Building local legitimacy into corporate social responsibility: Gold mining firms in developing nations

Building local legitimacy into corporate social responsibility: Gold mining firms in developing nations

Journal of World Business 45 (2010) 304–311 Contents lists available at ScienceDirect Journal of World Business journal homepage: www.elsevier.com/l...

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Journal of World Business 45 (2010) 304–311

Contents lists available at ScienceDirect

Journal of World Business journal homepage: www.elsevier.com/locate/jwb

Building local legitimacy into corporate social responsibility: Gold mining firms in developing nations Blair Gifford a,*, Andrew Kestler b, Sharmila Anand c a

The Business School and Center for Global Health, University of Colorado Denver, Campus Box 165, PO Box 173364, Denver, CO 80217-3364, USA Division of Emergency Medicine, School of Medicine and Center for Global Health, University of Colorado Denver, USA c The Business School, University of Colorado Denver, USA b

A R T I C L E I N F O

A B S T R A C T

Keywords: Corporate social responsibility Developing nations Institutional theory Local legitimacy Gold mining corporations

A transnational model of global strategy suggests that multi-national enterprises generally rely on proven global capabilities to adapt existing business models. Alternatively, this paper argues that the transnational model needs to be amended to allow for a hybrid approach that balances local and global strategies for multi-national gold (MNGs) firms working in developing nations. This is illustrated by Newmont Mining’s efforts to develop local legitimacy through contributions to community development around its gold mining operations in Peru. We then compare the Newmont case with corporate social responsibility (CSR) at other MNGs. We have found that there appears to be an industrywide institutional environment developing which includes local CSR projects in an attempt to balance the effects of capitalism between global markets and developing nations. ß 2009 Elsevier Inc. All rights reserved.

It is estimated that almost 60% of the world’s six billion people live on less than $2 (US) dollars a day (World Bank, 2001). To a great extent, these poorer populations have not seen the benefits of the globalization of markets. Yet, the areas where poorer populations live in the world have and continue to serve as a very important component in the development of globalization because they often provide the raw materials and labor for extractive industries, such as oil and mining, that drive the globalization process. Multi-national gold (MNG) mining corporations, for example, are key actors in globalization with their international operations and the sale of their products on worldwide commodity markets. About 70% of gold mining is done in developing nations, where the consequences of environmental damage often are greater for the sustainability of local communities. The communities around mining operations not only tend to be poor and vulnerable, but also lack government protection, regulation and oversight. MNGs have begun to work with stakeholders around their mining sites in developing nations to develop local legitimacy (Gifford & Kestler, 2008). We illustrate this development by describing a current local legitimacy initiative by Newmont Mining Corporation (Newmont) in communities around its gold mining operations in Peru. We then place the Newmont case in the context of what the ten largest MNGs are doing in terms of

* Corresponding author. Tel.: +1 303 315 8400; fax: +1 303 315 8417. E-mail address: [email protected] (B. Gifford). 1090-9516/$ – see front matter ß 2009 Elsevier Inc. All rights reserved. doi:10.1016/j.jwb.2009.09.007

CSR in developing nations. We found that an industry-wide voluntary CSR standard for sustainable development of local infrastructure appears to be developing. That is, MNGs are developing an institutional environment where those firms that do not provide substantial local assistance will be at a competitive disadvantage. Overall, this paper contributes to theory development by describing how an institutional environment for a multi-national industry develops; how this institutional environment for MNGs includes a balance of global and local strategies with all stakeholders; and, how legitimacy for CSR needs to go beyond public relations to include sustainable development by MNGs. We argue that these MNGs’ CSR strategies are not only a good thing to do, they also are a way for MNGs to be welcomed in developing nations for the longer term. 1. Gold mining: a dirty business The demand for gold has been increasing quickly in recent years. Prices for gold have escalated to around $1000 per ounce in the last several years from around $200 per ounce in 2002. Investors often use gold to balance their portfolios from the risk of uncertainty of escalating oil prices. The demand for gold is skyrocketing as a result of per capita income increases in transitional economies such as India and China. Led by a burgeoning middle class, the demand for gold increased by 47% in India in 2005. Meanwhile, the demand for gold increased by 11% in China during the same one-year period.

