Corporate Social Responsibility In An Energy Company

January 2012

Corporate social responsibility (CSR) is a major buzzword within academic circles, politics, activist groups, and the business community. There is no set definition which has led to confusion as to what should be expected of corporations in the area of social responsibility. In whatever way it is defined, it assumes that a company is responsible for its wider impact on society, not merely the return to stockholders. 

In the 1870’s steel baron, Andrew Carnegie earned a reputation as an “enlightened industrialist” by building model communities for his workers and prescribing eight-hour workdays before it was a mandatory legal requirement. In the 1930’s the Rockefeller Foundation, before the establishment of the UN and World Health Organisation, functioned as the world’s unofficial public health directorate, using its enormous philanthropic resources to fight diseases from yellow fever in Columbia to hookworm in Thailand. In the 1970’s corporations started investing in social causes for public relations, marketing and crisis management.1

The most contemporary, relevant and applicable definition of CSR to the majority of cases is as follows:

“Corporate social responsibility is the commitment of businesses to contribute to sustainable economic development by working with employees, their families, the local community and society at large to improve their lives in ways that are good for business and for development”. 2

CSR for oil and gas companies are prevalent in the areas of health, safety and the environment. However, according to Milton Friedman the social responsibility of business is to increase its profits. Friedman, an acclaimed economist of his time, did not feel that CSR has a place in the corporate world. In response to the rise of CSR, Friedman wrote over 30 years ago:

“[T]here is only one social responsibility of a business – to use its resources and engage in activities designed to increase its profits, as long as it stays with the rules of the game, which is to say, engages in open and free competition without deception or fraud”. 3

 Henry G. Manne, Dean Emeritus of the George Mason University School of Law, believes that: 

“[A]ny large enterprise, no matter how competitive its industry and no matter how successfully it is fulfilling the public’s desires, has a social responsibility – a term that makes mockery of the idea of individual responsibility – to use part of its resources for “public” endeavours. Today’s favourite causes are environmental protection, employee health, sales of goods at below-market prices, weather modification, community development, private enforcement of (not merely abiding by) government regulations and support of cultural, educational and medical facilities”. 4

Manne concludes with this thought: 

“The illusion of great and threatening power, the superficial attractiveness of the notion, and the frequent repetition of the mantra of corporate social responsibility have made this fallacy a part of the modern corporate zeitgeist. Like the citizens who were afraid to tell the emperor that he was naked, no responsible business official would dare contradict the notion publicly for fear of financial ruin, even though the practice continues to cost shareholders and society enormous amounts. This is especially so in large-scale retail businesses like Wal-Mart or Coca-Cola or BP that are highly vulnerable to organized public criticism. Our laws against extortion do not function effectively when it comes to corporations. And so to some extent these private entities have indeed, via the social responsibility notion, been converted into crypto-public enterprises that are the essence of socialism. Milton Friedman was right again”. 5

Many have argued that CSR is immoral as it insinuates that a business has much broader responsibilities than simply producing, buying and selling products and services and generating profits for investors. Today, the view of CSR is that a business is responsible to all stakeholders, that is, virtually anyone affected by their products or means of production. CSR is being accepted rapidly in trade and commerce, but what are they agreeing to?

The arguments against CSR are as follows: 6

  1. businesses are owned by their shareholders. Any money spent on so-called social responsibility is effectively theft from shareholders who can decide for themselves if they want to give to charity. 
  2. the leading companies who report on social responsibility are basket cases, whereas, the most effective business leaders don’t waste time or resources with this concept.
  3. our company is too busy surviving hard times and cannot afford to take our eye off the ball. We have to focus on our core business. 
  4. it is the responsibility of politicians to deal with social issues. It’s not our role to be involved as a business but only as individuals. 
  5. I have no time and must sell more to make increase profits. 
  6. corporations don’t really care; they’re just out to swindle the poor and environment to make obscene profits. 
  7. it is not consistent with the principles of capitalism and it undermines our political process. 

CSR takes private property (individuals’ ownership rights in a corporation) and hijacks it to advance personal agendas and priorities. To the diehard Friedmanites, this is considered stealing and violates one key economic freedom necessary for a market economy to thrive. To provide de-facto regulatory authority to CEO’s does not justify disenfranchising citizens. Accepting this view of “delegating government’s regulatory authority to private boardrooms weakens our political institutions and diminishes our democracy”.  7

Who decides what social cause or purpose a corporation financially supports? There are numerous good causes but corporations should not be required to solve society’s problems. It is for governments to implement policies and laws that rectify social injustices to maintain a fair playing field. A public problem should be addressed by a public forum where all positions and points of view are considered, discussed, given proper consideration and ultimately resolved by elected officials.

