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Google, Yahoo, Microsoft, Cisco – China and Corporate Ethics

Are Profits More Important Than a Corporation’s Values?
The specter of U.S. government laws being passed to restrain US media companies from compliance with Chinese government censors when seeking to sell their information services in China has been raised in the US Congress.  It was one of the suggestions at a heated February 17, 2006 hearing convened by the US House of Representatives’ Subcommittee on Africa, Global Human Rights and International Operations on:

“The Internet in China: A Tool for Freedom or Suppression?”
Over the past few months a series of events involving compliance by US Internet companies with Chinese censorship policies have attracted media attention and extensive criticism.  The issue has raised questions about the choices Western corporations face between pursuing profits and adhering to their own publicly stated principles, which advocate basic social responsibility rights.  Senior executives from Microsoft, Cisco, Google and Yahoo were at the Capitol Hill hearing and sought to defend working with China’s censors. 

Note:  For example, Google declares in its corporate ethics code: “The core message is simple: Being Googlers means striving toward the highest possible standard of ethical business conduct.” And, it adds, “Our communications with our users should be appropriately clear and truthful. Our reputation as a company our users can trust is among our most valuable assets, and it is up to all of us to make sure that we nourish that reputation.”

Background
The controversy gained momentum in September of 2005 when Reporters Without Borders, a free-speech advocacy organization announced that it had proof that a subsidiary of internet company, Yahoo! Inc. aided the Chinese government in jailing a prominent journalist, Shi Tao, by providing information necessary to track him down. Shi Tao was arrested because he e-mailed foreign websites saying that he and his colleagues had been warned against commemorating the 15th anniversary of the 1989 Tiananmen Square pro-democracy protests (please see the story in our China country report at our Country Reports page).  Then, on February 9, 2006 the group reported another case, also involving Yahoo. The company’s Hong Kong unit offered information about Li Zhi, a Chinese citizen who was later thrown in jail in 2003 for subversion after publishing his criticism of state corruption online.

Google’s Special Service in China
The debate over compliance with China’s freedom of speech policies has been heightened by the actions of Google Inc., Miscrosoft and Cisco who have all been reported to have worked with the Chinese censorship authorities.  Google, for example,  launched a new Chinese search engine, Google.cn, that explicitly permits Chinese government censors to review and edit content. This impacted the search results of such topics, for example, as “democracy” or “Taiwanese Independence.” For example, New York Times reporter Joseph Kahn pointed out in a story from Beijing on February 12, 2006 (“So Long, Dalai Lama: Google Adapts to China”), Google in China does not provide current pictures of the Dalai Lama and, Google.cn does not even make users aware of what the search-engine is blocking. 

Miscrosoft & Cisco
In another case, on December 30, 2005 Microsoft Corp. complied with the Chinese government’s request that it shut down the website of Zhao Jing, a popular Chinese blogger. The site, which was critical of Beijing, covered controversial issues such as China-Taiwan relations and Chinese media freedoms.

Finally, Cisco Systems Inc., a leading networking equipment and management company, has become embroiled in this situation because it has sold hardware to the Chinese government that facilitates censorship and tracking of Internet mail. 

The controversy has been a public relations nightmare for the tech companies, which have responded with varying degrees of defensiveness. Prior to the hearing the most vocal had been Microsoft which announced on January 30, 2005 a new set of guidelines on blog closings: it pledged to make a blog or website available elsewhere, even if it was legally obligated to block it in a particular country. Furthermore, the company promised to clearly inform users when a website has been blocked due to a legal order. Previously, it had only reported that its content was unavailable.

Profits Over Principles?

At the February 15 hearing several Congressmen publicly decried the companies behavior charging them with violating American principles of free speech and bowing to pressure from China.  For instance, James A. Leach (R-Iowa) said to Elliot Schrage, a Google executive, “So if this Congress wanted to learn how to censor, we’d go to you – the company that should symbolize the greatest freedom of information in the history of man?” His point is underscored by the fact that the company’s motto is “Don’t Be Evil,” as well as by its stated emphasis on corporate ethics.

All four companies testified, despite their notable absence at a similar Congressional Human Rights Caucus hearing earlier that month. They made the argument that, as a whole, despite individual cases of censorship, the Internet has increased national Chinese dialogue and access to information simply by existing. Elliot Schrage of Google emphasized that, “this was not something we did enthusiastically, or something that we’re proud of.” The companies also suggested that the US government could and should do more than US companies to advance human rights overseas.

Moreover, many argued that the use of free, web-based email and the porousness of the Internet has empowered users to circulate information in spite of legal efforts at restriction. This view mirrors that of Microsoft Chairman, Bill Gates, who said on January 29 at a forum in Portugal,  "The ability to really withhold information no longer exists...You may be able to take a very visible Web site and say that something shouldn't be there, but if there's a desire by the population to know something ... it's going to get out very broadly."

