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Corporate Social Responsiveness:
European Management Journal Vol. 23, No. 5, pp. 495–506, 2005 Ó 2005 Elsevier Ltd. All rights reserved. Printed in Great Britain 0263-2373 $30.00 doi:10.1016/j.emj.2005.09.005
Corporate Social Responsiveness: Exploring the Dynamics of ‘‘Bad Episodes’’ ˚ LAND, University of Stavanger TERJE VA MORTEN HEIDE, University of Stavanger The purpose of this paper is to improve our understanding of how a company can handle ‘‘bad episodes’’ related to corporate social responsibility (CSR). We introduce a conceptual model in which a CSR Critical Incident passes through three ‘‘regulators’’ which influence the significance of the episode. Depending on the significance of the episode, influenced by the regulators, three responsive strategies are outlined and discussed. The study is based on a case study methodology and focuses on three cases reflecting an environmental disaster, business ethics difficulties and human rights issues. The study contributes to managerial decision-making by identifying responsive strategies to counter corporate image threats and loss of public trust. Ó 2005 Elsevier Ltd. All rights reserved. Keywords: Corporate social responsiveness, Oil industry, Critical incidents, Business ethics, Environment, Human rights
Introduction There is a growing interest among scholars and practitioners in the economics of corporate social responsibility CSR (Paton and Siegel 2004), and in the past few years there has been a resurgence of interest in social corporate and ethical performance, responsibility, auditing and reporting (Norris and O’Dwyer 2004). Some are even claiming that there is a new paradigm emerging: one that accentuates firms’ responsibilities to several stakeholders in addition to the shareholders (e.g. Norris and O’Dwyer 2004). European Management Journal Vol. 23, No. 5, pp. 495–506, October 2005
The increased focus leads to questions about how the company can improve sustainability performance. Or more specifically, how they can identify, manage and measure the drivers of improved sustainability performance and the systems and structures to improve their social performance (Christman 2000, Epstein and Roy 2001, James 2000). Even if there is a paradigm shift, the roots of social responsibility for the company are not new. The role of business in society has been a concern for a considerable time (Salzmann, Ionescu-Somers and Steger 2005). Already in 1973, a survey of US large enterprises found that nearly all companies included some sort of social responsibility activities in their operations (Eilbirt and Parket 1973). Furthermore, the rise of corporate social responsibility in the late 1970s and early 1980s, coincided with the increased concern for the corporation’s image (Clark 2000). Corporate Social Responsibility is a fuzzy terminology, often used interchangeably with other related concepts such as: Business ethics, corporate citizenship, corporate governance, corporate accountability as well as corporate sustainability. Some define CSR as ‘‘achieving commercial success in ways that honour ethical values and respect people, communities, and the natural environment.’’ (bsr 2005). Others describe CSR as ‘‘actions that appear to further some social good, beyond the interests of the firms and that which is required by law’’ (Paton and Siegel 2004). The construct includes at least three aspects of the relationship between the company and the society. Firstly, how the conduct of business reflects ethical considerations. Secondly, how its business operations minimise or reduce negative impact on the 495
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environment, and finally, that the operations do not interfere with established human rights. The notion ‘‘corporate social responsibility’’ is based on a prescriptive, philosophical/ethical approach with an emphasis on a need for greater corporate responsibility and accountability to the wider society (Norris and O’Dwyer 2004). This has led to the more dynamic concept, corporate social responsiveness, by referring to the capacity and processes of a corporation to respond to social pressures (Frederick 1994, Norris and O’Dwyer 2004). The foremost concern in this context is to make it possible for the company to respond to the pressure, which emerges from the socio-political-governmental environment in a positive and pragmatic manner (Norris and O’Dwyer 2004). Ackerman (1975) argues that three features characterize a socially responsive firm: 1) Capacity to monitor and assess environmental conditions, 2) Capability to attend to the many demands of numerous stakeholders, and 3) Competence in design and implementation of plans and policies to respond to changing conditions. In this study we apply the concept of corporate social responsiveness to identify the manner in which companies respond to ‘‘bad episodes’’. One research stream focuses on the outcome and benefits from CSR. This includes research of the relationship between CSR and financial performance (e.g. Carroll 1999, Wood 1991) and studies of CSR programs that create strategic benefits for the firms (e.g. Burke and Logston 1996). The research stream also includes theoretical contributions that suggest typologies of environmental and social performance in relation to financial performance (e.g. Preston and O’Bannon 1997), and studies of the optimal level of CSR in relation to desired outcome. A second stream approaches CSR through studies of the decision-making process, for example, how individuals make ethical decisions (Pater and Van Gils 2003), and the role of ethical codes on these decisions (Loe, Ferrell and Mansfield 2000). Other studies focus on strategies to sustain responsiveness to CSR challenges (Carroll 1979; Wartick and Cochran 1985). A third stream addresses tools, methods and mechanisms to motivate social responsible decisions, including internal control systems (e.g. Norris and O’Dwyer 2004) and the reporting to stakeholders (Johnson and Brennan 2003; Clark 2000). In spite of increasing interest, systematic analysis of CSR is still in an embryonic stage and critical issues regarding frameworks, measurements, and empirical methods have not been resolved (Paton and Siegel 2004). Furthermore there is a general lack of research examining the systems that influence managerial decision-making in a socially responsive vein (Norris and O’Dwyer 2004). Our research aims to address this gap by examining corporate responsiveness when facing ‘‘bad 496
episodes’’. The purpose of our paper is to develop a conceptual model for understanding corporate social responsiveness and to identify possible response strategies according to the characteristics of the situation. By employing a case study methodology we address all three aspects of CSR: Business ethics, human rights and the environment. The development of the model is based on a study of ‘‘bad episodes’’ in three multinational oil and gas companies. The conceptual model can be used as a basis to understand the dynamics of ‘‘bad episodes’’ and to systemise the lessons learned from the experiences of these three companies. The paper is organised in seven sections. We start with basic concepts, and continue with methodology and a case description. The subsequent section includes analysis and findings, followed by discussions and implications. In the final section, we discuss limitations and suggest further research before drawing up the conclusions.
Core Concepts Our first component is called CSR Critical Incident and refers to events that trigger the mentioned ‘‘bad episode’’. By including CSR in the label, we wish to separate this type of critical incident from other types that may occur such as a technical problem or a delivery delay. A critical incident is defined as ‘‘any observable human activity that is sufficiently complete in itself to permit inferences and predictions to be made about the persons performing the act’’ (Flannagan 1954). This implies that the incident must occur in a situation where the purpose or intent of the act seems fairly clear to the observer and where consequences are sufficiently definite to leave little doubt concerning its effect. In the context of this paper, we will define CSR’s critical incidents as environmental, ethical and human rights issues that are in conflict with existing ideals and values. Examples include revealing confidential information about a new concept or idea from a trustful supplier to a competitor, contributing to the spread of the deadly Legionella virus by neglecting proper cleaning of the cooling tower in a supermarket or opposing workers’ right to form unions in a factory. In our view, the significance of an incident is determined by two factors, namely magnitude and discreteness. Episodes that are major (high magnitude) and occur suddenly (high degree of discreteness) will generally be perceived as significant CSR critical incidents. We would argue that the impact of CSR critical incidents is moderated or regulated by three different factors. First, the critical incidents can trigger the CSR drivers through, to mention, humiliating investigation by public media when eager journalists detect European Management Journal Vol. 23, No. 5, pp. 495–506, October 2005
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the incident. Second, CSR enablers might influence the impact, should such an incident end up in court. Third, the company might be in possession of CSR internal tools that can prevent the negative consequences of the episode entirely or mitigate the impact considerably. CSR Drivers are factors that lead to increased emphasis on CSR. In our opinion, the following types of drivers are most relevant for our study: Increased awareness among stakeholders, public media interest and more integration/higher interdependencies between companies. The degree of consistency among drivers is an important determinant for their effectiveness. Drivers that affect the incident in the same direction are stronger compared to a situation in which, for example, two newspapers offset each other by holding different and opposite views on the incident. Numerous corporate scandals in recent years have led to increased awareness among stakeholders both within and outside the firm. Companies are facing increased demands for transparency and growing expectations that they measure, report, and continuously improve their social, environmental and ethical performance. Growing public media interest tends to reinforce the stakeholder awareness. In recent years leading newspapers and other public media have disclosed and investigated CSR incidents and brought involved companies to the public scene, frequently ending with the CEO and/or the board of directors being forced to resign in disgrace. The ability to detect is also enhanced by ‘‘whistle blowers’’ inside companies, staff with separate agendas, reduced employer loyalty and increased ethical consciousness among staff members. More integration and higher interdependencies between actors mean that firms are increasingly held accountable for the practices of their business partners throughout the value chain. Demands for product traceability are prominent in areas ranging from spare parts for aircrafts to genetically modified soybeans. Thus, a CSR critical incident, which occurs in the upstream part of the supply chain, can easily lead to a flow-on effect for the actors further down in the chain. The increased interest in CSR has been paralleled by substantial growth in the number of external codes, standards, indicators and guidelines produced for business by governmental, non-governmental, advocacy and other types of organizations. We call these factors CSR Enablers and they are generally designed to support, measure, assist in implementation, and enhance accountability for corporate performance on CSR issues. In this context, it may be useful to distinguish between the following types of CSR enablers: 1) Conventions and standards, 2) Codes of conduct and 3) Law, provisions and court decisions. Conventions and standards include a variety of initiatives ranging from specific accountability and European Management Journal Vol. 23, No. 5, pp. 495–506, October 2005
