Tag Archives: governance

Mozambique, Michigan, and the SEC Complaint Against Rio Tinto

Chinde_Rusting_boats

Rusting boats at the port of Chinde, where Rio Tinto proposed to barge Riversdale coal via the Zambezi River.

Yesterday, the Securities and Exchange Commission brought a complaint in New York City against Rio Tinto, charging Tom Albanese, the former CEO of Rio Tinto, and Guy Elliott, his Chief Financial Officer, with fraud. According to the complaint, Albanese and Elliott actively misled the Rio Tinto board, audit committee, auditors, and the investing public about their acquisition of the Riversdale coal business in Mozambique in 2011.

The fraud that Albanese and Elliott are accused of perpetrating looks awfully familiar to those who have followed the development of Eagle Mine and the controversy over County Road 595. Having noticed the parallel between Mozambique and Michigan back in 2013, when Tom Albanese was forced to step down, I now have to wonder whether prosecutors will take the company’s representations around the Eagle Mine into account when building their case.

In Mozambique, they told investors, coal would be transported by barge to the Indian Ocean port of Chinde. Although their technical advisors “highlighted the ‘showstopping’ risks” associated with the barging proposals before the acquisition, Albanese and Elliott blundered recklessly ahead. Then eight months later, the Mozambique government denied Rio Tinto a permit to transport the coal by barge down the Zambezi River. Suddenly, the coal business they had acquired for $3.7 billion appeared to be worth a negative $680 million. According to the SEC’s complaint, Albanese and Elliott “concealed and glossed over” the fact that they had no viable haul route for the 30 million tons per year they projected in their business plans, and misled investors as they raised $5.5 billion in US debt offerings.

In that very same period, Rio Tinto was also promoting Eagle Mine to investors and promising economic renewal in the Upper Peninsula, though they had not yet secured a transportation route — a haul route — for Eagle’s sulfide ore. In Michigan, it appears, the company took the same cavalier attitude toward planning and risk that the SEC complaint says got them into trouble in Mozambique.

Way back in 2005, John Cherry, who was then a Kennecott Minerals project manager and is now President and CEO of the Polymet project in Minnesota, characterized Eagle as a “direct ship” operation, “meaning that the rock would not be processed on site, thereby avoiding the storage of highly toxic debris left over, called tailings.” Presumably this is what Michigan DEQ’s Robert McCann had in mind in 2007, when he told The Blade that Kennecott’s permit “would require them to keep the ores underground, put them in covered rail cars, and ship them to Ontario for processing”; the Marquette Monthly told roughly the same story that year, only now there were trucks in the picture: “ore would be transported by truck and rail to a processing site in Ontario.” This seems to have been nothing more than a cover story.

Everything changed in 2008, when Rio Tinto bought the Humboldt Mill. Those permit requirements the DEQ’s McCann touted back in 2005? They were quickly abandoned. Covered rail cars come into the picture only after the ore is crushed, ground into a slurry, floated and rendered into concentrate at Humboldt Mill. A glossy 2010 company publication promoting Eagle Mine includes not a single word about how Rio Tinto and Kennecott plan to travel the 30 kilometers from mine to mill: “Happily, processing of the nickel and copper can take place in Humboldt, around 30 kilometres [sic] away, at a previously abandoned iron ore plant.” By 2011, the company had “considered more than a half dozen transportation routes” from mine to mill, according to a Marquette Mining Journal article by John Pepin published in February of that year, but they still had no viable haul route.

A good prosecutor with a rigorous and thorough discovery process would probably be able to determine whether the evasions and misrepresentations perpetuated on the public over the Eagle Mine haul route also amounted to fraud, or were part of a larger pattern of deliberately misleading statements. It’s clear Rio Tinto never came clean — and perhaps never really had a firm plan — on mine to mill transport at Eagle before it sold the works to Lundin Mining in June of 2013 and decamped. As long as regulators in Michigan continued to be more accommodating than those in Mozambique, the company seems to have been content to let the people of Marquette County fight out the haul route issue among themselves.

Three Questions for the Michigan DEQ on the Back Forty Project

Earlier this month, the Michigan Department of Environmental Quality announced its intention to permit the Back Forty Project, an open-pit gold and zinc sulfide ore mine that Aquila Resources, a Canadian company, plans to develop near the headwaters of the Menominee River. In response to the MDEQ’s request for public comment by November 3rd, I’ve submitted these three questions. I’m posting them here so that others might consider them in the run up to the public meeting with the MDEQ in Stephenson, Michigan on October 6th.

