SCHOLAR DIPLOMAT SEMINAR AT STATE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88B00443R001203960168-9
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 9
• Document Creation Date: December 20, 2016
• Document Release Date: June 6, 2007
• Sequence Number: 168
• Publication Date: June 15, 1982
• Content Type: MEMO

Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
0
EXECUTIVE SECRETARIAT
Routing Slip
ACTION
INFO
DATE
INITIAL
DCI
w
2
DD
3
EXDIR
4
D/ICS
5
DDI
6
DDA
7
DDO
8
DDS&T
9
Chm/NIC
(/,,,~ )D
10
GC
11
IG
12
Compt
13
D/EEO
14
D/Pers
15
D/OEA
16
C/PAD/OEA
17
SA/IA
18
A0/DCI
19
C/IPD/0IS
20
jaiAf-
21
S
W t0
22
V/
Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
t~'
 Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
? ? $_
MEMORANDUM FOR: National Intelligence Officer for Africa
FROM: Director of Central Intelligence
SUBJECT: Scholar Diplomat Seminar at State
1. I'd like to have a fuller report on the nature and value of the
private sector political risk analysis mentioned in your memorandum of
10 June.
2. You might take a look at the attached article, "The Multinationals
Get Smarter About Political Risks," and return it to me with your fuller
report.
William J. Casey
Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
 Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
0
Over the past decade, American corpo-
rations have been discovering one suppos-
edly rich foreign market after another
-only to have their hopes dashed or
diminished by unexpected political chang-
es or upheavals. But it remained for the rev-
olution in Iran, which exposed U.S.
companies to potential losses totaling $1
billion, to drive home the lesson in global
survival. Now even the most seasoned
multinationals are looking for better
means to assess-and manage-their po-
litical risks. As Stephen Blank, a political
scientist with the Conference Board (the
leading nonprofit research group for busi-
ness), says: "Many chief executives got
clobbered by winging into Iran without ad-
equately understanding the country, and
they've gone into China the same way.
Now a lot of them want to improve their
grasp of the world."
Like the U.S. government, the nation's
businessmen confront greater turbulence
abroad and wield less power than in the
past. The once-favored stratagems to shape
or even topple a foreign regime-in the
brash tradition of United Fruit in Central
America-are no longer acceptable corpo-
rate practices. In lands where payoffs to
gain leverage or win contracts are custom-
ary, Americans are bound-or at least in-
hibited-by the U.S. Foreign Corrupt
Practices Act. As one executive remarks,
"The time has passed when we could
buy or rent governments."
Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
 Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
After the Iranian bloodbath and other foreign surprises, U.S. corporations are
seeking sharp professional intelligence to warn and guide them.
Instead, the top executives of major cor-
porations are gradually acknowledging
that they need both new skills and fresh in-
sights to thrive overseas. The enjoyment
of cordial personal relations with a head
of state is no longer, if it ever was, a re-
liable way. to appraise the prospects of his
nation's market. Nor does the penchant of
many c.e.o.'s for flying off to intriguing
places, such as Islamabad or Peking, as-
sure considered judgments back at their
headquarters. Just as senior officers have
long consulted their specialists on market-
ing and finance and law, they now sense
the need for staff expertise to lirect a more
systematic. approach to international af-
fairs. Confronting the world these days
cannot be a do-it-yourself job.
Beyond economics
This new political-risk. game requires
anticipating the currents of change abroad,
then plotting how to move with them. To
do this' demands going beyond economic
forecasting to gauge other forces; from re-
ligious movements to nationalistic pas-
sions. It' also requires U.S. executives, who
have learned the hard way, to refrain from
plunging into foreign ventures merely on
the strength of Washington's judgments.