reporting standards (e.g. AccountAbility and The Global Reporting Initiative), to guidelines and principles for an ethical and responsible corporate behaviour (e.g. United Nations Global Impact). A variety of CSR issues are also dealt with at the professional level through various codes of conducts. Potential conflicts of interest between the individual, the company and the supplier/customer might be avoided through professional ethical standards. Issues related to honesty and equity (i.e. fairness, impartiality and justice) are relevant in order to improve the consciousness and ethical awareness among professional individuals (see Crowder and Brown 1997; Miller 1997; Hughes, Ralf and Michels 1998). Law, provisions and court decisions, entail CSR regulations that have been established in public laws such as anti corruption legislation, rules against manipulation of competition and laws with the aim of improving the environment. In addition, individual court cases can set precedence and thereby function as CSR enablers. Like the drivers, the effectiveness of the enablers is also influenced by the level of consistency. For example, the effect of the enablers will be reduced in cases where there is legal ambiguity. Similarly, if the threshold for breaking anti-corruption legislation differs from nations, the enablers will be weaker than in a situation where national legislation is backed by international conventions. CSR Internal Tools refer to the firm’s own rules, processes and structures that safeguard a ‘‘socially responsible’’ company. Literature shows that companies differ in the way they implement corporate social responsibility. Some companies concentrate on a single area such as environmental and ethical issues while others aim to integrate a CSR vision into all aspects of their operations. The strength of the internal tools is also influenced by organizational consistency. When employees handle, interpret and understand an incident very differently from management, the consistency is low. With low internal consistency the significance and power of internal tools are reduced. If CSR is to be regarded as an integral part of business decision-making, it merits a prominent place in a company’s core mission, vision and strategic documents. These are simple but important statements that succinctly state a company’s goals and aspirations beyond ‘‘making a profit’’. Internal systems, controls and procedures constitute another group of CSR internal tools, designed to minimize exposure to corporate fraud and malpractice. Systems could also be designed to influence other companies, for example by penalising supplier factories that do not meet all of the company standards. Measurements, auditing and reporting are tools to strengthen internal efforts to comply with the company’s CSR policy and thereby build trust with external stakeholders. Many companies realise that employees cannot be held accountable for responsible behaviour if they are not aware of its importance 497
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nor provided with the information and tools they need to act appropriately. These companies tend to highlight the importance of CSR internally and include CSR as a subject in management training programs to provide managers and staffs with decision-making processes that help them achieve responsible outcomes. The CSR drivers, enablers and internal tools constitute regulators, which may reduce or amplify the effects of the CSR critical incident and thereby regulate the impact of the bad episode. In some situations the impact of the critical incident may nearly diminish because public media show no interest in the episode or the company has the necessary tools to defuse the situation. In other circumstance, the incident may cause a significant uproar because it is illegal or in conflict with internal rules of conduct and ends up as a front-page story in the leading newspapers. In line with current literature, we will distinguish between three main categories of CSR Outcomes. The first category comprises working conditions, safety, social development and human rights and includes such issues as the right to organize in labour unions and the existence of predictable and fair wages. The safety issue is closely related and includes absence of hazardous materials and production processes that may threaten employees or customers. Supplying aircrafts with bogus parts and thus jeopardizing the lives of passengers is one relevant example. The role of foreign companies in relation to social development and human rights in the host country is a key concern with regard to CSR. The second category of CSR outcomes pertains to ethical conduct in business practice. Proper ethical conduct can improve the market competition by avoiding price fixing and dubious tender arrangements, but also reduce opportunistic and disloyal employees taking bribes and gifts as a way of doing business. In a nutshell, these factors can improve the concentration on the companies’ fundamental goals and reduce negative publicity following allegations and legal penalties. The third category, environmental impact is usually referred to in connection with damages to the external environment but may also imply positive outcomes such as leaner production processes involving use of less material and/or recoverable resources. Similarly, transportation activities can be organized to increase utilization and reduce fuel consumption and emissions (Albersheim 1982; McKinnon, Stirling and Kirkhope 1993). Endangered species and natural resources such as rain forests can be saved through environmental awareness, which most likely could enhance environmental sustainability. The immediate outcome leads to response strategies where the company has at least three different ways
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to respond to the critical incident. One possibility is to follow a management strategy by applying existing CSR internal tools to handle the incident. This option is generally preferred if the significance of the outcome is low and the organisational consistency is high. In other words, the critical incident is sufficiently small to be managed and employees in the focal company basically agree and pull together when facing the incident. If the management strategy fails, a second option is available in terms of a surgery strategy. This strategy is normally used for more significant incidents, or cases where the organisation is disunited. Surgical action may, for example, include the dismissal of key personnel, termination of controversial production and markets or the reorganisation of activities to visualise that ‘‘necessary’’ changes are taking place. If the company fails in handling the incident by means of surgery, a mitigation strategy might become necessary. This strategy normally handles the most severe incidents, in terms of high magnitude and high discreteness. One example is when a company is responsible for a large environmental disaster, or when a huge enterprise in financial trouble is caught in manipulating the accounting figures. Here the main concern is changed from internal changes and adjustments to pure external considerations in an effort to mitigate the most catastrophic consequences. The six core constructs are summarized in the following conceptual model, which also illustrates the relatedness between the constructs. We will apply this model in the analysis of three empirical cases. See Figure 1.
Methodology Data Collection The oil and gas industry was selected as empirical context. The choice of context is grounded on this industry’s highly international orientation and exposure to the three elements of CSR: Business conduct, human rights and environmental issues. The choice of methodology is further supported by our access to rich and comprehensive open empirical sources. We apply an explorative design primarily because the role of ‘‘bad episode’’ dynamics in a CSR context has only been sparsely investigated before (see Ghauri, Grønhaug and Kristianslund 1995). This also helps us in breaking up the relatively broad construction of the ‘‘bad episodes’’ and the ‘‘regulators’’ factors into smaller, more precise sub-problem statements (see Churchill 1987). Data was collected through secondary sources including web sites and electronic press archives to investigation reports. Three cases are studied, one for each of the three aspects of CSR.
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response strategies
regulators
CSR MANAGEMENT
DRIVERS
CRITICAL INCIDENT
INTERNAL TOOLS
COMPANY OUTCOME
ENABLERS
t0
t1
CSR SURGERY
CSR MITIGATION
t2
t3
TIME Figure 1 Conceptual Model
Case Descriptions
Statoil – Business Ethics Challenges: 2002
Exxon – Environmental Challenges: 1989 and Onwards
Statoil, which was established by the Norwegian government in 1972, has grown to become one of Europe’s leading oil and gas companies. Statoil is operator for 60 percent of all Norwegian oil and gas production, and its international production is rising steeply. As at date, Statoil has nearly 25,000 employees and activities in approximately 30 countries.
Exxon (which merged with Mobil in 1998 to become ExxonMobil) is among the largest companies in the world. The company currently conducts a wide range of energy related activities (mostly oil and gas) in almost 200 countries and territories around the globe. In 1989 one of the vessels belonging to Exxon Shipping Company, Exxon Valdez, hit the ground at the Prince William Sound while en route from the Alyeska Oil Terminal in Alaska and spilled 38,800 metric tons of crude oil into the ocean. The timing of the spill, the remoteness of the location, which includes thousands of miles of rugged and wild shoreline, and the rich wildlife, rapidly turned the accident into an environmental disaster. It took more than four summers of cleanup before the effort was called off. However, not all shorelines were cleaned and some beaches remain polluted as to date (Evostc 2005). Exxon Valdez’ captain, who appeared to be under influence of alcohol at the time of the crash, was quickly blamed for the accident. However, subsequent investigations revealed that the grounding at the reef was caused by a more complex set of factors than the actions of a possibly intoxicated skipper: It was the result of the gradual degradation of oversight and safety practices that were introduced 12 years earlier in order to safeguard and backstop the inevitable mistakes of human beings. The first court decision came in 1995 where Exxon was sentenced to pay USD 7.25 billion in compensation and interest to a total of 32,000 individuals who were considered victims of the oil spill. The amount was later reduced to USD 6.75 billion. As at mid-2005 Exxon has appealed the court decision.
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Iran was one of Statoil’s international priority areas, which included business relationships with the National Iranian Oil Company regarding exploration, enhanced oil extraction from old fields, and technology development. In order to further strengthen their operations in Iran, Statoil entered a consultancy agreement in 2002 with the Iranian based company Horton Investment with the purpose of accessing vital information regarding future oil and gas projects. One of the main actors in this company, Mehdi Hashemi Rafsanjani, is amongst others, the chairman of the national oil company, and the son of the former Iranian president. Members of the Rafsanjani family have been accused of several corruption cases. The agreement, with a total value of USD 18 million over 10 years, was later re-evaluated and found to be in conflict with Statoil’s own ethical rules and in violating the Norwegian anti-corruption law. In connection with contractual payments, internal auditors of Statoil and the internal security department concluded that the consultancy agreement violated Statoil’s internal regulations as well as Norwegian law. Both departments consequently warned the CEO about the irregularities. However, the CEO ignored the warnings. The Chairman of the Board was informed but failed to take action. The incident accelerated when the leading business newspaper
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in Norway publicized the story. Shortly afterwards the Board fired the CEO and the Chairman of the Board resigned. The company was further investigated and found guilty of breaking the anti-corruption law of Norway. As to date, Statoil is still under federal investigation in the USA and in Switzerland.
project and a pipeline project. The gas field, located in the Andaman Sea outside the coast of Burma, contains large amounts of natural gas. The project was developed under a contract by four investors of which Total is the field operator. Gas production began on schedule in July 1998, and commercial production followed in 2000.
