Rejecting bad company

Some shareholders are forcing firms to weigh the human rights consequences of their business practices

Esteban Reimer, a union leader at the Mercedes-Benz plant in Argentina, had just put his daughter to bed when commandos banged on the door. After ransacking the apartment, they dragged Mr. Reimer away. That night, Jan. 5, 1977, was the last time his wife ever saw him.

He disappeared into the gulag of 340 secret detention centers, where Argentina's worst human-rights abuses were committed. Twenty years after the fall of the military junta, Reimer's wife, María Luján, like many others, is still seeking answers.

But recently, they found an unexpected ally in their bid to uncover the truth: German shareholder activists who forced DaimlerChrysler, owner of Mercedes-Benz, to begin investigating whether plant managers had collaborated with the military in the disappearance of Reimer and 13 other workers.

Argentines are deeply divided over how to confront the legacy of the military junta that ruled during the country's seven-year "dirty war." Many would like to forget those dark times when 9,000 people disappeared. But others, especially those desperate to piece together the last days of family and friends, want a full account.

Amnesty legislation has left all but a few dirty war criminals beyond the reach of the law. But now this new investigation opens another avenue to find answers.

Pressure has intensified in recent years for corporate boards to weigh the human rights consequences of their business practices. Activists have put such titans as Nike and Wal-Mart in the spotlight for using sweatshop labor, while Unocal is currently being sued in US courts by 13 Burmese villagers, who charge that the firm knew about the Burmese military's use of forced labor on a $1.2 billion pipeline project.

But the DaimlerChrysler case appears to take these efforts one step further, targeting not just bad labor practices but possible corporate collaboration with a repressive government. DaimlerChrysler is the first firm to open a public investigation into what role, if any, it played in disappearances that occurred at its factory during the dirty war.

By taking aim at human rights abuses and poor treatment of workers, shareholder activists argue they are making a business case, not just a moral case. Companies, they say, could be exposed to serious liabilities in the future for their foreign activities if they do not comply with international standards of corporate conduct, even when those rules do not apply locally.

Holger Rothbauer, a spokesman for the shareholder activists, says the decision to investigate in the Argentine case marks a changing attitude in corporate management. "It shows a shift in approaching critical issues by actively disclosing a part of one's own history instead of hiding and disputing," he says.

Amnesty International welcomed the decision by DaimlerChrysler, saying that "[States] can be - and often have been - encouraged, supported, aided, and assisted by other actors including companies, whose actions or inaction can improve or deteriorate the human rights situation in a country."

DaimlerChrysler chairman Jürgen Schrempp agreed at the company's annual meeting last October to begin an independent investigation into the disappearances that took place at the Mercedes-Benz factory in Argentina. Mr. Schrempp, on the advice of Amnesty International, appointed Christian Tomuschat, a respected German law professor who headed the United Nations Truth Commission in Guatemala, to look into the allegations against the company.

Mr. Tomuschat arrived in Buenos Aires in March to begin the investigation in earnest. His report to DaimlerChrysler is due next October.

Families of the disappeared workers claim they have testimony from colleagues describing the way company managers passed the names and addresses of workers to the police, and company documents linking Mercedes-Benz to a government strategy of ridding the factory of "subversives."

The company strenuously denies the charges, alleging that they are "part of a campaign against us," a spokeswoman said. "We don't feel that there was any wrongdoing by people from our company.... We are very sure that our people acted correctly."

Shareholder activists are wielding increasing influence over corporate decisions. Regarding the antisweatshop campaign in the US, David Vogel of the Haas School of Business at University of California, Berkeley, says: "There's no question it's had a big impact on company practices." He points to Nike's creation of an elaborate system to monitor working conditions at the 800 factories around the world that make its products.

In another example of companies being obliged to take responsibility for human rights abuses in the past, in 1999, the German government and German firms, including DaimlerChrysler, agreed to pay $5.2 billion in compensation to survivors of Nazi-era slave labor programs.

The socially responsible investment movement got its start in the 1970s among religious organizations that objected to having their endowments invested in companies doing business in South Africa under apartheid.

"If you look at the charter of any corporation in the United States," says the Rev. Séamus Finn of the Interfaith Center on Corporate Responsibility, "the right was always there for a shareholder to bring a resolution." What's new, he says, is that socially responsible investors are "expanding the universe that corporations are concerned about: not just the financial bottom line, but the social bottom line, the human bottom line, the environmental bottom line."

The movement has grown far beyond its religious roots. Today, according to the Social Investment Forum, an industry trade group, $2.3 trillion is invested in the US under guidelines that take into account the human and environmental consequences of company policies.

Mr. Rothbauer, the spokesman for the DaimlerChrysler shareholder activists, says of the DaimlerChrysler case: "At first, no one took us seriously." However, over time, even traditional investors like banks and funds began to see virtues in the group's proposals to investigate allegations of human rights abuses, end landmine production, and develop a more fuel-efficient car, called the Smart.

Socially responsible investing, he says, "is growing, since more and more investors don't want to make profits out of 'bad and unsound products' or out of unethical behavior."