The new financial activists
by Deepak Gopinath
In December masses of protesters took to the streets of Seattle, decrying the depredations of globalization. They snarled traffic, smashed a Starbucks coffee shop and spray-painted buildings as they denounced the World Trade Organization. A few months later thousands converged, full of sound bites and fury, for the spring meetings of the International Monetary Fund and the World Bank in Washington, D.C.
Now this unlikely coalition of environmental and labor activists is taking its fight from the streets to the boardrooms. With one eye on following the money and the other on mobilizing supporters, these activists are targeting prominent financial institutions that, they charge, are damaging the environment, trampling human rights and further impoverishing the poor.
"We'll squeeze the carotid artery of financial institutions and cut off the blood to their brains," vows Kevin Danaher, a co-founder of San Francisco-based Global Exchange who helped organize the Seattle protests (he was arrested on the first day). Now he is trying to dissuade investors from buying World Bank bonds. "It is a strategy we learned from the antiapartheid movement."
Progressing from multilaterals like the World Bank, the IMF and the WTO to the major financial intermediaries of the private sector is a logical move to this new breed of financial activists. After all, private capital now funds many developing-world projects that were once the exclusive domain of multilateral development banks like the World Bank.
Major financial institutions are ready-made targets. They're big, they're global, and they have very deep pockets. Boasting powerful brand names that they don't want sullied, they can be quite sensitive to pressure. These financial behemoths make more accessible objects of scorn than vague concepts like "globalization." It can be difficult for activists to mobilize supporters against such elusive ideas, harder yet to rally people against the many companies that build dams or cut through rain forests. But it is not so tricky to unite them against a handful of financial giants that make these activities possible.
Among the targets are Morgan Stanley Dean Witter (activists are calling on consumers to cut up their Discover cards) and Citigroup. Broadly, the activists want the banks to develop environmental and social guidelines governing their operations and the types of investments they make. Behind the campaigns is a host of improbable alliances that join environmental groups, broad-based direct-action groups, human rights organizations and even, on a few occasions, labor unions and conservative think tanks. There aren't many causes that unite Students for a Free Tibet and the right-wing William J. Casey Institute, but opposition to the Goldman, Sachs & Co.-led initial public offering of PetroChina Co., a subsidiary of China's state-owned oil company, did just that.
"Nongovernment organizations are becoming aware of the influential role private banks play in the issues they care about," says Michelle Chan-Fishel, coordinator of the Green Investment Program at Friends of the Earth, a Washington, D.C.-based environmental organization. "It's increasingly clear that the driver of development is no longer the World Bank."
Wall Street executives might be tempted to dismiss these activists as loopy tree-huggers, but they've scored a few victories in the past year, despite modest budgets. In 1997 the Netherlands branch of FOE launched a letter- and postcard-writing campaign against ABN Amro Bank to protest its lending to Freeport-McMoRan Copper & Gold, whose Indonesian mining operation has been criticized by human rights and environmental groups. In December 1998 ABN Amro took the unprecedented step of asking Freeport-McMoRan to allow an independent environmental and social audit of its Indonesian mine. ABN Amro also announced that it would adopt environmental and social guidelines for mining projects it finances.
This spring a coalition of more than 200 mainstream and fringe organizations, including FOE, the AFL-CIO, the Casey Institute, the Center for Religious Freedom and a number of pro-Tibetan-independence groups, conducted a heated publicity campaign against the PetroChina IPO. After lobbying everyone from U.S. congressmen to pension fund managers, the deal's opponents enthusiastically declared victory. The offering raised less than was expected; many pension funds steered clear of the stock. Goldman Sachs officials maintain that the IPO was a success but concede that they'd hoped the issue would raise up to $5 billion, instead of the $2.89 billion it did pull in. Since the April offering, shares have barely budged from their initial price.
"PetroChina was a fusion of human rights and shareholder activism," says William Patterson, head of investment at the AFL-CIO, which spearheaded much of the protest activity. "I think the NGOs played an important role here. There was a sense coming out of Seattle that changed the way the world looked at emerging markets."
