<p>The private sector as a partner in conflict prevention and resolution The Business of Peace Jane Nelson The Prince of Wales Business Leaders Forum International Alert Council on Economic Priorities This report was written by Jane Nelson, The Prince of Wales Business Leaders Forum. The ‘business in conflict’ project team, consisting of Nick Killick and Phil Champain, International Alert, Jordana Friedman, Council on Economic Priorities and Harriet Fletcher, PWBLF, provided research, case studies and editorial input and facilitated consultations with business, government and civil society organisations in the United Kingdom and Azerbaijan. These activities will continue to play a key role in the ongoing work of the three organisations aimed at understanding and promoting the role that business can play in conflict prevention and resolution. An external advisory group drawn from business, government and civil society served as a review panel and are listed in the acknowledgements section. The analytical framework for determining the role of business in conflict was jointly developed by The Prince of Wales Business Leaders Forum, International Alert and Council on Economic Priorities. The final interpretations and conclusions in the report do not necessarily reflect the opinions of the member companies and partner organisations of The Prince of Wales Business Leaders Forum, International Alert and Council on Economic Priorities. ISBN 1 899159 59 2 © 2000 The Prince of Wales Business Leaders Forum, International Alert, Council on Economic Priorities. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without attribution. Designed by Alison Beanland and printed by Folium Press. Cover photographs: Oil rig, Fred Dott/Still Pictures; Soldiers, Angola, Carlos Guarita/Still Pictures, Women at community meeting in India, The Prince of Wales Business Leaders Forum. PRINCIPLE ONE: STRATEGIC COMMITMENT Provide CEO and board level leadership on corporate responsibility issues. Establish policies, guidelines and operating standards that make explicit mention of these issues, including human rights, corruption and where appropriate, conflict and security arrangements. Develop internal management systems, compliance and incentive structures to embed policies into the company’s daily activities. Invest in awareness raising and skills development programmes for employees and business partners to increase their understanding and capacity to address the company’s socio-economic and environmental impacts. Recruit or contract specialised expertise where necessary. PRINCIPLE TWO: RISK AND IMPACT ANALYSIS Assess the conflict-related risks and impacts of the company's core business and social investment activities on a systematic and comprehensive basis. This requires an understanding of: the nature of the conflict (its causes, stage and location); the role and relationships of other actors; and the characteristics and constraints faced by the company itself. From this basis of analysis it is possible to build performance indicators, targets and strategies for action. PRINCIPLE THREE: DIALOGUE AND CONSULTATION Identify and engage with key stakeholder groups on a regular and consultative basis. Take into account different capacities and power structures and the need to facilitate genuine participation and two-way dialogue. PRINCIPLE FOUR: PARTNERSHIP AND COLLECTIVE ACTION Develop mutually beneficial and transparent partnerships with other companies, civil society organisations and government bodies to address sensitive political and public policy issues and to invest in practical projects. Collective action can address activities such as: advocacy for good governance and anti-corruption measures; negotiating peace; developing voluntary codes of corporate conduct; supporting an open and free media; and creating innovative public-private financing mechanisms for health, education, civic institution building and infrastructure development. PRINCIPLE FIVE: EVALUATION AND ACCOUNTABILITY Identify key performance indicators for assessing the company's social, economic and environmental impacts and relationships. Carry out ongoing measurement and monitoring of these. Aim for independent verification and public reporting of these measures. Assess and account for processes as well as inputs, outputs and impacts. Benchmark results against internal and external guidelines and best practices. PRINCIPLES OF CORPORATE ENGAGEMENT IN CONFLICT PREVENTION AND RESOLUTION 1 2 3 4 5 3 The Business of Peace – the private sector as a partner in conflict prevention and resolution EXECUTIVE SUMMARY 5 1 THE BUSINESS CASE FOR ENGAGEMENT 13 1. The changing context of business 16 2. The changing nature of conflict 18 3. Business costs of conflict 20 4. Business benefits of peace 26 2 PRINCIPLES FOR CORPORATE ENGAGEMENT 27 1. Strategic commitment 30 2. Risk and impact analysis 31 3. Dialogue and consultation 32 4. Partnership and collective action 33 5. Evaluation and accountability 34 3 A FRAMEWORK FOR ANALYSING CORPORATE ENGAGEMENT 35 1. The Conflict 37 2. The Actors 49 3. The Company 56 4 EXAMPLES OF CORPORATE ENGAGEMENT 63 1. Core business operations 65 2. Social Investment and philanthropy 66 3. Policy dialogue, advocacy and institution building 67 4. Developing key performance indicators 70 5 DEALING WITH KEY MANAGEMENT CHALLENGES 73 1. Dealing with repressive regimes 75 2. Benefiting from ‘war economies’ 79 3. Developing a nation’s strategic assets 84 4. Managing security arrangements 92 5. Facilitating or facing criminal activities 99 6. Tackling corruption 102 7. Supporting humanitarian relief operations 105 8. Engaging in diplomacy and peacemaking 110 9. Rebuilding trust 116 10. Establishing cross-sector dialogue and partnerships 120 11. Ensuring accountability 126 12. Limiting the means to wage war 137 CONCLUSION 141 APPENDICES 145 I Definitions and points of clarification 146 II Reference notes 148 III Bibliography 150 IV Partner profiles 153 V Websites of organisations profiled in the report 154 VI Useful contacts 156 VII Acknowledgements 158 Contents 4 The Business of Peace – the private sector as a partner in conflict prevention and resolution LIST OF PROFILES and GUIDELINES 1. Counting the costs of conflict 21 2. Corporate reputation costs associated with conflict 24 3. Perspectives on globalisation and conflict 43 4. Multinational and national companies 60 5. The Free Burma Coalition: Constructive engagement or withdrawal? 78 6. Oil and diamonds in Angola 81 7. Oil in the Sudan 82 8. The global campaign against ‘conflict’ diamonds 83 9. Oil, gas and geo-strategic interests in the Caucasus 84 10. The Ilisu dam and the politics of water 85 11. Passing tax revenues back to oil producing regions 88 12. Key principles for community development programmes 90 13. Building local community foundations: The experience of Rio Tinto 91 14. Security guidelines for companies: Human Rights Watch and Amnesty International 98 15. South Africa’s Business Against Crime initiative 101 16. Principles of conduct in disaster response programmes: The Red Cross and NGOs 105 17. Commercial solutions for disaster relief and reconstruction 107 18. Social investment and philanthropic solutions for disaster relief and reconstruction 108 19. The Institute for Multi-track Diplomacy 110 20. Collective corporate action: South Africa 112 21. Collective corporate Action: Northern Ireland 114 22. Collective corporate Action: The Philippines 115 23. Building trust through business ventures: Peaceworks 117 24. Building trust in the workplace: Counteract and Future Ways 118 25. Building trust through regional development: The Peres Center for Peace 119 26. The UN Global Compact 121 27. Cross-sector dialogues on peace building 123 28. The World Bank: The Post-Conflict Unit and Business Partners for Development 124 29. Donor governments working with business: the UK, USA and Norway 125 30. Guiding