursue our primary business activities’ (World Economic Forum 2002: 2). Concerning this general trend, a representative of Business in the Community Northern Ireland stated: ‘I think over the last five years it [the concept of corporate citizenship] has become very prominent and very dominant. And that’s because of the media, that’s because of legislation, and that’s because of, I guess, scrutinizing from the general public as well’ (Interview #11, 28 January 2008). Bombardier and many other transnational corporations share this perception of being a corporate citizen. In the foreword to its Corporate Responsibility Roadmap, the chief executive officer of Bombardier states: ‘At Bombardier, we believe that a strong commitment and a strategic approach to corporate responsibility are essential for managing the challenges and opportunities of a rapidly changing global environment’ (Bombardier 2007: 1). Corporate citizenship has led to a new corporate understanding of doing business. For many companies, business has become more than just making profits. Its emergence was not just

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based on a change in the mindset of civil society and consumers. The public today looks much more critically at the activities of corporations. Because of this, business has to take much more care of its image and reputation than in the past. A study by the British market research institution Ipsos MORI revealed that trust between corporations and consumers is rapidly declining (Lewis 2003: 2). Corporate scandals like the crash of Enron, the Exxon Valdez oil tanker disaster and the recent banking crisis have sensitized the public to corporate behavior. An opinion poll carried out by Ipsos MORI revealed that 80 per cent of the public believe that large companies have a moral responsibility to society, while 60 per cent of the interviewees think that large companies do not actually care about the social or environmental impacts of their operations (Lewis 2003: 3).20 Companies face the challenge of regaining the public’s trust. Commitments to corporate citizenship seem to achieve this. Thus, the more that corporate citizenship has become a concern to stakeholders and the more that trust between business and stakeholders has declined, the more the companies have to engage. In the specific case of Northern Ireland, another significant change is the new post-conflict environment in which companies operate. During the Troubles, the public’s focus was not on company social responsibility. After the violent conflict ceased, people started to look more closely and critically at the role of business in society. A representative of Business in the Community Northern Ireland described this process thus: ‘So there is no doubt, ten years ago, there was a big shift and that would be very much down to political reasons. I reckon that at that stage the smoke of hiding behind the peace process and hiding behind our troubled past, that’s not viable anymore. People don’t take that as an excuse anymore. So people have believed that companies have ownership, they need to stand up, they need to be responsible, they need to be a fair and equality employer’ (Interview #4, Belfast, 12 June 2008). These changes in the social and political environment were another strong incentive for Bombardier Aerospace to engage in voluntary governance contributions. The structural changes to the new legal setting, the emergence of corporate citizenship and the new post-conflict situation were important incentives for businesses in Northern Ireland to take on broader responsibilities than they had previously. The comparison thus suggests that the changes in the structural setting can explain the level of corporate engagement. Taken at face value, this finding supports the assumption that all companies doing business in Northern Ireland were affected by these structural changes equally and that their policies and activities have

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changed in a way similar to those of Bombardier Aerospace. However, a closer look at companies doing business in Northern Ireland reveals that this is not the case and that other factors must be involved to explain each level of engagement. A brief comparison of Bombardier Aerospace with two other companies displaying varying levels of engagement sheds light on these factors. 5.4.1.1

Kuehne + Nagel Northern Ireland21

Kuehne + Nagel Northern Ireland is a logistics company.22 It is headquartered in Switzerland, employs more than 50,000 people and has 850 locations in more than 100 countries.23 Kuehne + Nagel is a whollyowned subsidiary of Kuehne + Nagel International and has operated in Northern Ireland since July 2001. In 2007, the company employed 156 people at its location in Belfast. Its commercial activities include a broad range of business-to-business services, such as sea, air and overland freight, as well as warehouse and distribution logistics. The company engages in CSR activities, such as local community involvement, education and charitable events. Through its strong engagement in fair employment issues, the company provides indirect governance contributions to peace and security in the dimensions of political order and socio-economic issues. Their corporate employee handbook mentions two fair employment issues that are immediately relevant to the conflict: labor regulations on antidiscrimination and equal opportunity in the workplace. Analogous to the case of Bombardier Aerospace, the first issue is qualified as engagement in the field of political order, while equal opportunity in the workplace is regarded as engagement in the socio-economic field. The company is committed to the employment right of a working environment free from harassment and discrimination. According to a company representative, Kuehne + Nagel undertakes every reasonable effort to ensure that no employee is subjected to any kind of harassment in the workplace. Employee behavior contravening the code of conduct outlined in the handbook is not tolerated by the company. Disciplinary procedures vary from an oral warning to the dismissal of the employee. Kuehne + Nagel complies with the national law and implements its own policies not demanded by legislation. For example, the company aims to create a neutral workplace by not allowing its staff to display any kind of tattoo, whether political or not; employees have to wear appropriate clothing to cover their tattoos, as some people in Northern Ireland wear tattoos to incite hatred of the other community. Another example is Kuehne + Nagel’s dress-down policy on Fridays in which employees

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of are not allowed to wear football shirts, irrespective of the club they represent, because certain football clubs are associated with particular communities. Every symbol that can be associated with a community is banned because the company aims to create a workplace that is as neutral as possible: ‘The whole thing, whether it is tattoos, whether it is football shirts, any form of association with some form of club – we actually effectively ban it. We don’t have to ban but we choose to. That is directly linked to the conflict situation or the post-conflict situation’ (Interview #1, Belfast, 13 November 2007). In addition to this, Kuehne + Nagel is committed to equal employment opportunities, as stated in their employee handbook. The company opposes any form of discrimination of employees or job applicants based on sex, religion, color, background, nationality or ethnic origins. The advertisement of jobs and the selection process of applicants have to be in line with strict criteria to ensure that no candidate is rejected for reasons other than lack of professional qualifications or skills. Managers and non-managers share responsibility for both discrimination and equality issues. All employees have to guarantee equality. Beyond corporate activities addressing fair employment, no further governance contributions relevant to peace and security are observed. 5.4.1.2 Epsilon24 Epsilon is a medium-sized company in the automotive supply industry and is a subsidiary of Zeta.25 Headquartered in the European Union, Zeta is a globally active company with locations in the EU, China and India. In 2007, Zeta employed 420 people worldwide. Its subsidiary, Epsilon, has been established in Northern Ireland since the late 1980s. In 2007, 65 employees worked at Epsilon in Northern Ireland. Because of strong competition in its sector, Epsilon closed its production facilities in Northern Ireland in 2008 and moved overseas; only five employees, responsible for operations management and technical support, remain. Epsilon was engaged in CSR activities but not in the formalized way of Bombardier Aerospace. Epsilon invested a lot in the training of its workforce. It was active in educational projects where company representatives visited schools and gave students careers advice, practice interviews, helped make curricula vitae and provided work experience opportunities to students from local schools. According to its managing director, these education and training programs were one of the biggest contributions the company made to the community: ‘So on this basis we put a lot in the community’ (Interview #11, 28 January 2008). According to the analytical concept outlined in Chapter 1, the above

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activities are not regarded as governance contributions because they did not aim to create sustained engagement for the formulation or implementation of rules and norms related to the provision of public goods and thus are merely part of the general CSR agenda. The company did not contribute to security governance. Regarding fair employment, the corporate behavior was in accordance with the law but not beyond it. The company started its business during the time that the fair employment law of 1989 was enacted and built their corporate culture of fair employment upon it. Epsilon created a workforce that represented the composition of Catholics and Protestants in the community in which the company was located. However, fair employment has never been a problem for the company because Epsilon was situated in an area where the two communities were represented equally. As a company representative stated: ‘In principle, obviously it [the corporate fair employment activities] has to be in accordance with the law because that is the law. In the spirit we would try to go that extra mile so that everybody is involved and everybody is informed and everybody is committed’ (Interview #11, 28 January 2008). The interviewee conceded that it was very hard for the company to go beyond the regulations because there was not much room left to engage beyond the law. The company recognizes the importance of its fair employment activities to the conflict-ridden community. As the general manager of Epsilon in Northern Ireland stated: ‘So by providing a neutral environment, the international companies contribute to the socializing and the bringing together of the different communities into a neutral environment’ (Interview #11, 28 January 2008). The empirical investigations of Epsilon reveal that the company was not engaged in any governance activities that directly or indirectly relate to peace and security. Table 5.1 gives an overview of the governance contributions to peace and security by Bombardier Aerospace, Kuehne + Nagel and Epsilon. This brief comparison highlights the differences in engagement by the three companies. While the reference case of Bombardier Aerospace shows a very high level of engagement, Kuehne + Nagel and Epsilon show less.26 No corporate engagement, whether policies or activities, was observed that directly contributed to peace and security. However, through their engagement in fair employment Kuehne + Nagel and Bombardier Aerospace made indirect contributions to political order and socio-economic issues. Both companies have strong policies that were put into practice. Bombardier’s strong commitment to its community responsibility, through the Employers Forum, shows that it is the only company which provides corporate governance contributions to

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Table 5.1 Corporate governance contributions to peace and security in Northern Ireland Security Governance contributions in governance other fields Political order Socio-economic Sociocultural Bombardier Policies Aerospace

Activities

Kuehne + Nagel

Policies

Activities

Epsilon

Fair employFair employment (antiment (equal discrimination) opportunities); community engagement Fair employFair employment (antiment (equal discrimination) opportunities); Employers Forum Fair employFair employment (antiment (equal discrimination) opportunities) Fair employFair employment (antiment (equal discrimination) opportunities)

Policies Activities

peace and security beyond the fair employment issue and thus beyond heavy state regulation as well. Epsilon was not engaged in governance contributions to peace and security at all; neither policies nor activities were found. In addition, none of the investigated companies contributed governance to the socio-cultural dimension. As becomes clear, structural changes in the corporate environment do not affect all companies equally. These differences can be explained by a closer look at specific corporate characteristics. 5.4.2

Company level factors

One important aspect seems to be the size of the company. Table 5.2 gives an overview of the number of employees as an indicator of company size. The Kuehne + Nagel Group and Bombardier are transnational corporations with more than 50,000 and 60,000 employees, respectively. Epsilon’s parent company, Zeta, is a medium-sized enterprise, employing 420 people worldwide. In Northern Ireland, Bombardier Aerospace is by far the biggest employer with more than 5,000 employees. Kuehne + Nagel and Epsilon are much smaller. Conflict-relevant engagement by

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Table 5.2

Number of employees

Employees 2007 (2006)

Epsilon

Kuehne + Nagel

Bombardier Aerospace

Global (parent company) Northern Ireland

420

>50,000

>60,000

65 (102)

156 (97)

5227 (5362)

Source: Equality Commission for Northern Ireland

a company requires human resources for public affairs management and money to invest in programs and their implementation. Each company has a different capacity to engage according to its size. It is much easier for big companies to make resources available compared to small- and medium-sized firms with a small workforce and small turnovers. As a representative of Epsilon stated: ‘Corporate social responsibility is something that is more on the agenda for large plcs [public limited companies], companies listed on the stock market’ (Interview #11, 28 January 2008). Another potential explanation for the variance in engagement by the companies is organizational structure; that is, the existence and degree of institutionalization of specific departments responsible for public relations (PR). The existence of corporate units which serve as interfaces between the company and its social environment enhance the receptiveness of companies to their social environment and public expectations (Rosenstiel and Koch 2003: 204; Röttger 2003). Bombardier Aerospace has a specific PR department at its location in Belfast. Kuehne + Nagel’s PR is managed by its department for human resources in Belfast, while its parent company has a PR department in London, responsible for the activities of the group in north-western Europe. Epsilon and its parent company, Zeta, do not have those departments; the human resources department manages Epsilon’s PR. The degree of institutionalization in the investigated companies varies from low in Epsilon, to medium in Kuehne + Nagel and high in Bombardier Aerospace. Another point directly linked to size is the visibility and reputation sensitivity of a company. All organizations, private companies in particular, have to take care of their image; the way their environment and their stakeholders (Bergler 2008; Buß 2007) perceive them. It is not just mass media that has made corporate image more vulnerable. As the managing director of Epsilon said: ‘Television is a great equalizer. […] You can’t hide anymore. So therefore, everybody is in the public spotlight. And if you make a decision that is, let’s say, unfair, you have to

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defend it’ (Interview #11, 28 January 2008). Big companies usually have a higher profile than small businesses and have to take much more care of their image. Epsilon is a small company and its image is only visible in their local community. Kuehne + Nagel’s image seems to be more vulnerable. Its corporate brand, the Kuehne + Nagel logo, is on freight vehicles, making it more visible to the public. Kuehne + Nagel as a brand is well known in the marketplace in which the company operates. To receive orders the company has to court potential customers by using its image as a responsible company (Interview #1, Belfast, 13 November 2007). Thus, the image of the company directly relates to its economic success. Because of its size and number of employees, Bombardier Aerospace is very visible to the public, especially to residents of Belfast, to its employees and their families and to the thousands of people who rely on the organization. Corporate engagement seems to be an instrument to construct publicity and stabilize the corporate image. A representative of Business in the Community Northern Ireland confirms this: ‘So if you are constantly doing things, if the Bombardier name and logo is constantly on their doorstep, if their kids are coming home in the evening time, thinking “oh Bombardier sponsored our sports day today” or “Bombardier did this, Bombardier did that”, then it’s a mindset, that starts to get into people: “Oh that is a good company, oh actually this could be beneficial to us”’ (Interview #4, Belfast, 12 June 2008). Companies also have to foster their ‘war for talent’ image (Dawkins 2004: 5). They are in constant competition to attract the best personnel because the market for qualified employees is limited. Through corporate engagement, companies can distinguish themselves from their competitors and thus make themselves more attractive to applicants. Engagement by a company plays a role in the decision process of applicants. An Ipsos MORI study found that 92 per cent of interviewed employees think that it is important for them to know that their employers are responsible to society and the environment (Dawkins 2004: 5). As Gartner puts it: ‘Big corporations have to behave differently if they want to build a reputation that enhances their brand, and makes them attractive not just to customers but to the best workers’ (Jeffrey Gartner, Yale School of Management; cited in Lewis 2003: 1). Another factor that could explain the differences in corporate engagement is the specific corporate citizenship culture of the companies; that is, the degree of internalization of the concept in the corporate behavior and routines. In this sense, the corporate citizenship culture of the parent company that is passed down to their subsidiaries could have explanatory

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value as well. In contrast to Bombardier, the parent companies of Epsilon and Kuehne + Nagel do not have well-developed corporate citizenship cultures. Bombardier is the only one of the three companies to have a corporate responsibility section on its website, with commitments to corporate citizenship. Directly linked to this are the varying levels of involvement in networks and collective initiatives by the companies. Bombardier is the only one that is a member of the United Nations Global Compact while Bombardier Aerospace is the only company that is a member of Business in the Community Northern Ireland. These networks offer knowledge and research, and expertise and resources that could not be generated by a single company. Through their membership, companies have access to important knowledge required for successful implementation of corporate citizenship, a potential explanation for corporate engagement in peace and security.

5.5 Walking the extra mile The empirical findings reveal that none of the investigated companies makes direct contributions to peace and security. However, companies doing business in Northern Ireland obviously can and do make meaningful indirect governance contributions to peace and security in the dimensions of political order and socio-economic issues. General incentives for corporate engagement emerge from structural alterations to their environment. In the case of Bombardier Aerospace, the changes in the legal environment, the emergence of the concept of corporate citizenship and the new post-conflict environment were identified as basic triggers for further engagement. However, these changes do not affect all companies equally. The structural changes in the environment are not enough to explain the variances. They work as general incentives but do not determine the individual level of engagement. Therefore, factors at the company level have to be taken into account as well. Characteristics such as size, organizational structure, image/ reputation and the corporate citizenship culture all play an important role in explaining corporate activities and governance contributions to peace and security. Based on the empirical data presented in this chapter, for the case of Northern Ireland the answer to Virginia Haufler’s question whether there is ‘a role for business in conflict management’ (Haufler 2001a) is ‘yes, there is, but’. Corporations can and do make indirect contributions, even though the impact on peace and security might be quite limited. Corporations cannot solve conflicts alone; the main

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responsibility for conflict resolution and peace building remains with governments. However, there are spaces for corporations to step in. In the case studies from Northern Ireland, the corporate governance contributions mainly occur in the socio-economic dimension. This supports the general impression of engagement by other corporations in zones of conflict (Feil et al. 2008: 30). It seems that companies mainly engage in issue areas that relate to their core expertise, resources and interests, such as human resources management, training, education and socio-economic development (Wolf 2008: 236). Further engagement beyond core business-related activities, such as contributions to peace negotiations, development of civil society or reconciliation, is exceptional. However, conflicts are normally driven by many causes, not just economic ones. This is certainly the case for the conflict in Northern Ireland: ‘Economic factors have impinged upon the conflict but they do not determine it’ (Ben-Porat 2006: 204; McGarry and O’Leary 1995: 306). There is lots of room left for corporations to engage beyond the socio-economic dimension, for example in community cohesion or reconciliation projects. On the other hand, especially in contrast to the African case studies presented in this volume, Northern Ireland is a case where strong state regulation by the government has been quite successful in providing security and other public goods. In particular, fair employment is very strongly regulated by the state. There seems to be not much room left for corporations to engage. However, some do ‘walk the extra mile’ by implementing corporate programs that are not required by law. Additionally, this study reveals that even when companies make indirect contributions to peace and security, they perceive these activities as CSR. Companies would not describe their engagement as a contribution to peace and security or as conflict relevant. Even when their engagement has had an impact on the peace process, the link is not emphasized. A representative of Business in the Community Northern Ireland stated: ‘I wouldn’t say that companies would voice it as a direct link. But there is no doubt that we are dealing with the past. […] Corporate responsibility has a role to play in helping the Troubles in Northern Ireland. But companies don’t see that as helping it. I think that they see that CSR is good for business and that’s the way they see it’ (Interview #4, Belfast, 12 June 2008). Most of the business people interviewed for this study of Northern Ireland believe that corporations primarily contribute to peace and security through the provision of jobs and economic opportunities. Direct involvement in the peace process is not regarded as the private sector’s responsibility (Interview #4, Belfast, 12 June 2008). The oft-claimed

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blurring boundary between public and private responsibilities does not apply to the field of security and private corporations. There is speculation that it is just a matter of time until corporate security responsibility is on the agenda of the business community in the same way as corporate social responsibility, but there are no reliable signs that this is on its way.

Notes 1. Even though both parties to the conflict are often described as just Protestants or Catholics, the conflict is not primarily about religious issues. Rather, the religious binary coding of the parties is rooted in the history of England and Ireland (Kandel 2005: 22–32). 2. The historical causes of the conflict reach far back to the early Middle Ages and the beginning of English colonial times in Ireland. For a more detailed history of the conflict than the one given here, see Bardon (2002), Kandel (2005: 17–97) and Otto (2005). 3. Northern Ireland Census of 2001; http://www.nisranew.nisra.gov.uk/census/ start.html (date accessed: 21 July 2008). 4. Although inequality in the composition of the workforce declined steadily over the last 15 years, it still persists. 5. http://www.psni.police.uk/index/statistics_branch/pg_security_stats.htm (date accessed: 15 February 2008). 6. The Protestant community prefers ‘Belfast Agreement’ while the Catholic Community prefers ‘Good Friday Agreement’. The latter is used here because the term is used more often outside Northern Ireland (see Hancock 2008: 203). 7. For the ongoing activities of the paramilitary organizations, see the reports of the Independent Monitoring Commission, available on their website http://www.independentmonitoringcommission.org. 8. All data about the number of company employees presented in this chapter are based on the Monitoring Report No. 17 and 18 published by the Equality Commission for Northern Ireland; http://www.equalityni.org/sections/ default.asp?cms=Publications_Fair%20 employment%20and%20treatment_ monitoring%20reports&cmsid=7_35_256&id=256&secid=8 (date accessed: 17 December 2008). 9. http://www.belfasttelegraph.co.uk/business/top-100-companies (date accessed: 15 October 2008). 10. In the following, the proper name ‘Bombardier Aerospace’ is used exclusively for the factory location of Bombardier Aerospace in Belfast, the successor of Shorts Brothers; ‘Bombardier’ refers to its parent company in Canada. 11. http://www.belfasttelegraph.co.uk/business/top-100-companies (date accessed: 15 October 2008). 12. http://www.bitc.org.uk/what_we_do/where_we_work/northern_ireland/ getting_involved/ in_the_environment (date accessed: 26 July 2008). 13. http://www.opportunitynow.org.uk (date accessed: 14 October 2008). 14. http://bombardier.com/en/corporate/corporate-responsibility/community/ donations-and-sponsorships?docID=0901260d80009010 (date accessed: 15 October 2008).

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15. http://www.unglobalcompact.org/Issues/Labour/index.html (date accessed: 14 October 2008). 16. The complete text of the law is available at http://www.opsi.gov.uk/si/ si1998/19983162.htm (date accessed: 10 January 2009). 17. http://www.ark.ac.uk/nilt/2007/index.html (date accessed: 15 October 2008). 18. http://www.bitc.org.uk; for the Northern Ireland bureau see http://www. bitc.org.uk/what_we_do/where_we_work/northern_ireland/index.html (date accessed: 26 July 2008). 19. Business in the Community decided to close the PerCent Club at the end of 2008. 20. The opinion poll carried out by Ipsos MORI surveyed 1875 people older than 15 years across Britain in July 2002 (Lewis 2003: 3). 21. For further details on the case of Kuehne + Nagel, see Feil et al. (2008: 14–9). 22. In the following, Kuehne + Nagel Northern Ireland is called Kuehne + Nagel. 23. The data are based on information available on the corporate website, http:// www.kn-portal.com/about (date accessed: 19 September 2008). 24. The company representative interviewed asked for anonymity – therefore ‘Epsilon’ is a pseudonym for the company name. To ensure anonymity, only some of the company data are presented. 25. Zeta is a pseudonym for the parent company of Epsilon. 26. The comparison of the three companies is not the story of ‘the good, the bad and the ugly’. The activities of the companies are not reviewed on a normative basis. There is absolutely no normative or moral evaluation of the corporate activities that are described and compared in this chapter.

6 Travelling for Peace: The Role of Tourism in the Israeli–Palestinian Conflict Susanne Fischer

6.1 Introduction Travelling for leisure in a zone of violent conflict seems counterintuitive. However, many tourist destinations, such as Egypt, Thailand, Burma, South Africa and Croatia, have confronted or currently face violent conflict or political insecurity and instability. As the outbreak of violence usually leads to an immediate decrease in tourists (Aschauer 2008: 82; Dreyer et al. 2004: 217), it is assumed that the tourist industry has a natural interest in peace and security at travel destinations. As Haufler puts it, ‘surprisingly little attention has been paid to the travel and tourism sector. This is a truly global industry with an obvious interest in peace’ (Haufler 2001a: 669). Up until now, research has rarely focused on the role that tourism plays in peace and security in zones of violent conflict.1 Existing tourism studies usually concentrate on its role in sustainable development (Beyer et al. 2007; Hein 2006; Keyser 2002: Ch. 12) or the challenges arising from terrorism (Aschauer 2008). This analysis of tourism in the Holy Land specifically investigates the role that different types of tourism, for example leisure and cultural tourism, plays in peace and security. The geographic location of many tourist sites means that the sector has deep involvement in the Israeli–Palestinian conflict and solution, which makes tourism in this region a particularly valuable case for studying the role of business in peace and security. To answer the question of how and under which conditions tour operators might contribute to peace and security in Israel and the Palestinian territories, the chapter is structured as follows. A brief outline of the Israeli–Palestinian conflict serves as a background to assess corporate engagement and its role in peace and security in section 6.2. 130

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Section 6.3 introduces the tourism sector, its regulatory initiatives and the companies whose governance contributions to peace and security in Israel and the Palestinian territories are studied: TUI, REWE Touristik and Studiosus.2 As section 6.4 illustrates, all of these companies have steadily increased their engagement since the beginning of the 1990s, though their policies and activities differ considerably. The companies are compared in section 6.5; two findings stand out. The general similarities in the increased engagement by the companies since the 1990s can be explained by the globalization of tourism and their product – the journey – and its ‘image’, while the market ranking, segment and corporate structure are relevant to the specific form of corporate engagement. This sheds light on the comparatively high performer, Studiosus, a small, family-owned company that focuses on a specific market segment. Despite the increased engagement of all three companies, the high expectations of the tourism sector contributing to peace and security are not met, at least in the Israeli–Palestinian context. Reasons for this might be the specific incentive structure of the sector: tourism is very sensitive to security crises; since the companies do not own facilities at the destinations and have a diversified spectrum of products, they can easily withdraw from the scene, substituting ‘critical’ regions for less critical ones. This in turn makes private security engagement, such as establishing crisis management departments, a straightforward option. The results point to a need for further research on the role of business in zones of violent conflict, particularly in relation to tourism.

