Well, here is confirmation that Hillary Clinton's State Department was briefed on Google's delivery of an ultimatum to China over censorship.

The text of the statement:

Statement on Google Operations in China

Hillary Rodham Clinton

Secretary of State Washington, DC

January 12, 2010

We have been briefed by Google on these allegations, which raise very serious concerns and questions. We look to the Chinese government for an explanation. The ability to operate with confidence in cyberspace is critical in a modern society and economy. I will be giving an address next week on the centrality of internet freedom in the 21st century, and we will have further comment on this matter as the facts become clear.

There is no indication as to whether they were briefed before the move or subsequently, but for reasons given in my earlier post I think the State Department knew perfectly well this move was coming. The allegations against China that the statement refers to are unlikely to be new to any degree, and certainly would have been known at the time of Clinton's meeting with Eric Schmidt and other CEOs last week.

Such meetings I am sure happen regularly with various industry heads. My point is simply that this move by Google has to be seen as a private firm coordinating its foreign policy with that of US national foreign policy. Not a new idea (think oil companies for starters) but interesting in an era of radical transparency, corporate responsibility and "Do no evil". It's also intriguing here because the move is not - as far as I can see - the kind of cynical, manipulative coordination between private and public foreign policies that we saw in advance of the Iraq war (or again, earlier oil interests), but a development that is at least hooked on a genuine issue of human rights (privacy, speech).

For those suggesting this is simply Google scuppering other tech companies in China because its own position is weak, I think it highly unlikely. If my main argument is correct, this move either arose out of or would have at least been mooted at the meeting of industry leaders with Clinton last week. They all face the same problems in China. Perhaps it was agreed that Google.cn would be sacrified as shot across China's bow precisely because it had the weakest commerical position of those present. If alternatively Microsoft had taken this position, what are you holding in reserve as a threat? Google.cn?

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In a timely follow up to my post yesterday on whether companies need a foreign policy, Google has effectively delivered an ultimatum to China.

The ultimatum essentially says "let us provide uncensored Google in China or we will shut Google.cn". Naturally, no one expects China to accede to Google's wishes.

The background an a good analysis are provided by Imagethief here.

Imagethief does not mention the meeting between Internet business leaders and Hillary Clinton last week, and I cannot help but feel that the timing of this announcement is linked to that meeting even if there are broader events leading up to this. Eric Schmidt is simply too close to the Obama administration to do this on the fly. Certainly to China it will look like it is, and if there is one thing that was acknowledged in that meeting it is that any stand US companies take in relation to human rights in China will be viewed by China as a proxy move by the US.

While Imagethief notes and the Wall Street Journal implies that Google's eventual withdrawal from China on human rights grounds makes it really difficult for Microsoft to remain, I would be very surprised if Microsoft, the State Department and others did not already know of the move before Google dropped today's bombshell.

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The US Federal Deposit Insurance Corporation that insures US bank deposits is considering billing banks more if they incentivize higher risks.

The FDIC maintains a fund to pay out in the event that depositors lose money frrom the failure of a bank. All insured banks pay into the fund. Banks that according to regulatory assessments incentivize staff to take higher risks are more likely to have such risks materialize. So, the FDIC argues, why not get them to pay higher contributions into the insurance fund. Sounds logical to me.

But lets round this out. We could use a basket of indicators to determine contribution levels, including not just pay plan riskiness but also lobbying spend which is highly correlated with risky lending behaviour.

And rather than just use this for assessing contributions to the FDIC - which are not enormous in the great scheme of things - why not tie bank capital requirements to these factors too?

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The International Monetary Fund is not known for random assaults on the financial establishment.

This makes the results of a new IMF study - A Fistfull of Dollars: Lobbying and the Financial Crisis -  all the more compelling. Large US banks that spend heavily on lobbying are more likely to engage in high-risk lending, and their shares perform less well. The UK's Guardian newspaper notes that finance sector lobbying outstripped all other sectors.

It is 8 days until the Financial Crisis Inquiry Commission begin to take testimony from top bankers. Their lobbying activities should provide one of the core, and still current, seams of questioning.