Total – Human Rights Challenges: 1992 and Onwards For the Burmese opposition, Total’s engagement is problematic. Suu Kyi has expressed that Total’s cooperation with the military regime does not benefit the Burmese people, and in fact sustains the undemocratic forces in Burma at the expense of it’s people. Total is currently fighting lawsuits in French and Belgian courts for alleged connections to human rights abuses along the gas pipeline and is facing increasing pressure from international public opinion.
Total is a major multinational energy firm, ranked as the world’s fourth-largest oil and gas company. The firm, which was formerly known as Total-Fina-Elf, operates in more than 130 countries and has over 111,000 employees. Total’s involvement in oil exploitation and exploration in Burma has been surrounded by controversy. The country’s military regime is blamed for having a poor human rights record, and is a subject of concern for a wide number of international organizations. There is no independent judiciary in Burma and political opposition to the military government is not tolerated. The opposition party, lead by Ms. Aung San Suu Kyi, won 83 percent of the parliamentary seats in the 1990 national election. However, Suu Kyi was stopped by the military from becoming prime minister, and has been repeatedly placed under house arrest. Suu Kyi has continued to voice her views against the regime and is today an international symbol of struggle against repression and brutality. Suu Kyi was awarded the Nobel Peace Prize in 1991 for her efforts.
The three cases are summarized in Table 1: All three cases are from the oil and gas industry, and they are multinationals (MNEs). They represent a variety in terms of countries involved, Norway, Iran, France, Burma and USA. The core issues reflect all three aspects of CSR, business ethics related to the bribery/corruption issue (Statoil), human rights related to investments in a banned regime (Total) and environment related to oil pollution (Exxon) respectively. The incidents started in 1989, 1992 and 2003. One case is finished (Statoil), one ongoing (Total) and one partly resolved (Exxon). The degree to which the company was able to influence the incident ranges from exogenous (low influence) in the case of Exxon to endogenous (high influence) in the case of Total. The argument for this rating is that Exxon had very little influence over the situation, once the incident had occurred, while Total has a high degree of influence over the decision to remain in Burma. For Statoil, the situation was somewhat in between. The administration of Statoil had the necessary tools to stop the critical incident, but was overruled by the CEO (with the Chairman of the Board’s silent consent).
A number of countries (including USA) have introduced sanctions against the military government. However, these sanctions have been largely ineffective, due to loopholes and willingness of mainly Asian business to continue operations in Burma and to initiate new investments, particularly in natural resource extraction. A number of Western companies have withdrawn from Burma under pressure from activist groups. Nevertheless, Total seems determined to stay. During the last decade, Total’s operations in the country have been, and are expected to continue to be highly profitable with significant benefits for the company’s shareholders but also for the Burmese military regime. Total’s involvement includes two projects, The Yadana gas field
Table 1
Overview of Cases
Branch Countries involved CSR Core issue Incident Time of incident Status of incident Degree company influence Degree of discreteness Amount of funds directly involved
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With respect to discreteness (i.e. lack of gradual development of the incident), the three cases range
Statoil
Total
Exxon
Oil & gas industry Norway and Iran Business ethics Bribery/corruption 2003 Finished Endo/exogenous (high & low influence) Moderate USD 18 million
Oil & gas industry France and Burma Human rights Investment in banned regime 1992– Ongoing Endogenous (high influence)
Oil & gas industry USA Environment Oil pollution 1989 Still in court Exogenous (low influence)
Low Very high
High USD 6.75–7.25 billion
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from very high for the sudden oil spill by Exxon, to very low discreteness in the case of Total where the magnitude of the involvement is developed gradually. Again, the Statoil corruption case comes somewhere in between. The amount of funds directly involved in the incident ranges from low (USD 18 million in the case of Statoil) to very high (USD 6.75–7.25 billion for Exxon). The size of funds regarding Total’s investments in Burma over 20 years is not known but is expected to be substantial. In sum the three cases represents a strong diversity, although within one specific business area.
Analysis and Findings In the following each case will be analysed in relation to the six main constructs. CSR Critical Incidents In two of the cases the core incident is relatively insignificant. The fact that Statoil enters a dubious consultancy agreement and Total decides to participate in a field development project in Burma is perhaps not a very significant episode per se. The real problems occur as follow-up incidents, when the CEO of Statoil in fact chooses to ignore the warnings from the auditor, or when Total decides to remain in Burma in spite of strong international opposition. The follow-up incidents are not very salient in the Exxon case. This is because the initial incident in itself was so significant that any subsequent actions could do little to reduce or amplify the impact. See Table 2. We now turn to the next three constructs, which are interrelated and labelled ‘‘regulators’’. As discussed earlier, the regulators comprise CSR Drivers, CSR
Table 2
Enablers and CSR Internal tools. They all affect the outcome of the incident, both separately and in conjunction. CSR Drivers The cases reveal at least six different drivers. Media plays a dominant role not only in referring and exposing the incident, like in the Exxon case where the incident itself is dominant and visible, but also as an actor which increases the significance of the incident as illustrated by the Statoil case. Without the initial cover story in the leading Norwegian business newspaper, no other media drivers would join in, nor would the Business Crime Unit of the Norwegian Police. The drivers thus seem to be interrelated and function as a lens when encountering the critical incident. Furthermore, it seems that the ‘‘owner’’ of the incident also can play a significant role in escalating the incident. The Statoil HQ did this by first denying the existence of the dubious agreement, then explaining the rationale behind it before entering a ‘‘no-corruption-here’’ communication strategy. It is likely that the ‘‘owner’’ of the incident may risk becoming the most influential driver by unwise handling of the incident and other drivers. In the Total case the political- and public action group drivers are apparent since the human rights issue is highly political and addresses a phenomenon on national level. The Nobel peace prize award to the Burmese opposition leader functions as an effective driver towards the public opinion of the incident. In the Exxon case, the visual effects of the incident are possibly the strongest driver of them all, as in the drama when seagulls, otters and ducks struggle for life in 38,000 tons of crude oil. The main drivers in the three cases are illustrated in Table 3.
CSR Critical Incidents
Statoil
Total
Exxon
Core incident: Statoil enters a USD 18 million agreement with an Iranian based consultant firm involving public officers to access information on new oil & gas opportunities in Iran.
Core incident Total establishes an alliance with the military junta in Burma for developing the Yadana oil & gas field.
Core incident Oil spill when the tanker vessel grounds in Alaska spilling oil into vulnerable environment.
Core incident comprises: 1. Lack of crew management and manning policies, human errors by captain, impairment of alcohol, and lack of traffic management system in the ship corridor. Follow-up incident: CEO ignores the warnings from two internal audit units, and decides to continue.
Follow-up incidents: Total decides to withhold its investments and further develop their projects, crossing international pressure.
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Table 3
CSR Drivers
Statoil
Total
Exxon
Media action The leading Norwegian business newspaper publishes the case and indicates corruption.
Public action groups (NGOs) Amnesty International and Earthrights International) report breach of human rights by the project security division.
Physical: Physical and visual effect on fisheries, subsistence livelihoods, tourism, and wildlife. Lack of capacity and equipment for immediate oil spill reduction.
Internal action: Statoil officials deny the agreement, then give supportive arguments.
Political action Opposition leader Aung San Suu Kyi wins election and placed under house arrest since. Awarded Nobel peace prize.
Media action Worldwide media exposure to the environmental impact.
Authorities’ action: The economic fraud unit of the Norwegian police raids the company headquarters.
ILO banning forced labouring and undemocratic regime.
CSR Enablers The significance of the incidents increased when media and police referred to current law and prior court decisions. In the Statoil case and the media actors were obviously interpreting the dubious consultancy company and its connection with Iranian public officers in relation to the law and results from prior court cases. In the Exxon case we see similarities in the way that the significance of the incident as perceived internally in Exxon, most certainly, was influenced by the company’s legal liability for the consequences of the oil spill. In a broader context, however, the significance of the incident and its environmental consequences, were unrelated to the enablers and current law. In the Total case we see that legislation also included international conventions, more specifically the human rights provisions. The main CSR enablers are summarised in Table 4. CSR Internal Tools The internal tools aim at reducing the emergence of critical incidents in the first place and if prevention is not possible respond to the CSR challenges in the best possible manner. However, the tools may also function as a catalyst for new events by lowering the threshold for what is being considered as a CSR issue. For example, when Statoil introduced the corporate sustainability report a few years ago, the company also made an implicit commitment to strengthen the focus on environment, human rights and ethics in its international operations. The inciTable 4
dents from the cases also indicate several aggregation levels, ranging from manning rules on specific vessels (Exxon) to Total’s investment strategies. Finally, the cases infer that the CSR tools also seem to serve other purposes than to enforce CSR. In the Total case the investment strategies both serve the fundamental purpose of where and how to access the most profitable oil and gas fields, and possibly some guidance of CSR criteria for those investments. We do not know for sure. But if so, CSR tools contain mutually exclusive goals. In the Total case the CSR part of the investment strategies are not compatible with the CSR issue. The details are summarised in Table 5. CSR Outcomes The outcomes from a critical incident can be numerous. In the three cases we see five distinct groups. In the first group the outcome describes how the consequences of the incident can be reduced. Statoil tried to reduce the significance of the incident by cancelling the agreement, fire the bosses and initiate investigations. Exxon started immediately after the oil spill a large environmental rescue operation. Total paid swift compensation to victims of alleged forced labour in their gas pipeline project in an effort to reduce the public criticism. However, in the Total case the incident was not only reduced, it is also significantly enhanced by building a new gas pipeline to India and by starting negotiations for a new pipeline to China. The outcomes are therefore contradictory.