  1. In determining that the Back Forty Project application meets the requirements for approval under Part 632, did MDEQ take into account the cumulative effects of sulfide mining throughout the Lake Superior watershed? We know that the Back Forty project poses a significant risk to the Menominee River all by itself. With the mine in close proximity to the river, a flood, berm collapse, subsidence or a slide could destroy the Menominee River; to answer these serious concerns by asking the company to add a “synthetic, manmade liner under their waste/tailing rock facility,” as the DEQ has proposed, is to trivialize them. Other development that the mine will inevitably bring, including haul routes, power lines, lights, fueling stations, exhaust and machine noise, will leave a large industrial footprint and disturb the Menominee River and its environs in countless ways. At the same time, this mine will heighten the risk, in the long term, of large-scale environmental destruction posed by the resurgence of sulfide mining not just in Michigan’s Upper Peninsula, but in Minnesota and Canada as well — all around the lake and throughout the Lake Superior watershed. Has the DEQ completed or participated with neighboring state agencies and tribal authorities in a scientific study of the cumulative impacts of sulfide mining around Lake Superior? Has the DEQ issued guidance on how cumulative environmental effects should factor into its decision-making process for permitting new mines in Michigan?
  2. Has MDEQ made any determination about the human rights implications of its decision to allow the Back Forty project to go forward? Human rights are not outside the DEQ’s bailiwick, no matter how hard it may try to exempt itself. Witness Flint. In the present case, the DEQ’s oversight is inextricably bound up with the state’s obligation to protect human rights abuses by third parties. Aquila’s Back Forty project is sure to disturb, and likely to desecrate, lands traditionally belonging to the Menominee and still held sacred by them; and making provisions for archaeological recovery and preservation of mounds and other sacred sites does not adequately address the basic human rights issues involved here. The headwaters of the Menominee River are central to the tribe’s creation story, marking the place where the Menominee people originated. Their very name derives from manoomin, or wild rice, which will not survive changes in sulfate levels or degradation of overall water quality. As tribal member Guy Reiter has said, “It’s no different than if an open-pit sulfide mine was put in Bethlehem for the Christians.” Seen from this perspective, the Back Forty is not only an affront to Menominee history; it also puts the cultural survival of the Menominee people at risk. How will the DEQ factor such human rights considerations into its decision-making process?
  3. What has the DEQ done to restore trust in its authority, and reassure the Menominee and people living downstream from the Back Forty project in Michigan and Wisconsin that it will exercise appropriate care? The Flint water crisis cast a long shadow, and reinforced the perception that “politics and poverty are big factors” in DEQ decision making. “The same attitude of disregard for citizens and the environment has repeated itself in DEQ decisions across our state for well over a decade,” said Marquette attorney Michelle Halley after news of the Flint water crisis broke; controversy over the renewed Groundwater Discharge Permit issued by MDEQ at Eagle Mine and legitimate concerns about lax oversight at Eagle East help make her case. Like all government agencies, the Michigan DEQ should operate in sunlight. Already, however, troubling questions have been raised about the transparency of the Back Forty permitting process. For example, Al Gedicks, Executive Secretary of the Wisconsin Resources Protection Council, asks why the DEQ appears to be in a “rush” to grant the Back Forty permit. So as things now stand, the DEQ enjoys de jure authority in Michigan under Part 632, but it is unclear whether the DEQ still enjoys de facto authority, which could only derive from demonstrations of regulatory competence. How does MDEQ intend to quell public concern that it is compromised or incompetent, and reassure the public that it is a responsible steward?

Five Questions On Business And Society

Dow Chemical is currently soliciting questions for a Google Hangout on “Redefining the Role of Business In Society.” The Wednesday morning Hangout will be moderated by Alice Korngold, author of A Better World Inc., and feature Dow Chairman and CEO Andrew Liveris along with other “global sustainability leaders.”