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In 9 days time the US Financial Crisis Inquiry Commission begins hearing what senior bankers have to say about the causes of the crisis.

I will be keeping a close eye on the Commission’s work and posting background and analysis here on the APEsphere blog. Let me explain why.

The FCIC in a nutshell

Phil Angelides (pictured above), the man appointed to chair the commission, last September defined the FCIC’s mission as being “to conduct a full and fair investigation in the best interests of the nation—pursuing the truth, uncovering the facts, and providing an unbiased, historical accounting of what brought our financial system and our economy to its knees.”

The Commission’s 10 members — six chosen by Democrats, 4 by Republicans – have until December to report back to Congress. They have the power to subpoena witnesses, and to refer individuals for criminal investigation and prosecution.

Who cares?

The Commission is investigating the worst financial crisis since the Great Depression. The Global Financial Crisis (GFC) has produced a longer term Global Economic Crisis that has impacted the everyday lives of real people around the world to an extraordinarily severe degree:

• it has increased the number of people around the world in chronic hunger and poverty by over 100 million, to 1.02 billion;
• widespread conflict and state fragility is being anticipated and has already begun to be realised;
• between 200,000 and 400,000 more babies could die each year between now and 2015 if the crisis persists;
• the crisis has undermined the will to make progress on combating climate change, thus contributing to the ecological, social and political risks associated with that phenomenon. Earlier predictions that the recession would reduce emissions have proved ill-founded;
• an increase in global unemployment by between 29 million and 59 million people;
• one in eight US mortgage borrowers is behind on mortgage payments or facing foreclosure at the end of the second quarter 2009;
• pensioners relying on developed country stock market returns for their retirement incomes have seen their savings fall by 45%. The links between the crisis and retirement incomes are explained here.

No wonder countries are marking an upward trend in stress-related mental illness and crime.

What could this Commission achieve?

We want to ensure that this crisis cannot be repeated. A thorough public investigation of the causes can help channel anger into the political will to undertake effective regulatory reform, including the dismantling of powerful institutions known to be “too big to fail”. While regulatory reform is already underway in Washington and elsewhere, further and more profound reform is a potential outcome of this Commission’s work.

The committee set up in 1934 to investigate the causes of the 1929 crash and the Great Depression that followed it signals what is possible. Once Ferdinand Pecora became the committee’s lead investigator and began cross-examining Wall Street’s leaders the ground was laid for reforms that included the establishment of the Securities and Exchange Commission and the Glass-Steagall Act that separated staid commercial banking from risk-fuelled investment banking – reforms that kept Wall Street out of systemic trouble for forty years.

But the FCIC could achieve much more than this, and needs to do so.

When South Africa emerged from apartheid, a Truth and Reconciliation Commission was established to consign to history the egregious, state-supported human rights violations that were committed against a large section of its people.

In 1995, after decades of the systematic abuse of economic, social and political rights known as apartheid, the South African government set up a Truth and Reconciliation Commission to give ordinary people an opportunity to air their grievances against a system that institutionalized racial segregation and discrimination in all aspects of life.

According to the then Minister of Justice Dullah Omar, "... a commission is a necessary exercise to enable South Africans to come to terms with their past on a morally accepted basis and to advance the cause of reconciliation."

The TRC was a forum in which anyone who felt that he or she was a victim of the system could be heard. Those on both sides who had done wrong could also give testimony and request amnesty.
Now, political establishments around the world have been shown to have placed the interests of a powerful financial minority above those of the majority.

Dead babies will never learn to speak, and how do you give voice to the 100 million starving? But what the FCIC can do is provide public, open and free discussion of the causes of the crisis, confront those responsible with those they have impacted, raise the question of prosecution and possible amnesty rather than assume as now a cosy settlement between corporations and regulators.

How else do governments and financial institutions expect the results of egregious risk taking at great cost to communities and individuals to be put behind us? How else will they lay to rest the cynicism, mistrust of institutions and raw anger that that behaviour has garnered?
 

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So after a week-long brouhaha Apple Inc has decided to permit the release of a new iPhone application called iSinglePayer.

