Corporate Social Responsibility of Oil and Gas industry in Nigeria
The main objective of this literature review is to attempt answering the research questions posed in our proposal because it is the focus of this research. In doing that, we shall review definitions, recapitulate and employs insights to the studies of previous prominent researchers on the topic particularly as it concerns MNOC in Nigeria. The work shall mainly consult books, journals and articles amongst others.
With the general growth of CSR in many multinational companies, it is hardly surprising that CSR attracted considerable attention in recent years. In an attempt to digest CSR, studies have focused on the meaning, drivers and scope of CSR. While some researchers’ say it should not exist, others said it should be philanthropic, some said it is to enhance business, and others even think it regulatory compliance. Much of the earlier work emphasized two prominent definitions: philanthropy or business enhancement. Ojala (1994) said it has three major facets: complying with the law; setting and abiding by moral and ethical standards; and philanthropic giving.
The first popular/acceptable definition of CSR is by Bowen (1953, p.6) He defined CSR as “the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.”
Since then, many definitions followed ranging from Carroll (1979), McWilliams and Siegel (2001), Whetten et al (2002), Maignan and Ferrell (2004) and Sriramesh et al. (2009) EU’s Green paper on CSR defined it as ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’. The World Business Council for Sustainable Development defines CSR as
the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of its workers. . .as well as the local community and society at large.
These definitions are important to this work as they see CSR as voluntary.
To CSR advocates it is giving back to the land/people from whom it has taken so much, else poverty, unemployment, lop-sided development would continue to haunt Companies. Shankar Venkateswaran (2000) said that Islands of prosperity cannot survive in a sea of poverty – the sea will ultimately engulf the islands.
On the contrary, critics believe that CSR are used to distract public from asking questions posed by MNC operations. To them, CSR is not committed to sustainable development as claimed because activities of MNC’s are contrary CSR. Example is Shell’s CSR led to pioneering in triple bottom line reporting, still there was a scandal of its misreporting of oil reserves in 2004.
REVIEW OF THE RESEARCH QUESTIONS
People view CSR differently, some advocate while others criticize. Peter Drucker (2004) is of the view that CSR should not exist at all. He said ‘corporate social responsibility is a dangerous distortion from business principles. If you find an executive who wants to take on social responsibility, fire him. Fast.’ Others said that the organizations pay taxes to ensure that society and the environment are not adversely affected by business activities. This leads us to the first research question.
What could be the main drivers of Corporate Social Responsibility by multinational companies? Is it to promote corporate image and benefit business or do they have positive responsibilities that add value to the communities they do business in?
Motivations to engage in CSR are varies. Some are response to market forces, globalization, consumer and civil society pressures, etc. Some see it as a higher incentive to protect brands and investments (NEEDS).
CSR drivers will be reviewed in three categories: economic, institutional and social drivers
There has been a lot of literature supporting that CSR is to enhance business.
This proposition was clearly supported by Milton Friedman (1970). To him, a corporation's purpose is to maximize returns to its shareholders and not to society as a whole. He said
When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers.
In the same vein, McKibben Bill (2006) suggests that corporations which exist solely to maximize profits are unable to advance the interests of society as a whole. Also, Lord Justices Pill, May and Keane (1997) in proving that McDonald’s business contradicts its social responsibility principles ruled that eating enough McDonald's food may make ones diet high in fat therefore increase the risk heart disease in McDonaldHYPERLINK "http://en.wikipedia.org/wiki/McDonald's_Restaurants_v_Morris_&_Steel"'HYPERLINK "http://en.wikipedia.org/wiki/McDonald's_Restaurants_v_Morris_&_Steel"s Restaurants v Steel HYPERLINK "http://en.wikipedia.org/wiki/McDonald's_Restaurants_v_Morris_&_Steel"&HYPERLINK "http://en.wikipedia.org/wiki/McDonald's_Restaurants_v_Morris_&_Steel" Morris. For Johnson (1971p.54 cited in Vrabic, 2010) ‘Social responsibility states that business carry out social programs to add profits to their organizations.” He perceives CSR as long-run profit maximization not just activity to demonstrate ethical standards. Orlitzky, Schmidt, and Rynes (2004) in their study found a correlation between social/environmental performance and financial performance.
