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As more earnings come from authoritarian countries, managers find themselves making decisions with dire moral and reputational consequences.
Bennett VoylesJanuary 15, 2008

The founder of a company that gives away e-mail service might seem an
unlikely candidate as the U.S. Congress’ 2007 poster child for corporate
wrongdoing, but Jerry Yang seems to have this year’s contest wrapped up.

Despite a field of promising candidates (particularly in the sub-prime
mortgage sector), the Yahoo co-founder and CEO has fallen afoul of Congress once again for his company’s alleged failure to give lawmakers accurate information about Yahoo’s 2005 decision to allow the Chinese government
access to the e-mail records of a dissident journalist. Yahoo’s
cooperation earned journalist Shi Tao a sentence of 10 years in jail, and Yang a 3 ½ hour stretch under the bright lights of a public
hearing at the House Foreign Affairs Committee on November 6.

“While technologically and financially
you are giants, morally you are pygmies,”
harangued Congressman Tom Lantos, chairman
of the House Foreign Affairs Committee.

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Yahoo’s predicament highlights a growing
worry for multinationals: as more earnings
come from authoritarian countries, managers
will find themselves routinely making decisions
with dire moral and reputational consequences.

Consider the Yahoo case a warning,
urges Morton Sklar, the executive director of
the World Organization for Human Rights USA
in Washington, who represented Shi and another
jailed Chinese journalist in a civil suit against
the Internet company. Multinationals, he says,
“are obliged to adopt a more careful and objective
method for determining the legitimacy and
legality of any requests that come to them from
their host governments.” It’s not enough to
claim that the company was merely following
orders.

Although some governments and human rights
groups are trying to come up with clear rules for enterprises
doing business abroad, Sklar says, in the end the
company itself needs to come up with a clear policy about
how to handle such requests.

The concerns aren’t limited to E-mail and search
providers such as Yahoo and Google. Nortel Networks has
come under criticism for helping China strengthen the
country’s Internet firewall. Another company, U.S.-listed
China Security and Surveillance Technology, is providing
systems to China’s security apparatus. The company’s
products include video surveillance devices for Internet
cafes with a live feed to police stations, and software that
detect crowds forming in different parts of a city, with an
eye toward preempting protests.

In the case of Yahoo, some in Congress are trying
to help clarify matters with a proposal that would prohibit
Internet companies from cooperating with governments
when those acts would result in a major human rights
abuse. Most major Internet companies oppose the Global
Internet Online Freedom Act, which failed in Congress
the first time it was introduced in 2006.

Of course, politicians are hardly unified on the
question of corporate ethics. In the same month that
Congress gave Yang his very public drubbing, it also carried
on an extended debate regarding whether to grant
legal immunity for those telecom companies that provided
access to millions of Americans’ phone records and
communications to the U.S. National Security Agency in
the years since Sept. 11th.