principles for conflict transformation work: International Alert 132 31. Engaging stakeholders: The experience of Shell and BP 134 32. Engaging stakeholders: A view from Amnesty International’s UK business group 136 33. Examples of progress in controlling the arms trade 139 34. Defining the defence industry 140 35. Conditions for peaceful societies: Oxfam 142 LIST OF DIAGRAMS and TABLES 1. Countries at risk: Control Risks Group 15 2. Strategies for corporate responsibility 28 3. Framework for analysing business engagement in conflict 36 4. Causes and triggers of conflict 42 5. Stages of intervention along the peace-war continuum 44 6. Location of conflict 48 7. Evolving business-NGO relationships 52 8. Roles for different actors in conflict prevention and resolution 55 9. Business as actors in conflict 56 10. Industry risk-responsibility profiles 58 11. Corporate spheres of influence 61 12. Summary of key questions for analysing corporate engagement in conflict 62 13. Framework for types of business engagement 64 14. Examples of business engagement 68 15. Shell’s key performance indicator framework 71 16. Examples of performance indicators for peaceful and progressive societies 72 17. Cuttings from the Financial Times 74 18. BP’s stakeholder dynamics in Casanare, Colombia 128 5 The Business of Peace – the private sector as a partner in conflict prevention and resolution D uring the past decade the forces of political transformation and economic globalisation have created a world of new opportunities and hope for some, but increased instability and insecurity for others. As we enter the 21st Century violent conflict continues to affect the lives of millions of people, undermining human progress and economic development. This has important implications for the private sector, which has become an influential player in many conflict-prone or conflict-ridden countries. From Azerbaijan to Zimbabwe, the potential and reality of violent conflict is becoming an unavoidable business issue. Consider the following statistics: • There are 72 countries where the security risk for the majority of locations in which foreign business operates is rated medium, high, or extreme for 2000.1 • Multinational companies are investing more than US$150 billion annually in nearly 50 countries which fall below the intermediate point in Transparency International’s Corruption Perception Index – in other words in countries which may be confidently described as fairly to very corrupt.2 • Today, only about 4% of the world’s GNP is military related; 96% of the international business community provides civilian products and services. Most of these business sectors have a vested interest in stability and peace.3 The private sector – ranging from large multinationals to informal micro-enterprises – has a vital role to play in creating wealth and promoting socio-economic development. It also has a role in contributing – both directly and indirectly – to the prevention and resolution of violent conflict. There is growing evidence that as market economies become more widespread and as business becomes a more central actor in societies around the world, the importance of this role is increasing. A few companies are already playing a pro-active role. They are increasingly aware of their negative and positive impacts on society and are developing management and accountability structures aimed at minimising their negative impacts and optimising the positive ones. Other companies are making valuable contributions to society, but are not actively managing or measuring these, let alone thinking about them in terms of socio-economic development and conflict prevention. Some companies, however – and not only those in the arms industry or in illegal sectors such as the drug trade – are being identified as direct causes of violent conflict or as being complicit in Executive summary sustaining it in the countries and communities in which they operate. Sometimes this is a genuine result of unintended consequences arising from a company’s operations or those of its business partners. In others, it is due to the actions of a repressive or weak government in the country in which the company is operating. This raises the challenge of whether the company withdraws from the country, tries to influence or advocate for better governance, or stays silent. In other situations, it is a result of bad management, lack of awareness and inadequate policies and operating controls within the company itself. There has been relatively little research on these linkages between business and conflict. Although the arms industry and the impacts of illegal commercial activities such as drug dealing and illicit commodities trading have been extensively researched, relatively little analysis has been carried out on the role of industries such as the natural resource and infrastructure sectors, travel and tourism, consumer goods and banking. In particular, there are limited examples available on the specific role that these industries can play in preventing, creating, exacerbating or resolving conflict and how this differs from and relates to, the roles of government and civil society. The purpose of this report is to review these issues and linkages and to provide a framework for understanding both the positive and negative roles that business can play in situations of conflict. The report focuses on mainstream legitimate businesses, especially multinational companies, and outlines: • Why the private sector can no longer afford to ignore the causes and costs of conflict; • Some of the key factors that determine whether business plays a negative role by creating or exacerbating violent conflict, or a positive role by helping to prevent it or resolve it when it occurs; and • The practical actions that companies can undertake, with other actors, in preventing and resolving conflict and some of the challenges associated with these actions. Structure of the report Part 1 of the report reviews the Business Case for Engagement. It outlines the changing context of business and the changing nature of conflict, before highlighting some of the key cost and benefit drivers for companies. It concludes that the case for corporate engagement in conflict prevention and resolution is compelling. In situations of existing conflict most businesses, other than those that are directly benefiting from war economies, pay heavy costs and struggle to carry out their operations under unstable and dangerous conditions, where their employees, assets and routes to market are under constant risk. Furthermore, there are potential reputation costs and the threats of international litigation and lawsuits for companies that are accused of complicity with either state or non-state actors that are perpetrating the violence. Over the longer-term, it is clear that the private sector has as much to lose as other sectors of society if economic and social development is seriously jeopardised, which it undoubtedly is when faced by violent conflict. Apart from the costs and benefits and the growing ‘bottom-line’ imperatives for business to play a more proactive role in conflict prevention and resolution, there is also a strong moral case for greater corporate leadership in today’s world where the private sector is an increasingly prominent actor. As Sir Geoffrey Chandler, Chair of Amnesty International’s UK Business Group argues, ‘ ...to fail to do good when it is in one’s legitimate power to do so is rightly condemned by the world.’ 