Jessica Scholl: To Divest or Not to Divest? – Doing Business in High-Risk Zones

By Jessica Scholl, International Business Leaders Forum

To Divest or Not to Divest? – Doing Business in High-Risk Zones

As events rapidly unfold in the Arab World, the plight of business has been woefully under-reported.

Companies with operations or investments in the region are finding themselves embroiled in morally, and often times legally, ambiguous situations. Political uncertainty further complicates the scenario, often requiring different policies to address unique circumstances.

From the relatively peaceful to the more turbulent transitions of power in Tunisia and Egypt respectively, businesses must navigate an operating environment with an uncertain legislative future. Still absent of the formal power shifts in Tunisia and Egypt, and with widespread human rights abuses taking place, the ongoing and volatile demonstrations across the Middle East and North Africa (MENA) region pose a unique set of challenges.

What is the responsible path forward if national authorities start dictating one thing while international standards dictate another? How does a company decide on appropriate actions when accounts of the situation are so highly contested? Oddly, Libya’s devolution into civil war may pose the least challenge due to the relative clarity of the international community’s stance against Gaddafi’s actions.

Amidst of all this ambiguity, can a company still operate responsibly in these environments? How is a company to proceed without becoming a tacit party to the conflict or exacerbating the situation?

An immediate and common impulse of businesses concerned with their responsibility portfolio and investments in conflict-affected and high-risk areas is often to run – quite simply to divest. The thinking is to suspend operations and protect the business from becoming unintentionally implicated in the situation.

Often in these situations, stakeholders begin applying the magnifying glass to company operations and divestment can become a popular rallying cry among some activist groups.

However, with the high level of investment in MENA for instance, mass divestment – be it temporary or permanent – could potentially have destructive consequences for business, local communities and the global economy. Then again, as recent cases show, it is all too easy for a company to find itself aiding oppressive regimes or fuelling the fire if it maintains business as usual.

So, is divestment really the only responsible way forward for companies and investors?

No. A highly helpful tool here is the United Nations Global Compact’s ‘Guidance on Responsible Business in Conflict-Affected and High-Risk…’. It offers a “common reference point for constructive engagement in conflict-affected and high-risk areas, as opposed to divestment….” Problem solved?

No again. The Guidance does not offer a prescriptive road map forward, but it does offer a framework for companies and investors to address the dilemmas confronting them. Each company will face a unique set of circumstances that inform their decision, but two universal themes emerge from the Guidance and comparable literature on this topic:

Do your due diligence – Companies and investors should identify the interaction between their operations/investments and conflict dynamics;

Engage a broad range of stakeholders – Proactively engaging in dialogue with stakeholders to help determine a course of action. Then,maintain consistent discourse with all stakeholders. This will help ensure proper implementation of policies and enable companies to adapt policies to evolving circumstances.

All-in-all, there is no straightforward path for companies operating in high-risk and conflict affected areas. When business leaders and stakeholders alike recognise the complexity of a situation, communication and collaboration can drive creative and responsible solutions.

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