Frustrated with the limitations of traditional corporate responsibility, a handful of companies around the world are working to help develop vital institutions

 

Frustrated with the limitations of traditional corporate responsibility, a handful of companies around the world are working to help develop vital institutions

Case one: Business Action for Improving Customs Administration in Africa

Case two: Premier Oil in Burma

Case three: Judicial human rights training in Venezuela and Nigeria: the case of Statoil

Case four: Economic capacity-building in Azerbaijan: the case of BP

Business has for some years been criticised by non-governmental organisations and the media for sourcing and operating in nations where the rule of law is questionable.

In many countries, the absence of an adequate legal framework, poor enforcement of it, or a lack of institutions that encourage such enforcement and accountability mean that labour, environmental and overall human rights standards are low.

There is also a growing realisation that the building and maintenance of essential institutions requires the help and support of companies, as well as traditional NGOs, inter-governmental organisations (IGOs) and governments.

The same institutions and cultures required to support human rights and effective labour law are very often the same as those needed to protect contracts and property rights. As a result of the scrutiny under which they operate and the evolving recognition of a role for business in delivering public benefits, a small number of international companies are finding themselves promoting better governance through contributions to institutional capacity-building in developing countries.

Because of the dilemmas that arise when operating in the intersection of private, public, and civil society spheres, however, companies do not necessarily find this role a comfortable one. Rather, they deem it necessary and prudent given the realities of doing business in certain areas and expectations in their home nations.

Institutions are closely linked with the concept of governance, which the World Bank defines as the “traditions and institutions by which authority in a country is exercised for the common good”. Key institutional and governance barriers to greater economic wealth include, according to the World Bank, poor legal systems, corruption, underperforming and onerous bureaucracy, civil liberty and media suppression, inequality, ethnic tensions and a lack of property rights and access to basic services.

Corporates make nervous campaigners

Lobbying for corporate advantage has a long and controversial history, but companies publicly or privately seeking change on wider issues of governance is a newer notion. The prominence of John Ruggie’s work as the UN secretary-general’s special representative on business and human rights also points to the importance currently placed on trying to clearly define the roles and responsibilities of business in governance as well as the controversial nature of this task.

The United Nations Development Programme’s work on partnerships in development provides guidance on possible roles for business. These include the training of local authorities to cope with change and improve basic services. The development of associations and support structures to encourage co-operation are also suggested by business organisations as contributions companies might make. Through such mechanisms, business can help create anti-corruption coalitions, support watchdogs, create collaborative collective networks to lobby government, and enable discussion about key areas of education.

There appear to be two roles companies can play in this sensitive area. The first is direct help with training and policy development and implementation. The second is a more general lobbying for higher level governance improvements.

Both types are being undertaken by business, working with local government, national government, and international governance arrangements (such as in the case of the Extractive Industries Transparency Initiative). These kinds of collaborations may take place bilaterally between companies (or business alliances) and government agencies or take the form of multi-stakeholder business initiatives, driven by companies as well as NGOs, IGOs and governments.

Going to another level

This kind of private engagement with public institutional policy diverges from more standard corporate responsibility and community involvement strategies. In one way it has a much narrower focus, but in another it goes well beyond traditional corporate responsibility boundaries. Most corporate responsibility strategies for transnational companies operating in developing countries are focused on the workplace, supply chain and local communities, rather than engagement with national institutions.

Engagement with government institutions may be more influential in the long run, as institutional frameworks play a key role in determining the business climate. If the corporate responsibility agenda is moving towards a focus on managing impacts in society – mitigating negative impacts and amplifying positive ones – then engagement with the governance agenda is crucial, as this typically has greater impact on business and society than many other potential activities.

Roles for business are so far poorly defined and their implications under-examined. As corporate involvement of this kind evolves, potential problems begin to arise. The most obvious is potential conflicts of interest between governments, their citizens and companies. Institutional capacity-building by companies essentially gives unelected foreign actors a hand in shaping the political agenda.

