Corporate governance and business ethics in premier oil


Oil companies are trying to prove their mettle by getting engaged in the social and environmental investments so that communities value their corporate services. Such paradigm shift has resulted in the fundamental growth of social reporting and business "codes of conducts". CSR initiatives in the oil and gas sector are continually being augmented due to the usurping evidence that there exist loopholes in the intended aims of corporate investors and their applicability in the real world situation (Frynas, 2005, p.581). This assignment is an effort to appraise the corporate social approach and activities of Premier Oil Company.

Basically, corporate social governance refers to the way a corporation is run or controlled using laws, policies or customs. It also encompasses the corporation's relationship with the various stakeholders that it has such as the customers, employees, creditors, suppliers, shareholders and the community in which it operates. An extensive and well defined and developed system of corporate governance incorporated in the organization's design means that the organization strictly adheres to the laws and ethical standards. There has been an increased inclination towards issues of corporate governance due to the recent scandals such as the Enron case, and other similar issues where there has been a violation of rules and misuse of power by the company or its employees. Through corporate social responsibility, companies inculcate in themselves the adherence to law, norms and ethical standards.CSR means a proactive and self initiated step towards the betterment of the society, public welfare and interest of the stakeholders.

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Corporate governance (Premier oil, 2009) "The board of Premier recognizes the importance of good governance and the role it plays in encouraging a higher level of corporate performance. The board has adopted and operates within a robust set of governance policies which are designed to enable entrepreneurship and innovation to thrive within a framework of accountability.

The policies that we have adopted at Premier place the interests of our shareholders at the centre of our activities and are designed to enable the board to be accountable for the direction of the company in its central aim of creating long-term shareholder value whilst recognizing that we have stakeholders. Good governance practices, which incorporate the principle of conducting our business with integrity and transparency, have the wholehearted support of the board."

Company background

Premier Oil started with the name of Caribbean Oil Company in 1934 with the goal to pursue oil and gas explorations in Trinidad. Today the company operates in the following three geographical regions:

Premier oil is a "FTSE 250"oil and gas production and exploration firm and operates in eight countries around the globe with over 500 employees in the UK and Asia. Premier oil is engaged in engaged in exploration and production of oil and gas in the North Sea, Middle East and Pakistan and West Africa. (Premier oil, 2009) "Premier is independent and pursuing its strategy of low-risk development of existing discovered reserves whilst maintaining shareholder leverage to material exploration upside. The company is pre-funded for its committed development program and planned exploration program".

Corporate Social Responsibility at Premier Oils

"CSR is concerned with the ways an organisation exceeds the minimum obligations to stakeholders specified through regulation and corporate governance" (Johnson, Scholes &Whittington, 2008, p.191).

In the recent years, Premier Oils has not only been efficient in terms of its operations, but it has staunchly maintained the CSR stance that it has adopted. CEO of Premier Oils (2008-2009) states that "despite achieving very high levels of activity, Premier delivered its program of exploration and expansion without compromise on its commitment to the highest health and safety standards or levels of environmental proficiency." This adherence to the social governance and CSR activities means that their expansion into other countries is welcomed by the host governments since they know it will not harm the environment or the people in any way. The company owns up any decisions it makes, and assumes complete responsibility of any consequences that the actions may cause. The CEO elaborates that, "Striving to be a world-class oil and gas operator means acknowledging our role as a partner in the countries where we operate. This means recruiting nationally and training our local employees to be leaders in their field, maintaining constant and high standards irrespective of location. It also means managing the potential negative environmental impacts of our operations and investing in communities; together building lasting livelihoods that endure after we leave."


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Following are the strategies that are being followed by the company.

Reducing greenhouse gas emissions

A greenhouse gas is a gas in the atmosphere that absorbs and emits radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect. The primary greenhouse gases in the Earth's atmosphere are water vapor, carbon dioxide, methane, nitrous oxide, and ozone.

Biogenic greenhouse gases emissions are those generated during combustion or decomposition of biologically-based material, and include sources such as utilization of forest or agricultural products for energy, wastewater treatment and livestock management facilities, and fermentation processes for ethanol production.

The company has always focused on controlling CO2 emissions. The Anoa field in Indonesia is the main source of these emissions The company has continuously strived to increase the efficiency of the plant by trying to control unplanned gas flaring events. As a result of these efforts, gas flaring has remained stable since 2001. All this has been largely affected by improving the reliability and performance of the gas compressors. Therefore, by managing its production in an efficient way, the company has succeeded in reducing its greenhouse gas (GHG) emissions from gas flaring by 15%.