6 The Business of Peace – the private sector as a partner in conflict prevention and resolution At the very minimum, companies should comply with national regulations (even if host governments are not effectively implementing or monitoring these) and multinational companies, in particular, should benchmark their local practices against internationally agreed laws, conventions and standards. Beyond basic compliance, companies should be aware of their real and potential socio-economic, political and environmental impacts and their ability to create or exacerbate violent conflict. Building on this awareness, they should develop and implement policies and procedures to minimise any damage that may result from their own business operations or those of their business partners. Beyond compliance and doing minimal harm, companies can proactively create positive societal value by optimising the external multipliers of their own business operations and engaging in innovative social investment, stakeholder consultation, policy dialogue, advocacy and civic institution building, including collective action with other companies. 7 The Business of Peace – the private sector as a partner in conflict prevention and resolution Value creation Risk minimisation Compliance Part 2 of the report introduces some key Principles for Corporate Engagement. These can be defined as the management policies and processes that a company needs to establish in order to minimise its negative impacts on society and optimise its positive ones. They are applicable for companies operating in any industry sector, country or community, but have particular relevance in conflict-sensitive or conflict- ridden situations. The principles can be summarised as: • Strategic commitment – CEO and board level leadership on corporate responsibility issues, supported by internal management systems, compliance, incentive and training structures to embed policies into the company’s daily activities. • Risk and impact analysis – Assessment of the conflict-related risks and impacts of the company’s core business and social investment activities on a systematic and comprehensive basis. • Dialogue and consultation – identification of and engagement with key stakeholder groups on a regular and consultative basis. • Partnership and collective action – development of mutually beneficial and transparent partnerships with other companies, civil society organisations and government bodies to address sensitive political and public policy issues and to invest in practical projects. • Evaluation and accountability – identification of key performance indicators for measuring and monitoring the company’s social, economic and environmental impacts and reporting on these to internal and external stakeholders. Part 2 also describes three different strategies that companies can adopt in managing their impacts on society. These strategies are not mutually exclusive and can usefully be viewed as building blocks for corporate responsibility. At a very minimum, for example, a company should aim to be compliant with national regulations and where applicable international laws and standards. It should aim beyond compliance, however, to minimise risks and harm from its operations. Ideally, a company should aim to proactively create societal value-added and new business opportunities by optimising its positive multipliers and impacts on society. The following diagram illustrates these three strategies: Company • type of industry • size • history • ownership • collective action • spheres of influence • causes • stage • location Conflict • role • power • capacity • relationships Actors 8 The Business of Peace – the private sector as a partner in conflict prevention and resolution Part 3 of the report develops a Framework for Analysing Corporate Engagement. It suggests a set of questions to help companies and their stakeholders to analyse the causes, stages, locations and actors of a particular conflict or conflict-prone situation and how these relate to the company’s own characteristics. Undertaking this process of analysis can help companies to: • understand the linkages between their business and the conflict; and • assess the ways in which the company, acting individually and with others, can play a proactive role in conflict prevention and resolution. The framework of analysis is summarised below: Part 4 provides a framework and practical Examples of Corporate Engagement at different stages of conflict. It also introduces some key performance indicators for peaceful and progressive societies against which to analyse and benchmark both corporate performance and country performance. The practical examples illustrate how companies can contribute to conflict prevention, crisis management, and post conflict reconstruction and reconciliation through their: • Core business operations; • Social investment and philanthropy programmes; and • Engagement in public policy dialogue, advocacy and institution building. The performance indicators are drawn from a framework developed by The Prince of Wales Business Leaders Forum in its 1998 report Building Competitiveness and Communities. The report identified five main areas in which companies can make a positive contribution to their host countries and communities. These five areas provide a useful framework for thinking about the broad conditions needed for developing peaceful and prosperous societies and for preventing and resolving conflicts. They have been used in this report to develop examples of both country and company-level performance indicators. The five areas are as follows: • Strengthening economies • Building human capital • Promoting good governance (at both the corporate and national level) • Protecting the environment • Assisting social cohesion and respect for human rights The indicators listed in this report are not intended to be an exhaustive list. In practical terms, most companies would probably choose to select a small number of indicators to manage and monitor on an on-going basis. Different indicators will be relevant for different industry sectors, but the list outlined in the report provides a broad framework that can be adapted by any company or industry sector. Part 5 of the report focuses on Dealing with Key Management Challenges. It reviews some of the practical and strategic dilemmas that companies face when they are operating, investing, or trading in conflict zones and the processes that they can undertake to address these. The dilemmas include both: • structural challenges at the macro-level that raise strategic policy issues for corporate executives; and • day-to-day management challenges at the micro or operational level of the individual enterprise. The twelve dilemmas or management challenges covered in the report are as follows: 9 The Business of Peace – the private sector as a partner in conflict prevention and resolution 1 Dealing with repressive regimes – what are some of the issues that companies need to consider in deciding whether to invest or disinvest in countries with repressive or corrupt regimes? What actions can they take to operate in accordance with international standards and encourage better governance if they decide to invest in such countries? 2 Benefiting from ‘war economies’ – are a company’s investments and operations helping to fund or sustain a war economy? If so, what actions – individually or collectively – can be taken to limit negative impacts and improve the situation? 3 Developing a nation’s strategic assets – how can companies that are developing a nation’s natural resources or infrastructure influence the distribution of costs and benefits from these strategic activities and manage the negative social, economic and environmental impacts associated with the ‘honey-pot’ effect of large-scale projects? 4 Managing security arrangements – how can companies best manage their security arrangements, either with state or private security forces, in a manner that protects their own staff and assets without undermining the security of people in surrounding communities and especially without causing human rights violations in these communities? 5 Facilitating or facing criminal activities – what measures can companies take to limit the risk of being a target or conduit for criminal activities? 