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The need for gold as a resource is open to question. About 80% of all gold is used for jewelry. Although jewelry does serve a function, it is, of course, not seen as a very essential mineral. Also, compared to the mining of other minerals, gold mining produces tremendous waste. Gold ore can be mined at a lower grade than any other metals. Gold mining is typically done in large open pit mines of many square miles, leaving a large area of scarred earth and waste. For every ounce of gold mined, there are approximately 30 tonnes of waste (http://www.nodirtygold.org). Rock waste piles often result in lead, mercury, cadmium, and arsenic poisoning, and gold mining needs to be done near plentiful water sources. As such, the environmental changes wrought by MNGs eventually affect health and society in areas of operation. 2. Increasing scrutiny of MNGs In the past, the poor of the world have had little voice concerning the activities of multi-national enterprises. With the advent of the internet and the globalization of mass media, as well as the proliferance of goodwill-oriented organizations such as NGOs (e.g., CARE), foundations (e.g., Bill & Melinda Gates Foundation), service clubs (e.g., Rotary International) and government aid workers and individuals, the reporting mechanisms have increased. The developing world is now able, to a greater extent, to monitor and publicize the work of MNGs, and it will be increasingly necessary for MNGs to add local sustainable benefit into their strategic mix to gain the social license and legitimacy that is needed to work in poorer communities. Social critics argue that MNGs often elude public policy control. The communities around mining operations not only tend to be poor and vulnerable, but also often lack government protection. The environmental and economic changes wrought by MNGs eventually affect health and society in areas of operation. Accordingly, questions have been raised concerning MNGs’ social and environmental performance in emerging economies (Meyer, 2004). Some argue that MNGs have a human rights obligation to affected communities, which extends to health, education, and the environment (Caplan & Silva, 2005) and that MNGs often elude public policy controls. In seeking to reduce costs, MNGs may play employees and countries against one another, creating downward pressure on wages and social standards on a worldwide basis (Dowell, Hart, & Yeung, 2000). Developing nations typically have less sophisticated market-supporting institutions and legal and regulatory capabilities. Inefficiency and corruption often prevent governments from effectively managing the external costs of industry and the resulting costs to society (Warner & Sullivan, 2004). On the other hand, advocates of mining argue that MNGs play a pivotal role in linking rich and poor economies and in transmitting capital, knowledge, ideas and value systems across borders. Foreign direct investment (FDI) by MNGs has motivated many governments to offer attractive incentive packages to entice these corporations to their countries. Many MNGs working in developing nations partner with NGOs and non-traditional stakeholders, such as local tribes, to develop social responsibility strategies (Rondinelli & London, 2003). An integrated local approach to economic development and poverty alleviation is especially important in low-income markets where economic, social and environmental considerations are closely intertwined (Chambers, 1997; Sen, 1999; World Bank, 2001). This is being done in an attempt to maintain their social license for continued operations in developing nations. 3. Theory development We provide the following theory building propositions, which are based on organization institutional theory (Scott, 1995), to

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guide our analysis of which MNGs are more likely to seek legitimacy through CSR in developing nations. 3.1. Institutional field Institutional theory emphasizes the influences of the systems surrounding organizations (i.e., the organizational field) that shape social and organizational behavior (Scott, 1995). Organizations behave in accordance with this socially constructed reality because it reduces ambiguity and uncertainty. Over time, these shared understandings, or collective beliefs, become reinforced by organizational initiatives and community responses such as regulation involving state agencies and professional bodies. Regulatory processes thus both disseminate and reproduce coded prescriptions and social reality. Deviations from such prescriptions cause discomfort and trigger attempts to justify and/or legitimate departures from the social norm. Proposition 1. (P1): There is a developing institutional environment based on CSR in the MNG industry. 3.2. Institutional change Institutional processes may, for a time, give an organizational field the appearance of stability. Nevertheless, the appearance of stability is misleading because fields are not static, but evolving as organizations respond to pressures for deinstitutionalization. These pressures can be ‘‘jolts’’ (Meyer, Brooks, & Goes, 1990), social upheaval (Zucker, 1986), technological disruptions, competitive discontinuities (Fox-Wolfgram, Boal, & Hunt, 1998), regulatory changes (Greenwood, Suddaby, & Hinnings, 2002) and increased scrutiny from media and NGOs (Teegan, Doh, & Vachai, 2004). Proposition 2. (P2): The institutional environment of MNGs is changing in response to increased scrutiny by media, NGOs and others. In particular, MNGs are responding to increased scrutiny with efforts to enhance worker safety, minimize environmental degradation, limit exposure to toxic substances, and improve environmental restoration. 3.3. Social embeddedness The international business model of global strategy suggests that multi-national corporations generally rely on proven global capabilities to adapt existing business models, such as a subsidiary strategy, to control resources, extract knowledge and leverage economies of scales (Bhartlett & Ghoshal, 1989). Multi-national corporations are also accustomed to creating competitive advantage through patents, brands and contracts. They are wary of entering emerging markets where their proprietary technology and knowledge cannot be protected through enforceable legal mechanisms (Delios & Henisz, 2000). However, an opposing viewpoint on global strategy has been developed in recent years as firms have begun to move into developing economies. Prahalad and Hammond (2002) argue that emerging economies should not be viewed as following a homogenous pattern of international market economic development. Indeed, given the opportunities and challenges of lowincome markets, it may be necessary for multi-national corporation subsidiary managers to develop multiple strategies depending on which markets (top, middle or low segments) within a country they are targeting. When entering developing nation markets, multi-national corporations may need to expand dramatically the potential field of alliance partners to meet the challenges of gaining needed

