Rule Of Law Or Law Of Rulers?

Is the business community really ready for the ethical and legal complexities that come with globalization? Jeffrey Sonnenfeld weighs in.

Is the business community really ready for the ethical and legal complexities that come with globalization? Jeffrey Sonnenfeld weighs in.“We do business only where there is rule of law, not the law of rulers,” business leaders often tell me. At a time when law and lawlessness can be easily confused, that may be easier said than done.

A good example is the U.S. State Department’s warning Americans to “exercise increased caution” in traveling to China, citing “arbitrary enforcement of local laws” that could prevent visiting U.S. citizens from returning home. Even as we approach $700 billion in U.S.-China trade this year, 13 Canadian citizens have been detained since their homeland’s high-profile arrest of Meng Wanzhou, the daughter of Huawei’s founder and its CFO. The detentions are reportedly retaliation for the apprehension of Wanzhou, who has been charged with wire fraud and violating U.S. sanctions.

Companies and countries—the EU’s Vodaphone, Britain’s BT and the Japanese government—have since been reevaluating partnerships with and canceling purchases from the telecom giant. The U.S. is reportedly thwarting Huawei’s efforts to build next-gen wireless communications worldwide.

But sometimes, it appears, the price of sticking to one’s principles is too dear. The Saudi government’s brutal murder of Washington Post columnist Jamal Khashoggi initially prompted a similar response. JPMorgan’s Jamie Dimon, Blackstone’s Steve Schwarzman and Uber’s Dara Khosrowshahi courageously pulled out of Saudi’s economic forum, known as “Davos in the Desert,” in October. Journalist Andrew Ross Sorkin withdrew as a moderator, and his employers, The New York Times and CNBC, followed suit, triggering a stampede. The heads of the World Bank and the IMF initially balked, then joined the exodus.

BlackRock CEO Larry Fink followed suit with a marked lack of enthusiasm, saying, “…we do business with families, the kingdom and the government. We have been there 15 years. We don’t know who was responsible for the murder… our future business with them is something I am not ashamed of.” Subsequently, several European nations, including Germany, Finland and Demark, announced they will halt arms sales to Saudi Arabia against the backdrop of a devastating Saudi-triggered war in Yemen.

Yet, the U.S.-Saudi economic relationship encompasses far more than $40 billion in trade. The Saudi government’s Public Investment Fund (PIF) owns significant stakes in businesses worldwide, including $3.5 billion in Uber. When ownership of Saudi Aramco transferred to the PIF, it became the largest sovereign wealth fund in the world, with assets of $2 trillion. Since then, the PIF has committed tens of billions to deals with GE, Lockheed Martin and Blackstone.

Little surprise then that by January’s annual gathering in Davos, members of the Saudi delegation were once again meeting with top Western executives, even sharing a panel stage with the likes of Total’s Patrick Pouyanne and Morgan Stanley’s James Gorman. The prevailing sentiment? A scant four months later, it was apparently time for business as usual with Saudi Arabia.

Meanwhile, Renault CEO Carlos Ghosn languished in jail, refused Western counsel, access to family and release on bail by the Japanese government as it pursues as-yet-to-be-proven charges of financial misconduct. Until his very public arrest, few knew that Japan denies basic legal due process to accused parties.

Corporate titans often claim to be stoked for the globalization of industry and the opportunity it represents. However, is the business community really ready for the ethical and legal complexities that come with globalization? As Dorothy said, on arriving in the Land of Oz, “Toto, I don’t think we’re in Kansas anymore!”

Read more: Stops and Starts Along the Road to Globalization


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