Partnerships between companies and NGOs and governmental organisations may do something to address this challenge of legitimacy. Additionally, thought must be given to ensuring transparency, monitoring and reporting of progress, which can be complicated by the long-term nature of capacity-building.

Although activity in this field is limited, Ethical Corporation’s four case studies, described in detail here, outline some of the work being undertaken in this area by large companies. Despite being “work in progress”, these cases demonstrate that corporate contributions to institutional capacity-building, though nascent, have potential for the alleviation of problems within government institutions.

Even sceptics, however, see the potential for institutional capacity-building involving companies. Patricia Feeney at UK-based development campaign group Rights & Accountability in Development admits that she can see a strong argument for using the personal contacts and influence that companies have in regions where they operate. NGOs have been pressuring companies to take more responsibility for human rights abuses for some time, and this is one way they can do so. What precisely they should do to avoid conflicts of interest and achieve lasting improvements is just starting to be addressed by practitioners and academics.

Legitimacy

No matter how such corporate-driven programmes are organised, however, there remains the underlying problem of legitimacy. It should ideally be the remit of government to ensure that all foreign investment is in the best interests of its citizens. The government’s lack of capacity to carry out its basic functions, however, is one of the very reasons companies are involved in institutional capacity-building in the first place. If they are present and have the resources to help, it is difficult to argue against actions that could possibly strengthen legitimate actors’ ability to perform their rightful roles.

It is important that capacity-building by outside actors does not undermine the incentives for government-led efforts. All programmes should incorporate a plan for transferring management skills to the government, paving the way for the exit of the company and the organic growth of institutions. There is broad agreement that institutional capacity-building is a necessary ingredient for successful development. Scholars and practitioners are beginning to recognise that there is a role for companies in this work.

These contributions to governance improvement might have more developmental impact in the longer run than isolated charitable giving and social programmes. As case study evidence grows, however, practical questions about implementing these programmes and more fundamental questions about boundaries and legitimacy will remain. Companies should engage in these discussions, and it seems likely that, until other actors can match the resources and influence of the private sector, business will play an increasingly important role in institutional capacity-building.

The profile of business roles in institution-building appears set to rise as political and economic development experts draw increasing attention to the underlying institutional barriers to solving many questions of what role responsible companies should play in development.


Case one
Business Action for Improving Customs Administration in Africa

Led by Unilever, British American Tobacco, Sitpro (the UK’s trade facilitation body) and Diageo, Business Action for Improving Customs Administration in Africa is an “international coalition of businesses committed to identifying, promoting and supporting effective measures to improve customs administration and enhance trade facilitation in Africa”. Baficaa wants companies that are known to be legitimate business operators to be given a “fast track” process for getting their goods through customs. At some ports in Africa, such as Lagos, Nigeria, and Mombasa, Kenya, getting goods past border officials routinely takes several weeks.

Baficaa has no formal structure or plans to create a new institution, and it does not consider itself a pressure group. Rather, it is a network of business partners attempting to complement ongoing reforms of customs practices by making practical contributions to improving customs capacity.

Its guiding principles include the importance of trade facilitation, the removal of regulatory barriers and the promotion of better governance. Companies involved say part of their aim is to convince governments that companies can be active and trustworthy partners.

Dialogue

Baficaa’s first steps include measures to build dialogue and trust between business and governments. Its intention is to help devise and implement practical proposals that can improve customs procedures and trade in a sustainable way.

Baficaa members helped co-ordinate workshops that involved senior customs figures from east African states. An initial May 2007 workshop was followed by a meeting in September 2007, organised by the World Customs Organisation and Sitpro, and attended by the Baficaa taskforces and the heads of customs for all countries of the East African Community (except Burundi). It fulfilled its aim of discussing a regional approach to customs administration reform and identifying how best to achieve progress on introducing the fast-track proposal, known in customs circles as the authorised economic operator (AEO) concept.

The fast-track recommendation was one of the highest priorities for reform mentioned in the original Baficaa report. The heads of customs for the East African Community have now agreed to pilot a regional fast-track programme, meaning faster clearance times for qualifying firms with “trusted trader” status.

