Developing Responsibility

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Socially responsible behavior on the part of corporations probably does not strike most investors as a priority issue. Corporate behavior, though, is getting more attention as more firms move production to developing countries or rely on suppliers in such places. Naturally, most folks would prefer that the companies in which they invest aren't pillaging developing nations. But one of the reasons that corporations take an interest in poorer countries is precisely because those nations are poor and have large pools of cheap labor. When companies invest in developing nations, they are simply seeking out the best return for shareholders.

Nevertheless, investors would do well to be conscious of firms that seek to manage their relationship wisely with the developing world. While corporations can be a force for social stability in poorer countries by providing much-needed jobs, they can also contribute to unrest, sometimes even when they are trying to do good. ChevronTexaco (NYSE: CVX), for instance, recently announced that it will overhaul its aid program in Nigeria. The company has concentrated funds in communities where it operated, an approach that has created community divisions that have led to violence. Besides being bad for Nigeria, such unrest has also been costly for ChevronTexaco, which has lost $500 million because of strife in the country, according to the BBC.

A smarter approach may be the chocolate industry's planned program in cocoa-growing areas in West Africa. Stability in this region is extremely important for chocolate companies, a fact driven home when violence erupted last year in Ivory Coast and caused a spike in cocoa prices. To mitigate the risk of more disruption, Hershey (NYSE: HSY), Cadbury Schweppes (NYSE: CSG), Mars, Nestle USA, and Cargill plan to invest in teacher training there. The program is no panacea, but improving education may be the most efficient way of lifting living standards, ensuring long-term stability in the region, and, by connection, keeping cocoa flowing to the chocolate firms.

Corporations may not think of social policy as a pressing concern. But in an increasingly interconnected and interdependent world, companies may not have any other choice, especially in poor countries with weak governments. Consequently, it's worthwhile for investors to keep track of how firms manage their relationships in developing countries.

For a related story, see "Cocoa Crisis?"

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.