The potential for corporate disaster of-
ten lurks in seemingly stable places. A few
years ago Aris Gloves, a division of Con-
solidated Foods, wanted to spread its risks
beyond the Philippines, its only manufac-
turing base. In 1976, the company picked
a spot that its vice president, James Mc-
.. Corry, says "everyone, including the U.S.
embassy,' described as a happy, sleepy
country." This carelessly promised land
was El Salvador. Within some two years,
political turmoil hit the Aris plant, with
leftist dissidents holding its president and
about 120 local employees as hostages for
nine days-until the company agreed to
wage increases that it couldn't afford. Six
months ago, Aris fled from El Salvador.
Around the globe, the computing of fu-
ture risks remains a tauntingly imprecise
science-as the Philippines themselves il-
lustrate. Thus one major manufacturer is
Research associate: Grant F. Winthrop
nervously concerned that the martial-law
regime of President Ferdinand Marcos has
made no visible arrangements for succes-
sion after his lifetime. On the other hand,
American Can still finds the Philippines an
attractive place to invest. Here as else-
where, the right course for a company may
depend heavily on its particular kind of
business. In any nation, the gamut of risks
runs from revolution and expropriation to
the more common, but often crucial, prob-
lems of government regulation.
To avoid costly surprises, many major
companies are trying a range of new safe-
guards. Turning to another breed of spe-
cial consultants, Bechtel Corp., a loser in
Iran, checks out the political climates of its
Middle East markets with Richard Helms,
a former director of the Central Intelligence
Agency and ambassador to Iran; his one-
man firm is called Safeer, the Persian word
for ambassador. Varying the formula for
sophisticated counsel, such major manu-
facturers as General Motors and Caterpillar
have formed advisory councils of promi-
nent foreign businessmen and retired gov-
ernment officials. Henry Kissinger serves
as a paid adviser to Merck; Goldman,
Sachs; and Chase Manhattan Bank, where
he sits on the risk committee for foreign
loans. All such moves make c.e.o.'s feel and
look better-without relieving them of the
ultimate responsibility for risk decisions.
A more direct damage-control device is
buying political-risk insurance, a growth
industry lately. The U.S. government's
Overseas Private Investment Corporation
(OPIC) has long insured investors in
friendly underdeveloped countries against
such perils as war damage and inconvert-
ibility of earnings. A few private under-
writers will . fill other gaps for premiums
that start at 0.1 percent for the safest places
and run up to 6 percent or more for the
most dangerous areas. But.no policy can
cover a company's entire foreign exposure.
, rug) rations h It
raintel ene .sy, " Far from us-
ing shadowy operatives with networks of
secret informers, they employ political an-
alysts who work openly. Samuel De Palma,
I.T.T.'s analyst and a former assistant sec-
retary of State, says: "There's plenty of in-
formation available, but the problem is
trying to find out what the hell it could por-
tend for the company" Since executives
tend to talk mostly to like-minded asso-
ciates, De Palma strives to introduce them
to a wider range of foreign views, "even if
they're not from the sort of people we
would normally invite to dinner."
The experience of Gulf Oil has made it
especially sensitive to political assess-
ments, since it was hit harder than any
other oil major by the wave of national-
ization that swept the producing countries
in 1975. Already Gulf's four-man interna-
tional-studies unit has demonstrated its
perceptiveness. Richard Macken, its Mid-
dle East specialist, warned of the Shah's
probable fall four months in advance and
well before it was widely anticipated. Hav-
ing calculated what pressures could under-
mine the ruler, Macken saw the Muslim
demonstrations pushing Iran to a point of
no return. Accordingly, the company be-
gan early its planning to cope with the sub-
sequent loss of Iranian oil, then amounting
to 10 percent of its crude supplies.
Shortly after the Soviet invasion of Af-
ghanistan, the same analyst discounted the
immediate prospect of a broader plot to
seize Pakistan, where Gulf has a risky ex-
ploration venture. Jerry McAfee, Gulf's
chairman, found the report "extremely
useful." And McAfee adds: "Hopefully,
we've helped cover the political risks by
having the World Bank involved along
with the Pakistan government. But we need
good information on the real facts of life
out there-and in the rest of the world."