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resources and expertise. These additional partners are often nontraditional and can include NGOs, community groups, and even village and local tribal governments (Gifford & Kestler, 2008; Hart & Sharma, 2004). Local government regulations often require multi-national corporations to have a local corporate or joint venture partner (Blodgett, 1991). These partners provide access to important information and contacts in the local community and business environment that are not generally available in the corporate sector. London and Hart (2004) argue that multinational corporations’ success in developing nation markets requires a variety of characteristics, including: scalability, flexibility, decentralization, knowledge sharing, local sourcing, and local entrepreneurship. These characteristics are a significant departure from current wisdom of world-scale production, global supply chains, and local adaptation of centrally developed solutions. Proposition 3. (P3): In an attempt to gain social license, MNGs will socially embed and partner with local stakeholders in the development of community infrastructure and environmental management. 3.4. Local legitimacy A social embedded approach emphasizes local partnering by MNGs to ultimately open new markets for an MNG’s products. Local legitimacy also emphasizes local partnering, but this is done to gain social license for the MNG to continue operations. For example, a project of the nature and magnitude of a new mining operation will place considerable strain on the existing physical infrastructure, and it will require the development of new infrastructure capabilities. Key community physical infrastructure issues in developing nations include clean water and sanitation, solid waste management, transportation and transportation systems, electrical systems, telecommunications networks, family shelter and public facilities such as schools, and the availability of health services. The introduction of mining into an area will also challenge traditional authority structures. As such, it is necessary for an MNG to partner and work with traditional authority structures to help them retain authority and credibility in their communities. By including input from civil society, local community groups, and the public sector, firms are better able to understand the social and business environments (Rondinelli & London, 2003). This capability involves the ability to generate bottom-up development, and build on the existing social infrastructure. Many social changes and challenges will come about from a new mining operation. Families in the mining area will be displaced, and other families may have to resettle due to inflation of housing costs. Kinship relationships as well as an economic and social sharing of resources may break down, leaving vulnerable populations (elderly, children, disabled, disadvantaged women, unemployed) especially at risk. There will be an influx of new residents seeking employment opportunities from mining operations and the peripheral industries that will develop. This influx and other social changes often lead to increases in prostitution, drugs, teen pregnancy, drunkenness, and crime. As a result, there may be a need for additional security and a police presence. Further, change from subsistence livelihoods will require money for management training and small and medium enterprise development. There will also be unfulfilled expectations for individual and family lifestyle improvements from those who do not gain employment opportunities. This could lead to decreased emotional wellbeing and could lead to alcohol abuse and increased incidences of family violence.

Proposition 4. (P4): In an effort to gain local legitimacy in developing nations, MNGs will work with local communities to determine and develop key infrastructure needs. Components of such a local legitimacy approach include:  Co-invention and analysis of community needs and issues by MNGs and community partners,  planning and investment in developments to enhance the social fabric of communities, and  planning and investment in physical infrastructure needs such as water and sanitation systems, transportation, electricity and telecommunications networks, and education and health facilities.

4. Case 1: Newmont mining in Peru The increasing global reach of activist non-government organizations and the media challenges international business operations in developing nations. For example, Newmont, one of the world’s top gold producers, has been cited for a number of environmental problems, including a mercury spill in Peru and pollution from submarine tailings in Indonesia. The New York Times ran two front page exposes on the gold mining industry with a focus on Newmont and Newmont’s alleged buy-off of Peruvian government officials for their mining operations in northern Peru (Perlez & Bergman, 2005; Perlez & Johnson, 2005). Likewise, the Public Broadcasting System ran a Frontline series in October 2005 that was critical of Newmont’s mining activities in Indonesia and Peru (Newmont, 2005). These incidents, regardless of contradictory assertions by Newmont and environmental groups, have resulted in negative press. In June 2000, a truck operated by a contractor and carrying waste mercury from Newmont’s Yanacocha mine in Peru to a coastal port overturned in the village of Choropampa. This incident has gained local and international notoriety and put an unfavorable light on Newmont. Many locals collected the mercury, thinking it had medicinal properties or that it contained gold. Approximately 1200 people were exposed and 200 were hospitalized. A documentary film released in 2002, ‘‘Choropampa, the Price of Gold,’’ highlights the suffering of the locals and is highly critical of Newmont (Guarango, 2002) Many from Choropampa attribute ongoing health problems to the mercury spill. Accusations against the mine include: that the mercury was not properly contained; there was inadequate oversight of contractors; there was a failure to take responsibility; there was a slow response to the spill; and, that medical treatment was offered in exchange for release of liability. Whether or not all these claims are justified, the reality remains that residents of Choropampa have suffered, and that Newmont’s reputation and credibility in the region were significantly damaged. The repercussions of Choropampa and of disputes over water contamination are alive and well. Environmental groups in the region continue to engage in grassroots organizing against planned mining activities. In September 2004, large demonstrations in Cajamarca led Newmont/Yanacocha to back down from planned exploitation of Cerro Quilish, near Cajamarca. In October 2004, the mayor of Celendin, the administrative seat of the province comprising the majority of the Conga Area, declared the area to be an ecological reserve not to be touched by mining activities. To this date, negotiations continue toward a socially and environmentally acceptable mining plan for the Conga Area. In response to increased scrutiny by NGOs and the media, Newmont contracted the University of Colorado Denver (UCD) to independently conduct health assessments and recommend sustainable, community building interventions at mining opera-

