Generally speaking, companies exist to make a profit. The more, the better. If you are delivering a good product or service, the market rewards you with, well, money. Profits are used to support or grow the business, pay employees and vendors, fund pensions, and otherwise stimulate other forms of economic activities that help improve the economy. Any activity that takes away from profit-making is, generally, a really bad activity that should be avoided.
When I read a 10-K report detail a company’s commitment to “social responsibility,” I shudder at the idea that an entity whose primary mission is to make money, is dabbling in non-money making activities that are outside the scope of its business. If a corporation is in the business of running, say, hotels, it probably has no business engaging in social planning. Most of the time it is used as publicity to make guests feel good and, hopefully, build a brand that leads to a loyal customer base. For example, Starwood Hotels & Resorts, a luxury U.S. hotel chain, announced recently that it is managing hotels in Cuba – a totalitarian, Communist police state 90 miles from the U.S. Yet, according to its Human Rights Policy Statement,
Starwood Hotels is committed to promoting the human rights of individuals in the communities in which we operate. This includes the promotion of human rights through economic development and job creation as well as proactive steps to recognize and respect cultural heritage and ensure the company respects the community’s right to water
Right to water? This could be the subject of another post, so let’s not digress. What does any of this, however, have to do with running a hotel? Absolutely nothing. And, in a place like Communist Cuba, from the day it started co-managing hotels with the Cuban military, Starwood has been violating its Human Rights policy as well as other Social Responsibility policies. Starwood is also breaking its promise to shareholders to focus on its primary mission, generate profits!
Starwood claims it prohibits “all forms of human trafficking including the exploitation of children, and all forms of force, bonded, or compulsory labor.” This is impossible to do in Cuba because the Communist government controls the labor force with draconian labor laws that suck up more than 80% of an employee’s salary. It is modern-day slavery. Child prostitution, a favorite of foreign tourists, is also a problem in Cuba. How do they plan to stop guests from using their hotels for these purposes? They won’t and they can’t.
Starwood is taking a gamble on Cuba, a huge one. Someone in management, likely with some goading by the someone in the Obama administration, senses that change is coming in Cuba and it wants to be on the ground before it happens. The “first mover” advantage can be a good thing, but in the case of Cuba, I think Starwood’s, as well as the Obama administration’s concept of change is not the same change that the Communist Cubans have in mind. The former sees the land of milk and honey, the latter, succession and power politics.
Of course, I think they are both wrong because Cuba is headed toward a very dark period of political upheaval. For Starwood, if it manages to hold on, then the gamble was worth it; however, if the Cuban opposition makes Starwood a political target by, among other things, putting its Corporate Social Responsibility to the test, the entire experiment could become a major headache for the company. At least one group in South Florida that has close ties to the opposition in Cuba has made Starwood its first target in a #DivestCuba initiative. I’ve talked with opposition leaders on the island who plan to join the effort. The entire matter seems like an Alien Tort Claims lawsuit in the making, and its not even been a year since the deal was inked.
Another aspect of the Starwood-Cuba deal that also merits some focus is the legality of the transaction. Under U.S. law, indirect financing of the Cuban regime is a violation of the U.S. embargo. There are also prohibitions on doing business on properties that were stolen from Americans as well as others. The non-profit public interest law firm Judicial Watch, based here in Virginia, announced last month that it will be taking closer look at this very issue saying in a press statement that the Obama administration “rushed to give a major American hotel company special permission to operate in Cuba for the first time in nearly three decades, possibly with behind-the-scenes collaboration from the State Department.” It will be interesting to learn what they find, especially if they can secure more information about the legal bases for the U.S. authorization that allowed Starwood to legally enter the Cuba market in spite of the U.S. embargo and Cuban Assets Control Regulations.
The Starwood Cuba experiment is a good example of why social engineering is something that, I think, should be left to non-profits, religious groups, and, most importantly: families and individuals. It should have no place in corporate America. The Starwood Cuba experiment also validates skepticism held by many experts toward most Corporate Social Responsibility programs that, by and large, are money wasters and distract from the primary mission of a company, making money. As Milton Friedman, the Nobel Prize-winning economist said in 1965, the “doctrine of “social responsibility” in the form it has come to take is subversive of a free society and a stepping stone to socialism.” Looking at it that way, Starwood may feel right at home in Cuba.