The Nexus Between ‘Corporate Accountability’ and the War On Terror

(Washington, D.C.): Yesterday’s Wall Street Journal featured an important op.ed. by columnist Al Hunt highlighting an important new front in President Bush’s campaign to “starve terrorists of funding” — and a just-introduced and potentially highly important risk assessment tool that government officials and institutional and individual investors can employ to support that initiative. Mr. Hunt focuses on a subject that has been a longstanding initiative of the Center for Security Policy’s William J. Casey Institute, namely that firms aiding foes of the United States might be fund-raising in America’s capital markets for terrorist-related or other malevolent purposes.

The Hunt column helpfully calls attention to a new product, the Global Security Risk Monitor, developed by Investor Responsibility Research Center and Conflict Securities Advisory Group. This private sector initiative has benefited from insights and expertise garnered during the six year period of the Casey Institute’s “Capital Markets Transparency Initiative.”

The Center welcomes this fresh attention — and that of legislators like Sens. Fred Thompson (R-TN) and Robert Byrd (D-WV) — to one of our time’s most vexing national concerns. It calls upon the Bush Administration to address as a matter of the utmost urgency this point at which its priorities of correcting corporate accountability and cutting off terrorist financing converge.

Unless you’re a combat soldier or of Middle Eastern descent, George Bush’s war on terrorism is pain-free: travel freely and spend money with those big tax cuts you’re getting, the president advises.

Usually a war entails tough choices, and an unusual coalition of left and right activists is trying to foist one on this sacrifice-averse administration: spotlight any publicly traded companies that, directly or indirectly, may be aiding terrorism.

The Global Security Risk Monitor wants to identify close to 300 firms that either do business with six countries the State Department says sponsor terrorism — Iraq, Iran, North Korea, Syria, Libya and Sudan — or aid those providing weapons of mass destruction. The firms aren’t violating any laws and the Monitor doesn’t propose any new sanctions. But if this becomes more of an issue it could scare off investors and make it harder for these companies to raise funds in U.S. capital markets.

This is the combined handiwork of two disparate organizations: the Investor Responsibility Research Center, which specializes in corporate governance and first seized on companies doing business in South Africa during the campaign against apartheid; and the Conflict Securities Advisory Group, headed by Roger Robinson, a National Security Council aide in the Reagan administration.

If the war on terrorism is protracted and intense, as the president predicts, this information should be vital to long-term investors, advocates say. “The negative impact this would have on share value and corporate reputations is a very legitimate market concern,” notes Mr. Robinson. He acknowledges “when you introduce national security or foreign policy elements into market calculations, it makes some folks nervous,” including this White House.

Mr. Robinson and his partners also hope to profit from their good works. They are not releasing the names of these companies publicly, but instead are offering to sell the research for $12,500 to public pension systems, big mutual and index funds. Of course, much of the research is gleaned from public records.

Although they’ve only made a few deals, their timing is impeccable. “Americans today have two major worries: the vulnerability of their investments and vulnerability from terrorism,” notes Nell Minow, a leading corporate governance activist. The Global Security Risk Monitor “enables them to have more information — and do something — about both.”

Of the companies, only about 50 are American; about a third are European and a quarter Asian. But most of these firms raise capital in the U.S. and could be affected by adverse publicity.

And there will be screaming, including some inside the Bush administration, against anything that supposedly impedes on keeping capital markets open to any firms that meet proper investment standards. There has been quiet opposition to a proposal by Sen. Fred Thompson (R., Tenn.) that would require U.S. intelligence agencies to investigate whether firms which are raising money in U.S. capital markets are involved in the “proliferation of weapons of mass destruction.” This initiative has cleared the Intelligence Committee and probably will get Senate approval.

But there is much more concentrated opposition to a proposal by Sen. Robert Byrd (D., W.Va.) that would require companies seeking access to U.S. capital markets to publicly disclose any financial dealings of $100,000 or more with countries that sponsor terrorism. That’s simply an appeal for transparency, but it rubs too many sores.

To be sure, these issues aren’t always easy. No one is more knowledgeable than Stu Eizenstat, a former top official at the Commerce, Treasury and State Departments and ambassador to the European Union — and special negotiator on numerous sanctions issues and Holocaust reparations from European companies. “The U.S. and Europeans,” he notes “have strongly different ways for dealing with rogue states. The European view is trade with them, invest in them and encourage them to be more tolerant or pro-western. Our view is more to isolate them and to sanction them.”

Mr. Eizenstat personally draws the line at “whether a regime is capable of change,” and thus would argue companies investing in Iran are different than Iraq where, under Saddam Hussein, change or progress is not imaginable.

But whichever approach is better, the argument against identifying which companies are dealing with rogue states is an argument against transparency and indefensible. (To be consistent, however, Global Security should make the Monitor more accessible to the general public.)

Affected companies realize that any blow to its reputation — and labeled as aiding a terrorist state surely does that — could be lethal. The South African divestiture plan was largely successful. Nike pulled back its sweatshop operations under public and investor pressure. A Canadian company, Talisman Energy, has taken a big hit because of publicity over its ties to Sudan. Companies currently dealing with Iraq — the big German corporation, Siemens, which has sold telecom and other materials, and Volvo, which has peddled trucks to the Iraqis — are under attack.

If, as seems likely, the Global Security Risk Monitor becomes an emerging hot issue as Nell Minow predicts, at a minimum it’ll embarrass some major U.S. companies. Some dealings will seem benign — the sale of commercial goods like soft drinks, for instance. But deals such as General Electric’s transactions with Iran and Syria, or the Russian subsidiary of IBM moving its power and computers to weapons manufacturing facilities could cause unease with investors.

Of particular concern to the Bush-Cheney administration is that Mr. Robinson says about 40% of companies on his private list are oil concerns or energy-related firms. That’ll cause confusion for a president whose sense of moral clarity doesn’t always appreciate ambiguity.