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The Problem of “Rogue” Companies

A compelling reason for prominent or far-sighted businesses to back binding human rights standards derives from the fact that public pressure tends to focus on highly visible companies, especially ones that have a brand or image to protect. Relatively few companies are so prominent that their behavior is under regular scrutiny from activists and the press. That gives an unfair advantage to less well-known competitors who can operate under the radar screen of public attention.

Well-known companies, worried about the harm that misconduct could cause their reputation, must assume the costs of meeting broadly recognized standards of corporate conduct. For example, a big company might have to accept paying higher wages associated with employing adults rather than children or permit trade unions to operate freely in its factories. By contrast, a no-name company, confident that the public will not notice its misdeeds, may not feel compelled to act as responsibly.

The gold industry again provides an illustration of this. Warlords in Congo, working together with their local business allies, used the proceeds from the sale of gold to gain access to money, guns, and power. Operating outside of legal channels, they worked together with a network of gold smugglers to funnel gold out of Congo to Uganda, destined for global gold markets in Switzerland and elsewhere, where it was bought by multinational companies.

One such company that bought gold from this network was Metalor Technologies, a leading Swiss gold refinery. Metalor knew, or should have known, that gold bought through this network came from a conflict zone in Congo where human rights were abused on a systematic basis. The company claimed it actively checked its supply chain to verify that acceptable ethical standards were being maintained. Yet during five years of buying gold from the network, no serious questions were raised.

After discussions and correspondence with Human Rights Watch and just prior to the publication of the Human Rights Watch report, Metalor announced it would suspend its purchases of gold from Uganda. Fearing possible repercussions for their business, other Swiss gold refineries followed Metalor’s lead. The trade in “tainted gold” from northeastern Congo immediately slowed; warlords and their business allies were finding it difficult to find clients for their ore. But the halt was only temporary. In less than two months, other gold refineries less concerned about their reputation stepped into the void. The trade moved from Switzerland to Dubai.

Concerned about the ramifications of pressure from campaigning groups, the gold jewelry industry wants to counter concerns over “tainted gold.” Following in the footsteps of the diamond industry, which has sought to disassociate itself from “blood diamonds,” the jewelry industry aims to set standards for responsible practices, including human rights standards, that will protect its consumer market. To do so they will need to tackle those within the industry who act irresponsibly. This will be tough, if not impossible, to carry out on a voluntary basis. Pitching “clean” products becomes hard when unscrupulous competitors can still play dirty. Attention to the misdeeds of no-name companies can sully the reputation of an entire industry—damaging even larger established brands.

Only enforceable rules, applicable to all companies regardless of prominence, can avoid this double standard.

<<previous  |  index  |  next>>January 2006