Baficaa has capitalised on the appetite and progress towards customs reform within several of the EAC’s own customs services. It has made a major difference in raising business issues and helping drive a co-ordinated approach to reform across the region, which should help intra-regional trade enormously if the reforms are implemented effectively.


Case two:
Premier Oil in Burma

Premier Oil, a small independent UK oil company, had a presence in Burma from 1990 until 2002. In September 2002, it sold its operations in the country to Malaysian state oil company Petronas. During this entire time, Burma’s human rights record was the subject of much criticism.

In 2001 and 2002, Premier Oil organised and ran training seminars and workshops on human rights for the Burmese military government and its administrators. The company undertook the project because it saw no-one else willing or available to co-ordinate such capacity-building and felt it could make a contribution. Premier also felt that such activities would ultimately contribute to its corporate social responsibility programmes by raising awareness of issues around human rights, including among senior military figures.

Human rights training

Over a two-year period, Premier Oil funded and organised nine human rights workshops, run by specialist human rights lawyers hired by Premier. About 250 participants from the army, police, energy ministry, labour and immigration departments were taught about human rights in two-day seminars. The workshops were structured to provide the officials taking part with knowledge about the concept of human rights, its origins and nature, and about human rights as an international legal system. They focused on humanitarian law, primarily the Geneva Convention, and outlined the minimum requirements for operating within it. They were conducted in an interactive and discursive rather than formal format and were adapted to resonate with attendees’ experiences and backgrounds. Premier’s aim was to bridge the gap between the theories of human rights and “equitable and correct law enforcement practice”.

Participants indicated to Premier the importance of “practical skills-related instructions” for the “true application of human rights standards in law enforcement”, according to the company’s CSR manager, Richard Jones, who co-ordinated the efforts. After Premier left Burma in 2002, following the sale of its assets, there was little opportunity for the company to influence human rights practice in the country, particularly since the reformist-minded prime minister, Khin Nyunt, was deposed by the ruling junta in 2004.

The case of Premier Oil’s involvement in Burma demonstrates that companies can have some positive impact – at least on government discourse – in even the most challenging situations. By building up trust with individuals and convincing the government that it should enforce its own signed conventions, Premier was able to convince senior government figures of the need for incremental reform. Although the project ended in 2002, it demonstrates the potential for what companies can achieve as conveners and catalysts of institutional capacity-building and change. Had Premier remained in the country and had the political situation remained more stable, its work could have aided in advancing the human rights protection capabilities of the government.


Case three
Judicial human rights training in Venezuela and Nigeria: the case of Statoil

The Norwegian state-owned oil company Statoil, in partnership with both local and international organisations, provided backing for human rights training of the judiciary in Venezuela from 1999 to 2004, resulting in what appears to have been the training of all active judges in the country at the time in human rights.

Statoil, considered a corporate responsibility leader by many, officially incorporated respect for human rights into its statement of values in 2003. The company is a founding member of the Business Leaders Initiative on Human Rights (BLIHR), and executives and employees have undergone human rights training themselves. This commitment to human rights was one of the underlying reasons for Statoil’s initiation of the programme, along with its desire to help foster a more stable business environment.

According to the United Nations Development Programme, Statoil began the Venezuela project because it wished to fund initiatives that had a social development component and covered human rights issues. UNDP suggested that the company work with a national chapter of Amnesty International to provide training for judges in human rights. The judges and public defenders training scheme in Venezuela was officially a UNDP initiative funded by Statoil Venezuela, with heavy involvement of the local Amnesty International chapter and the Venezuelan state agency responsible for appointing and training judges.

Enhanced professionalism

According to Statoil, its goal was to “help enhance awareness and professionalism in the judicial system, and to create a force against human rights abuses”. In 2004 UNDP reported that judges involved in the initiative felt that the training had enabled them to “translate the broad human rights commitments contained in the new constitution into operational reality” and underscored the seriousness of Venezuela’s pledges to uphold international human rights principles. The judges recommended that training be expanded to police and public prosecutors in the future, to achieve a greater awareness and expertise throughout the system.

