How corporate responsibility has failed in the oil and gas sector

Three town halls built in a village to placate three rival local chiefs; donated mosquito nets immediately sold for export; Asian-made condoms too small for the African men to whom they are distributed; a road built by an oil company that runs parallel to another built by a development agency. Everyone who works in corporate responsibility will know of plenty of examples of this kind of failure.

In Beyond Corporate Social Responsibility, Jedrzej George Frynas, a professor of corporate social responsibility and strategic management at Middlesex University, presents these and other examples. He suggests reasons why corporate responsibility, in its present form, has so often fallen far short of the objectives and ideals of its cheerleaders.

The author concentrates on the oil and gas industry to see what corporate responsibility can and cannot do. It is not pretty reading. The reader is presented with a broad spectrum of corporate responsibility failings, divided into the areas of environment, development and governance.

Of these three areas, the environmental challenge faced by oil and gas companies is presented as the most successfully addressed by corporate responsibility strategies. Still, there are problems. Despite the steps taken to create common environmental reporting standards, for example, it is still difficult to make systematic comparisons of the environmental performance of different multinational oil companies. Leaders such as BP and Shell often measure different things using different units, while many of their developing world competitors hardly report at all.

This lack of industry-wide transparency, the author argues, undermines efforts to transform the environmental practices of the industry as a whole. These efforts are made even more difficult by a lack of regulatory pressure and government support, as well as by conflicts of interest between corporate commercial interests and the environmental concerns of wider society.

Development challenge

While companies face problems in terms of their environmental performance, these pale in comparison with their failure to master the challenges they face attempting to make a positive contribution to international development. Frynas argues that corporate responses to the call to play a more direct role in alleviating poverty and other development goals have not contributed to development, and may even have caused additional problems. He quotes oil company staff with hands-on experience as dismissing these efforts as “a red herring in terms of development projects”, and presents plenty of examples of white elephants and ill-thought-out projects.

The author sees companies facing several problems in engaging with the communities in which they operate. These include a mismatch between the motives of companies and the needs of broader society; a propensity on the part of the companies to listen primarily to the stakeholders who pose the greatest threat to their operations; a focus on extracting PR and marketing benefits from engagement rather than on addressing the true community needs; and an emphasis on the priorities and interests of employees rather than on the needs of the target communities.

To these the author adds a further list of implementation problems, starting with the fact that companies have often fallen at the first hurdle of discovering what communities even need. Company representatives, he argues, have too often made just flying visits to villages rather than taking the time to understand the community’s true needs.

Improving governance

The third corporate responsibility challenge discussed is that of improving governance standards in developing countries. Frynas argues that these efforts to date have been either lacking, with companies rejecting the notion that they should address governance issues, or wrong-headed.

He describes how the Extractive Industries Transparency Initiative came about as a result of the problems faced by oil companies wishing to act unilaterally in the area of revenue transparency. He suggests that, even if the efforts could succeed (which he doubts), such transparency might deliver few benefits for local populations anyway. The problem, he argues, is that there is no scientific basis for the assertion that revenue transparency delivers the sought-after benefits, since it is prudence in spending extractive revenues that is characteristic of the few resource-rich developing countries that have avoided the “resource curse”. And quality of government spending is an issue, the author suggests, that is better tackled by the World Bank and IMF.

One recommendation he gives is for multinational companies to use their political influence to persuade governments to sign up to the new “EITI++” initiative being developed by the World Bank and to get them to spend a greater proportion of oil revenues on health and education.

Ambitious corporate responsibility managers will certainly find much food for thought in Beyond Corporate Social Responsibility, not only in its excellent discussion of the profession’s shortcomings to date, but also in the author’s recommendations for steering business efforts to be responsible in a more fruitful direction.

Beyond Corporate Social Responsibility: oil multinationals and social challenges
By Jedrzej George Frynas
Hardcover: £55
Published: May 2009
Publisher: Middlesex University, London
ISBN-13: 978-0521868440
Also available in eBook format

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