6.2 The conflict zone: Israel and the Palestinian territories The conflict between the Israelis and the Palestinians is embedded in the wider conflict between Israel and its Arab neighbours that has resulted in several wars. In 1948, Israel declared its independence and the Palestinians suffered the ‘Nakba’: expulsion from their territories. The first (1987–93) and second Intifada (2000–05) were two periods of extreme violence between Israelis and Palestinians. According to B’tselem, the conflict claimed about 6600 fatalities on both sides between 2000 and 2008.3 6.2.1 Fighting for territory and security The Israeli–Palestinian conflict is essentially about territory.4 In 1993, unofficial negotiations between Israel and the Palestinians enabled the signing of the Declaration of Principles on Interim Self-Government

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Arrangements (DoP), also called the Oslo I accord.5 Central to these negotiations was that Yassir Arafat, then chair of the Palestinian Liberation Organization (PLO), recognized the State of Israel and that Yitzhak Rabin, the Israeli prime minister, recognized the PLO as the representative of the Palestinian people. Though the negotiating parties agreed on the concept of ‘gradualism’ (which allowed them to postpone important issues such as the status of Jerusalem, settlements and refugees, borders and security), neither fulfilled their respective obligations that came out of the initial round of talks. The assassination of Yitzhak Rabin was a turning point: neither prime minister that followed was able to implement the agreements. This ultimately led to the collapse of the peace process and the beginning of the second Intifada in autumn 2000. The policy of Ariel Sharon, Israeli prime minister during this period, was to politically isolate the Palestinian president, Yassir Arafat. He initiated the barrier in the West Bank,6 pursued the policy of ‘targeted killings’ and enforced the Israeli withdrawal from the Gaza Strip in autumn 2005. During the time of his successor, Ehud Olmert, Hamas won the Palestinian elections in spring 2006. The Israeli government did not accept the new, Hamas-led Palestinian government. The political and economic boycott – also carried out by the US and the EU – increased tensions between the rival Palestinian movements, Hamas and Fatah. This led to open violence between them and resulted in the violent takeover of the Gaza Strip by Hamas in June 2007. Since then, the Israeli government has supported the new, Fatah-dominated Palestinian government. The conference of Annapolis in November 2007 marked the starting point for another round of negotiations between Israel and the Palestinians on peace and the creation of a Palestinian state. However, the war between Hamas and Israel in January 2009 caused a further rift in the dialogue. This illustrates that although the parties to the conflict agreed upon conflict settlement more than 15 years ago, the issues determining the conflict remain. While the Palestinian side struggles for territorial autonomy, the Israelis point to their security needs. Both parties not fulfilling their commitment to the previous agreements deepened this antagonism. The Palestinian authority was not able to enforce its monopoly on the use of force and stop violent (suicide) attacks, and the Israelis continued raising settlements and establishing roadblocks and checkpoints. Moreover, players not involved in the peace talks pressured the negotiating parties not to give up their bargaining positions and often succeeded in disrupting peace talks.7

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6.2.2 Attempts to establish political order While Israelis and Palestinians agreed on a two-state solution in 1993, the development of effective political institutions and the implementation of the rule of law nearly ground to halt in the Palestinian territories owing to political stalemate. This means that, for example, a functioning civil and criminal justice system, including a judicial infrastructure such as court buildings or laboratories, professional training for respective staff, as well as units for enforcing the court decisions, were never fully established. During the second Intifada, parts of the administrative infrastructure in the Palestinian territories, for example the Orient House in East Jerusalem and the Mukata in Ramallah, were destroyed. Problems intensified with the political boycott of the Hamas-led government by members of the international community in 2006. The boycott ended many development cooperation projects. Besides this, fighting between the movements destroyed parts of the existing structure and public administration processes of the Palestinian National Authority (PNA), with members of the administration not handing information and material on to their successors. During the Donor Conference in Paris, France in December 2007, the PNA presented the Palestinian Reform and Development Plan (PRDP), which covers a three-year period (2008–10) and tackles the issues of institutional reform, the management of internal administrative affairs and the rule of law in the Palestinian territories (Palestinian National Authority 2007). 6.2.3 Struggling with socio-economic decline As the conflict is about territory, daily business that relies on functioning infrastructure, trading goods and service industries such as tourism, faces many problems. Goods and people, for example tour guides, cannot easily pass checkpoints in the region. Most Palestinians lost their jobs in Israel during the second Intifada and only investment and businesses that were prepared to operate under conditions of high risk could continue their engagement in the Palestinian territories. Consequently, the Palestinian economy suffered a substantial breakdown: gross domestic product (GDP) per capita decreased from USD1612 in 1999 to USD1129 in 2006 (World Bank 2007: 2). Today, 28.4 per cent of the population in the West Bank are unemployed and the humanitarian situation in the Palestinian territories has seriously deteriorated; 58 per cent of Palestinians currently live below the poverty line (UNDP 2007: 1–2). Since the population in the Palestinian

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territories is predominantly young, the high unemployment rate and the humanitarian situation are even more pressing (Palestinian Central Bureau of Statistics 2008: 12; Passia 2008: 336). To avoid poverty, many of the Palestinians who lost their jobs in Israel and did not manage to find a new one in the Palestinian market got jobs in the Palestinian public sector. This led to immense public sector spending, increased patronage and corruption. The Palestinian economy heavily relies on agriculture, which makes access to and distribution of water another crucial aspect of peace and security in the region. As there are important water resources in the Palestinian territories, this issue was also dealt with during the peace talks (Wolf 1996: 14). The stalemate in the peace process led to a faltering of the talks on proportioning of water resources.8 Currently, the conflict is taking a problematic direction. Israel’s strategic and quite powerful position allows it to consume large amounts of the regional water resources seasonally. The country also has the financial resources to import water and establish specific water preparation facilities. The PNA does not receive an equal share of the regional water resources, nor does it have the financial resources to buy water from the international market or build up water preparation facilities. Against this background, it is important to search for new concepts of water management and consumption to cope with the severe water scarcity and resulting socio-economic pressure.9 6.2.4

Socio-cultural consequences for both societies

The negative impact of the conflict on both societies has increased during recent years. There are several reasons for this. The optimism shared by a large portion of Israelis and Palestinians at the beginning of the 1990s diminished with the failing peace processes. The resurgence of violence further traumatized both societies. Israelis and Palestinians are no longer in touch with each other in everyday life as almost all the Palestinians who were working in Israel in the past lost their jobs during the second Intifada. Today, Israelis and Palestinians only come into contact at checkpoints and during incursions and terrorist attacks. This has enormous influence on how they perceive each other. It further intensifies the mutually exclusive character of their collective narratives on the conflict and so affects their inclination to turn to each other and support a peaceful solution to the conflict (Salomon 2004). This development has even worse consequences for the young Israelis and Palestinians who do not share the experience of the older generation. They never worked together and never experienced a period where the political solution to the conflict seemed possible – many of them completely lack the

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experience of peaceful everyday life. Agitating media further deepen the negative image Israelis and Palestinian hold of each other. The educational systems have also become involved, as the content of Israeli and Palestinian school books shows (Oren et al. 2004). The failure to find a political solution to the Israeli–Palestinian conflict has resulted in a new round of violence. It bears immense consequences for society in general, and the establishment of political order and socio-economic prosperity in the Palestinian territories in particular. This, in turn, hampers the start of a new round of peace negotiations and peaceful settlement of the conflict. Against this background, the following section investigates whether and how tour operators engaged in these fields contribute to peace and security.

6.3 The tourism industry and select tour operators Tourism is a consolidated element of social life in affluent societies and a firm part of almost any national economy (Freyer 2006: 7–17).10 According to the United Nations World Tourism Organization’s (UNWTO) definition, ‘tourism comprises the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes’ (UNWTO 1994: 6). According to this definition, tour operators can be assumed to have a vital interest in peace and security at their destination.11 To explore the role of this industry requires a distinction between tour operators and travel agents. While tour operators plan and sell their own tours to customers and therefore have to make investments in advance (such as hotel reservations or bus reservations), travel agents only offer holidays organized by tour operators (Freyer 2006: 203). In November 2003, UNWTO was granted the status of a specialized organization. Being committed to the UN Millennium Development Goals (MDG), the organization fosters ‘responsible, sustainable and universally accessible tourism, paying particular attention to the interests of developing countries’.12 Against this background, the organization developed a Global Code of Ethics for Tourism. UNWTO is a multistakeholder platform; the Tour Operators’ Initiative for Sustainable Tourism Development (TOI) is a sector initiative.13 The TOI members, all tour operators, have to sign a Statement of Commitment to Sustainable Development that deals with supply chain management, destination management and reporting procedures.14 The following statement gives a good impression of the initiative: ‘We are committed to developing,

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operating and marketing tourism in a sustainable manner; that is, all forms of tourism which make a positive contribution to the natural and cultural environment, which generate benefits for the host communities, and which do not put at risk the future livelihood of local people’ (Article 1.3, Statement of Commitment, TOI). Tour operators increasingly refer to standardization mechanisms to ensure the quality of their operations.15 These developments are a growing trend in the tourism sector and demonstrate that the sector is ready to engage in norm setting and norm implementation in the broader context of global governance. In 2007, the UNWTO World Tourism Barometer announced that tourism is one of the growing sectors (6 per cent in 2007) in the world economy (UNWTO 2007: 1). The German tourism sector, including TUI16 and REWE as two of the biggest and Studiosus as one of the smaller companies, has reached a turnover of €20.3 billion. Figures on European outbound tourism reveal that Germany has been the leading country in recent years (DRV 2007: 4, 14). Several tour operators founded TUI in 1968. Its headquarters are in Hanover.17 For several years, TUI had two operational segments – shipping and tourism – but reduced this to tourism only in September 2008.18 TUI is described as an ‘integrated tourism group’. This means that the company’s business comprises the entire tourism-relevant value chain; that is, tour operators, travel agents, carriers and hotel management.19 In 2007, the company’s turnover reached €21.9 billion. Of that, €15.6 billion was generated by tourism services. Approximately 60,000 employees work in the company’s tourism segment (TUI AG 2008: 2). TUI offers package tours and customized package tours. During 2008–09, consumers could only book tours to Israel with stays at hotels in Jerusalem, Tel Aviv, En Bokek and Eilat. It is important to know that while policies and activities concerning environmental protection and sustainable development exist at the group level, the individual holdings of TUI and the respective sub-segments also developed policies and activities.20 Therefore, using TUI as an example allows the investigation of policies and activities at the group level and of TUI Germany GmbH.21 TUI Germany GmbH was founded in 1999 and is the German tourism market leader (DRV 2007: 14).22 The REWE Group was founded in 1927 and has its headquarters in Cologne. Originally, food was the core business of the REWE Group. Only at the end of the 1980s did the REWE Group start its tourism business. Today, it is one of the leading groups in the tourism sector in Europe, ranked third in the German tourism market.23 In 2007, about 10 per cent

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of the company’s annual turnover (€4.3 billion of €45 billion) came from tourism; REWE’s six tour operators alone realized €2.7 billion. This makes tourism – besides food – the most important pillar for the company (REWE Group 2008: 5, 8). REWE Touristik is also an ‘integrated tourism company’, though to a lesser degree than TUI and Thomas Cook (Bastian and Born 2004: V). Each tour operator under the roof of REWE Touristik concentrates on specific customers and specific types of holidays, such that REWE Touristik, like TUI, is able to offer package tours and customized package tours. However, holidays in Israel can only be booked as customized package tours, not package tours, via DERTOUR or ADAC Reisen. During the 1990s, ITS Reisen (another REWE tour operator) mainly practised environmental responsibility; however, in 2001 a sustainability unit was established (REWE Touristik GmbH 2005: 30). Studiosus was founded in 1954 as a family-owned enterprise with headquarters in Munich. The Studiosus Group employs 880 people, 650 of whom are tour guides. From 2006 to 2007, turnover increased by 8 per cent to €220 million (Studiosus 2007b: 81). On this basis, about 800 different tours in 100 countries are planned and organized each term for more than 6000 vacations (Studiosus 2008: 2). In its vision, Studiosus states that it wants to contribute to a better understanding of different countries, people and cultures (Studiosus 2007a: paragraph 1), and it has developed a special range of products, including the ‘Modern Study Tour’. According to Studiosus (2007b: 32), social and environmental responsibility plays an important role within this concept of travel. From the beginning of the 1990s, the company became more and more active in the evaluation, reporting and management of these issues. For its tours to Israel, the company uses hotels in Tel Aviv, Tiberias, En Gev, En Bokek and Jerusalem and relies on tour guides who usually live in Israel. In 2008, Studiosus organized three different guided tours in Israel, but as a result of travel warnings issued by the German federal foreign office, there were none in the West Bank (or Gaza), which meant that visits to Bethlehem or Jericho were cancelled. Although Israel and the Palestinian territories cannot be described as ‘booming destinations’, they allow insight into how and under which conditions corporations contribute to peace and security in zones of violent conflict, particularly when corporate policies are analysed to identify sector-specific trends of corporate engagement in conflict zones. Considering the huge crisis the sector faced after 9/11 and the attacks in Tunisia (Djerba) and Indonesia (Bali) in 2002, the trend – at first glance – seems surprising. The tourism sector became very active in response to these events. Many tour operators implemented crisis

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management systems or improved existing ones, among them TUI, REWE Touristik and Studiosus. However, those in the industry who are most seriously affected by security crises or political instability are the members of the tourism sector on the ground at the destination. Considering this, the performance of the tourism sector in Israel is quite startling, and although it suffered a serious setback during and after the Lebanon war in 2006, a positive trend can be identified: in 2007, 2.2 million tourists visited Israel and estimates predict five million visitors in 2012 (bfai 2007: 9). The Palestinian tourism sector reveals less encouraging results. Although many attractive tourist sites are located in the Palestinian territories, the Palestinian tourism sector will probably not benefit from the trend in the Israeli tourism sector. Due to the serious security conditions, restrictions on movement and travel warnings from foreign ministries, most tour operators have cancelled their tours to historical sites in the Palestinian territories, such as Bethlehem or Jericho. Most tour operators mainly cooperate with partners from the Israeli side (Interview #1, Bethlehem, 1 December 2007). Both factors lead to highly imbalanced prospects for the local tourism facilities to earn money, further widening the economic gap between the parties to the conflict, to the disadvantage of the Palestinian people. Nevertheless, the potential of tourism was discussed during the Palestine Investment Conference (‘Investing in Palestine’s Treasures’) in Bethlehem in spring 2007 (Palestine Investment Conference 2008).

6.4 Governance contributions by the tourism industry to peace and security Following the general focus of this volume, of the three companies’ policies and activities that can be regarded as governance contributions, only those related to peace and security in Israel and the Palestinian territories are investigated in the following section. The empirical studies are based on documents, questionnaires and interviews with company representatives and business partners in the conflict zone. 6.4.1 6.4.1.1

Security governance TUI

Against the background of the terror attacks in Egypt (Luxor) in 1997, TUI decided to establish systematic crisis management to ensure the security of its customers and to react as fast and effectively as possible

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in cases of emergency. Crisis management has three pillars: prevention, management and review (Ihlau 2004: 389).24 Each pillar includes specific measures. A crisis handbook outlining urgent measures, procedural rules and contact people was prepared. In addition, relevant staff receive updates and regular training to ensure effective implementation. Because of the Tsunami crisis in 2004, the company also established emergency care teams and special assistance teams to support crisis management.25 TUI runs a specially equipped crisis operations office at its headquarters in Germany. Currently, TUI’s crisis management system is the only one successfully certified twice by an external consultancy.26 TUI is a member of the security committee organized by the German Travel Association (DRV)27 and cancels tours as soon as the Foreign Office announces travel warnings (Interview #2, Hanover, 16 October 2008). Since TUI provides security exclusively for its customers, the company provides security as a private good. Apart from this, the company is not engaged in direct security governance through policies or activities. 6.4.1.2

REWE Touristik

As a reaction to the terrorist attacks in New York in 2001, REWE Touristik established crisis management departments in Cologne and Frankfurt in the same year. The department scrutinizes information about political stability, health and environmental security at tourism destinations. In case of a crisis, the crisis management team gets in direct contact with the tour guides and agencies at the destination, as well as contact people in the police, embassies and other public institutions. Several other departments of REWE Touristik, such as sales, flight and product departments, are involved in internal crisis management. The company is a member of the security committee organized by the DRV and cancels tours as soon as the Foreign Office issues travel warnings. As the company’s crisis management concentrates on the security of its customers, the company contributes to security as a private good (Questionnaire #1, Cologne, 24 September 2008). 6.4.1.3

Studiosus

Like the other two companies, in reaction to the terrorist attacks in Luxor (1997) and New York (2001) Studiosus designed initial measures to deal with such incidents more effectively. To maintain a consistent security management system, a department for security and safety affairs was established in 2004. Based on a policy of prevention, this department systematically monitors the relevant regions. Studiosus developed

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an analytical scheme that classifies world regions according to their level of security crisis, to assure systematic monitoring. In regions with high crime rates, the company cooperates with the local tourism agencies or local tourism authorities which organize official security guards from the police. Studiosus is also a member of the DRV’s security committee and becomes active as soon as travel warnings are issued by the Foreign Office. In the event of alerts, measures to assure the security of customers range from changing the routes to cancelling entire tours. Again, security is provided exclusively for customers during their sightseeing trips or in hotels, not for the public (Interview #4, Munich, 19 October 2007).

6.4.2 Governance contributions to other policy fields relevant to peace and security Despite the original assumption that tourism is a ‘global industry with an obvious interest in peace’, only governance contributions to security as a private good were identified. In the following section, the search is expanded to find potential governance contributions that are at least indirectly relevant to peace and security. 6.4.2.1

TUI

In the case of TUI, further governance contributions refer primarily to three policies: (1) the company’s commitment to the guidelines of econsense, a sustainable development forum of the German business community; (2) the company’s membership in the TOI; and (3) the company’s support for the declaration of the Business and Biodiversity Initiative (Questionnaire #2, Hanover, 7 November 2008).28 The statement by the former director of TUI Corporate Environmental Management and Sustainable Development, Michael Iwand, indicates that TUI’s policies and activities cover a broad spectrum: ‘The actively promoted networking with our target groups – shareholders and stakeholders – supports our sustainable development discussions and our searching and learning process […] – despite enormous implementation challenges – in areas ranging from climate policy, human rights, fighting hunger and poverty, the other seven Millennium Development Goals, anti-corruption measures, and all other measures right up to and including “environmental justice”’ (TUI AG 2006: 6). According to its policies, TUI’s activities concern issues of economic development and – to a lesser degree – environmental protection, including water management, an issue closely linked to peace and security in the Israel–Palestinian region. In accordance with the TOI

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commitment, TUI motivates its partners, especially hotels, to buy local products or to engage in social activities in their local environment.29 Activities for environmental protection are also quite elaborate: TUI has a certified environmental management system at its headquarters and in many of the TUI hotels (Questionnaire #2, Hanover, 7 November 2008). To improve environmental management by the hotels, TUI established a website with information about, for example, how to save water, a best practice database on management and communication processes, and incentives for hotels such as awards.30 Engagement with local partners is annually surveyed based on a checklist of environmental sustainability criteria as demanded by TUI. The company is also actively engaged in stakeholder dialogue.31 To ensure that destination partners implement the policies, the company seems to apply three different instruments: (1) contractual obligations (annual reporting by hotels); (2) dialogue and motivation by incentives (TUI Environmental Champion); and (3) consulting (pilot project TUI Sustainable EcoHospitality) (Questionnaire #2, Hanover, 7 November 2008). TUI’s engagement in sustainable water management and local economic development can be qualified as governance contributions that are relevant to peace and security. With regard to environmental protection, the company has formulated several policies and tried to ensure compliance along the supply chain through various instruments.32 This reflects a strong link between policies and activities. Finally, to avoid biased perception, it has to be mentioned that TUI has a large number of activities in several other countries. Some of them are of general relevance to the host societies, such as corporate engagement in health and medical care in Sudan or the ‘Year of the Dolphin 2008’.33 Some other activities might also qualify as governance contributions to peace and security, such as the corporation’s credits for reconstruction work in Indonesia after the 2004 tsunami, but they are not presented here owing to the focus on the Israeli–Palestinian conflict. 6.4.2.2 REWE Touristik Besides the general business principles of the REWE Group, of which REWE Touristik is a part, for the tourism segment two commitments are of relevance to governance contributions to peace and security. In 2000, REWE Touristik committed to the principles of the TOI and in 2001 it issued sustainability guidelines.34 According to the latter, ‘the basis for tourism is an intact environment and cultural diversity. It is essential that we preserve and nurture these for their own sake and in order to secure the long-term economic success for our company […] [W]e are very much aware of our

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particular social, cultural, ecological and economic responsibility to man, the environment and the future’ (REWE Touristik GmbH 2001). In addition, the TOI principles proclaim that the host societies should benefit from incoming tourism in general and that incoming tourism commits to contribute to the economic well-being of the local population and minimize negative impacts on local culture and environment. In line with these policies, the company’s environment team authored a handbook on environmental sustainability – including water management – for the hotels they use. The handbook advises the hotels to buy local products to foster local economic development (REWE Touristik GmbH 2009: 23). In addition, REWE Touristik offers expertise and support to hotels that want to improve their environmental performance. Internal communication via mail, intranet and corporate newspaper ensures that staff and local partners such as hotels receive information about these policies and activities.35 In 2003, the company began to inspect its partner hotels for their environmental performance. REWE Touristik abstains from binding guidelines and relies mainly on incentives (information and support) to ensure adherence along the supply chain. Sanctions are not usually applied so as to avoid the exclusion of partners at the destination (Interview #5, Cologne, 27 August 2008). REWE Touristik contributes to peace and security through its engagement in environmental sustainability, which includes water management and local economic growth. Policies relevant to this are the REWE Touristik sustainability guidelines and the TOI commitment. To ensure adherence by local partners, the company mainly refers to incentives. REWE Touristik also demonstrates governance contributions in other countries. Such general governance contributions include health (the fight against HIV) and education issues (support of a school in Sri Lanka), as well as environmental engagement (waste management in Side, Turkey) and the preservation of cultural heritage (Mexico and India). 6.4.2.3

Studiosus

In 1992, Studiosus committed to socially and environmentally sustainable tourism (Studiosus 2008: 4). Studiosus is a member of the TOI, adopted an anti-corruption policy in July 2006 and has participated in the Global Compact since September 2007.36 In line with these commitments, the company’s mission statement reflects its awareness of the positive and negative consequences that tourism can have in the host states: ‘Regarding social responsibility and environmental compatibility,

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all forms of tourism can cause problems. Tourists consume energy for transport and influence the structure of local societies. Furthermore, tourism requires specific infrastructure to be built and maintained. However, the degree and extent of such burdens depends heavily on how tours are organized. We aim to offer tours that are socially and environmentally responsible, and we believe that Modern Study Tours provide the best prerequisites to achieve this aim’ (Studiosus 2007a: paragraph 6.5, translation SF). Studiosus states on its website that the company ‘does not take an active part in measures that can be defined as corruption’ and that passive corruption will be penalized.37 This becomes important for operations in the Palestinian territories, where corruption is widespread and hampers economic prosperity. To implement these policies Studiosus ensures that tour guides receive intensive training and education. According to the company’s mission statement, guides play an important role in monitoring adherence to these policies along the supply chain. Tour guides are instructed to report, for example, corruption or bad environmental management (Interview #6, Munich, 11 December 2007) to the relevant contact person at headquarters. Studiosus strongly expresses its commitment to sustainable tourism (as per the TOI principles) in its mission statement (Studiosus 2007a: paragraph 2.3).38 Local communities have to benefit in a fair way from the company’s operations in the region. This becomes a very important factor for tourism in the Holy Land, since tour operators usually only cooperate with Israeli partners. To counter this, the Studiosus foundation, which was established in 2005, supports projects related to tourism. One project partner is the Diyar Consortium, a group of three institutions working to empower the local community in Bethlehem. In this context, the concept of ‘authentic tourism’ was developed and was awarded the ‘ToDo!’ prize for socially responsible tourism in 1996.39 Studiosus supported the foundation of a library in Dar al-Kalima College, which provides tourism training for Palestinian students, and also successfully introduced an internationally certified environmental management system and committed to foster compliance with environmental standards beyond its headquarters.40 To ensure the dissemination of these policies, Studiosus carries out seminars at select tourism destinations, which helps to increase environmental awareness and demonstrate new ways of managing the environmental challenges that arise from tourism. These seminars usually take place in hotels that have already implemented environmental management tools.41 Before booking a hotel, Studiosus makes sure that their guidelines are implemented.

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The company’s policies and activities show that Studiosus contributes to peace and security. The engagement covers anti-corruption, economic development and sustainable water management, as an integral element of the corporation’s environmental management. There are strong connections between company policies and observable activities. Studiosus ensures the implementation of its policies through regular seminars and advisory workshops, as well as monitoring by their tour guides. The company’s engagement beyond Israel and the Palestinian territories focuses on projects of general relevance to the destination, such as medical support for women and children in India and education in Vietnam. Other projects, such as education in Sri Lanka, can be regarded as contributions to peace and security. Table 6.1 provides an overview of the three companies’ engagement in Israel and the Palestinian territories. The comparison shows that all three companies have crisis management in place, providing security exclusively for their customers.42 All three also have policies and activities in the socio-economic dimension.43 Terrorist attacks led to a sharp decrease in tourism at the respective companies’ destinations. This raised their awareness of customer reactions to these crises. Expectations that tour operators might become active and directly contribute to peace and security in zones of violent conflict were not realized. Security concerns resulted in policies and activities that deal exclusively with the fears of customers. All three tour operators established policies and activities – referred to by them as corporate social responsibility or sustainable development – that qualify as indirect governance contributions to peace and security. Observing their performance over time shows that environmental issues have been addressed by all companies since the 1990s. Engagement in fields such as poverty reduction or corruption has been of growing relevance in the last decade.

6.5 Explaining governance contributions to peace and security The following section seeks to explain the similarities and differences in corporate policies and activities concerning governance contributions to peace and security in the Israeli–Palestinian conflict. It starts out from the assumption that strong corporate engagement should be observed because of the specific ‘product’ and ‘image’ of tourism. The product is characterized by its production and consumption at the destination and an image of leisure and fun, contradicting the conditions that usually

Table 6.1

Corporate governance contributions to peace and security in Israel and the Palestinian territories

Conflict zone: Israel and the Palestinian territories

Security governance

TUI

(Crisis management system)

Mission statement, ‘Business and Diversity’, TOI (issues: water management, local socio-economic development) Internal/external communication, intensive internal/external training, reporting, definition of minimal standards, incentives (awards)


Sustainability guidelines, TOI (issues: water management, local socioeconomic development) Internal/external communication, information transfer (handbook)


Mission statement, Global Mission statement, Global Compact, Compact (issue: anti-corruption) TOI (issues: water management, local socio-economic development)

Policies

Governance contributions in other fields related to peace and security Political order

Activities

REWE Touristik

Policies

Activities Studiosus

Policies

Activities

Implementation among own staff (via training) and local partners (included in contracts)

Socio-economic

Socio-cultural

Internal/external communication, intensive internal/external training, reporting, definition of minimum standards, incentives (awards), support of local project (Diyar Centre) 145


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prevail in conflict zones, including insecurity, political instability, poverty and environmental destruction. Due to these characteristics, tourism is almost entirely dependent on resources such as beaches, the sea, historic buildings and lifestyles as well as cultural events. ‘These resources are essential parts of the tourism product base of a destination. If they were to become degraded at a destination, it is likely that tourism will decline’ (Keyser 2002: 312). All this nurtures the expectation that tour operators should have a strong interest in peace and security.44 6.5.1 Explaining similarities in corporate engagement All three companies show similar reactions to security threats. As confirmed by all interviewed representatives, terrorist attacks triggered their reactions (Interview #2, Hanover, 16 October 2008; Interview #4, Munich, 19 October 2007; Questionnaire #1, Cologne, 24 September 2008). Consequently, all developed crisis management systems provide security and safety for customers. However, contributions to direct security governance, for example by cooperation with private security companies, seem less relevant to tour operators. These reactions can be explained largely by the travel warnings issued by the Foreign Office. They play a crucial role for tour operators, inducing them to step back from offered tours and to cancel tours that are already taking place. Due to this kind of ‘informal regulation’,45 tour operators do not have operations in zones of crisis or manifest conflict. This also explains why they concentrate on ensuring the security of their customers in an acute emergency instead of contributing to security as a public good in the long term. As the companies do not have facilities of their own at the destinations, they can easily and quickly withdraw from the scene. Since many tour operators have a quite diversified product spectrum, they can substitute critical regions with others.46 If these factors push a company to leave the country as soon as a crisis occurs, why would a tour operator engage in environmental and social issues at all? Over the last 20 years, tourism has experienced fundamental changes. New forms of communication and reduced transport costs have heralded the globalization of mass tourism (Hein 2006: 137–9). Despite global mass tourism facing challenges at the local level, such as environmental disaster, crime and terrorism, customers’ demands have remained the same. Interviews also highlighted the immense expectations of consumers (Telephone interview #1, 25 November 2008) and the fact that they see and judge while consuming the product (Interview #5, Cologne, 27 August 2008). Confronted with consumer expectations and the challenges

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arising from conditions at exotic tourist destinations, corporations have had to reconsider their notion that ‘vacation’ as a phenomenon can be separated from politics (Interview #8, Berlin, 13 March 2009). Tour operators establishing policies and activities – though they hardly hold any significance in zones of violent conflict – represent this general shift in the sector’s awareness. The sector’s first CSR Day during the ITB in 2009 further confirms this development and the fact that CSR is in its infancy in this sector.47 Even though there are strong reasons to abstain from corporate engagement at precarious tourist destinations, there are also factors that make it a business case and stimulate it to varying degrees. The incentives to contribute to peace and security need to be qualified and become clearer through observing the differences in corporate engagement. 6.5.2 Explaining differences in corporate engagement The first remarkable difference is the relation between policies and activities. As described above, the engagement by Studiosus and TUI shows a strong connection between these two aspects. Their activities reflect policy content and, to a certain extent, quantity. The implementation of a statement is ensured and regularly evaluated.48 In contrast, REWE Touristik committed to TOI and environmental guidelines but had less far-reaching implementation along the supply chain than Studiosus or TUI. The second difference relates to the focus of their engagement. TUI, REWE Touristik and Studiosus vary considerably in their concrete governance contributions. TUI engages in numerous policies and activities that can be described as general governance contributions, such as the TUI foundation’s projects or ‘The Year of the Dolphin 2008’. The same is true of REWE Touristik’s activities: the protection of endangered species, for example. In contrast, Studiosus’s engagement, such as its statements about corruption and fostering local economic growth, are governance contributions more closely related to peace and security. These differences can be explained by the immense challenges that German companies face in a tourism market where competition is high. Customers are increasingly comparing quality and prices on the internet, which prompts tour operators to lower prices. Travelling has also lost its exclusive nature, increasing the competition between tour operators for facilities, such as hotels, at destinations in high customer demand (Böttcher 2004: 129) and intensifying the trend towards ‘integrated tourism companies’ (Born 2004: 18).