CSR Enablers
Statoil
Total
Exxon
Legislation: New anti-corruption law established. The incident has now become illegal.
Legislation UN human rights provisions.
Legislation General laws holding companies liable for environmental consequences of own actions and business practice.
Court decisions Prior court decisions regarding bribery and corruption.
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Table 5
CSR Internal Tools
Statoil
Total
Exxon
Statoil’s internal ethical rules and guidelines aimed at preventing questionable behaviour. Statoil corporate sustainability reports.
Investment strategies Information strategies
Exxon Shipping Company crew manning policies for types of vessels and operations. Manning management procedures safeguarding rest hours for crew.
Investment strategies for foreign oil and gas fields.
Project development plans
In the second group of outcomes the internal tools are adjusted. Exxon adjusted their manning policies to reduce the risk of crew fatigue and a new oil spill disaster, and Statoil introduced a new 4-point plan to reduce the risk of new dubious contracts. In all three cases the companies were exposed to sanctions. Based on the enablers, Statoil was fined for breaking the anti-corruption laws and further exposed to US, Swiss and Iranian investigation. Exxon was charged and forced to settle civil and criminal litigations, and Total is still exposed to various international trade and investment sanctions. The outcome can also create frustration among employees as in Statoil where internal surveys clearly indicated lack of trust in management and board of directors after the critical incident was made public. Lack of employee trust can in turn easily reduce productivity and recruiting. Finally, critical incidents can easily influence external stakeholders such as investment funds.
Table 6
In the Total case we clearly see that the Burmese engagement has led to public (NGO) activities to reconsider the Norwegian petroleum fund investments in Total. Further details from the cases are outlined in Table 6. In effect the findings illustrate the learning effect from the incidents, although the strength of this effect varies, partly depending on the significance of the incident itself, and partly on the strength of the ‘‘regulators’’.
Discussion and Implications Conceptual models are often criticized for being able to explain everything and predict nothing. In this paper, we have made an attempt to formulate a model that is not only useful in terms of explanation but also has predictive capabilities.
CSR Outcomes
Statoil
Total
Exxon
Incident reduction: Statoil cancels the Horton agreement.
Incident reduction: Total pays compensation to victims for alleged forced labour around gas pipeline, but denies responsibility
Incident reduction: Exxon involved cleanup forces to reduce the oil spill effect.
CEO fires the VP-International Operations. The Board fires the CEO. The chairman of the Board resigns. Statoil assigns external auditors to review all agreements in search of corruption/bribery. Adjustments of internal tools The Board initiates a 4-point plan aimed at re-establishing ethical reputation.
Total claims to have paid USD 12 million in social welfare aid to local citizens in Burma. Incident enhancement: Total (consortium) enters new agreement for gas pipeline to India.
Employees reactions: Negative working environment report indicates significant loss of top-management reputation.
Stakeholder action: Norwegian petroleum fund forced to reconsider investment in Total by public action groups.
Sanctions Norwegian authorities fine Statoil for breaking anti-corruption law, ‘‘indirect corruption’’.
Sanctions: New US law against investment and trade with Burma
Adjustments of internal tools Reason to believe that manning policies, crew control and monitoring systems have been radically improved. New manning policies established to avoid excessive work hours and crew fatigue (sleep deprivation) and impact of fatigue. Sanctions While the federal and State governments settled their civil and criminal litigation against Exxon in 1991, as of March 2002 claims by private parties are still being litigated and remain unresolved.
Economic sanctions in western world against technology transfer to Burma.
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As discussed, we have suggested that the force of a CSR Critical Incident will be determined by the magnitude of the incident and the degree of discreteness. An analogy is found in the law of physics where the momentum of a moving object is dependent upon two variables: mass and velocity. If, as in the case of Exxon Valdez, the CSR Critical Incident has substantial magnitude and occurs discretely rather than in a continuous fashion, we predict that the regulators (drivers, enablers and internal tools) can do very little to change the course of the incident. Again, to use the analogy from physics, it is difficult to change the direction of a heavy object that is travelling with great speed. In the case of Statoil, although the events unfolded within a period of less than a month, there was sufficient time for the critical press to magnify the story. There would also have been ample opportunity for the company to defuse the incident if the internal tools had been allowed to function as intended. The slow-moving process in the case of Total-Burma means that the regulators are working continuously to influence the situation. Criticism from NGOs and media are counterbalanced by efforts from Total that work in the opposite direction. Thus, a sort of equilibrium or steady state characterizes the situation and the balance will only be shifted if the CSR Critical Incident gains force, for example through a sudden massacre of civilians by the military regime, or if the relative power of the regulators changes. Possible examples of the latter may include a future coalition or strengthening of the collaboration of critical NGOs or an effective multinational ban on western commercial activities in Burma. The relative power could also change if the CSR Internal Tools become weaker for example through increased inconsistencies. If an increasing proportion of Total’s staff finds the company’s engagement in Burma problematic, it may be difficult for Total to maintain a consistent set of actions. Our model suggests that the company through its CSR Internal Tools has possibilities to affect and counterbalance the drivers and enablers. The company’s media department may collaborate with certain members of the press to ensure early publication of the story in a less hostile manner than would be the case if a more critical newspaper uncovered the story at a later stage. Similarly, the company’s legal department may weaken the enablers by highlighting ambiguous legal precedence. Furthermore, the CSR Internal Tools may prevent the regulatory powers of the drivers and enablers completely by ensuring that the rules are followed, that issues are dealt with and solved in-house and thus that there is no ‘‘washing of dirty linen in public’’. With regard to company response, our model predicts that the company will always try to manage the situation. Of the three cases we have presented, 504
only Total is able to do so at least for the time being. There is an analogy to the medical field where an infection is primarily treated with relatively mild and general medication. If this fails more radical surgical intervention is required, followed by acute life saving activities in the worst case. In the Statoil case, the removal of the CEO and the Chairman of the Board was performed by surgery. If circumstances change, Total may have to resort to surgery in the future and might even have to withdraw from Burma. For Total it is important that the decision to remain or withdraw is based on a rational cost/benefit analysis – not pride or standoff with the international community. In extreme cases, for example Exxon Valdez, where neither management nor surgery was possible, the only remaining option was mitigation. For Exxon damage control became essential, which meant mitigation to minimise the harmful consequences.
Managerial Implications Based on the findings we will highlight three managerial implications. First, be aware of inconsistencies within the company that may weaken the internal tools that have been designed to handle CSR critical incidents. Discrepancies in the interpretation of an incident may open up for ‘‘whistle blowers’’ and thereby increase the impact of the incident. Secondly, understand that ‘‘bad episodes’’ are dynamic in several ways. The immediate cause of action when the incident emerges can easily change an insignificant event into a severe case, for example when a company tries to hide realities. The incident is also moving through existing enablers and drivers. Assessing the modus operandi of the most relevant drivers and enablers is necessary to prevent these factors from inflating the significance of the incident. The third implication is related to the company’s interpretation of actual situation in relation to the regulators, primarily drivers and enablers. In a situation where the incident characterises a ‘‘continuous’’ situation (e.g. as in the Total case), it is of utmost importance to avoid prestige and pride and carefully assess the cost and benefits of challenging the drivers and enablers. In this respect the financial benefits from maintaining the operations in Burma are far easier to estimate than the intangible negative consequences such as, loss of company reputation and image.
Limitations Case studies have two essential drawbacks. First, the evidence is based on qualitative data derived from secondary data sources, which implies that some relevant data for the study will not be included in the analysis. This is particularly apparent in the Total and Exxon cases where much of the ‘‘inside informaEuropean Management Journal Vol. 23, No. 5, pp. 495–506, October 2005
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tion’’ is inaccessible. Furthermore, by employing cases from only one industry the results and applicability is limited and primarily valid for the specific sector. On the other hand the purpose of the study is not to test the external validity of our findings, but rather to explore and generate hypotheses and ideas.
coming up. By understanding the regulators, how they work, how they change over time and understanding their anticipated effect, the episodes can be examined and responded to by using the appropriate strategy.
References
Further Research We concur with Paton and Siegel’s (2004) assessment that CSR is in the embryonic stage and that several issues regarding frameworks, measurements, and empirical methods are yet to be resolved. Among the numerous challenges in an emerging research field we suggest further studies of the role and function of the regulators, not at least in other contexts than the oil and gas industry. Furthermore, we call for studies of the relationship between the regulators and business benefits. Or to be more specific, studies that focus on how the interplay between incidents and regulators can determine the benefits for company and society.