Spies in the cold
To tell its top management what it should
know, Gulf hired Hoyt Price, a former for-
eign-service officer, eleven years ago. He
recruited the other analysts from govern-
ment and universities to tap sources that
few businessmen have the time or knowl-
edge to pursue-from specialized publica-
tions to area experts. The analysts, who
also visit key countries, are completely re-
moved from Gulf's operations, to ensure
their objectivity. Inescapably, though, this
Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
 Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
? ?
To anticipate political changes that may affect
its business overseas, Eaton Corp. relies on
Thomas Reckford (below), its senior
international analyst and a former assessment
officer for the CIA. Gulf Oil gets its information
'sand insights on the world from John Sassi, who
is-an-Africa specialist and manager of its
- =' ? "international studies" team.
financial planners and political analysts.
So far, Exxon has avoided rude shocks
abroad by getting sophisticated appraisals
through its regional divisions, the hubs of
its corporate intelligence. Esso Eastern in
Houston has already assigned its managers
in Asia an "alert reporting list" of possible
events that can affect future business. Rich-
ard Barham, the company's government-
relations adviser and a fifteen-year veteran
of the U.S. foreign service, says that he an-
alyzes each Asian society in terms of its
"principal influence groups" His col-
leagues in the field maintain regular con-
tact with intellectuals and labor leaders as
well as politicians. "We never accept their
reports at face value," Barham adds, "but
check them with many other sources."
insulation'often makes most analysts feel
as lonely as spies out in the cold. "We're
so'independent," Price says, "that I some-
tinies wonder if we're effective."
?His team's ' situation 'reports have en-
?cotiriged Gulf to make deals in nations that
r looked forbidding at first glance. As Price
sa%s, "We try to determine whether there's
a government that you can reason with."
`'Seilei.al' years ago, he recalls, Gulf Presi-
:dent James Lee responded to a measured
`asse'ssment of Zaire by remarking: "What
you'ie really saying is that if we can get
along with Mobuto [Sese Seko, the pres-
ident], then go in." Today Gulf is certainly
getting along with. Mobuto, and its pro-
? duction in Zaire is being increased.
Good gamble in Angola
n!_
The company's most daring political de-
cision'has been to work with the Marxist
regime ' in 'Angola, despite Washington's
initial qualms. By following its own intel-
ligence, Gulf survived the transition from
Portuguese colonial rule and the ensuing
civil`war among three indigenous groups
iii'1975:The U.S. opposed-with arms and
money -the Popular Movement for the
Liberation of Angola, which was backed
by Cuban troops and appeared to Wash-
ington as a mere tool of the Soviets. But
Gulf, which had men on the scene, drew a
different conclusion. John Sassi, its Afri-
can analyst, correctly foresaw the emer-
gence of a well-organized Marxist group
as both the dominant force and a poten-
tially stable business partner. He explains:
"Its leaders, who were the most consistent
among the Angolans in meaning what they
said, indicated an interest in continuing
the oil arrangements." As things turned
out, Angola has become one of Gulf's larg-
est overseas production sources.
aV
n consid-
ering a possible $1.2-billion expansion of
its copper-mining project in Chile, for in-
stance, Exxon is comparing its vast intel-
ligence with views from a panel of outside
experts on the country. The Chile invest-
ment proposal could include what an ex-
ecutive gingerly calls "an environmental
uncertainty factor." If Exxon detects the
probability of a radical change in govern-
ment or tax policy, the company may add
1 to 5 percent to its required return on in-
vestment. This risk factor is not arbitrari-
ly tacked on, but jointly estimated by
Decisions in a vacuum
This political monitoring has prompted
Exxon to withdraw from refining and mar-
keting in India, Bangladesh, and the Phil-
ippines. Earlier, its analysts dissuaded the
company from carrying out a commitment
to build a refinery in South Vietnam at a
time when other U.S. companies were still
expanding operations there..