Wall Street's financial institutions have seen their share of activism over the years - mostly from shareholders trying to change corporate governance rules or to urge divestiture from South Africa in the 1980s. What makes this new activism alarming is that it potentially cuts to the heart of the way financial markets operate,by attempting to curtail the freedom of firms to do what they do best: scour the planet for investments with the highest returns.
Though loathe to talk about protesters for the record - who wants to invite pickets? - executives at financial houses do not necessarily disagree with the activists' concerns about human rights and the environment. But they object to the methods used and worry about being pushed to incorporate environmental and social criteria into investment decisions, either unofficially through dialogue with activists or, more ominously, through government regulation. They think that could tie up the unfettered capital markets that have served them (and, they would argue, many developing countries) well over the past decade or so of global market liberalization.
Echoing the Clinton administration, Goldman Sachs officials argue in favor of constructive engagement with Beijing. They insist that deals like PetroChina help to bring China into the global community of nations, facilitating its transition to a democratic, capitalist system. At root they view the protestors' goals as isolationist and protectionist. "For special interests to pursue their agenda through capital markets is inherently dangerous," says one Goldman executive. "It will result in capital markets that are less deep and less liquid."
Goldman can view the PetroChina deal as a success, if only because it got done at all. The protest came as Congress furiously debated whether to confer permanent normal trading relations status on China. For activists, however, PetroChina has become a rallying point, and they have reaped a bounty of publicity for their cause.
"PetroChina is the biggest thing since South Africa," says FOE's Chan-Fishel, who filed a brief with the Securities and Exchange Commission arguing that PetroChina didn't disclose required information regarding nonquantifiable business risks and that any deal should therefore be delayed. Although the SEC didn't buy the argument, "it was the first time a public- interest coalition so effectively campaigned on a single issue," Chan-Fishel says. "It also marked one of the few times policymakers were concerned about the public policy implications of what Wall Street was doing."
Of all the non-labor-affiliated activist organizations that have appeared on the scene, three small ones based in San Francisco - Global Exchange, International Rivers Network and Rainforest Action Network - have emerged as the leaders in the new financial campaigns. Street-savvy and well organized, these groups helped coordinate activities in Seattle and Washington, D.C. At various junctures, they provided training in direct-action techniques, mobilized other activists and performed street theater.
With an annual budget of $2 million raised through foundation grants, membership fees and individual donations, 15-year-old RAN leads the rain forest conservation movement by mobilizing Americans who buy forest products and helps to finance activists in tropical countries. IRN, which has also been around for 15 years, works to protect rivers worldwide, using a budget of $1.5 million to lobby against big dams and other large-scale river projects. And Global Exchange, which Danaher helped start in 1988, is a human rights and educational nonprofit with a $4 million annual budget. (Danaher, who has a Ph.D. in sociology and is the author of books on globalization and U.S.-South African relations, is quick to point out that he makes just $31,000 a year.)
Of the three, RAN is masterminding the most ambitious and sweeping campaign -against Citigroup. Leading the effort is Erick Brownstein, 30, a graduate of Duke University who joined RAN in 1998. He says he became radicalized in his early 20s while traveling through Asia and India. "I saw poverty for the first time," he says.
Last year RAN claimed victory in a two-year campaign against Home Depot, the U.S. home supply and building materials retail giant. After RAN organized demonstrations at Home Depot stores, hung banners outside the company's headquarters and waged letter-writing and full-page ad campaigns in newspapers like The New York Times, Home Depot agreed to stop selling products made from old-growth wood. The homebuilding industry at large followed suit, saving 7.5 million acres of coastal forest in British Columbia alone, RAN says. Brownstein and three others locked themselves to shelving inside a Home Depot store using Kryptonite bicycle locks around their necks, in one of the first direct actions against the company.