Promoting partnerships with "specialist organizations" (NGO's, Government agencies)

As a part of these initiatives the company has made many community investments. For example, community investment at North Sea operations that would ensure enhanced support for key local groups such as the Scottish Fishermen's Federation (SFF).

Another such investment is at Vietnam that includes programs for growth, poverty reduction, job creation, education and vocational skills development.

It had also partnered with different organizations in Pakistan for flood relief operations in 2008 when parts of the western province of Baluchistan were hit by an earthquake measuring 6.4 on the Richter scale resulting in more than 300 deaths. Staff at Premier Pakistan collected non-perishable goods such as blankets, medicines and other supplies valued at over uS$11,000 for delivery to affected communities through a local philanthropic organisation.

Creating social and environmental friendly work environment

Environmental sustainability is a key consideration for business operations in the 21st Century. The imposition of emission trading schemes or carbon taxes requires that companies review and streamline their business operations to ensure as little environmental impact. Consumers are also calling for greater environmental sustainability.

Generally, companies can take many steps in order to improve environmental impact outcomes such as eliminating waste in production methods, implementation of lean production systems, development of new technologies to reduce impact and voluntary participation in carbon offsetting schemes etc.

In the same way, Premier Oil tries to create a friendly work environment with a special focus on health and safety. Health and safety of its employees is a primary concern for the company along with other business goals. One example of this effort by the company is its Indonesian production and global drilling operations. In fact, the company has been frequently ranked on top for low number of injuries (International Association of Oil and Gas, 2008).

Premier Oils has also been certified to OHSAS 18001 since 2004 for global drilling and since 2006 for Indonesian production operations. Currently, the company is now working to certify the Balmoral production facilities to this standard.

The company's makes investment decisions that take account of economic, environmental and social impacts of their activities. Premier Oils also complies with local laws and regulatory requirements, completes environmental and social impact assessments regularly.

Key issues being considered by the company-Social Responsibility

The social responsibility at Premier oils is concerned with how the company deals with the community and the society. All the Premier entities are subjected to these well defined initiatives; however the local prevalent conditions alter the priorities according the situations and needs. The human resource function deals with business ethics policy and the employment social justice. These policies not only reflect the best practices the organization thinks it has adopted, but are comparable to the worldwide benchmarks and standards in these areas.

The social performance reporting at Premier Oils operates through the following framework:

Community Investment

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Community investment refers to the deliberate initiatives taken by the companies to generate positive externalities in the communities in which they operate. It means taking actions which would create a better environment and quality of life for the members of the community.

Community investment in North Sea

Since the company acquired the North Sea operations, there has been an action plan on way to support the local key groups. One of the major key groups includes the Scottish Fishermen's Federation. The "SFF also plays an important role in helping to inform fisheries science, marine environment management, marine safety regulations and industry training programs." During the construction of new facilities or the removal of existing ones, the SFF also act as the guard vessels. The initiatives which are in pipeline include the purchasing of the 'Fish Safe systems' for local fishermen in 2010.

Community investment in Vietnam

The framework for the community investment plans for Vietnam is provided in the 'national socio economic' plan which addresses issues like economic growth, poverty alleviation, creation of employment opportunities and development of vocational skills and education.

The 'bridge construction' was a vital initiative taken in Vietnam to enhance and facilitate the communication and transportation of areas which are inaccessible because the rivers. This also encompasses the safety aspects since some of the bridges that already existed were unsafe. The provision of these communication and transport routes means an influx in economic activity, access to more markets and educational and medical facilities.

Another initiative which contributed greatly to access to education was the provision of bicycles to students. The dynamics of education in Vietnam is such that educational institutes are scare and widely dispersed. A bicycle enables students to reach the educational institutes.

The efforts in health care and vocational training are also very significant. Developmental classes were organized for disadvantaged children to help them get admitted to public schools. Vocational training also enhanced their skills. The objective is to move the children "from a position of instability and uncertainty to one where they can actively participate in deciding their own futures."

Community investment in Indonesia

In Indonesia, the community investment is concentrated in the following four areas in which they are intermittent with each other. They include:

The education plans in Indonesia enlist the making of kindergartens in the country. This initiative gained a wide spread support and more kindergartens were built for the community. Other initiatives include the provision of scholarships to university students. Nina Marliana, the manager of the community outreach program explains that t "in Indonesia, our community projects concentrate on improving the educational opportunities of local people. Maximizing these opportunities is going to be essential to the long-term success of the country, and we are proud to play a part in this process."

In response to the request of the local government, Premier has worked on infrastructural projects which include construction of public health care, child care assistance programs and construction of libraries and classrooms.

