Good Honest Dollar $$

(Google Headquarters in Beijing - Image provided by M Weitzel via Wikipedia)

Given the complexity of the moral, ethical and business-case considerations involved, there are no easy or straightforward answers to the dilemma confronting Google with regard to the future of its Chinese operations.

But given the recent security breaches, the pendulum has swung a long way, and the case for leaving China - from both ethical and business case viewpoints – has surely grown much stronger in recent weeks.

 
Google’s announcement to review it’s Chinese Operations
As most of you will already be aware, Google released an announcement on January 12 to the effect that the company’s operations in China are under review, following: (a) the discovery of a highly sophisticated and targeted cyber attack on the firm’s corporate infrastructure, with the primary goal of accessing the accounts of dozens of human rights activists in China and elsewhere; and (b) a decision that the company is no longer willing to censor search engine results in China.

Although not saying anything to pre-empt the outcome, the announcement does make it clear that partial or complete withdrawal from the country is a serious prospect.

 
Previously, the company’s operations in China were OK …
Prior to the discovery of the attacks, Google’s approach toward China appeared to be sensible and pragmatic.

To be sure, the censorship of search engine results to which the company agreed in 2006 did go against one of the basic fundamental principles of the online world (freedom of expression and information flow).

But it was necessary. Without agreeing to censorship, operating effectively in China would have been virtually impossible (prior to the agreement, Google’s uncensored engine, Google.com, had apparently been blocked by the Chinese government on an intermittent basis – refer article), and any stand made by the company regarding censorship would almost certainly have cost it the chance to properly exploit opportunities within the country – a price which surely would have been too high given the size and potential of China as a market.

And from the viewpoint of Chinese netcitizens, any Google service, albeit a censored one, was better than none at all prior to the censorship agreement when the service was so frequently blocked.

 
… but the security breaches change everything
But recent events have shifted the pendulum a long way, and both the ethical and business cases for leaving have become much stronger.

Even now, ethical considerations are a long way from clear cut. Any withdrawal on the grounds of censorship would hurt Google’s Chinese staff and customers much more than it would the Chinese government. And even despite the recent attacks, human rights activists in China would almost certainly be safer using online services from Google than those provided by domestic Chinese firms.

Still, the company does now have to think long and hard about whether or not it can be confident about the secure provision of some services, especially in light of the apparent sophistication of the attacks. Given this, along with ongoing reservations about censorship, the moral case for withdrawal has grown stronger.

So too has the business case. Most obvious is the risk of backlash in rich world markets. Already significant given the contention surrounding the censorship issue, the risk to Google of backlash associated with the continuance of operations in China is bound to intensify, especially if netcitizens remain unconvinced about its ability to provide Chinese services without jeapoardising the security of human rights activists.

This matters. China represents only a tiny portion of Google’s worldwide operations (see below), and the effect of the company’s strong moral pulse as a source of competitive advantage in western markets should not be underestimated.

(Google’s Chinese operations derive about $300 million in revenue, compared to an aggregate figure $22 billion for its global  operations – refer article)

Besides, Google’s experience in China has always been problematic. The company’s market share in its core search business is languishing at fifteen percent (refer article), and outside of search, many of its other businesses continue to experience problems relating to government censorship (at present, You Tube, Picasa and Blogger are all blocked – refer article).

Add all this up and there might just be a fair case for withdrawal anyway – even if it weren’t for ethical considerations.

 
Conclusion
There are no straightforward answers to the questions facing Google over the future of its Chinese operations.

But for now, the pendulum has swung in favor of an exit – whether partial or complete.

A company’s annual general meeting is the only time that individual shareholders get to have their say, so it’s not surprising that some use the occasion to voice their frustrations or grievances.

So they have every right to – it is their company.

But problems arise where shareholders abuse this privilege.  One such case occurred at a meeting which I attended in Melbourne last month. This case highlighted the need for shareholders to observe reasonable manners and etiquette - even when voicing grievances or frustrations.

Shareholders have a right to challenge directors on tough issues. They have no right to make unsubstantiated allegations or personal attacks.

 
Drama at the Orica AGM
The drama took place at the annual general meeting of Orica Ltd, a multinational Australian company which manufactures a range of chemical products, during the discussion about the financial, directors’ and auditor’s reports.

One speaker, ‘Clancy,’ launched a tirade of disparaging remarks. (Real names have been quoted here since a podcast of the entire meeting is on public record on the company’s website)

He began:

“Yeah last year I raised the issue of (accounting firm) KPMG carrying out a false audit of this company ..”

In his one minute denunciation, Clancy went on to allege that:

• KPMG were ‘still’ issuing false audits of the company.