Concluding Remarks We have introduced a conceptual model for exploring the dynamics of ‘‘bad episodes’’. By using the model, we have examined how drivers, enablers and internal tools can regulate CSR Critical Incidents. As discussed, drivers may increase the significance of the episode to grow through, for example, media exposure. Enablers may make the episode grow through legal mechanisms or other conventions and standards, while internal tools can be used to limit the significance. In some cases the significance of the episode completely outweighs the effects of the three regulators, for example, in large environmental disasters. The impact of the episode can be minimised by a combination of awareness and insight into the regulators, and selection of a proper responsive strategy. The first, CSR management strategy implies that the episode can be handled by means of internal tools, and presupposes internal organisational consistency and a CSR incidence of manageable proportions. The second strategy, CSR Surgery, is activated if the management strategy fails, and implies firing responsible managers, reorganisation, withdrawal or other activities signalling that the company takes responsibility. When facing incidents of catastrophic proportions, the two strategies will fail, and survival of the company depends on how the impact of the episode can be minimised in relation to external society through a CSR mitigation strategy. Difficult episodes will always emerge. It is therefore important to learn from ‘‘bad episodes’’ and make the company more responsive to the new episode European Management Journal Vol. 23, No. 5, pp. 495–506, October 2005
Ackerman, R.W. (1975) The Social Challenge to Business. Harvard University Press, Cambridge M.A. Albersheim, S.R. (1982) An assessment of transportation control measures for improving air quality. Transportation Quarterly 36(3), 451–468. bsr (2005) www.bsr.com. Burke, L. and Logston, J.M. (1996) How corporate social responsibility pays off. Long Range Planning 29(4), 495–502. Carroll, A.B. (1999) Corporate social responsibility: Evolution of a definitional construct. Business and Society 38, 268–295. Carroll, A.B. (1979) A three-dimensional conceptual model of corporate social performance. Academy of Management Review 4(4), 497–505. Christman, P. (2000) Effects of best practices of environmental management on cost advantage: the role of complementary assets. Academy of Management Journal 43(4), 663–680. Churchill, G.A., Jr. (1987) Marketing Research: Methodological Foundations. The Dryden Press. Clark, C.E. (2000) Differences between public relations and corporate social responsibility: an analysis. Public Relations Review 26(3), 363–380. Crowder, M.A. and Brown, D.D. (1997) Ethical integrity and the supply chain. Purchasing Today (March), 37–40. Eilbirt, H. and Parket, I.R. (1973) The practice of business. The current status of corporate social responsibility. Business Horizons 16(4), 5–14. Epstein, M.J. and Roy, M.-J. (2001) Sustainability in action: Identifying and measuring the key performance drivers. Long Range Planning 34(5), 585–604. Evostc (2005) Exxon Valdez Oil Spill Trustee Council home page.www.evostc.state.ak.us. Flannagan, J.C. (1954) The critical incident technique. Psychological Bulletin 51(4). Frederick, W.C. (1994) From CSR1 to CSR2: the maturing of business and society through. Business and Society 33(3), 150–164. Ghauri, P., Grønhaug, K. and Kristianslund, I. (1995) Research Methods in Business Studies. Prentice Hall Europe, Hempstead. Hughes, J., Ralf, M. and Michels, B. (1998) Transform your Supply Chain Releasing Value in Business. Thomson Press, London. James, H.S., Jr. (2000) Reinforcing ethical decision making through organizational structure. Journal of Business Ethics 28, 43–58. Johnson, V.E. and Brennan, L.L. (2003) Examining the impact of technology on social responsibility practices. Research in Ethical Issues in Organizations 4, 107–123. Loe, T.W., Ferrell, L. and Mansfield, P. (2000) A review of empirical studies assessing ethical decision making in business. Journal of Business Ethics 25, 185–204. McKinnon, A.C., Stirling, I. and Kirkhope, J. (1993) Improving the fuel efficiency of road freight operations. International Journal of Physical Distribution and Logistics Management 23(9), 3–11. Miller, J. (1997) Written in stone. Purchasing Today (March), 32–35. Norris, G. and O’Dwyer, B. (2004) Motivating socially responsive decision making: the operation of management controls in a social responsive organisation. The British Accounting Review 36(2), 173–196. 505
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Salzmann, O., Ionescu-Somers, A. and Steger, U. (2005) The business case for corporate sustainability: Literature review and research options. European Management Journal 23(1), 27–36. Wartick, S.L. and Cochran, P.L. (1985) The evolution of the corporate social performance model. Academy of Management Review 10, 758–769. Wood, D. (1991) Corporate social performance revisited. Academy of Management Review 16(4), 691– 719.
Pater, A. and Van Gils, A. (2003) Stimulating ethical decision-making in a business context: Effects of ethical and professional codes. European Management Journal 21(6), 762–772. Paton, D. and Siegel, D.S. (2004) The economics of corporate social responsibility: an overview of the special issue. Structural Change and Economic Dynamics, article in press. Preston, L.E. and O’Bannon, D.P. (1997) The corporate social-financial performance relationship: A typology and analysis. Business and Society 36(4), 419–429.
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˚ LAND, TERJE I. VA University of Stavanger, N-4036 Stavanger, Norway. E-mail: [email protected]
MORTEN HEIDE, University of Stavanger, N-4036 Stavanger, Norway. E-mail: morten. [email protected]
Terje V aland is Associate Professor of Industrial Marketing at the University of Stavanger, with research interests in B-to-B marketing, relationship management and industrial networks.
Morten Heide is Research Professor of Marketing at the University of Stavanger and an ex-diplomat. His research interests centre on market research, relationship management and internationalization.
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Corporate Social Responsiveness: Exploring the Dynamics of ‘‘Bad Episodes’’ ˚ LAND, University of Stavanger TERJE VA MORTEN HEIDE, University of Stavanger The purpose of this paper is to improve our understanding of how a company can handle ‘‘bad episodes’’ related to corporate social responsibility (CSR). We introduce a conceptual model in which a CSR Critical Incident passes through three ‘‘regulators’’ which influence the significance of the episode. Depending on the significance of the episode, influenced by the regulators, three responsive strategies are outlined and discussed. The study is based on a case study methodology and focuses on three cases reflecting an environmental disaster, business ethics difficulties and human rights issues. The study contributes to managerial decision-making by identifying responsive strategies to counter corporate image threats and loss of public trust. Ó 2005 Elsevier Ltd. All rights reserved. Keywords: Corporate social responsiveness, Oil industry, Critical incidents, Business ethics, Environment, Human rights
Introduction There is a growing interest among scholars and practitioners in the economics of corporate social responsibility CSR (Paton and Siegel 2004), and in the past few years there has been a resurgence of interest in social corporate and ethical performance, responsibility, auditing and reporting (Norris and O’Dwyer 2004). Some are even claiming that there is a new paradigm emerging: one that accentuates firms’ responsibilities to several stakeholders in addition to the shareholders (e.g. Norris and O’Dwyer 2004). European Management Journal Vol. 23, No. 5, pp. 495–506, October 2005
The increased focus leads to questions about how the company can improve sustainability performance. Or more specifically, how they can identify, manage and measure the drivers of improved sustainability performance and the systems and structures to improve their social performance (Christman 2000, Epstein and Roy 2001, James 2000). Even if there is a paradigm shift, the roots of social responsibility for the company are not new. The role of business in society has been a concern for a considerable time (Salzmann, Ionescu-Somers and Steger 2005). Already in 1973, a survey of US large enterprises found that nearly all companies included some sort of social responsibility activities in their operations (Eilbirt and Parket 1973). Furthermore, the rise of corporate social responsibility in the late 1970s and early 1980s, coincided with the increased concern for the corporation’s image (Clark 2000). Corporate Social Responsibility is a fuzzy terminology, often used interchangeably with other related concepts such as: Business ethics, corporate citizenship, corporate governance, corporate accountability as well as corporate sustainability. Some define CSR as ‘‘achieving commercial success in ways that honour ethical values and respect people, communities, and the natural environment.’’ (bsr 2005). Others describe CSR as ‘‘actions that appear to further some social good, beyond the interests of the firms and that which is required by law’’ (Paton and Siegel 2004). The construct includes at least three aspects of the relationship between the company and the society. Firstly, how the conduct of business reflects ethical considerations. Secondly, how its business operations minimise or reduce negative impact on the 495
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environment, and finally, that the operations do not interfere with established human rights. The notion ‘‘corporate social responsibility’’ is based on a prescriptive, philosophical/ethical approach with an emphasis on a need for greater corporate responsibility and accountability to the wider society (Norris and O’Dwyer 2004). This has led to the more dynamic concept, corporate social responsiveness, by referring to the capacity and processes of a corporation to respond to social pressures (Frederick 1994, Norris and O’Dwyer 2004). The foremost concern in this context is to make it possible for the company to respond to the pressure, which emerges from the socio-political-governmental environment in a positive and pragmatic manner (Norris and O’Dwyer 2004). Ackerman (1975) argues that three features characterize a socially responsive firm: 1) Capacity to monitor and assess environmental conditions, 2) Capability to attend to the many demands of numerous stakeholders, and 3) Competence in design and implementation of plans and policies to respond to changing conditions. In this study we apply the concept of corporate social responsiveness to identify the manner in which companies respond to ‘‘bad episodes’’. One research stream focuses on the outcome and benefits from CSR. This includes research of the relationship between CSR and financial performance (e.g. Carroll 1999, Wood 1991) and studies of CSR programs that create strategic benefits for the firms (e.g. Burke and Logston 1996). The research stream also includes theoretical contributions that suggest typologies of environmental and social performance in relation to financial performance (e.g. Preston and O’Bannon 1997), and studies of the optimal level of CSR in relation to desired outcome. A second stream approaches CSR through studies of the decision-making process, for example, how individuals make ethical decisions (Pater and Van Gils 2003), and the role of ethical codes on these decisions (Loe, Ferrell and Mansfield 2000). Other studies focus on strategies to sustain responsiveness to CSR challenges (Carroll 1979; Wartick and Cochran 1985). A third stream addresses tools, methods and mechanisms to motivate social responsible decisions, including internal control systems (e.g. Norris and O’Dwyer 2004) and the reporting to stakeholders (Johnson and Brennan 2003; Clark 2000). In spite of increasing interest, systematic analysis of CSR is still in an embryonic stage and critical issues regarding frameworks, measurements, and empirical methods have not been resolved (Paton and Siegel 2004). Furthermore there is a general lack of research examining the systems that influence managerial decision-making in a socially responsive vein (Norris and O’Dwyer 2004). Our research aims to address this gap by examining corporate responsiveness when facing ‘‘bad 496
episodes’’. The purpose of our paper is to develop a conceptual model for understanding corporate social responsiveness and to identify possible response strategies according to the characteristics of the situation. By employing a case study methodology we address all three aspects of CSR: Business ethics, human rights and the environment. The development of the model is based on a study of ‘‘bad episodes’’ in three multinational oil and gas companies. The conceptual model can be used as a basis to understand the dynamics of ‘‘bad episodes’’ and to systemise the lessons learned from the experiences of these three companies. The paper is organised in seven sections. We start with basic concepts, and continue with methodology and a case description. The subsequent section includes analysis and findings, followed by discussions and implications. In the final section, we discuss limitations and suggest further research before drawing up the conclusions.