Disaster relief operations in response to the earth quake in 2009 were also undertaken. The relief operations included the provision of military tents and clean drinking water for the affected. The environment program includes turtle conservation on the Durai Island.

Community investment in Pakistan

The community investment in Pakistan works in the following areas:

Pakistan has been assisted in face of several disastrous events like the earthquake of October 2008 and operations in the north-western regions of Pakistan against terrorism. In both the events, thousands of people were displaced and rendered shelter less. Relief operations included the provision of supplies like blankets and medicines and establishment of camps with the aid of the local philanthropic organizations. The donations were also made in cash rather than in kind since the company has limited physical presence in Pakistan.

The health and well being operations include the support to physically and mentally handicapped persons by providing education, training and physiotherapy. The plans for the coming years include the projects for the betterment and beautification of the environment like building of parks etc.

Human Resources

Premier oil does not have any breaching or violation of the policy regarding the human rights in the review period. This shows that the organization has not enforced their policies on the employees. A perfect compliance indeed means that ethics and socially responsible behavior has been as much developed within the employees as by the organization.

The pillars on which the human rights policy of premier oil rest are the Declaration of human rights and the labor standards of the International labor organization. The framework of human right policy encompasses the following:

Premier oil operates in eight countries with over 500 employees. The company is aware that it has certain responsibilities and obligations towards the indigenous people it works with, and the countries in which it operates.

Premier oils have to keep in mind the numerous stakeholders it has. The human right policy not only addresses concerns related to the employees and their health and safety issues, but also to the external environment in which it operates which includes the localities in which they have set ups or affiliated businesses.

The practices are also a result of the communication with the stakeholder. This means that the practices are highly In accordance with what the stakeholders expect from the organization and account for in the areas where stakeholders believe that the organization can generate externalities in the environment.

The global diversity of organization is appreciated, and the company realizes that integration and adaption of ethical policy requires flexibility and adjustment. Employees coming from different geographical regions have perceptions and they all have to be molded into the framework that of the organization's standards.

Business Ethics

Simon Lockett, the Chief Executive Officer at Premier Oils states that "The right reputation is hard to gain and easy to lose. Therefore we have a clear Business Ethics policy".

Business ethics is an essential part of the operations of Premier oil. The social performance report 2008/2009 proudly claims that there was not even a single unethical practice reported for the past two years. The organization adopts procedures which are transparent and diligently seek to prevent any activity which may be regarded as illegitimate or unethical in any way. The code of conduct is based on integrity, honesty and fairness to carry out the business. The value system is supported by an accountability and recording of all transactions to ensure that bribery and corruption are not undertaken. The business not only conforms to theses ethics and conducts in its own operations but also expects and encourages the following of the same standards by its associates and affiliations. The company actively and successfully makes use of disclosure mechanisms such as whistle blowing whereby employees can disclose the illegal, illegitimate or immoral practices occurring in the organization. Premier oils have therefore put in place supportive policies and procedures for whistle blowing because unless supported by the organization's culture, whistle blowing fails to work effectively. Business ethics is part of an organization's culture, and premier oils inculcate and develop this in its employees during the recruitment process, and are is continuously kept alive in the mind of the employees with the aid of handbooks and websites.

Ongoing risk assessment is carried out, and regular audits are conducted to ensure the conformance to standards and practices which fall in the ethical framework. Regions like Pakistan and Indonesia are more prone to fall into practices which are not up to the defined standards, and thereby are regularly audited. The business also realizes that ethical policies or code cannot be static and needs to evolve regularly. The business ethics and conduct policy has been revised in 2010 and is more proactive in approach and was implemented together with relevant guidance materials.

Ethics should be integrated throughout the organization and should be the part of the day to day business and transactions carried out at an organization. Suppliers and contractors, of course play a significant role at Premier oils as goods and services have to be acquired for operations. Therefore, the purchase decisions not only take into account the price, quality and service of the supplier, but also the record of the supplier in terms of their business ethics and moral practices.

Critical analysis of Employee rights (Human Resources)

The employees' base at Premier oils includes people from different countries and of various nationalities and origins. The company is focused on providing conditions of work which are fair and just. Premier oils respect its employees as individuals and the worth of their work. They are not discriminated on the basis of caste, color or gender. The company treats its employees as social capital and develops their skills and knowledge through training and development. This way, both the employee and the company benefit.

The following table elaborates the obligations the employees have towards the company and each other:

In the employment aspect of the human resource, the policies include:

Grievance Policy

Employment and Social Justice in the Workplace Policy

There has been no violation of the above mentioned policies in the reported period. This shows that the employees at Premier oils embody the policies, and the conformance to the standards has become an inherent part of their conduct.

