The roll call of global business leaders who this week dropped out of Saudi Arabia’s investment conference—”Davos in the Desert”—was impressive.
Prompted by the killing of Saudi journalist Jamal Khashoggi at the Kingdom’s consulate in Istanbul, some of the biggest names in business opted for a boycott rather than risk being seen to endorse a country whose attitude to civic freedoms seemed to have gone brutally awry.
But does the Khashoggi crisis signal a turning point for business and its approach to working in “high-risk” states, with questions to answer over issues such as human rights and sustainability? There are those who think it does.
It is now a story told around the world. On 2 October Jamal Khashoggi, a journalist and critic of the Saudi regime, entered the country’s consulate in Istanbul to deal with divorce papers. The next day, his disappearance was reported in the mainstream press.
Then on 7 October Turkish president Recep Tayyip Erdoğan claimed Khashoggi had been murdered while in the building. Denials followed from the Saudi government until, after mounting international pressure, including the G7 countries, Crown Prince Mohammad Bin Salman allowed an admission that Khashoggi had died in a fight gone wrong during his visit.
The disbelief and outrage from around the world was immediate. Protests continued, demands were made for clarity, Germany shut down arms sales to the Kingdom. And this week’s investment conference became a target for those seeking to express their horror and disapproval. UK trade minister Liam Fox dropped out, but so too did JPMorgan’s chief executive Jamie Dimon, HSBC’s John Flint, Credit Suisse’s Tidjane Thiam, BlackRock’s Larry Fink, Ford’s chairman Bill Ford and Siemens’ CEO Joe Kaeser.
Plenty of others opted to attend the event, which still managed to attract huge crowds and played host to the ceremonial signing of several big investment deals.
The boycotts were significant, made headlines and levered more pressure on the Saudi regime. But to see them as a unique event would be misleading. There is growing public demand for companies and executives to do the right thing, and an insistence that they can no longer consider themselves outside the social and political spheres.
Businesses have not only responded by increasing their corporate social responsibility (CSR) activity, but over the past three to five years corporate leaders have now so frequently taken a stand on thorny issues that academics have coined the phrase “CEO activism”.
In the US when Donald Trump attempted to shut down US borders to Muslims, or pulled the country out of the Paris Agreement, many CEOs went public with their opposition. Brian Moynihan, CEO of Bank of America, famously told the Wall Street Journal: “Our jobs as CEOs now include driving what we think is right.” Indeed, so significant is the movement that PR firms have begun to build entire practices around the phenomenon.
There have been external pressures too as politicians and international bodies have seen the need to draw big business into key high-profile social and political questions.
In 2016 the UN launched its guiding principles on business and human rights. The UN is also attempting to release a registry of multi-nationals operating in Israeli settlements that may “adversely affect Palestinian human rights”. Across Europe companies have been compelled to make detailed disclosures in modern slavery reports as part of an attempt to clean up abuse in supply chains.
The fact that so many business titans were willing to snub what was expected to be a showcase for the Kingdom’s business opportunities demonstrates a growing sensitivity among corporate leaders for the kind of relationships they build, and putting their personal reputations on the line.
The complexities of personal involvement were candidly shared by Joe Kaeser, CEO of Siemens, who blogged about the difficulties he faced in making a decision. Like all delegates he considered a number of options, which he narrowed down to three: boycott the event, refuse to go but send a representative, or attend and speak out.
Kaeser openly concedes that the last option would be the most “courageous” and “the honest one” in his view. But he went with the first option, admitting it was not the bravest but adding that “managing a company requires more than being shocked by a barbaric act, like the one in Istanbul. While we’re all humans with emotions, concerns, fears and worries, it’s a CEO’s responsibility to find answers to challenges and act on them.”
He adds: “…it’s a decision based on how much responsibility one can assume at one time. Siemens has been a reliable partner to Saudi Arabia for decades and supports its great Vision 2030. But for now, the truth must be found and justice must be served. Going forward, this should be the underlying principle in developing the Kingdom for the greater good of its people and the whole region.”
Kaeser’s blog illustrates the difficulties of leading an organisation that has multiple responsibilities: contracts in the Kingdom that could affect company performance and investor shareholdings, regional suppliers and partners reliant on Siemens’ cooperation and 2,000 local employees dependent on the company for their livelihoods.