Core Concepts Our first component is called CSR Critical Incident and refers to events that trigger the mentioned ‘‘bad episode’’. By including CSR in the label, we wish to separate this type of critical incident from other types that may occur such as a technical problem or a delivery delay. A critical incident is defined as ‘‘any observable human activity that is sufficiently complete in itself to permit inferences and predictions to be made about the persons performing the act’’ (Flannagan 1954). This implies that the incident must occur in a situation where the purpose or intent of the act seems fairly clear to the observer and where consequences are sufficiently definite to leave little doubt concerning its effect. In the context of this paper, we will define CSR’s critical incidents as environmental, ethical and human rights issues that are in conflict with existing ideals and values. Examples include revealing confidential information about a new concept or idea from a trustful supplier to a competitor, contributing to the spread of the deadly Legionella virus by neglecting proper cleaning of the cooling tower in a supermarket or opposing workers’ right to form unions in a factory. In our view, the significance of an incident is determined by two factors, namely magnitude and discreteness. Episodes that are major (high magnitude) and occur suddenly (high degree of discreteness) will generally be perceived as significant CSR critical incidents. We would argue that the impact of CSR critical incidents is moderated or regulated by three different factors. First, the critical incidents can trigger the CSR drivers through, to mention, humiliating investigation by public media when eager journalists detect European Management Journal Vol. 23, No. 5, pp. 495–506, October 2005
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the incident. Second, CSR enablers might influence the impact, should such an incident end up in court. Third, the company might be in possession of CSR internal tools that can prevent the negative consequences of the episode entirely or mitigate the impact considerably. CSR Drivers are factors that lead to increased emphasis on CSR. In our opinion, the following types of drivers are most relevant for our study: Increased awareness among stakeholders, public media interest and more integration/higher interdependencies between companies. The degree of consistency among drivers is an important determinant for their effectiveness. Drivers that affect the incident in the same direction are stronger compared to a situation in which, for example, two newspapers offset each other by holding different and opposite views on the incident. Numerous corporate scandals in recent years have led to increased awareness among stakeholders both within and outside the firm. Companies are facing increased demands for transparency and growing expectations that they measure, report, and continuously improve their social, environmental and ethical performance. Growing public media interest tends to reinforce the stakeholder awareness. In recent years leading newspapers and other public media have disclosed and investigated CSR incidents and brought involved companies to the public scene, frequently ending with the CEO and/or the board of directors being forced to resign in disgrace. The ability to detect is also enhanced by ‘‘whistle blowers’’ inside companies, staff with separate agendas, reduced employer loyalty and increased ethical consciousness among staff members. More integration and higher interdependencies between actors mean that firms are increasingly held accountable for the practices of their business partners throughout the value chain. Demands for product traceability are prominent in areas ranging from spare parts for aircrafts to genetically modified soybeans. Thus, a CSR critical incident, which occurs in the upstream part of the supply chain, can easily lead to a flow-on effect for the actors further down in the chain. The increased interest in CSR has been paralleled by substantial growth in the number of external codes, standards, indicators and guidelines produced for business by governmental, non-governmental, advocacy and other types of organizations. We call these factors CSR Enablers and they are generally designed to support, measure, assist in implementation, and enhance accountability for corporate performance on CSR issues. In this context, it may be useful to distinguish between the following types of CSR enablers: 1) Conventions and standards, 2) Codes of conduct and 3) Law, provisions and court decisions. Conventions and standards include a variety of initiatives ranging from specific accountability and European Management Journal Vol. 23, No. 5, pp. 495–506, October 2005
reporting standards (e.g. AccountAbility and The Global Reporting Initiative), to guidelines and principles for an ethical and responsible corporate behaviour (e.g. United Nations Global Impact). A variety of CSR issues are also dealt with at the professional level through various codes of conducts. Potential conflicts of interest between the individual, the company and the supplier/customer might be avoided through professional ethical standards. Issues related to honesty and equity (i.e. fairness, impartiality and justice) are relevant in order to improve the consciousness and ethical awareness among professional individuals (see Crowder and Brown 1997; Miller 1997; Hughes, Ralf and Michels 1998). Law, provisions and court decisions, entail CSR regulations that have been established in public laws such as anti corruption legislation, rules against manipulation of competition and laws with the aim of improving the environment. In addition, individual court cases can set precedence and thereby function as CSR enablers. Like the drivers, the effectiveness of the enablers is also influenced by the level of consistency. For example, the effect of the enablers will be reduced in cases where there is legal ambiguity. Similarly, if the threshold for breaking anti-corruption legislation differs from nations, the enablers will be weaker than in a situation where national legislation is backed by international conventions. CSR Internal Tools refer to the firm’s own rules, processes and structures that safeguard a ‘‘socially responsible’’ company. Literature shows that companies differ in the way they implement corporate social responsibility. Some companies concentrate on a single area such as environmental and ethical issues while others aim to integrate a CSR vision into all aspects of their operations. The strength of the internal tools is also influenced by organizational consistency. When employees handle, interpret and understand an incident very differently from management, the consistency is low. With low internal consistency the significance and power of internal tools are reduced. If CSR is to be regarded as an integral part of business decision-making, it merits a prominent place in a company’s core mission, vision and strategic documents. These are simple but important statements that succinctly state a company’s goals and aspirations beyond ‘‘making a profit’’. Internal systems, controls and procedures constitute another group of CSR internal tools, designed to minimize exposure to corporate fraud and malpractice. Systems could also be designed to influence other companies, for example by penalising supplier factories that do not meet all of the company standards. Measurements, auditing and reporting are tools to strengthen internal efforts to comply with the company’s CSR policy and thereby build trust with external stakeholders. Many companies realise that employees cannot be held accountable for responsible behaviour if they are not aware of its importance 497
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nor provided with the information and tools they need to act appropriately. These companies tend to highlight the importance of CSR internally and include CSR as a subject in management training programs to provide managers and staffs with decision-making processes that help them achieve responsible outcomes. The CSR drivers, enablers and internal tools constitute regulators, which may reduce or amplify the effects of the CSR critical incident and thereby regulate the impact of the bad episode. In some situations the impact of the critical incident may nearly diminish because public media show no interest in the episode or the company has the necessary tools to defuse the situation. In other circumstance, the incident may cause a significant uproar because it is illegal or in conflict with internal rules of conduct and ends up as a front-page story in the leading newspapers. In line with current literature, we will distinguish between three main categories of CSR Outcomes. The first category comprises working conditions, safety, social development and human rights and includes such issues as the right to organize in labour unions and the existence of predictable and fair wages. The safety issue is closely related and includes absence of hazardous materials and production processes that may threaten employees or customers. Supplying aircrafts with bogus parts and thus jeopardizing the lives of passengers is one relevant example. The role of foreign companies in relation to social development and human rights in the host country is a key concern with regard to CSR. The second category of CSR outcomes pertains to ethical conduct in business practice. Proper ethical conduct can improve the market competition by avoiding price fixing and dubious tender arrangements, but also reduce opportunistic and disloyal employees taking bribes and gifts as a way of doing business. In a nutshell, these factors can improve the concentration on the companies’ fundamental goals and reduce negative publicity following allegations and legal penalties. The third category, environmental impact is usually referred to in connection with damages to the external environment but may also imply positive outcomes such as leaner production processes involving use of less material and/or recoverable resources. Similarly, transportation activities can be organized to increase utilization and reduce fuel consumption and emissions (Albersheim 1982; McKinnon, Stirling and Kirkhope 1993). Endangered species and natural resources such as rain forests can be saved through environmental awareness, which most likely could enhance environmental sustainability. The immediate outcome leads to response strategies where the company has at least three different ways
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to respond to the critical incident. One possibility is to follow a management strategy by applying existing CSR internal tools to handle the incident. This option is generally preferred if the significance of the outcome is low and the organisational consistency is high. In other words, the critical incident is sufficiently small to be managed and employees in the focal company basically agree and pull together when facing the incident. If the management strategy fails, a second option is available in terms of a surgery strategy. This strategy is normally used for more significant incidents, or cases where the organisation is disunited. Surgical action may, for example, include the dismissal of key personnel, termination of controversial production and markets or the reorganisation of activities to visualise that ‘‘necessary’’ changes are taking place. If the company fails in handling the incident by means of surgery, a mitigation strategy might become necessary. This strategy normally handles the most severe incidents, in terms of high magnitude and high discreteness. One example is when a company is responsible for a large environmental disaster, or when a huge enterprise in financial trouble is caught in manipulating the accounting figures. Here the main concern is changed from internal changes and adjustments to pure external considerations in an effort to mitigate the most catastrophic consequences. The six core constructs are summarized in the following conceptual model, which also illustrates the relatedness between the constructs. We will apply this model in the analysis of three empirical cases. See Figure 1.