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Operating under these conditions, the tour operators’ ranking in the tourism market and corporate structure seem to influence the degree to which activities reflect the corporations’ policies. As described in section 3, TUI and REWE Touristik belong to the biggest tour operators. However, while TUI is a fully-integrated corporation, which might make the implementation of the corporation’s policies along the supply chain easier, REWE Touristik is not a fully-integrated company, nor is it purely a tour operator; a large amount of the group’s turnover comes from operations in the food market. These factors bring about different demands on REWE Touristik and seem to be a restricting factor in the implementation of the corporation’s policies. Besides this, being the market leader, TUI is particularly exposed to peer pressure, which might be another reason for TUI’s engagement. The strong relation between corporate policies and activities in Studiosus can be traced back to its status as a small family-owned business, which seems to facilitate the generation and, in particular, implementation of corporate policies. In addition, the three companies operate in different market segments. While REWE Touristik and TUI mainly offer leisure holidays, Studiosus operates in a specific and more exclusive segment, which it labels the ‘Modern Study Tour’. It is characterized by a more academic approach towards the host country and aims at intensive contact and cultural exchange with people in the host country. This concept goes back to the corporation’s founder and allowed for the emergence of a corporate culture that cares for the conditions and consequences of tourism (Interview #7, Munich, 18 June 2008; Studiosus 2008: 4). Accordingly, the consumer types that TUI, Rewe Touristik and Studiosus attract vary. This again influences the different corporations’ engagement. Studiosus supports projects that can be visited by its travellers and verifies whether a project has a reference to tourism (Interview #7, Munich, 18 June 2008). In contrast, it is more attractive for the big companies in the market to provide general cross-regional governance contributions instead of specific contributions to peace and security beyond the popular mass tourist sites. While security threats and their effects on their product and image influence corporate engagement, it is the market environment, especially the corporation’s segment and ranking in the market, and corporate structure that are decisive factors in the pattern of engagement. The specific market segment Studiosus operates in is a strong incentive for proactive engagement, while TUI’s and REWE Touristik’s positions as big and diversified players in the market mean that there is less incentive for them to engage in issues related to peace and security.

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TUI’s stronger engagement in implementation along the supply chain (compared to REWE Touristik) might be accounted for by its corporate structure and its market leader position. Its status as a small familyowned corporation seems to allow Studiosus to decide on policies and their implementation more autonomously.

6.6 Conclusion Tourism is not only dependent on the living standards of its customers but is also very sensitive to security crises, such as terrorism, and natural disasters. Consequently, tourism companies provide security exclusively for their customers. On the condition that certain standards are considered, such as conflict-relevant social and environmental standards, the industry can still play an important role in peace and security at destinations. Such ‘informed’ tourism would allow for knowledge transfer on how, for example, protecting the environment, it could enhance cultural understanding, and because tourism offers jobs to people with various skills it could contribute to economic development and poverty reduction. The latter may be highly relevant to peace and security in Israel and the Palestinian territories as the Palestinians struggle with inequality of profits from tourism. However, most foreign tour operators mainly cooperate with Israeli partners and travel warnings often induce tour operators to cancel their tours in the Palestinian territories. Despite this, the empirical findings show that corporations in the tourism sector are ready to contribute to governance. Corporate engagement is best explained as a combination of several factors. The similarities in activities of tour operators in zones of conflict, especially decisions to withdraw from a region, are best explained by home-state informal regulation. The product image of tourism contradicts violence and insecurity and so is an important push factor for corporate engagement. Tourism company engagement is influenced by a company’s ranking in the market, their market segment and corporate structure. One final empirical finding is worth mentioning. In all three companies, corporate engagement was strongly connected to the leadership of individual people at various management levels, from the head of the CSR department to the CEO. Personal commitment and motivation seem to be important starting points for changes in corporate engagement. Sociology and organizational theories may be useful to find out more about the role of leadership in corporate governance contributions. The role of tourism in conflict zones can be summarized as follows: weak performance but growing awareness.

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Notes 1. One of the few exceptions is a research project run by the Cologne Business School, Compass GmbH and Swisspeace/Bern concentrating on tourism in Croatia, Sri Lanka and Rwanda. 2. The corporations’ and/or the individual holdings will be referred to as TUI, REWE Touristik and Studiosus. The full names of the corporations and/or their holdings are TUI AG/TUI Germany GmbH, REWE Group Touristik and Studiosus Reisen München GmbH. 3. For a detailed chart see http://www.btselem.org/english/statistics/Casualties. asp (date accessed: 10 March 2008). 4. Uppsala University, Conflict Database, Israeli–Palestinian Conflict, type of incompatibility: territory; comment on type of incompatibility: the incompatibility was over the territory of Palestine, http://www.pcr.uu.se/database/ conflictInformation.php?years=2007&bcID=227&variables%5B%5D=1& button=+Search (date accessed: 10 March 2008). 5. http://www.mfa.gov.il/mfa/peace%20process/guide%20to%20the%20 peace%20process (date accessed: 14 August 2008); see also Johannsen 2006; Rothstein et al. 2002. 6. Barrier building began in 2003; its existence is highly disputed. 7. It is often argued that the asymmetric structure of the conflict and the gradual implementation of individual agreements explain the failure of the Oslo process; see Ma’oz 2002; Rothstein 2002. 8. A lot of research has been done on the absence of ‘water wars’ in the Middle East, explained by the existence of an international water market (Allen 1998). 9. Cooperation in this field might also create important peace building effects; see Kramer 2008. 10. Travelling is a phenomenon with a long history. Originally, religion was the prevailing rationale (pilgrimage). Later on, educational trips became prominent. Travelling was a privilege of aristocratic families or high-ranking public servants before it gained a new quality when people began to travel in the nineteenth century for their private leisure. The term ‘tourism’ then became popular. 11. Most definitions of ‘tourism’ refer to the ‘purpose’ (private, business) and the ‘duration’ (stays overnight) of the trip as the defining criteria. Accordingly, there are broad and narrow definitions of tourism. While the narrow definition only comprises leisure or recreational tours, the broad definition also includes business trips and well-being activities (Freyer 2006: 2–4; Keyser 2002: 38–45). Both definitions exclude migration or travelling on a professional basis, such as working and studying abroad. 12. http://www.unwto.org/aboutwto/index.php (date accessed: 2 December 2008). 13. http://www.toinitiative.org (date accessed: 2 December 2008). 14. The ‘Code of Conduct for the Protection of Children from Sexual Exploitation in Travel and Tourism’ (The Code) was launched in 2004. In it tourism suppliers commit to reporting practices and six principles. A multi-stakeholder committee supports the initiative. http://www.thecode.org/index.php?page=1_1 (date accessed: 2 December 2008).

Susanne Fischer 151 15. For example, EMAS, DIN EN ISO 9001, DIN EN ISO 14 001. 16. More precisely, TUI Germany GmbH. 17. The founding tour operators were Touropa, Scharnow-Reisen, Hummel Reise and Dr Tigges-Fahrten. 18. For a more detailed description see http://www.tui-group.com/en/konzern/ history/index.html (date accessed: 27 November 2008). 19. Only three companies in the German tourism market, TUI, Thomas Cook and (to a lesser degree) REWE Touristik, are ‘integrated tourism companies’ (Bastian and Born 2004: V). 20. Currently, the tourism segment contains three holdings, TUI Travel plc, TUI Hotels & Resorts and TUI Cruises. 21. TUI Germany GmbH operates as TUI Travel plc holding, however TUI Group is the majority stockholder of TUI Travel plc. 22. Another factor determining the choice of TUI Germany GmbH is that the environmental management was established by this holding for the first time in the context of the ‘original TUI structures’ in 1990. For further information, see http://www.tui-deutschland.de/td/de/unternehmen/ unternehmen_im_ueberblick/geschichte (date accessed: 2 December 2008). 23. In 2008, six tour operators operated under the REWE Group: ITS Reisen, Jahn Reisen, Tjaereborg, Meier’s Weltreisen, Dertour and ADAC Reisen (REWE Group 2008: 6, 8). The Group also owns three hotel labels (CALIMERA Aktivhotels, LTI-Hotels and PrimaSol Hotels). 24. For a similar distinction, see Dreyer et al. 2004: 220. Both concepts consider crisis management a process over time, including the situation before, during and after a crisis occurs. The level of ‘crisis’ is – amongst other things – defined by the degree to which the customers are affected and by the number of customers who are affected (Dreyer et al. 2004: 214). 25. The teams mentioned belong to TUIfly. 26. The certification standard that has been developed by PricewaterhouseCoopers builds on the criteria of several international risk and quality standards, such as DIN EN ISO 9001 and Enterprise Risk Management/Integrated Framework (COSO II). For further information see http://www.tui-deutschland.de/td/de/ sicherheit/Zertifikat (date accessed: 1 December 2008). 27. The members of the DRV security committee regularly discuss sector-specific issues regarding customer security, such as the implementation of the SMS warning system (Questionnaire #1, Cologne, 24 September 2008). 28. Like REWE Touristik and Studiosus, TUI commits to the principles of ECPAT/The Code. As child prostitution is not intertwined with factors that enhance the persistence of the Israeli–Palestinian conflict, these contributions to governance, which can be categorized as ‘contributions to political order/human rights’, are not relevant to peace and security in this region and therefore not included in this study. 29. Here, TUI developed a corporate seal of quality for hotels. To receive the label ‘EcoHotel’, hotels have to ‘cooperate with nature conservation organizations, are involved in cultural and social projects and sensitize staff in the holiday country to environmental issues’ (Article 3), http://www.ecoresort-tui.com/ index.php?id=21 (date accessed: 3 December 2008). 30. See http://www. tui- ecohotel.com/teh/en/cost_saving (date accessed: 3 December 2008).

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31. See http://www.tui-group.com/de/nachhaltigkeit/umwelt/kon_u_sys/stake holder/dialog.html (date accessed: 3 December 2008). 32. TUI starts implementing its sustainability policies in its core business by designing tours based on sustainability criteria, resulting in a ‘green catalogue’ for its customers. 33. See http://www.tui-deutschland.de/td/de/qualitaet_umwelt/umwelt/yod (date accessed: 10 March 2009); http://www.tui-group.com/de/nachhaltig keit/gesellschaftliches_engagement/soziale_projekte/projekt_beispiele/ afrika/index.html (date accessed: 9 March 2009). 34. Like TUI, REWE Touristik commits to the principles of ECPAT/The Code. 35. A downloadable paper on the role of tourism in climate change serves to enhance the environmental awareness of customers (REWE Touristik GmbH 2007). 36. Information about Studiosus’ social responsibility and TOI is based on Interview #6, Munich, 11 December 2007. For information on membership of the Global Compact, see http://www.studiosus.com/unternehmen/ nachhaltigkeit/ sozialverantwortliches_reisen/index.php#abschnitt_ internationale_ organisationen (date accessed: 16 March 2009). 37. For Studiosus’ mission statement, see http://www.studiosus.com/unternehmen/leitbild_fakten/unternehmensleitbild/index.php (translation SF) (date accessed: 19 September 2007). 38. The terms ‘sustainable tourism’ and ‘fair tourism’ are used interchangeably here – both refer to the Agenda 21 commitments. 39. TO DO! International Contest Socially Responsible Tourism, see http://www. todo-contest.org/preistraeger.html (date accessed: 13 May 2008). 40. The environmental management system of Studiosus is certified by DIN EN ISO 14001. For further information on standardization of (environmental) management processes, see German Institute for Standardization (DIN), http://www.din.de/cmd?level=tpl-home&contextid=din (date accessed: 24 June 2008); International Organization for Standardization (ISO), see http:// www.iso.org/iso/home.htm (date accessed: 24 June 2008). The environmental management system of Studiosus additionally holds an Eco-Management and Audit Scheme II (EMAS II) certificate. For further information concerning EMAS, see http://www.emas.de (date accessed: 24 June 2008). 41. No such seminars have been organized in Israel or in the Palestinian territories yet, but have taken place in Egypt, Morocco and Cyprus (Interview #7, Munich, 18 June 2008). 42. This engagement is kept in italics and brackets as it does not fully match the governance definition introduced in the introductory chapter of this volume which demands the provision of collective goods. 43. Qualitative differences are not mapped here, nor are general governance contributions with no relation to the conflict. 44. Tourism has often been characterized as an abstract product varying with the person who is travelling and depending on the chosen destination and the point in time. Consequently, travellers cannot judge the product in advance. They might also expect different things from the trip, for example adventure, new experience or recreation (see Freyer 2006; Keyser 2002: 141–6). 45. Travel warnings are not regarded as legally binding. However, in court they are admitted as evidence of ‘force majeure’ (Schmid 2003: 976–7). If tour

Susanne Fischer 153 operators decide to stay in host countries for which travel warnings have been issued, they are liable according to insurance guidelines. 46. Since ‘integrated tourism companies’ are characterized by vertical integration, they increasingly have their own facilities, such as hotels, at various destinations. At present, this is irrelevant to the corporations’ policy to withdraw but seems to influence the specific form of corporate behaviour and might play an important role in a company’s return to a destination post crisis. 47. For further information concerning the Corporate Social Responsibility Day (CSR Day) see http://www1.messe-berlin.de/vip8_1/website/MesseBerlin/ htdocs/www.itb-kongress/de/Kongressprogramm/EDB-ProgrammDetails/ index.jsp?fairID=86336&eventDateId=87491 (date accessed: 17 March 2009). 48. Studiosus, for example, organizes hotel seminars and hands information down to its partners via the eco-newsletter to implement its environmental sustainability policy. Adherence to the policy is regularly evaluated by customers and tour guides.

7 Chartered Companies: Linking Private Security Governance in Early and Post Modernity Klaus Dieter Wolf

7.1 Introduction In the previous chapters, case studies of contemporary corporate governance contributions in zones of violent conflict were analysed. Comparison to the security-related governance contributions by chartered companies reveals a remarkable shift. Today’s business corporations are very reluctant to perform direct governance contributions to peace and security in zones of conflict. However, many of these companies are making remarkable socio-economic governance contributions. There appears to be a shift in the division of providing public goods between the public and private sectors. However, this transformation of the modern state only concerns certain dimensions of ‘low politics’ without touching the heart of statehood: the state’s monopoly on the use of force to provide security. In fact, this is a central hypothesis of the Bremen TranState Research Centre, which outlines four dimensions of the modern state: resource, law, legitimacy and welfare (see Hurrelmann et al. 2007; Leibfried and Zürn 2005). They state that during the 1960s and 1970s, the nation-state golden age, all four dimensions merged at the national level (the ‘national constellation’) in the OECD world. Since the decline of the nation-state golden age in the late 1970s, the four dimensions have diverged into a ‘plurality of different changes in the different dimensions of the state’ (Zürn and Leibfried 2005: 17). In an increasingly asymmetric public–private co-production of governance, governance welfare activities that concern economic growth and social equality are likely to be privatized or transnationalized. However, the postmodern state is expected to cling to its monopoly on the use of force in the resource dimension. It is mostly assumed that the state is reluctant to share responsibility with private actors for what is 154

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traditionally regarded as its core domain. This reluctance weakens the likelihood of more corporate security responsibility. After all, most of today’s leading transnational corporations have been ‘brought up’ in the political environment of OECD states and feel quite comfortable with the state’s exclusive claim on security. These limitations to corporate security responsibility can be better understood in a historical context. Rather than taking the nation-state golden age with its characteristic ‘convergence of all four dimensions of the state in a national constellation […] as the norm against which to measure change’ (Zürn and Leibfried 2005: 11, 13), the ‘co-production of statehood’ and ‘co-performance of governance’ (Schuppert 2008) are understood as the norm and the golden age as the exception. In fact, the postmodern and early modern constellations show striking parallels, particularly in outsourcing public functions to private entities. Very similar to the modern states’ response to the challenges of late twentieth-century globalization (which ‘threatened congruence of social space and political space’), the early modern state at the beginning of the seventeenth century could not ‘possibly keep up with change’ (Zürn and Leibfried 2005: 11–12). It tried to cope with the growth of transnational economic and social transactions by sharing responsibilities with private actors. The future of the modern state may be dependent upon learning from its early modern past to outsource public responsibilities to private actors. The academic discussion about the new interplay between the state, business and civil society suffers from the same flaw of not looking beyond the nation-state’s golden age. It starts out with the traditional distinctions of governments being public in form and public in purpose, actors from civil society being private in form and public in purpose, and business corporations being private in form and private in purpose (Wolf 2008: 231). Identity shifts and the blurring of these boundaries are misleadingly presented as recent phenomena of the decades following the nation-state golden age, when new regulatory challenges called for a redefinition of the roles and functions of the state and private actors. It is because of their ‘traditional’ private–private identity that most of today’s corporations still react reluctantly to the issue of corporate security responsibility. However, this argument misses the point. It refers to a historically exceptional separation of the private and public sphere during the short golden age of the seemingly omnipotent modern-period nation-state. The rule has always consisted of the coproduction of statehood and, in its early modern and recent postmodern appearances, resulted from lack of government capability. The ‘private

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Chartered Companies

in form and private in purpose’ assumption still advocated so strongly by the shareholder value theory of corporate responsibility (Melé 2008: 55–62) thus starts out from an exception rather than from the rule: on the one hand, it sprung from the neoliberal ideology of the second half of the twentieth century. On the other hand, it depends on the volatility inherited from the nation-state golden age. Advocating change in both government and corporate roles and responsibilities is thus not a plea for a completely new way of thinking about corporate responsibility but rather for a return to normality (see also Haufler 2006: 86). It has been quite common for private actors to take on the functions of states. This is empirically substantiated by focusing on the trading companies founded under government charter since the early seventeenth century. These companies are regarded as the precursors to today’s multinational corporations and as early modern examples of the normality of co-performance in security governance. A closer look at some of the most important chartered companies supports the claim that business corporations have a long tradition as economic–political hybrids, being mostly private in form but definitely more than private in purpose and responsibility. What else can be learned from adding this historical perspective to the research on corporate security responsibility? The activities of early-modern period trading companies contextualize the debate on the ‘new’ interplay and sharing of responsibilities between public and private actors. Transnational corporations of today operate in a market environment and are situated somewhere between the market, state and citizenship. Similarly, the chartered companies had to meet economic, societal and political demands that were very heterogeneous but at the same time closely linked. Above all, the chartered companies provide historical evidence of the privatization of state functions in the resource dimension. This usually occurred concomitantly with the violation of the indigenous peoples’ self-determination by military force to ‘defend and impose monopoly rights’ (Ortiz 2007: 16). In analytical terms, these drastic consequences of the early modern privatization of security governance render the chartered companies as an extreme case against which to measure the legitimacy problems raised by the present shift in authority from the public to the private sphere inherent in the recent transformations of the state. Robins (2002: 88) says ‘there is much to learn from the East India Company example – not just the tendency for companies to stray beyond the economic realm into politics – but also the possibility of democratic governance of corporations, achieved through parliamentary regulation and civil society oversight’.


Of the three historical case studies, two have been chosen because they are generally regarded as setting the standard: the British East India Trading Company (East India Company, EIC) of 1600 and the Dutch Vereenigde Oostindische Compagnie (United Dutch East Indies Company, VOC), founded in 1602. Established almost three centuries later, in 1889, the British South Africa Company (BSAC) demonstrates even more distinct security elements within the close functional links between economic expansion, imposition of monopoly rights and the private use of force. A short history of the three companies and their responsibility for peace and security is followed by a two-step analysis. The scope of chartered companies’ governance contributions to peace and security is defined, looking for similarities and differences compared to today’s multinationals’ security-related governance contributions. Changes in the patterns of interaction between public (government) and private (corporate) actors in the co-production of security are then identified. Is the co-production of statehood today really so new? What is new about it? The identification of several interaction patterns provides the empirical background for evaluating the legitimacy of delegating public security functions to private corporations.

7.2 Trading companies: Political-economic hybrids in the age of mercantilism The early modern trading companies were phenomenon of both mercantilism and private commercial self-help. They strayed beyond the economic realm into politics because of the state’s limited security resources for their overseas trading activities. Long before the golden age of the nation-state was even conceived, these companies took on public obligations without giving up their commercial motives (Osterhammel 1995: 38). They acted as both business entrepreneurs and colonizing enterprisers. In fact, given their extensive use of private force for the provision of their own security and that of the territory and trading routes they ruled in general, they may even be called ‘super hybrids’ because they united features of ‘ordinary’ multinational corporations with those of today’s private military and security companies. Although economic and profit driven in purpose, they were thus political in nature from the beginning. The provision of security for the conduct of their business was at the very core of their political obligations and chartered rights. In the seventeenth and eighteenth centuries alone, more than 70 overseas trading companies came into existence, though many of them

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were short-lived. They were usually formed as joint-stock trading companies by stockholders who wanted to invest in trade with overseas territories in the Indies, Africa or America. Although founded under the patronage of different states, notably by the British and Dutch government but also the French, Portuguese or Scandinavian, all companies were organized in a similar way. A government charter that usually granted a trade monopoly over certain goods and regions described their rights and responsibilities and defined the terms under which a company could trade. Authorized by such charters, the companies developed, maintained and protected trade relations between western Europe and overseas territories all over the world. They often acquired comprehensive legislative, judicial and executive powers over the territories they administered. In exchange for the political authority granted to them by the state, they offered private resources to aid colonization. They acquired and controlled vast new territories and established forms of indirect rule when direct colonial rule would have overstretched the resources of the state. Their chartered rights authorized the companies to take all security measures deemed necessary for the safe conduct of their businesses: starting wars, conquering territory, making treaties with local rulers and exercising comprehensive sovereign rights over the territories they administered. In fact, most chartered companies commanded armies, navies and police forces of their own. Due to poor long-distance communication, the chartered companies also enjoyed considerable political autonomy from the governments from whom they had received their charters, as well as from shareholders and European company headquarters. The generally high degree of autonomy1 is reflected by labels such as ‘quasi-states’ or ‘states within a state’ (Ortiz 2007: 16). The golden age of the chartered companies as business entrepreneurs and colonizing enterprisers ended when the increasingly violent colonial race encouraged direct state control. The companies’ strained financial resources proved incapable of coping with the political and social challenges and obligations resulting from demands for total territorial control and growing territorial expansion. Apart from these geostrategic shortcomings, the monopolist commercial strategies had also encouraged inefficient business practices, which became increasingly incompatible with capitalist development.

7.2.1 The British East India Trading Company (EIC) The British East India Trading Company is probably the most often referred to archetype of a chartered trading company. It was granted


an Royal Charter by Elizabeth I in 1600 and controlled the Indian territories until their transformation into a British Crown Colony. Its periodically renewed charter provided the company with monopoly privileges on all trade with the East Indies (Ortiz 2007: 15; Robins 2006a: 173). As ‘the world’s first transnational corporation’ (Robins 2002), the EIC was established as a commercial enterprise with its headquarters in London. One of its main purposes was to gain control over the trade in spices with the Far East. Yielding to Dutch competition in other areas, the EIC concentrated its activities on the Indian subcontinent from the mid-seventeenth century, building up trading ports and military outposts for the trade of goods such as cotton, silk, saltpetre, tea and opium. At its peak, the company had around 30,000 employees (see Hartung 2000: 37). In order to establish a favourable environment for its business, and to take advantage of the decline of the Indian Mughal Empire (see Robins 2002: 80), the EIC increasingly engaged in military and political activities, often brutally. The EIC was referred to as ‘the company that owned a nation (or two)’2 or the ‘British Empire in India’ (Muir, quoted in Hartung 2000: 26). A governor directed its presidencies in Bombay, Madras and Calcutta, with a governing body of 24 directors, one of them a military secretary, and several specialized committees (Ortiz 2007: 18–19). The presidencies had taxation rights and the right to autonomous territorial acquisition by coercion or treaties. They also exercised jurisdiction over the territories governed by the company (Litvin 2003a: 42; Nagel 2007: 40; Robins 2006a: 5, 28). The company thus acquired full responsibility for the two most important dimensions of statehood, namely the resource and law dimensions, as per the TranState terminology. Territorial rule was exerted either by installing agreeable local leaders or through threats and coercive actions. For instance, the EIC subordinated local princes and turned them into vassals. Direct territorial rule and administrative powers made all of British India a de facto colony. The EIC established itself as a hybrid global player, exerting control over vast territories as ‘a sub-contracted administrator for the British state’ (Robins 2002: 84). Although the British parliament was seeking more legislative control, the EIC operated with considerable autonomy from the state and was supported by a strong East India lobby (‘nabobs’) at home.3 In 1858, following the company’s failure to prevent uprisings against its rule in India, the Government of India Act transferred all political power and territorial possessions to the newly established Secretary of State (Hartung 2000: 30f). Losing its political and administrative functions

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to the Crown was the final curtain on a fall that had begun with the East India Act in 1773. In 1874, the company was finally dissolved. The British colonial empire can be described as a creation of the colonizing activities of this trading company, which for some period ‘really ruled the world’ (Robins 2002: 79). If one evaluates the welfare dimension of the state functions exercised by the EIC, its financial contributions were decisive in making the industrial revolution in Britain possible.4 At the same time, the company’s rule made India poor.5 7.2.2 The United Dutch East India Company (VOC) The United Dutch East India Company (Vereenigde Oostindische Compagnie, VOC) emerged from the fusion of six Dutch regional trading companies in 1602. The States General (the parliament) of The Netherlands (Gaastra 1988: 5–7; Nagel 2007: 102) chartered the VOC. This unification ‘did not happen spontaneously’,6 but was initiated by the government of the Dutch Republic which at the time was at war with Spain and Portugal and in search of a powerful military and economic weapon. The VOC was founded as a joint-stock company which later became one of the biggest transnational corporations of the seventeenth and eighteenth centuries, employing between 20,000 and 30,000 people (Hartung 2000: 61).7 It was granted a monopoly on spice trade in an area east of the Cape of Good Hope and west of the Straits of Magellan (Reinhard 1996: 180f).8 Its commercial monopoly authorized the establishment of factories, trading ports and settlements all over the Pacific. The charter also provided the company with extensive sovereign rights. To provide a secure environment for its commercial operations its interests extended far beyond conducting trade. From a commercial enterprise that had to take care of its own security, the VOC developed into a territorial power with far-reaching additional political obligations. The employment of more personnel on land than at sea is indicative of this metamorphosis from a maritime trading enterprise to a territorial organization (Hartung 2000: 61). Acting as a private–public hybrid, the VOC erected forts, appointed governors and judges, kept an army and concluded treaties with Asian rulers in its own name, with little formal and even less factual control by the Dutch government or parliament. As far as its political mission was concerned, the company was very successful in destroying Portuguese power over eastern trade and in driving British and Portuguese companies out of Indonesia, Malaya and Ceylon. Internal struggles coupled with unrest in their settlements awakened challenges from European competitors, leading to the decline of the VOC. By the end of the eighteenth century, the VOC


had degenerated into an insolvent and corrupt company that, after an interim period of government payments and political supervision, did not receive a renewal of its charter after 1800. The remoteness of the overseas operations meant that VOC’s governor general, residing at the Asian headquarters in Batavia, and the employees of the company’s overseas branches acted in considerable independence from the governing body, the ‘Heren Zeventien’, back home. This became of significance when goals began to diverge: while the latter predominantly looked at the company in commercial terms and insisted on the primate of economic goals, the former was foremost interested in territorial expansion and geo-strategic goals (Gaastra 1981: 56). Of course, such economic and political goals were closely interlinked since the security of trading ports and the control of the territory beyond them had to be established and maintained. The founding and maintenance of the factories and establishments held by the VOC all over Asia were based on more than contracts and treaties with regional rulers (as in the case of India). Like the British East India Company, they often rested on coercion and conquest as well. The VOC was regarded as a sovereign territorial power in Asia from 1632 (Reus, quoted in Hartung 2000: 55). In Batavia, ‘there was scarcely any citizenry independent of or free from the VOC’.9 The VOC thus performed core state functions primarily in the resource and law dimensions in a manner very similar to the EIC. 7.2.3 The British South Africa Company (BSAC) The British South Africa Company received a Royal Charter from Queen Victoria in 1889 that copied the model of the British East India Company (BSAC 1936: 8). The charter was granted to Cecil John Rhodes – who was also closely tied with the De Beers Diamond Mining Syndicate (Galbraith 1970: 146). Given its establishment as an exploration company in the golden age of imperialism, its purpose of controlling, settling and administering territories in central South Africa was explicitly embedded in the colonial race that peaked towards the end of the nineteenth century. Unlike the EIC and VOC, BSAC did not have a trade monopoly but ran commercial activities with African rulers. The hybrid nature of the BSAC as a commercial–political enterprise was reflected in its authority to make treaties, promulgate laws, maintain a police force, administer and provide the infrastructure of the territory, establish governments, exert judicial powers, recruit its own army and fight wars against local kingdoms (BSAC 1936: 11; Galbraith 1974: 122; Litvin 2003a: 84). Like the two previously described companies,

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the BSAC thus acted as a state in the resource and law dimensions. The company administrator was the Crown’s representative in the territories under the control of the corporation. Numerous incidents portray chartered companies as subversive instruments of foreign policy, avoiding ‘international complications for the Imperial Government’ (Galbraith 1970: 150). For example, in 1895 Cecil Rhodes sent an armed force of 500 men, all employees of his British South Africa Company but ‘with the blessing of the Imperial government’ (Galbraith 1970: 150), into the South African Republic to overthrow the Transvaal government. When the invasion which became famous as the Jameson Raid failed, the British Home Authorities denied any complicity and claimed that the British government had no expansionist plans of its own although it was reported to have looked with favour on the intervention.10 The BSAC lost its administrative control in 1923 when the European settlers of Southern Rhodesia decided against it in a referendum. The British government declared the territories formerly ruled by the BSAC a self-governing colony (Southern Rhodesia, today Zimbabwe) and British protectorate (Northern Rhodesia, today Zambia) (BSAC 1936: 26).