The notion that the corporation should apply its assets for social purposes rather than for the profit of its owners and shareholders is irresponsible. This view is advanced by Betsy Atkins, CEO of Baja Ventures, a VC firm focused on technology and life sciences. In her commentary, Atkins proposes a test of the market for CSR as follows. 

Suppose Apple sell one iPod for $99 and another for $125. Apple could announce that the additional $26 from the more expensive iPod would be spent to promote special social causes such as education, health and the environment. This honest and transparent test would provide how shareholders’ money was being used allowing the market to drive the outcome. Such a test was undertaken, but not in the private sector. Beginning in tax year 2002, the State of Massachusetts gave taxpayers the option of checking a box on their 1040’s to pay a higher rate of tax, with the extra funds going to social services. Out of the $16 billion that Massachusetts residents paid in taxes that year, only $100 million came from people who volunteered to pay extra. That is less than 1% of the market. 8

Consumers prefer to support as individuals rather than as part of a huge pool. Investors don’t expect a corporation in which they invest to deploy corporate assets for social causes. Although there are practical reasons why corporations should cloak themselves in the politically correct rhetoric of social responsibility it should not be confused with significant deployment of corporate assets.

For example, BP’s marketing campaign is all about looking for alternative energy sources thereby the consuming public feel good about purchasing BP products. However, if BP had redeployed billions of dollars into environmental investments that yielded zero returns and its stock plummeted, one would certainly expect the investing public to transfer its money to a competitor or elsewhere.

Atkins proffers that:

“[W]hat the investing and consuming public really mean by “social responsibility” is:

  • Be transparent in your financial reporting.
  • Produce a quality product, and don’t misrepresent it.
  • If you know something about the product that endangers the consumer, be forthright and let the public know.
  • Do not use predatory practices in offshore manufacturing, such as child labour.
  • Do not pollute your environment or other environments and adhere to laws and regulations.
  • Be respectful, fair and open in your employment practices”. 9

Will companies engage or be involved with states accused of human rights abuses (such as China, Saudi Arabia and Burma)? Companies cannot issue statements insisting that they support human rights when they openly deal with a state that is a prolific abuser of human rights. This position is untenable as companies will lose money. Is there a way around this conundrum or is hypocrisy inevitable in the case of Shell in China and Saudi Arabia or Total in Burma?

The first real piece on the expression of human rights is the 1948 Universal Declaration of Human Rights (UDHR). These rights are binding on all states that signed the UDHR. Article 55 of the United Nations (UN) Charter endorses human rights. Two additional UN covenants relating to human rights were created, namely, the 1966 International Covenant on Civil and Political Rights and the 1966 International Covenant on Economic, Social and Cultural Rights. These three instruments provide the legal framework for business with respect to human rights. Other international bodies have also prescribed standards of treatment such as the International Labour Organisation and the International Red Cross as well as regional bodies including the Council of Europe and the Organisation of American States.

It is difficult for companies to advocate its position or CSR policy to the host country but may use soft power to influence its politics and position on such matters. Oil and gas companies must support the UDHR while operating in countries where human rights abuses are endemic. A classic example of an oil company not abiding by its own CSR is Shell.

In 2005, nicknamed the “Battle of the Bog”, 10 Shell, upon invitation by the Mayor, entered the town of County Mayo on the northwest coast of Ireland in pursuit of a gas find in the Corrib Field, 45 miles from the coast of Mayo. Celebrations ended abruptly when residents of the town realised that Shell intended to run a pipeline carrying unprocessed gas through local properties, some only 70 metres from homes, creating at least 30 million cubic feet of emissions per day. About a mile away is Carrowmore Lake, the regions source of water supply. This lake is very shallow and isn’t deep enough to deal with the emissions. 

Not surprisingly, there was a revolt against the project for fear of pollution and explosions. Five local men, dubbed the Rossport Five, were sent to Clover Hill prison in Dublin for refusing to obey an injunction which forbid them from obstructing the construction of the pipeline across their land. Shell had obtained compulsory purchase orders for the locals land, the first time in Irish history that such an order was granted to a private company. In response, locals only demand was for Shell to build the gas refinery offshore which removed the need to build a high-pressure pipeline near residential homes. 