6 Tackling corruption – how can companies address the challenge of bribery and corruption in their own operations, in the countries in which they are investing, and at the international level? 7 Supporting humanitarian relief operations – what type of contributions can companies make, either through their commercial or social investment activities, to contribute to humanitarian needs and disaster relief? 8 Engaging in diplomacy and peacemaking – is there a role for the private sector, either on an individual or collective basis, in the sensitive area of diplomacy and peacemaking? If so what are some of the issues to consider? 9 Rebuilding trust – how can companies help to protect or rebuild social capital, such as interpersonal relationships and formal and informal networks and associations, which may be threatened or destroyed in situations of conflict? 10 Creating cross-sector dialogue and partnerships – what types of relationships can companies establish with civil society and governmental organisations to address areas of common interest in preventing or resolving conflicts? 11 Ensuring accountability – in conflict situations what are some of the key issues that companies need to consider in measuring and reporting on their impacts to a wide range of stakeholders? What are some of the most effective tools or mechanisms for engaging with these different stakeholders? 12 Limiting the means to wage war – what role do defence and other industries have in helping governments to decrease and control the trade in arms, remove arms already in circulation and undertake security sector reforms? KEY MANAGEMENT CHALLENGES IN CONFLICT ZONES Although reviewed separately, there are strong links between most of these challenges. In many conflict situations a company will have to address several of them at the same time. Each of them is the subject of differing perspectives from business, non- governmental organisations (NGOs), governments and the media and is worthy of a detailed report in its own right. This report aims only to: • highlight some of the key issues and different opinions relating to each challenge; • raise some critical questions that companies need to ask in order to take action; and • offer some examples of recommendations, partnerships and corporate actions that are currently being undertaken to address these challenges. It would be possible to develop individual company, industry-wide or international guidelines and standards for most of the eleven challenges outlined in Part 5. In several cases, such as dealing with security arrangements, tackling corruption and supporting humanitarian relief operations, there are already efforts underway to do this. These efforts are being led by a variety of different actors ranging from industry groups, to national or international governmental bodies and the NGO community. Examples of some of them are included in the report. Scope of the report The two core subject areas that underpin this report – the prevention and resolution of violent conflict and the role of business in development – are areas that have been extensively researched and documented on a separate basis. This report cannot capture all the complex details of each of these two subjects. What it aims to provide is a general framework for analysing the linkages between the two, supported by examples from different industry sectors, geographies and conflict situations. Such linkages are themselves highly complex. It would be simplistic, and in many cases incorrect, to suggest that non-contestable, causal relationships exist between them. In particular, it would be incorrect to assume that there is a linear conflict-economic development-peace continuum. In many situations economic growth does indeed help to improve situations of existing or potential conflict, but not always. If the benefits of economic growth are unequally distributed, for example, this can increase the potential or existence of conflict rather than decrease it. In such cases private sector investment can have ‘net’ negative impacts rather than positive ones, no matter how good the intentions of these investments. Equally, in most post-conflict situations there is the continued likelihood of violent conflict re-emerging if economic development is not accompanied by the strengthening of social capital and civil institutions. Again, the role of a particular company or industry sector can be positive, negative, or a combination of the two, depending on the specific situation. Having said this, there is little doubt that economic progress is all but impossible in situations of sustained conflict, except for a minority of interests that benefit directly from war economies. In short, the relationship between violent conflict, economic development and the role of the private sector is often a complex and situation-specific one. A core aim of this report will be to explore some of these complexities and dilemmas. Given the complexity of the issues covered, the wide variety of definitions in use and the diversity of opinions that exist on the subjects of corporate responsibility and conflict, the report is based on a number of ‘starting assumptions and definitions’. These are outlined in Appendix I. They relate firstly to the terminology used in the report to describe the different stages of conflict and corporate responsibility. They also cover the fact that this report focuses on multinational and large national companies working within legal frameworks and pursuing legitimate business objectives. Whilst recognising the importance of small and medium size businesses and the serious impacts of illegal or illicit commercial activities in most conflict situations, the report does not focus on these 10 The Business of Peace – the private sector as a partner in conflict prevention and resolution other than in terms of their linkages to legitimate, large-scale companies. Nor does the report cover the arms industry in any detail, which has been extensively researched elsewhere, but it summarises some key issues for controlling arms in Part 5. In terms of geographic focus, the report looks mainly at countries in transition – mostly developing economies and countries in the former Soviet bloc – although it recognises the potential of localised violent conflict in OECD economies. Every example included in the report is worthy of a detailed case study to capture the complexities and different opinions involved. In the interests of space and in order to provide a comprehensive overview of the linkages between business and conflict, a decision was made to use these examples as illustrative vignettes and brief profiles, rather than to provide detailed and lengthy case studies. Some of the cases that have been written by other people are listed in the bibliography and website addresses are provided for most of the examples profiled. Key messages from the report Drawing on examples from over 30 countries and from a variety of industry sectors, the report concludes with the following key messages: 1. The business imperative for action Domestic and multinational companies have an increasingly important role to play in conflict prevention and resolution. In today’s global economy they have a growing commercial rationale for playing this role, in order to avoid the direct and indirect business costs of conflict and to reap the business benefits of peace. They also have a moral imperative and leadership responsibility, given the increasingly central position of the private sector as decision-makers and influencers at the national and international level. Almost all companies, in any industry sector, have an interest in helping to build peaceful and prosperous societies and a role to play by contributing to: equitable economic development; human development, especially education and health; environmental sustainability; good governance; social cohesion and respect for human rights. Certain companies and industry sectors, most notably the defence, natural resource and infrastructure industries, have a particularly important responsibility to understand and address their direct roles as potential causes of conflict. Others, such as banks, travel and tourism companies and companies providing products and services to humanitarian agencies, also have a direct and growing role in conflict prevention and resolution. 