I submitted five questions for the group’s consideration. I can’t say whether they’ll address any of them or whether these questions are even appropriate for this forum. This is a huge topic, and there are lots of ways to approach it. Nor do I pretend that these are the only five questions worth asking. But it strikes me that these five simple questions might help others start and structure a conversation about business’s role in society. So, after tweeting my questions and putting them up for easy reference on Google docs, I thought I’d post them here as well.

  1. Governance: Where’s the seat for “society” in the boardroom, and who sits there?
  2. Priorities: Whose role is it within the company to identify and set social priorities?
  3. Non-performance: What mechanisms should be in place to identify and address human rights and environmental grievances?
  4. Authentic social license: What mechanisms ensure all stakeholders — esp. dissenters, skeptics, opponents — are represented?
  5. Metrics: How does [the company; in this case, Dow] currently measure social performance, and factor it into overall business performance?

Sustainable Development, Derailed

train-derailment-sept-ilesOn Thursday of last week, an avalanche derailed a Quebec North Shore and Labrador Railway freight train owned by Iron Ore of Canada as it made its way north along the banks of the Moisie River.

Divers recovered the body of Enrick Gagnon, the train’s engineer,  just this morning. The train’s lead locomotive is still completely submerged in the Moisie and another is partly submerged. Each locomotive holds about 17,000 litres of diesel fuel, and a 20 kilometer slick — “a silvery layer” — has spread over surface of the Moisie. The train was not hauling ore; its freight compartments were empty for its northbound run.

The Moisie and its watershed are part of a designated aquatic reserve, so the river is technically protected from mining activity; but so far as I can tell, the 16 mile stretch that the Quebec North Shore and Labrador Railway line runs along the Moisie was built in 1954, when mining first began in the region, and more than fifty years before the Quebec government published its conservation plan.

One stated aim of that plan is to protect native species, including and perhaps especially the Atlantic salmon running in the Moisie. As nearly every report on the Moisie catastrophe notes, the pristine waters of the remote northern river are internationally renowned for salmon fishing.

For the Innu of Uashat mak Mani-utenam, whose traditional territory the Moisie crosses, the river is much more: it is, in the words of one newswire report, a thing of “inestimable cultural value.”  So development in Innu territory continues to risk the inestimable for the merely estimable: in this case iron ore, jobs, growth. The Innu, who call themselves “the true owners of the land,” say they never consented to the tradeoff, and that the mining operation in their territory violates “international law, particularly the principle of ‘free, prior and informed consent.’”

Now, with this trainwreck, the Innu have an environmental crisis on their hands; but over the past couple of decades, the Innu say, they have also witnessed a gradual and “cumulative” effect on the environment and their community due to “the intensification of industrial activities” in the Sept-Îles region.

Iron Ore of Canada has a lock on the region’s economy, and development opportunities in the Labrador Trough are, in the words of IOC’s CEO Zoe Yujnovich, “potentially unconstrained.” Rio Tinto, which owns the majority stake in IOC, recently increased annual production capacity for the region from 18 to 23 million tons of ore concentrate, and plans to open a new mine called Wabush 3 to help meet that goal.

A 2013 publication touting Rio Tinto’s “Sustainable Development” plan for the region notes that the additional revenue generated by IOC’s “wholly owned rail company” will keep pace with growth: “use of the railway is set to increase significantly in the next few years as a result of our own expansion projects and junior mining startups in the area.” In other words, more trains than ever will be traveling along the Moisie, from Labrador to Sept-Îles Junction.

Where Are the Women in Mining?

Glencore remains the only FTSE 100 company that does not have a woman on its board of directors. At the shareholder’s meeting at the start of this week, Chairman Tony Hayward promised that the company would remedy the situation by year’s end; but some big institutional investors have grown impatient, and UK business secretary Vince Cable said “it is simply not credible that one company cannot find any suitable women.”

The problem is industry-wide. A 2013 report by Amanda van Dyke (of Palisade Capital and Chair of the organization Women in Mining) and Stephney Dallmann (of PwC) found that mining companies “have the lowest number of women on boards of any listed industry group in the world.”

Maybe that doesn’t come as a great surprise to those familiar with mining, but within the industry there are companies who seem to be doing more than bluffing or hoping the issue will go away. Most of those are high profile global players. Women’s numbers decline steadily as we move down the ranks to the so-called juniors; and the likelihood that women will have a board seat or participate in a board committee also varies by territory. (South Africa leads the pack: over 21% of the committee seats of listed South African mining companies are occupied by women.)

