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Monday, March 12, 2012

Strategic CSR - Gibson Guitar

The article in the first url below reports on the U.S. government’s raid on Gibson Guitar in August last year:

In August federal agents raided Gibson plants in Nashville and Memphis in search of evidence that the company had illegally imported ebony and rosewood from India, to be used for fingerboards. At the main Nashville plant, two dozen agents from the U.S. Fish and Wildlife Service and the Homeland Security Dept. rushed in with guns on their hips and zip-tie cuffs dangling from their chests.

The legal basis for the raid was the Lacey Act:

“… a 100-year-old conservation law that regulated the trade of game and wild birds before being amended in 2008 to include wood and plant products. Under the revised law, importers need to ensure that they and everyone along their supply chain comply with domestic and foreign laws regarding timber. In this case, Gibson had run afoul of India’s laws prohibiting the export of any unfinished wood products; the shipment included 1,250 slabs of rough-cut timber.

More specifically, the article highlights the issue of how responsible a firm should be for its extended supply chain:

Importers of timber were now required to name every species of wood they used and were held accountable for the lawfulness of every logger, middleman, and wood manufacturer along the supply chain. … The Lacey Act is credited with bringing greater transparency to the timber trade and with helping to reduce the amount of illegal logging.

Like many laws, the Lacey Act contains good intentions, imperfect implementation, and unintended consequences. In Gibson’s case, however, the government acted decisively. As a result of the legislation, Gibson is being held responsible for the actions of its many suppliers in Madagascar, India, and the other countries from which the firm imports the rare hardwoods it uses to make its guitars.

My question: How reasonable is this? Is it the U.S. government’s role to impose its values in policing firms in India and Madagascar, or is that the responsibility of the governments of those countries? More generally, how reasonable is it to expect Gibson to monitor all aspects of operations of independent companies in foreign countries? What if Gibson is deceived by those firms? And, does it matter whether consumers care about these issues?

Lots of questions and not many answers from what has been publicly disclosed about the case to date. There are some indications, however, that perhaps Gibson’s claim of ignorance is not as plausible or defensible as first appeared:

Malagasy rosewood and ebony are considered the Beluga caviar of tone woods, and the hope was that guitar makers would motivate growers and loggers there to operate legitimately. … Every company but Gibson, however, decided not to do business in Madagascar, finding the trade too risky. Gibson ended up importing ebony from a logger named Roger Thunam in northeast Madagascar who had recently been arrested for illegally trading in precious woods. … In 2009 a team from the Environmental Investigation Agency, an independent group committed to exposing environmental crime, posed as timber buyers in Madagascar and found illicit logging there rampant. Thunam was dealing in obviously illegal wood. … the criminal nature of the Malagasy timber trade was so openly discussed and widespread that it wasn’t even necessary to go undercover to observe it—there were hundreds of loggers cutting away in the national park, with a steady flotilla of tree-filled rafts and trucks emerging from the forest.