2. Strategies for individual corporate action In managing their wider societal impacts, companies need to move beyond strategies of compliance and risk minimisation, although these are necessary ‘starting points’. Their goal should be to pursue strategies of pro-active, systematic value-creation, aimed at creating positive value for as many stakeholder groups as possible, including, but not exclusively, shareholders. Companies can create societal value and enhance shareholder value in three main areas of corporate activity or spheres of influence. These are: their core business operations (in the workplace, the marketplace and along their value chains); their social investment and philanthropy programmes; and the way in which they engage in public policy dialogue, advocacy and institution building. All three have relevance for corporate engagement in conflict prevention and resolution. 11 The Business of Peace – the private sector as a partner in conflict prevention and resolution In dealing with conflict, companies also need to recognise the dual challenges of addressing practical problems at the level of the individual company’s operations (over which the company has some control) and structural problems at the regional, national and international level (over which the company has less control, but usually some influence, especially if operating collectively with other companies and actors). Linked to the above, multinational companies need to develop systems and competencies for addressing conflict at different management levels. Staff at the head-office, for example, have a key role to develop global frameworks for corporate values and management systems. It is the line managers, however, especially country officers and local plant managers, who must have the skills and capacities to deal with situation- specific issues within these frameworks. Companies also need to adjust their external communication strategies from assertion to accountability. The traditional role of corporate communications and one-way public relations must evolve into a more complex structure of multi-way stakeholder engagement, ranging from dialogue and consultation to accountable reporting processes. 3. The importance of partnership Apart from ensuring compliance, minimising risks and creating value in the way they manage their own individual operations and stakeholder relationships, companies can engage with each other in collective action. This can be especially valuable in addressing politically sensitive issues, such as bad governance, corruption and human rights abuses. Having said this, business cannot be expected to ‘do it alone’. The enabling framework for preventing and resolving violent conflict must first and foremost be in the hands of governments – at the national and international level. The private sector can support and influence government action, but corporate engagement cannot, and should not, be viewed as a substitute for good and pro-active government. This is the case in all societies, but especially those ridden by conflict. Linked to this, new types of cross-sector partnership between business, government and civil society will be absolutely critical in building peace and preventing or resolving conflict. Although not easy to achieve in practice, such partnerships can be valuable mechanisms for addressing policy issues, mobilising resources and improving mutual trust and understanding between different groups in regions of existing or potential conflict. 4. The need for leadership Ultimately the challenge of conflict prevention and resolution is about values-based leadership at every level of the company and at every level of society. The question of whether a company contributes to conflict or helps to prevent it, depends on the values, policies and operating guidelines of the company and the way its employees and business partners accept, interpret and implement these. The same can be said for society-at-large. Here the creation or prevention of violent conflict will depend on the values, rules and norms of the society and the way its citizens accept, interpret and implement these. Corporate, political and civic leaders are needed to help shape these values and guiding principles and to provide the incentives and frameworks in which their respective stakeholders must live and operate. Such leaders are needed at local, national and international levels. They have the power to lead their communities, their companies and their countries towards either peace and prosperity, or towards conflict and poverty. Developing future leaders capable of building peace and prosperity in a complex world, is one of the greatest challenge we face in the 21st Century. It is a challenge that government, civil society and business must address, both individually and in partnership. Responsible leadership is the cine qua non of conflict prevention and resolution. 12 The Business of Peace – the private sector as a partner in conflict prevention and resolution 13 The Business of Peace – the private sector as a partner in conflict prevention and resolution STATEMENTS MADE BY BUSINESS, CIVIL SOCIETY AND GOVERNMENT AT A BRITISH PARLIAMENTARY COMMITTEE HEARING ON THE PREVENTION OF CONFLICT 1998 [Conflict] threatens our whole commercial presence in a country since, for such a presence to be sustainable, we need prosperous, peaceful and content societies. Stability built on repression or violence is fundamentally flawed, and contains the seeds of its own destruction. The British Petroleum Company plc, Statement to International Development Committee, UK, 1998 Insecurity threatens investments in conflict-vulnerable countries, reduces the opportunities which peace could bring in future markets, and helps to make the world less stable for business dependent on trade. Investing in conflict prevention and post conflict reconstruction is a moral imperative and a legal obligation which also makes economic sense. Oxfam, Statement to International Development Committee, UK, 1998 Businesses have a strong interest in peace and security in the countries in which they are operating or might wish to operate. Conflict and instability creates risks and disruption for business in terms of heightened insecurity for staff and property, risks to investments, weakening of local markets and damage to infrastructure. Clare Short, Secretary of State for International Development, Statement to International Development Committee, UK, 1998 1. The changing context of business 2. The changing nature of conflict 3. Business costs of conflict 4. Business benefits of peace The business case for engagement 1 T he private sector has been engaged in areas of conflict and its aftermath ever since international trade began. It plays a role in many ways – positive and negative, direct and indirect – and has always done so. Over the past decade, however, this role has become more prominent. This is due to dramatic political, socio-economic and technological developments that have changed both the context of business and the nature of conflict. For example: The growing acceptance of market-based economies and the processes of privatisation and liberalisation have resulted in a massive transfer of assets to the private sector and a large increase in foreign investment in emerging markets. These markets represent the new investment frontiers for many industry sectors and companies. They also represent new risks and management challenges such as: • weak