By 2005 the programme was formally completed, and Statoil’s corporate responsibility portfolio became more focused on human rights and business, as shown by its work with BLIHR and with local factories.

In Nigeria, Statoil has supported the work of the Legal Defense and Assistance Project, a local NGO run by lawyers. Between 2002 and 2006, 450 judges from seven northern Nigerian states attended training courses run by LEDAP that included focus on human rights issues.

The relative longevity of these initiatives, and the feedback they obtained, encouraged Statoil to conclude that it was furthering human rights promotion and protection by strengthening institutions in Venezuela and Nigeria. Statoil also believes the initiatives helped maintain its reputation of leadership in social responsibility issues and enhanced its operational legitimacy in these countries generally.


Case four
Economic capacity-building in Azerbaijan: the case of BP

Over the past 13 years, many oil and gas companies, particularly BP, have invested large amounts of money in extracting Azerbaijan’s oil and gas reserves. In 1994, Azerbaijan signed an oil deal worth $7.4 billion with a western consortium of companies led by BP. Since oil began flowing through the Baku-Tbilisi-Ceyhan pipeline – which also goes through Georgia and Turkey – in 2005, the country has experienced a rapid increase in oil revenues.

As by far the largest foreign investor and revenue generator in the country, BP says it has a responsibility to contribute to stability and economic probity in the country, as it does in other nations. Given the risks of operating in unstable nations, BP clearly has a substantial interest in contributing to the stability of the country if it wants to ensure sustainable returns on considerable investment over the roughly 40-year life of the project. It realises, however, that it must consider the limits to its legitimacy in contributing to governance capacity in a region as complex as Azerbaijan’s.

Azerbaijan is a signatory of the Extractive Industry Transparency Initiative, a multi-stakeholder scheme encouraged by western governments, oil companies and civil society groups which aims to foster transparency with regard to sums of money being paid by international oil and gas companies to governments or state oil funds.

Influence within limits

BP agreed in 2006 that it would maintain its dialogue with the government on encouraging revenue transparency, but was at pains to point out that there are “quite properly” limits on how much a company can influence governments on managing revenues from oil. BP has also taken measures to enhance the economic planning and management capacity of the government and state oil fund. It has convened two workshops for high-level government economics and treasury officials in Azerbaijan. The first workshop lasted two days and centred on the experiences of other resource-rich countries in handling increased income from natural resources.

It featured former ministers from other countries, consultants in resource economics, and the former head of a petroleum directorate. Its aim was to pass on lessons from these countries’ experiences without dictating a course of action for Azerbaijan.

The second workshop covered the role of economic modelling in policy-making and was led by specialists from Oxford, Dundee and Sussex universities. As with the previous cases, BP did not directly conduct this training but acted as a catalyst for their creation and covered logistical costs. Additionally, BP supported work by Oxford Economic Forecasting to collaborate with the state oil fund to develop a long-term model of the Azeri economy. By 2007 this model had been completed and was under the ownership of the state, but BP pledged to continue to provide training to maintain and update the model as the economy develops.

BP’s work in Azerbaijan is ongoing. Much of the work around contributions to economic capacity-building and lobbying for greater participation in EITI is in its early stages, and it will take some years before it becomes clear just how much sustainable impact these activities have had. The case, as it is, demonstrates the potential for contributions that can be made by a company in a powerful position, as BP acknowledges it is in Azerbaijan and the Caspian region.

Peter Eigen, chairman of EITI and founder of Transparency International, describes BP’s work in Azerbaijan as “ground breaking” and the company as “one of the leaders” in the field of working with developing country governments in a constructive way.

Toby Webb is co-director of the Ethical Corporation Institute and founding editor of Ethical Corporation. For free access to the full ECI report from which this article is extracted, visit www.ethicalcorp.com/eci



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