Kurucz (2008, p.86), in his study identified four general types of business cases to support that CSR enhances business: cost and risk reduction, profit maximization and competitive advantage, reputation and legitimacy, and synergistic value creation.
Cost and risk Reduction:
Firm engage in CSR to reduce costs and risks to the firm, since stakeholder’s demands can present a potential threat to corporate financial goals (Kurucz, 2008, p. 88).
CSR can be used to gain competitive advantage over industry rivals (Kurucz, 2008, p. 89). It is also used as a lobbying strategy for tighter regulations that leads to higher market values especially in oil companies with heavy polluting activities. (Porter 1991, cited in Vrabic, 2010)
Reputation and Legitimacy:
CSR is made for strategic reasons and are designed to extend legitimacy and enhance corporate reputation, to maintain its legitimacy, repair or defend its lost or threatened legitimacy (Kurucz, 2008, p. 91). Miles and Covin (2000 cited in Vrabic, 2010) opined that environmental stewardship creates reputational advantage that enhances marketing and financial performance. To Brown and Dacin (1997), negative social reputation can have detrimental effect on product evaluations and positive social reputation can enhance product evaluations. This could be seen from the boycott of Shell gas station by European consumers due to Shell’s attempt to dispose Brent Spar oil platform in the Atlantic Ocean and the consequent 50% decline sales (Neuger, 1995 cited in Vrabic, 2010).
Synergistic Value Creation
Approaches advocating synergistic value creation are focused seeking opportunities to reveal, relate, and synthesize the interests of diverse set of stakeholders.
Some studies, however, have taken a different approach. Lerner and Fryxell, (1988 cited in Vrabic, 2010)) argue that firms incur unnecessary costs that does not add value and reduce profitability by increasing social performance.
Much as there may be economic drivers of CSR, to serve long term national interests, Governments have a strong interest in promoting CSR initiatives mostly through regulation to complement their environmental and social programs (Mazurkiewicz, 2004a). Prominent CSR researchers consider regulation as a natural adjunct to improving the social performance of business, contingent only on the correct design of market incentives (Porter and van der Linde 2000, p. 156, cited in Vrabic, 2010). In Europe, many countries have introduced legislation to mandate environmental reporting for corporations (Haigh and Jones, 2006). Also, Inter-governmental organizations like EU, UN and OECD promote CSR through various policies that encourage companies to voluntarily engage in more sustainable and socially responsible conduct of business.
In the oil sector, (Frynas, 2009, p.50 - 52) argue that decisions are becoming politicized especially with joint venture agreements. With joint venture, Government owns shares, oil, grants licenses, provides regulatory framework, and defines respective rights and responsibilities of investors.
Moon and Vogel, (2008, cited in Vrabic, 2010) argue that in the global market, MNCs often appeared to be as powerful as states, yet unaccountable as Governments and international institutions most times create regulatory vacuum to control their actions. This vacuum the NGOs normally fill by questioning MNCs actions (Held and McGrew, 2002, cited in Vrabic, 2010). NGOs demand that companies follow the conventions and agreements signed within UN, respect basic environmental regulations adopted by western governments or regional organizations (Bandell, 2004).
The second question is
Why are there proliferations of youth militancy and movement, protests, invasion of oil facilities and abduction of oil workers, intense dispute and conflicts against the MNOCs in the Niger Delta despite the CSR?
The problems between the oil companies and host communities are best described by Watts, (2004:198) as the story of development and counter development “working with and against one another in complex and contradictory ways.” The crises and hostility according to Eweje (2007) arise sometimes because indigenes feel they don’t get enough social and economic infrastructures/assistance from the MNOCs.
The CSR seem to escalate the crisis. This is because either by omission or commission, CSR activities and processes impact negatively on local communities, often outweighing the positive benefits CSR brings (Watts, 2004). Christian Aid (2004) says that despite Shell's claims about "honesty, integrity and respect for people", the oil company has failed to bring about change in the delta. It also confirmed that some of the acclaimed schools, hospitals and other social amenities have been abandoned or did not meet the needs of the communities they were meant to support. It found evidence that Shell's clean-up of oil spills and repair of pipelines in Nigeria is scandalously inadequate and would never be tolerated in Europe and North America. This failure of CSR added to the bad feeling between the local community and Shell (Andrew Pendleton Christian aid report).