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tions in Peru. UCD assembled a 6-member faculty team, primarily from the medical school, for the Conga mining area project in Peru. All of these team members had prior work experience in Latin America, primarily in Peru, Equador and Bolivia, and all speak Spanish. The composition of the team incorporated several areas of expertise, including: high altitude medicine, neonatology, toxicology, healthcare management, tropical medicine, public health, community health and development, medical anthropology, family medicine, nursing, emergency medicine, pediatrics, women’s health, and internal medicine. Before conducting its assessment, the team sought and obtained approval for the research from the University of Colorado Denver Institutional Review Board. Given time constraints, the team selected data collection methods based on the Rapid Assessment Process (RAP), described by Beebe (2001), for its applicability to a community health assessment and for its feasibility. The RAP, by definition, considers geographic, political and social environments, as well as health conditions. The utility of RAP is to ‘‘quickly develop a preliminary understanding of a situation from the insider’s perspective.’’ RAP was developed by individuals designing and implementing international development programs who found that successful programs must be based on partnerships between the outsiders who control resources and the insiders who will ultimately implement the program (Beebe, 2001). The UCD team interviewed key stakeholders in the 20 communities within the Conga Area in 2005 and had site visits to 15 healthcare facilities in the Cajamarca Region. The majority of interviews were group interviews, involving several members of the team and several members of the community. In all cases, Peruvian team members were present to facilitate the discussion. To the extent possible, female team members interviewed women apart from the men to avoid any potential for social inhibition. An additional 35 interviews were conducted outside of the Conga

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Area, in the Cajamarca Region and in Lima. Further, the UCD team members conducted numerous on site follow-up interviews of the 2005 interview sources in January and July of 2006. Key stakeholders for the interviews included identified formal and informal community health leaders, the Ministry of Health and its local officials, civil authorities including mayors, Newmont Mining-Yanacocha, the Universidad Nacional de Cajamarca, and CARE—the most active NGO in the Conga area. Depending on the community, influential organizations included Juntas de Agua Potable (potable water councils) and ‘‘rondas campesinas,’’ a sort of self-defense group for the protection of land. 5. Newmont case results We have borrowed some aspects of the social embedded approach (London & Hart, 2004) and added others to come up with three components to our local legitimacy approach (Gifford & Kestler, 2008). The components of local legitimacy include: (1) the co-invention and analysis of key community needs by an MNG and community stakeholders, (2) the development of infrastructure interventions to enhance communities’ social fabric (e.g., education, training, domestic violence programs), and (3) the development of key physical infrastructure needs such as housing, roads, health facilities, communication network, and the like. We argue that our local legitimacy construct adds substance and a longer term perspective to London and Hart’s social embedded approach. The recommendations of the UCD project team to Newmont are listed in Table 1. As indicated, Newmont’s investment in the mining communities of Peru will not be superficial, quick fixes and they provide support for Propositions 1 (social embeddedness) and 2 (local legitimacy). For example, Newmont’s history in other mining areas, such at Batu Hijua, Indonesia, show that the corporation has been willing to invest in long-term infrastructure development. Newmont has final authority on which infrastruc-

Table 1 Recommendations and corresponding type of legitimacy for Newmont’s Conga mining project site. 1. Establish a coordinating body, such as a foundation, to design and implement a comprehensive strategy of social investment in health and development for the Conga Area. The Foundation needs to unite major stakeholders and have financial and administrative autonomy from Newmont. Legitimacy type: Co-invent and analyze 2. Commission a household health study to establish a reliable health baseline in the target communities, and repeat this survey every 2–4 years. Legitimacy type: Co-invent and analyze 3. Assist communities in attaining a safe and sufficient water supply and effective sanitary facilities. This will require an engineering survey of the target communities to determine the specific needs and available water resources of each community. Legitimacy type: Key physical infrastructure intervention 4. Assist health centers and communities to develop a sustainable communication infrastructure that improves healthcare. In the case of the Conga area, there is a need to install cell phone towers adjacent to current Newmont installations so health providers’ effectiveness can be enhanced through timely consultations and referrals. Legitimacy types: Key physical infrastructure intervention and community social fabric 5. Improve community access to healthcare. Access can be improved by expanding outreach into the region and by facilitating transport outside the region. Local programs training health promoters should be reinforced, so that all communities benefit from at least one trained promoter from their own community. Legitimacy type: Community social fabric 6. Help communities train and retain local healthcare personnel. A program to provide continuing medical education for nurses, physicians and technicians and to provide replacement coverage during absences would have a positive impact on job satisfaction and retention. Legitimacy type: Community social fabric 7. Support education and health education in communities. Beyond its economic and social benefits, female literacy has been directly linked to decreased infant mortality. Legitimacy types: Community social fabric and key physical infrastructure intervention 8. Support and link nutrition and economic development projects. Many successful NGO projects have connected nutrition and household wealth generation. The raising of chicken or guinea pigs, for example, generates income and provides nutrition for protein-deficient children. Legitimacy type: Community social fabric and key physical infrastructure intervention 9. Improve healthcare facilities and equipment, especially the referral hospitals (Celendı´n and Cajamarca). Legitimacy type: Key physical infrastructure intervention 10. Support applied research into the unresolved health problems of the area. Through the input of the community and public health experts, many projects can be designed that link an intervention to a measurable effect on health. Such research fosters the formation of partnerships with reputable academic institutions. Legitimacy type: Co-invent and analyze