Canada boasts the highest number of listed mining companies, and the “large mining companies in Canada are much further down the road [than smaller firms] in terms of their understanding of the importance of the role women play on boards.” The top-tier Canadian companies with high market capitalization (and the increased visibility that comes with size) have nearly 14% of board directorships held by women, but among the bottom 400 of the world’s top 500 miners, Canada has “the lowest participation on board committees by women, at 5.9%.”

The authors acknowledge that many of these companies are at early stages of development and they have only a few board seats to fill; but if they expect to grow and mature (as they do), there is no time like the present to lead or at least follow the lead of the big league players. When the same men keep winning the game of musical chairs — and when they sit next to each other (as they do) not just on one board, but on several, and their affiliations stretch back over decades — the result is likely to be not just over-familiarity but insularity, both of which are likely to impair and impede judgment. Meetings become a day at the club; the boardroom becomes an echo chamber.

As van Dyke and Dallmann note in a 2014 follow up report, it’s misleading to say, as many mining company executives do when pressed, that the small number of women directors correlates in a meaningful way with the lack of women with mining-related degrees. Only 32% of men on boards of mining companies have an engineering degree. So “there is no shortage of women in the talent pool;” according to van Dyke and Dallmann, “there is simply a perception of a lack of available female talent.”

This blinkered view of reality has real-world consequences, for shareholders and stakeholders in the communities where the miners operate. Mining companies with women on their boards see performance improvements on a number of fronts, from financial to social and environmental performance. “Sustainability” — as measured by water use, Bloomberg ESG score, UN Global Compact participation, Community Spend, and CSR or Sustainability Committee — improves across the board. For example, average total water use by mining companies “decreases steadily with an increase of women” in director roles — though it’s not entirely clear to me why that should be so — and “the amount [mining] companies spend on community projects and initiatives increases with the number of women on the board.” The authors are careful not to urge any hasty conclusions, but after surveying the data they are compelled to suggest that “the security of a company’s social licence to operate may be improved by having women on the board.”

I would go one step further: it’s difficult to countenance a mining company asking for social license to operate even as it deliberately insulates itself from social reality.

What’s Mozambique to Michigan?

Tom Albanese has stepped down from his position as CEO of Rio Tinto, after the mining giant announced a $14 billion dollar writedown. While most of those losses were connected with Alcan, the aluminum business, the company also lost $3 billion on a coal project in Mozambique. That’s by far the more interesting aspect of the story, and it’s one that deserves attention not just from investors, industry analysts and Africa watchers, but also from those (like me) with an eye on the company’s operations around Lake Superior, in Michigan’s Upper Peninsula.

Here’s how it all went down in Mozambique. A couple of years ago, Rio Tinto acquired Australian-based Riversdale Mining for $4 billion. Riversdale had a number of coal projects going in Mozambique near Tete, “the coal capital of the world.” Logistics – moving coal in significant quantities from the mines in the Moatize Basin – was a challenge. Some coal mined at Benga could move by rail, pending “final approval by government authorities.” Still, that was only a partial solution; “long term logistics,” as a Rio Tinto presentation [pdf] put it, would be required once the Zambeze and Tete East projects were in full swing.

The company proposed moving Zambeze coal by barge on the Zambezi River. Barges would travel from Tete to the port of Chinde, on the Indian Ocean. The promised solution would not only make the coal business boom in Mozambique; it would also allow for “future growth” and “provide a catalyst for further socio-economic development in [the] region.” The company sought approval for its Zambeze River project by autumn of 2011 and planned to start coal barging by 2014.

All very well, except the Mozambique authorities never approved the transport of coal on the Zambezi.

How could the Mozambique authorities refuse Rio Tinto? After all, the company’s own Environmental Impact Report showed that coal-barging on the Zambezi would have no “significant” environmental effects.

Mozambique Transport Minister Paulo Zucula saw things differently: “the impact was seen to be very negative, and there were no plans for mitigation. As proposed it is not doable,” he said. Barging would adversely affect the river’s fish and dredging would increase the likelihood of floods: “every four years we have problems with flooding and killing people. So if you’re going to dredge the river, expand the banks, we will be in trouble.”

