2 October 2014

Business in the Face of War

The following article has been extracted from Inside Enterprise, a Business School sponsored, student-run publication.

In war, the choices made by businesses can govern the fate of hundreds of thousands of soldiers and civilians. This is no more so than in the turmoil rife in the Congo, where for the past sixteen years businesses have been indirectly funding rebel militia operations and exploiting the shattered lives of the destitute.

The Civil War in the Congo
Since 1998, continual conflict between government forces, Rwandan rebel groups and armed Congolese militia factions have left 5.4 million people dead, 2.75 million displaced, rapid escalation in the rates of malnutrition and a state of near dystopia in the Democratic Republic of Congo (DRC). Yet ironically, at the heart of the staggering humanitarian crisis is what most would consider an economic gift: precious metals and ores buried deep beneath the surface of this landlocked African nation. The use of forced labour, abduction and child soldiers in the fight for these resources has precipitated enormous bloodshed and societal chaos. Many of these minerals are purchased by the tonne by large overseas electronics companies that produce devices such as smart-phones and laptops, devices that millions around the world use every day. The crippling war in the DRC, it is alleged, has been prolonged not only by government corruption and power-hungry warlords, but by the business leaders who purportedly finance the conflict in the name of company profits. The choices of Western businesses have a monumental impact on the situation in the DRC and there has been active debate over how firms should best respond to this crisis.

The Response from Businesses
For years, electronics firms have claimed that the complexity of the supply chain and its opaqueness has meant that it was logistically impossible to determine whether their products have been contributing to the civil war. In 2010, after years of mounting media attention linking Western business to the crisis in the DRC, Barack Obama signed the Dodd-Frank Wall St. Reform which required companies to fully disclose and report their usage of the notorious conflict minerals tantalum (coltan), tin, tungsten and gold. The reform came into full effect as of May 2014 yet surveys from April 2013 state that only 7.5% of manufacturers were prepared to comply with the new regulations. Companies such as Toshiba, Canon and Panasonic have been criticised for not doing enough to achieve conflict-free supply chains and, recently, the National Association of Manufacturers along with the U.S Chamber of Commerce – both powerful business bodies – sued to try and stop the Dodd-Frank Act.

However, there are an increasing number of firms who are taking active measures in response to growing consumer awareness and moral concern over the gadgets they purchase. Apple has recently announced audits for its downstream suppliers by publishing a list of smelters and ethical sourcing regulations, while Motorola has similarly begun implementing a program to trace minerals in its products and forced its suppliers to verify conflict-free sourcing. While the pushes by Apple and Motorola to ensure a conflict-free supply chain are providing early case studies for other companies to follow suit, many commentators are nevertheless predicting a widespread withdrawal from DRC trade by firms who see compliance with legislation such as the Dodd-Frank Act as simply too costly. At the crux of action, businesses must decide whether to stay and accept the costly action required to regulate the supply chain or to boycott the entire crisis and evade moral accountability.

Regulating the Supply Chain
The leading approach to avoid a boycott alternative is to improve the regulation of the DRC’s mining industry through cooperation with both local and Western governments. A focus must be to enhance the stability of the ore market in the DRC and to develop a system of certification and transparent auditing. Long-term, fixed price contracts from upstream purchasers could mitigate fluctuations in an already cyclical industry and facilitate better income security for workers.

However, few companies are willing to enter into long-term contracted business in a nation where corruption is rife and laws and regulations are frequently non-transparent. Incentives for compliance to standards critical to economic rehabilitation as well as incentives for electronics companies must have an agenda to contribute to community and conservation projects, create value and jobs for what is a much struggling economy, and educate consumers and pressure groups. Commenting on the DRC situation in 2002, Simon Hicks wrote “we need to move the strategy from doing business despite war to doing business instead of war”, suggesting the need for firms to forgo short-term profits in order to achieve long-lasting social change. Unfortunately, in the face of precepts such as profit margins and shareholder value, few businesses are ready to make any significant sacrifice without adequate compensation.

Boycotting Exploitation
Alternatively, given the irrefutable link between the exploitation of Congolese minerals and the ongoing civil war, a boycott of products originating in areas under conflict zones may appear to be a reasonably logical solution. A ban would guarantee that businesses are not funding activities run by armed militias while assuaging burgeoning consumer concern over the source of purchased electronic devices. However, a boycott on Congolese minerals could have a devastating grassroots impact on the people and economy of the DRC.

Far from stemming funding of the war, sanctions impact those already most vulnerable by restricting the utility of resources, depriving artisan miners of their livelihoods and exacerbating the detrimental cycle of poverty and hunger already endemic. Several NGO reports spotlight how an economic boycott could pressure armed rebel military groups to be even more parasitic toward the innocent and vulnerable and fuel further destitution. Businesses must decide whether avoiding involvement and retracting Congolese trade in order to placate financial stakeholders is ultimately an ethical move itself. While a boycott would ensure that there is no indirect funding from these companies exacerbating the bloodshed in the DRC, for many, walking away from a situation and avoiding the problem altogether represents a relinquishment of corporate social responsibility.

Facing the Dilemma
Businesses are more than just profit-creating entities. Alongside governments and NGOs, they can play a critical role in alleviating the DRC crisis by challenging their supply chains to adopt a regulatory framework: one that endorses socioeconomic stability and investment through the provision of employment, skills, training and livelihoods. Distancing business operations from conflict under the banner of a boycott and disengaging from the problem altogether could in fact be disastrous to the fate of hundreds of thousands of those already vulnerable and suffering at the hands of the rebel militia.

Timothy Le
Current student at the University of Sydney Business School

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