• Don Mercer, the company chairman, “should be in jail with Karl Williams” (a notorious Melbourne gangland figure)

• Mr. Mercer was part of the Melbourne business set – “the largest crime syndicate in Australia.”

• Mr. Mercer and others had only gotten away with it (his alleged criminal behavior) because of Managing Director Graham Liebelt’s friendship with former Australian Treasurer Peter Costello, who “looked after the Melbourne business set” and was “the most corrupt politician to sit in politics in Australia.”

(There were never any suggestions of impropriety by Mr. Costello throughout his eleven years as Federeral Treasurer of Australia between 1996 and 2007)

 
Allegations in context 
To put these claims into context, a number of points should be noted.

First, Clancy did not provide or refer to any form of evidence in support of his allegations.

Second, Mr. Mercer enjoys an outstanding reputation within the Australian business community - earned over many years of service on the board of a wide range of high profile Australian companies.

Third, immediately prior to Clancy’s attack, a representative from the Australian Shareholders’ Association had given the company a glowing report on a number of corporate governance related matters, saying that the ASA “could only be complimentary,” and that shareholders should be “very satisfied.”

In short, these were nothing more than wild allegations.

 
Let’s hold off on unsubstantiated allegations
Shareholders are the collective owners of the company – by whom directors (and senior executives) are employed and to whom they are accountable.

They have every right to voice their frustrations or concerns, just as they have every right to challenge directors on areas where performance or behavior have not been up to standard. They need not be ‘nice,’ and should not feel under any restraint toward asking difficult questions. The annual general meeting is there chance to do so, and they should not hold back.

But there are limits. Directors have a professional relationship with shareholders and deserve to be treated accordingly. This means answering tough questions, but not putting up with unwarranted personal attacks, unsubstantiated allegations or defamation.

In the case of Orica, Don Mercer did not seem overly worried about the whole situation. He’s been around the traps a long time - this was water off a duck’s back to him.

Nor did many of the other shareholders attach a great deal of credibility to Clancy’s allegations.

Nevertheless, board members should not have to put up with this kind of thing.

Shareholders must be free to challenge directors or make their feelings known.

But they have no right to make personal attacks or unsubstantiated allegations – directors should not have to put up with these.

 
Over to you
What are shareholder meetings like in your country?

Are they generally productive in terms of giving shareholders a fair opportunity to voice their concerns?

Are shareholders generally polite and well behaved?

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(Image provided by Keith Allison via Wikipedia)

Tiger Woods’ recent fall from grace is a shame, not only for those directly involved, but for the entire sport of golf.

It also highlights a wide range of broader issues and questions relating to personal, professional and business ethics.

Amongst other things, these could include:

 
• How the private conduct of high profile professionals can affect their ‘brand value’ in terms of advertising and corporate sponsorship.

The understatement made by consulting firm Accenture upon termination of its sponsorship – about Woods being “no longer being the right representative,” - said it all.

So too does the more frank commentary (same article) of public relations consultant Ian Monk, about Woods being “… damaged goods with no commercial value to sponsors whatsover.”

 
• How the expectations placed upon role models in any profession extend beyond their professional lives.

Role models, it seems, are expected to demonstrate exemplary behavior in all aspects of their life – private or professional.

 
• The issue of media outlets paying for stories.

I don’t know whether or not Jaimee Grubs or any of the other women involved have indeed received any form of payment from media outlets for going public on this story. But I certainly hope they didn’t.

Woods’ transgressions are unacceptable, but so too are those of any of the women involved. Each of them appears to have been willing participants in their affair with the superstar - none deserve any financial reward for their behavior

 
Even the best are mortal
But there is one important lesson which should not be forgotten in any of this – the fallibility of even the most revered superstars.

Prior to the revelations, there were strong reasons for holding Woods in high regard, particularly given the way his work ethic, general demeanor and extensive involvement with charities and youth projects served to complement his talent and achievements. He was, it seemed, an ideal role model.

Nor was it in any way wrong to give him so much respect. Positive role models are needed in every profession, and those who achieve excellence whilst appearing to conduct themselves in an exemplary manner deserve our admiration.

But these sentiments must be tempered with two sobering realities:

• we don’t always know the whole story; and
• even the best role models are human.

The second point is especially pertinent. No matter how exemplary their behavior may be, all role models are human. None of them are infallible, nor should we expect them to be. Disappointment is inevitable if we forget this.

Respect for high achievers who display exemplary behavior is healthy, but idolization is not. No one should be put on a pedestal.

 
Great shame, important lesson
Tiger’s fall from grace was a great pity. I certainly hope that he is able to get his life back together and, if possible, salvage his marriage.