Zucula suggested Rio Tinto move its coal by rail. He has championed the construction of a new railway line from Moatize to the port of Nacala, and helped secure a $500 million investment in the $1.5 billion project from the Dutch government and the European Union. So Zucula may not have been solely concerned with the fate of the Zambezi’s fish or the people living along its banks. But the purity of Zucula’s motives is really not at issue. The issue is that Rio Tinto seriously miscalculated and overplayed its hand in Mozambique.

A blogger in the Financial Times today sees here “a useful lesson for other mega-project investors in emerging markets.” He doesn’t say what that useful lesson is. I’m certain it’s something more than the need for prudence, and that it extends beyond emerging markets. It has to do with overconfidence – hubris, even: “Rio knew what the challenge was. It just couldn’t find an effective answer.” And yet, it forged ahead, certain that it would prevail upon the authorities in Mozambique to see things its way. That was just plain arrogant.

Sam Walsh, the new CEO of Rio Tinto, should take this $3 billion lesson in humility to heart. At the very least, he and the board of directors might ask whether the company’s failures in Mozambique are the outcome of behaviors that are in evidence elsewhere.

In Michigan’s Upper Peninsula, where the company is developing the Eagle Mine, it faces a set of challenges of the same kind if not of the same magnitude as those it faced in Mozambique. The mine is being built on a site sacred to Native Americans and will be situated in the heart of the Yellow Dog Watershed, which feeds into Lake Superior. The company has run roughshod over Native American claims and issued familiar and predictable assurances that it will be a responsible steward of the environment – whatever that means when you’re extracting sulfide ore in the middle of a fragile watershed ecosystem. As for logistics, Rio Tinto was banking on the approval and construction of County Road 595, despite local opposition and concern from environmental regulators, just as it banked on the approval of the barge plan in Mozambique.

What could possibly go wrong? Rio Tinto had big Michigan politicians on its side: Debbie Stabinow, Dan Benishek, Rick Snyder, Matt Huuki. Even the Romney campaign was for County Road 595. But the EPA along with local environmental groups objected. After much wrangling, the Michigan Department of Environmental Quality denied the wetlands fill permit for the new road just a couple of weeks ago, on January 3rd: the road did not meet the requirements of the Clean Water Act. Rio Tinto has now had to shift financial support from this $82 million project to improving and upgrading existing roads. It’s as if the company’s blunder in Mozambique found a faint but telling echo in Michigan’s Upper Peninsula.

Bank of America Shareholder Meeting – A Failure

The Bank of America Board of Directors was on the defensive yesterday. There were protestors gathered outside the annual general meeting; security was high; inside, the mood was testy. In his opening remarks, Chairman of the Board Chad Holliday flubbed an announcement about question and answer time, prompting a shareholder to interrupt the preliminaries; and when Q & A on shareholder resolutions began in earnest, CEO Brian Moynihan stuck to terse, one-sentence, boilerplate answers to most questions, until one stockholder stood up and asked for “more nuance and explanation” and “a more thoughtful response” to the owners’ questions. General applause ensued, but the dialogue did not really improve. In that respect, the meeting felt like a lost opportunity: the Board simply refused to engage.

There were six shareholder resolutions but (as the Q & A revealed) really just three big issues on shareholders’ minds: executive compensation, predatory mortgage and lending practices, and political contributions.

One shareholder seemed to sum up the feelings of many in the room when he said that “it’s a comedy” to be a Bank of America shareholder, given the gap between the stock’s performance and the compensation of its executives. Several people directly asked Brian Moynihan to forgo (or, as one shareholder put it, “deny”) his raise for the coming year. This came to a head in an exchange with one shareholder, who said that the issue really came down to where Moynihan’s “heart” is. “Do you love your neighbor as yourself? Are you going to turn down your raise?” Like a boy at his catechism, Moynihan parsed the question and said that he had been raised to love his neighbor as he loves himself (how could he say otherwise?), but when it comes to turning down his raise the answer is simply “no”; and then he repeated a few prepared phrases about how his own compensation is “aligned” with the Bank’s strategic goals. That was his gospel.