Ireland’s Minister for Communications, Marine and Natural Resources, Noel Dempsey granted Shell an interim consent order to mark out the route for its pipeline. The transaction details for the site of the gas terminal are unclear. The cost of the 400 acre site sold to Shell by the state forestry body, Coillte site at Bellanaboy is unknown but locals believe that if this site wasn’t available Shell would be forced to go offshore. 

As currently proposed the gas pipeline will have adjoining pipes carrying hydraulic fluid, cleansing acids and waste. There will also be electric cables coupled with a high pressure pipeline which is untreated and odourless without the added smell for detecting leaks and will pass homes through villages and boggy land with a history of landslides. Shell engaged a company to provide a report addressing the risks to the public which peculiarly concluded it would be tolerable when compared with international criteria. Shell conceded the report was based on incomplete information and the company that provided its report had previously worked for Shell.

Texaco (now Chevron) is facing a lawsuit in Ecuador for over $1 billion in damages for what has been called the environmental crime of the century. 11 Also, Chevron’s Richmond Refinery in California is one of the oldest and largest refineries in the USA. Recent findings by the Environmental Protection Agency (EPA) found almost 300 pollutant spills from the refinery between 2001 and 2003. Highly toxic, often cancerous, chemicals spilt directly into residential communities where families, children, the elderly, and the sick reside. The EPA also lists the refinery in significant noncompliance for air pollution standards. 12

Energy companies can’t afford negative press or any public relations controversy. Any adopted CSR should be realistically implemented, especially today when oil and gas companies are perceived as the “bad guys”. They should endeavour to strike a balance between the shareholders, employees and any other interested party that they might affect.

Companies are best served by finding a healthy balance between Friedman and Atkins perception of CSR. First impressions count and last so it’s vital to be an ethical company and not just about profits. For example, if child labour is to be used in other parts of the world, it should be explained that by not employing these children then the outcome will have catastrophic consequences; namely, children falling into prostitution, drug addiction, sexual abuse or even violent crime. One can only be just and moral when taking into account all the circumstances.

General Electric (GE) talks green but is dragging its feet in relation to the EPA’s decision in February 2002 which determined that GE’s PCB’s (persistent organic pollutants) pose a public health and environmental threat which must be dredged from 40 miles of the Hudson River. To date, GE has failed to act on the clean-up. 13

What if a company is offered lucrative oil and gas contracts in Zimbabwe? Does the company accept or refuse on the basis of Robert Mugabe’s regime? If companies pull out, there may or may not be impacts on the regime in question, but there certainly will be on the local population who depend on these companies for jobs. Barclays, for example, has 1,200 employees and 187,000 customers in Zimbabwe. Barclay’s position is clear: “We have been there for the best part of 100 years and a lot of people depend on us, for their food, if nothing else.” 14

British companies doing business in Zimbabwe were asked by the UK Government to sign up to an ethical code to ensure they were not giving support to Robert Mugabe’s regime. The companies refused. It does not necessarily follow that these companies will or have behaved unethically, it just means the code may have been geared for government priorities, as details are not provided. 

Chandran Nair realistically opines:

“CSR is at best a creature that serves its purpose for PR reasons of the multinationals that cannot escape such a division in its organization for fear of backlash from the general public, and at worst, the phenomenon is characterized by ever bigger events, more pontification, few original thoughts, less informed debate, more participation by public relations professionals, great earnestness, few actions and an expanding list of ‘issues’”. 15

Will it affect the bottom line? There is no definitive conclusion that CSR is linked to profitability; although investment in corporate ethics and social responsibility can lead to positive payoffs. Previous studies have attempted and failed to find a positive relationship between social responsibility and financial performance. 

Nike is a great advocate for CSR. Just by visiting its website one can read the voluminous material under “Nike Responsibility” addressing topics such as responsibility governance, “Nike Giving Guidelines”, and “Our Community Programs”. However, Nike produces much of its product in “sweatshop” conditions overseas. Nike needs CSR to enhance their brand and reputation otherwise negative publicity would drive down sales and its share price. CSR can be viewed as an insurance policy where if you create enough of a CSR smoke screen, nobody will see what you’re really doing. 16

A company may choose to adopt the UN Global Compact without necessarily joining. Addressing only three areas in its CSR: health, safety and environment, these fall within the realms of law, good business ethics and practices. The reason for not joining is due to Principle 2: “Businesses should make sure that they are not complicit in human rights abuses.” What does complicit mean? Would a company be complicit in human rights abuses if it were awarded drilling rights in a country like China, Saudi Arabia, Libya, Burma or Equatorial Guinea? For the avoidance of doubt, observance rather than membership is recommended.