Methodology Data Collection The oil and gas industry was selected as empirical context. The choice of context is grounded on this industry’s highly international orientation and exposure to the three elements of CSR: Business conduct, human rights and environmental issues. The choice of methodology is further supported by our access to rich and comprehensive open empirical sources. We apply an explorative design primarily because the role of ‘‘bad episode’’ dynamics in a CSR context has only been sparsely investigated before (see Ghauri, Grønhaug and Kristianslund 1995). This also helps us in breaking up the relatively broad construction of the ‘‘bad episodes’’ and the ‘‘regulators’’ factors into smaller, more precise sub-problem statements (see Churchill 1987). Data was collected through secondary sources including web sites and electronic press archives to investigation reports. Three cases are studied, one for each of the three aspects of CSR.
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response strategies
regulators
CSR MANAGEMENT
DRIVERS
CRITICAL INCIDENT
INTERNAL TOOLS
COMPANY OUTCOME
ENABLERS
t0
t1
CSR SURGERY
CSR MITIGATION
t2
t3
TIME Figure 1 Conceptual Model
Case Descriptions
Statoil – Business Ethics Challenges: 2002
Exxon – Environmental Challenges: 1989 and Onwards
Statoil, which was established by the Norwegian government in 1972, has grown to become one of Europe’s leading oil and gas companies. Statoil is operator for 60 percent of all Norwegian oil and gas production, and its international production is rising steeply. As at date, Statoil has nearly 25,000 employees and activities in approximately 30 countries.
Exxon (which merged with Mobil in 1998 to become ExxonMobil) is among the largest companies in the world. The company currently conducts a wide range of energy related activities (mostly oil and gas) in almost 200 countries and territories around the globe. In 1989 one of the vessels belonging to Exxon Shipping Company, Exxon Valdez, hit the ground at the Prince William Sound while en route from the Alyeska Oil Terminal in Alaska and spilled 38,800 metric tons of crude oil into the ocean. The timing of the spill, the remoteness of the location, which includes thousands of miles of rugged and wild shoreline, and the rich wildlife, rapidly turned the accident into an environmental disaster. It took more than four summers of cleanup before the effort was called off. However, not all shorelines were cleaned and some beaches remain polluted as to date (Evostc 2005). Exxon Valdez’ captain, who appeared to be under influence of alcohol at the time of the crash, was quickly blamed for the accident. However, subsequent investigations revealed that the grounding at the reef was caused by a more complex set of factors than the actions of a possibly intoxicated skipper: It was the result of the gradual degradation of oversight and safety practices that were introduced 12 years earlier in order to safeguard and backstop the inevitable mistakes of human beings. The first court decision came in 1995 where Exxon was sentenced to pay USD 7.25 billion in compensation and interest to a total of 32,000 individuals who were considered victims of the oil spill. The amount was later reduced to USD 6.75 billion. As at mid-2005 Exxon has appealed the court decision.
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Iran was one of Statoil’s international priority areas, which included business relationships with the National Iranian Oil Company regarding exploration, enhanced oil extraction from old fields, and technology development. In order to further strengthen their operations in Iran, Statoil entered a consultancy agreement in 2002 with the Iranian based company Horton Investment with the purpose of accessing vital information regarding future oil and gas projects. One of the main actors in this company, Mehdi Hashemi Rafsanjani, is amongst others, the chairman of the national oil company, and the son of the former Iranian president. Members of the Rafsanjani family have been accused of several corruption cases. The agreement, with a total value of USD 18 million over 10 years, was later re-evaluated and found to be in conflict with Statoil’s own ethical rules and in violating the Norwegian anti-corruption law. In connection with contractual payments, internal auditors of Statoil and the internal security department concluded that the consultancy agreement violated Statoil’s internal regulations as well as Norwegian law. Both departments consequently warned the CEO about the irregularities. However, the CEO ignored the warnings. The Chairman of the Board was informed but failed to take action. The incident accelerated when the leading business newspaper
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in Norway publicized the story. Shortly afterwards the Board fired the CEO and the Chairman of the Board resigned. The company was further investigated and found guilty of breaking the anti-corruption law of Norway. As to date, Statoil is still under federal investigation in the USA and in Switzerland.
project and a pipeline project. The gas field, located in the Andaman Sea outside the coast of Burma, contains large amounts of natural gas. The project was developed under a contract by four investors of which Total is the field operator. Gas production began on schedule in July 1998, and commercial production followed in 2000.
Total – Human Rights Challenges: 1992 and Onwards For the Burmese opposition, Total’s engagement is problematic. Suu Kyi has expressed that Total’s cooperation with the military regime does not benefit the Burmese people, and in fact sustains the undemocratic forces in Burma at the expense of it’s people. Total is currently fighting lawsuits in French and Belgian courts for alleged connections to human rights abuses along the gas pipeline and is facing increasing pressure from international public opinion.
Total is a major multinational energy firm, ranked as the world’s fourth-largest oil and gas company. The firm, which was formerly known as Total-Fina-Elf, operates in more than 130 countries and has over 111,000 employees. Total’s involvement in oil exploitation and exploration in Burma has been surrounded by controversy. The country’s military regime is blamed for having a poor human rights record, and is a subject of concern for a wide number of international organizations. There is no independent judiciary in Burma and political opposition to the military government is not tolerated. The opposition party, lead by Ms. Aung San Suu Kyi, won 83 percent of the parliamentary seats in the 1990 national election. However, Suu Kyi was stopped by the military from becoming prime minister, and has been repeatedly placed under house arrest. Suu Kyi has continued to voice her views against the regime and is today an international symbol of struggle against repression and brutality. Suu Kyi was awarded the Nobel Peace Prize in 1991 for her efforts.
The three cases are summarized in Table 1: All three cases are from the oil and gas industry, and they are multinationals (MNEs). They represent a variety in terms of countries involved, Norway, Iran, France, Burma and USA. The core issues reflect all three aspects of CSR, business ethics related to the bribery/corruption issue (Statoil), human rights related to investments in a banned regime (Total) and environment related to oil pollution (Exxon) respectively. The incidents started in 1989, 1992 and 2003. One case is finished (Statoil), one ongoing (Total) and one partly resolved (Exxon). The degree to which the company was able to influence the incident ranges from exogenous (low influence) in the case of Exxon to endogenous (high influence) in the case of Total. The argument for this rating is that Exxon had very little influence over the situation, once the incident had occurred, while Total has a high degree of influence over the decision to remain in Burma. For Statoil, the situation was somewhat in between. The administration of Statoil had the necessary tools to stop the critical incident, but was overruled by the CEO (with the Chairman of the Board’s silent consent).
A number of countries (including USA) have introduced sanctions against the military government. However, these sanctions have been largely ineffective, due to loopholes and willingness of mainly Asian business to continue operations in Burma and to initiate new investments, particularly in natural resource extraction. A number of Western companies have withdrawn from Burma under pressure from activist groups. Nevertheless, Total seems determined to stay. During the last decade, Total’s operations in the country have been, and are expected to continue to be highly profitable with significant benefits for the company’s shareholders but also for the Burmese military regime. Total’s involvement includes two projects, The Yadana gas field
Table 1
Overview of Cases
Branch Countries involved CSR Core issue Incident Time of incident Status of incident Degree company influence Degree of discreteness Amount of funds directly involved
500
With respect to discreteness (i.e. lack of gradual development of the incident), the three cases range
Statoil
Total
Exxon
Oil & gas industry Norway and Iran Business ethics Bribery/corruption 2003 Finished Endo/exogenous (high & low influence) Moderate USD 18 million
Oil & gas industry France and Burma Human rights Investment in banned regime 1992– Ongoing Endogenous (high influence)
Oil & gas industry USA Environment Oil pollution 1989 Still in court Exogenous (low influence)
Low Very high
High USD 6.75–7.25 billion
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from very high for the sudden oil spill by Exxon, to very low discreteness in the case of Total where the magnitude of the involvement is developed gradually. Again, the Statoil corruption case comes somewhere in between. The amount of funds directly involved in the incident ranges from low (USD 18 million in the case of Statoil) to very high (USD 6.75–7.25 billion for Exxon). The size of funds regarding Total’s investments in Burma over 20 years is not known but is expected to be substantial. In sum the three cases represents a strong diversity, although within one specific business area.