Still, shareholders urged the bank to consider the “injustice” in the world, and Bank of America’s part in it. Activist shareholder Dawn Dannenbring (whose appearance at a JP Morgan shareholder meeting I blogged about here) asked the Board to think about why they need to have heightened security at their shareholder meetings: “If you were a better corporate neighbor,” she remarked, “you wouldn’t have to be so scared.” To charges that it had “decimated” the communities where it did business, the Bank responded with a bland assertion: “the success of communities is equal to our success”; at one point Moynihan even muttered the phrase “good for America,” but it sounded as if he had never really warmed to that talking point, and his voice trailed off.

Some tried to appeal to the bank’s business sense: if Bank of America is seen “not as part of the solution but as causing the problem,” it runs a “reputational risk.” That’s putting it mildly. Others were not so restrained: “You’ve got to stop foreclosing on families,” exclaimed one shareholder; and a number of people rose during the Q & A and told their own stories about how the bank – their bank – had ruined them. Moynihan was patient and even compassionate with these share-owning customers, and told them they could talk to a B of A “teammate” on the spot, that very day, about their problems. But the crowd was repeatedly reminded that these individual cases – their own cases or the cases of family and friends – did not bear on the proposals they had assembled to vote on. This was a myopic response at best, as if behind each of these proposals there were not thousands, hundreds of thousands, millions of individual stories that need to be told, and that make up the big picture of the bank’s role in America.

While the bank is reluctant to open a dialogue on its role in society, it is aggressive in its bid for political power and social influence. And in the wake of Citizens United, the battle lines around political spending are being drawn. A proposal to prohibit all political spending from the corporate treasury – which I wrote about in a previous post — received just 4 percent of the vote, but the resolution still counts as an important first step. Another political spending proposal, requiring Bank of America to disclose all grassroots lobbying, fared much better, garnering about 30 percent of the vote (right around the 32.73 percent it gained last year).

Calls for disclosure of political spending are getting harder to ignore. And though prohibitions and other checks on spending still face an uphill battle, the resolution to stop political spending at least gave shareholders a chance to say a few words about the risks and uncertain outcomes of profligate political spending. Shareholders cited research (by Hadani and others) to support their position; but it is hard to say whether this made any impression whatsoever on the Board. If so, they weren’t going to let it show. They just seemed to want to get the whole thing over with. They had not come to deliberate, or listen or learn. They had come to defend. And that is why the 2012 Bank of America shareholders’ annual meeting should be reckoned a failure.

A Brief for Mr. Kleisterlee

Last week, Vodafone Group announced that Gerard Kleisterlee would replace outgoing Chairman of the Board Sir John Bond. This should be welcome news for shareholders. The Ontario Teacher’s Pension Plan, which led a vote against Bond at last year’s Annual General Meeting, protested that the telecommunications firm currently suffers from “significant structural and strategic weaknesses,” and complained publicly of Vodafone’s “long history of poor capital allocation and disastrous M & A.” The board, they averred, was in need of “rejuvenation” and the company in need of restructuring.

From all appearances, Mr. Kleisterlee is the man for the job.

Kleisterlee gained his reputation at Philips, where as CEO he performed a masterful and unsentimental overhaul of the ungainly conglomerate, getting Philips out of the semi-conductor, component and television business, introducing new licensing agreements, and simplifying Philips’ business operations from eight to three units. Not known as a “gung-ho dealmaker,” Kleisterlee nevertheless demonstrated an intelligent approach to M & A. He is rightly credited with saving Philips from itself and returning the company to growth. Analyst Will Draper sees him as a strong ally for Vodafone’s current CEO, Vittorio Colao, who is trying to reposition the firm around core geographies, revamp the Vodafone brand, and make headway in emerging markets.

When it comes to emerging markets, Kleisterlee will have his work cut out for him. India has been an especially troublesome spot, where Vodafone has fought a pitched battle over taxes from a 2007 acquisition, dealt with some unscrupulous regulators, and is now contending with the ugly unraveling of Vodafone Essar, a joint venture. But for Vodafone’s new chairman getting things squared away in India will be only one aspect of a much bigger emerging markets story. Eventually Kleisterlee is going to have to come to terms with other aspects of that story, and notably with Vodafone’s actions during the uprising in Egypt.

That is, I suspect, where Mr. Kleisterlee will find one of his most difficult briefs. The company’s human rights record in Egypt has come in for some strong and well-deserved criticism. (The two are not necessarily the same.) Officially, Vodafone claims to have had no choice but to comply with Egyptian authorities in shutting down its mobile network and allowing the government to send SMS messages that precipitated a violent crackdown.

