Corporate Social Responsibility at Niko Resources

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Assessment 2

Accounting Issues and Theories

Table of Contents

Executive Summary.......................................................3

Social and environmental reporting and Corporate Social Responsibility..........4

History of social and environmental reporting..................................4

The importance of reporting, company's responsibility & accountability............4

Legitimacy................................................................5

1.Bounds and norms of society & social contract............................5

2. Cost of illegtimacy when the social contract..............................6

Dilemma.................................................................6

Utilitarianism..............................................................6

Deontology...............................................................7

Libertarianism.............................................................7

Virtue....................................................................7

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Solutions and Recommendations ...........................................8

Conclusion...............................................................8

Bibliography..............................................................9

Executive summary

Here in this case study we elaborate and suggest what we believe is true and according to the information that was available from different sources. This is a case study basically about a Canadian Oil company working in Bangladeshi gas mine in Syllut. The Canadian Oil company Niko Resources has some doubtful history of bribery and corruption in SA as well. Somehow they have managed to get the contract by outbidding some of the world’s largest Mining companies.

The history of blowouts is important to know that it took plays January 7 and June 25, 2005 at Tagratilla Gas field. It cause billions of dollars damage to the gas field and according to Bangladesh officials Niko resources are responsible for this incident. Bangladesh filed a case in 2008 and claimed a hefty amount of 106 million dollars in compensation for the damages. International Centre for settlement of Disputes a Us based world bank body intervened and has tried to resolve this issue.

Mean while it is essential to know the responsibility and Accountability of Company and whom it has to report. What are the factors and stakeholders involved in this case? Effects of such incidents on local people and environment. How legitimacy theory applies to this case and company’s legitimacy is lost or after compensating they have paid the price?

We have tried to discuss all these issues in detail and hopefully came up with solutions and recommendations for future concern.

Social and environmental reporting and Corporate Social Responsibility

History of social and environmental reporting

These days, there is a growing concern about the social and environmental impacts of the operation of companies worldwide (Yongvanich & Guthrie, 2006). As a result, companies have to produce social and environmental reporting to “secure their right to operate from society” (Yongvanich & Guthrie, 2006).

According to Branco & Rodrigues (2007), the highlight of sustainability and corporate social responsibility (CSR) indicates the significance of information disclosure of companies and also contributes to the role of company’s accountability to the public. Gray et al (1996, cited in Branco & Rodrigues 2007) define corporate social and environmental reporting as the “process of communicating the social and environmental effects of organizations’ economic actions to particular interest groups within society and to society at large”. The activities run by the company might affect shareholders, employees, community and other stakeholders. In other word, the corporate social and environmental reporting is the disclosure of information about the company’s activities to the public (Branco & Rodrigues, 2007).

While some may argue that profit is the major concern of corporations thus financial reporting is more important. However, the truth is economic activities have caused many social and environmental issues (Yongvanich & Guthrie, 2006) and companies are operating in social norms and bounds known in a system-oriented view (Deegan, 2014), therefore, they need to conform to rules set by the society. Subsequently, non-financial or non-economic performance reporting is crucial.

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The importance of reporting, company's responsibility & accountability

There are many benefits that companies can enjoy when they focus on the balance of economic and non-economic performance. First, the work of publicizing social and environmental reports makes organizations “more accountable, democratic and transparent to stakeholders” (Yongvanich & Guthrie, 2006). Second, it contributes to the reduction in “waste generation, energy consumption and efficient use of resources” of a company (Baxi & Ray, 2009). Consequently, it will help to reduce cost and increase profit. In addition, in a long term, companies will be operating more effectively thanks to the efficiency of environmental management (Baxi & Ray, 2009). In short, the disclosure and reporting of social and environmental information have ten major objectives: gaining legitimacy to stakeholders; ensuring company’s transparency and accountability; improving corporate edibility and reputation; generating stakeholder value; boosting the role of firms in CSR; increasing market share and brand reputation; linking social and financial activities; improving company’s capacity, skills and attitudes; and following global standards (Baxi & Ray, 2009).

The interest in social and environmental reporting of corporations has now been spread throughout different channels, especially media (Tagesson et al, 2009), which has put pressure on organizations in the fear of their negative action might be disclosed to the public via mass media unless they publicize social and environmental consequences of their economic activities.