Sometimes oil companies carry propaganda by way of CSR. Example is the CSR that followed Ogoni crisis to redeem Shell’s image especially with several publications and propogandas.58
Oil companies sometimes connive with the state to be violent, using private security and state agents who are often overactive in their tasks of protecting oil installations and workers. This leads to harassment, intimidation and suppression of environmental development and rights activities. Sometimes crises arise because of oil spills. Nembe indigene 3 (cited in Tuodolo 2007) said
Oil activities cause serious environmental problem. Oil spills; discharge of drilling and production waste; and gas flaring…. The negative impact of these on the people’s health and livelihood is enormous: All of us in this community are fishermen … there is always spillage … have destroyed our marine life and our occupation….
To show Shell’s negligence and non-sustainability, it spilled 14,000 tons of oil into the Niger Delta in 2009 while that of 2008 is between 2,200-8,000 and a daily flaring of about 604 million per day (SPDC, 2009).
On their part, Shell CEO Peter Voser(2010, reported in Guardian newspapers) said that
Nigeria, especially the Niger Delta, remains a very challenging place in which to operate. Security issues and sabotage are constant threats to our people, assets and the environment....
Even when the crises arise, oil companies respond when and how they like. They sometimes pay compensation and initiate community projects, but do not enhance their social responsibility credentials (Omotala 2010). He said
One, the oil companies … are known for paying compensations that are far lower than international minimum standards. They are also reputed for the avoidance of payments of compensation on frivolous grounds such as attributing oil spills to sabotage for which they may not be culpable. In some instances, they only pay compensation after protracted court cases that are usually very costly to the host community.
Sometimes the development does not worth it even when they are implemented. Idemudia (2009) said CSR developments must protect, preserve and conserve the environments upon which the livelihood of rural inhabitants depends to be meaningful and sustainable. MNOC’s are being accused of living by their words. Example, a community leader asserts that ‘‘most of these developments are only reflected on their books, not on the ground and even then it is not based on the priorities set by the communities but what suits their public relation image of the company’’ ( Eweje, 2007).
All this culminated together causes the rising violence, militancy, protests, invasion of oil facilities, pipeline vandalization and abduction of oil workers in the region which sometimes swings both the oil companies and Government to actions.
Eweje (2007) concludes that no matter how laudable the CSR initiatives are – if the host communities do not feel that the projects will create a sustainable economic, social and environmental development the conflict and unrest in the Niger Delta will continue.
There have been questions of whether CSR differ in developing and developed countries. Amaeshi et al. (2006) in their work asked if there is a Nigerian brand of CSR or is it an imitation of western CSR practices.
NEEDS XV argue that socio-culturally framed and that the socio-cultural characteristics of Nigeria are unique and as such, the practice of CSR would mainly be shaped by the socio-economic conditions in which these firms operate. To NEEDS, CSR in Nigeria would be aimed towards poverty alleviation, health care provision, infrastructure development, education, etc, not necessarily reflection of popular western standard like consumer protection, fair trade, green marketing, climate change, social responsible investments, etc.
Oil spills are more in Nigeria and even where there is, prompt actions are not taken (Christian Aid 2004). Considering this point, Frynas, (2005) said that where government fails to effectively make and enforce environmental regulation, MNOC only voluntarily care to avoid oil spills and may be label it ‘CSR’. CSR today looks more of regulatory compliance in developed countries with more effective government.
In Nigeria, Shell admitted that its approach to CSR causes community disorder (SPDC, 2005:28), yet Shell has not changed the practices despites its claims to CSR.
While the more popular opinion like (Frynas, Christian Aid) is that there is double standard, sometimes MNOCs act the same way in both developing and developed countries. This can be justified by signing of collaborative agreements with Colombian with the Colombian Defence Ministry to provide $2.2 million on top of the mandatory war tax in 1995 by BP (Muttitt and Marriott, 2002). BP was accused of forming its own army and hiring security people with histories of human rights abuses and even murder (Beder, 2002, cited in Vrabic, 2010). Investigations revealed that BP’s security firm, trained the Colombian police in counterinsurgency and intelligence techniques used against local communities, and also provided weapons to the 16th Battalion of the Colombian army, which then conducted a massacre (Gillard, 1999 cited in Vrabic, 2010). There was fierce stakeholder pressure on BP and BP evaluated its social and environmental strategies (Frynas, 2009, p. 22-23). Some years after, a senior BP manager admitted:
We’ve learned from our mistakes…. In Colombia we were accused of getting too close to the army and police in order to protect our operations. We listened, approached the Human Rights Watch for advice, and then organized new security arrangements (Rice, 2002, p. 135).
