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When a Country is Facing Political and Human Rights Issues, Should Businesses Leave or Stay?

Dec 17, 2018 | By Curated Content
Steve Bronstein/Getty Images

After the murder of dissident Saudi journalist Jamal Khashoggi, many companies had to urgently decide whether to attend Saudi Arabia’s Future Investment Initiative, a global business conference scheduled to take place just days after news of Khashoggi’s killing broke.

Questions like this involving issues like politics, human rights, or equality often present themselves sooner or later for any business operating in global markets. “I’ve had at least five instances where decisions like that had to be made,” the longtime CEO of Tupperware, Rick Goings, told me. The examples sound familiar: South Africa during Apartheid, China after the Tiananmen protests, Venezuela since the Chavez era, Egypt during and after the Arab Spring, and parts of Mexico today.

Over the course of the last few decades, multinationals have entered and left “frontier markets” like Venezuela, Cuba, Iran, Vietnam, Myanmar, and others. How did they, and how can they, make decisions about entering or leaving these markets, knowing it is never certain when a political, financial, or diplomatic crisis will happen?

Keep a long term focus 

A decision based on short-term financial or legal motives alone is destined to end in problems. It doesn’t matter whether that short-term motive is to make profits or to avoid losses, to follow sanctions or to evade them.

First, consider short-term profits and sanctions, and the cautionary tale of French bank BNP Paribas. According to Reuters reporting, until a few years ago the bank operated in Sudan, a country whose government was under U.S. sanctions for its “continued support for international terrorism, ongoing efforts to destabilize neighboring governments, and human rights violations – in particular with respect to the conflict in Darfur.” To do business in such an environment, as in many other places struck by unrest and turmoil, could still be profitable. According to the Manhattan District Attorney, who later investigated the bank’s practices there for violating U.S. sanctions, that was also the reason why BNP Paribas continued operating in the East African nation: it made financial sense. The compass that was guiding the bank was a financial one.

But that focus on short-term profit was short-sighted – even on purely financial terms. In the case of dealing with Sudanese authorities, BNP Paribas never really made a clear-cut choice when sanctions hit. It continued to operate in the country, even as international pressure on the Sudanese government mounted. It cost the bank dearly: in 2014, the investigating U.S. attorney slapped the bank with a record fine of nearly $9 billion, partially for its dealings in Sudan, partially for its activities in other countries facing U.S. sanctions, like Iran. Its short-term motives led to deep losses.

Leaving a country in order to prevent short-term financial losses isn’t a panacea either. The companies that know this best are those who have been around for a long time, like 152-year-old Nestle. “Financial criteria are very important,” Nestle Chairman Paul Bulcke told me, “but it doesn’t mean financial results today.” The company was and remains present in troubled markets like Cuba, Myanmar, Syria, and Venezuela. In the latter it has “no financial reasons” to be present, Bulcke said. “But Venezuela has been important to us and will one day make a comeback. People continue to eat. Our allegiance is to them. They remember the companies that left, and those that stayed. If you add the perspective of time, it’s not that dumb to stay. It’s an investment.”

Finally, consider the case of a company that adheres strictly to sanctions, but immediately re-enters a country when those sanctions end. The problem with this short-term legalistic approach is that sanctions come and go, but the underlying problems may remain. Cuba, Libya, Iran, and Myanmar in recent times saw sanctions come and go (and in some cases, come back again). A company can’t simply treat a sanction regime as a traffic light. If sanctions are dropped for diplomatic or geopolitical reasons but the beliefs or values of a country’s leaders haven’t changed, issues may surface again. A company’s presence may then backfire. More on that below.

Which decision factors provide a better “true north,” then? Here are a few tried and tested methods, that worked for companies in the past.

First, Do No Harm 

For business executives with a medical background, the Latin maxim “Primum non nocere” will be a well-known and non-negotiable rule. It can be of great help in deciding whether to enter or leave a country facing difficulties as well. For a consumer goods company, it might be easier to see in the Sudan example above why staying in the country despite selective sanctions on the government could be the right decision. All else being equal, a multinational producing milk, bread, or cereals might want to stay in business in a country with a corrupt or authoritarian regime to ensure the population continues having access to food. The alternative — leaving and therefore not supplying those things — may cause more harm to the population.

One country where this equation is particularly relevant today is Venezuela. The country, ever tighter in the grip of a government that erodes human rights guarantees and arbitrarily arrests opponents, has nationalized many companies, and seen many more leave. But consumer goods companies like Polar, Nestle, and Johnson & Johnson so far clung to their presence there, even if they increasingly must cut back production. “We have a connection with the consumers, not the government” Nestle Chairman Bulcke told us. “As long as we can serve them, we do that.” The same is true for Tupperware, CEO Rick Goings said: “If you see how much weight people lost on average, my first concern is: how do we not abandon them? We had to come up with lower priced product, and source locally, but we never left them.” That could be a good “true north” argument for others, too.

Who Benefits?

