Corporate Social Responsibility Failures in the Oil Industry

Citation

Sullivan, R. (2005), "Corporate Social Responsibility Failures in the Oil Industry", Corporate Governance, Vol. 5 No. 5, pp. 99-101. https://doi.org/10.1108/14720700510630086

Corporate Social Responsibility Failures in the Oil Industry

The adverse social and environmental consequences of oil have been well documented: global warming caused by the production and use of oil and gas, local air and water quality impacts around petroleum refineries, the “resource curse” that has afflicted many countries with significant oil and gas resources, allegations of complicity in human rights abuses perpetrated by state or private security forces, the failure to use the revenues from oil to provide lasting benefits in public health or education. Spurred by a series of high profile incidents in the 1980s – the allegations of Shell's complicity in the execution of Ken Saro‐Wiwa and eight other Ogoni activists in Nigeria, criticisms of BP's handling of security in Colombia, the sinking of the Exxon Valdez, among others – the oil industry has invested significant time and resources in improving its approach to managing the social, environmental and ethical dimensions of its business. Many of the larger companies now have clear policies on issues such as environmental performance, health and safety, human rights, bribery and corruption, ethics and transparency. These are generally accompanied by management systems for implementation, including processes for management oversight, performance monitoring and reporting.

The industry has pointed to these commitments as evidence that the industry is behaving in a socially responsible manner or as a responsible corporate citizen. In their corporate reports and other communications, the oil companies present examples (e.g. community development projects, reductions in environmental pollution) and data (e.g. reductions in environmental emissions, health and safety improvements, community development expenditures) as evidence of the effectiveness of their corporate social responsibility (CSR) initiatives. The industry has also actively supported voluntary initiatives such as the Extractive Industries Transparency Initiative, the Voluntary Principles on Security and Human Rights and the UN Global Compact. Most oil companies describe these voluntary commitments and the evidence of their performance on the management of social, ethical and environmental issues as being critical to maintaining public trust in the industry, thereby allowing the industry to maintain its “social licence to operate”.

Yet significant concerns remain about the sincerity of the industry's commitments to CSR. Over the last two years, major projects such as BP's Baku‐Tbilisi‐Ceyhan (BTC) pipeline, Shell's Sakhalin II project and the Chad‐Cameroon pipeline have all been the subject of extensive press criticism and NGO campaigning. Individual companies have also been criticised and sanctioned by regulators following environmental or health and safety accidents. More generally, despite initiatives such as the Extractive Industries Transparency Initiatives and companies' own commitments on bribery and corruption, the distribution of benefits from oil developments remains controversial.

It is in this context of these controversial debates that Charles Woolfson and Matthias Beck's new edited collection needs to be seen. From its title, Corporate Social Responsibility Failures in the Oil Industry, it is clear that the authors' are sceptical regarding the sincerity of the industry's CSR commitments. Six major case studies are presented: the 1988 Piper Alpha disaster where 167 offshore workers lost their lives; the history of safety and industrial relations in the Newfoundland offshore industry; BP's BTC pipeline; the Trans Alaska pipeline; litigation against the oil industry in the USA and the UK; and crime and corruption in the Russian oil industry. While care is required when drawing general conclusions on CSR performance from individual case studies, the geographic breadth of the case studies (encompassing both developed and developing countries) and the range of issues (environmental performance, health and safety, corruption) do allow a broad picture to be drawn of CSR in practice. In each of the chapters, the contributors highlight significant differences between the principles and values espoused in corporate CSR policies and the manner in which the industry operates in practice. The authors are generally of the view that CSR is not about improving the industry's performance on social or environmental issues but more about shoring up the industry's reputation and allowing the industry to continue to operate in a relatively free and untrammelled manner. All refer to the problems of regulatory capture, specifically the manner in which the industry has succeeded in promoting self‐regulation as an alternative to stronger legal accountability. In their introductory chapter, Woolfson and Beck argue: “… the current administrations of the United States and the United Kingdom have endorsed many of the assumptions of their predecessors with respect to the need to ‘free’ business from what is described as ‘burdensome regulation’ … If the recognition of regulatory failure is now dependent on a) massive loss of life and b) sustained public reaction to this, then governments have essentially ceased to play the role of proactive policy makers”.

While the book is trenchant in its criticisms of the oil industry, there are a number of questions raised that would benefit from a more thorough discussion. The first set of issues relates to the proper role of companies in the global economy. Specifically, whether and how should companies seek to protect their interests? Is it legitimate for companies to defend themselves in court and how aggressively should they do this? Should companies seek to influence policy‐makers? Is it reasonable for companies to use CSR (e.g. community development projects) to ensure the smooth running of their projects? What is the proper role of other actors such as government (national, regional and local), local communities, NGOs and international agencies? What should companies do in situations where regulatory authorities are weak or ineffective?

The second set of issues relates to the reasons for the difference between CSR commitments and CSR performance. If there is a criticism of Woolfson and Beck's book, it is that the authors are too willing to ascribe all of these failings to corporate cynicism, i.e. that CSR is simply a façade to allow the industry to continue with business as usual. While this interpretation may be correct, it is not possible to draw this conclusion based solely on the information presented. There are two important questions that need to be considered. The first question is whether CSR, as presently conceived, can ever engage with the social and environmental dilemmas at the heart of the modern multinational enterprise? Large developments – pipelines, oil platforms, refineries – inevitably have major environmental and social impacts. While many of these can be mitigated or even used to create advantage, not all of the consequences can be addressed – and certainly not by companies in isolation. The second question relates to corporate governance; are the case studies examples of corporate incompetence or examples of corporate cynicism? Inevitably, Woolfson and Beck and their co‐authors are looking from the outside in. From the inside looking out, the picture may be very different, and a study of the oil industry, focussed on the governance of corporate responsibility, would probably provide many interesting insights into questions such as: is it really the case that boards cannot provide effective oversight? What does this mean for investors? If proper oversight cannot be assured on social and environmental performance, what does this mean for other issues such as ethics and accounting? Or, if the criticisms advanced by Woolfson and Beck are actually issues of cynicism on the part of corporations, what does this mean for investors in the sector? Does this mean that there is also a cynical approach to issues of ethics and accountancy?

These comments on the scope should not be construed as a criticism of this book. Irrespective of the answers to these questions – and all appear to be worth greater examination –Woolfson and Beck's book is an extremely important contribution to the CSR debate, highlighting as it does the differences between corporate CSR policies and “on the ground” performance, and the inconsistencies between CSR policies and the public policy lobbying positions adopted by the industry (and industry associations). While the book is focussed on the oil industry – a sector with unique power and influence, and very specific social and environmental consequences – the issues raised are pertinent to virtually all other corporate sectors.