According to Madalina (2010), “corporate social responsibility becomes more important in the context of the global financial and economic crises because public confidence in the social and environmental responsibility of businesses has been shaken”. As a result, it is essential that accountants need to focus more on producing non-financial reports so as to ensure sustainability and effectiveness and efficiency of the company in a long term (Madalina, 2010).

In short, the role of social and environmental and sustainability/CSR reporting is becoming more significant than ever since it helps companies to gain competitiveness and show their responsibility and accountability to different interest groups and society.

Legitimacy:

Niko Resources LTD is a multinational oil and gas company. They had social and environmental incident, which is blowouts at a gas field in Bangladesh at 2005, and the predisposition not to disclose their non-financial information and annual report caused its incident. In this chapter, we are discussing in this social environment regarding with legitimacy theory.

  1. Bounds and norms of society & social contract

The principles of the social responsibilities for companies are two things roughly speaking. Firstly, companies and its members must not violate the legal right of others by their operation. Secondly, companies and its members must have responsibility for the impact of their operation to people related to its activity. In Niko`s case, the responsibilities of social environment are the safety and health of its contractors, the communities and employees affected by their operations, according to its own website (2014). Especially, the safety operation is the most significant bound for oil and gas companies because they have possibility of environmental accidents such as gas explosion, blowouts, chemical leaks and oil spills. In a word, safe operations are the most important bounds and norms of society.

In addition, companies and its managers have to make profit and sustain long term interests for stakeholders. In other word, Niko has responsibility for stakeholder to attempt for making maximum profit by management. However it must be fair management and trade regarding against social contract. This bounds and norms means companies must not operate its share price including to related companies by all way. Niko is also must not rig it even if it manage in overseas.

Companies must disclosure annual report, financial report, non-financial report and all information to the all party. It is included customer, supplier and even neighbouring residents. The party have right to know what, when, where, how they operate companies and companies must carry out Accountability.

  1. Cost of illegitimacy when the social contract

On 8th January, 2005, Niko cause a gas explosion accident and ten thousand people fled from gas field which was millions of cubic field. And the gas field burnt for a couple of month. Second blowout occurred at 17th Jun, 2005 and 77 families lost their house and its human rights issue is Niko distressed lots of affected people who do not have any blame. Accordingly, a total amount damage of both blowouts was USD $50-60 million and Niko paid to Bangladesh government a cheque of CAD$75,000 as compensation for the 625 families of this disaster. (Nasreen et al, 2006). Additionally, the damage of earth and ecology might be much greater than its financial loss although it cannot measure as currency.

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Niko engaged negotiation for a gas price contract with the Bangladesh governments. Niko`s Bangladesh subsidiary bribed minister of energy of Bangladesh a $190,000 gorgeous vehicle and paid about $35,000 travel cost for the Minister to Calgary for an oil and gas exposition event and to travel to meet their family to the United States (Radford, 2012). After the condition of a plot being discovered, Niko paid $9,499,000 as bribery penalty.

Niko did not provide the party some information about environmental disclosures which is clearly environmental contingent liability disclosures within annual reports (Muhammad, 2010). As a result, Niko lost reliance from party and made a cause to reduce its share price although they did not have any legal penalty in this problem.

Dilemma

  • Affects on Bangladesh environmental incidents
  • Government grants to the affected families.
  • Affects on labor market
  • How shareholders respond to the decision
  • How company justifies its decision ethically?

Utilitarianism

  • Impact of company after the incidents
  • Greatest happiness for the greatest number of people
  • Affects of company decision on top and lower level management
  • How the stake holders including suppliers, shareholder and creditors respond to the Ethical and environmental issues?
  • How the people of village suffer after the gas field burnt and not allowed to use the tube wells?
  • Was the company’s work worthwhile in Bangladesh after the incident?
  • How the decision was translated to the people of Bangladesh.