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ture projects it chooses to do in Peru. They have expressed agreement with the recommendations of the UCD team, but the implementation of the recommendations will depend to a large extent on the economy, attitudes of future managers at Newmont, and other factors that may change over time. 6. Case 2: CSR in the largest ten gold mining corporations Many multi-national corporations have reacted to public criticism by introducing corporate codes of conduct (Van Tulder & Kolk, 2001) and by joining new non-governmental systems of labor standards and monitoring (O’Rourke, 2003) and environmental protection. Many multi-national corporations are working with NGOs to develop social responsibility strategies (Rondinelli & London, 2003). Corporate decision makers are increasingly communicating CSR credentials about their products, services, processes, and company policies and reports. The extent to which CSR practices are developed varies among companies. If a corporation communicates that it is responsible, it might be assumed that it is of a high priority. Multi-national corporations today are being asked to assume broader responsibilities than ever before (Hart & Christensen, 2002; Meyer, 2004), including such corporate operations and policies as: the development of safe products, providing high quality and reliable services, ethical business practices, welfare and rights, working conditions, fair trade, responsible marketing and communication, stakeholder involvement, information disclosure, and codes of conduct. What is clear from this list of broader responsibilities is that corporate social responsibility (CSR) is not just about the environment. CSR is also about the broader notion of ethics and sustainability at market and local levels. For example, sustainability for MNGs in developing nations should go beyond environmental concerns and include social, environmental and economic dimensions at local mining areas, including quality of life, social investment in community infrastructure, good health, protection and security, and economic development and balancing equities, especially for marginalized populations. 7. Developing institutional CSR environment for MNGs in developing nations The United Nations’ Global Compact was formed in 2002 to voluntarily have multi-national enterprises’ realize a more sustainable and inclusive economy through responsible business practices. As of 2008, 4500 signatories from more than 116 countries of the Compact and its ten principles, which cover human rights, labor, environment and anti-corruption issues (UN Global Compact Annual Review, 2007). Likewise, the 30 member nations of the Organization for Co-operation and Economic Development (OECD), initiated the OECD Guidelines for Multinational Enterprises in 2000. These guidelines provide voluntary principles and standards for responsible business conduct in a variety of areas including employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, and taxation (http://www.oecd.org). These principles and guidelines of international agencies seem to have their roots in the Sullivan Principles that were initiated in 1977 by Reverend Leon Sullivan, the first African-American board member of General Motors Corporation. In reaction to apartheid in South Africa, the Sullivan Principles (http://www.thesullivan foundation.org) ask multi-national enterprises to support economic, social and political justice by companies where they do business; to support human rights and to encourage equal opportunity at all levels of employment, including racial and gender diversity on decision making committees and boards; to

train and advance disadvantaged workers for technical, supervisory and management opportunities; and to assist with greater tolerance and understanding among peoples; thereby, helping to improve the quality of life for communities, workers and children with dignity and equality. Following the lead of these international agencies and the Sullivan Principles, the International Commission of Mining and Metals (ICMM) was formed in 2001. ICMM’s mission statement suggests that sustainability practices are becoming a source of competitive advantage in the gold mining industry. Member corporations of ICMM are expected to ‘‘practice their commitment to environmental, economic and social responsibility and, as such, are making a case for continued access to land, capital and markets.’’ Also, ICMM ‘‘members offer strategic industry leadership toward achieving continuous improvements in sustainable development performance in the mining, minerals and metals industry’’ (http://www.icmm.com/about.php). Beyond the voluntary institutional environment that surrounds MNGs, there is usually a primary motive for a particular MNG to develop CSR. This motive may be for tactical reasons, such as avoiding fines for breach of environmental legislation, huge repair or mediation costs, costs associated with waste disposal, heavy taxes, and bad publicity or merely responding to competitors. There is also the possibility for exploiting the idea, such as utilizing CSR as a marketing tool to attract further business and to paint a positive image. After all, if only some of the market is environmentally aware or active, perhaps there is an opportunity for market segmentation with those that are environmentally aware. Another motive for developing a corporate CSR strategy may be reactionary due to pressures or influences from various stakeholders, such as customers, government, interest/pressure groups, media investors, financial institutions, the local community and others. Some company decision makers have also become strategic about CSR. That is, they have become aware that there are both internal and external strategic opportunities and benefits to CSR. Examples of these benefits include: cost savings from gained efficiencies and lessened waste, reducing risks, entering international markets, and attracting and retaining employees. Finally, there may be altruistic or moral influences. Some decision makers may feel a sense of responsibility to the environment and the community, and therefore take a long-term sustainable strategic position. Also, it may be that these decision makers feel they have to consider CSR because of the nature of their business and its environmental and social impacts. 8. Evaluating CSR for MNGs in developing nations Environmental Management Systems (EMS) have been developed to assess whether companies are living up to their stated CSR strategies. The prime focus of an EMS is to prevent adverse environmental effects and improve environmental performance by institutionalizing various environmental programs and practices. There are various national and international environmental standards, such as ISO 14000, and charters that a company may adopt. These standards are often voluntary and market-driven approaches to improving environmental performance. Environmental audits might also be used by a company. Because there is no statutory definition of what an environmental audit entails, they vary widely in both regularity and scope. The same applies to sustainability charters. These are documents produced by nongovernmental organizations (NGOs) that contain sets of statements to which a company must agree to and apply in all operations. The Business and Environment Index (BIE) http://www.bitc.org. uk/resources/publications/bie_index_of.html), provides data in quantitative terms on the environmental and social performances of companies against their peers and industries in key impact