Vodafone Group has protested to the authorities that the current situation regarding these messages is unacceptable. We have made clear that all messages should be transparent and clearly attributable to the originator.

The company has consistently taken refuge in the government’s “technical capability” to override and shut down their network. There was nothing they could do, they explained, without putting their own employees’ lives in danger.

But they have not yet answered some serious allegations, like those made by Hossam Bahgat of the Egyptian Initiative for Personal Rights. Bahgat claims that Vodafone “selectively severed phone access for human rights defenders, lawyers, and political activists starting on Tuesday,” January 25th, blocking SIM cards and rendering human rights workers’ phones useless when they most needed them.

Others have asked whether Vodafone did more than merely comply: were they in some way complicit? That was the tenor of the discussion on a Facebook page in the run up to a demonstration at Vodafone headquarters in London; and it continues to be the tenor of the “Vodafail” Global Boycott and Protest. There were even rumors online of secret police running the Vodafone Egypt core room in Cairo, but nothing that could be verified. Access Now rebuked the company for silently tolerating – assenting to — emergency rule in the first place: “decades of emergency law suited Vodafone when they were making billions of profit in Egypt,” reads a strident email promoting one of several online petitions. But as I noted in a previous post, it is not at all clear the people gathered in Tahrir Square would be better off now had Vodafone and other mobile providers never done business with Mubarak’s regime.

Much harder to quarrel with is Salil Tripathi at the Institute For Human Rights and Business in London. He asks, very sensibly, whether Vodafone could have done more to create transparency – to alert customers of impending shutdowns or government interference with the network – and, more importantly, whether they gave any serious thought to developing a “human rights framework” before entering into business with the Mubarak regime.

On this front, Kleisterlee has to fight more than a public relations battle. To be sure, Vodafone’s public response to events in Egypt will send a strong signal to mobile customers in Egypt or Vodafone customers around the world. (Americans rushing out to buy Verizon iPhones might pause to consider that Verizon Wireless is a joint venture with Vodafone – though I have no illusions that that will slow the stampede.) Egypt will also factor into any effort to re-brand the company, and if Mr. Kleisterlee and Mr. Colao intend to make the Vodafone brand synonymous with “mobile data and network quality,” it would make good sense to look closely and seriously at how data and networks played into events in Egypt. One message from Tahrir Square is that data doesn’t just move through networks: a network always touches and is embedded in human situations; and data alters and is altered by its situation. The quality of a network should not be measured simply in terms of signal strength; the privacy and security afforded users of the network also matters, in Egypt and elsewhere. How do these basic rights figure into Vodafone’s promise of “quality”? How is Vodafone going to respect and protect these rights?

Dodging the question won’t do. Blaming bad governance on Bond’s part only begs the question what good governance will look like under Chairman Kleisterlee. Pace Martin Sorrell, who wrote an apology for Vodafone in the London Times, there is no avoiding the “de facto editorial and political judgments” that Google, Twitter and Facebook have made in providing technologies and services to organizers in Tahrir. Denying service in compliance with the Mubarak regime also involves a political judgment, and trying to avoid what Sorrell calls “unintended consequences” is itself an act –a cowardly evasion – with social and political consequences. Limiting exposure to risk is not simply a matter of seeing no evil; and taking intelligent risks, with an eye to the future, and a nuanced understanding of how the world is changing, is the very essence of good judgment.

No business operates in a neutral zone, on a holiday from history. If Vodafone wants to compete in emerging markets, then the company has to earn and keep the trust of people in those markets, prove that they share their aspirations for a better life, and acknowledge that they have a stake in whether people living in those societies suffer or thrive. At this year’s Annual General Meeting, shareholders deserve to hear whether Vodafone is a relic of Egypt’s past, or invested in its future.

Trending Towards The Gray

I’m watching Procter & Gamble stock today, looking for some reaction on the trading floor to the announcement that Robert McDonald will succeed A. G. Lafley as CEO. The market did not exactly raise a huzzah or hurrah at the news yesterday, which ran on the front page of the Wall Street Journal and on the AP wire. P&G finished slightly down. It was a gray day.

