The Wall Street Journal
By FARNAZ FASSIHI and MATTHEW KARNITSCHNIG
Iran's government pressured Knauf to issue the order after a senior executive was arrested during Friday prayer demonstrations two weeks ago, according to people familiar with the case. The company, which has 22,000 employees around the world, was told that such a letter would be a condition for the executive's release.
The order by Knauf, a drywall-manufacturing company with decades of business history in Iran, shows how foreign companies in Iran are vulnerable to severe repercussions if they don't comply with demands from the regime.
Since protests following Iran's June 12 presidential election, Iran has cracked down on opposition supporters, particularly Iranians or dual nationals employed by Western companies, embassies and the media. Iran has accused some of fomenting a "velvet" revolution and acting as links between opposition leaders and foreign countries.
Protesters have come from all walks of life. The employee at the center of the Knauf controversy is a 34-year-old dual national of Germany and Iran and heads the company's Iran operation. He was released four days after Knauf agreed to issue the order but faces trial, according to the company and others.
Isabel Knauf, a founding-family member who is on the supervisory board of the Iran operation, signed a letter that was circulated confidentially to its hundreds of Iranian employees on July 21.
"We would like to remind all of our employees to remember that they are not only representing their private opinion when being politically active, but their actions could fall back negatively on our Knauf companies in Iran," said the letter, which was reviewed by the Journal. "Therefore, from now on, if anybody from our company gets caught demonstrating against the current government, he or she will be immediately dismissed."
Germany's commercial relations with Iran stretch back to the Middle Ages and have been particularly strong since the beginning of 20th century. Germany is Iran's third-largest trading partner after the United Arab Emirates and China.
Some 85 German companies have operations in Iran, ranging from Deutsche Lufthansa AG to auto supplier ZF Friedrichshafen AG, according to the German-Iranian Chamber of Commerce. In addition, 7,000 to 8,000 German companies conduct business in Iran through local representatives, the chamber says.
Iran has been heavily criticized in the West, particularly by German Chancellor Angela Merkel, for its use of force in crushing opposition rallies against the re-election of President Mahmoud Ahmadinejad.
So far, Bavaria-based Knauf appears to be the only German company to issue such an order, according to Michael Tockuss, managing director of the Hamburg-based German-Iranian Chamber of Commerce. Other companies have advised employees to avoid large crowds for their own safety, he said.
But the crisis is having an impact on foreign companies, consultants said. "Certainly, it is not business as usual for Western companies in Iran; not under these circumstances," said an Iranian consultant in Dubai.
Mercedes-Benz parent Daimler AG, which has a representative office in Tehran, places no restrictions on employees' political activities outside work hours, according to a spokeswoman.
A number of major German companies active in Iran, including Siemens AG, Linde AG and BASF AG, said they have similar policies. "If employees are politically active, that is their private business," said Thomas Moller, a spokesman for BASF.
Reached by phone in Turkey, Ms. Knauf described the situation as "very complicated," declining to discuss the matter in detail because the case is pending. People close to the company said their primary concern in writing the letter was the executive's safety.
Knauf General Counsel Jörg Schanow said employees aren't allowed under company policy to participate in demonstrations as company representatives. Knauf's intention with the letter wasn't to forbid its Iranian employees from participating in all demonstrations, he said. "One should exercise some restraint if such actions are going to damage the company," Mr. Schanow said.
Founded in 1932 by two brothers, Karl and Anton Knauf, the company is run by the founders' sons. In addition to drywall, Knauf makes other building materials, and has annual revenue of about €5.5 billion ($7.7 billion). Its U.S. operation, in Shelbyville, Ind., makes building insulation.
Some Iranian employees of European companies in Iran expressed outrage at being punished by a European company for practicing democratic values such as protesting. They said European companies should use their economic clout and long ties to pressure Iran's government to respect human rights.
A German Foreign Ministry spokesman said the government wasn't aware of the Knauf case but added, "If it's true that German companies are restricting or forbidding staff from demonstrating, then the German government doesn't welcome it."
Some Western governments have tried to discourage firms from trading with Iran or investing heavily there, partly because of sanctions and because of Mr. Ahmadinejad's hostile standoffs with the West over Iran's nuclear program.
—Almut Schoenfeld and Marcus Walker contributed to this article.