Could it be safe to say CSR in developing countries are not at its best and if so is overlap, ineffective coordination and communication, absence of regulatory framework, partnership with Government/local communities’ major problems hindering the effective implementation of CSR projects?
In Nigeria, Rauscher (1992, cited in Frynas 1998) says that Governments sought to attract foreign investors by permitting ecological dumping, for the sake of economic development. Ite (2004) also argued that the government has continued to renegade on its commitment that it becomes almost impossible for the CSR investments by the oil firms to contribute positively to their host communities.
Oil companies blame oil pollution on political instability like sabotage because there is no comprehensive legislation on compensation payments to communities in Nigeria (Frynas 1998). But Walter and Ugelow (1979) in their work said that Nigeria’s environmental policy is been tolerant to corporate polluters for a long time compare to international standard.
Frynas argues that there is a direct relationship between state welfare provision and the need for CSR initiatives. To him, greater social and environmental responsibilities should be taken in countries where the government does not have effective mechanisms of regulation and provision of public goods. He cited Nigeria as his example.
Patricia Werhane (2007) on her own part cited corruption as a serious problem hindering CSR implementation in developing countries. She said
A big challenge facing multinational corporations is how they should respond to local corruption. Both Shell Oil and Exxon/Mobile sought to carry out drilling operations at sites plagued by corrupt local and national governments…. (Patricia Werhane 2007)
This is also Watts view when he said ‘What passes as development is usually contracts and bribes—so-called cash payments—with influential traditional elites, orchestrated through ineffective or corrupt community liason officers’ (Watts, 2004).
CSR ineffective coordination manifests in commercialized conflicts between individuals and groups who always fight over the benefits; community funds for development are mismanaged, misappropriated, and embezzled or shared by community leaders or clique (Watts, 2004). Social disorders like arms possession, increasing illiteracy, criminality, lawlessness and the disintegration of tradition and culture now became order of the day.
CSR should be considered more as a corporate moral responsibility, and limit the reach of CSR by focusing more on direct impacts of the organization (Patricia Werhane 2007).
It is suggested that for CSR to worth its onion, there should be better governmental and international regulation and enforcement, rather than voluntary measures. This is EU approach. For example, Denmark on 16 December 2008, adopted a bill making it mandatory for the 1100 largest Danish companies, investors and state-owned companies to include information on CSR in their annual financial reports. In Nigeria, FEC approved CSR policy on 21st May 2008. Also, Akwa Ibom state enacted oil and gas law stipulating social responsibility of oil companies.
To Christian Aid (2004:2) the only way to instill honesty and integrity into business practice is to strip CSR of its voluntarism and enact laws that spell out minimum social and environmental standards that companies must meet. Jettison corporate social responsibility: make it corporate social accountability, because for too long CSR has served as ‘merely a branch of PR’ and in some cases as the ‘only spurts of development activity by large companies.’
This work had defined CSR and explored the fundamental drivers of CSR. The observation is that today CSR is a consequence of various factors together interactions of various social groups and NGOs, state institutions and self promoting economic motives.
Three main drivers were seen as the main promoters of CSR, and one could conclude that CSR is more of business strategy than social. In the Niger Delta the continued crises could be attributed to the fact that MNOS’s do their things in their own way without actually touching indigenes lives. They employ any means to protect their business interest As regards the standard, MNOC adopt different standard for different stroke that is why this work is of the view that there should be laws guiding CSR not just MNOC’s doing what they think is suitable to them. This work also found out that there are structural factors, systemic failures, absence of enabling environment hinder positive impact of CSR. Although the popular view from this review is that MNOCs engage in CSR to enhance business therefore there should be CSR regulations, it cannot be ruled out that regulations especially stringent ones and host communities problems will discourage the MNOC who may decide to move their investment to a more friendly business environment. This clearly gives room for more research.
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