legal frameworks and governance structures; • sizeable populations who are antagonistic to foreign investment; and • unfamiliar social challenges such as high levels of poverty, human rights violations, bribery and corruption. Their state of political and socio-economic transition also creates high potential for instability and violent conflict. The existence of valuable resources, which draws many companies into these challenging markets in the first place, is a further factor contributing to conflict. The Prince of Wales Business Leaders Forum estimated that of the 34 countries listed by the Carnegie Commission as locations of major armed conflicts in 1997, companies associated with the PWBLF had direct business interests in 30 of them. A few are locations of significant investment. More than ever before, large numbers of civilians are entangled in violent crime and conflict – both as perpetrators and victims. As a result, it is increasingly difficult to distinguish between combatants and non-combatants in many situations of conflict. All too often there are no uniforms; no front lines; and no declarations of war. Hardworking employees by day, may well be inciting violent conflict once they leave the factory gate. Equally, they may be the targets of such violence. Increasingly, business cannot simply remove itself from the ‘fray’. Growing acceptance of and interest in multi-track approaches to conflict prevention and resolution are placing increased expectations on business, especially major companies. This is creating pressure on these companies to play a more proactive role in peace building. In today’s world, failure to play a proactive role, or even worse, being seen (correctly or incorrectly) as responsible for, or complicit in, the creation or exacerbation of conflict, means that a company is likely to attract negative media attention, NGO campaigns and consumer boycotts. International companies are under greater competitive pressure than probably ever before to create shareholder value. At the same time, they are under growing pressure from western consumers, governments, ethical investors, the media and pressure groups to create wider societal value and at the very minimum to comply with international laws and standards and to ‘do no harm’. The spotlight shines especially strongly on companies with major brand names and those operating in politically and environmentally sensitive regions. The achievement of human security and prosperity has obvious long-term benefits for business investment and success. This is especially the case in new, untapped markets. 14 The Business of Peace – the private sector as a partner in conflict prevention and resolution In short, growing investment in conflict prone or conflict-ridden regions is creating new opportunities, but also new risks and costs for business that cannot be ignored. In particular, recent developments in international humanitarian and human rights law have increased the risk of transboundary litigation for companies accused of human rights abuses or complicity in such abuses. At the same time, the growth in the activities of non-governmental pressure groups, the international media and the internet, has increased the risk of reputation damage for companies accused of human rights abuses or complicity in conflict situations. These two factors, combined with ‘on-the-ground’ costs of risk management and material losses, mean that few companies operating in transition economies can afford to ignore their links to existing or potential conflict. The following pages summarise some key trends determining the changing context of business and the changing nature of conflict, before focusing on the cost and benefit drivers for business engagement in conflict prevention and resolution. The map below illustrates the large numbers of countries where companies faced medium to high security risks in 1999. 15 The Business of Peace – the private sector as a partner in conflict prevention and resolution Control Risks Group (CRG) is an international political and business risk consultancy, that also advises companies in strategic investigation, security and crisis management. Since its foundation in 1975 it has worked with over 3,500 clients in some 130 countries and has developed extensive expertise on conflict-related risks and impacts, as well as stakeholder relations needed to address these. COUNTRIES AT RISK *Only those indicated are at increased risk Countries where the security risk for the majority of locations in which foreign business operates is rated MEDIUM, HIGH or EXTREME Brazil (Rio, Sao Paulo, Salvador da Bahia, Recife)* Colombia Dominican Republic Ecuador El Salvador Guatemala Guyana (Georgetown)* Haiti Jamaica Mexico Panama Peru Suriname Trinidad Venezuela Angola Burundi Cameroon CAR Chad Comoros Congo (Brazzaville) Congo (DRC) Cote d’Ivoire Djibouti Eritrea Ethiopia Guinea-Bissau Guinea-Conakray Kenya Lesotho Liberia Niger Nigeria Rwanda Senegal Sierra Leone Somalia South Africa Swaziland Uganda Zambia Zimbabwe Algeria Israel/West Bank Lebanon (South Beirut, South Lebanon)* Sudan Turkey Yemen Middle East & North Africa Africa Americas Afghanistan Bangladesh Cambodia Indonesia Malaysia Pakistan Papua New Guinea Philippines Sri Lanka Asia Pacific Albania Azerbaijan Bosnia Bulgaria Georgia Creece (Athens)* Kazakstan Macedonia Russia Tajikstan Ukraine Uzbekistan Yugoslavia Europe & the Former Soviet Union 1. The changing context of business During the past decade, development assistance has continued to decline, while private capital flows to the developing world have risen significantly. This has reduced the relative influence of donor States and international institutions in developing countries, while increasing the presence of international corporations. UN Secretary General Kofi Annan, 1999 Annual Report to the General Assembly, Privatisation The privatisation of state-owned enterprises has become a central feature of economic and political transformation in countries all over the world. Privatisation International magazine estimates that global proceeds from privatisation have increased from US$36 billion in 1988 to over US$141 billion in 1998.This has resulted in the public sector’s share and direct control of national economies shrinking, whilst the influence of the private sector has increased. The process is likely to continue, especially in the world’s developing and transition economies, many of which are prone to conflict. Liberalisation At the same time, countries around the world have opened their markets to foreign investment, resulting in a dramatic increase in cross-border flows of private capital, people, technology and products. Although most of these flows still occur between OECD economies, private capital flows to developing countries have also grown substantially. In 1999 private capital flows to emerging markets outstripped official development assistance by a factor of 5:1 having grown sixfold since 1990 to a level of over US$250 billion. Even though most of this money went to only 12 countries, according to UNCTAD, foreign investment in the world’s 44 poorest countries has also risen, from an annual average of under US$1 billion in 1987-1992, to nearly US$3 billion in 1998. (4) Emerging markets Linked to the above, and also as a result of political transformation, there is growing private investment – both foreign and domestic – in many developing and transition economies. The World Bank estimates that the share of emerging markets in world trade could grow from being 25% of the European Union’s today, to more than 50% in 2020. Few companies with global aspirations can ignore such markets, but with this potential comes the challenges and risks of operating in conflict prone or conflict ridden regions of the world. In particular, these economies are opening up their infrastructure, energy, mining, manufacturing, banking and agribusiness industries to private investors. These are often strategic industries. As such, their transfer to partial or full private ownership has important political, as well as economic implications. This is the case even when the new owners are nationals of the country in question, let alone foreigners. It creates obvious potential for conflict, based on access to these strategic resources. Technological change The advent of new technologies has increased the reach and scope of the private sector. Most notable has been the dramatic growth in information and communications technology. This technological change has not only created new market opportunities and competitive pressures for business, but also new social challenges and expectations by underpinning the blossoming of civil society. Certain new technologies have also created or increased the potential for conflict. This ranges from the use of information and communications technology by terrorist and criminal organisations, to the increased potential for conflict around issues such as access to technology and the impact of certain technologies, such as biotechnology, on poorer countries and communities. 