Working in underregulated countries does not give companies the right to abandon their CSR because compliance is not required and the rules can be flouted. On the contrary, companies should endeavour to implement its CSR everywhere, all the time. If another oil and gas company uses child labour it’s not a reason for you to replicate unless as stated above. However, should there be a labour shortage and only child labour is available then if payment is in accordance with international guidelines so as to “compensate workers with remuneration that ensures an adequate standard of living for them and their families” and “such remuneration shall take due account of their needs for adequate living conditions with a view towards progressive improvement” 17 then, including other safeguard conditions, by all means.

Companies aim to operate in an incident free workplace with the safety of employees being paramount. Proactive individual involvement, personal responsibility, accountability and continuous improvement are to be expected from all employees, clients and subcontractors. The goal is to implement rigorous training and development to create a safe workplace. Incidents will always occur but the aim is to eliminate them as best possible by encouraging employees to identify improvements, corrective opportunities and participate in developing action plans. In addition, giving each employee the obligation and right to interrupt an operation to prevent an incident from occurring is good practice.

Companies will be concerned about the health of its workforce and provide the strongest possible commitment to proactive health initiatives promoting a healthier lifestyle through its medical program. Given the nature of the industry, companies should periodically conduct medical examinations for all employees assigned and/or frequently traveling overseas. Immunise employees when required. Provide a medical response team for offshore and overseas developments. 

Safeguarding people, property and the environment is fundamental by ensuring their activities do not adversely affect them. Companies must invest in energy conservation and waste management to reduce our environmental footprint while saving money and wear on equipment. 

Staying up to date by using integrated management systems, best practice and procedure for oil exploration and production to ensure environmental protection and continued good business. Environmental responsibility must be applied on all rigs, offices and facilities to ensure that all operations are managed in an environmentally responsible manner, every time, everywhere seeking to be globally compliant to ISO 14001:2004 and it’s Environmental Management System meets the highest level of legislative regulation and international treaties.

Generally, oil and gas companies are committed to conducting business and operational activities in a responsible manner, by limiting any adverse impacts to the environment and promoting the efficient use of resources. This vision should be instilled in the minds of all workers who are expected to: 

  1. work in a safe and environmentally responsible manner;
  2. work in a manner that prevents pollution;
  3. reduce waste and promote recycling to conserve resources; 
  4. prevent and mitigate environmental incidents; 
  5. assess and monitor tasks to limit the environmental impact of their activities;
  6. identify improvement, corrective opportunities and the development of action plans; 
  7. respond to and report all environmental incidents; and 
  8. comply with all relevant environmental legislation and other agreed requirements.

 

1 Victoria Baird, Christina Kramer & David Wofford, “What is Corporate Social Responsibility?” Catalyst Consortium, July 2002.

2 The World Bank Group’s Corporate Social Responsibility Practice, as a department of Foreign Investment Advisory Service.

3 Milton Friedman, “The Social Responsibility of Business is to Increase Profits”, The New York Times Magazine 13 September 1970.

4 Henry G. Manne, “Milton Friedman Was Right, “Corporate Social Responsibility” is bunk”, The Wall Street Journal 24 November 2006.

5 Ibid, p 3.

6 Mallen Baker, “Arguments against Corporate Social Responsibility” 2 October 2007.

7 Wayne Winegarden, “Corporate Social Responsibility is Immoral”, Townhall.com 2 December 2006.

8 Betsy Atkins, “Is Corporate Social Responsibility Responsible?”, Forbes.com 28 November 2006.

9 Ibid, p 1.

10 Michael Tierney, “The Battle of the Bog”, The Herald Scotland 8 August 2005.

11 www.business-humanrights.org/Categories/RegionsCountries/Americas/Ecuador.

12 Antonia Juhasz; “The Tyranny of Oil – The World’s Most Powerful Industry – And What We Must Do To Stop It”, 2008.

13 Ned Sullivan & Rich Schiafo, “Talking Green, Acting Dirty”, The New York Times 12 June 2005.

14 Mallen Baker, “Can You Conduct Business with Integrity in Zimbabwe?”, Corporate Social Responsibility News and Resources, an article from Business Respect, Issue Number 135, 31 August 2008.

15 Chandran Nair, “Corporate Responsibility – An Industry that has Lost its Way”, Ethical Corporation Magazine, 14 December 2007.

16 www.nikebiz.com/responsibility/.

17 UN Draft Norms of Responsibility of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, March 2003.