On October 1, a revised version of China’s State Secrets Law went into effect.  Although little reported in the West, the revised law has serious implications for information and communications technology companies operating in China.  The update includes an article holding network operators and internet service providers (ISPs) responsible for censoring content and turning violators over to authorities.

China’s definition of “state secrets” continues to encompass citizens’ reporting of government corruption, malfeasance, and labor and environmental abuses. ISPs were already required to hand user data over to authorities if “state secrets” were involved, but now they will be expected to actively search user data for “secret” content. Perhaps in anticipation of the new rules, the Telegraph (UK) reported that state-controlled wireless provider China Mobile had begun monitoring the content of users’ text messages earlier this year.

If publicly-traded firms comply with the new law, will investors be complicit in repression? Human rights observers report that the Chinese government has repeatedly detained ordinary people who pass on “secret” information. Complicating the picture for investors is the fact that some state-controlled Chinese firms, like China Mobile, are also publicly traded.

When a business faces new regulations, is shareholder capital best spent on complying with the rules, or on lobbying to overturn them? How companies answer this question will be of growing concern for investors in coming years.

On Wednesday, the Los Angeles Times reported on a shareholder campaign targeting three large oil and gas companies for their spending on an effort to overturn California’s greenhouse gas (GHG) regulations. The ballot initiative, called “Proposition 23,” would delay or prevent implementation of the 2006 Global Warming Solutions Act, known as “AB32.”

The fight over Prop 23 highlights two related issues. First, corporations’ political spending – now explicitly protected speech after the Supreme Court's 2010 Citizens United ruling – could give them more influence over laws and regulations that involve their businesses. And second, the oil and gas sector is only the first whose competitive landscape could be redrawn by GHG restrictions, such as the low-carbon fuel standards of AB32. 

From WikiLeaks to the “Facebook spy,” government exposure through new media outlets has made headlines this summer. The Internet’s capacity for spreading information threatens secrecy, and thereby weakens the power of those who hold secrets, whether they’re individuals, companies, or governments.

The tense relations between China and Google, among other foreign firms, have shown how a government’s desire for secrecy and control of its citizens can conflict with its need to participate in the global information economy. In January 2010, the US-based search giant balked at Chinese government demands for Google to censor its google.cn search results. Google had in fact previously complied with such demands, but starting in March, the firm automatically redirected visitors to google.com.hk, its uncensored Hong Kong-based site.

In July, however, the two sides compromised. As reported by CNN, Google will retain its license to operate in China, and Chinese users will retain access to google.com.hk. So what grand bargain resolved what the New York Times called a “tense standoff”? Nothing more than an extra click: Chinese google.cn users must now opt to see uncensored google.com.hk results.

[Ed. Note – The Dodd-Frank financial reform bill could significantly reshape the American economic landscape. Some of its provisions will affect core activities of the socially responsible investing (SRI) community, such as proxy campaigns involving executive pay and corporate environmental, social and governance (ESG) practices.

The Social Investment Forum (SIF), of which RiskMetrics is a member, has coordinated the SRI community’s input on what became the Dodd-Frank bill. SIF Director of Programs (and RiskMetrics alum) Peter DeSimone wrote a succinct summary of Dodd-Frank for the SIF listserv, and he has graciously permitted us to repost his letter here. If you have further questions about the implications of the bill for investors, please contact SIF.]

The Progressive Era (1895-1920) is the American historical reference point for most looking at issues of corporate accountability. Its name suggests gradual, conservative change. In fact, the Progressive Era saw changes that were anything but gradual across our social and political systems.

To grasp the Progressive Era’s scope, consider Louis Brandeis, the man most lawyers associate with the time.

US disclosure-based regulation ... suffers from two critical failings. First, it lacks coherence in that shareholder rights are presently too weak to compensate for the hands-off regulatory approach. Second, disclosure has been deployed excessively as a regulatory tool, resulting in inundation of information.¹

So wrote Simon Wong, managing director at Governance for Owners and Adjunct Professor of Law, Northwestern University School of Law, in the Financial Times on Feb. 28.

On February 19, Bloomberg reported that Alcatel-Lucent “agreed to pay $137.4 million and change internal procedures to avoid U.S. prosecution for alleged bribes paid in Costa Rica, Taiwan and Kenya, according to a company regulatory filing.”

This settlement is part of a “serious crackdown” on violators of the US Foreign Corrupt Practices Act (FCPA), says Jan Fetter-Degges, Manager of RiskMetrics Group’s Global Sanctions Service. “Over the past year, the Justice Department has levied unprecedented fines on firms accused of foreign bribery and accounting fraud.”

Frequent enough tourist destination cities, like Boston, and you’ll get to know shell games. Players will try to guess which of three shells covers a pea or a stone. Try to take a picture, and you suddenly learn it’s a team con. It’s not just the operator’s flashing hands that tease the mark’s wits.

Reading the four opinions written by the majority in the January 21 US Supreme Court decision in Citizens United v. Federal Election Commission¹ brought to mind this team sport. Comment has focused mainly on the majority opinion – and the Court’s decision – written by Justice Kennedy. Three concurring opinions – one each by Chief Justice Roberts, Justice Scalia and Justice Thomas – have attracted less attention than they should.

A generally favorable Reuters story on Mary Schapiro's progress as SEC chair ends on what is, to me, a very sad note:

[Redoubtable Columbia Law Professor John] Coffee said changing the SEC's culture was a little like changing the culture of the Roman Catholic Church. "A new pope can come in, but the curia is still there and the cardinals still have their set traditions."

Most comments on the January 21 US Supreme Court decision in Citizens United v. Federal Election Commission (1) have focused on the effects of direct contributions by corporations to candidates. Are such contributions invitations to corruption, or exercises of protected speech by persons associated in corporations?

But for those concerned about corporate governance or corporate accountability in any of its forms, Citizens United has a context and implications that go well beyond elections and freedom of speech. These challenge fundamentally the notion of corporate social responsibility (CSR) and socially responsible investing (SRI).

In this post and some that will follow, I want to explore how Citizens United affects what proponents of CSR and SRI have advocated.