Maybe traders and investors are waiting for today’s official announcement before reacting, but when have you known Wall Street to wait? Maybe McDonald just isn’t seen as an inspired or inspiring choice; but I refuse to believe that. After 29 years at P&G, McDonald now serves as Chief Operating Officer of the sprawling consumer products giant. He has an impressive military background (West Point, 82nd Airborne), and a degree in Engineering. He is a logistics man. In his tenure as COO, McDonald focused on making P&G’s manufacturing and transportation network more efficient. He implemented a monitoring system to track trucks and reduce empty truck miles. And he made efforts to move production to emerging markets – another push for virtuous efficiency (or cheaper labor, depending on your perspective and your politics).

These are not the actions of an empty suit. McDonald is clearly someone with a deep and hard-earned knowledge of how P&G works and the expectation is he will make a concerted effort to institute new discipline across the company. No small task, given P & G’s size, breadth and depth: the company makes everything from my Braun coffee-grinder to dish soap, Gillette razors, potato chips, AA batteries and cosmetics; even the diapers your child is soiling right now are probably made by P&G. Imagine directing all that traffic, or simply trying to bring the whole thing into focus. The company claims people around the world use its products three billion times a day. By my reckoning, that’s about 35,000 uses every second of every day.

That makes the collective shrug yesterday over McDonald’s appointment all the more puzzling. Or maybe that shrug was the intended effect. P&G certainly could have made a big splash if it wanted to, by choosing Susan Arnold over McDonald. Arnold was often mentioned as a likely successor to Lafley until she left P & G in March of 2009 (motivated, no doubt, by the fact that she’d been passed over. The succession process had been two years in the works; the writing must have been on the wall sometime in 2008). Arnold was a P&G superstar. She started out selling dish soap (a brand assistant), and gained the highest rank of any woman in P & G’s 168-year history. But wait, there’s more: she’s openly gay, according to her profile on Wikipedia. (These are the wages of success: to have one’s sexual preferences detailed on Wikipedia.) Think Carly Fiorina meets Ellen DeGeneres. Think of the cultural capital the company would have reaped: over-the-top praise from big media outlets, eager to portray themselves as socially progressive; the lashing and futile threats of boycotts from the Religious Right. At the very least, it would have been a good day at the circus.

There may be a glass ceiling at P&G, but Arnold came pretty close to shattering it. There’s no questioning her competence, and it’s likely she was passed over not because of some institutionalized sexism or homophobia, but because of the business she was in. She came up through the beauty and cosmetics line (look for institutional sexism there, if you must), a business that flourished under Lafley; but there is a suspicion that in hard times, Cover Girl and Pantene won’t do as well as some of the more essential consumer items. Some investors had begun to question whether the acquisition of Gillette had made the company unwieldy, too big to succeed. The future of the company doesn’t lie in Arnold’s bailiwick. So it might have been as simple as that. The McDonald appointment suggests a new sobriety about the marketplace, a shift in focus or a correction of the Lafley strategy. (Since Lafley will stay on as Chairman, it’s a subtle suggestion, at best.)

But doesn’t the P&G succession story also suggest something larger and more significant? Something about the mood and tone of the country right now? I’m tempted to see in McDonald’s ascent something like the start of a trend — away from the superstar CEO, and towards the nuts and bolts operations guy. Less sizzle, more logistics. A similar restraint seems to have played into the thinking behind the choice of Fritz Henderson to lead GM through its dark days and into Chapter 11. There are doubtless other examples.

It’s sometimes said that the operations-minded are too immersed in the details to see the big picture; but sobriety, details and logistics might be exactly what we’re looking for after the housing bust, the financial crisis, the Madoff affair, the private jets, all the CNBC hype and John Thain’s $1,400 wastebasket. And it may be what we’re looking for, more broadly, in leaders: think of it as a trend toward the gray, more Ike, less Dubya. George W. Bush and Donald Rumsfeld could never have conceived, let alone plan D-Day; Eisenhower would never have invaded Iraq without a postwar plan. Obama is a rock star, to be sure. But many like him for his sobriety and evenness of temperament; he is unflappable, and he likes to make careful distinctions and discuss things coolly, so much so that before the elections some right-leaning pundits were praising his “conservative” instincts. (That’s over.)

Remember when Ronald Reagan famously told us it was morning in America again? Now, it seems, we’re just happy to hear that it’s a gray day and that nothing too out of the ordinary is happening.