Is Carlos Slim Really Committed to Corporate Social Responsibility?

SOURCE: PODER

He’s tied with Bill Gates for the title of the richest man on the planet. Carlos Slim Helú is perhaps the most famous—or infamous—man in Mexico. Yet few Americans have heard of him, let alone have much idea about the nature of his corporate empire, or how he created it.

For a portrait of this portly, 70-year-old son of Lebanese immigrants, there are a variety of popular opinions to draw from. On the one hand he’s the brilliant businessman and telephone tycoon poised to eclipse Gates on the Forbes list of the world’s most wealthy. Others see him as an opportunistic robber baron and crass monopolist who made his fortune thanks to political favors and weak government regulation. Lately, he has re-tooled his image, highlighting his humble immigrant roots and supposedly modest lifestyle, while also posing as a philanthropist alongside celebrities, from Bill Clinton to Colombian pop singer Shakira and Nobel Peace Prize winner Mohammad Yunus.

Measuring the reach of his business interests is no easy task. He is said to own as many as 220 companies. Despite his reputation for micro-managing it’s likely even he doesn’t known the full extent of his holdings. But today, the very size of his empire may have become his biggest problem, placing his operations under an intense glare. In a country where 40 percent of the people live in poverty and thousands emigrate each year to look for better-paying jobs in the U.S., Slim has become a symbol of how economic growth is being held back by a lack of competition.

“He’s proven himself to be one the smartest businessmen in Mexico’s entire history,” says Eduardo Garcia, editor of Mexican magazine Sentido Común, which monitors Slim’s fortune and regularly updates the public. “It’s just that he has too much power for the good of the country.”

To Slim’s 218,000 employees he is known simply as El ingeniero, an old-fashioned Latin American title

meaning, literally, “engineer,” commonly used to show respect for the elite of university graduates. To others he is Don Carlos. In government circles he’s known as Señor PIB, or Mr. GDP (Gross Domestic Product), a reference to the awe his name arouses in the minds of officials when they consider the extraordinary economic weight of his companies, which account for more than a third of the capitalization on the Mexican stock exchange.

The foundation of his empire is the phone company Telmex (Telefonos de Mexico) which he bought in 1990, and which owns 80 percent of the country’s 18.2 million fixed phone lines. Slim also controls Telcel, a unit of his América Móvil network, which has about 74 percent of the country’s 64.6 million mobile users and is the world’s fifth-largest cellphone company with 124 million customers in 15 countries. In the United States, he controls Tracfone, a pre-paid cellphone company that claims 12.4 million customers.

His major Mexican holdings, Inbursa Financial Group and the Carso Group, cover a mind-boggling range of services from banking to construction, hotels, mining, oil drilling, highways, healthcare, a low-cost airline, a cigarette manufacturer, and much valuable real estate in the heart of Mexico City’s colonial downtown.

Beyond Mexico, his telecom investments stretch the length and breadth of the Americas. The Slim family is also Saks’ biggest shareholder, with 17.4 percent of the U.S. company’s shares. He also held a major stake in now-bankrupt Circuit City, as well as the telecom giant Global Crossing, and a 1 percent stake in Citigroup.

In 2008, Slim purchased stock that gave him a 6.9 percent ownership stake in The New York Times Company. Last year he helped bail out the struggling newspaper with a $250 million loan, giving Slim 15.9 million shares and making him the company’s largest creditor, as well as one of its largest stockholders.

As his wealth rises and he attracts more international attention, Slim has poured billions into a previously neglected aspect of his businesses: corporate social responsibility. “There is tremendous social pressure to give back to the country that has given him so much,” Garcia says.

In 2007 he announced plans to pump one-fifth of his fortune into philanthropy. Various charities, mostly cultural, educational or health-oriented, have benefited. He created his own healthcare foundation while also pouring money into the restoration and redevelopment of the old colonial center of Mexico City, as well as making large donations to the Clinton Global Initiative and to the Alas Foundation, created by Shakira. That has won him favorable press in many quarters.

However, his critics remain unconvinced. “It all looks like a deliberate PR strategy to bolster his public image,” says Denise Dresser, a leading political scientist at the prestigious Autonomous Mexican Institute of Technology (ITAM). Slim barely hides his disdain for charity, she notes, highlighting comments he made to The New Yorker magazine last year. “I don’t believe in charities too much,” he was quoted as saying. “They can make you popular… but you don’t solve any problems.”

Slim has also publicly scoffed at Bill Gates and Warren Buffett for “going around like Santa Claus” trying to cure society’s ills. “Poverty isn’t solved with donations,” he said at the unveiling of his own $450 million foundation for health research and care. Building businesses and creating jobs is his preferred solution.

“One must take him at his word,” says Dresser. “His incursion into the world of philanthropy pretty much espouses that view.”

But, others say Slim’s philanthropy owes at least part of its origins to the 1999 death of his wife, Soumaya Domit de Slim from kidney disease. He quietly began funding hospitals and a kidney transplant center. That evolved into educational scholarships through the Telmex Foundation. “I think Mr Slim’s philanthropy is in large part a personal decision that has opened his eyes to new horizons,” says Jorge Villalobos, 59, director of the Mexican Center for Philanthropy.

He hopes that Slim’s example could help build a stronger culture of giving in Mexico, which has a huge equality gap, yet only a fraction of the charities in the U.S. For centuries Mexicans have looked to the Roman Catholic Church as the fount of all charity, and civil society has only emerged more recently as an alternative.