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areas. Over the years, the BiE has become recognized as the leading benchmark of corporate environmental engagement. The Index assesses the extent to which companies have integrated environmental responsibility within their business functions. It aims to drive continuous environmental improvement, assist companies in their gap analysis, help determine progress, and raise awareness of the environment as a strategic, competitive issue. The annual BiE Index benchmarks companies against each other on the basis of their environmental management and performance in key impact areas. These areas include local community, environment, workplace and market place. Of these four management indices, the more important categories for mining in developing nations, in terms of sustainability, are community and environmental management. A project of the nature and magnitude of a new mining operation will place considerable strain on the existing social and physical infrastructure. As such, the community component of the BiE index suggests the need for MNGs to work with local stakeholders to determine key community issues and possible interventions. For example, the cultural adaptation of indigenous and non-indigenous local communities may be quite different. Cultural externalities may include increases in crime and prostitution, cultural conflicts with indigenous peoples or local communities, the upsetting of social hierarchies, and the creation of envy between those who benefit from the project and those who do not. There are often unfulfilled expectations for individual and family lifestyle improvements from those who do not gain employment opportunities. This could lead to decreased emotional well-being, alcohol abuse and increased incidences of family violence (Bury, 2004). Key community infrastructure issues that MNGs might consider developing with communities include family shelters, social work, health service facilities, schools, transportation and transportation systems, electrical systems and telecommunications networks. These issues and infrastructure services are generally taken for granted by MNGs, which typically are based on industrialized nations that already have built-out infrastructures. The building of roads opens new areas and integrates them to the national economy. This is especially true in remote areas where little infrastructure existed previously. Local taxes can be another benefit or significance to a mining region, if properly channeled. A MNG must also consider environmental issues that result from mining operations. A project of the nature and magnitude of a new mining operation will place considerable strain on the local environment. From pollution of ground water sources to erosion of soils and leeching of minerals from rock tailings and waste, there are a variety of key environmental issues that need to be dealt with. Mining companies are increasingly being watched by local community groups, governments and NGOs to make sure that they are complying with environmental standards and providing infrastructure to assure clean water and sanitation for local communities. The workplace component of the BiE index considers the extent to which MNGs provide health benefits and services for employees,

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conduct work operations with safety as a primary goal, and uphold personal and employment rights. The workplace component also considers the potential of increased employment, wealth, and commerce that are the result of mining operations. The addition of new jobs to the local economy, if managed properly, can lead to a cultural revival, especially in a depressed area. While employment in the new operation is a main objective of the locals, indirect employment effects are often extremely important, too. Employment in subcontracted firms that supply mine goods and services is often equal to or much higher than direct mine employment: 14 times as high, in the case of Newmont’s Yanacocha mine (Newmont, 2005). Finally, the marketplace component of the BiE index addresses shareholder expectations, regulatory requirements, and marketplace responsibility, such as maintaining the highest standards of business when developing, purchasing, selling and marketing products and services. Although shareholders focus on increased valuation of a MNG’s stock price, there is increasing interest by shareholders, both individual and institutional, in making sure a MNG complies with regulatory requirements and is seen as a good corporate citizen, especially in the local communities that surround mining sites. This is because MNGs often operate in developing countries where laws and regulations may be lax or have limited enforcement. Accordingly, three factors of the marketplace are particularly important for MNGs who work in developing nations. These factors include: (1) the rights of local and indigenous communities with respect to natural resources, (2) environmental regulation, monitoring, and enforcement, and (3) the general state of judicial systems and law enforcement. 9. An evaluation example of MNGs and corporate social responsibility This case study provides a cursory application of these key management indices to the CSR practices of the top ten MNGs in the world by market capitalization (http://www.biz.yahoo.com/ic/ 134.html). To be consistent with the Newmont case study, key financial and other business information about these corporations was obtained from 2006 Securities and Exchange Commission filings. We have also gathered the self-reported information of CSR activities and practices from the websites of each of the top ten MNGs in the world. We collected information from other nonindustry sources, such as NGOs and the media, to corroborate the CSR activities of MNGs and especially to determine whether a major concern had developed at any of an MNG’s gold mining sites in recent years, such as the mercury spill at Newmont’s Yanacocha mine in Peru. Information on the amount of gold mined comes from 2003 (http://www.mbendi.co.za/indy/ming/gold/p0005.htm). All of the websites used in this information gathering are listed in the Reference Section. Table 2 describes some key characteristics of the top ten MNGs. That is, almost all of these firms were profitable in 2005, which is a reflection of the increasing price of gold in recent years. Table 2

