US Sanctions Stir Sony-North Korea Diplomatic Storm


JANUARY 05, 2015

North Korea responded with defiance on Sunday to US President Barack Obama’s decision last Friday to impose new financial sanctions against North Korea following the recent cyber attack on Sony Pictures Entertainment. Friday’s actions are believed to be the first time that the United States has levied sanctions against any state for a cyber-offensive on a firm.

The latest twist in what has become a significant diplomatic incident follows Sony Pictures Entertainment's decision to begin on Christmas Day a web release and limited screening in US theaters of the satirical movie The Interview. This follows threats from cyber hackers of 9/11-style attacks against any such cinemas showing the movie whose fictional plot includes a plan to assassinate North Korean dictator Kim Jong-un.

Despite US assertions that there is evidence from the FBI that the North Korean regime was behind the cyber offensive, the latter has criticized the US government for “spreading groundless allegations.” And it has warned of “grave consequences” following the US administration's refusal to accept its offer of a joint inquiry into the incident.

The incident has put Sony Pictures Entertainment, the US subsidiary of Japanese-headquartered multinational Sony, in the international diplomatic spotlight. Firstly, the firm has been condemned by Pyongyang for making the movie which it claims undermines the “dignity of [the country’s] supreme leadership.”

Secondly, Obama and others had criticized what had appeared to be Sony Pictures Entertainment’s original decision to postpone, or possibly cancel, release of the movie. In the words of the US president, “we cannot have a society in which some dictator someplace starts imposing censorship.”

This unfolding episode underlines the potential for business decisions, whatever their motivation, to become intertwined with foreign relations among states and companies. In effect, blurring the traditional public and private sector concerns of public policy and corporate affairs, respectively, in sometimes thorny issues of political, human rights and/or legal issues.

To be sure, this is not a new phenomenon by any means, but nonetheless appears to be increasing in incidence and salience. Partly, this is driven by globalization, and also the growth of key industries including new technology.

For instance, Google unintentionally sparked a diplomatic row last year following a decision to change the name on its "Palestinian territories" homepage to "Palestine." The move, which Palestinian President Mahmoud Abbas reportedly called a "victory for Palestine and a step toward its liberation," provoked immediate Israeli government complaint to the firm. Israeli Foreign Ministry spokesman Yigal Palmor, for instance, asserted that "Google is not a diplomatic entity which begs the question why they are getting involved in international politics and on the controversial side."

To be clear, new technology firms are not alone in experiencing issues from working with diverse political authorities across the world. Indeed, internationally-focused companies in many other industries, ranging from energy and extractives, to fast moving consumer goods, have long been confronted with challenges too.

Various international codes of conduct, including the UN Guiding Principles on Business and Human Rights already exist and reinforce the corporate social responsibility practices of individual firms. However, some of the most enlightened companies have now recognized the need for a more decisive shift toward what has been termed strategic corporate foreign policy.

Corporate foreign policy aligns a firm's external affairs activity, including media relations, risk management, corporate social responsibility, government affairs, and operational planning, in a clear strategic framework. Recognizing the need for an unusual mix of core competences (e.g. in advanced diplomacy) in some of these corporate functions, capability (including tools, training and infrastructure) can be enhanced where any gaps exist.

Other example areas of capability where firms occasionally have gaps include foresight and horizon scanning to anticipate and plan for social, economic and political opportunities and risks. Firms may also need clearer internal guidance for determining decision-making, protecting stakeholders (including customers), and/or remaining faithful to corporate values, especially in fast-moving, unpredictable crisis situations in countries with weak democratic credentials.

The relentless march of globalization, with the interconnections this brings, means that few international companies will escape these pressures completely. And, at the same time, owing to proliferation of media, and the influence of NGOs and related stakeholders, the actions of firms are increasingly under the microscope.

For those companies that are pro-active and invest in their capability, the prizes (both in terms of mitigating risk and seizing opportunity) are potentially ever more significant. Yet for those which are perceived to misstep, the fallout can be increasingly damaging, both reputationally and also for the financial bottom-line.

Andrew Hammond is an associate at LSE IDEAS at the London School of Economics, and a former UK government special adviser.