16 The Business of Peace – the private sector as a partner in conflict prevention and resolution Increased societal At the same time that privatisation and liberalisation have transferred assets and many expectations would argue power to the private sector, democratic and technological advancements have transferred other sources of power, or certainly empowerment, to civil society organisations and citizens. This takes a variety of forms, ranging from millions of tiny community initiatives to campaigning on a world wide scale, supported by unprecedented communications capacity via the internet and the global media. A strong focus of these activities has been to call for greater accountability on the part of both governments and business. In a ‘networked world’ there are few hiding places for companies that are deemed to operate unethically or irresponsibly, especially multinationals. As Thilo Bode, Executive Director of Greenpeace, pointed out in a Financial Times interview in August 1999, “Multinationals are much more vulnerable [than governments], because they have to be accountable to the public every day – governments have that only once every few years���. Global competitiveness The majority of businesses are not only facing rising societal expectations, but also dramatically increased and relentless competition. Failure to deliver value to their customers and shareholders will result in board upheavals, market erosion and in some cases, take-overs or acquisitions by other companies. Whilst being responsive to a growing social agenda, companies must therefore be more responsive than ever before to the commercial agenda. Increasingly the two are positively linked, but not always. Changing ‘governance’ There is fundamental change taking place in our understanding and practice structures of governance. Governance used to be principally about what governments do. Today, the concept is increasingly about balancing the roles, responsibilities, accountabilities and capabilities of different levels of government and different actors or sectors in society. This is creating new challenges for all the actors involved, including business. In the long-term it offers potential for more accountable and effective governance structures and more active and open civil society. In the process of transition, however, there is often confusion over the relative roles and responsibilities of different actors, vested interests operating against change, and increased potential for conflict. Another serious challenge is the emergence of ‘uncivil society’. Essentially this can be defined as non-governmental actors – many of which are commercial enterprises or are funded by commercial enterprise – that are illegal or illegitimate and increasingly difficult to control in today’s global economy. Drug trafficking and illicit arms trading are obvious examples. 17 The Business of Peace – the private sector as a partner in conflict prevention and resolution The overall implications of these trends for business can be summed up as growing pressure to perform both commercially and socially. In almost every industry sector and almost every country, companies are under greater pressure than ever before to meet both shareholder demands and wider stakeholder demands. What is more, they are under greater pressure than probably ever before not only to manage their actual performance in each of these areas, but also to respond to external perceptions of this performance. As a result, the typical company board and senior management team have to decipher and respond to what is often a mixed set of signals from an increasingly wide range of stakeholders. Whilst there is growing evidence of positive links between corporate social responsibility, reputation and shareholder value, especially over the longer-term, on a day-to-day basis the issues are rarely that simple to deal with. Often difficult trade-offs and value judgements have to be made. Over the past decade, managing a private enterprise, especially a global one, has become a much more complex and challenging process. Nowhere is this more true than in regions that are prone to violent conflict or experiencing conflict. Companies that have a legal and legitimate purpose are under pressure to demonstrate that they are not contributing to such conflict and where possible, that they are proactively helping to avoid or solve it. BUSINESS... UNDER PRESSURE TO PERFORM COMMERCIALLY AND SOCIALLY 2. The changing nature of conflict War between states to Today more than 90% of armed conflicts take place within rather than between states. internal conflict According to the World Bank, of the 101 conflicts that occurred between 1989 and 1996, 95 of them were internal and most were in developing or transition countries. Geo-politics and ideology to Linked to the increase in intra-state wars is the fact that the underlying causes of resources, identity and conflict have shifted from being primarily about geo-strategic interests and ideological state ‘failure’ differences, to conflicts based on access to resources, issues of identity and ‘state’ failure. Military casualties to Civilians, who accounted for between 5-10% of war casualties during the 1st and 2nd civilian victims World Wars, now compromise 85 – 90% of all victims. Most are women and children. In a growing number of situations, far from adhering to the Geneva Conventions on the Rules of War, combatants have made the targeting of civilians a strategic objective. From Kosovo to Sierra Leone, there are tragic examples of the close relationship between human rights abuses and war. Some 5 million civilians have been killed in war and internal conflicts during the past decade, and a further 6 million injured. According to UNDP, these conflicts have forced 50 million people to flee their homes and created more than 10 million refugees and 5 million internally displaced people. In the past decade, 2 million children lost their lives in conflict, 6 million were disabled or maimed, 15 million made homeless, and more than 1 million were orphaned or separated from their families by conflict. The rise in the use of child soldiers, especially in Africa, has added a further toll. Save the Children estimates that there are over 300,000 children – some as young as 10 – fighting adult wars. Superpowers to poorer Most major conflicts in the past few decades have occurred in poorer countries and states in transition states that are in the process of political and socio-economic transition. State-sponsored war to In recent years the world has witnessed a dramatic increase in the privatisation of privatisation of violence security and violence. Examples of this trend range from the growth of unauthorised and security militias