Unlike the worldly oil majors, Eaton
Corp. long took its readings of foreign po-
litical climates with what an execu-
tive admits was "a seat-of-the-pants
approach." Its managers, narrowly preoc-
cupied with manufacturing truck compo-
nents, marched blind into some avoidable
pitfalls-such as putting a plant in France's
southern Normandy region, which is no-
table for its troublesome Communist
unions. Three and a half years ago, Eaton's
chairman, E. M. de Windt, decided, as he
now says, that "we can't afford to make far-
reaching decisions in a vacuum." So the
company hired a pair of able CIA veter-
ans. Richard Lethander, a Ph.D. in econom-
ics, is the chief analyst at corporate
headquarters in Cleveland. Thomas Reck-
ford, the senior political analyst, based in
Washington, says: "We try asking the right
questions to help prevent Eaton from be-
ing startled by what happens abroad."
Its department of international informa-
tion and analysis now alerts Eaton exec-
continued
88 FORTUNE Marchzq t98o
Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
 Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
Thcrt.?,
it ernation:I - r?,
utives to the implications of a swirl of
events, as a few excerpts from its weekly
reports indicate. Washington's freeze on
technology exports to the Soviet Union:
probably ineffective, but "will hurt Amer-
ican companies, and help Japanese and Eu-
ropean companies." Premier Indira Gan-
dhi's return to power: "India's at best
'mediocre climate for foreign investment is
unlikely to improve much." Taiwan's pros-
pects since the break in U.S. diplomatic ties:
a strong economy and "political stability
appears virtually assured at least through
the mid-Eighties." This brisk analysis is
4 only part of a broader intelligence process
that includes comprehensive studies and
briefings for the chairman and president,
= whom Reckford calls "our best customers"
Such a fresh array of opinions, many of
them skeptical, inevitably increases ten-
sions in most companies. As Reckford ob-
7serves, Eaton's operating executives "have
vested interests and are not terribly fond
of people who raise red flags." Among oth-
er warnings, the analysts have emphasized
the-inherent risks of a proposed joint ven-
ture,, for. making truck components in
China, where the ground rules for foreign
investors are still vague and evolving. Most
dispassionate observers of the People's Re-
public also recognize that the political con-
sensus for its modernization program is
shaky. The product-minded managers can
-and do-exclude the supposed bearers
of bad news from some meetings on in-
vestment plans. The analysts, of course,
then go straight to the top of the corpo-
ration with unsolicited assessments.
`The Xerox formula
in occasion, however, the analysts act
and,.speak as dissenting optimists. "If
we've accomplished anything," Reckford
says; "it's improving the way our officers
think of Italy," talon's nine plants there
are operating fairly well, but its executives
had been somewhat unnerved by a polit-
._ical scene so often unsettled by strikes,
Communist-party strength, and govern-
ment by shaky coalitions. The analysts
view Italy as reasonably stable, despite its
political squabbles and theatrics. By put-
Former CIA Director Richard Helms now
counsels half a dozen corporate clients, includ-
ing Bechtel. His is a one-man consulting firm
which, in' Helms's words, provides "realistic
political assessments" of countries in the Per-
sian Gulf area and the Far East.
ting its apparent chaos into perspective,
they evidently have calmed some of the
fears in Cleveland headquarters. As Reck-
ford remarks, "What's normal for Italy
would cause apoplexy here."
c 1{- es de;visec their
s j egies _Rather-tharr hiriapolit a!' nit
stsw for- example; Xerox primariI Iie
well=laced gFau of foreipneryTwo
years ago, its Latin American managing di-
rectors were made formally responsible for
both anticipating and planning how to deal
with local political risks. Now their annu-
al raises partly depend on their political
acumen. Before introducing this system,.
