Earlier this week a friend at Berkeley emailed to point me towards this interesting document, developed by the OECD Investment Committee, to assist companies in responsibly managing their investments in weak governance zones. The document offers a method to help companies assess whether or not they have appropriate risk management systems in place before entering high risk environments.

Download the tool here - an 18 page PDF document.

After the document was released in 2005, it was put out for public consultation. Dozens of responses were collected -- from public, private and global organizations such as DeBeers, British Gas, Transparency International, International Labor Organizations, and the United Nations -- and compiled into a 76 page document.

Both the tool and the responses are a must read for any company investing and operating in weak governance zones. Following are three excerpts from responses that I found to be most interesting:

Business for Social Responsibility, U.S. (pg. 5 of 76),

We are familiar with a number of tools and initiatives dealing with different aspects of the challenges faced in weak governance zones - security and human rights, bribery and corruption, conflict, business involvement in politics, etc. One advantage we see in the OECD risk management tool is that it is rather comprehensive - a one-stop shop for investors that need to be reminded of the specific sensitivities surrounding operations in weak governance zones.

The Corner House, UK (pg. 12 of 76)

The Risk Management Tool focuses too heavily on the damage to reputational and business relations for foreign investors operating in weak governance zones, rather than on the damage to local governance structures created by investors that operate in ways that undermine these structures. Such damage (to local governance) is a long-term risk both for these investors but particularly for investors wishing to do business in a responsible way in such environments. Damaging behaviour by investors in these environments sets a tone for both local private sector companies and for companies wishing to come afterwards, and may make it much more difficult for companies wishing to do business in a responsible way. Investors furthermore have a clear responsibility not to exacerbate already weakened governance structures, and this should be more expressly stated in the Tool.

Int'l. Confederation of Free Trade Unions (pg. 41 of 76)

Generally speaking the document relies too much on highly questionable stereotypes. Throughout the document, a lot is said about corrupt governments, while investors are presented as "willing to obey the law and respect international standards". However this underlying dichotomy (good investors versus bad governments) is far from reflecting the reality of weak governance zones (WGZ). Precisely because law enforcement is often nonexistent in these zones, they are particularly attractive for those companies willing to escape what they consider to be overly burdensome legislation in countries with a higher level of governance. Needless to say, these regulations often relate to fiscal, social and environmental norms and standards. Therefore it would be important to mention in the introduction that unfortunately, abusive companies taking advantage of the absence of effective regulation are to be found in WGZ.

Posted by rjorr at July 8, 2006 9:37 AM