7.3 The shift in governance functions carried out by private actors There is overwhelming empirical evidence of the great reluctance of modern corporations to take on any security responsibility which could count as direct governance contributions to security.11 There have been many interesting observations of indirect contributions in the securityrelated areas of political order, socio-economic or socio-cultural affairs. However, almost all case studies in this volume generally support the assumption that modern corporations see the focus of their public responsibility, if they accept any, as being in social and environmental voluntary commitments. In sharp contrast, the political activities and obligations of their precursors can be described in almost opposite terms. While they showed next to no responsibility for social equality or the welfare of the populations of the territories they ruled, nor any remarkable environmental governance activities, the state functions taken on by chartered companies had a clear focus on the resource and law dimensions and were concerned foremost with direct governance contributions to security. Contrary to today’s corporations, they reluctantly complemented their political role by taking over responsibility for political order.


7.3.1 Direct governance contributions by chartered companies to peace and security Chartered companies commanded armed forces of their own, which they used to establish and maintain control over the maritime and territorial environment of their economic activities (Nagel 2007: 154–9; Rich 1958: 58).12 According to Ortiz (2007: 15), the use of force was ‘essential to ensure security and profitability of investment […]. It was a business, but it was a violent one that required systematic use of lethal force to keep it running’. In the case of the EIC, military means were used to defend the trade monopoly and the company’s holdings against pirates or rival trading companies, or to control local trading networks (Litvin 2003a: 47–51; Nagel 2007: 159–64; Robins 2006a: 60–1). Ortiz (2006: 8–9) points out that from the end of the seventeenth century the maritime forces and the military presence of the EIC in India expanded considerably and the company’s presidencies in India enjoyed full sovereign rights as commanders-in-chief of their troops. The VOC was explicitly authorized to perform direct military security governance functions in the Malayan archipelago and along all its trading routes. The company maintained naval and land forces comparable in size with those of the EIC and strong enough to defend the Dutch trading monopoly against the Portuguese in India and along the East African coast. In pursuing its aim of building and maintaining a maritime empire, the VOC started numerous wars and military operations against foreign competitors and local rulers (Gaastra 1988: 13–4; Nagel 2007: 64, 103). The conquest of the Banda Archipelago in 1622 and the operations against the Portuguese in Ceylon between 1637 and 1658 were aggressive undertakings, which served the company’s aim of expanding its trade monopoly.13 Security-related governance activities were pursued by non-military means as well. As mentioned previously, the VOC was authorized by its charter to conclude peace and trade agreements in its own name and exercised this autonomous right to make treaties for territorial appeasement (Gaastra 1988: 6; Hartung 2000: 70; Nagel 2007: 41). Like the other two companies, the BSAC also exercised a broad range of direct security governance functions, such as maintaining police forces (the British South Africa Police), land forces and fortresses to guarantee a safe environment for its commercial activities. This included military operations against local rulers or competitors from other European countries (BSAC 1936: 13–15, 18; Litvin 2003a: 84–5, 88–9). The company’s engagement in sensitive military adventures enabled the British government to stay clear of any direct responsibility.

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While there was a broad consensus among British public officials to overthrow the Transvaal Kruger regime, there was ‘the belief that the development of Rhodesia can best be carried out by the intervention of a Chartered Company’ (Chamberlain, quoted in Galbraith 1970: 152). 7.3.2 Indirect governance contributions by chartered companies to peace and security After a chartered company established itself as the dominant military power, their interest then grew in lowering the costs of territorial rule and furthering commercial activities. They did this by establishing a stable legal and administrative order. This did not necessarily mean the removal of local rulers as it was often less costly to keep them in office and use them to execute the policies of the company in a kind of ‘indirect rule’ (Osterhammel 2006: 55–6). However, they were often subjugated and the company directly exercised political and legal authority. The EIC, VOC and BSAC carried out the complete range of economic, executive, legal and judicial functions of a territorial power (Robins 2006b: 1–2).14 The VOC appointed governors and judges, introduced taxes, issued passports, carried out infrastructure measures and established schools (Gaastra 1988: 21; Nagel 2007: 126, 115). With little formal and even less factual control by the state, the sovereign rights granted by the charter enabled the company to establish itself as an effective political power. It could then gradually extend its sphere of influence (Hartung 2000: 126; Nagel 2007: 69), focusing on the establishment of trading posts rather than striving for complete territorial control. The EIC also introduced a tax system and criminal code which later became the basis of modern Indian law (Litvin 2003a: 51, 59–60, 92, 102; Nagel 2007: 94; Robins 2006a: 76; 2006b: 2). The BSAC gradually extended its imperial government to South Africa, ‘attracted to Matabeleland as a land legendary for its gold’ (Galbraith 1970: 146). Apart from indirect contributions to security governance that aimed to stabilize the political, administrative and legal order in the territories under their rule, there is only scattered evidence of engagement by chartered companies in socio-economic and socio-cultural areas. As far as the welfare dimension of statehood is concerned, proactive private governance contributions to social equality would have been a surprise since they had not been established as a state responsibility at the time. However, security-related human rights activities of companies did occur. In the case of the EIC, indigenous legal practices were prohibited and religious tolerance promoted in order to decrease the


level of violence (Litvin 2003a: 44, 60). The BSAC even participated in an international anti-slavery conference held in Brussels in 1889–90 where, in accordance with an obligation in its charter, it advocated the suppression of slavery and a more strict control of arms smuggling (Galbraith 1974: 129; Litvin 2003a: 87). However, there are far more examples where companies did not take on any responsibility for the welfare of the people affected by their commercial and political activities. In the case of the EIC, they forced the export of Bengali opium to China, which ultimately caused the Opium War because of China’s refusal to accept the opium and the dispossession of Bengal’s peasantry causing a famine that killed millions. The expansion of administrative obligations contributed to the wealth of a few and the suffering of many. The additional costs of political control over a territory bigger than the British home country ultimately contributed to the decline of companies and their governments taking over the governance obligations and territorial power they had originally delegated to the company. 7.3.3

Conclusions

The company histories follow very similar paths, each providing its own private security by using military force to impose and defend their monopoly rights and to ensure the profitability of their investment. Only later were these efforts complemented by indirect governance contributions to security, which were initially still concentrated on measures that directly served their commercial interests. However, the provision of private security gradually expanded into an obligation to provide full-scale security and public order due to increasing state intervention and territorial expansion. It comes as no surprise that this move resulted in ‘private imperial over-stretch’, which overburdened the financial means and commercial motives of the companies, contributing to their decline. Each of the companies was confronted with the need to take on more and more of the functions of a full-scale government. To defend their commercial interests they were forced to maintain a stable and predictable business environment. Hartung’s (2000: 26) description of the EIC can be taken as a general pattern of ‘hybridization’: a gradual shift from the originally predominant role of commercial enterprise to that of a territorial power.15 It should be kept in mind, however, that this shift occurred as part of a ‘job description’ in which this dual nature was inscribed from the very beginning. The charter of another important English trading company, the Hudson’s Bay Company (HBC), makes

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this clear more than any other document.16 HBC is explicitly defined as a political–economic hybrid, as ‘one Body Corporate and Politique in deed and in name’ (The Royal Charter 1670). Military dominance was necessary for the chartered companies to defend their trade monopoly. Once this was achieved, legal and administrative political order (Osterhammel 1995: 38–9) had to be established to effectively maintain this dominance. This then guaranteed a safe and predictable environment for commercial operations and building the infrastructure needed for trade and exploitation of raw materials. In the absence of a friendly local government that could have provided these functions, it was through necessity that the companies had to develop the dual identity of business enterprise and territorial power. Providing their own security and a stable political order that served the commercial interests of the company and those of the government at home in Europe (Nagel 2007: 41; Robins 2006a: 27, 43) became a crucial task as it was the prerequisite for flourishing commercial activities. Doing business and engaging in direct and indirect security governance had to go hand in hand in the absence of military support from the home state.

7.4 On whose behalf? Changing patterns of interaction and the legitimacy of private security governance The security-related governance contributions by chartered companies were primarily for their own security and – at least in the beginning – were not intended to provide peace and security as a public good. However, with the territorial scope of the companies’ rule exceeding their immediate functional environments more and more, the line between security as a private or as a public good became increasingly blurred. Measured against Lincoln’s famous criteria ‘government of the people, by the people, for the people’, only the latter, if any of them, would apply and only as an unintended consequence. To whom were the chartered companies actually accountable when they exercised core state functions by taking on security responsibility? The trading companies had gained political authority through charters granted to them by the government of their home state. As shown, these charters described certain rights and obligations and delegated comprehensive legislative, judicial and executive powers over the territories to the companies. Public authorization by delegation was valid for a limited time and had to be periodically renewed (Nagel 2007: 41; Robins 2006a: 103). In a formal sense, this mechanism held the companies’


commercial activities and governance contributions primarily accountable to the state and partially to their ordinary shareholders. While this formal accountability still leaves open the question of how far effective control was possible, a negative answer to the question ‘on whose behalf and to whose benefit were public governance functions exercised?’ can be easily given: certainly not those under their rule. 7.4.1 The accountability relationship between the chartered company and the state Even in the primary accountability relationship between a chartered company and its home state there was only very loose public control of the private exertion of territorial power. To begin with, company representatives were often involved in the early phase of decision-making about the rights and obligations in the charter, although their direct influence decreased over time. The case of the EIC shows that attempts to subordinate the political authority of a chartered company to parliamentary rule were difficult and problematic, mainly for two reasons. Although formally bound by the rights and obligations laid down and periodically re-negotiated in the charter, the company’s operations were in areas too remote to allow effective parliamentary control and accountability (Litvin 2003a: 53; Nagel 2007: 51–2, 91, 178–9; Robins 2006a: 27).17 In addition, it was difficult to differentiate a company’s political obligations from its economic activities. For example, home state taxation was a highly ambivalent tool of public control because it also weakened the company’s capability of meeting the state’s expectations of exercising effective territorial power. The administrative apparatus was expensive and so was the maintenance of an army. After 1767, legislation repeatedly changed the constitution of the EIC in order to reduce its autonomy. The Act of 1773, for example, recognized the company’s political functions but also stated that the ‘acquisition of sovereignty by the subjects of the Crown is on behalf of the Crown and not in its own right’ (Hartung 2000: 27–31; 42–4; Honourable East India Company 2008: 5). In making the EIC more directly accountable, the Act of 1773 was like a principal-agent model. It promoted the governor of Bengal to the rank of a governor general of India, supported by British judicial personnel to administer the British legal system with administrative authority over all of British India and entrusted with the power of peace and war with the costs of administration carried by the company.18 The VOC’s charter (Hartung 2000: 164–6) did not provide for strong control and intervention by the state until 1749 when a state

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representative was included in the governing body. Another formal instrument of control was the dependence of the VOC on the regular prolongation of its charter that had originally been valid for a period of 21 years.19 Unlike the charter renewals of the EIC, there were no fundamental charter revisions to limit the operative discretion of the overseas establishments of the company (Nagel 2007: 41). In any case, company representatives always had the opportunity to exert their influence on eventual charter revisions. For most of VOC’s existence, formal state control was less significant than the actual congruence of public and commercial interests. There were broadly shared views between the state and company representatives on how VOC should operate. There was also considerable informal personal overlap and fluctuation (Gaastra 1988: 11, 65) which made the relationship between the state and the company less hierarchical or controversial. This accountability relationship can be characterized by the considerable autonomy of the VOC from the state, although the charter foresaw the VOC as an instrument of the state against Spanish and Portuguese competitors (Gaastra 1988: 14; Nagel 2007: 103). Of the three companies, the BSAC may look like it has the most accountable relationship because of its obvious function as an informal instrument of British expansionism in South Africa. However, the fact that the BSAC operated in its own right and in formal independence from the government made it hard to control. Cecil Rhodes exerted some influence on the wording of the charter (Galbraith 1970: 147). Formally, the government put itself in a position to revoke the charter ‘at any time should the Company fail to carry out the provisions or to satisfy the Secretary of State that they were promoting the objects for which the Company was formed’ (BSAC 1936: 11; Litvin 2003a: 91). However, the company’s everyday dependence on the government was even weaker than the available formal control mechanisms would suggest. For some state control of the BSAC board, three members were appointed ‘to provide dignity and to represent the public interest’ (Galbraith 1970: 147f). Galbraith refers to these ‘public’ representatives in quotation marks due to their ‘somnolence in their functions as representatives of the public interest’ (Galbraith 1974: 116) and their close personal relationships and supposed complicity with the shareholder groups who dominated the corporation’s board. The controversy around the Jameson Raid of 1895 by the BSAC reveals its high degree of autonomy at the operative level from its London board. The directors were criticized for ‘reposing full powers in Rhodes’ and of being ‘used as a façade of respectability for those who


were supposed to be their agents but were in fact an irresponsible force’ (Galbraith 1970: 157). It is unclear how the British government could have exerted more influence or was taken by surprise by ‘an invasion deliberately planned and carried out by the Company’s agents without their [the directors’] knowledge’ (The Times of March 31, 1898, quoted in Galbraith 1970: 158). After their failure to intervene, the British government was successful in pressuring the BSAC’s board of directors for the resignation of Rhodes as the responsible board member, only to see him re-elected two years later. Furthermore, although determined to reinforce government control over the company after the failure, the government was reluctant to restrict the company’s political authority because it depended on the company’s ability to operate and ‘was disinclined to assume the administrative responsibilities of the Company’ (Galbraith 1970: 156; see also BSAC 1936: 10–1, 21; Galbraith 1974: 108–10, 321). It was another almost 30 years before the BSAC finally lost its administrative authority, but it happened for other reasons. For most of the time, ‘the charter provided controls which were never exercised. Rhodes prior to 1895 was a force without any real check but his own discretion’ (Galbraith 1970: 160) and the government hesitated ‘to exercise a substantial supervisory role over the British South Africa Company, and the provisions in the charter for such regulation remained inactive’ (Galbraith 1974: 339, 330, 338). In all three case studies, the quality of the original authorization by delegation and therefore the value of the potential source of legitimacy for private contributions to security governance suffered from the fundamental inability and indifference to exercise the controls the charters provided. Due to mixed interests within their home-state governments on control and revenues, the companies became a ‘force ungoverned and perhaps ungovernable’ (Galbraith 1970: 161). Accountability relationships between the companies and their governments were characterized by the formal hierarchy reflected in the charter delegating authority, rights and obligations to the company; a large degree of operative autonomy; and by public and commercial interests and motives which were complementary, almost symbiotic, but also at times incompatible. 7.4.2 Accountability relationships with shareholders Apart from the state supposedly committing the chartered company to the national interest (Nagel 2007: 41; Robins 2006a: 27, 43), the company was also accountable to shareholders (see Nagel 2007: 42–4; Robins 2006a: 80). Shareholder accountability in the EIC looked quite

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impressive on paper: a court of directors nominated and a general court of shareholders and proprietors elected the governor general. More importantly, this court needed the approval of a council appointed by the Crown. The Act of 1773 was the beginning of an end to the company’s identity as a self-determined, primarily commercial enterprise only accountable to its shareholders. It established financial accountability to the Treasury and political accountability to the Foreign Office (Reinhard 1996: 184). This formal ‘de-privatization’ of accountability was extended with the India Act of 1784. Through it the executive management of the company’s Indian affairs was transferred to a board of control answerable to parliament. The EIC had lost its sovereign authority and turned into an agent of the state (Robins 2006a: 136, 177). The VOC’s organizational structure (see Hartung 2000: 50–3) consisted of six chambers representing the regional predecessors of the unified company. Each was composed of a board of directors, 17 of whom were elected into the central governing body of the company, the assembly of the ‘Heren Zeventien’. They were responsible for the VOC’s general policy and selected the governor general and council of the Indies (‘Hoge Regering’) in Batavia. The governor general ran the head office and administrative centre of the VOC in Asia and reported on business activities in Asia to the directors at home. This internal structure explicitly discriminated against ordinary shareholders as they had little influence on the corporation’s strategy, unlike the directors who were both investors and managers. The directors had many rights and few obligations and ‘enjoyed the protection of the charter’. As a managerial group, their job was to foster continuity and consolidate against the short-term profitseeking by other shareholders. Consequently, shareholders did not have any influence on their appointment.20 Furthermore, the directors’ information policy towards ordinary shareholders was not transparent and often gave rise to shareholder complaints (Hartung 2000: 58–9, 158–9). It was only at a later stage that directors were held accountable to major shareholders by opening the books. In BSAC, shareholder interests were able to dominate the company’s board much more than the ‘worse than useless’ representatives of the public interest ‘who gave a sheen of respectability to the operations of a company over which they exercised no control’ (Galbraith 1974: 116). Although regular reporting to shareholders was institutionalized (BSAC 1936: 20; Litvin 2003a: 93) and their board membership gave the shareholder groups some influence, in practice they ‘abdicated their authority’ (Galbraith 1970: 157). Consequently, the board functioned more as an instrument for Rhodes to justify his activities than as an actual


controlling body. Operative autonomy and complementary commercial interests therefore also characterized the accountability relationship between the companies and their shareholders. Shareholders had either only limited influence on the companies’ policies and development, as in the case of the VOC where they depended on the directors’ decisions and willingness to communicate, or they completely relied on the decision-makers in the field, as in the case of the BSAC. 7.4.3 Accountability relationships with those under the rule of the chartered companies So far, neither the companies’ accountability relationships with their home-state governments nor with their shareholders have an impressive record of legitimacy. If evaluated according to the democratic standards of today, the most fundamental legitimacy deficit is the accountability relationship with indigenous people. Local rulers, merchants and people in general were subjugated without their consent to the rule of a private company authorized by the charter of a foreign government to violate their right to self-determination. Once again, the HBC Charter makes the most explicit reference to the prevailing understanding of the ‘rights’ of native inhabitants: according to the foreign rulers, overseas territories and their populations were rightfully subjugated by a chartered company as long as they were ‘not already actually possessed by or granted to any of our Subjectes or possessed by the Subjectes of any other Christian Prince or State’ (The Royal Charter 1670). Territories governed by non-Christians could be violated by foreign occupation as they were regarded as not being ruled nor had a right to self-determination. With reference to the BSAC, ‘the great significance of the charter was in its legitimization of the acts of a company which, so far as its relationships with African peoples were concerned, was virtually unrestrained’ (Galbraith 1974: 122). As a consequence, when chartered companies had to deal with local territorial rulers or political structures, they did not respect them in their own right unless there was a strategic or economic rationale or benefit in making them their – generally unequal – partners or instruments of ‘indirect rule’ (Osterhammel 2006: 55). The BSAC practised both peaceful interaction patterns with African tribes and rulers (loose diplomatic contact for contracts allowing the exploitation of mineral resources) and brutal violence (BSAC 1936: 8; Litvin 2003a: 82, 89–90, 98–9). The EIC was also unrestrained in its choice of instruments. It made treaties with the Indian Mughals that were also binding for the local rulers under the Mughals’ reign (Nagel 2007: 144–6). Whenever the company realized that it was dependent on the cooperation of local

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merchants, they were treated likewise. However, beyond these mutual dependencies there were usually no rule-based relationships between the company and local peoples. In some cases, companies even established trading posts that were under the control of the local rulers, depending on the power constellation. On the other hand, less powerful local rulers were turned into vassals by military coercion or through diplomatic agreement when they were too strong and the use of force seemed unrealistic (Nagel 2007: 65). This variety of interaction patterns is also characteristic of the VOC’s accountability relationships with their Asian or African ‘partners’. A few of the company’s trade establishments had contracts with indigenous rulers that were equally beneficial to both. To get access to the Japanese market, the VOC displayed a submissive attitude towards the local ruler (Nagel 2007: 108, 118f). Many more territories were won by ‘eigen conqueste’ or by exclusive contracts based on the use of force, as in the cases of Formosa or the islands in the Moluccas.21 The deplorable conclusion to the companies’ accountability relationship with local rulers and peoples is as follows: a respectful attitude towards the already existing political structures did not signify a general acceptance of being accountable but was a result of the local political powers a company faced in its overseas operations. Even the most cooperative interaction did not imply accountability measures in the relationship between a company and local peoples, leaving the latter resorting to violent resistance as the only means of holding a company accountable. Thus, despite the formal delegation of the right to use force by their home-state governments, a fundamental legitimacy deficit overshadowed private companies performing state functions in foreign territories: the violation of the principle of congruence. Those who came under the rule of a chartered company had little or no influence on their rulers.

7.5 Conclusions: Chartered companies as political actors – dinosaurs or role models? The chartered companies represent a specific type of public–private partnership in their governance contributions to peace and security. It is formally hierarchic but in practice there is often complementary and cooperative interaction between the state and the company. The historical perspective reveals that public–private co-performance of security-related governance is not very new. Rather, as the early modern precursor to today’s transnational corporations, chartered companies


exercised public governance functions long before the golden age of the modern nation-state. It was basically for the same reasons that companies have been expected to take on public responsibilities since the decline of the golden age: the limited resources – and to some degree the willingness – of the early modern as well as the postmodern state to provide these functions effectively in regions of limited statehood. This also puts Milton Friedman’s doctrine of ‘the social responsibility of business is to increase its profits’ (Friedman 1970) in its rightful historical place; namely an exceptional interim period which relied on the assumption or fiction of the ‘fully developed democratic constitutional interventionist state’ (Zürn 2008: 294). This historically and geographically exceptional constellation differs fundamentally from the pre-existing statehood, the post-national state that will come out of the present transformation process, and from any contemporary state outside the OECD. In none of these three different instances of normality is the state able to ‘go it alone’ but had and will have to rely on external, that is, private, problem-solving resources. The early modern state, the emerging state outside the OECD world and the post-national constellation state within the OECD all share the common problem of limited state resources to provide public goods effectively. They also differ in how they enable or invite private actors to be co-producers of statehood and co-performers of security governance. In the early modern period, private actors were given the political authority to perform security functions by formal delegation from state competencies. Although this method of tapping the resources of private actors while at the same time holding them accountable to the national interest may be out of fashion, it has not disappeared altogether. As a form of indirect rule, it is likely to always attract the neo-mercantile ambitions of newcomers to the globalized economy. Of course, public authorization still happens when governments or international organizations delegate certain operative security governance functions to private security firms. Authorization by delegation is no longer the prevailing pattern of interaction when public and private actors share responsibilities for the co-performance of security governance. New modes of private involvement in security governance do not convey legitimacy via any formal authorization from the state. Rather, private governance contributions are understood as voluntary self-commitments in reaction to public expectations. These expectations are soft ‘invitations’ to private actors to take on responsibilities for the provision of public goods. Implicit authorization by appealing to the responsibility of companies

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is a reflection of the transformations already occurring in the modern state. It foreshadows new patterns of interaction between the public and the private sector on concepts such as ‘new public management’, ‘global corporate citizenship’ (Scherer and Palazzo 2008), ‘corporate social responsibility’ and, ultimately, ‘corporate security responsibility’ (Wolf et al. 2007). The legitimacy of private contributions to security governance thus shifts from being ‘in authority’ because of delegation, to being acknowledged as ‘an authority’ in its own right with certain public responsibilities. However, this is based on accountability relationships which adequately reflect the normative demands of today and therefore also have to seek the consent of those who suffer most from the lack of public security. Taking the nation-state golden age ‘as the norm against which to measure change’ (Zürn and Leibfried 2005: 13) in the relationship between the state and other actors tends to overlook the fact that ‘coproduction of statehood’ (Schuppert 2008) is not very new. The early modern precursors to today’s transnational corporations, the chartered companies, are particularly instructive examples of how the early modern state shared responsibilities with private companies by outsourcing even military functions to them. Long before the nation-state golden age commenced its decline by ‘relinquishing responsibilities to nongovernmental entities’ (Zürn and Leibfried 2005: 14) and, in fact, long before the modern state had even come into existence, chartered companies united commercial and political functions and were involved in the ‘co-production of governance functions’ (Schuppert 2008). The novelty is not in the public–private partnership as such but in the modes of interaction between the state and its private partners. While government charters granted monopoly rights to early modern companies via a hierarchical mode of authorization, formal delegation of authority is today replaced by soft appeals to private corporations. The emerging new interplay between the state and non-state actors differs from preexisting forms in the neoliberally informed, legally non-binding way in which the state casts its regulatory shadow over the involvement of private corporations in public governance functions. This history could have included many more examples of transnational corporations that established trade empires.22 The three case studies suffice to show that today’s reluctance by corporations to take on security responsibility is based on a historically and geographically unique deviation that can be explained by the exceptional ‘modern’ coincidence of neoliberal thought and the nation-state golden age. The widespread acknowledgement of the limited ability of postmodern states to provide


governance functions effectively on its own shows that patterns are returning to ‘normal’. In the era following the nation-state golden age, corporations will therefore have little choice but to take on political obligations once again. Hopefully they will not follow the role of their historical predecessors but, in interaction with states and civil society, find adequate answers to the new challenges of democratic accountability in private governance, the overburdening of the financial means of private actors and the compatibility of commercial motives and public obligations.

Notes 1. Only the French chartered companies were an exception. They were established and controlled by the state in order to serve the mercantilist foreign trade policy more effectively (see Hartung 2000: 105–8). However, this expectation was unrealistic because the focus on colonization and political control turned out to be somewhat detrimental to commercial success. 2. George P Landow: The British East India Company – the Company that Owned a Nation (or Two), http://www.victorianweb.org/history/empire/eic.html (date accessed: 6 August 2008). 3. Robins (2002: 83–4) reports ‘that attempts to control its [the EIC’s] affairs could bring down governments’. 4. ‘At its height, the Company ruled over one-fifth of the world’s people, generated a revenue greater than the whole of Britain and commanded a private army a quarter of a million strong’ (Robins 2002: 79). 5. The ruthless activities of the EIC are said to have left Bengal ‘in utter destitution’, the famine of 1769–70 which took the lives of one-third of the population being only one of many examples of the company’s indifference to the welfare of the indigenous population. See http://www.sscnet.ucla. edu/southasia/History/British/EAco.htmlH (date accessed: 6 August 2008). 6. See F.S. Gaastra, The VOC Organization, http://www.tanap.net/content/voc/ organization/organization_found.htm (date accessed: 3 October 2008). 7. A more detailed overview of the VOC’s foundation, organization and history by F. S. Gaastra can be found at http://www.tanap.net/content/voc/ organization (date accessed: 3 October 2008). 8. ‘The charter laid down that nobody except the VOC could send ships from The Netherlands to or conduct trade in the area east of the Cape of Good Hope and west of the Straits of Magellan’ (F. S. Gaastra, The VOC Organization, http://www.tanap.net/content/voc/organization/organization_found.html [date accessed: 2 October 2008]). 9. See F. S. Gaastra, VOC Organization, http://www.tanap.net/content/voc/ organization/ organization_batavia.htm (date accessed: 3 October 2008). 10. See Galbraith (1970: 149–52); see also http://countrystudies.us/southafrica/16.htm (date accessed: 11 August 2008). 11. As per the definitions used in this volume, direct governance contributions to peace and security address the level of violence in a given territory ‘directly’; indirect contributions to security governance address issue

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12. 13. 14.