A second Latin phrase that can offer respite to business executives face with an ambiguous situation is “Cui Bono,” or “Who stands to gain?” In judicial matters, this question is considered to help determine who may have committed a crime. Business leaders providing services that benefit both a suffering population and a profiteering government could ask themselves this question, too. Weighing the interests of both their clients and the government, who stands to gain from us being here, and who stands to lose? If a Swiss engineering company is contracted in a junta-led Myanmar to advise on building a dam that provides electricity to hundreds of thousands of families, should it accept, because it benefits the population? Or should it decline, because the dam benefits the military junta? In this case, the company in question decided to move forward.

For U.S. companies in Myanmar, the dilemma didn’t pose itself for a long time, as there had long been sanctions on the Burmese government. But when opposition leader Aung San Suu Kyi came to power, the sanctions were gradually lifted, and companies could enter the “final frontier”. In 2013, executives from large tech companies, including Google, Cisco, Microsoft and Intel hopped on a trip organized by USAID. That same year, my own organization, the World Economic Forum, organized a major international meeting in Nay Pyi Taw, a city north of Yangon. But even if the largest government and international organizations greenlight a country, it’s important to make your own assessment about who benefits from your entry. Those that did not got a wake-up call this year. Suu Kyi, a heroine of human rights just years before, herself came under fire for the military and government intervention in the Rakhine state. One of the companies that came under scrutiny because of the events was Facebook. Members of the military were believed to have used to platform to spread hatred under the population. The claim is that they benefited from Facebook’s presence, and used it as a weapon against the Rohingya population.

Why Are You There?

A third reflection companies could make in assessing difficult markets, is what their “raison d’etre” is. For a profit-seeking company, profitability should at least be a theoretical possibility when they open a new foreign subsidiary. In a country whose currency in a given year is in free fall, like Argentina’s and Turkey’s this year, it may be non-sensical for a company that is not yet active there to make a large dollar-denominated investment to start operations. Similarly, while consumer goods companies may have a reason to stay in crisis-ridden countries like Venezuela, service firms may no longer see the point of being there. “We left Venezuela. There was no business there for us, and no future,” Patrick De Maeseneire said. He is the CEO of Jacobs Holding, a Swiss long-term investment firm, but talked about Adecco, the largest HR services firm in the world, which he previously led. “Our clients had left, and our leadership – mostly expats – went to Colombia.”

The raison d’etre can also differ per industry. For a services firm, De Maeseneire said, the calculation is different than for a manufacturer: services firms have fewer fixed assets to look after, and their clients often are fellow multinationals. They themselves leave when a crisis strikes. Conversely, companies with long term assets, like factories or buildings, may have an even stronger incentive to stay in troubled markets, but equally should think twice before entering a market.

But when circumstances change and the reason to operate returns, a company should also not hesitate too long to enter. “The first mover has an enormous advantage in growth markets,” De Maeseneire said. “You can capture market share and put up a barrier to entry for others.” When he was CEO of Barry-Callebaut, the world’s largest chocolate producer, he often was among the first to build a factory in Russia, China, and certain countries in Latin America and Africa, like Cote d’Ivoire, Cameroon, and Ghana. With the network of private schools he currently looks after for Jacobs Holding, he equally eyes expansion in emerging markets. “You have to dare to invest,” he said. “We’re in it for the long run. You have to learn to deal with volatility. Business survives politics, fortunately.”

What Are Your Values?

Finally, consider your own and your company’s values, and the priorities you put on each of them. That can be helpful in case a snap decision needs to be made about new events that need responding or emerging crises. Nestle got in such an emergency situation when its plant producing Maggi Bouillon in Syria was bombed and burned down in 2013. As a consequence, the company was forced to shut down its operations in the country. “If we cannot guarantee the safety of our employees, or the quality of our products, we cannot continue to function,” Bulcke told us. In other words, safety and quality is a red line for Nestle. He applied the rule in Congo as well, where he was forced to shut down a factory that he had himself opened many years earlier. But even when the company ceases operations it tries not to cut ties with a country all together. Nestle keeps some 100 people on the payroll in Syria, for example. “Our pain limit is high, and I’m proud of that” Bulcke said, referring to the company’s preparedness to accept short-term financial losses. “We respect ourselves, the other, and the future. Those are our values.”

Others go even a step further. As an executive at Avon in the South Pacific, and later as CEO of Tupperware, Rick Goings decided to remain active in countries that were seen in the West as flaunting human rights. To reconcile this ambiguity, Goings was both principled and pragmatic. In Apartheid South Africa, Tupperware decided to apply the Sullivan Principles, a set of corporate social responsibility rules aimed at putting pressure on the government to end Apartheid, while allowing the company to not “exit and abandon”. “The majority of our salesforce and workforce was black. If we left the country in protest, we took the food off their table, he said” In China, he followed a more pragmatic logic. “I lobbied Congress for Chinese membership of the World Trade Organization,” he said. “It later earned me the Marco Polo Award in Beijing, a rare honor for a foreigner. But because of my lobbying, I was able to protest [the government’s actions on democracy] directly rather than having to abandon.”

Ultimately, each board, and each executive team will need to make its own set of principles and rules to decide whether and when to enter or leave turbulent markets. But the personal compass of decision makers matters. “We can’t live in Fantasyland. Profits matter,” Goings said, summarizing his views. “But you need to be able to look back, put your head on the pillow, and say: wow, this is a good thing we do.”