"We'll cut off the blood to their brains"

[Doug Henwood]

Institutional Investor - June 2000

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.

============================

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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