The application enables users to see which US legislators have received political contributions from which limb of the anti-healthcare-reform lobby, and then to phone up the representative at the touch of a button. The application's data is supplied by the Center for Responsive Politics.

The link between industry money and political process has never been more transparent.

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Rachel Maddow looks at the unconstitutional nature of the Defund ACORN Act and speculates which other corporations risk being defunded on the same basis as ACORN.

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It is certainly an ambitious exercise, looking at estimated carbon emissions, company environmental policies and reputation perceptions.

Newsweek defends its methodology on the customary point of criticism: how can you compare a utility, say, with a bank? They point out that over 50% of the score relates to the strength of green policies (which anyone can implement) and reputation, all of which evens out the score somewhat.

I would add that there is no problem comparing high emitting industries with low emitting industries and finding that there is a cluster of high emitters near the bottom of the ranking. That is how it should be. Dirty industries should appear as they are. This table is not a ranking of overall social utility but of environmental credentials. If a cluster of oil extraction companies appeared in the top 100 it would be more than suspect; it would be incredible.

A particular concern I had was whether indirect impacts were adequately taken into account. Financial services have small direct footprints, but are the ultimate dirty industry in that they choose to finance all the others. The analysis of green policies brings this factor into the equation but a lack of transparency about the carbon impact of their loan and investment portfolios reduces the quality of analysis. For me this is a more worrying weak spot than the ranking's validity in comparing companies across different sectors.

One last observation: it is great to see that Newsweek used the extensive experience of two firms whose founders I have had the pleasure to meet: Peter Kinder's KLD Analytics and Paul Scott's CorporateRegister.com. Great to see such high caliber teams involved in producing the detail of something this high profile. Well done both.

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A Newsweek article argues the new Financial Crisis Inquiry Commission should play the role I was advocating for a truth and reconciliation commission to bring daylight and justice to the events leading to the financial crisis.

Michael Hirsh argues:

we don't necessarily need a parade of Wall Streeters headed to the Big House. What we do need, however, is a parade of witnesses who will provide what's been missing so far in this crisis—a prominent outlet for public outrage. In the last nine months, the Obama administration and the grandees in Congress have been designing solutions without much input from the outside, often using experts from Wall Street (especially "Government Sachs"). It's pretty much been a closed system.

Like I said, we need some public, inclusive, truth and reconciliation.

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Having spent a few years as a compliance professional in the financial sector, I was intrigued to read about the detail of the Pfizer settlement.

The drug company Pfizer, you'll recall, has just settled with the US Department of Justice for a total financial penalty of $2.3 billion - the largest ever. The allegations against Pfizer concerned illegal marketing of painkiller Bextra and several other drugs.

What did not come through in the original reports was that in one part of the settlement, the inspector general  of the US Department of Health and Human Services  (HHS) required Pfizer to change the reporting line of the company's compliance department from the General Counsel to the Chief Executive. 

In-house compliance professionals are often in a bit of a bind. They are supposed to advise the business on how it needs to conduct itself if it is to remain within the letter of the regulations. Their reporting line, however, is often to someone with a strong personal interest in the short-term financial success of the business development to which the advice relates. Although compliance departments inevitably attract the label of "business prevention", their reporting lines (and remuneration and retention prospects) in fact incentivise them to bend over backward to accommodate the concerns of their superior. So much for independence.

In Pfizer's case compliance reported to the general counsel. As Lewis Morris, general counsel for the inspector-general's office put it:

"The lawyers tell you whether you can do something, and compliance tells you whether you should ... We think upper management should hear both arguments."

If that is what the lawyers are there to do, then they will be rewarded on the basis of their overall contribution to business development. Compliance reporting into that setup risk ending up singing the same tune, or leaving.

I predict regulators will become more prescriptive about the precise reporting lines of compliance professionals. I am not sure, though, that instituting a reporting line to the chief executive is the most effective course though. Although the CEO has a group-wide interest and won't want the actions of a particular division to threaten the overall reputation of the group, the CEO is still guided by short-term financial incentives. A better solution might be a reporting line into the audit committee of the board, which should be majority comprised of independent non-executives.

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