In the meantime, his story serves as an important reminder about the fallibility of even the most revered superstars.

Those who set positive examples deserve our full respect – but they should never become our idols.

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Image by Steve Burke via Wikipedia

Dear readers,

I would like to wish a merry Christmas and a happy new year to you and all of your families.

There have been a number of interesting comments from a variety of people during 2009. My sincere gratitude extends to all who have contributed to the discussions. I have certainly enjoyed writing on this blog as well as engaging in discussions on each of your blogs.

See you all in 2010.

Special thanks to:

Ana
Brad
Cath
Fred
Jake
Karen
Lillie
Meryl
Natural
Tom

Map showing Nigerian states within the Niger Delta (Image via wikipedia)

Murder.
Brutal repression.
Razing of villages.
Air bombing campaigns reducing villages to rubble.
Arrests and subsequent hangings without due process.
Endemic corruption at various levels of government.
Broken promises of oil revenues being shared with locals.
Eviction from property with negligible compensation.
Forced abandonment of crops such as cocoa, cotton, rubber and groundnuts.
Oil spill cover ups
Gas flaring near villages
Waste dumping.
Ethnic rivalries.
Destruction of farming and fishing.
Impunity for environmental and human rights abuses.
Internal displacement of around 10,000 internal refugees.
Endemic poverty and people growing poorer since the 1960s

Have I left anything out?

Things have not exactly turned out the way they should have in the Niger Delta –  where the 1960s discovery of oil was supposed to bring great wealth and abundance.

Granted, not all of these problems are the sole responsibility of Royal Dutch Shell Corporation. Nor were they caused entirely by Chevron, Nigerian National Petroleum Corporation or any of the other firms which operate in the Niger River Delta region – governments have had a fair part to play.

But given the extent of the debacle surrounding the region over recent decades, you can hardly expect locals to love the multi-national oil giants. And it is hard to escape the conclusion that some of the problems which the oil industry faces – sabotage of operations and kidnapping of workers, are their own doing to some extent.

(Refer articles here and here for more information about the social and environmental problems over the past few decades associated with oil production within the Niger Delta Region)

 
Real business problems and a management lesson
As well as being a human and environmental tragedy, the Niger Delta debacle highlights a key management lesson for the oil industry: look after the local people and environment or suffer the consequences.

To be sure, if it weren’t for the direct impact upon operations, it would be easy for big oil management to avoid paying a great deal of attention to the impact of their operations from a social and environmental perspective, be it in the Delta or anywhere else.

But big oil is concerned. Militant activity, including the sabotage of production facilities and the kidnap for ransom of oil workers, has long had serious operational implications. In April, security concerns forced Shell to completely shut down operations. As recently as October, the company was still producing only 120,000 barrels per day in the region, compared to 300,000 prior to a surge in activity.

More broadly, as at October, that same surge had caused total production in the region, which has capacity of 3.6 million barrels per day, to sink to 2.2m b/d (refer article).

Add to this the financial cost of ransom for kidnapped staff (from what I have read, big oil almost always pays up), and it becomes more than clear that the problem is not one which oil companies can ignore.

 
Why big oil should be proactive
Granted, big oil is not the sole cause of this mess. Indeed, most of the problems relate to government and military abuses, and in no way can Shell or anyone else be held accountable for these.

(That said, some of the problems, such as waste dumping and oil spills and cover ups, can be directly blamed on big oil. And there are other problems still, such as the destruction of farming and fishing, with regard to which oil production is no doubt a significant and directly contributing factor)

Granted, also, that whilst no doubt the vast majority of those involved in the sabotage of the oil fields have legitimate grievances, some are simply thieves and professional criminals.

Nevertheless, the troubles of the Niger Delta region highlight the need for oil firms to undertake pro-active measures to prevent or minimize any adverse social or environmental impact in areas in which they operate.

Due to post length issues, I will not go into the specifics about what kind of action companies like Shell should take in this regard (I may share a few of my thoughts on this in a later post, and suggestions from readers are certainly welcome). For now, suffice it to say that steps to eliminate waste dumping and prevent further damage from accidents and oil spills would be a welcome step, as would investing within local communities and the local region (outside of those investments which directly relate to operational requirements) so that local residents could see some real community gains flowing from big oil’s presence.

Rather than getting into the ‘how to,’ my main point here is to empathize the need for a proactive approach in this area.

The big picture is simple – production problems in the region won’t stop until social and environmental problems stop.

Clear also, is the lesson for big oil: look after the local people and environment - or suffer the consequences in kidnapped staff and lost production.