Friday, October 05, 2007

Moral Dilemmas

The recent government crackdown in Burma (a.k.a. Myanmar) serves as another reminder of the perils of doing business in nations run by odious regimes. Oil & gas production in Burma is small by global standards, consisting of a few major gas deposits, and is chiefly of importance to its neighbor Thailand. The main offshore natural gas fields, Yadana and Yetagun, are operated by Total and Malaysia's Petronas, respectively. Chevron Corp., as the only US oil company with a stake in Burma--a 28% share of Yadana--is being harshly criticized for its association with the regime. While genuine and serious moral issues are involved, they are hardly cut and dried. Before passing judgment on these companies, we ought to consider some serious questions about the effect of their operations in such countries, and the consequences of their departure.

The SLORC junta in Burma is one of the worst governments in the world, and its calculated arrogance in brutalizing the country's universally-revered Buddhist monks is breathtaking. With its abuses of human rights, minorities, and democracy, the situation in Burma calls to mind South Africa during the Apartheid era. At that time, my former employer Texaco faced frequent calls for it either to apply more pressure on the government or cease its affiliate operations there. Aside from the obvious financial consequences, there were other impediments to leaving, including the company's responsibility to its local employees and the perceived benefits of remaining engaged. These were ultimately embodied in the internationally-recognized Sullivan Principles, later expanded into the Global Sullivan Principles. While some saw these principles as mere cover for the corporations involved, they were invaluable in helping companies define for their hosts the only acceptable conditions under which they might remain.

In Burma as elsewhere several serious considerations must be weighed, including:
  1. Does the presence of the company in the country convey legitimacy to an otherwise illegitimate government and its practices?

  2. Do the company's operations conform to international law and accepted standards for engagement in such countries, such as the Global Sullivan Principles?

  3. If the company exited the country, which would be harmed more, the regime or the population?

  4. If the company exited, would its departure materially impede the functioning of the regime, or would it be replaced by other investors that are less committed to upholding international standards?

Although the oil companies involved in Burma arrive at answers to the first three questions that justify remaining, while their critics assert otherwise, it's the last question that seems most relevant here, because the answer can be arrived at objectively by reviewing recent history. Chevron got its stake in Yadana when it acquired Unocal Corp. in 2005. That acquisition was hotly contested with China's CNOOC. The risk of US government intervention in the transaction ultimately scared off CNOOC. Given China's aggressive pursuit of global oil and gas assets and the country's other investments in Burma, it's very likely that CNOOC would be the top bidder for Yadana, were Chevron or Total to divest. That displacement could not possibly be beneficial for the Burmese people.

So what should Chevron and Total do? Burma isn't South Africa, where the majors' operations focused on refining and marketing, employing tens of thousands of locals and creating opportunities for basic education and management training. A gas field and pipeline employs many fewer people, and the companies' biggest impact is probably through the social investments they have made. Are those substantial enough to justify remaining? In many ways, divesting would be the easiest answer, especially for a non-operator like Chevron. But as a shareholder, I'm not at all sure that's the best course for either Burma or Chevron. Playing a positive role in developing the world's vital resources inevitably takes US companies to countries that don't meet our standards. Whatever shortcomings these companies may have, they are still a lot more transparent and accountable than many of the firms that would inevitably take their place. It may not represent the moral high ground, but staying and doing the good you can is at least a practical answer for a highly imperfect world.

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