15.

16.

17.

18. 19.

20. 21. 22.

Chartered Companies areas which are relevant to peace and security, such as political order, the promotion and distribution of material wealth, and socio-cultural causes of violence (see Feil et al. 2008: 7–9). For example, the EIC had 291,000 soldiers under its command in 1857, the year of a massive rebellion (the Sepoy Mutiny) (Kramer 2007: 26). See http://www.tanap.net/content/voc/organization/organization_intro.htm (date accessed: 3 October 2008). In a similar way, the comprehensive administrative functions (see also Rich 1958: 54) delegated to the Hudson’s Bay Company made the company ‘the true and absolute Lordes and Proprietors’, authorized them to ‘make ordyne and constitute […] reasonable Lawes Constitucions Orders and Ordinances as to them […] shall seeme necessary and convenient for the good Government’, and granted them ‘Jurisdiccions Perogatives Royaltyes and Appurtenances whatsoever’ to ‘provide such paines penaltyes and punishmentes upon all Offenders’ (The Royal Charter 1670). The gradual metamorphosis into a private public actor also caused some contradictions for the personnel because maximizing private profits became increasingly incompatible with the public administrative obligations of their company (Hartung 2000: 37). The charter of the HBC was proclaimed by King Charles II in 1670 and granted this North American trading company wide powers, including exclusive trading rights in the territory around the rivers flowing into Hudson Bay (‘Rupert’s Land’). The HBC promoted the political function of establishing a British-ruled colony on the territory given to it by the Crown (see Galbraith 1957; Litvin 2003a and 2003b; Rich 1958: 559). These circumstances also limited effective control by the London headquarters of the EIC. As Robins (2002: 83) notes, ‘distance and poor communications […] meant that the London Board had little real control over the actions of the private enterprise imperialists’. [...] ‘Although East India House laid down clear parameters on the content of its commerce, it gave considerable freedom to local management to determine how these goals were to be achieved’ (Robins 2006a: 32). See also Litvin 2003a: 53–4; Nagel 2007: 51. http://en.wikipedia.org/wiki/Honourable_East_India_Company (date accessed: 6 August 2008). From 1602 to 1798, the States General issued 15 charters for the VOC (see http://www.tanap.net/content/voc/appendices/charterlist.htm [date accessed: 22 August 2008]). See F. S. Gaastra at http://www.tanap.net/voc/organization/organization_ direct.html (date accessed: 3 October 2008). See F. S. Gaastra at http://www.tanap.net/content/voc/organization/ organization_asia.html (date accessed: 3 October 2008). The Hanseatic League is an even earlier instance of governance functions taken on by economic actors in territories outside their home states. It served merchants from mainly German cities to dominate trade in the Baltic area from the thirteenth to the fifteenth centuries. The formal members of the Hanseatic League were cities – that is, public actors – although they widely overlapped in personal and ideological agreement with the ruling merchant class.

8 Private Security and Military Companies: The Other Side of Business and Conflict Nicole Deitelhoff

8.1 Introduction Private business actors enter security politics in two ways. One rather indirect way is when transnational corporations (TNCs) are called upon by states, civil society or the international community to engage in security measures during their daily operations (for example the ‘Voluntary Principles on Security and Human Rights’ developed by the US and British governments in partnership with the biggest extraction companies, such as BP, Shell, Talisman and Rio Tinto).1 TNCs partner with strong states to provide security in areas of limited statehood or they commit themselves to private self-regulation schemes, such as codes of conduct (Bailes and Frommelt 2004; Feil et al. 2008; Wolf et al. 2007). Corporate social or security responsibility is the main area of concern here. The involvement of private business corporations in the provision of security is often a result of increasing pressure by states, the international community and civil society alike, as well as a need to secure their investment and operations in zones of weak government and conflict. TNCs may be drawn into security governance measures but it is by no means their primary focus (Deitelhoff and Wolf 2009; Wolf et al. 2007). Apart from such ‘regular’ TNCs, there is another type of business actor in the field of security policy: private security and military companies (PSMCs). Their involvement signals the increased outsourcing or contracting to PSMCs for provision of specific security services, such as combat support (logistics, intelligence, weapons maintenance), convoy, personal and facility security, advice and training (risk management, military and security training measures and weapons procurement) or even combat (field troops or weapons operation). This is the most direct way in which private business actors might enter security politics, 177

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although often not the most visible. In contrast to TNCs, security provision is not an additional burden for PSMCs but rather their core mission. These actors sell security as a commodity to those customers willing and capable of paying for their services. This makes it difficult to apply a concept such as corporate security responsibility to them as their contribution to security is not a voluntary commitment to a responsibility but simply their business. Additionally, the actors’ governance contribution pertains to the provision of public goods when they are government agents or when governments outsource this responsibility to them. This is different from rule setting or implementation, which indirectly contribute to the provision of public security that companies with other core business interests might engage in (Deitelhoff and Wolf 2009; SFB 2007). Overall, outsourcing and contracting to PSMCs have increased in importance in nearly all states, albeit in varying degrees. Privatization is strongest among the Anglo-Saxon countries, with the US being unmatched, but it is on the rise in other states as well. This development is heightened by a general denationalization of security threats (Zangl and Zürn 2003) and an ideological trend which perceives outsourcing or partnering with private actors in the provision of public goods as a high hope for the future of global governance (Börzel and Risse 2005; Ottaway 2001a: 267; Reinicke 1999–2000). It will supposedly relieve state resources, being more cost-efficient, and increase flexibility (Haufler 2004; Huckel et al. 2007). This chapter provides an overview of the phenomenon of PSMCs and their governance contribution to security and peace in zones of conflict, delineating the commonalities and differences between them and TNCs. This is done by comparing a weak state and a strong state’s contracting to PSMCs. PSMCs usually operate in weak zones of governance and conflict. Huge differences may be expected between being hired by strong states (as part of their military interventions or post-conflict reconstruction strategies in weak states) or whether they operate on behalf of weak states in enduring conflicts within these states. Specifically, the comparison focuses on two interrelated aspects. Following the analytical framework of the CSecR project (Chapter 1; Feil et al. 2008), the analysis first traces the kind of governance contribution PSMCs provide; that is, direct security or an indirect contribution in other policy fields. Going beyond the conceptual framework above, the analysis in this chapter focuses on the ramifications of the PSMCs’ presence in the conflict situation, public security, political stability and state consolidation in a broader perspective. The analysis indicates that PSMCs contribute to security governance more directly than TNCs as

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their activities usually directly address the organization or use of force. However, that does not necessarily lead to a higher or more positive impact on the provision of public security in the zone of conflict or on state consolidation. Instead, empirical evidence suggests that PSMCs, while being effectively able to end violence in the short run, further undermine state consolidation in the long run. Section 8.2 illustrates the context of the trend towards privatization and outsourcing, before an analysis of the rise of the private security industry. Two typical case studies of weak-state/strong-state contracting to PSMCs are analysed: Gurkha Security Guards, Executive Outcomes and Sandline International in Sierra Leone in the 1990s; and outsourcing to PSMCs by the US government in the wake of the Iraq conflict post-2003 (Section 8.3). These case studies are compared in terms of the kind of engagement and effects on security and political stability in the zones of conflict and beyond (Section 8.4).

8.2 The privatization trend: Business actors and international security With the end of the Cold War, globalization and denationalization, already present in many other policy fields, began to materialize in security. The once predominant inter-state conflicts have decreased since World War II while intra-, sub- and non-state conflicts have generally proliferated and total about 90 per cent of all wars today (Chojnacki 2005; 2006). In total, one could speak of a trend of a privatization or denationalization of security threats that states and the international community are confronted with today (Chapter 1). These developments pose several challenges for TNCs, as many corporations have accessed new markets and invested in transitional or developing countries for cheap labour and valuable natural resources, such as oil, timber, gold, diamonds and coltan (Avant 2005: 180f). With the spread of conflict zones and failing or weak state structures, these companies faced difficult decisions on whether to withdraw from these areas or to protect themselves against the increasing threats to their investments and personnel. Transnational civil society and international organizations began to pressure TNCs to be more aware of the potentially negative external effects of their activities in zones of conflict. Companies were often accused (and rightly so) of fuelling and exacerbating conflicts by trading conflict-relevant resources, sponsoring conflict parties, exploiting regulatory gaps or simply helping to keep dictators in office. Nongovernmental organizations (NGOs) thus demanded that TNCs use their

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resources to proactively contribute to upholding basic human rights, environmental standards and, lately, security in their host countries. Widespread NGO campaigns, consumer boycotts and direct appeals by international organizations such as the UN called on TNCs to consider their responsibilities as corporate citizens in conducting business which could be, as former UN Secretary General Kofi Annan termed it, ‘crucial, for good or for ill’.2 This development came as a new and generally unwelcome challenge to TNCs and marked the rise of the modern private security industry. The more that states in zones of conflict became unable to provide basic levels of security and the more the international community, Western states especially, felt the pressure to intervene within these conflicts, the higher the general demand for security services became. Weak states asked for support to defend themselves against insurgents, rebel movements or criminal organizations and were often frustrated by the ignorance or slowness of the international community to respond, thus turning to PSMCs to satisfy their need (Chojnacki and Deitelhoff 2005). Strong states from the OECD world came under enormous pressure to react to ever-increasing conflicts, crises and threats, leading to multiple interventions and often complex post-conflict reconstruction. The increased importance of the military in international security led to a general overstretch in military capabilities, even in the most powerful countries like the US. Outsourcing and contracting to PSMCs was one strategy to alleviate this, ensure flexibility and surge capabilities and decrease costs. The nature of warfare also changed, giving rise to hi-tech weapons systems which in turn made private support for maintenance and operations necessary (Deitelhoff 2008a; Schörnig 2007; Zamparelli 1999: 11). International and humanitarian organizations asked PSMCs to deliver disaster relief in conflict zones as public militaries were often not capable or even present to protect them (Spearin 2001; von Boemcken 2007). Faced with massive security problems in their day-to-day operations in zones of conflict, TNCs finally turned to PSMCs to secure their investments (Avant 2005). The nascent private security industry could rely on a huge supply of military personnel and infrastructure on the global market as a result of the reductions in troop sizes and the general disarmament of most major armies after the Cold War (Singer 2008; Zamparelli 1999). This trend of outsourcing and contracting to PSMCs and reliance on TNCs’ voluntary commitments to security provision was supported by a political climate which welcomed liberalization, privatization and the

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general retreat of the state as a cost-saving and more efficient solution to public policy problems. Phrases like ‘new public management’ and ‘the lean state’ have been used (Deitelhoff and Geis 2007a; 2007b; Muthien and Taylor 2002: 183; Singer 2008). The reliance on the selfcommitment of TNCs and PSMCs was thus an intentional reaction to the changed security and political environment, providing private corporate answers to the public policy crisis of an increased demand for security services (Haufler 2004: 160).

8.3 Private security and military companies: Privatizing peace 8.3.1 The rise of the private security industry The rise of PSMCs can be roughly associated with the end of the Cold War, although some have been active for much longer. The US military in particular relied on companies already in Vietnam (Singer 2008). However, the extent of the services and geographical range is a newer feature. These companies should also be distinguished from mercenaries, who were particularly active in conflicts on the African continent post World War II, as PSMCs have become a regular industry (Musah and Fayemi 2000). They usually have professional management, are legally registered and are often traded on the stock markets. Many companies are part of global consortia, such as Halliburton, L-3 Communication or Lockheed Martin (O’Brien 2000; Singer 2008). They are business corporations which offer specialized security services to the global and regional market. The industry is often perceived as private soldiers fighting for conflict parties. However, direct involvement in combat is only a small part of the kind of security services these companies offer (Deitelhoff 2008a). Their main business areas are direct or indirect combat support. They offer logistics (housing, transportation and amenities); intelligence (interrogation, satellite surveillance and analysis); training and advice (risk management, training of special forces, police and army); personal, convoy and facility security; and weapons system development, procurement, maintenance and operation. Similarly diverse is the spectrum of their clients, ranging from states, international organizations and NGOs to TNCs (Avant 2007b: 424; Spearin 2001). Even though the private security industry has evolved and grown at an astonishing rate since the early 1990s, there is still a lack of reliable data on the actual number of companies, employees or annual turnovers. It is estimated that 200–300 PSMCs are currently active in

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international security activities and conflicts (Singer 2008). The wars in Afghanistan and Iraq have been a particular boost for the industry. The US General Accounting Office (GAO) estimates that about 180 PSMCs are currently working in Iraq (GAO 2006b: 2), offering their services to the coalition troops, the Iraqi government, international organizations, humanitarian organizations and local and transnational businesses. Figures available for Afghanistan show that there are approximately 90 PSMCs operating there, while about 100 are active in Angola (Joras and Schuster 2008: 11). PSMCs are assumed to be operating in at least 100 countries (ICIJ 2002). Outsourcing and contracting are global phenomena, albeit unevenly distributed. It is most advanced in the US, which started its current outsourcing initiative in the mid-1990s (CBO 2008). The US might be unparalleled in its rate of outsourcing but it has followers. The governments of France, the UK and Israel are working with PSMCs (see Kinsey 2006) and the militaries of former CIS countries are trained to follow NATO standards (Avant 2007b: 424; Krahmann 2007). The German military has also increased its privatization even though it is still limited to non-core functions, such as site and facility management (Branovic and Chojnacki 2007; von Boemcken 2007). However, the Bundeswehr has already relied on PSMCs for troop transportation and facility security in Afghanistan (Petersohn 2006: 15). Remarkably, in the grand security strategies almost all Western states, privatization strategies have found their place. With the rise and spread of PSMCs in conflicts and among states, so too have worries that they might undermine the state monopoly on violence, becoming a rival of the state (Avant 2005; Leander 2005; Singer 2008). Part of this concern stems from experiences with PSMCs but mostly it stems from dealings with mercenaries in weak states, especially on the African continent. One of the most well-known cases of PSMCs operating in a weak state is Sierra Leone’s civil war in the 1990s. 8.3.2 Weak states and PSMCs Private security services are mushrooming in most African countries and conflicts, leaving many worried that they constitute a renaissance of the old ‘dogs of war’; that is, the prevalence of mercenaries in postcolonial Africa after World War II (Musah and Fayemi 2000; Muthien and Taylor 2002; Zarate 1998). During this time they were often part of external commercial interests to keep or regain control of resources and regions, further destabilizing the countries and hampering state consolidation (Leander 2005: 610; McIntyre and Weiss 2007: 76f).

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Even though the modern PSMCs do not have much in common with the former mercenaries, these worries are not unfounded. Studies on PSMC operations in African conflicts argue that PSMCs weaken rather than strengthen state structures in the long run (Avant 2005; Chojnacki 2007; Leander 2005; McIntyre and Weiss 2007; Singer 2008; Zarate 1998). They contend that their involvement often leads to more fragmentation in the supply of security (Chojnacki and Deitelhoff 2005; Leander 2005: 615; Spear 2006: 39), that they increase the influence of external commercial but also political interests on these states (Chojnacki 2007: 253; McIntyre and Weiss 2007: 68). Other studies have found that PSMCs tend to weaken the already shaky loyalty of public military forces to the government (Leander 2005: 617), diverting resources and recognition from public institutions (Avant 2005: 97). PSMCs also increase the possibility of further conflict by being perceived as a threat by local populations (Joras and Schuster 2008). All this would suggest that PSMCs are not the type of actors that contribute to security and peace. However, many weak state governments do not have many options when it comes to securing or regaining their monopoly on violence when faced with secessionist or rebel movements. Their military forces are often weak, badly trained and underpaid (Clapham 1999). This is possibly because of a lack of resources or simply because the ruling government aims to suppress a potential rival from seeking a share of revenues from natural resources, as is the case with many shadow or quasi-states (Herbst and Mill 2003; Jackson 1990; Reno 1998). Since the end of the Cold War these weak state governments have overwhelmingly lost the support of the superpowers that stabilized their rule. The former superpowers are not particularly eager to intervene in distant African conflicts if they do not have manifest interests (Kocks 2007; Sorenson and Wood 2005). Thus, PSMCs may be the last resort to state survival, at least as long as the governments themselves have the resources to pay, or payment is by third parties or from forecast future revenues from natural resource exploitation.3 The most prominent cases of this are the operations of the South African company Executive Outcomes (EO) and other PSMCs in the conflicts in Angola and Sierra Leone in the mid-1990s. Both states suffered civil wars or rebel movements after the end of the Cold War. 8.3.2.1

PSMCs in Sierra Leone

Sierra Leone is a typical failing state suffering from a war economy (Reno 1998; 2000). The country is rich in natural resources, as some of the world’s largest sites for rough diamonds are located in the country.

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This is not a blessing but rather a curse. Even though Sierra Leone developed an extensive state structure after independence from Great Britain in 1961, it did not exercise state-wide authority nor did it provide general public services to its population. The wealth from natural resources usually never reached ordinary citizens and poverty among the population was widespread. Power and social control resided with local tribal clans and chiefs while the central state authority was weak. Sierra Leone’s president, Siaka Stevens, essentially used the revenues from diamond exploitation to buy loyalties from local rulers and to suppress opposition in the country (Avant 2005: 82f; Reno 1998). That also meant that he was eager to keep the state bureaucracy and institutions, such as the police and military, weak in order to prevent potential rivals from gaining power (Reno 2000: 53; Singer 2008: 110). In the end, he had established a sophisticated patronage system within the country. When his successor, Joseph Momoh, came into office in 1985 he faced a complicated network of power and patronage which he could not untangle. Left without much public revenue from the diamond mines (as his predecessor had exempted diamond mining from taxes) and increasing pressure from international institutions to reduce state debts, his position was insecure. It was further challenged when a rebel movement, the Revolutionary United Front (RUF), fed by a disgruntled military, invaded the country from neighbouring Liberia in 1991 (Spear 2006). The rebel movement did not meet much resistance as the public army was in miserable condition, underpaid (if at all), badly trained and small in number (Singer 2008: 111). The conditions within and practices of Sierra Leone’s army even gave rise to the term ‘sobel’ (soldier by day, rebel by night) to describe such forces on the African continent (Avant 2005: 84; Reno 2000: 50). These conditions finally led to a military coup in 1992 by Valentine Strasser, who took over office in April 1992. Even though Strasser immediately tried to increase the military’s strength by enlarging conscription to the forces, the financial problems remained, unleashing an untrained and often unpaid youth on the battlefield (Reno 1997, 2003). The RUF, feared for its cruel torture strategies, thus quickly gained ground and in 1995 it had captured all relevant diamond-mining sites and was about to take the capital Freetown. Left with few options, Strasser turned to PSMCs to assist the beleaguered country for the first time. He hired the British company Gurkha Security Guards (GSG) to train the military. However, GSG soon pulled out of the country after experiencing several encounters with the RUF, in which it lost several of its employees. Strasser wanted GSG to extend its services to actually deploy with Sierra Leone’s army, the

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RSLMF, on the battlefield, an extension GSG denied after it lost one of its commanders to the RUF and rumours that he had been eaten by the enemy forces (Singer 2008: 112). Strasser then turned to Executive Outcomes, which had just successfully helped the Angolan state to counter the threat from the UNITA rebel movement. EO was hired to train the armed forces and to plan, coordinate and deploy with the forces on the ground (Musah 2000: 89). Details of contracts are murky. However, it is known that the contracts amounted to USD35 million, of which the company received only about half. EO was to receive USD2 million per month, however 50 per cent of it was to come from future revenues from the diamond mines which EO was meant to retake and secure as part of its contract (see Avant 2005: 86–90). EO employees (at its peak the company had 300 employees on the ground; Vines 1999: 132), most of them flying in from Angola, started a rigorous training programme for the army. EO came fully equipped with helicopter support, gunships, two evacuation aircraft and its own medical personnel. Within just a few weeks, EO led the RSLMF in a counter-offensive and succeeded in pushing the RUF back from the capital and deep into the countryside. It then made efforts to regain the mining areas. As the RSLMF forces were in such bad shape and considered to be an unreliable partner, EO looked for an alternative force in the country to support their mission, eventually turning to the traditional civilian defence forces that had been part of former President Steven’s efforts to keep the RSLMF weak and further his patronage system. EO began to train and work with the Kamajors, a regional tribal militia in the east (Howe 1998: 317). The Kamajors proved very effective in fighting the RUF, which worsened the relationship between the RSLMF and the government, especially Strasser, as the army felt threatened by the local militia (Singer 2008: 113). Strasser’s government was also under enormous financial pressure and had not yet paid EO, with the company threatening to pull out of the country. After intense negotiations, Strasser made initial payments, further alienating the RSLMF. Soon after, Strasser was overthrown by his vice president, Bio, who was cooperating with the RUF. EO neither stepped in nor left the country but continued to work with the new regime, which in turn succeeded in signing a ceasefire agreement with the RUF (Avant 2005: 89). Pressured by the international community to hold elections, Bio duly did so in February 1996, bringing Ahmed Teja Kabbah, a former UN officer, into office. Kabbah renegotiated contract terms with EO and succeeded in significantly reducing the monthly payments to the company. In the following months, however, violence intensified

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again between the armed forces and the RUF. Kabbah, becoming aware that parts of the RSLMF were planning a coup against him, decided to reduce the army’s budget and size significantly, leaving the RSLMF even more opposed to his government. Kabbah came to lean increasingly on EO and the Kamajor forces to stabilize the country, which they did in a successful offensive in the autumn of 1996. The RUF finally signed a peace accord in Abidjan on 30 November 1996. Part of the agreement, however, was that EO had to leave the country. Expecting a UN peacekeeping mission to deploy soon thereafter, Kabbah agreed, only to learn that the mission was postponed (Spear 2006: 28). Instead, Nigerian ECOMOG (Economic Community of West African States Monitoring Group) troops, stationed in Liberia, entered the country (Singer 2008: 114). Tensions and fighting quickly resurfaced and the situation deteriorated again, leading to a military coup against Kabbah in May 1997 by Major Koroma and parts of the army (Keen 2000: 36). The Nigerian ECOMOG troops could not remove Koroma from power after he allied his forces with the RUF. President Kabbah, in exile in Guinea, hired Sandline International (SI, a British company commissioned by British High Commissioner to Sierra Leone, Peter Penfold) (Fuchs 2007: 112), to reinstate him in Sierra Leone. Contract terms foresaw that SI would support ECOMOG troops by training, planning and coordinating the counter-attack on the forces of Koroma. An essential part of these tasks was to properly equip the ECOMOG forces. SI shipped in about 35 tons of arms and ammunition from Bulgaria. Although these weapons never arrived on the battlefield, the alliance of SI, ECOMOG troops and the Kamajors succeeded in retaking the capital and reinstating Kabbah’s government in February 1998 (Spear 2006: 29).4 After peace negotiations and a range of violent encounters, the Lome peace accord was signed in July 1999 and a UN peace mission deployed in Sierra Leone. However, poorly equipped and trained, they could not put an end to the fighting which began again. In the end it was only a combination of an extended UN mission, Guinean forces and a British intervention in June 2000 that brought peace to the country and allowed President Kabbah to declare the end of civil war in 2002, 11 years after it had started, and to hold democratic elections (Spear 2006: 30–3). 8.3.2.2 Contributions to security and peace by PSMCs in the civil war in Sierra Leone As the history of PSMC involvement makes clear, PSMCs were directly contributing to security governance in Sierra Leone. Apart from the first PSMC on the ground (GSG), EO and SI not only trained and advised the

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armed forces of Sierra Leone but also took part in combat. Additionally, they took over policing functions in the mining regions in the eastern part of the country, securing access to the mines, the operations of the mining companies and security for ordinary citizens and humanitarian aid agencies. The EO deputy commander on the ground even took office in the Ministry of Defence, directly below the chief of staff of the RSLMF, and was granted wide-ranging powers over the military by President Strasser (Avant 2005: 86f). Thus, PSMCs, in the organization and exercise of force, were at the heart of the state monopoly on violence. Yet PSMCs were also going beyond security governance, contributing to governance in other policy fields relevant to peace and security. Although the PSMCs were not contracted to take up responsibilities other than those oriented towards strengthening the capabilities of Sierra Leone’s forces, at least one of them is reported to have contributed to other policy fields as well. Executive Outcomes actually contributed to socio-economic issues in Sierra Leone by helping to rebuild and reopen schools in Sierra Leone (Zarate 1998: 97). They also built water filtration systems, flew in medicines from South Africa and financed local clinics (Singer 2008: 117).5 8.3.2.3 Consequences of contributions to peace and security by PSMCs The companies were able to stabilize the security situation in Sierra Leone remarkably fast, pulling back the rebel movement and stabilizing the overall situation to such a degree that the rebel movement was willing to enter into peace negotiations. This led to the Abidjan peace accord in 1996 and to the free elections that brought a civilian politician, the former UN diplomat Ahmed Tejan Kabbah, to power (Avant 2005: 90; Spear 2006: 31). EO was able to retake the diamond sites at Kono and Sierra Rutile, thus securing the country’s main source of revenue, necessary to rebuild its economy and state functions. Thanks to the PSMCs, foreign investors soon began to reinvest in the country, another factor crucial for economic development and prosperity in the long run (Howe 1998: 315; Reno 1997: 229). However, this good news came at a price. After the PSMCs withdrew from the scene as part of the peace agreement, fighting quickly resurfaced, leading to a further deterioration of the situation (Fuchs 2007: 110; Singer 2008: 109) and the military coup against Kabbah in 1997. The same pattern happened with Sandline International. Even though it pushed back the rebel movement, preparing the path to the peace accord of Lome in 1999, fighting restarted once the company left the country. In the end, it was only the combined pressure of UN forces,

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the Guinean army and the British intervention which could establish a lasting stability in the country, which is still shaky today (Avant 2005: 96; Spear 2006: 30f). Even though PSMCs were obviously able to bring short-term stability to the country, supporting the state monopoly on violence, they failed in bringing about long-term stability. Part of this problem could probably be attributed to the fact that PSMCs further weakened the loyalty of the public armed forces to the government. The civil war in Sierra Leone was in part caused by a frustrated army. The PSMCs, faced with an unreliable, badly trained and ill-equipped army, turned to the civilian defence forces which were part of the old patronage system that had prevented stability in the first place and whose loyalty was to their own ethnic regional group. The Kamajors became a regionally based rival force in the country, leading to new conflicts between the regular armed forces and the government, and, finally, to the military coup against President Kabbah (Avant 2005: 88–91; Fuchs 2007: 109; Singer 2008: 113). The shifting of resources to private foreigners and local militias exacerbated the already existing tensions between the military and the civilian government (Musah 2000: 95). Sierra Leone also experienced fragmentation of security (Fuchs 2007: 40; Leander 2005). A lot has been written about the intimate connection between PSMCs and extraction companies in African conflicts (see for example Fuchs 2007; Musah 2000; Singer 2008). EO was accused of being paid in mining concessions and of working together with Branch Energy, one of the leading investors in mining in Sierra Leone (Fuchs 2007: 108f, 114–16). Whether or not it is true that the PSMCs were partly paid in diamond-mining concessions, a central part of their contract with the government was to regain control of the country’s resources, with part of their payment to come from future revenues of the diamond mines. Thus, once the capital had been retaken, instead of focusing on destroying the enemy forces, the PSMCs turned immediately to securing the mining areas (Singer 2008: 158). They did so with undeniable success but left other parts of the country and population in an even worse security situation. Regions distant from the mines suffered an even greater risk of violence as the RUF focused their attention on them (Spear 2006: 38). Local clinics and schools supported by PSMCs were also located in the mining areas rather than in more outlying regions, thus giving rise to islands of security and stability but not an overall increase of security or the stabilization of the state. The population is still disillusioned with the state government, as they suspect that the it serves foreign economic interests ahead of those of its citizens

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(McIntyre and Weiss 2007: 74; Singer 2008: 227). In the mining regions of Kono and Sierra Rutile, PSMCs now work directly for mining companies and are central to security. However, there are many incidents of human rights violations and abuses of the local population by PSMC employees. Civil protests have become a recurring feature; at times the populace even threatens to take up arms if the state does not regulate PSMCs and make them contribute more to community development (McIntyre and Weiss 2007: 74f). This latter demand on extraction industries is well known in other zones of conflict (see Chapter 3). The local population increasingly begins to perceive PSMCs as a substitute for the government, demanding services from them usually pertaining to the government. Judging Sierra Leone’s situation after PSMC operations, several features stand out. The state still suffers from the fragmented structure of its armed forces, which it has not managed to integrate and consolidate, thus allowing rival forces to exist, and the Kamajors are a continuing threat to political stability. The provision of public goods is still fragmented at best. Security is unevenly dispersed; the mining regions are forcefully stabilized but many other regions are as insecure as ever (see Spear 2006). Sierra Leone is by no means a unique case. Similar developments have also been reported where PSMCs are involved in Angola, Papua New Guinea and Nigeria (Avant 2005; Deitelhoff 2008b; Lilly 2000; McInyre and Weiss 2007; Singer 2008). These trends feed fears that PSMCs undermine rather than stabilize a state’s monopoly on violence and formation processes, at least if they are not followed by state interventions (Spear 2006: 40f). Similar to the system of superpower patronage (Reno 2000: 43; Singer 2008: 56f), the ability to hire PSMCs releases governments from the need to invest in state consolidation activities, such as developing their economy and public institutions to establish tax revenues, and developing a public monopoly on violence. This release undermines the very conditions required for sustainable state consolidation of these areas (similarly see Leander 2005: 617f; McIntyre and Weiss 2007: 78). PSMCs are comparatively less costly than public security forces such as the army or police (Sierra Leone example: Spear 2006: 36). It also takes them less time to be on the job and they are supposedly not a rival to the ruling regime.6 To assess whether and how experiences with PSMCs translate into strong states (whose formation is long, complete and consolidated), an analysis of the outsourcing of American security services in military interventions, with a special focus on the Iraq conflict, is beneficial.