"After a victory like Home Depot, we started to look more broadly at the movement to question corporate globalism," says Brownstein. "We decided to go after the biggest company in the financial industry."
Brownstein did some research and concluded, he says, that Citigroup was involved in "every nasty project ever." He cites as examples Salomon Smith Barney's underwriting of collaterized notes for Pacific Lumber Co., and Citigroup's role as financial adviser to the giant Chad-Cameroon oil pipeline project.
Brownstein aims to build a broad coalition of environmental, human rights, labor, student and community reinvestment advocacy activists that will force Citigroup to become environmentally and socially responsible. So far activities have been disparate and grassroots: Campaign workers have distributed thousands of anti-Citi stickers and fact sheets to protesters in Washington, D.C., and staged guerrilla theater outside Citibank branches in San Francisco. Wired magazine donated to the campaign half a page in its June issue for an ad that asks, "It's10:00 p.m. Do you know where your money is?" and shows photos of the environmental and social destruction allegedly caused by Citigroup lending.
Now Brownstein plans to intensify the fight with other tactics - including a boycott of Citibank credit cards - designed to hurt Citigroup's image. "We saw vulnerability in [its] desire to be the best-known consumer bank in the world," he says. Brownstein unveiled his campaign in a speech at the Citigroup shareholder meeting in April. The next day he, three other RAN members and John Sellers, executive director of the Ruckus Society, which trains activists in civil disobedience, were ushered into Citigroup headquarters. They met with a high-level contingent - Joan Guggenheimer, Citigroup's general counsel; Pamela Flaherty, senior vice president of global communications; and Iris Gold, vice president of environmental affairs at Salomon Smith Barney.
Brownstein described his plans for a forum in early July involving key labor and environmental NGOs - a forum that would produce a proposal directed at Citigroup. He invited representatives of the financial conglomerate to participate and asked them to help fund the event (follow the money indeed). Participants would outline their concerns and help ensure that its "social and environmental concerns are aligned with economic objectives." The message to the three Citigroup executives, Brownstein says, was "you can either be a laggard or a leader."
Citigroup is reluctant to discuss the matter. "We strive to keep open lines of communication with a number of organizations on relevant social and environmental issues and look to find common grounds," a Citi spokeswoman told Institutional Investor. Early last month SSB's Gold sent Brownstein a letter rejecting the offer to participate in the forum. Now, says Brownstein, "we go full steam ahead with our campaign."
Brownstein hopes to get a lot of mileage out of his forum. "RAN's strategy is to make this big enough so that other activists get involved," Brownstein says. "Citigroup offers the possibility of a big, splashy, organized campaign. Because Citigroup is global, it gives everyone a chance to participate."
As of the middle of last month, representatives of two dozen activist groups had agreed to attend the forum, including Global Exchange, the Indigenous Environmental Network, Jubilee 2000 (South Africa), the National Wildlife Foundation and Oil Watch.
Like Brownstein, IRN's Doris Shen wants to attack a financial services company by boycotting one of its best-known consumer brands - in this case, MSDW and its Discover card. IRN targeted MSDW because it underwrote bonds for the state-owned China Development Bank, one of the main funders of the Three Gorges Dam on the Yangtze River. The dam, which will be the world's largest, is expected to cost $24.5 billion; its 600-kilometer-long reservoir will displace more than 1 million people. Both the World Bank and the U.S. Export-Import Bank refrained from financing the project because of concerns about its economic viability and environmental impact. The Beijing government then turned to the private sector. However, an MSDW spokeswoman says, "Morgan Stanley has not been directly involved in financing the Three Gorges Dam project, and the company has no current plans to participate directly in any Three Gorges financing."