Lee Johnson, HR director at Premier oils states that "The recruitment and development of local personnel where possible forms a key part of Premier's human resources strategy. This ensures we have access to the largest pool of talent available and bolsters our status as a local employer of choice. It also helps demonstrate our long-term commitment to the societies in which we operate."

Pay and Benefits

Premier oil appreciates its employees through both financial and non financial rewards. The pay scale level is the higher stratum in each of the countries in which they operate. The rewards are performance based. The pay scales are developed by comparing them to industry pay levels. The wage level is more than the minimum wage legislation in all the countries. The bonus is performance based which compels employees to work hard, and motivate them when their performance is rewarded. The benefits that employees receive include:

Work on implementing a standardized system of rewards and pay is underway. This system would further enhance transparency and organization's move towards the right and socially acceptable behavior. The job descriptions and contracts are also precise and pertinent, and do not have any hidden or confusing detail which the employee could skip or get confounded by. The employees' role, working hours, employment conditions, and other relevant aspects are clearly disclosed. The organization ensures that the employees understand clearly the term of employment before signing it.

Local employment

The organization gives preference to local employees whenever they are suitable for a particular job. Premier trains and educates the local employees and hence contribute towards the development of societies in which they operate. The locals are given positions irrespective of the level of position, be it top management or work floor employees wherever they meet the job requirement criteria.

Compliance to local and international standards in all areas operations is the utmost priority for Premier oil be it the collective bargaining, freedom of association, labor laws or child and forced labor.


(Premier Oil Social Performance Report 2008/2009) "As a reflection of our continuing commitment to integrity, honesty and fairness, Premier has not been subject to any fines or non-monetary sanctions for legal non-compliance, or for any legal actions relating to anti-competitive behavior".

Stephen Huddle (2008/2009) states that "The maintenance of strong business ethics is vital for our legal compliance and for our reputation. The geographical scope of our interests means it is important we apply these same ethics in all locations, irrespective of context - or the time and effort involved in doing so".

There is an ethics hotline that employees can use to seek guidance and report questionable behavior. The transparency and confidentiality is maintained so that the employees are able to voice their concerns without fear and hesitation. The whistle blowers and respondents on the hotlines are ensured of confidentiality and are not fired or mistreated in any way. There is an assurance that the employees will not be ostracized by fellow workers or sabotaged by the mangers.

Company criticisms

The foremost responsibility of a business is to increase profits for its owners."In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose--for example, a hospital or a school. The manager of such a corporation will not have money profit as his objectives but the rendering of certain services." (Freidmann, 1970). The question arises that the money spent on social welfare is not the money of the manager. Is the money being spent reducing profit for the owners? Is it reducing the wages of the employees? Therefore it may be concluded that "there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." Friedman was a market economist and firmly believed that the responsibility of the business should be towards its shareholders and not the stakeholders. He believed that companies spending on social welfare were erroneous in their conduct.

There is a view that corporate governance and social responsibility is also related to a good financial performance. Many people are of the view that this is because those managers who are responsible and committed enough towards the general benefit of the society are also competent enough to efficiently run the company. The political issues and environmental factors are highly integrated and intermittent together. Some of the possible reasons why a company engages corporate environmental reporting are:

To improve the corporate image of the company and to gain consumer goodwill

Acts of corporate social responsibility help is marketing the company

There is a kind of rat race towards being the 'socially responsible' enterprise in the market. Companies adopt such practices to gain an edge over its competitors

There may be pressure from the consumers and other stakeholders which may compel the organization to become socially responsible

Negative behavior and unethical behavior can have an impact on companies ability to attract quality employees. Today, the potential employees are becoming more and more aware and want to work for companies which are socially responsible. In order to attract the best talent from the pool of employees in the market, companies are adopting a CSR stance. The recent scandals have compelled job seekers to check the ethical standards of the company they are applying to.

To acknowledge social responsibility

Political lobbying

Therefore, we may criticize that companies adopt corporate social responsibility to appease the stakeholders or to market themselves and enhance their image. However, it may be said that CSR is critical to organizations success. Companies which put ethics on the back burner and go for profits are ultimately going to lag behind and become unprofitable. It is important to be ethical to maintain the trust of stakeholders such as employees, customers, public, interest groups and other members of the society. "Just saying you are ethical isn't very useful" says Charles O.Holliday, "you have to earn trust by what you do everyday".

The business should seek to become a responsible business enterprise which "establishes appropriate standards of conduct for its employees and agents and fosters reasonable expectations among its stakeholders."