Xerox had suffered such unwelcome sur-
prises as sudden import. restrictions that
threatened its shares of some markets.
Daniel Sharp, director of international re-
lations, says: "Though we still have some
serious problems, they haven't become cri-
ses lately because the issues affecting our
business are dealt with much earlier."
Quarterly reports from the local managers
keep U.S. executives informed about fore-
seeable moves that may affect their busi-
ness in each country: One meeting of the
Latin American group last year, for exam-
ple, considered issues ranging from the im-
pact of five new regimes to the chances of
Mexico lifting its tariff protection for
Xerox's plant.
Xerox consults outside authorities on
major issues, but Sharp says that "our best
sources" are the local managers. As he ex-
plains: "They are better educated and in-
formed about their environments than
anyone here at staff headquarters. Often
they went to school with those who run
the government and other important in-
stitutions in their countries." Xerox's sense
of security in Latin America is also en-
hanced by its practice of operating through
joint ventures. Its managers have access
not only to government cabinet officers but
also to the working-level technocrats and
politicians who shape legislation. Encour-
aged by results in Latin America, Xerox is
extending the new system to its other in-
ternational operations.
F17--
iw~ventareof
d Iopiingcs untnes are guided b a com- V
19 .gag~ar ,aqd PlRt! ai;e primary
v esTm- scr~eeening matrixi; The l
ctrompa[i~=:devl"sed-fho,~ra'm~o and,
l Cj ears a when its top management
became dissatisfied with its limited over-
seas business, then confined to such ob-
viously stable places as Britain and Canada.
As James Mailing, vice president for in-
ternational sales and marketing, explains:
"We had no operational problems caused
by local politics, but wanted to find new
opportunities." The problem was finding
the safest ones, because the capital inten-
siveness of - its plants, Mailing adds,
"heightens the risks." And by senior man-
agement's insistence, the solution had to
be stated in quantitative terms.
From Kuwait to Korea
Though PRISM is no panacea, the math-
ematical model does help screen about sev-
enty nations in terms of American Can's
special interests. The numbers that go into
the computer represent judgments gath-
ered 'from many sources, including coun-
try-risk rating services (see box, page 95).
But PRISM reduces some 200 variables for
each country to two numbers: an index of
"economic desirability" and an index of
"risk payback" (a measure of political and
economic stability). The company will
consider investing only in the ten or twelve
nations with the highest PRISM ratings.
Kuwait, for example, appears economical-
ly attractive but politically questionable.
South Korea's favorable computer rating
prompted American Can to send an inves-
continued
92 'FORTUNE Mwch24, tseo
Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
 Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
tigation ?tearr,there and invest in a joint
venture last year. Since then, of course, U.S.
business confidence in the country has
been. shaken by the assassination of its'
president, a power grab from within its
military establishment, and the exception-
ally- high. inflation and the low economic-
growth,rate expected this year.
Acteoit~ies. e?ran?th
;j Or3tp~t
t~i gF,. o easuYirl #areI
is1 e'c a'al ron estionziau s fz
cad
e
,
_
Benjamin Hardy, a political scientist an
staff. analyst for the company, says: "Ad-
mittedly, all of this analysis is the result
of a lot of subjective judgments, but it lets
senior management see at a glance the re-
sults.of assessment by a large number of
know~edgeable people." United Technolo-
gies, which does business in 130 countries,
looks far beyond its computer printouts.
As Hardy says, "We would like to identify
countries-possibly Zaire, Indonesia, and
India-where conditions may not be at-
tractive today, but where change may favor
increased involvement in the future."
Struggle through chaos
Even after the Iranian upheaval, there re-
main-an astonishing number of corpora-
tions without any centralized, systematic
means for focusing attention on political
risks, In a "rather hapless reflection on the
~.' experience of Iran, an executive of G.T.&E.
says,., "We look back and say to ourselves:
'How could we have been so wrong?"' In
December, 1977, G.T.&E. signed a contract
for more than $500 million, the largest
communications-equipment deal at that
time,.The company had to advance Iran $94
million,in open letters of credit, which are
widely used in the Middle East in lieu of
various performance bonds. But G.T.&E.'s
contract did not spell out the grounds on
which the Iranian government- could call
the letters of credit, and the company did
notihave insurance to cover such risk.