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8.3.3 Strong states and PSMCs: Outsourcing in the US military PSMCs have become an integral part of military intervention and postconflict reconstruction by Western powers and especially by the US. By the mid-1990s, outsourcing and privatization were dominant strategies. The Pentagon report on ‘Improving the Combat Edge through Outsourcing’ held that ‘experience in DoD [Department of Defence] on the private sector consistently and unambiguously demonstrates how the competitive force of outsourcing can generate savings and improve performance’ (DoD 1996). Former Secretary of Defence Donald Rumsfeld ordered in 2001 that all services that did not need to be provided by DoD should be outsourced and privatized to increase efficiency and effectiveness (Rumsfeld 2001). The US government perceives outsourcing to PSMCs as a valuable force-multiplying strategy and an effective foreign policy tool. Outsourcing is heralded as increasing the flexibility and cost-effectiveness of security and military policies. All major states have decreased their troop sizes significantly since the end of the Cold War (Petersohn 2006; Zamparelli 1999). However, with a general increase in military interventions in the 1990s and the global war on terror since 2001, they have experienced severe problems living up to their military commitments. Thus, outsourcing security services to PSMCs has increased the flexibility of governments, alleviated troop overstretch and allowed for rapid response capabilities as PSMCs can deploy forces rapidly and quickly relocate them when necessary. Outsourcing thus ensured the possibility of military projection capabilities (DoD 1996). Privatization is also believed to decrease the costs of services. Private actors do not have large bureaucracies; they face market competition and can better specialize in specific services. PSMCs also only have to be paid for the time specified in their contracts. In contrast to regular forces, states can save on training, education, maintenance and pensions. Even though outsourcing is not novel in the US military, the breadth and degree of outsourcing is. While privatization was long confined to non-critical support functions, nowadays PSMCs are all over the place, working alongside regular soldiers. A third of all US weapons systems depend on private contractors and this number is steadily increasing (Blizzard 2004; Isenberg 2007; Singer 2008: 247). PSMCs provide nearly all logistics for US troops deployed abroad: they guard military facilities and diplomats, and have even taken over large portions of military police functions (Blizzard 2004; GAO 2003; Petersohn 2006). They are the main actors in training foreign military and police forces on behalf of the US (Krahmann 2007).

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When the invasion of Iraq began in spring 2003, private contractors were already involved. They were responsible for logistics and housing for the coalition troops, weapons maintenance and partly operation (Isenberg 2007). Its heyday, however, started once the war was declared over by US president, George W. Bush. The insurgency that started soon after led to a steady increase in PSMCs. It is estimated that up to 180,000 private contractors are currently operating in Iraq (CBO 2008; GAO 2006b: 2; Singer 2008: 245). The situation in Iraq is not unique. About 25,000 employees are operating in Afghanistan and there are many in other conflicts and post-conflict settings as well (Joras and Schuster 2008: 12).7 US government agency contracts for Iraq in 2003–2007 total between USD10 billion and USD85 billion (CBO 2008). The large variance results from the equally varying definition of private contractors. A narrow definition includes only armed security services, a broader one also logistics and administration. No matter how we define contractors, it is clear that there is no historical precedent to this presence of private contractors in conflict zones, amounting to a 1:1 ratio (CBO 2008: 12). But even taking the narrow definition of armed security contractors, we end up at a conservative number of about 40,000 employees (CBO 2008: 14).8 Putting this in perspective, the ratio between military personnel and PSMC employees has changed from 50:1 in the first Gulf war (1991) to 10:1 in the Iraq war of 2003 (Isenberg 2007: 83). 8.3.3.1 Governance contributions to peace and security in Iraq by PSMCs PSMCs work in nearly all areas in Iraq that require security-related tasks. They are responsible for most of the logistics for coalition troops. They secure military camps, guard convoys and secure private business sites. They maintain and operate modern weapon systems like the stealth bomber or the Apache helicopter. They guard the Iraqi government, construction firms and diplomats. They train Iraqi police and military forces. They deliver intelligence reports and engage in detainee management and interrogation (Isenberg 2007; Singer 2008). Although there are no known contracts in place with PSMCs to take over combat functions and there are regulations which define the condition under which PSMC employees are allowed to wear and use weapons, there are many incidents of PSMCs involved in actual combat (Isenberg 2007: 89). In contrast to weak states, states within the OECD world have generally limited outsourcing when it comes to direct combat functions; that is, the direct use of violence. While Angola and Sierra Leone hired PSMCs to fight for them, in strong states outsourcing is limited to combat

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support and non-lethal areas. However, the line between combat and combat support is increasingly blurred in many of today’s conflicts and intervention situations in which there is no clear demarcation between a frontline and a hinterland. PSMCs operating or maintaining weapons systems and even those who secure convoys are at risk of becoming involved in combat, as many incidents in Iraq show (Petersohn 2006; Schaller 2005). However, the decisive point here is that states are determined to preserve the core of the state monopoly on violence; that is, direct engagement in the use of force. While PSMCs are not formally engaged in combat but in combat support areas, most of their activities can still be regarded as a direct contribution to security governance as they are usually tied to the organization of force. There are no documented contributions by PSMCs to other policy fields in Iraq. Given the spread of construction firms and aid organizations on the ground, as well as the US reconstruction program, this is not very surprising. 8.3.3.2 Consequences of contributions to peace and security by PSMCs How much do these impressive numbers and functions of outsourcing lead to political stabilization of the situation in Iraq and public security? An assessment of the effects of PSMCs in Iraq is difficult given that the conflict and PSMCs’ involvement is still ongoing. However, there are some trends from which we can judge their overall performance. From the number and functions of PSMCs in Iraq, it is safe to say that without them even the low level of security that can be observed would be lower still. PSMCs play a vital role in security provision in Iraq. However, quite similar problems to Sierra Leone can be observed: fragmentation of security provision in the country, the enmeshing of PSMCs in the political conflict, and alienation of the population. Additionally, some more specific problems with outsourcing of intervention by strong states come into play. The first trend that can be observed in Iraq is fragmentation in the provision of public security. Even though PSMCs train the Iraqi police and military forces, these forces are still comparatively weak. As in many sub-state conflicts in Africa, it is hard to distinguish between the conflict and post-conflict in Iraq as the situation is constantly changing. There are a number of rival militia forces in the country who align or split up depending on the changing conflict lines. Besides the coalition troops, PSMCs are one of the few sources of security in the country, but they are not equally present in all parts of the country nor do they

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work to promote general public security (Leander 2005; Singer 2008). Usually they are hired to protect strategically important facilities, such as ministries, military command points or resource areas such as Iraq’s oil fields. They focus on the provision of security to their paying clients, not to the general public. In Iraq this has resulted in zones of both relative security and grave insecurity or, as Anna Leander dubbed it, a ‘Swiss cheese’ supply of security (Leander 2005: 617). In regions in which important resource facilities are located or coalition troops are present the security level has improved, while in other areas the situation is as bad as before or has deteriorated as local insurgent groups have begun to terrorize the local population. Another trend arising from the increasing reliance on PSMCs is the increase in costs and consequently the slowing down of the economy and state reconstruction. PSMCs are not only working for coalition troops or the Iraqi government, they are equally working for construction firms and aid workers in Iraq. In the run-up to the war in Iraq coalition troops refused to take on responsibility for the protection of construction firms and aid workers, handing this over to the provisional Iraqi government in anticipation that the war would be short and peace would soon follow (Isenberg 2007; Stöber 2007). However, after the dissolution of the police force and the slow pace of rebuilding it and the army, the provisional government refused to take up this responsibility, leaving construction firms and aid workers with no other option but to either terminate their work in Iraq or hire PSMCs. This is one central reason for the PSMC role in the Iraq conflict. The need to hire PSMCs has led to a dramatic 15 to 25 per cent increase in the cost of reconstruction projects (Stöber 2007: 126). In consequence, several projects have had to be postponed or cancelled as the costs have become prohibitively high (GAO 2006b: 4). A side effect is that only those projects that attract foreign investors or are of strategic importance in the conflict stand a chance of being realized. Apart from the heightened reconstruction costs, two other factors should be mentioned which have also increased costs. One is the coordination problem arising from the increase in private contractors in the military theatre. PSMCs under contract to a conflict party usually remain outside the command chain and are not allowed to take part in hostilities in conflict as they are regarded as civilians under international humanitarian law. However, due to the lack of clear demarcation lines, PSMCs active in logistics, site and convoy security and weapons maintenance become ever closer to active participation in hostilities (Schaller 2005, 2007). This not only increases their risks of becoming

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a target of military attacks, it also falls on the regular forces to extend their protection activities to these companies, thus leading to higher coordination costs. Coordination is also needed to prevent conflicts between the regular forces and the PSMCs. The increase of ‘blue-onwhite’ fire in Iraq – that is, friendly fire or accidental attacks between US forces and the contractors – indicates how difficult it is (GAO 2006a; 2006b: 28). In fact, the US government and local military commanders have no exact idea of how many employees are working in Iraq, let alone where and when (GAO 2006a: 4). As mentioned above, strong states claim to outsource essentially to ensure cost savings and to increase effectiveness. New data suggest, however, that cost savings are rarely realized (GAO 2006a: 4; 2008; Schreier and Caparini 2005: 98). Even though cost-saving figures are abundant, most actually represent estimates not realized savings (see Avant 2005: 117f; Dickinson 2007; Singer 2008: 157; Wulf 2005: 190f). Newer reports show that outsourcing increases the cost of military functions (see GAO 2006 a, b; 2008: 8–15). There are two major reasons for this. One is the contract market environment of outsourcing in security; the other is the political environment of military interventions and crises. The possibility of cost saving by privatization depends on several conditions. First, a transparent and competitive market is needed so that clients can pick and choose among different suppliers. Second, contracts must be subject to transparent bidding procedures, competing offers must be systematically compared and the performance of suppliers on the contract terms has to be closely monitored and, if necessary, sanctioned (Markusen 2003; Singer 2004). None of these characteristics seem to apply to the current situation of contracting (Dickinson 2007). Only 40 per cent of all US government agencies’ contracts between 1998 and 2003 were subject to bidding. Since then the numbers have only slightly increased (Singer 2008).9 More than 50 per cent of all contracts have not been monitored at all (Dickinson 2007: 226).10 These numbers explain why so many companies that have a record of bad practice and financial fraud or are accused of serious human rights violations were again awarded contracts, among them Halliburton, CACI, Titan and, most recently, Blackwater (Dickinson 2007: 219f). One reason for this is that the market for private security services is only partially competitive, while quasi-monopolies exist (for instance in certain areas of logistics; see Chesterman and Lehnhardt 2007: 254; Cockayne 2007; Deitelhoff 2008a). The market is also very fluid. Companies quickly dissolve and re-establish under different names and locations, making it difficult to trace bad companies. Most PSMCs are

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small companies which rely on huge rosters of potential employees who they hire whenever a new contract comes in. They are very flexible and can locate and relocate whenever necessary (Dicksinson 2007). The widespread practice of subcontracting in the market reduces transparency even further (Wulf 2005: 70). Futhermore, the political environment during military interventions is probably the least likely environment to favour cost savings. Military interventions are usually characterized by secrecy, heavy time constraints and the imperative of military victory. Thus, there is rarely time for either complex bidding procedures or the necessary transparency required when assessing contract performances. Military commanders’ calculations are usually based on worst-case scenarios, always having a back-up at hand, a strategy that is hardly cost saving in contracting (Singer 2008: 163). This explains not only the high number of noncompetitive contracts but also the widespread practice of cost-plus contracts; that is, contracts in which the rewards increase as the costs increase (Singer 2004). The increasing reliance on PSMCs is not necessarily cost saving but instead has the potential to increase costs and, by this, slow the process of economic and political reconstruction. Finally, and again quite similar to the Sierra Leone case, PSMCs have been one of the many reasons for further public disaffection with its government. PSMCs have been involved in a number of human rights violations and abuses in Iraq, the most infamous one being the involvement of CACI and Titan employees in the torture scandal at Abu Ghraib prison. Other examples are the shooting of civilians by the US PSMC, Blackwater, in Autumn 2007 which led to its temporary prohibition in Iraq, the alleged joyride shootings by an employee of Triple Canopy and the video of Aegis employees in which they shoot at civilians (Singer 2008: 251). Not only have these incidents led to public outcry from the Iraqi population, they have also increased mistrust among the population of the government which is seen as subservient to the US and serving foreign investor interests rather than those of their population (Isenberg 2007: 88). This suspicion is further increased by the fact that nothing has happened to the perpetrators in the wake of the incidents. The US has pressured Iraq’s president, Al-Maliki, to lift the prohibition on Blackwater operating in Iraq and has renewed its own contract with the company. None of the PSMC employees involved in the torture at Abu Ghraib, nor anyone from Aegis or Triple Canopy, has yet been brought to court.11 Apart from such gross violations, PSMCs have become more and more perceived as a party to the conflict by the local population, a pattern

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also reported in Afghanistan and Angola (Joras and Schuster 2008), and have thus increasingly become a target of insurgent attacks. Following Peter Singer’s numbers, PSMC employees have been killed at a rate of nine per week since the second surge in Iraq in January 2007 (Singer 2008: 246). More than 1000 contractors have already been killed in the Iraq conflict. The real number is probably much higher.12 The rush of outsourced intervention strategies has a specific impact on the ‘strong’ state doing the outsourcing. The higher the rate of privatization and outsourcing, the higher the risk that the state will lose the resources required for its monopoly on violence. This is already visible within the US. In certain areas such as logistics, US forces have lost generic capabilities, meaning that they are dependent on private contractors to perform these functions (Avant 2005: 133; Zamparelli 1999). The renewal of the logistics contract with Halliburton, even though the company was repeatedly accused of overbilling and fraud, highlights this risk; the US military simply had no resources to take over logistics (Deitelhoff 2008a; Schreier and Caparini 2005).13 The problem is not limited to resources; it also covers manpower and expertise. Experts warn that in vital areas such as military training (Avant 2005: 116–20; Wulf 2005: 70), weapons maintenance and operation (Petrsohn 2006: 21; Zamparelli 1999) as well as military policing (Avant 2005: 127), the US has lost generic competences (Blizzard 2004). The more that certain areas are privatized, the more the military experiences a brain drain (Avant 2005: 134f). PSMCs rely on their excellent well-trained employees to make the company attractive. They recruit them from the special forces of state militaries, such as green berets or delta forces. The US military has already started ‘stop-loss’ programmes to counter this drain of expertise and prevent their best officers from being hired directly by the private sector. It has also started to grant high-ranking officers huge monetary rewards to convince them to stay in the forces. Again, this is not a problem of the US alone. Australia grants its officers a one-year sabbatical to give them the chance to profit from the much higher salaries in the private sector before returning to duty (Singer 2008: 257). Thus, the gain in flexibility might come at a much higher price in the long run than expected – even for strong states.

8.4 PSMCs and peace and security in zones of conflict Comparing strong state and weak state contracting to PSMCs and their contribution to security and peace in zones of conflict, the commonalities are astonishing. In both cases governance contributions of PSMCs take the

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form of direct security, either by directly taking part in combat to secure the territorial integrity and political authority of the state or by supporting the combat operations of intervention troops and policing functions in conflict and post-conflict settings. In weak states, however, there are some incentives for PSMCs to contribute voluntarily to other governance fields as well. Given the lack of public institutions, such as schools, public health and so on, PSMCs at times contribute to such goods, if only to raise their standing with the local population in their fight against rebel movements. Being under contract to strong states diminishes these incentives as PSMCs expect the strong states to take care of these policy fields. For both weak and strong states, quite similar effects arising from the contribution of PSMCs can be observed. In both cases their presence is crucial to increase security, although arguably at a higher rate in weak states, but on the other hand the prospects for long-term stabilization, reconstruction of state structures and peace are questionable. Both cases display a fragmentation of security, a further alienation of the public towards its government and an enmeshing of the PSMCs in the political conflict. As such, reliance on PSMCs is hardly a convincing strategy to contribute to long-term peace and state consolidation in post-conflict zones. Long-term peace and state consolidation are neither their own claim nor usually part of their mandate (Brook 2000; Shearer 1998) yet they are the crucial dimension of all post-conflict strategies. Thus, the reliance on these actors, both by weak and strong states, is detrimental and can only be pursued as part of a tightly controlled, state-sponsored state consolidation approach (Chojnacki and Deitelhoff 2005). It should nevertheless be highlighted that these detrimental effects are not to be blamed on the existence of PSMCs per se; they also reflect government decisions on how to utilize them and the overall commitment by the state to peace building and post-conflict reconstruction. Apart from governance contributions by PSMCs and their effects, the case studies also show some commonalities in the rationale of states in hiring PSMCs. In light of the US–Iraq case, it is questionable why outsourcing is still increasing in strong states even though the envisioned cost effectiveness associated with outsourcing security to PSMCs is often not realized. Is there a beginning of dependence on PSMCs as strong states lose generic capabilities in certain areas too? In contrast to weak states in zones of conflict, strong states do have alternatives to hiring PSMCs, such as enlarging their conscription base, activating military reservists and so on. Even if it is acknowledged that the increase of military means in international security governance is a strong motivator for the outsourcing trend, it is still questionable why

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strong states do not increase their control over PSMCs to counter some of the problems arising from them. In contrast to weak governments whose lack of control is often one of the causes for hiring PSMCs, strong states can employ effective counter-strategies. It is rather that strong states seem to be unwilling to stop this trend or bring it under greater control (Deitelhoff and Wolf 2009); in general they have not increased their control over companies and contracts. A telling example of this is that, although the number of contracts has greatly increased since 2001, the US government has simultaneously reduced the number of controllers and ombudsmen to supervise contracts (Singer 2008: 252). Secondly, the majority of Western states eschew increasing the international regulation of PSMCs which would allow them to better track wrongdoers, increase competition and have a transparent market. States have not only shied away from attempts to set up a UN convention on the banning of these companies, they have also not agreed on an internationally binding licensing system. The only existing regulatory framework specifically focusing on PSMCs is the Montreux document from September 2008, which is a non-binding declaration signed by 17 states, among them the US, UK, France and Germany. The document has two parts, the first recalling the legal obligations arising for PSMCs under international law and the second part displaying a list of best practices that states should adhere to in working with PSMCs.14 The primary focus of strong states in hiring PSMCs is not cost saving but rather to use them as a flexible policy tool in pursuing security policy. This partially explains the weak national regulation systems to which PSMCs are subject. In the US, for example, the national licensing system only regulates and controls the export of security services, stipulating the conditions under which PSMCs are allowed to work for foreign clients, not their home government.15 These regulations ensure that PSMCs support the foreign policy goals of their governments (cf. Schneiker 2007: 408). Strong states intentionally forgo strategies to increase control. In examining this, a final commonality between weak states and strong states becomes apparent: the underlying rationale by state executives to forgo the time-intense and complicated political processes of generating agreement about the direction and use of force in the first place. A closer analysis is needed of who remains in control of the exercising of violence within the state. The flexibility that outsourcing promises states is beneficial to the executive, not to legislation or the public (Deitelhoff and Geis 2007a; 2007b; Deitelhoff and Wolf 2009). The reluctance to increase the regulation of PSMCs is not only out of convenience but more by design as governments want to increase

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their freedom from their parliaments and publics alike. PSMCs allow for covert foreign policy not consensual among the national public or international community and they generally serve to increase the power of governments compared to their parliaments (Avant 2007a: 184–7; 2005: 60; Chesterman and Lehnhardt 2007: 252f). Outsourcing to PSMCs helps governments to hide the extent of their military engagement abroad from their public and legislatures (Cockayne 2007: 212; Silverstein 2000). Outsourcing might not weaken the effective exercise of violence and can even strengthen the autonomy of decision-making, but only by undermining its legitimacy. Governments can and do circumvent troop ceilings ordered by parliaments, thus freeing soldiers for war-making, a strategy which the US government used in the Balkans conflict and again in Colombia (Avant 2005: 128; Singer 2008: 211–15). Governments can also manipulate public opinion on their foreign policy. Research on democratic peace has convincingly shown that popular consent to military operations is a function of the prospect of military victory and the safety of one’s own soldiers (Schörnig 2007). Democratic publics are casualty-avoiding and PSMC casualties are not listed in official casualty statistics. Public debates about the estimated 1001 PSMC casualties in Iraq have not occurred. Most importantly, contracts are usually negotiated by the executive.16 Parliaments have only limited insight into contractual contents and are often unaware of these contracts as they are hidden in defence budgets (Schreier and Caparini 2005: 102; Singer 2004: 10, 17). The general practice of subcontracting makes parliamentary oversight even more difficult. This is illustrated by the fact that the US congress still has no accurate data on the number of contractors working on behalf of the US in Iraq (GAO 2006a: 4). Strengthening regulations on PSMCs would therefore increase political costs: increasing monitoring and transparency and clarifying responsibilities and liabilities would make the activities of PSMCs more visible to the public and legislatures alike, thus lowering significantly the discretionary powers of executives. Hence, governments do not have much of an interest in regulating PSMCs as their advantages are tied to the fact that their activities are less visible and weakly regulated (Caparini 2007: 166; Cockayne 2007: 206; Dickinson 2007: 228). It is no mistake that it is the PSMCs rather than governments who argue for national binding regulation, if only to secure their market position (Deitelhoff and Wolf 2009; Dickinson 2007: 230; Schneiker 2007: 407f). Again, there is commonality with weak state rationales in hiring PSMCs. While they usually do not face an established legal or

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democratic control system, they can also avoid taking the painful, timeand cost-consuming path to establishing it by outsourcing to PSMCs, at least if they are capable of paying them. Strong states, facing legal and democratic control mechanisms, can attempt to weaken the bonds that bind the state monopoly on violence to law and democratic process by hiring PSMCs.

Notes 1. See www.voluntaryprinciples.org (date accessed: 9 November 2008). 2. UN Secretary General, press release SG/SM/9256, SC/8059, 15 April 2004. 3. Of course, this does not say anything about the legitimacy of the state in question. 4. The weapons delivery to Sierra Leone would later give rise to the ‘Arms to Africa’ affair that troubled the British government; the arms deal grossly violated existing arms embargos but nevertheless was implicitly supported by the government (see Avant 2007b: 438f; Lehnhardt 2007: 140f). 5. Furthermore, EO rescued child soldiers (in the Kono mining region) and brought them into rehabilitation centres as well as helping to access and secure transportation for humanitarian aid agencies (Muthien and Taylor 2002: 194). 6. The USD35 Million for EO amounted to no more than one-third of the regular annual military budget of Sierra Leone (Singer 2008: 114). 7. Since 2002, PSMC numbers in Angola have increased to about 100 companies present and working (Joras and Schuster 2008: 47). 8. The number is certainly too low as the respective agencies (US Aid, DoD, State department) do not have accurate numbers on their contractors (GAO 2006a; Isenberg 2007). 9. See www.publicintegrity.org/pns/report.aspx?aid 385 (date accessed: 5 January 2007). 10. Other governments do not fare much better. A new study on Canada’s military contracting concludes that only 60 per cent of all contracts were competitive and that this number was decreasing (Staples 2007). 11. In striking contrast to the US soldiers involved in the torture scandal who have already faced trial in the US (Singer 2008: 251). 12. See list at icasualties.org/oif/Civ.asp (date accessed: 9 November 2008). The list only reports 426 names but quotes the government’s statistic of 1001 casualties. 13. Given the threat of dependence on private contractors, DoD has ordered that the forces need to have back-up plans if contractors drop out. However, the General Accounting Office has repeatedly warned that these back-up plans were either non-existent (GAO 2003: 16) or insufficient (GAO 2006 a, b). This problem cropped up again after the Blackwater shooting and subsequent prohibition of the firm’s operation by the Iraqi government. Blackwater is responsible for the protection of the State Department diplomats. Thus, the US government pressured Al-Maliki to lift the prohibition on Blackwater as the State Department had no back-up and was dependent on Blackwater’s services.

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14. See the Montreux Document on Private Military and Security Companies at http://www.icrc.org/web/eng/siteeng0.nsf/htmlall/montreux-document170908 (date accessed: 29 June 2009). 15. Other governments, such as the UK and German governments, do not even have such systems in place. 16. The US Congress only needs to be involved in contract negotiations if the contract volume exceeds a limit of USD50 Million (Schneiker 2007: 414).