Are New Laws Necessary?

However, many argue that the stance being taken by the companies is insufficient, as ordinary Chinese citizens cannot maneuver their way around security walls anymore than the average American can.

On February 14, 2006 the US State Department reported that it had created a task force to help technology companies protect free speech in countries like China that engage in Internet censorship. State Department officials vowed to encourage foreign countries to allow greater freedom of expression online as well as aid US businesses in their business strategies when they are called on to uphold repressive laws in countries where they operate.

However, numerous NGOs and Congressmen, such as Christopher Smith (R-NJ) Chairman of the committee that held the hearing, believe that the government must go further. They are calling on Congress to enact new laws to regulate the behavior of companies negotiating with foreign governments with questionable human rights records. Congressman Smith announced at the hearing his plans to introduce an “Online Freedom Act of 2006.” Congressman Smith’s Speech

(Also see an editorial in the Washington Post, where on February, 2006 columnist Sebastian Mallaby argued that the issue is more nuanced than many have portrayed it.)

 

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Pepsico, Coca Cola and Eli Lilly Adopt New Policies for Political Giving

December 16, 2005 report from The Center for Political Accountability and The Sisters of Mercy regional Community of Detroit and Green Century noted that these three major corporations have joined Morgan Stanley, Johnson & Johnson and Schering-Plough in agreeing to disclose and have their directors oversee soft money political contributions made with corporate funds. “This is a tremendous breakthrough,” said CPA Co- Director Bruce Freed. “Secrecy can no longer be the rule.”

Under the policies, all soft money political contributions will be reviewed at the Board level on an annual basis. In addition, each company will post a complete list of corporate political contributions on its website and disclose the guidelines and the rationale for their political giving. Current campaign finance law allows corporations to make donations in many states and to political committees commonly known as 527s, but not to federal candidates. However, companies aren’t required to disclose political contributions made with corporate funds, leaving institutional investors and individual shareholders in the dark about the use of company resources for political activities.

Green Century’s Andrew Shalit. “This is a particular concern for investors who care about the environment, because corporate political activity is so often aimed at influencing environmental policies.” Sister Valerie Heinonen, o.s.u., said, “The Sisters of Mercy of Detroit are concerned about corporate political spending that may reduce people’s access to affordable prescription drugs. Transparency and accountability for the political contributions are good governance policies which will enhance shareholder value.”

For the past two years, the CPA, a non-partisan, non-profit advocacy group, has been leading a shareholder campaign that includes 19 institutional investors and allied groups to get companies to agree to political disclosure and accountability. For the upcoming proxy season, CPA-model resolutions will be filed with more than 50 companies.

Description of Center for Political Accountability’s
model political disclosure resolutions

In an effort to bring transparency and accountability to corporate political spending, 19 institutional investors are filing a model political disclosure resolution drafted by the Center for Political Accountability (CPA). The resolution, which has two versions, calls on companies to disclose their political spending and spending guidelines and to require their boards of directors to review the spending and spending guidelines. One version deals with direct corporate political giving. A second version covers not only soft money political contributions but also payments to trade associations and related groups for political purposes.

Shareholders know little, if anything, about these expenditures. Current rules allow corporations to limit and even escape disclosure of their political activity. Compounding the problem, corporations are allowed to funnel their political activity through trade associations and other tax exempt entities. As the CPA has documented, corporate political activity can often be run through a trade association with little risk that the corporate donors will ever be disclosed. Gaps in federal and state disclosure laws enable corporations to avoid being held accountable for their political decisions. Few companies on their own have chosen to disclose and explain their political involvement.

The Bipartisan Campaign Reform Act of 2002 prohibits unlimited (or soft money) contributions to national political parties and to committees controlled by federal officeholders. However, it left corporations free to contribute soft money to non-connected political committees, popularly referred to as 527s, to state and local candidates, and to political committees, including party committees, at the state level. It also left unaffected the ability of corporations to use trade associations and other tax exempt entities as vehicles for corporate political involvement. 

The absence of company disclosure and the lack of board oversight enable executives to exercise vast discretion in making political expenditures. The result is that corporate money has been used to underwrite political agendas that conflict with the interests of the companies and their major shareholders and that create reputational problems for companies.

Although various watchdog groups report on political spending, little has been done to trace the spending from the original corporate donor to the ultimate beneficiary.  The role of conduits in this spending has been largely neglected.  Seldom discussed are the public policy positions of the ultimate recipients, leaving shareholders and the public in the dark about the positions that the money is promoting.

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