For some UK businesses, by no means all, the ethical problems are made more acute by their reliance on arms sales to the Kingdom, which topped a total of £1.5bn in 2017. As a rule of thumb, sales to democratic states are relatively uncontroversial but shifting weapons to a state that could potentially use them on their own citizens presents a much bigger ethical challenge. Selling equipment that has an obvious defensive function is one way of sidestepping the problem, but Britain has faced accusations of selling arms used in Yemen against civilians.
Observers say boards involved in sales to problematic regimes should be crystal clear about their position on issues such as human rights abuses, as well as other infringements of civic freedoms. They should be prepared to forgo sales, if that is necessary.
It is Saudi Arabia’s involvement in the war in Yemen that has caused some observers to see the UK defence sector approaching a critical point of having to making hard decisions. According to Peter Montagnon, associate director at the Institute of Business Ethics: “The time is possibly coming when the defence sector will have to work out where it stands.”
However, the conference boycotts are viewed by some as evidence that business is increasingly taking a stance on social issues and that the Khashoggi case presents an opportunity to rethink the role of business in the world.
Ana Zbona, a project leader with the Business and Human Rights Resource Centre, says: “There has been growing recognition on behalf of business to see that they have a role to play in speaking out.”
In September Zbona’s organisation released guidance for companies working in countries where they are likely to encounter breaches of civic freedoms. It makes the case that businesses can play a significant role in backing “defenders” of civil rights, such as journalists and activists. The guidance argues that, in fact, businesses, activists and journalists share an interest in civic institutions, such as the rule of law, and therefore have an interest in mutual support.
For business, the guidance argues, this is about having the right policies in place before getting involved with a suspect government. It concedes that there may be costs to engagement on politically sensitive issues, but there are also downsides that come with inaction: erosion of civic freedoms can affect business continuity, a corporate physical presence may face a security threat.
More importantly, doing business with dodgy regimes can put at risk a company’s “social licence to operate with local communities and in turn their reputations with international civil society, responsible investors and other stakeholders.”
Given the way investment managers have stepped up their engagement on issues such as executive pay and gender representation, this last point will have particular resonance.
And in a line that echoes the thoughts of both Moynihan and Kaeser, the guidance says: “CEO-level decisions are also essential when a company’s core values, reputation, operations and relationships are at stake.”
According to Zbona, it is essential that companies do their due diligence, write appropriate policies to ensure they are consistently “protective of
civic freedoms”, have policies endorsed by company leadership at both regional and group level and communicate the importance of those policies. Corporates should also have a clear stance of “non-retaliation” against “defenders” and organisations critical of business, even build relationships with them where possible and, where it’s not, have a policy of advocacy with governments for their freedoms.
Zbona points to the Bharaini activist Maryam Al-Khawaja, who warned business: “If you are going to do biz in any country, ask where their HRDs [human rights defenders] are: if you find that they are all in prison, that is going to be an economy you don’t want to be a part of.”
Zbona adds: “If businesses are sufficiently pushed and incentivised in this direction, and if the leadership group we see forming can help bring the rest of business on board, then that could lead towards broader change.”
Not everyone is quite so optimistic that business can do that. One close observer of business and human rights in the Middle East told Board Agenda that before the Khashoggi crisis, it was “inconceivable” for activists to consider putting pressure on the Saudi regime for improved rights and they instead focused their efforts on neighbouring countries such as the United Arab Emirates and Qatar, which became “soft targets’ because of their involvement in global events like the World Cup.
But the Khashoggi murder has changed that. Activists now see Saudi, and the influence of business, at a potential turning point. But there is a sting in the tail.
“I go back to my point about boycotting the conference,” says the source. “A. That’s not a policy and B. That’s more of a publicity stunt than anything else.
“We need to see actual procedures in place that are institutionalised at the global and operational level of these companies to make sure that this type of abuse does not go unabated, that there will be consequences for both the governments that host these companies and the companies that do business with these governments.”
At the beginning of this year Harvard Business School professors Aaron K. Chatterji and Michael W. Toffel wrote an article exploring the phenomenon of CEO activism. They concluded that it could become a “first order” strategy issue: As more CEOs speak out, more will be expected to take a stand.
Even those who decide that involvement in political debate is not for them can expect to be “peppered” with questions from journalists, employees and other stakeholders about big issues. They recommend building a kitchen cabinet of PR advisers, board members, investors and senior managers to provide wise counsel.
“We believe CEOs need a playbook in this new world,” they conclude. “To effectively engage in CEO activism, they should select issues carefully, reflect on the best times and approaches to get involved, consider the potential for backlash and measure results. By following these guidelines, CEO activists can be more effective on the issues they care about most.”