Company Report: Siemens
By John | August 14, 2008
A major global company, Siemens faces challenges common to other companies of its size. In spite of recent labor protests, proposed strikes and union campaigns against Siemens AG, it appears workers have been able to negotiate with the company, and persuade it to address some major labor concerns. However, concerns about the Siemens’ global scale - particularly its operations in AFL-CIO watch list countries - and apparent lack of control over supply-chain labor issues suggests heightened risk for the company from a human rights perspective. Furthermore, the recent bribery scandal is indicative of Siemen’s lack of transparency as a company. Read the rest of this entry »
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COUNTRY RISK 2008: Tajikistan
By John | August 13, 2008
Tajikistan is an isolated former Soviet Republic located in central Asia. With few natural resources, little industry and minimal geo-stragic value, the country is likely to remain a backwater for the forseeable future.
With a population of approximately seven million, it is an authoritarian state. It’s political life is dominated by President Emomali Rahmon and an inner circle of loyal supporters. While the country has a constitution and a multiparty political system, in practice democratic progress was slow and political pluralism limited. The November 2006 presidential election lacked genuine competition and did not fully test democratic practices or meet international standards, though there were some improvements on voting procedures. During the year the ruling People’s Democratic Party of Tajikistan (PDPT) dominated by-elections for national parliament seats. The civilian authorities generally maintained effective control of the security forces.
Human Rights
The government’s human rights record remained poor and corruption continued to hamper democratic and social reform. The following human rights problems were reported:
- restricted right of citizens to change their government;
- torture and abuse of detainees and other persons by security forces;
- threats and abuse by security forces; impunity of security forces;
- lengthy pretrial detention;
- lack of access to prisoners by family members and lawyers;
- confessions obtained by torture accepted as evidence in trials;
- harsh and life-threatening prison conditions;
- prohibited international monitor access to prisons;
- extralegal extradition of prisoners from third countries with apparent government complicity;
- restricted freedom of speech, the press and media;
- restricted freedom of association;
- restrictions on freedom of religion, including freedom to worship;
- imprisonment of political opposition, including journalists;
- harassment of international nongovernmental organizations (NGOs);
- difficulties with registration and visas;
- violence and discrimination against women;
- trafficking in persons; and child labor.
Measures of Governance
By every measure of governance, Tajikstan trails the average measures for all other former Soviet Union countries. Lacking any pressure or internal motivation to change, it is unlikely that we will se any significant changes in these measures in the near term.
The Economy
Tajikistan has one of the lowest per capita GDPs among the 15 former Soviet republics.
Only 7% of the land area is arable. Cotton is the most important crop, but this sector is burdened with debt and an obsolete infrastructure. Mineral resources include silver, gold, uranium, and tungsten. Industry consists only of a large aluminum plant, hydropower facilities, and small obsolete factories mostly in light industry and food processing.
The civil war (1992-97) severely damaged the already weak economic infrastructure and caused a sharp decline in industrial and agricultural production. While Tajikistan has experienced steady economic growth since 1997, nearly two-thirds of the population continues to live in abject poverty. Economic growth reached 10.6% in 2004, but dropped to 8% in 2005, 7% in 2006, and 7.8% in 2007. Tajikistan’s economic situation remains fragile due to uneven implementation of structural reforms, corruption, weak governance, widespread unemployment, seasonal power shortages, and the external debt burden. Continued privatization of medium and large state-owned enterprises could increase productivity.
A debt restructuring agreement was reached with Russia in December 2002 including a $250 million write-off of Tajikistan’s $300 million debt. Tajikistan ranks third in the world in terms of water resources per head, but suffers winter power shortages due to poor management of water levels in rivers and reservoirs.
Completion of the Sangtuda I hydropower dam - built with Russian investment - and the Sangtuda II and Rogun dams will add substantially to electricity output. If finished according to Tajik plans, Rogun will be the world’s tallest dam. Tajikistan has also received substantial infrastructure development loans from the Chinese government to improve roads and an electricity transmission network. To help increase north-south trade, the US funded a $36 million bridge which opened in August 2007 and links Tajikistan and Afghanistan. 2
Economic Development
On the international front, Tajikistan continued to receive significant Chinese investments in 2007, mainly in the form of preferential loans for infrastructure projects. One report put total Chinese investment in Tajikistan at over $700 million. Meanwhile, business ties with Russia cooled. In August, Tajikistan revoked a 2004 contract with Russian Aluminum to build a major hydroelectric station, planning instead to create an international consortium around the project. 3
Social Challenges
Tajikistan is a major conduit for the smuggling of narcotics from Afghanistan to Russia and then on to Europe. A side effect has been an increase in drug addiction within Tajikistan, as well as a rise in the number of cases of HIV/AIDS. Although there were less than 1,000 officially registered HIV cases in Tajikistan in 2007, unofficial estimates put the real number at up to 10 times that many.
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Petrobras: People vs. Profit
By Sabina | August 12, 2008
Why does it seem that extractive industry companies are always the ones being picked on? After all, they have to make a profit too? Why should their operations be scrutinized ever more so than those of other industries? At the risk of generalizing, the history of extractive industries justifies such scrutiny—especially in regards to community relations and the environment. Let’s look at just one example.
Petrobras is Brazil’s largest industrial company, engaging in oil and gas exploration and in production, refining, purchasing, and transportation of oil and gas products. The company has proven reserves of 15 billion barrels of oil equivalent and operates almost 12,900 wells, 16 refineries, 31,000 kilometers of pipeline, as well as 5,870 gas stations. While the company has been praised for its “sustainability reporting”—even Petrobras is guilty of putting its profits before the livelihoods of people.