_G.T.&E. struggled mightily but vainly to
carry out its job despite the political chaos
in Tehran. When the Ayatollah Khomeini
came to power, the company began dis-
CAN A COMPUTER TELL THE RATIO OF RISK?
To help them cope with the uncertain-
ties of doing business abroad, many
companies subscribe to services that
publish country-risk indexes, some-
what like Moody's bond or Value Line
stock. ratings. Though there is some de-
bate about the usefulness of numerically
rating countries for risk, the client lists
of the three organizations read like the
FORTUNE 500.
A company considering expanding
into Indonesia, for example, might well
consult all three of that country's rat-
ings. It could look at the BERI (for Busi-
ness Environment Risk Index) rating,
which ranks countries on a scale of 1
to 100. Indonesia scores a 45.5, a low
enough rating to be marked a "high
risk." A similar index put out by Busi-
ness International (BI), an advisory ser-
? vice for multinationals, gives Indo-
nesia a slightly more respectable 58.
Finally, the World Political Risk Fore-
casts (WPRF) service of Frost & Sul-
livan, a business-research organization,
expresses its own rather dim view of
Indonesia in its January, 1980, forecast:
a company doing business there stands
a 31 percent chance of a major busi-
ness loss owing to political develop-
ments in the next eighteen months and
a 45 percent chance of loss within five
years. A better bet for investment would
be nearby Singapore-BERI score 74.9,
BI rating 79, and WPRF loss probabil-
ity of only 19 percent in the next
five years.
Executives appreciate these rating
services because they are relatively
cheap ($500 a year for BERI, $1,500 for
WPRF), and they boil down the com-
plex forecast to simple numbers. Says
.Frederick Haner, the University of Del-
aware business professor who compiles
the BERI rating, "Executives treat these
numbers as though they came from God
directly." In fact, they are derived from
weighting and averaging the evalua-
tions of economic, political, and social
factors in foreign countries made by
panels of "experts." BI's information
comes from its employees around the
world; WPRF and BERI don't identify
their panelists beyond describing them
as experts from business, government,
and academia.
The most frequent criticism of this in-
dexing is that, although it is based on
largely subjective evaluations, the fig-
ures imply a mathematical precision
that really isn't there. One risk analyst
for a major U.S. corporation calls index-
ing "a substitute for thought." But the
purveyors of risk ratings-and many of
their clients-claim indexing is a use-
ful tool, though obviously not the only
one, for assessing risk. In any case, the
troubled world of international busi-
ness has made risk rating a growth
industry. -GRANT F. WINTHROP
cussions that might lead to the govern-
ment's honoring of unpaid bills and paring
the size of G.T.&E.'s contract. Says Rich-
ard Couch, a vice president who then head-
ed the Iran operation: "We were still
negotiating-and extremely close to sign-
ing a memo of understanding-on the day
that the U.S. embassy was seized." If its
work is never resumed, G.T.&E. will have
lost more than $50 million, not including
those worrisome letters of credit. In a few
cases, other countries, have called similar
LC's for political reasons. The.company
tried to get a U.S. court order preventing
its banks from honoring them if they are
called, but failed.
In the wake of G.T.&E.'s misadventures
in Iran-according to Robert Gressons, the
president of its communications products
group-the company did begin to "exam-
ine our intelligence." Yet G.T.&E. still has
no department or specific person respon-
sible for weighing political risks, except for
project-financing officers, who rely mainly
on the opinions of officials in Washington.
"Given the same set of facts that we had
for Iran," Gressons adds, "we'd make the
same decision today. Knowing what we do
now, I think we'd never accept a letter-of-
credit arrangement again."