Deontology

It is concerned with the duties and obligation of individual and companies towards others

  • Company’s obligation and duty towards its employees
  • Duty towards Bangladesh economy
  • Duty towards the environment
  • Duty towards shareholders
  • Duty towards stake holders including internal and external stakeholders
  • Duty towards survival and going concern
  • Duty towards legal compliance including compensation and redundancy cost.
  • Government duty towards Labor

Libertarianism

It is concerned with the freedom of companies and individual

  • Niko’s Resource Ltd was free to run their business according to their will.
  • Copying up with increasing costs and globalization
  • Survival of the company at stake
  • Past example Perth mining company Forge Group collapsed losing 1400 jobs
  • Making the right decision!

Virtue

It is concerned with decision being fair

  • Environmental friendly decision as it was a huge dame to soil and ecology
  • Is it fair for the people who lost their homes in fled
  • Replacement of $50-60 Million of gas to $75000

Definition of CSR:

A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.

Being socially responsible means not only fulfilling legal expectations, but also going beyond compliance and investing more into human capital, the environment and the relations with stakeholders.

Different accounting theories will provide alternative explanations about

Why an entity might decide to report social and environmental information

Solutions and Recommendations

Incidents like these should not happen due to their massive effects. It has cause so much damaged to the general public and the company. There should have to be training programs and fire drills to educate the staff working on site and people around such areas to make them prepare for blasts like these. All the people should have to compensate as they have lost many lives.

Somehow incidents like these are inevitable but all the precautionary measures should be taken to avoid such disastrous situation in future. Bangladesh Government should enforce stick safety laws on Mining sites like these and should implement these on priority basis. On the other hand Niko Company should use latest technology and new machinery in daily routine work. All the data should be up to date and safety precautions should be maintained.

Conclusion

These blasts in Tingratilla Gas field has made a huge impact on Bangladesh and on the other hand it has raised many questions on Niko Company’s credibility. It has not because million of dollars of lose but has taken many precious lives. Incidents like these should be investigated properly on every level and responsible people should be held accountable so it should not happen in future. Meanwhile Bangladesh government should reconsider their rules and regulations regarding critical issues like these for the safety of general public and society.

References:

  • Baxi, C. V., & Ray, R. (2009). Corporate Social & Environmental Disclosures & Reporting.Indian Journal of Industrial Relations,44(3), 355-375.
  • Branco, M., & Rodrigues, L. (2007). Issues in Corporate Social and Environmental Reporting Research: An Overview.Issues in Social & Environmental Accounting,1(1), 72-90.
  • Deegan, C. M. (2014).Financial accounting theory. North Ryde, N.S.W: McGraw-Hill Education (Australia) Pty Ltd.
  • DISCLOSURES: A STUDY OF A MULTINATIONAL GAS

COMPANY http://apira2010.econ.usyd.edu.au/conference_proceedings/APIRA-2010-035-Islam-Environmental-incidents-in-a-developing-country.pdf

  • Dr. Muhammad Azizul ,Islam, 2010, ENVIRONMENTAL INCIDENTS IN A DEVELOPING COUNTRY AND CORPORATE ENVIRONMENTAL
  • Jennifer Radford, 2012, Defense and security industry Bulletin, (asr-1582646.Corruption)

International Gas Report (2005), ‘Blast/fire hits gas field’, New York: January, No. 515,18.

  • Madalina, G., Nadia, A., & Catalin, A. (2011). THE ROLE OF THE ACCOUNTANCY PROFESSIONAL BODIES IN DEVELOPING SOCIAL AND ENVIRONMENTAL REPORTING.Annals Of The University Of Oradea, Economic Science Series,20(1), 622-628.
  • Muhammad Azizul Islam, & Muhammad Aminul Islam. (2011). Environmental incidents in a developing country and corporate environmental disclosures.Society and Business Review,6(3), 229. doi:10.1108/17465681111170984
  • Nasreen, M., Hossain, K. and Kundu, D. (2006), ‘The Interrelationship between

Poverty, Environment and Sustainable Development in Bangladesh.

  • Tagesson, T., Blank, V., Collin, S., Broberg, P., Lund University School of Economics and Management, LUSEM, Lund University, . . . Företagsekonomiska institutionen. (2009). what explains the extent and content of social and environmental disclosures on corporate websites: A study of social and environmental reporting in swedish listed corporations.Corporate Social Responsibility and Environmental Management.
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