9 Business in Zones of Conflict and Global Security Governance: What has been Learnt and Where to from Here? Nicole Deitelhoff, Moira Feil, Susanne Fischer, Andreas Haidvogl, Klaus Dieter Wolf and Melanie Zimmer 9.1 Introduction Private actors and their interplay with public actors in global governance have become a prominent focus of global governance institutions and research alike. The last decade has witnessed a remarkable growth in the number of private actors in global governance and an increase in public-private partnerships, multi-stakeholder initiatives, informal coalitions between states, NGOs and business partners, and the emergence of private self-regulatory mechanisms. With their problem-solving capacities stretched thin in the wake of globalization and denationalization, states and international organizations began to reach out to the private sector and its resources. Private actors have been brought in to set and locally implement international regulations and have contributed to the provision of collective goods. Lately the private business sector has become a prominent partner of governments, international organizations and NGOs in areas such as environmental problems, labour and social standards, and human rights more broadly. The sheer growth in the number of private actors in global governance is astonishing; equally dramatic is their changed role within the governance initiatives. While their role was initially confined to functions such as agenda setting in the input phase or norm implementation and evaluation on the output side of global governance, it has since expanded to include core decision-making, taking part in all phases of the policy-making process. Global governance research has focused its attention on the emergence of private authority, its effectiveness and the conditions for and consequences of public and private governance contributions. The last decade was a general growth period in quantitative and qualitative 202

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terms for private actors, including business actors, in global governance and research. However, when it comes to the role of private business in security governance, academic and political discourses diverge. Under the impression of ever-increasing zones of weak or failing states and domestic turmoil or outright conflict, the political sphere started to reach out to the business sector for a contribution to peace and security in zones of violent conflict. There were raised expectations of the problem-solving potential of corporations and their duty to use it in zones of violent conflict or post-conflict situations. Such expectations have been expressed at almost all relevant diplomatic forums, such as the United Nations Security Council (2004), the OECD (2006), the Group of Eight (2007) and the Global Compact (2001). John Ruggie, the Special Representative of the UN Secretary General on Human Rights and Transnational Corporations, has selected the topic as one of his focus areas during his new three-year mandate. Potential governance contributions by business to peace and security in zones of conflict are still under-researched. The role that private businesses play in zones of violent conflict, especially with regard to the exploitation of natural resources and war economies, has been widely considered in academic disciplines, including global governance research, business and management studies, and peace and conflict studies. How businesses might contribute to conflict prevention, conflict management or peace building in zones of violent conflict remains controversial and has been less systematically investigated. This volume is intended to remedy this gap. The political expectations towards business corporations have been assessed using solid empirical research. Empirical studies were assembled in several industry sectors and geographical locations in search of corporate governance contributions to peace and security in zones of violent conflict. The choice of contributions was guided by the aim of identifying and explaining the level of corporate engagement. Do companies have clearly articulated policies on peace and security in zones of violent conflict? If so, how and to what extent do their activities live up to the commitments they have made individually or collectively? Against this background, the focus was on identifying direct corporate contributions to security governance and contributions with indirect relevance to peace and security. To allow for systematic comparison, all case studies used the same analytical framework, focusing on clusters of factors relating to companies, production, conflict and the political, social and market environments. However, to cast the net as widely as possible room was left to transcend these clusters.

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The aim was not confined to assessing the viability of diffuse political expectations of business corporations by arriving at general conclusions about the potential and limitations of corporate contributions to peace and security in zones of conflict. This research is intended to feed back into broader global governance research by shedding light on the debate that surrounds the role shift and new interplay between public and private spheres in the co-performance of governance functions. In this final chapter, the results of the empirical studies are summarized and generalized from a comparative perspective. Company governance contributions in zones of violent conflict are analyzed general behavioural patterns identified and the relevance of explanatory factors evaluated (section 9.2). The empirical findings are fed into the broader context of global governance in the post-national constellation (section 9.3). What has been learnt about the role shift and relationship between state and private actors in global governance? To what extent is the claim that the boundaries between public and private spheres are being blurred or drawn up anew valid in the core domain of the state, that is, security? The question of the desirability of increased corporate governance is addressed from a normative perspective. Under what circumstances is the co-performance of governance functions desirable? What are the criteria for their contributions and what are the likely consequences of their growing importance? The chapter closes with a look at the challenges for future research (section 9.4).

9.2 What has been learnt? The findings in comparative perspective Despite assembling a number of dissimilar case studies, comparing the main findings results in a surprisingly clear picture of the extent and kind of governance contributions to peace and security that can be expected from business companies in zones of conflict. 9.2.1 Staying away from direct security To begin with, the most striking general empirical finding is the virtual lack of any direct contributions to security by corporations in almost all of the case studies, with the noteworthy exceptions of the early modern chartered companies, the private security companies and the oil industry in Nigeria, albeit only partly. Still, in all case studies, a remarkable amount of indirect contribution to peace and security is observed, as well as general governance contributions not related to peace and security. Companies have taken up issues closely related to conflict


drivers and causes by addressing the livelihood of rural communities in Rwanda, fair employment issues in deeply segregated societies such as Northern Ireland and anti-corruption measures in societies suffering from corruption and patronage such as Nigeria. Corporations shy away from interfering in the core of public security – that is, the organization and use of force – which they perceive as being core responsibilities of the state. While contradicting Friedman’s image of businesses as non-political actors and possessing a social responsibility that goes beyond ‘doing good’ in general, contributing to security in a narrow sense seems to remain a taboo for companies. This conclusion finds support in another general trend apparent across the case studies: even when corporations provide indirect contributions to peace and security, they frame their activities as CSR rather than a form of CSecR. By doing so, they reflect the functional division of labour between the public and the private sector from the fading golden age of the nation-state and dramatically fall short of taking on a form of corporate security responsibility proposed by representatives of states and international organizations in the political debate. The prevailing corporate notion of the public-private functional divide demonstrates that outsourcing security-related governance functions to private actors is far less favourable now than in the early modern period when chartered companies took on the complete range of state functions in overseas areas. Even if this overall pattern of governance contributions to peace and security frustrates political expectations of corporate problem solving, it does not rule them out. This becomes clear once explanatory factors are examined to account for this pattern. 9.2.2 Explaining company governance contributions Initial research covered four clusters of factors. Comparison revealed the particular significance of a factor or background condition embedded in the social and political environment cluster that was observed at work in all case studies: nearly all report the similar influence of an altered transnational normative environment on companies. With the spread of multi-stakeholder initiatives and public–private partnerships, in particular, and the almost ten-year long public debate on responsibility, the idea of corporate social responsibility beyond company core business seems to have diffused into the business sector. Companies, states and civil society organizations take part in the discourse about company obligations and responsibilities. Within this global public discourse, companies are increasingly acknowledged as political actors (Ruggie 2004). CSR has

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a nascent general standard of appropriateness no longer disputed by companies. One important push factor for this development, as the case studies on the oil and telecommunications industries especially highlight, was the NGO campaigns that shamed or litigated companies for their misbehaviour (see Doh 2008; Haufler 2001a; 2001b; Spar and LaMure 2003, among others). The transnational public critically observes business and company operations. Within the business sector, investors have begun to rate company receptiveness to CSR and create sustainability profiles, thus creating market incentives to further CSR activities. A company representative in the case study on Northern Ireland makes the point most blatantly: ‘You can’t hide anymore’ (Interview #11, 28 January 2008). Even companies that operate from home states where civil society and critical media reports are negligible, such as China, find it increasingly difficult to ignore this normative environment, as the case study on oil companies and the telecommunications industry reveals, and have started to develop their own CSR programmes, albeit only recently. A normative context pushes companies to more governance contributions over time. This is instrumental in understanding the observed pattern of governance contributions. The dominance of indirect contributions to peace and security and the way they are perceived by companies as part of their CSR activities pay tribute to the socializing effects of this altered normative context on the business sector. The case studies indicate that this normative context affects all companies and all business sectors, although not uniformly. Its effects are mediated, for instance, by company visibility, which is related to their size or the kind of product they sell (their location in the production chain), as factors that enhance the probability of becoming the target of public campaigns. Additionally, its effects are directed by the political and legal environment in host and home states, the existence of regulatory schemes unfavourable to governance contributions and by company vulnerability to violent conflict in the first place: the closeness of its operation, facilities and staff to violent conflicts or its potential to withdraw from the scene. This is where the specified clusters come in to play and add important conditions to the so far clear-cut overall picture. Although evidence of the influence of factors from all of the clusters was found, the comparison revealed that the specific factors within and across clusters are often interrelated and at times interacting, resulting in multi-causal paths to corporate governance contributions. There is no single route to corporate governance contributions to peace and security; a mix of encouraging and inhibiting factors works at different levels.


9.2.2.1 Cluster 1: Company characteristics The companies investigated vary in size, corporate culture, product visibility, dependence on reputation and the institutionalization of corporate interfaces. Intuitively the size of a company should make a difference to the level of corporate governance contributions to peace and security. Larger companies have greater capacity to engage, including financial and human resources, than do small companies with minimal turnover and only a few employees. This assumption is confirmed by the case study on Northern Ireland that highlighted the importance of company size, which relates to the visibility of the company. That and institutionalized corporate interfaces both promote corporate governance contributions. Still, the findings on the causal status of size are inconclusive. Regarding the tourism industry, for example, the smallest company proved to be the best performer owing to its corporate culture and product characteristics. This suggests that corporate culture might trump size. The empirical investigations focused solely on globally operating TNCs. To draw a broader picture, more research is required on small, familyowned, local businesses operating in areas of violent conflict (Banfield et al. 2006). The empirical findings could then be compared with the existing data about TNCs to find out whether size really matters and if small companies behave in the same way as big ones. Additionally, some conceptual revisions of ‘size’ seems necessary, as the discussion shows that it interacts with other influences, such as reputation and type of product or service. Corporate culture figured prominently in the majority of case studies. Corporate culture is the pattern of collectively shared norms, beliefs and attitudes of a company. The pattern is socialized within the organization to solve problems emerging inside and outside the company (see Steinmann and Schreyögg 2000: 621–52). The corporate identity and culture of the business Group Delta in the case study on food and beverage companies in Rwanda and the Democratic Republic of Congo clearly influenced the kind of policies and activities adopted by the subsidiaries, Alpha and Beta. The group policy forbidding political involvement was one of the main reasons why Alpha and Beta do not engage in direct security governance. Similarly the case study on Northern Ireland underlines this relationship. The best performer, Bombardier Aerospace, had an extensive and institutionalized corporate citizenship culture that furthers the adoption of the global corporate citizenship norm into corporate daily routines.

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Reputation sensitivity was identified as another relevant factor in several case studies. Organizational research has shown that the question of legitimacy has become very important to private companies (DiMaggio and Powell 1983; and Walgenbach 2002: 353, among others). The public now takes a much more critical view of corporate misbehaviour than previously (Kädtler 2003). Thus, it has become crucial for companies to take care of their image and reputation. The general assumption here is that the more the market success of a company depends on its image and reputation, the more the company will engage. This played out in the case study on the food and beverage industry in Rwanda and the DRC. The influence of image and reputation can be – but is not necessarily – linked to a company’s size. It seems clear that large companies are more visible to the public than smaller ones and therefore have to take more care of their image and reputation, a prominent feature in the Northern Ireland case study. Indeed, product characteristics played out prominently in a number of the case studies. For the food and beverage industry in Rwanda and the DRC, the food and beverages being household names and end-consumer products influenced the extent and type of governance contributions. This led to only negligible damage to company production facilities during violent conflict. It also created expectations of integrity and exemplary behaviour in core business and broader social engagement, including governance contributions. Similar influences were observed acting on the oil industry in Nigeria and the tourism sector in general. Globally visible and end-consumer oriented oil companies, such as Shell, regularly attract the attention of a critical public. Companies causing detrimental environmental effects easily become the target of campaigns. Tourism requires an intact ecological and social environment. Operating in a market segment where customers possess awareness or being ranked as the market leader function as enabling conditions for corporate engagement, as the case studies on Rwanda and the DRC show. Finally the organizational interfaces of a corporation play an important role in explaining how companies respond to their environment (Rosenstiel and Koch 2003: 198). Through, for example, departments for public relations and environmental performance, organizations perceive changes in their environment to which they have to respond (see Carroll and Buchholtz 2003: 113). These factors played a significant role in the study on the telecommunications industry (where most of the companies that did engage had such a unit) and acted as an influence on the performance of the Northern Irish companies. Again, this factor seems to be inter-related with size and corporate culture. Hand in hand


with these factors, leadership, particularly the existence of committed CEOs, often seems to be an important factor as well, as the case studies on tourism and telecommunications indicate (Chapters 4 and 6). Company characteristics exert considerable influence on corporate governance contributions to peace and security. Reputation sensitivity and visibility of the product, an established CSR culture and the existence of organizational interfaces prove to be the main factors explaining corporate governance contributions. These factors are co-related and so further research is required to find out more about their status and inter-relation. 9.2.2.2 Cluster 2: Production characteristics Solid evidence was found of the importance of production characteristics. Comparing the case studies, company facilities and production location make a difference. In the case of the oil industry in Nigeria, onshore production makes companies more vulnerable to sabotage, kidnappings and violent protests and thus makes security a more precarious issue than for offshore production. The telecommunication companies under examination in Chapter 4 are not on the ground in the conflict zone. They do not support any facilities and their sunk costs are negligible. This might explain why companies issued policy statements at best, contributing no activities to peace and security even though the coltan issue was the subject of a transnational public campaign. Similarly, tour operators with no important facilities on the ground can withdraw from a conflict zone as soon as a security crisis emerges, explaining the tourism industry’s low level of engagement (Chapter 6). Thus, susceptibility to conflict and flexibility come into play in the roles of sunk costs, supply chain position and the existence of facilities and human resources on the ground. The important role of sunk costs in a corporation’s decision on how to engage in a conflict zone (Rittberger 2004: 23) is generally supported by this empirical research. Concerning the influence of supply chain position on a company’s engagement, the findings from the case study on the telecommunications industry are instructive: companies directly in touch with the end-consumer tend to shy away from taking responsibility for individual supplier wrongdoing. It seems important to investigate the mechanism that might then enhance corporate engagement in peace and stability by the whole supply chain, for example regulation or voluntary standards. These considerations lead directly to another often discussed variable – the role of facilities in conflict zones (see Wenger and Möckli 2003: 108; Wolf et al. 2007: 306). The empirical findings suggest that maintenance

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of facilities, production sites and local supply and distribution chains in conflict zones has to be treated as an important factor in explaining corporate engagement (Berman 2000: 31). It became evident that companies become more easily entrapped in the political dynamics of the respective host state if they have to maintain facilities, such as office buildings, production and storage, and pipelines, that can be targeted by conflict parties (see Haufler 2001: 661). Against this background, many companies cooperate with public security forces, private security companies or sometimes even with local paramilitary groups. The case study on the oil industry in Nigeria vividly shows the consequences of such engagement, for the company and the local population. Similarly, human resources influence company behaviour. When it comes to managing staff, especially expatriates, company engagement strongly resembles the reaction to facility management. Companies make a big effort to ensure the security of their staff and therefore ask for public or hire private security forces. Company staff often live in sheltered areas and receive special transportation (see Wenger and Möckli 2003: 108). However, an even more interesting aspect of human resources is company treatment of local staff. The case study on the food and beverage industry in Rwanda and the DRC points to the dependence on the local workforce: this might have significant influence on systematic corporate engagement (for example, support of local livelihoods). Against this background, the ‘war for talent’ should be mentioned. While corporate engagement is an important aspect of competitive advantage in this area within the OECD markets, as the case study based in Northern Ireland suggests, it does not have the same role in conflict zones outside the OECD. 9.2.2.3

Cluster 3: Conflict characteristics

Corporations in conflict zones have operating contexts that are clearly difficult and present extreme conditions, which set them apart from those operating in peaceful environments. However, there have been few systematic scientific investigations of how conflict context influences corporate governance contributions. Whether a company is operating in an atmosphere of fierce tension, during the escalation to an outright war or in a post-conflict, traumatized and unstable society, appears to make a difference to the governance contributions it is willing to contribute. Differentiating these conflict phases is a common analytical approach used in applied research to better understand the different realities people, governments and other groups, such as the private sector, face in different phases. According to existing research,


most corporate governance contributions can be expected in the formal post-conflict phase; that is, after a peace agreement, ceasefire or victory by one conflict party (Wolf et al. 2007). Overall, the empirical research presented here confirms the hypothesis that large-scale violence in a company’s environs stops corporate governance contributions. If companies do not withdraw outright from the scene, they are mainly concerned with protecting their staff and facilities, leaving no room for any further voluntary governance contributions. This pattern was most clearly observed in the food and beverage industry. During manifest conflict phases, Alpha and Beta focused on securing staff and operations, contributing to governance in the post-conflict phase. These formal conflict settings do not necessarily reflect actual levels of violence, which can be very high or re-escalate in post-conflict phases and affect corporate engagement. Violence and insecurity can vary in distance from a company’s operational base. Further differentiation between the proximity of conflict and its intensity is required to provide explanations that are more concrete. However, the comparison highlights that the differentiation between these variables is not absolute and that conflict characteristics interact with other cluster variables, such as production characteristics, the level of sunk costs or the existence of extensive facilities on the ground. Conflict characteristics affect company governance contributions indirectly through company core business. Proximity concerns the question of how close the violent conflict comes to company operations and assets. The assumption is that only once violence presents real risks to staff and facilities does it become a genuine threat which may affect whether and how a company makes governance contributions to peace and security (Berman 2000: 28–9). In this research, however, proximity appears mainly as a threshold for governance contributions. The proximity of violence matters for business operations in that it can lead to interruptions of production, rather than trigger any kind of engagement. The case study on the food and beverage industry in Rwanda and the DRC confirmed this. It also mattered in the tourism industry, where companies cancel their tours in response to security risks and violent attacks but do not take direct issue with the situation. Operating in tandem with proximity, conflict intensity – that is, the ferocity of the conflict or its level of violence – influences corporate engagement. Outright war with high levels of insecurity appears to have a different conflict influence to lower level, sporadic clashes between individuals or isolated groups. Within a conflict zone, the level of violence often demarcates conflict phases and escalations or

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de-escalations of violence during each phase. The case study on the oil industry in Nigeria reflected the importance of and interrelatedness between conflict proximity and intensity. Only when a conflict is close to a company’s operations and facilities for any length of time does it begin to affect corporate behaviour, particularly in the method rather than the level of their engagement, in this case the involvement in security governance by oil companies. Short-term conflicts are handled by crisis management and do not entail sufficient motivation to engage in governance contributions. However, in post-conflict phases the intensity of violence heavily influences the level of engagement. Again, this can be compared in the food and beverage companies in Rwanda and the DRC, as they belong to the same corporate group. While both companies displayed corporate governance contributions in the post-conflict phase, the company in Rwanda had stronger policies and activities than the one in the DRC that was still suffering the effects of the recurring violence between rival militias in its immediate surroundings. While the case studies in this volume broadly confirm the prevailing notion that large-scale violence inhibits corporate governance contributions, the relationship between the intensity and proximity of violence and corporate governance contributions needs further examination. In exploring the various influences, one important challenge is to clearly differentiate one from the other. At the same time, conflict characteristics clearly demonstrate their impact through other influences, such as production characteristics. If a company has few employees and no substantial facilities on the ground, the mechanism of proximity discussed above does not apply in the same way but instead leads to a temporary retreat or closure. 9.2.2.4 Cluster 4: Societal and political environment in home and host state The causal influence of the market, political and social environments in the home and host states of companies, had ample empirical support from the case studies. First, the political and regulatory environment in the home and host states influences company behaviour. It is often assumed that companies engage in self-regulation because they want to avoid legally binding regulation (Haufler 2001a; 2001b). As the case studies indicate, regulatory frameworks range from weak to strong, and the strength and density of laws and regulations varies across policy fields; the relevant fields of law including, for example, tax, labour and environmental.


It should be noted that there is rarely extraterritorial legislation in place that regulates company behaviour beyond the home state (an often cited exception is the Alien Tort Claims Act). Moreover, home states do not seem to be keen to restrict the behaviour of their corporations in operations abroad. This was demonstrated perfectly by the debate about the Draft UN Norms on Business and Human Rights and subsequent reports by UN Special Representative, John Ruggie. However, home states also have other strategies and instruments at their disposal that can raise company awareness of and sensitivity to their operations in conflict zones to encourage corporate governance contributions. Examples are dialogue processes, public-private partnerships and the requirements of export credit agencies. In this sense, governmental approaches range from legalistic, confrontational approaches to cooperative ones. As shown in Chapter 2, governments have taken the lead in establishing partnerships such as EITI and the Voluntary Principles. From a constructivist perspective, it might be argued that companies are embedded and socialized in their home states (Flohr et al. 2008). They can partly externalize homestate values and norms in their worldwide operations (an argument that is well known in liberal theories on state actors). The empirical research confirms causal influences, the external influence of legal regulation and the internal influence of socialization of the norms, values and practices of home-state contexts. Thus, although the focus was not explicitly on the issue of motivation, the research provides interesting insights into this long-standing debate. Applying the classical distinction between the rationalist logic of consequences and the constructivist logic of appropriateness to corporations, there is a difference between ‘narrow market rationalism’ and ‘complex market rationalism’. The former focuses on short-term shareholder value while the latter includes the normative expectations of consumers and the need to manage reputation risks, and intrinsically motivated corporate governance contributions in costbenefit calculations (see Chapter 1 and Wolf 2007: 299). A mixture of ‘complex market rationalism’ perspectives and corporate identity understanding drives companies. The comparison of oil companies in Nigeria highlighted that CSR public policies and general normative attitudes in home states encourage company voluntary commitments. The policies and activities of the Norwegian company, Statoil, were clearly influenced by the Norwegian government’s attitude (being a good international citizen and demonstrating a successful oil history), while the negligible engagement by Chinese companies was similarly framed by the conservative stance of the Chinese government. The external causal path was supported by

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the information and communications technology (ICT) companies and the coltan issue: where hierarchically enacted binding rules on the issue are in place in the home state, as was the case for the US companies, corporate statements to the same effect seem to be obsolete. However, the case study on the US-based companies also reveals how closely interrelated legal regulations and normative attitudes work. Given the adversarial legalism of the US approach to law and policy implementation (Kagan 1997), US companies also shy away from voluntary selfregulation and governance contributions out of fear that it might be used against them as grounds for litigation. Regulating company conduct disfavours voluntary contributions. This research indirectly confirms the hypothesis that companies contribute to governance to avoid binding regulations. Without going into the patterns in depth, it is clear that companies shy away from governance contributions the heavier the regulatory shadow of their home state is. The host states of the companies are all located in regions of ongoing or only recently ceased violent conflict. Again, the political and regulatory environment of the host state varies, but quite often companies are confronted with varying degrees of state failure and the underprovision of collective goods (the case study on Northern Ireland being an exception). It is therefore important to distinguish between formal regulation and implementation of existing laws. While legal frameworks often exist, states lack the willingness or capacity to implement them or to provide certain public goods. Table 9.1 introduces possible conjectures about the link between state willingness and capacity and the likelihood of company engagement. In a state that is willing to improve its performance (right column), companies might also be more willing to contribute to governance and might do so to support governments. In states with weak willingness, companies need not be afraid of further regulation nor its implementation (Ballentine 2007: 130), nor might their engagement be welcome when it comes to furthering good governance (especially in authoritarian or repressive states). The empirical findings clearly support these conjectures. The differences between the governance output and outcome of the food and beverage companies in Rwanda and DRC were partly a result of the differences between capacity and willingness of the host states. Alpha is much more active than Beta in the DRC because it has a strong governmental partner who is willing and capable of setting and implementing a legal governance framework (although not to the same degree). Beta faces a weak political will and capacity in both the central state and its operational environment, with changing ruling authorities and hardly any long-term

Deitelhoff, Feil, Fischer, Haidvogl, Wolf and Zimmer 215 Table 9.1

Willingness and capacity of the host state Weak willingness

Strong willingness

Weak capacity

Weak political will and weak capacities Companies substitute governmental activities

Weak capacity and strong willingness Companies complement and support governmental activities Highest likelihood of engagement

Strong capacity

Strong capacity, but unresponsive state (for example, authoritarian and repressive state) Company engagement most difficult as it might conflict with governmental interests

Strong willingness and strong capacity of government Companies support government policies and go beyond (but company engagement might not be essential)

Low likelihood of engagement Source: Adapted from Kanagaretnam and Brown 2005: 12.

political willingness. While Beta needs to cooperate with these authorities to continue its operations, the lack of perspective reduces voluntary governance contributions. The case highlights that companies need a capable and, above all, reliable partner in the public sector to contribute to governance. In contrast, the context of a failed state and governance gaps inhibits any meaningful engagement. This point was reinforced by the study on the oil industry in Nigeria. The regulatory framework for companies was insufficient and consecutive governments re-enforced their disregard for environmental and human rights concerns. Finally, in the Northern Ireland case, the comparatively low level of activities across the board was obviously the result of the strong capacity and willingness of the host state. Proactive legislation by the government, which has set up highly demanding fair employment legislation to address the persistent segregation in Northern Irish society, does not leave much room for companies to make voluntary contributions. The political environment of the home and host states plays a major role in the case studies and some initial conclusions can be drawn. It can plausibly be assumed that the home state possessing a proactive and cooperative attitude increases the likelihood of corporate governance contributions, while strict legal (hierarchical) settings discourage

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such contributions. In the host-state environment, the most favourable conditions for governance contribution seems to be a mixture of strong political willingness and low capacity. Companies do not feel capable of doing it alone and need a reliable partner in the public sector. However, the case studies do not conclusively demonstrate anything about the interplay between different home and host state contexts: demands might reinforce each other and promote company engagement but they can also be contradictory (Haufler 2004). Another interesting field for further research is the increased blurring of traditional home and host states. Home states are often assumed to be states belonging to the OECD world and host states non-OECD, developing world countries. However, more and more TNCs have their home state outside the OECD world, for example in China or Latin America. How these companies position themselves in discourses about their political role and what standards and policies they use when operating at the local level in conflict zones has rarely been examined. The case studies did not systematically cover companies from the nonOECD world. However, in two of the case studies, the ICT companies and the oil industry, Chinese companies were included. Although they clearly displayed the lowest level of engagement across the board, both case studies report developments of more engagement. The Chinese government has taken up the CSR issue and tried to localize it as part of fostering ‘harmonious society’. Thus, a diffusion of common standards of appropriateness might be going on. As mentioned earlier, civil society actors have an instrumental role in bringing CSR-related issues and standards onto the agenda and in holding corporations accountable (see Doh 2008; Haufler 2001a, 2001b; Spar and LaMure 2003, among others). Hence, the societal environment in home and host states should make a difference too. The findings support the fact that civil society activities are disproportionate across industries and countries. Civil society organizations target some industries (such as extractives and textile) more than they target others (the service sector, such as logistics or tourism). In fact, the direct influence of civil society actors via immediate targeting figured prominently in only two of the cases, the ICT industry and the coltan issue, and the oil industry in Nigeria. There are two main reasons for this. First, the influence of civil society activities depends on the reputational sensitivity of companies. Second, to attract public support for their campaigns, civil society needs to be able to frame its issues as moral wrongs or scandals (Zald 1996: 266). Thus, they focus their campaigns on companies who grossly violate well-established norms (wrongdoers), not on mere


non-performers. Local protests and global civil society activities have certainly influenced the emergence of CSR in the oil industry, increasing governance contributions. Similarly, the transnational media campaign on company involvement in illegal coltan trade spurred the development of policy statements by ICT companies. After all, these actors played a major role in what was initially identified as a crucial background condition for the readiness of corporations to perform governance functions: the emergence of a new transnational normative environment. The perceived threat of public pressure from national and transnational media, civil society and other actors promotes corporate statements on their responsibility for peace and security. Again, the effectiveness of such pressure is strongly connected with company and production characteristics, such as product type and company visibility. Companies that produce goods that are highly visible to end-consumers or can be easily replaced are more sensitive to reputational damage and thus keen on keeping a positive image. Hence, as the case of Bombardier Aerospace in Northern Ireland highlights, companies might ‘walk the extra mile’ and voluntarily engage despite a dense regulatory setting. The influence of civil society should not be seen as being limited to targeting specific companies and industries with blame and shame campaigns. Civil society organizations use different strategies and activities, ranging from the more confrontational, such as campaigns and litigation, to more cooperative ones, such as dialogue and partnerships (Oliviero and Simmons 2002). Different strategies can even be used simultaneously by different organizations, as the case study on the oil industry in Nigeria shows. This division of labour between civil society organizations might not always be intentional; it displays ideological divides within civil society about the role of business in society. Finally, the market environment also plays a role in company engagement. As initial findings from the tourism sector suggest, a highly competitive market with intensive price competition, a high number of company take-overs and horizontal and vertical integration seems to have a restricting influence on corporate engagement. It can be assumed that most participants decide to concentrate on economic performance and only the market leaders and corporations that operate in specific sub-segments of the market will engage (see also Haufler 2001: 662). Another aspect is that corporations operating in markets with many providers are less visible and therefore incentives to engage are lower (see Wolf et al. 2007: 309). However, further research is needed to substantiate such conjectures, as the case studies could not systematically cover these variables.