Probably no American company leaped
into Iran with the zest of Starrett Housing
Corp., an overseas novice that could have
had a reliable safety net at home. In 1975,
the company launched two big housing
projects with Iranian minority investors
close to the Shah. They have since left the
country-leaving Starrett with a group of
uncompleted luxury condominiums near
Tehran and a potential corporate exposure
greater than its net worth. (The company
invested $38 million in the Iranian work;
its stockholders equity is only $22.6 mil-
lion.) According to an OPIC official in
continued
FORTUNE Ma,cP24, 1980 95
Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
 Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
a
?
Waving a letter from an Iranian
bank, the chairman insists that it covers
. his potential $38-million loss.
1e
this de ~ ('~ho~~e
If you are considering locating a man-
..,ufacturing facility or warehouse in the
"".Sunbelt, you will find this book, Indus-
'4? trial Sites in Georgia, an interesting
:' reference. It contains detailed descrip-
tions of 50 of the finest building sites
and industrial parks in the state.
t There's an aerial photograph of each
-,,,site, a map of environs and detailed in-
r. formation about utilities, transporta-
c-,;,tion,.water supplies, population,
neighboring industries and other
essential data. The book is free to
$ ..fated manufacturers and their
,representatives.
Not listed on reader service card
1.~ WRITE FOR YOUR FREE COPY
T' JOSEPH H. INGLIS, Manager
"'INDUSTRIAL DEVELOPMENT DEPARTMENT
Washington, the government agency was
prepared, to cover part of Starrett's risks,
but the company decided not to pursue it
"because of price considerations." At least
three private U.S. insurance brokers say
that they also were spurned by Starrett. The
OPIC official adds, "A lot of people feel that
they have essentially erased political risk
by the associations they take on in a host
country."
The chairman of Starrett, Henry Benach,
relates that he took out. an Iranian form of
coverage. As he tells it, "In 1976, we got a
letter from Bank Omran guaranteeing us
protection against exactly what has hap-
pened. All of our $38 million is covered."
Waving a paper around without showing
it, Benach insists that the letter states "We
have to have our money back." But Bank
Omran, which was closely associated with
the Shah's business interests, has obvious-
ly undergone a change in management. To
get its letter honored, Starrett is attempting
U.S. court action.
Fresh eye on the banks
By* way of contrast, not even Iran has
been a calamity for Cabot Corp., which has
a strategy for minimizing its risks in es-
tablishing carbon-black plants abroad.
Robert Charpie, its president, says that the
company recognizes "the strong tide of na-
tionalism in the Third World." Thus Cabot
finds reliable partners for joint ventures,
which have local borrowing in their debt
structures. "The quality of the partners you
pick is your greatest insurance," he adds.
But Cabot protects its own investment
with OPIC insurance against expropriation
and restrictions on repatriation of earnings.
In Iran, Charpie says,. "our original equity
of $3 million is well covered," and the com-
pany has already filed its insurance claim.
Previously, Cabot collected for similar
losses in Argentina and Colombia.
Many companies that sense the need
for sharpening their geopolitical percep-
tions are not quite sure what to do. As
Gerald T. West of OPIC remarks: "More
sophistication is applied within pome cor-
porations to their overhead sprinkler sys-
tems. The future is to an extent knowable,
so you don't have to be fatalistic."
In the case of the American banks, they
have a fresh incentive for improving their
acuity. This has come with closer federal
monitoring of their loans to foreign coun-
tries. The examiners want to scan the
banks' methods for making political and
social assessments, as well as the usual eco-
nomic evaluations. In the words of Joseph
Tunney, a vice president and the country-
risk manager of Chemical Bank: "Iran was
a watershed, making us appreciate that our
kind of liberal-arts approach to political
analysis had to change. Political readings
can no longer be an ancillary part of our
risk reports."