Table 2 Key attributes of top ten gold mining multi-nationals. MNG

Headquarters location

Market cap ($B)

Income ($M)

Gold Oz (M, ‘03)

ICMM member

Major troubles

Barrick Newmont GoldCorp Gold Fields Kinross Agnico-Eagle Harmony Lihir Yamana AngloGold

Canada U.S. Canada S. Africa Canada Canada S. Africa Papua N. Guinea Canada S. Africa

24.5 19.6 17.9 9.4 4.7 4.1 5.4 32.1 4 12

1210 840 444 338 166 161 70 54 76 78

5.51 7.38 3.86 4.2 NA NA 3.33 2.45 NA 5.63

No Yes No Yes No No No No No Yes

Australia site Peru site; Indonesia site Indonesia; Honduras site; Guatemala site, S. Africa site Congo site

Papua N. Guinea site Ghana site; Congo site

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Table 3 Estimation of key corporate social responsibility indicators of top ten gold mining multi-nationals. MNG

Environment

Community

Market

Workplace

Total

Barrick Newmont Goldcorp Gold Fields Kinross Agnico-Eagle Harmony Lihir Yamana AngloGold

1 1 0 0 2 1 0 2 2 0

1 2 1 1 1 0 1 2 0 1

1 2 1 0 2 1 1 2 1 1

2 2 1 0 1 1 2 1 1 1

5 7 3 1 6 3 4 7 4 3

Key: 0 = little or no activity, 1 = adequate activity, 2 = advanced activity.

indicates that many of the MNGs have had problems at their mining sites as indicated by the attention they have received from international media and NGOs. A key aspect of these problem mining operations is that most all of them are located in developing nations. Table 3 presents information about MNGs’ CSR activities in relation to the four environmental management factors of the BiE Index—community, environment, workplace and marketplace. We have corroborated this information, to the extent that we can, from NGO websites which oversee the gold mining industry. Given the information that is self-reported by the MNGs, we have done a cursory comparison of the extent to which these firms have CSR practices in each of the BiE Index factors and the strength of these practices. The data in Table 3 indicates that MNGs are generally involved in CSR activities across all four of the BiE index factors. This finding gives initial support for Proposition 1 (i.e., there is an institutional environment for CSR in the gold mining industry). The primary exception to these preliminary findings appears to be the three gold mining firms which are headquartered in South Africa (Gold Field, Harmony and Anglo Gold Ashanti), that have generally lower total scores across all four factors. This finding suggests that there might be less institutional pressure for CSR in South Africa generally, and specifically for South African mining corporations. Table 3 data also indicates that many of the top MNGs are involved with community infrastructure development and environmental management. This finding provides additional support to Propositions 3 and 4, social embeddedness and local legitimacy respectively. Regarding Proposition the question of whether CSR is becoming a leading source of competitive advantage for MNGs is neither supported or denied in this paper, and requires additional research. However, it should be noted that the top ten MNGs all have gone through considerable effort in recent years to put their respective CSR practices up front on their websites for the public to see. Whether such information is a form of competition over CSR as a finite and valued resource (Barney, 1991) is debatable at this point and would need further examination. 10. Managerial relevance The communities around MNGs’ mines in the developing world are for the most part poor and vulnerable, and some have suffered either directly or indirectly as a result of mining activities. Any adverse impact or externality of mining, perceived or real, affects MNGs’ ability to conduct business around the world. In many cases, these problems have been quite detrimental and have led to increased scrutiny by NGOs and the media. As a result, discontent over mining activities spreads globally through the web and other media outlets. Further, community relations deteriorate, and MNGs’ prospects of obtaining social license to operate locally decline.