MSDW is hardly alone in underwriting bonds for the China Development Bank. Goldman, Credit Suisse First Boston, Merrill Lynch & Co. and Citigroup also underwrote the bonds. Shen persuaded Domini Social Investments to file a shareholder resolution with Merrill, and another socially responsible fund, Trillium Asset Management Corp., to file one with Citigroup. In both cases the funds asked the financial institutions to review the environmental and social impacts of their business activities. Both resolutions were pulled after Merrill and Citigroup agreed to enter into a dialogue with Domini and Trillium (as well as IRN and other environmental groups). IRN is planning to work with social investment groups to file shareholder actions against Goldman and Credit Suisse next year. "There's not much, as shareholders, that we can do to affect China's development policies," says Adam Kanzer, the Domini legal counsel whom Shen lobbied. "But we can ask Merrill to consider if it wants to lend its name to [the Three GorgesDam]. There are reputation issues involved, and Merrill wants to be viewed as a good corporate citizen."
Indeed. Says a Merrill spokesman: "Merrill Lynch is eager to work withreponsible organizations towards issues of mutual benefit. Responsible citizenship is one of our firm's guiding principles. We are aware that assessing environmental risks . . . is an important part of our due diligence." On the subject of Three Gorges, the Merrill spokesman adds that "Merrill Lynch obtained assurances that none of that money [raised by the China Development Bank bonds] will be used for the Three Gorges Dam."
Perhaps the most quixotic campaign is being waged by the 49-year-old Danaher, a veteran of the South Africa divestment movement and a leader in the fight against Nike's use of sweatshop labor. His mission is to influence institutional investors to shun the World Bank's triple-A-rated bonds. "If you can create the perception that its triple-A rating will go south, that's all you need," he says.
Danaher first floated the idea of a World Bank bond boycott back in 1995. The boycott was endorsed last September by the South African chapter of debt-relief group Jubilee 2000 and the Haitian Advocacy Platform for an Alternative Development, a national advocacy coalition known by its French acronym, Papda. But Danaher's idea got a second life after the Seattle protests.
He launched his first salvo against the World Bank last April with an early morning visit to president James Wolfensohn's Washington, D.C., home. There, two dozen activists, many of them from poor countries, joined him in declaring a boycott of the Bank's bonds. Danaher is working through other groups, including student organizations like Starc. To date, only the City of Berkeley, California; the San Diego local of the Communications Workers of America; and five institutional investors, including Trillium, have agreed not to buy the bonds.
Supporting the World Bank bond boycott are RAN and some three dozen activist groups, think tanks and policy institutions from ten countries; they include the U.S.'s Center for Economic Justice and Fifty Years is Enough Network, South Africa's Campaign Against Neoliberalism and India's World Bank Accountability Project. On April 10 boycott supporters began to flood the fax machines of Citi co-chairman and former Treasury secretary Robert Rubin to urge the bank to stop buying or underwriting World Bank bonds.
Though 80 percent of the Bank's operations are funded by the $20 billion or so in debt it issues annually, neither the rating agencies - nor most activists - believe that the campaign will damage the Bank financially. "It is not something the markets take seriously," says Gary Perlin, the Bank's chief financial officer. "The rating agencies say they won't alter their view." He notes that if successful, the boycott would actually hurt the poor by raising the World Bank's cost of funds, which would be passed on to poor countries as higher borrowing costs.
Danaher is committed to a long struggle. "If it takes five years or 20 years, we don't care. We'll just dog them," he says. He dismisses Perlin's argument that the boycott will only hurt the poor. "It's based on the false assumption that the people who get the money are the poor. They don't; it is the third-world elites. It is the poor who have to pay it back," he says.
It's a big leap from cutting up one's credit card to preventing banks from lending to distant foreign governments for controversial projects, says Andrew King, an assistant professor of management at New York University's Stern School of Business. "It is very hard to communicate to people about highly indirect and long-distance effects," King says. So what might these new financial activists be able to achieve? "They may get some visibility, some money and some attention," he says.
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Neil Watkins <watkinsn at cepr.net> World Bank Bonds Boycott campaign Center for Economic Justice 1830 Connecticut Ave., NW, Washington, DC 20009 phone: (202) 299-0020 fax: (202) 299-0021 web: www.worldbankboycott.org
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