With this awareness, Tunney had adopt-
ed an approach used by Lawrence Bloom,
a consultant on political risks. The bank's
officers have started viewing each country
in terms of its political issues and its po-
litical actors, hoping to determine which
actors exert the most influence over key de-
cisions. This assessment gives them, Tun-
ney says, "a spread sheet for looking at
politics in much the same way as they do
corporate annual reports." While the meth-
od hardly can guarantee perfect judg-
ments, it appeals to bankers as being
orderly and specific. And now that federal
examiners expect more formal political ap-
praisals, Tunney expects that many bank-
ers will have to turn to outside experts.
The new breed of international political
consultants finds its clients among the
companies most fearful of plunging into
the unknown. Benjamin Weiner is a for-
mer foreign-service officer who started his
firm, Probe International, nine years ago.
"Stability per se is irrelevant," he observes
today. "One-third of the world's govern-
ments change every year, often not by nor-
mal or democratic processes. The question
for a corporation is whether it can
identify the nascent scenarios and cope
profitably-and ethically-with them."
Probe sought to do just that for a dozen cli-
ents last year. One American manufactur-
er, for example, was interested in forming
a joint venture in Egypt, but he anxiously
wondered how long Sadat might be
around. Taylor Crosby, an Arabic-
speak-continued
Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
 Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9
0
"A private
industry of political
analysis"
~
'
Yo
u can count on a lasting customer impact-and impressive
{-"results-when you choose the popular NoNonsense? pen,
i a handsome At ?A?Glance? pocket secretary or a sleek
?.:.Targa by SheafferTM pen to carry your company name.
sPYbur customers will' appreciate the reliability, the good taste,
''li'the real value. Let one of our Advertising Speciality Counselors
help you custom-design your sales incentive programs for
maximum etrecttveness!
75 S. Church Street
;?' :. Pittsfield, Massachusetts 01201
r:
Company
City/State/Zip
'Phone I
- - - - - - - - - - - - - - - - - - - - - - - - -
L
ing member of Probe's staff, visited the
country and concluded that Sadat's eco-
nomic policies would survive him. But the
report raised other questions that the cli-
ent had not considered-such as the haz-
ards of teaming up with notoriously
inefficient Egyptian state corporations.
Looking toward the broad future for U.S.
corporate enterprise across the globe, Wil-
liam Colby, the former CIA director who
is now a Washington attorney, says that
he is encouraged by "the development of
a private industry of political analysis." As
he explains: "Companies are not looking
for secret plans, but need to understand all
the events that influence their interests.
You can't develop a crystal ball because the
variables that influence action are infinite.
But you can increase the businessman's
feel for the probabilities."
Just one choice
XQ,jp . g& p ssisely t ?i 'feet,'; a dozy
pajorcorRorations are cw g, ltly paarti j
pting''tn"atonerrn effort--at : th
Co exencee.Boar. Its interna'tionaT poli[
ical and social analysis program not only
studies key countries in depth but-also ex-
amines ways for companies to analyze
them more astutely. An initial survey of
193 corporations-all of them doing sub-
stantial business abroad-found that about
half of them still have no formal means for
making political assessments. Among
them, most high-level decision-makers re-
lied mainly on nothing more coherent or
sophisticated than talking with a few peo-
ple whom they trust.
Although the recent surge of interest in
risk management is encouraging, the
threat of corporate losses abroad is only
one part of the challenge. Many openings
are being missed for the wrong reasons.
As one Conference Board study notes,
"Certain countries are dismissed from con-
sideration on the basis of information that
is incomplete, outdated, and in some cases
erroneous." Since U.S. corporations face
ever fiercer competition abroad, and their
own power has diminished, the leaders of
these enterprises have only one choice-to
get smarter about the world.
100 FORTUNE March 2'
'^^^ i
Approved For Release 2007/06/06: CIA-RDP88B00443R001203960168-9