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February 17, 2006
IT Company Collusion with Chinese Authorities to Repress Free Expression Shorts Shareowner Value
    by Bill Baue

Boston Common Asset Management submits testimony to congressional hearings asserting that protecting shareholder value and respecting human rights are not mutually exclusive mandates.

The issue of Internet freedoms dominated headlines this week. On Tuesday, the US State Department launched a new Global Internet Freedom Task Force to focus on foreign policy considerations, such as the use of technology to restrict access to political content or track and repress dissidents. The next day, the House Subcommittee on Africa, Global Human Rights, and International Operations held hearings for US technology companies Microsoft (ticker: MSFT), Yahoo (YHOO), Google (GOOG), and Cisco (CSCO) to respond to allegations of aiding such actions in China. Representative Chris Smith (R-NJ), chair of the subcommittee, circulated draft copies of the Global Online Freedom Act of 2006 he intends to introduce on the House floor this session.

"Everything that happened in the last few days was a long time in coming--it took over six months of planning to put the three panels together and to get representatives of the US State Department to testify on the first panel," explained Dawn Wolfe, social research and advocacy analyst with Boston Common Asset Management, which has taken a leading role on this issue in the socially responsible investing (SRI) community. "We picked up on this issue early on when we started working on it with Reporters Without Borders over a year ago."

Since Boston Common spearheaded the release of a Joint Investor Statement on Freedom of Expression and the Internet in November 2005, the number of signatories has risen to 31, with combined assets of well over $22 billion.

After opening statements by Rep. Smith and Rep. Jim Leach (R-IA--chair of the co-hosting Subcommittee on Asia and the Pacific) and testimony from State Department officials, executives from all four companies testified on the second panel. Late last year, Microsoft agreed to shut down an influential Chinese blogger writing about sensitive political issues. The year before, Yahoo provided Chinese authorities identifying information on journalist Shi Tao, who was arrested and is serving six years in jail for leaking Chinese government efforts to suppress the 15th anniversary of the Tiananmen Square protests. Google recently agreed to censor content on its site in China. And Cisco, which helped upgrade China's Internet infrastructure (known as "CN2") in 2004, has been accused of adapting equipment to help Chinese officials police the Internet.

In the final panel of human rights advocates, China Information Center (CIC) Publisher Harry Wu requested that Boston Common submit written testimony to be included in the congressional record of the hearings.

"More than one Representative at the hearing--including Jim Leach--addressed the panel of executives from Yahoo, Microsoft, Google and Cisco, saying 'it must be difficult for you to have to balance the necessity to respect human rights and your mandate to protect shareholder value,'" Ms. Wolfe, who attended the hearings, told "The message was that these two issues are at odds with one another."

"The argument we are trying to insert into this debate as investors is very different--that protecting shareholder value and respecting human rights are not mutually exclusive mandates," she added. "To present the two in stark conflict with each other puts us on a dangerous path because it assumes we cannot reconcile basic tenets of capitalism with the promotion of civil liberties in repressive markets."

Colluding with Chinese authorities to repress the freedoms of the estimated 110 million Internet users in China (second only to the US) may bolster short-term profits, but only at the expense of long-term shareowner value by stifling demand in a growing marketplace. Such risk to long-term shareholder value is not isolated to the situation in China.

"Statements by the Representatives shifted from China to make connections with domestic wiretapping and eavesdropping here in the states," Ms. Wolfe said. "With telecom companies agreeing to allow surveillance, it begs the questions of whether that is legal or not, and what is freedom of expression?"

The Electronic Frontier Foundation (EFF), which proposed a Code of Conduct for Internet Companies in Authoritarian Regimes at the hearing, recently filed a class-action lawsuit against AT&T (T) alleging illegal collusion with National Security Agency (NSA) on wiretapping. Although the suit is focused on stopping the domestic surveillance, it necessarily seeks damages (as specifically provided for in the Telecommunications Act of 1996 and the Electronic Communications Privacy Act) of at least $21,000 for each victim affected. With millions of AT&T customers, potential liabilities reach into the billions, according to EFF Media Coordinator Rebecca Jeschke--which translates into a significant risk to shareholder value.

"AT& T was responding to requests that--as it turns out--were potentially illegal, and that's exactly the situation companies like Yahoo and Microsoft are finding themselves in with their operations in China," said Ms. Wolfe. "A big part of the debate is, what do companies do when they are presented with supposedly legal requests that nevertheless violate basic Constitutional rights or the Norms on freedom of expression and security and privacy--these are very complicated questions for companies."


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