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The empirical case studies outline push and pull factors for corporate governance contribution. Push factors affect the reputational and material vulnerability of companies. Reputational vulnerability covers company characteristics such as size, product and image. It is enhanced by transnational public pressure that addresses corporations as market actors interested in avoiding reputational costs. Material vulnerability bundles together factors such as conflict characteristics and the locations of facilities and staff – in other words, a company’s exposure to violence. Pull factors concern reliability and predictability and bundle together the political–legal environment in home and host states, as perceived by the acting corporations. As a further pull factor, appeals to their sense of beyond-profit responsibility, mainly from political and societal realms, challenge corporations as social entities to rethink their roles. The emergence and sustainability of corporate governance contribution is thus a function of several aspects of a company’s vulnerability.

9.3 The state of ‘state and business’ in global governance With the rise and spread of private actors in global governance initiatives, the academic debate on global governance has begun to question the distinction between the public and the private sphere, so intimately connected with the Westphalian model of consolidated states exhibiting internal and external sovereignty. Scenarios on the future of the state in global governance vary. The state could fade in the face of economic globalization (Strange 1996). Models of state transformation processes, in which states share the provision of goods with private and international actors, vary in results; the state changes its role from the monopolist to a manager of political authority (Genschel and Zangl 2008: 2) and then to outright denial of any fundamental changes (Krasner 2002). Most of these scenarios, however, have been developed using the Western ideal of the territorial, constitutional, democratic, welfare state (Leibfried and Zürn 2005) despite it clearly not being representative. In fact, depending on different measures and scales, it is an exceptional minority phenomenon while the majority of states – although resembling it formally – are lacking severely in several of its dimensions, be it the effective control of their territory, welfare production, rule of law or democratic legitimacy. Though often used as the starting point for analysing changes in global governance, the golden age Western nation-state, with its clear separation between the public and the private sphere (the state guaranteeing the provision of public goods, the private sector taking responsibility for generating


wealth to support this provision), is thus the deviant case and not the median. From a truly global perspective, this ideal was never fully established or uncontested. Hence, much of the debate on shifts in the public–private divide in global governance concerns the OECD world. The shift in relationship between the public and the private sectors at the level of global regulations should be noted. In many issue areas, states and international organizations alike have begun to cooperate with private actors in setting and implementing regulations and in the provision of public goods, thus politicizing private actors to an unprecedented degree – at least for the period of the modern state. This is where the second qualification sets in. The neat public–private divide is actually one of the crucial achievements of the modern state and has developed over centuries by ruling out private competitors (monopoly on violence), establishing and centralizing a continuous revenue base (taxing) and creating loyalty among the society to the state (nationbuilding and welfare production). In contrast, the pre-modern state of the sixteenth to eighteenth centuries was comparatively more tolerant of the inclusion of private actors, the history of the chartered companies being but one example, perhaps because there was no other choice. Thus, the shift in the public–private divide in global governance has to be severely qualified, in geographical and temporal dimensions. Despite these limits, the findings on corporate governance contributions to peace and security highlight the strong normative foothold of the modern state and the public–private divide that goes along with it, particularly because of the self-perception of ‘ordinary’ corporations. Despite political expectations and pushes to take responsibility for security and peace in zones of conflict and the severe need for such contributions in these often weak regulatory environments, companies refuse to take on the role of co-provider of governance functions – at least when it comes to direct contributions to security. The organization and use of force, at the core of public responsibilities of the modern state, remains a taboo for companies. Even the differentiation within the business sector that gave rise to specialized security providers (Chapter 8) does not refute this taboo. The speedy demise of private security and military companies involved in direct combat, Executive Outcomes and Sandline International being cases in point, and the latest public outcries over scandals such as the killing of civilians by Blackwater in Iraq in September 2007 seem to reinforce this observation. Neither the business sector nor the public are willing to let private actors enter into this delicate field, even though the lines between direct and indirect security are especially hard to draw in this area.

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Thus, in the area of direct security provision, the state remains the central actor and the one to whom responsibility and legitimacy are primarily addressed. This is even true for those regions in the world in which the authority of the central state was never fully capable of establishing a monopoly on violence. The findings in the African case studies especially make clear that while companies might cooperate with all kinds of local strong men and shaky authorities to keep their business running, they only engage in corporate governance contributions once a reliable state authority emerges that displays at least sufficient political will to establish and implement a public governance framework (Chapters 2 and 3). The idea of business addressing conflict in weak state environments after an optimistic decade of public-private partnering in issue areas such as the environment, social and labour standards and human rights is thus rather bleak, apart from in the clearly limited conditions observed. However, this might not even be the worst outcome, as becomes clearer once the question of the normative desirability of corporate governance contributions to peace and security is examined. 9.3.1 The desirability of more private governance contributions to peace and security Perhaps the potential of corporate contributions to peace and security in zones of violent conflict could be fully realized if conditions that make companies reluctant to engage in more than mostly indirect contributions to peace and security are improved. Even if this did happen, it is still open to debate whether and under what circumstances a more far-reaching co-provision of core state functions by private actors is desirable. Corporations cannot refer to any kind of legal authority when they are expected take on political functions as co-performers of governance functions along with, or even without, the state. In particular, they are not elected or put ‘in authority’ by the addressees of their potential contributions to security governance in zones of violent conflict. This problem of conferring political competencies on private actors was solved elegantly in the early modern period. The chartering of trading companies gives an instructive example of how political responsibility can be delegated to private actors and questions of private security governance legitimacy answered: formal delegation of regulatory competencies by the state. Because of this example, the division of labour into which present-day companies have been socialized cannot stand as an argument against outsourcing security provision to private actors,


as evidenced by the rise of private security and military companies (PSMCs). By taking over security governance functions, business actors would not be doing something that, from a historical perspective, is completely new to them. Against this background, the popular definition of business as ‘private in form and private in purpose’ is put in its right place, namely as a modern invention. Moreover, after the ‘governance turn’ in the provision of public goods, private authority can no longer be regarded as a ‘favour handed down by public authorities’ (Kooiman 2002: 83) as it has become a necessity for governing societies in which the state is unable or unwilling to govern. The authority shift from the public to the private sphere inherent in the recent transformations of the state requires a new perspective on how corporate actors as partners of states, international organizations and civil society in global governance can be held accountable. How can private governance contributions to peace and security take place without violating basic legitimacy demands, such as the guarantee of the rule of law, basic participatory rights and controlling the use of power? Taking into account that companies need a capable and reliable partner in the public sector to contribute to governance (which also implies that transnational private governance contributions cannot replace but only complement public governing, at the most), the legitimacy issue has to be extended to broader considerations of the institutional and public embedding of corporate governance activities. The primary function of public institutional safeguards would be to establish the constitutive rules that define the roles and responsibilities of the co-producers of governance functions based on fundamental criteria of democratic legitimacy, such as responsiveness, power control and self-determination. Responsiveness refers to ensuring that private self-regulation is mindful of people’s demands or context specificities (for example in conflict zones) and that action deemed necessary by the public is taken. The voluntary nature of private self-regulation implies a lack of obligation. Private actors may decide to provide governance contributions but may also opt to withdraw from a host state. Responsiveness is therefore unlikely to be achieved. Some measure of control of corporate power needs to be in place. Private actors can be called to account for their governance activities by different mechanisms. Delegated authority may be withdrawn, as in the historical case of the chartered companies, legal action may be taken against firms, as in the case of private military and security companies, or reputational and, ultimately, material costs may be inferred by public targeting, as in the case of the extractive industries. These mechanisms need to respect

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the self-determination criterion that requires congruence between those who perform governance functions and those who are affected by them. For example, community development without community involvement (Chapter 3) would not fulfil this criterion. A traditional approach to meeting such accountability demands is formal delegation: corporate governance contributions have to be legally authorized by a delegation of competencies from a public agency with the legitimate legal authority to do so. Delegation of governance competencies does not confer legitimacy automatically, for example when home-state governments delegate to companies operating abroad, as in the pre-colonial granting of charters that ‘legitimized’ foreign companies to exert political authority in overseas territories (see Chapters 7 and 8). Similarly, host-state governments are not usually reliable conferrers of legitimacy on private security governance contributions because they are often either unwilling or unable to respect their own people’s right to self-determination in zones of violent conflict. Even though international organizations, such as the United Nations, may be advocates that are more credible and trustees of those who cannot speak for themselves, they can be biased by representing the global North, perpetuating the paternalism problem, albeit in a more subtle form, when establishing and monitoring rules for private governance contributions. Given the shortcomings of these ways to make traditional political institutions ensure that private governance contributions to peace and security respect self-determination criteria, a different approach is required. Elaborated by Flohr et al. (2009), it grounds the legitimacy with which private actors contribute to governance on their authority source or that attributed to them by others. In this way, business actors can have legitimate authority independent of formal legal authorization. Their claim of contributing to governance may be based, for example, on a credible commitment to universally accepted norms, for instance by participating in the UN Global Compact, or on their problem-solving resources. However, being ‘an authority’ as a private actor does not provide the same legitimacy as having been put ‘in authority’ through delegation of competencies. The sources of corporate authority can provide legitimacy only in the context of soft modes of governance, such as voluntary self-regulation or best practice, which do not involve formal or informal coercion. Therefore, purely private corporate governance contributions can claim legitimacy in their own right only in contexts of horizontal, consensus-seeking and learning-oriented governance processes. Feeding this argument back into the case studies, the


soft mode of indirect governance contributions to peace and security inherent in the ‘best practice’ approach of the tourism industry, for example, raises next to no objections in terms of legitimacy, whereas the community development activities of the oil industry in Nigeria already imply a more significant use of private authority. To maximize the legitimacy potential of corporate governance contributions to peace and security, a mixed public–private accountability mechanism could consist of explicit corporate commitments (for example in the context of the United Nations Global Compact) to respect certain basic rights and obligations when taking on governance functions in zones of conflict, such as comprehensive stakeholder participation. The transnational public and civil society groups could name and shame companies when commitments are not met. Above all, the question of the likely consequences of more and more substantial contributions to peace and security by business companies needs to be discussed when assessing desirability. Direct contributions to security remain a taboo for business companies. In the few cases where companies address security issues directly (for example in the case study on private military and security companies and, albeit partly, the oil industry), some troubling features were observed. The more companies take over responsibility for public goods in non-consolidated state settings, the more they are perceived as an extended arm of the state and, consequently, the more the local population expects and demands of them. Instead of addressing their concerns to their state, they begin to focus on the companies to satisfy their needs. Companies are perceived as a ‘shadow’ section of the government, which is often seen as subservient to foreign commercial interests instead of its population. This was seen in oil companies operating in the Niger Delta and is quite similar to PSMCs operating in weak states or being part of military interventions and post-conflict reconstruction. Even though companies are able to increase the level of security within these settings, they are drawn into the political conflicts that gave rise to violence in the first place, becoming a conflict party in the eyes of the local population. From the perspective of the host state in conflict ridden and weak governance zones, the outsourcing of security to PSMCs and the voluntary contributions by companies to the provision of basic collective goods have the potential to diminish the need to invest in state consolidation in the first place. Developing their economy and nation-wide public institutions (such as schools, hospitals, police) and establishing tax revenues become less important the more companies take over such tasks. Again, the Nigerian government’s practice of dispatching police

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troops to oil companies and the latter paying for them is a telling example. These substitutions undermine the very conditions required for sustainable state consolidation (Leander 2005: 617–18; Singer 2008: 56–7). With legitimacy and capacity still residing within the political organization of the state and no principal competitor on the horizon, such trends are more than disturbing as they counteract any attempt at sustainable peace building. In the end, the reluctance of the business sector to engage in security might be good news as it reminds the academic and political debates that sustainable peace building is essentially an exercise in state building, in which the private sector can – and is willing to – complement efforts but in which states remain the principal actors. Regarding the much quoted blurring of the public–private divide in global governance, the search for business contributions to security governance in zones of violent conflict leads to a somewhat peculiar picture. Apparently, and quite differently to the age of the chartered companies, today’s TNCs seem to insist on maintaining this divide, at least as far as direct security governance is concerned. In most of the conflict zones analysed, this divide has never been solidly established by an effectively functioning nation state. This reluctance coincides with the normative expectations of local populations of establishing the traditional divide. The fact that the demand to blur the public–private divide by turning corporations into co-performers of governance functions has its origins in the OECD world seems to be indicative of a profound lack of synchronicity between regions of the world, where modern statehood is in transition in some areas and is regarded as something still worthy of achievement in others.

9.4 Where to from here? Challenges ahead for future research This study aimed to deepen the understanding of the role of business in zones of violent conflict and to feed empirical findings into the broader context of global governance in the post-national constellation. In this final section, the challenges for the research on business and conflict are outlined. Three stand out: (1) putting corporate governance contributions into perspective; (2) the necessity of trans-disciplinary theory; and (3) assessing the impact of corporate governance contributions. 1

The case studies focused on company governance contributions to peace and security; their contribution to the development and implementation of norms and rules and the provision of collective


2

goods. This focus adds an explicit governance perspective to existing research on business in zones of conflict. It is important to examine governance contributions as part of a larger picture because the case studies may have a ‘positive’ bias by focusing on governance contributions to peace and security. Possible negative consequences of core business activities should also be taken into account. After all, the main goal of a company is to make profits and core business activities can affect the societies in which they operate, positively and negatively. Companies can contribute to economic prosperity and development, for example when they provide employment opportunities or by paying taxes. In this case, core business activities also contribute to collective goods, albeit unintentionally. Core business might also have negative effects, as has been convincingly shown by extractive industries. It is necessary to look at both sides of the effects that core business activities have on violent conflict. Who benefits from business activities in conflict zones and in what way? Who suffers? A critical international political economy (IPE) perspective, analysing power relationships between states, business actors and the affected population, would be instructive. This feeds directly into the second challenge: further research will have to cross the borders of academic disciplines. The politics of private business is a multidisciplinary topic. ‘Governance’ is the domain of political science; the ‘company’ is the subject of management studies, and organizational studies offers a broader understanding of the corporation as an organization. Sociological and anthropological perspectives contribute to better understanding of the social and cultural embedding of corporations and related structure-agency dynamics. Despite the existing research on business in conflict, ‘no coherent “big picture” exists’ (Sherman 2001: 5) due to the lack of theory in this field. Up until now, scholars have not been able to build on any existing theory on companies providing public goods, particularly peace and security, in zones of conflict. Examining CSR research more closely is of interest: the social, environmental and ethical responsibilities of corporations doing business in areas of peace. Few approaches exist that try to combine this research with concepts from political science. Recent research has tried to make this link and conceptualize corporations as political actors (Wolf 2008). Some scholars are working on a ‘new corporate political social responsibility’ (Scherer and Palazzo 2008: 578). These concepts could be very fruitful to develop the theory further.

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3


Finally, the decision not to examine the impact of corporate governance contributions to peace and security was driven by methodological considerations (see Chapter 1 in this volume; also Wolf et al. 2007: 303–4). Measuring impact is challenging because it is difficult, if not impossible, to verify the impact of governance contributions on violence levels. This challenge must be taken up if the political importance of corporate governance contributions in zones of violent conflict is to be assessed.

Against the background of the above-mentioned lack of synchronicity between the post-national OECD and the mostly pre-national nonOECD world, it is unclear and far from pre-determined how the future interplay between public and private actors in the co-performance of governance functions in global governance will develop. Despite the tremendous research efforts that still lie ahead, it is hoped that this research can contribute to a realistic convergence of the academic and political debates about the potential political role of corporations. For the time being, expectations are more likely to be on the sceptical rather than optimistic side, at least as far as un-embedded corporate contributions to governance, in general, and to securityrelated governance, in particular, are concerned.

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Index accountability relationship 167–72 anti-corruption 61, 67–8, 77, 78, 205 compare corruption anti-discrimination 112–3 compare discrimination aviation industry 21–2, 110 best practices 44, 141, 198, 222–3 beverage industry 19–20, 28–30, 207–8, 210–12, 214 British South Africa Company (BSAC) 157, 161–2, 163–6, 166–72 chartered companies 22–3, 154–76, 204, 205, 219, 221, 224 administrative authority of 158–9, 161–2 functions of 157–8, 162–6 political authority of 158, 160, 172–5 political role of 157–8, 160 civil society 75–7, 87, 95, 103, 177, 204–5, 219, 224 boycott by 101, 180 and campaign 58, 100–1, 180, 206, 208, 216, 217 civil society actors 32, 38, 40, 48, 53, 100–1, 216 and participation 69, 70 partnership with 38, 40, 69, 143, 221 pressure from 76, 101–3, 217 transnational civil society 76, 101, 179, 223 see also non governmental organizations code of conduct 35–7, 39, 42, 44–5, 93, 94, 102, 111, 112, 135, 120, 150, 177 collective goods see public good collective initiatives 26, 86, 92–3, 96, 102–3, 135, 136

colonialism 30, 32 communities, local 28, 37–8, 40, 49, 61–2, 69–72, 76, 143, 205 company characteristics of 15–6, 28–30, 43–5, 87, 95–9, 103, 123, 126, 131, 147–9, 202, 214, 223–5 conflict environment of 26, 28, 41, 45–50, 87, 95, 119, 126, 210–12 core expertise of 38, 44, 127 corporate identity of 207, 213 CSR-units in 98, 99, 103 facilities of 44, 46, 207, 213 human resources of, see also employees 124, 127, 210 industry sector of 27, 28–9, 181 management leadership of 45, 86–7, 91–5, 100–3, 94, 98–9, 149, 181 market environment of 29–30, 148, 181, 194, 217 market position of 44, 95–6, 131, 148, 149 and material vulnerability 74 organizational interfaces of 15, 16, 124, 208 ownership structure of 28, 44–5, 131, 148 political environment of 50–2, 75, 77–80, 95, 98, 102, 117–20, 212–16 receptiveness of 124 and reputational vulnerability, see also reputation 77, 100, 101, 124–5, 206, 208, 209, 216–18 size of 50–2, 123–4, 131, 148, 207, 208 stakeholder environment of 16 structure of 87, 98, 99, 103, 124, 126 see also transnational corporations

256

Index conflict 60–2, 108–10, 131–5, 202, 203, 206–8, 221–4 causes of 30–4, 61–2, 87–91, 108, 127, 205 characteristics of 16, 45–50, 87–91, 210–2, 218, 131 concentration of 45, 47 conflict zones 26–7, 87–91, 178–80, 182–6, 191–2, 196–7, 210–21 ecological dimension of 62, 71–2, 134 economical dimension of 31–2, 34, 87–90, 133–4 intensity of, see also concentration of 211–12 issue of 48, 50, 87–91, 108, 116 phases of 47–50, 87–91, 119, 210–12 proximity of 46–7, 65, 74, 211–12 contracting 180, 182, 190–1, 194, 198–9 corporate citizenship 44, 98–9, 118–19, 180, 207 corporate culture 20, 22, 28, 44, 45, 98, 122, 148, 207–8 corporate engagement and commitments 14 formal delegation of 9, 18, 166, 169, 172–4, 220, 222 impact of 4, 6, 14–5, 23, 31, 224–6 incentives for 208–11, 217 intensity of 92–3 see also corporate social responsibility; corporate security responsibility corporate security responsibility (CSecR) 3, 10–15, 205 see also corporate engagement; corporate social responsibility corporate social responsibility (CSR) 6, 10–15, 205 emergence of 76, 147 see also corporate engagement corruption 32, 36–7, 39–40, 61, 67–8, 133, 134, 142, 144, 205 costs 46, 86, 180, 181, 189, 190, 193–7, 209, 211, 218, 221

257

see also sunk costs crisis management 49, 131, 138–140, 144, 146, 212 denationalization 179, 202 development 31, 38, 49, 69–71, 88, 97, 100–1, 104 and economic empowerment, see also economy 223, 225 and local communities, see also communities 60, 69–71, 76, 222–3 and participatory approach 69, 70 socio-economic development 69–71 sustainable development, see also sustainability 130, 135, 140, 144 discrimination 108–10, 120–1 East India Company (EIC) 157, 158–60, 163–6, 166–72 economy 87–8, 187, 223, 225 economic development, see also development 140–3, 149, 223 economy of violence 16, 21, 26, 33–4, 61, 62 employees 99, 104, 184–5, 189, 195 affectedness of 35–6, 39, 44, 46, 196 number of 30, 98–9, 123–4, 181, 191, 194, 207, 212 recruitment of 36–7, 125 see also fair employment engagement see corporate engagement environment environmental management 62, 71–2, 94–5, 100, 134, 140–4 see also standards extractive industries 20, 26, 28, 51, 58, 62–4, 89, 92–3, 104, 189, 216, 221, 225 Extractive Industry Transparency Initiative (EITI) 6, 67–8, 77–8, 213

258

Index

failing state see state failure fair employment 111–4, 117–8, 127, 205, 215 food industry, see beverage industry force, organization of 88–91, 187, 192, 205, 219 Global Compact 142, 203, 222, 223 Global e-Sustainability Initiative (GeSI) 92–8, 102, 104 global governance actors in 5–8, 10–12, 50–3, 86, 103, 136, 202–3, 221 changes in 203, 218, 224, 226 regulatory problems of 28, 50, 52, 54 research on 4–7, 202–4, 218–19 governance 87, 91, 92, 202, 204–5, 207, 215, 218, 221–5 governance contributions dimensions of 12–15, 43 direct governance contributions to peace and security, see also security governance 12–15 impact of, see corporate engagement, impact of indirect governance contributions to peace and security 12–15 motivation for 3, 9, 80, 212–13 and relevance for peace and security 12–15 output of 15, 86, 91–5, 102, 214 political quality of 11–12, 52–3 to political order 12–15, 27, 36–7, 39, 42, 44, 45, 53, 67–9, 111–4, 120–2 to security, see security governance in the socio-cultural dimension 12–15, 38, 40, 42–3, 123, 164 in the socio-economic dimension 12–15, 27, 37–8, 40–5, 53, 69–72, 114–6, 120–2, 145, 187 voluntary nature of 80–1, 92, 211, 215

home state 21–2, 77–80, 95–9, 206, 213, 216 CSR policies of 78, 79 legal environment in 97, 98, 117–8, 126, 146, 206 partnerships with 78 political environment in 16–17, 101, 206, 215 public pressure in 87, 99, 101, 103 regulatory environment in 95, 97, 98, 102, 146, 166–9, 213–14 socializing influence of 77–80, 213 societal environment in 16–17, 87, 101, 102, 213 host state 50–2, 216, 221–3 legal environment in 218 political environment in 16–17, 60, 61, 75, 210–15, 218 regulatory environment in 75 societal environment in 16–17, 76, 212, 216 human rights 62, 88, 215, 220 and engagement 36, 39–40, 42, 65, 68 violations of 62, 65, 189, 195 industry characteristics 58, 62–3, 74, 86, 91–3, 95, 100, 103, 135–8 information and telecommunication (ICT) sector 21, 85–6, 91–8, 100–5, 214, 216, 217 international regulations see regulations labor regulations, see standards legitimacy 166–72, 189, 195, 208, 218, 220–4 market market ranking 95–6, 131, 148 market rationality, see motivation market segment 95–6, 131, 148, 208 market structure 29, 44, 147, 194 motivation 9, 16, 28, 72, 81 logic of appropriateness 9, 213

Index logic of consequences 9, 213 and philantrophic engagement 9, 12, 40, 41, 115 multi-stakeholder initiatives 38, 40, 65, 67, 69, 77, 135, 202, 205 non governmental organizations (NGOs) 68, 76–7, 100–1, 105, 180–1, 202, 206 see also civil society norms 17–18, 94, 99, 166–72, 207, 213, 222 norm development 45, 53 norm diffusion 28, 44, 53 ,77 norm entrepreneurship 77, 78 norm implementation 53, 202 norm socialization 78, 213 transnational normative environment 76–7, 118, 205, 217 oil industry 20, 62–4, 204, 206, 208, 209–217, 223–4 outsourcing 177–82, 189–200, 205, 220, 223 see also contracting ownership, local 69–71 paramilitary groups 108, 109, 210 police 35, 64–5, 177, 184, 189–93, 223 political-economic hybrids 157–8, 161 post-conflict 48–50, 191–2, 197, 203, 210–12 post-conflict reconstruction 178, 180, 197, 223 see also conflict, phases of post-national constellation 154–56, 204, 224, 226 poverty reduction 115–6, 144, 146, 149, 151 private authority 6, 202, 221, 223 private contractors 190, 191, 193, 196 private goods 139–40, 144, 146 compare public goods private sector 27, 51, 92, 94, 98–9, 101, 177, 191, 202–3, 225

259

private security and military companies (PSMCs) 7, 23, 204, 210, 219, 221 contracting to 177–80, 196 outsourcing to 177, 179, 190, 199, 200, 205, 220, 223 private security industry 179–80 private self-regulation see self-regulation private sphere 204, 218, 221 products characteristics of 16, 29, 38–9, 43–4, 86, 92, 99, 101, 103, 135, 144, 146, 206–8 image of 44, 135, 144, 146 visibility of 77, 91, 125, 207 production characteristics of 16, 28–9, 43–4, 85–6, 89, 91, 95, 100, 144, 203, 206 location of 28–9, 43–4, 61, 64, 74 public goods 48, 94, 178, 189, 202, 214, 218–19, 221, 223–25 public pressure 58, 76–7, 87, 98–9, 101–3, 217–18 see also civil society, pressure from public security forces 64–5, 178, 189, 210 public sphere 204, 218, 221 public-private partnerships 6, 38, 40, 65, 67, 69, 77, 202, 205, 213 regulations 93, 95, 97–8, 102–315, 191, 198–9, 212–14 international regulations 21, 202, 209, 219 see also standards regulatory gaps 3, 6–7, 11–12, 20, 215 reputation 28, 37, 44, 77, 124–5, 207, 213 reputational costs 28, 44, 218, 221 reputation sensitivity 208, 209, 216–18 shaming and blaming, see also civil society 58, 76

260

Index

sector characteristics see industry characteristics security as private good 35–6, 39, 72, 131, 138–40, 144 as public good 26, 46, 178–9, 189, 192–3, 205, 225 fragmentation of 188, 192, 197 privatization of 204, 210, 220–1, 223 and security threats 45–50, 64, 178, 187, 211 security governance 35–6, 39, 64–7, 177–8, 186–7, 192, 197, 202–5, 220–6 see also governance contributions self-regulation, private 65–6, 67–9, 135, 177, 212, 221–2 shadow of hierarchy 21, 51, 75 shareholder 16, 80, 140, 158, 167–71 shareholder approaches 8–9, 10, 97, 156, 213 stakeholders 10, 16–7, 37, 59, 67–71, 77, 97, 99, 119, 124, 140–1, 223 standards environmental standards 71–2, 94, 136 human rights standards, see human rights labor standards 93, 202, 220 social standards 93, 94, 97, 101, 202, 220 state and government effectiveness 32, 34, 50–52, 69, 75, 214 and monopoly of power 18, 36, 183, 187–9, 192, 200

and rule of law 34, 39, 65–6, 214, 218 state consolidation 178–9, 182, 189, 197, 218, 223–4 state failure 62, 74–5, 179, 183, 203, 214–15 state functions 158, 168, 187, 205, 220 state transformation 205, 218–19, 221, 224 statehood 177, 224 co-production of 155, 157, 172–5, 219–20 dimensions of 154–5, 159, 164, 218 sunk costs 28, 86, 209, 211 supply chain 38, 40–2, 47–8, 51, 92–4, 135, 141–3, 147–9, 209 sustainability 27, 92, 95, 98, 102, 141–2, 206, 218 tourism industry 22, 135–8, 140–3, 207–9, 211, 216–17, 223 transnational public, see also civil society, transnational 206, 209, 218, 223 transparency 20, 67–8 Vereenigde Oostindische Compagnie (VOC) 157, 160–61, 163–66, 166–72 violence see conflict Voluntary Principles on Security and Human Rights 65–6, 73, 77–8 war economies 2, 16, 21, 58, 61–2, 81, 85–7, 183, 203

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