MNGs appear to be responding to increased scrutiny by becoming more involved and committed to developing local legitimacy through sustainable community development and environmental management. Further, they appear to have developed an industry norm for CSR, meeting international regulatory standards and working to provide a safe and healthy working environment for their employees. For example, in response to a mercury spill at their Yanacocha mine in Peru, Newmont has extended considerable efforts to determine what infrastructure development projects would be of most benefit to communities near their mining site(s). As described, Newmont’s efforts to provide health related sustainable benefit is beyond the corporation’s core mining competence. Also, Newmont’s efforts at CSR at its mining site(s) in Peru go well beyond corporate benevolence, charity or philanthropy. Overall, the case of MNGs’ CSR efforts at developing local legitimacy in communities surrounding mining sites is an example of a changing equation where mutual benefit will be a new goal and standard for MNGs in developing nations. 11. Future research There are limitations to the conclusions that can be drawn from this theory development paper. For example, there are many other large international mining firms that are not considered in this study because their focus is on mining of minerals other than gold. It would be speculative to generalize the findings of this paper to these other mining firms. We subjectively compared the strength of each MNG’s CSR practices from the information self-reported by MNGs on their corporate websites and there was no effort made to corroborate corporations’ self-reports. A limitation of the Newmont case study is that it only considers Conga mining area of Peru. Of course, it would be helpful to have a comparison case or two to corroborate the results of the Newmont study. It should be noted that a separate project is being conducted by another UCD team in Newmont’s two mining regions in Ghana. The mining communities in Ghana, like the Conga mining area, are very poor, but the social and geographic circumstances are different than in Peru. Despite these differences, most of the corporate strategies for local social license are being put into place by Newmont in Ghana are quite similar to what has been found in the Conga mining area of Peru (Simoes et al., 2005). Appendix A. Websites used A.1. A. Corporate Social Responsibility Reports Lihir: http://www.lihir.com.pg/asp/index.asp?pgid=10648 Barrick: http://www.barrick.com/Default.aspx?SectionID= a87008e7-d55d-4ad6-a4aa-3bab158ee809&LanguageId=1 Goldcorp: http://www.goldcorp.com/corporate_responsibility/ AngloGold Ashanti: http://www.anglogold.com/Social+ Responsibility/About.htm Gold Fields: http://www.goldfields.co.za/ Newmont: http://www.beyondthemine.com/ Harmony: http://www.harmony.co.za/sd/sd_i.asp Agnico-Eagle: http://www.agnico-eagle.com/English/CorporateResponsibility/CorporateGovernance/default.aspx Kinross: http://www.kinross.com/cr/index.html Yamana: http://www.yamana.com/CorporateResponsibility/ CorporateResponsibilityOverview/default.aspx A.2. B. Major Troubles at Gold Mines Reports Newmont http://ff.org/centers/csspp/library/co2weekly/20060316/ 20060316_18.html

B. Gifford et al. / Journal of World Business 45 (2010) 304–311

http://www.newmont.com/en/about/profile/letters/northern. aspx http://www.buyatbayfacts.com/what_happened/index.aspx http://en.wikipedia.org/wiki/Newmont_Mining#Controversies http://www.denverpost.com/Stories/ 0,1413,36341652592207,00.html http://www.minesandcommunities.org/Action/press508.htm http://www.guarango.org/english/projects/pdfs/Chorop.%20 Press%20Kit.pdf http://www.newmont.com/en/about/profile/frontline.asp AngloGold www.twnafrica.org http://www.twnafrica.org/print.asp?twnID=901 http://www.mg.co.za/articlePage.aspx?articleid=242206&area=/breaking_news/breaking_news__business/ Barrick Gold http://www.rainforestinfo.org.au/gold/barrick.html http://www.rainforestinfo.org.au/gold/lakep.html http://www.rainforestinfo.org.au/gold/lakec.html http://www.minesandcommunities.org/Action/action17.htm http://www.geocities.com/r_ayana/index.html Gold Fields http://www.prov.vic.gov.au/provenance/no5/Gold FieldsSettler2.asp Gold Corp http://www.probeinternational.org/pi/mining/index.cfm?DSP =content&ContentID=4820 http://www.minesandcommunities. org/Action/press11.htm http://www.pcij.org/stories/1999/marcopper3.html http://www.probeinternational.org/pi/mining/index.cfm?DSP =content&ContentID=4815 http://www.corpwatch.org/article. php?id=12695 http://www.minesandcommunities.org/Action/ press751.htm http://www.miningwatch.ca/index.php?/News letter_8/Placer_Domes_Ongoing UN Report: Resource Exploitation in the DRCongo (Kinross, AngloGold) http://hrw.org/reports/2005/drc0505/12.htm A.3. C. Other Websites Business in the Environment Index (BiE): http://www.bitc.org. uk/resources/publications/bie_index_of.html 2002 World Summit on Sustainable Development (Johannesburg, SA–Lihir) http://www.theminingnews.org/news.cfm?newsID=1458 No Dirty Gold: http://www.nodirtygold.org Gold mining industry financials: http://www.biz.yahoo.com/ic/ 134.html Ounces of gold mined in 2003: http://www.mbendi.co.za/indy/ ming/gold/p0005.htm International Council of Mining and Metals (ICMM): http:// www.icmm.com. OECD Guidelines for Multinational Enterprises: http:// www.oecd.org Sullivan Principles: http://www.thesullivanfoundation.org UN Global Compact: http://www.unglobalcompact.org

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