Mexico also has no estate tax, so there is no incentive to divest large fortunes to charity, making Slim’s generosity all the more notable. “In the end Mr. Slim’s motives aren’t what’s important,” said Villalobos. “What matters more is that he is putting it into practice, which enriches everyone.”

To be sure, Slim’s new philanthropic push comes in the wake of a number of recent reports that pointed an embarrassing finger at the lack of competition and anti-trust legislation in Mexico. Slim defends himself saying his companies are no different than other big corporations such as Microsoft, Walmart, and Boeing who also dominate competitors in their markets.

But analysts roll their eyes at the very suggestion that there is any similarity between the competitive business climate in Mexico and the U.S. They point to the 1990 sale of Telmex, a former state monopoly. Critics say Slim acquired the prized franchise under dubious circumstances. Since then he has grown Telmex using what many consider to be unfair trading practices, with the protection of the Mexican government, effectively turning what was once the state’s monopoly into a private one.

Last year the World Bank published a book, No Growth without Equity?, warning that special interest groups in Mexico enjoyed a quasi-monopoly over key economic areas such as telecommunications and the oil and gas industry, and were an obstacle to creating a more efficient and productive economy. Furthermore, those groups had deliberately frustrated attempts to introduce competition, the book claimed, by exercising undue influence over Mexico’s weak government institutions.

The book closely examined a series of regulatory decisions since Telmex was privatized in 1990. Regulators allowed Telmex to keep prices high and protected it from competitors, wrote Rafael del Villar, a former official in the communications and transport ministry who recently was named to Mexico’s Federal Telecommunications Commission (COFETEL). “Telmex has exercised its substantial market power unchecked,” he concluded.

Roger G. Noll, an economics professor at Stanford University, also argued that Mexico’s telecommunications industry has been held back as a result, pointing out that fewer Mexicans have access to fixed lines or broadband Internet access than residents in similar countries. “Competition is hampered … by limitations to the authority of the primary regulator, COFETEL, by an opaque, secretive, and cumbersome regulatory process; and by an inadequate oversight system,” he wrote.

The Organization for Economic Cooperation and Development (OECD) said in March that Mexico should implement network unbundling rules and lift restrictions on foreign investment to boost competition in its telecommunications industry, to allow more competition with Telmex. “There is a lack of competition, particularly in broadband, here in Mexico. And because of that prices are going to be higher and speeds are going to be lower,” OECD economist Taylor Reynolds said at a Mexico City press conference.

The key to Telmex’s success are the high interconnection fees the company charges to calls entering Mexico, as well as calls within the country that are made to its clients from competing companies. But Telmex argues that its rates are cost-based and that its own studies show Mexico’s telecommunications fees are similar to those of other countries.

But times may be changing. The government of President Felipe Calderón has shown greater willingness than its predecessors to foster more competition in telecommunications. COFETEL announced plans in January to auction new wireless 1.9GHz and 1.7GHz bands for fixed and mobile telecommunications services, as well as consolidate the number of local service areas with a view to lowering domestic long-distance fees.

The move is expected to bring new competition to the mobile market. Also digital cable operators in Mexico, such as Cablevision, were recently allowed to operate telephone services, though they still have only a small share of the market.

COFETEL recently obliged Telmex to start connecting to Cablevision and was not allowed to set any preconditions for connection. COFETEL said in late October it will start two new investigations into Telmex’s dominance, only the second time in a decade that the federal watchdog will probe the company.

Slim’s ambitions now sit at a crossroads. Telmex is facing tougher competition at home and lost ground on the stock exchange last year. América Móvil is also in a hemisphere-wide battle with Spain’s Telefónica.

Telmex is now seeking a license to operate TV services, giving it the keys to what is known in the telecom business as “the triple play”—telephone, TV and Internet. Without it, Telmex cannot compete with Televisa (owners of PODER magazine) in the fast-growing new media field of cellphone technology.

Slim clearly understands the direction digital technology is headed. “It’s the nervous system of the new society,” Slim told Maria Bartiromo in a recent interview for CNBC, noting that cellphones now had 85 penetration of Latin America, while also predicting that two-thirds of Latin America would have broadband coverage in the next five years.

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Mexican regulators are supposedly digging in their heels this time, in their effort to get Slim to lower his connectivity fees to internationally acceptable rates.

“[Regulators] have a great card up their sleeve,” says Garcia at Sentido Común. “As long as [Slim] is misbehaving they are not going to give it to him. They are cracking down on him but he is still fighting every aspect of regulation.”

Garcia thinks Slim is making a mistake. Telmex recently teamed up with Dish Network to offer a TV service that can be charged to a telephone account. “That way he can offer the same service as his competitors, but he’s undermining his own tremendous network,” he adds, pointing out that Telmex’s regulatory problems prevented it from offering its own TV service direct to the company’s 18 million fixed line clients.

A lot is at stake. If Telmex gets its own cable services the network would enjoy such market penetration that it would likely gobble up exclusive rights to major channels, such as Discovery en Español and HBO en Español. Once again Slim’s monopoly would survive in an even more expanded form. “It’s all about managed competition,” says one former telecom executive. “That’s the key. That’s what he wants, because that way he can control everything.”

Analysts wonder if COFETEL has the means to stand up to Slim. The ruling National Action Party (PAN) is facing tough elections and likely won’t risk losing Slim’s economic support.

Slim also understands the industry better than the regulators—one of the trademarks of his success. “There is no capacity in COFETEL or the Secretary of Communications and Transport, as they are not experts in the sector,” says one analyst. “The main problem is that the state has not decided what kind of telecom system it wants in the country. Slim never loses an opportunity to take advantage. That’s how he stays ahead.”