For years, Petrobras has been battling a local indigenous community in Ecuador—the Huaorani—for access to the tribe’s traditional lands. Meanwhile, the Huaorani tribe has been pressuring the Ecuadorian Government not to grant the Brazilian company an environmental license to operate an oil field in The Yasuní National Park and Biosphere Reserve in the Ecuadorian Amazon, where the tribe dwells. The tribe is concerned with threats to the area’s rich biodiversity as well as to their livelihoods. Local community groups have formed to protect the Huaorani territory within the Park and have been vocal opponents to the company’s plans. Tribe leaders have traveled to the U.S. and to make an appeal before the United Nations, the U.S. Congress and the International Monetary Fund for a moratorium on oil extraction in their territory; over 150 Huaorani traveled to Quito to march against the project, calling for a ten year moratorium on new oil projects and the removal of Petrobras from their lands; and the Ecuadorian Environment Ministry suspended construction of the access road into the Park that Petrobras had planned to build.
In response, Petrobras filed a lawsuit against the country’s Environment Ministry—without success. An Ecuadorian court rejected the lawsuit, protecting the Huaorani people’s rights to life, culture, health, and a healthy environment. Undefeated, Petrobras proposed a new “roadless” design utilizing helicopters to access the drilling platforms—this time being given the “go ahead” from the Environment Ministry in the form of a new environmental license. While no access road will be constructed, many environmental and indigenous groups are still unhappy with the new design, specifically citing threats to biodiversity and to ways of life of nearby indigenous groups who would be impacted by the facilities. Furthermore, local communities feel a lack of consultation from the company with appropriate groups—including the main Huaorani representative organizations.
This issue may not be a black and white one when profits are at stake. But when livelihoods are at stake, things should begin to look a little less grey.
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Company Report: Rio Tinto
By John | August 11, 2008
Rio Tinto Group, one of the world’s largest mining operations comprises dual-listed sister companies Rio Tinto Limited (in Melbourne) and Rio Tinto plc (in London). Although each company trades separately, the two Rio Tintos operate as one business. Rio Tinto mines coal (about 20% of sales), iron, copper, uranium, industrial minerals (borax, salt, talc), gold, and diamonds. It also produces aluminum products through Rio Tinto Alcan. The company has operations worldwide but operates primarily in Australia and North America (accounting for about 40% each). Subsidiaries include Kennecotts Energy, Minerals, and Copper.
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Company Report: Societe Generale
By John | August 10, 2008
Société Générale focuses on three activities: global investment management; retail banking and specialized financial services, including finance, leasing, and insurance; and corporate and investment banking, focusing on European capital markets, derivatives and structured finance. In the US, the company controls asset manager The TCW Group. Société Générale has nearly 2,900 branches in France and more than 1,700 locations worldwide. The Company, which has retail banking operations in more than 25 countries, is looking to boost its international franchise, both through organic growth and through acquisition. Key markets include Central and Eastern Europe, the Mediterranean, and Asia.
Recent Events
On January 24, 2008 the bank uncovered a fraud by one of its traders in what may be the world’s largest trading fraud to date. According to the AFP, Jerome Kerviel, a 31-year-old trader has been charged with breach of trust, fabricating documents and illegally accessing computers. Although he was initially allowed out on bail, a Paris appeals court upheld a plea from the state prosecutor that Kerviel be held in custody “to avoid any consultation with possible accomplices or conspirators.” The French government has blamed Société Générale’s risk control mechanisms for failing to detect Kerviel’s activities. Prosecutors have said Kerviel sought huge profits to get a better bonus and to improve his own reputation in the hard-driving culture. Société Générale began raising funds to help cover the estimated $7.1 billion cost of the fraud. Additionally, chairman and co-CEO Daniel Bouton and co-CEO Philippe Citerne each gave up nearly six months’ salary to take responsibility for the company’s losses. The event has sparked talk that Société Générale will be taken over by another banking institution.
In February 2008 Agence France Presse reported that the embattled bank is facing other woes for alleged involvement in a vast money laundering scam between France and Israel. The trial is expected to last until July.
According to the Financial TImes, Frédéric Oudéa, Société Générale’s chief executive, said France’s second-biggest bank would become stronger than before the rogue trading scandal that cost it €4.9bn ($7.6bn) of losses.
Presenting second-quarter results that were better than expected, Mr Oudéa said the results showed “the impact of the Kerviel case is largely behind us”.
SocGen was fined €4m last month by the Banking Commission after the French regulator identified “serious shortcomings” in internal controls that had paved the way for Mr Kerviel to accumulate €50bn of allegedly unauthorised bets on futures markets under the noses of his managers.
“We will be stronger after Kerviel,” said Mr Oudéa, adding that the bank’s franchise had not been affected.
French private customers opened 23,100 current accounts in the three months to the end of June, but this was almost half the 45,400 opened in the same quarter last year.
Global Risk Factors
The company operates in China, Kazakhstan, Vietnam and The United Arab Emirates. These countries are either lacking labor legislation that recognizes fundamental worker rights or they have labor legislation, but it is not enforced.
Labor Relations
Société Générale workers in France are represented by Syndicat national des banques (SNB), Confédération Française des Travailleurs Chrétiens (CFTC) and Confédération générale du travail-Force ouvrière (CGT-FO). No labor issues have been noted.
Risk Assessment
Due to what recent events that may represent the world’s largest trading fraud to date, its status as a responsible comnpany is of concern. On a positive note, the company has robust unionization and its recent adoption of the Equator Principles bolsters its corporate responsibility practices. How the events related to the trading fraud play out at the company will ultimately determine whether the company remains a responsible company from a social responsibility perspective.
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