and local warlords, to the activities of narco-guerrillas, mercenaries, private security and military companies. Many private security and military companies are legally constituted enterprises, but their operations raise new challenges for the state and for the private companies that hire their services. There is also the problem of violent crime and renewed conflict caused by demobilised soldiers in many post- conflict societies. These people have either been unable to integrate back into civilian professions, or have decided that their access to small arms and the pursuit of illegal activities is more lucrative. Weapons of mass destruction Whilst the threat from weapons of mass destruction has not disappeared, their to small arms production has declined. There has, however, been a dramatic increase in the legal and illegal trade in small arms. About 90% of all deaths and injuries in present-day conflicts can be attributed to small arms, of which UNDP estimates there are about 500 million in circulation around the world. Many of these arms are in the hands of private operators, rather than state-controlled armies. Their size makes them easy to transport and to transfer between legal and illegal ownership. They have become central components in many internal conflicts and in undermining the fragility of post-conflict reconstruction and reconciliation. Landmines represent an especially serious problem. The World Bank estimates that there are 80 to 100 million landmines deployed in over 65 countries, causing more than 25,000 casualties a year, most of whom are civilians. It costs US$3 – US$10 to buy a landmine and between US$300 – US$1000 to remove one. 18 The Business of Peace – the private sector as a partner in conflict prevention and resolution State-based diplomacy The changing nature of conflict has had major implications for approaches to to ‘multi-track’ diplomacy preventive diplomacy and peacemaking. Traditionally these have been the sole preserve of the leaders or authorised representatives of states. In today’s multi-polar world, such an approach whilst still important, is no longer adequate on its own. There is a need for more multi-disciplinary approaches. This requires a growing role for non-state organisations and private individuals, including business, in the process of negotiating and making peace. As a result, there has been an increase in what is termed ‘two track’ or ‘citizen’ diplomacy, whereby unofficial and often informal negotiations occur between members of adversarial groups or nations. The Institute for Multi-Track Diplomacy has developed the concept of multi-track diplomacy and identified the following key actors: governments; churches; professional organisations; the media; training and educational institutes; funding organisations; activists; private citizens; and the business community. Examples include the roles played by: former politicians, such as Jimmy Carter in his visits to North Korea and Haiti in the 1990s; the Norwegian Labour Union’s social research institute in facilitating the Oslo Peace Process between Israel and Palestine in 1993; and business leaders in promoting peace in Ireland, South Africa and Mozambique. Military security to In recent decades there has been a shift in our concept of security. Traditionally a human security nation’s security was measured by the size of its army and military installations. Whilst this mindset is still the norm for many governments, there is growing acceptance in the international community that security is also about human security and freedom from oppression, violence, poverty, hunger and disease. State security systems remain important mechanisms for ensuring human security from both internal and external threats. There is growing evidence, however, that in many recent conflicts state forces are all too often turned against a nation’s people, rather than protecting them. This trend has raised serious questions about the inviolability of a nation’s sovereignty and created new challenges for the international community in terms of when and how to intervene in internal conflicts. Humanitarian and human rights principles have been increasingly invoked to justify external interventions in internal conflict, as happened in Kosovo and East Timor in 1999. Intervention to prevention At the same time that the international community is starting to undertake military interventions to prevent gross violations of human rights within sovereign states, there is growing recognition of the need to shift towards a more preventative peace-building approach to security. This approach places economic and social development as integral aspects of the international security agenda. This contrasts with traditional approaches that have characterised international aid and peacekeeping activities in the past, which tended to separate peacekeeping and conflict resolution from poverty reduction and sustainable development. 19 The Business of Peace – the private sector as a partner in conflict prevention and resolution Human centred development, which places human security at its core, is increasingly accepted as a necessary condition for peaceful and progressive societies. Private enterprises have a potentially vital role to play in supporting such development. They can create the economic wealth and livelihood opportunities, and support the social development activities needed to meet basic human needs. In doing so, they can help to counter some of the key causes of modern conflict. Failure to play a proactive role in this process positions business as part of the problem rather than part of the solution. It also creates direct and indirect costs for business as outlined on the following pages. BUSINESS... PART OF THE PROBLEM OR PART OF THE SOLUTION? 3. Business costs of conflict Conflict is almost always an impediment rather than a spur to private sector investment and economic growth. With the exception of the 3-4% of world trade generated by the arms industry, certain illegal commercial activities, and situations where business gains directly from being part of war economies, few industries benefit from violent conflict. In the short- term, employees are threatened, if not killed, markets are slashed, infrastructure is damaged and in many cases company assets are seized or destroyed. In the long-term, the way in which conflict undermines social and economic progress will seriously impact a company’s own prospects for successful investment and economic progress. The private sector therefore has commercial interests as well as a moral imperative to help prevent and resolve violent conflict. It is useful to think of the business costs of conflict in two categories: 3.1 Indirect societal costs of conflict – such as ‘internal’ costs to the country, region or locality in which a violent conflict is occurring and ‘external’ costs to the international community, both of which have an indirect impact on business; and 3.2 Direct business costs of conflict – the costs that directly hit the individual company’s bottom line and/or reputation. These are often linked to the broader societal costs, but have a more direct impact on a company’s immediate business operations or investment strategies. 3.1 Indirect societal costs of conflict The ‘internal’ costs that a country faces as a result of conflict can be summarised as the destruction or undermining of human, social, economic, environmental and political capital. To the extent that all of these types of capital are critical for the success of most private sector investments, it follows that their destruction will have a negative impact on current investment – both domestic and foreign – and will put off new investment. It is impossible to put a ‘price tag’ on the human misery and breakdown in systems of governance, trust and tolerance that are a common legacy of conflict. The more quantifiable economic and environ</p>