A business which seeks to have an extensive and elaborate ethics and social responsibility program should have an open system with channel of communication which provide information to all members of the organization on what actions to take and how to conduct the business. There should be clearly spelt out expectations from the employees and other agents. The conduct should be within the ethical framework, yet be goal directed towards the organizations objectives. Questions such as who has the authority and power, how is going to assume the responsibility of the actions, what is the system of accountability for individual actions and non conformance to standards and what are the expectations of the stakeholders from the organization must be answered to become a responsible social entity.

For responsible governance, the organizations should delegate authority to managers and determine the objective of the organization and decide upon the benefits the organization provides to the community or the positive externalities it generates. Also, limitations and constraints must be put on the power and extent to which authority can be exercised.


The ultimate responsibility of an enterprise should be to utilize its human and material resources for profit attainment within the defined boundaries of ethics because the organization is formed with the objective of profit maximization and should be doing so for its owners and employees. The corporate social responsibility and ethics of a business hinges on its internal and external stakeholders. It is also shaped by the expectations and demands of these stakeholders. The best practice is going beyond the not engaging in the wrong notion. Organizations today have an active and proactive approach towards CSR which is not confined only to the compliance of standards. Organizations actively seek to generate positive externalities in the environment and work on public and social welfare projects. This is because consumers and society are becoming increasingly aware of the responsibility an organization should have towards the society. Businesses today have a wider role in the society and the provision of welfare and public good no longer is the sole responsibility of the government alone. (Alyson Warhurst,2004) "This view argues that while a limited social role on the part of business is acceptable in an ideal world, governments in many developing countries are currently weak in terms of democracy and financial stability, as well as the drawing up and enforcement of relevant regulation. As a result significant proportions of their populations remain largely excluded from the benefits of globalization. In response to these growing socio-economic inequities, society is asking business to contribute more directly to poverty alleviation and other development goals. Ignoring this new role can have negative implications for businesses, as demonstrated by recent business reputational scandals and Non-Governmental Organization (NGO) pressure campaigns".

Social responsibility cannot work in isolation. Organizations should build partnerships and collaborations with government, NGO's and other philanthropic and social welfare organizations to alleviate the society from any unfortunate conditions that it may be in. (Alyson Warhurst,2004) "The 'sustainable' development challenge might best be tackled through a future characterized by a broad spectrum of partnerships between governments, development agencies, businesses, civil society and local communities."

The global companies have to consider a two pronged compliance to standards, both to the local and international standards, laws and regulations. This is the challenge organizations such as Premier oil has to face due to their global operations. They not only have to meet the expectations of the host countries, but also of the home country.

The key challenges for a responsible and sustainable business operating in the global world addressing the future outlook have been identified by (Alyson Warhurst, 2004) as follows:

"Bringing corporate governance into the realm of corporate citizenship and addressing the key elements of social justice in respect of employees' rights, pensions, shares and the role and structure of the Board. Corporate citizenship needs to be a proven part of company culture."

"Broadening risk and impact assessment and communication to include 'intangibles 'and long term considerations, across the environment, economic, political and social dimensions."

"Aligning community investment programs through CSR strategy, as an extension of core business practice, focused on contributing to sustainable development goals. and ensuring through the business of business the protection of human rights, not fostering dependency."

"Developing management systems and tools, which focus on capacity to manage, rather than to audit, and which safeguard against the elimination of problems without any consideration of the possible socio-economic development impacts. Without the fulfillment of basic rights, poverty is perpetuated. The need to earn income at any cost may lead to the ignoring of core labor standards put in place to respect rights to the detriment of the well-being of the next generation."

"Building a company capacity to dialogue with internal and external stakeholders, and roll out and manage a corporate citizenship strategy with tailored business principles, policies and practices to guide it. Partnerships with governments and civil society organizations are key."

"Systematically addressing business accountability, through the use of tools such as internal risk review, corporate governance principles, key performance indicators, stakeholder engagement, integrated socio-economic and environmental impact assessment, and social accounting, audit and reporting-with third party assurance."

To conclude, the ethical practices and social responsibility is not something that cannot be enforced as a law. It has to be embodied within the organization and its employees as a culture and part of the conduct of the employees. These values are guided by the different internal and external stakeholders of the organization. Organizations ethical values are also guided by the value and belief system of its employee's therefore Premier oil and other organizations should be careful in their recruitment criteria. Today, a series of tests prepared by psychologists or organizational behavior specialists can give an idea of the moral development of the employees. The individual employee behavior together contributes to the organizational ethic as a whole. The determination of the right behavior is in accordance with the different stakeholders of the organization. Therefore, the organization should deliberately and carefully try to shape and influence the following forces that impinge on ethical decisions:

*Forces that shape organizational ethics, pg 376, Richard.l.draft