Rough guide

Annual Report on the OECD Guidelines for Multinational Enterprises, 2006 edition: Conducting Business in Weak Governance Zones

How do investors choose whether to set up shop in, say, Somalia rather than Spain, Colombia rather than Canada? Siemens, the German engineering company, and the Swiss technologies company ABB both recently stopped doing business in Sudan, claiming moral and political reasons, while many multinationals are still operating in the high-risk countries of Afghanistan, Congo and Iraq.

For some companies, doing business in such weak governance zones can certainly be profitable, with less competition, less tax and less regulation. Yet the flipside may mean also less legal recourse and support, and potential danger from endemic crime and corruption.

The heightened risks encountered in weak governance zones create a need for heightened care. The OECD’s Risk Awareness Tool is designed to help governments and investors consider such dilemmas. As a supplement to the Guidelines for Multinational Enterprises, the Risk Awareness Tool offers a list of questions for consideration.

For instance, what steps would the company need to take to refrain from offering, promising, giving or demanding a bribe to Reviews obtain or retain business, even where local lawmaking institutions are weak? How can a company located in these regions protect its own employees and physical assets from threats, extortion, theft or even kidnapping? In terms of political impacts, what can a company do to ensure that it abstains from improper involvement with local political activities, and perhaps having to remain silent about serious wrongdoing or human rights abuses in its host country?

Finally, what can a business do to influence the development of better governance in its host country? Some of the cases examined by the OECD Investment Committee in the context of the MNE Guidelines include the ethical challenges of a Norwegian company providing maintenance facilities at a detention centre in Guantanamo Bay, Austrian mining activities in the Democratic Republic of Congo, and French enterprises investing in Myanmar where there is forced labour.

Foreign investment alone may help influence better government, but the new tool is based on the premise that a durable improvement has to be driven by the leadership and the people of the countries concerned. The OECD urges investors and governments to make sure the bottom line is not balanced on ill-gotten gains, wherever they may operate.

The Risk Awareness Tool is available at: www.oecd.org/dataoecd/26/21/36885821.pdf

ISBN-13 9789264029002

©OECD Observer No 260, March 2007