Analysis and Findings In the following each case will be analysed in relation to the six main constructs. CSR Critical Incidents In two of the cases the core incident is relatively insignificant. The fact that Statoil enters a dubious consultancy agreement and Total decides to participate in a field development project in Burma is perhaps not a very significant episode per se. The real problems occur as follow-up incidents, when the CEO of Statoil in fact chooses to ignore the warnings from the auditor, or when Total decides to remain in Burma in spite of strong international opposition. The follow-up incidents are not very salient in the Exxon case. This is because the initial incident in itself was so significant that any subsequent actions could do little to reduce or amplify the impact. See Table 2. We now turn to the next three constructs, which are interrelated and labelled ‘‘regulators’’. As discussed earlier, the regulators comprise CSR Drivers, CSR
Table 2
Enablers and CSR Internal tools. They all affect the outcome of the incident, both separately and in conjunction. CSR Drivers The cases reveal at least six different drivers. Media plays a dominant role not only in referring and exposing the incident, like in the Exxon case where the incident itself is dominant and visible, but also as an actor which increases the significance of the incident as illustrated by the Statoil case. Without the initial cover story in the leading Norwegian business newspaper, no other media drivers would join in, nor would the Business Crime Unit of the Norwegian Police. The drivers thus seem to be interrelated and function as a lens when encountering the critical incident. Furthermore, it seems that the ‘‘owner’’ of the incident also can play a significant role in escalating the incident. The Statoil HQ did this by first denying the existence of the dubious agreement, then explaining the rationale behind it before entering a ‘‘no-corruption-here’’ communication strategy. It is likely that the ‘‘owner’’ of the incident may risk becoming the most influential driver by unwise handling of the incident and other drivers. In the Total case the political- and public action group drivers are apparent since the human rights issue is highly political and addresses a phenomenon on national level. The Nobel peace prize award to the Burmese opposition leader functions as an effective driver towards the public opinion of the incident. In the Exxon case, the visual effects of the incident are possibly the strongest driver of them all, as in the drama when seagulls, otters and ducks struggle for life in 38,000 tons of crude oil. The main drivers in the three cases are illustrated in Table 3.
CSR Critical Incidents
Statoil
Total
Exxon
Core incident: Statoil enters a USD 18 million agreement with an Iranian based consultant firm involving public officers to access information on new oil & gas opportunities in Iran.
Core incident Total establishes an alliance with the military junta in Burma for developing the Yadana oil & gas field.
Core incident Oil spill when the tanker vessel grounds in Alaska spilling oil into vulnerable environment.
Core incident comprises: 1. Lack of crew management and manning policies, human errors by captain, impairment of alcohol, and lack of traffic management system in the ship corridor. Follow-up incident: CEO ignores the warnings from two internal audit units, and decides to continue.
Follow-up incidents: Total decides to withhold its investments and further develop their projects, crossing international pressure.
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Table 3
CSR Drivers
Statoil
Total
Exxon
Media action The leading Norwegian business newspaper publishes the case and indicates corruption.
Public action groups (NGOs) Amnesty International and Earthrights International) report breach of human rights by the project security division.
Physical: Physical and visual effect on fisheries, subsistence livelihoods, tourism, and wildlife. Lack of capacity and equipment for immediate oil spill reduction.
Internal action: Statoil officials deny the agreement, then give supportive arguments.
Political action Opposition leader Aung San Suu Kyi wins election and placed under house arrest since. Awarded Nobel peace prize.
Media action Worldwide media exposure to the environmental impact.
Authorities’ action: The economic fraud unit of the Norwegian police raids the company headquarters.
ILO banning forced labouring and undemocratic regime.
CSR Enablers The significance of the incidents increased when media and police referred to current law and prior court decisions. In the Statoil case and the media actors were obviously interpreting the dubious consultancy company and its connection with Iranian public officers in relation to the law and results from prior court cases. In the Exxon case we see similarities in the way that the significance of the incident as perceived internally in Exxon, most certainly, was influenced by the company’s legal liability for the consequences of the oil spill. In a broader context, however, the significance of the incident and its environmental consequences, were unrelated to the enablers and current law. In the Total case we see that legislation also included international conventions, more specifically the human rights provisions. The main CSR enablers are summarised in Table 4. CSR Internal Tools The internal tools aim at reducing the emergence of critical incidents in the first place and if prevention is not possible respond to the CSR challenges in the best possible manner. However, the tools may also function as a catalyst for new events by lowering the threshold for what is being considered as a CSR issue. For example, when Statoil introduced the corporate sustainability report a few years ago, the company also made an implicit commitment to strengthen the focus on environment, human rights and ethics in its international operations. The inciTable 4
dents from the cases also indicate several aggregation levels, ranging from manning rules on specific vessels (Exxon) to Total’s investment strategies. Finally, the cases infer that the CSR tools also seem to serve other purposes than to enforce CSR. In the Total case the investment strategies both serve the fundamental purpose of where and how to access the most profitable oil and gas fields, and possibly some guidance of CSR criteria for those investments. We do not know for sure. But if so, CSR tools contain mutually exclusive goals. In the Total case the CSR part of the investment strategies are not compatible with the CSR issue. The details are summarised in Table 5. CSR Outcomes The outcomes from a critical incident can be numerous. In the three cases we see five distinct groups. In the first group the outcome describes how the consequences of the incident can be reduced. Statoil tried to reduce the significance of the incident by cancelling the agreement, fire the bosses and initiate investigations. Exxon started immediately after the oil spill a large environmental rescue operation. Total paid swift compensation to victims of alleged forced labour in their gas pipeline project in an effort to reduce the public criticism. However, in the Total case the incident was not only reduced, it is also significantly enhanced by building a new gas pipeline to India and by starting negotiations for a new pipeline to China. The outcomes are therefore contradictory.
CSR Enablers
Statoil
Total
Exxon
Legislation: New anti-corruption law established. The incident has now become illegal.
Legislation UN human rights provisions.
Legislation General laws holding companies liable for environmental consequences of own actions and business practice.
Court decisions Prior court decisions regarding bribery and corruption.
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Table 5
CSR Internal Tools
Statoil
Total
Exxon
Statoil’s internal ethical rules and guidelines aimed at preventing questionable behaviour. Statoil corporate sustainability reports.
Investment strategies Information strategies
Exxon Shipping Company crew manning policies for types of vessels and operations. Manning management procedures safeguarding rest hours for crew.
Investment strategies for foreign oil and gas fields.
Project development plans
In the second group of outcomes the internal tools are adjusted. Exxon adjusted their manning policies to reduce the risk of crew fatigue and a new oil spill disaster, and Statoil introduced a new 4-point plan to reduce the risk of new dubious contracts. In all three cases the companies were exposed to sanctions. Based on the enablers, Statoil was fined for breaking the anti-corruption laws and further exposed to US, Swiss and Iranian investigation. Exxon was charged and forced to settle civil and criminal litigations, and Total is still exposed to various international trade and investment sanctions. The outcome can also create frustration among employees as in Statoil where internal surveys clearly indicated lack of trust in management and board of directors after the critical incident was made public. Lack of employee trust can in turn easily reduce productivity and recruiting. Finally, critical incidents can easily influence external stakeholders such as investment funds.
Table 6
In the Total case we clearly see that the Burmese engagement has led to public (NGO) activities to reconsider the Norwegian petroleum fund investments in Total. Further details from the cases are outlined in Table 6. In effect the findings illustrate the learning effect from the incidents, although the strength of this effect varies, partly depending on the significance of the incident itself, and partly on the strength of the ‘‘regulators’’.
Discussion and Implications Conceptual models are often criticized for being able to explain everything and predict nothing. In this paper, we have made an attempt to formulate a model that is not only useful in terms of explanation but also has predictive capabilities.
CSR Outcomes
Statoil
Total
Exxon
Incident reduction: Statoil cancels the Horton agreement.
Incident reduction: Total pays compensation to victims for alleged forced labour around gas pipeline, but denies responsibility
Incident reduction: Exxon involved cleanup forces to reduce the oil spill effect.
CEO fires the VP-International Operations. The Board fires the CEO. The chairman of the Board resigns. Statoil assigns external auditors to review all agreements in search of corruption/bribery. Adjustments of internal tools The Board initiates a 4-point plan aimed at re-establishing ethical reputation.
Total claims to have paid USD 12 million in social welfare aid to local citizens in Burma. Incident enhancement: Total (consortium) enters new agreement for gas pipeline to India.
Employees reactions: Negative working environment report indicates significant loss of top-management reputation.
Stakeholder action: Norwegian petroleum fund forced to reconsider investment in Total by public action groups.
Sanctions Norwegian authorities fine Statoil for breaking anti-corruption law, ‘‘indirect corruption’’.
Sanctions: New US law against investment and trade with Burma
Adjustments of internal tools Reason to believe that manning policies, crew control and monitoring systems have been radically improved. New manning policies established to avoid excessive work hours and crew fatigue (sleep deprivation) and impact of fatigue. Sanctions While the federal and State governments settled their civil and criminal litigation against Exxon in 1991, as of March 2002 claims by private parties are still being litigated and remain unresolved.
Economic sanctions in western world against technology transfer to Burma.
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As discussed, we have suggested that the force of a CSR Critical Incident will be determined by the magnitude of the incident and the degree of discreteness. An analogy is found in the law of physics where the momentum of a moving object is dependent upon two variables: mass and velocity. If, as in the case of Exxon Valdez, the CSR Critical Incident has substantial magnitude and occurs discretely rather than in a continuous fashion, we predict that the regulators (drivers, enablers and internal tools) can do very little to change the course of the incident. Again, to use the analogy from physics, it is difficult to change the direction of a heavy object that is travelling with great speed. In the case of Statoil, although the events unfolded within a period of less than a month, there was sufficient time for the critical press to magnify the story. There would also have been ample opportunity for the company to defuse the incident if the internal tools had been allowed to function as intended. The slow-moving process in the case of Total-Burma means that the regulators are working continuously to influence the situation. Criticism from NGOs and media are counterbalanced by efforts from Total that work in the opposite direction. Thus, a sort of equilibrium or steady state characterizes the situation and the balance will only be shifted if the CSR Critical Incident gains force, for example through a sudden massacre of civilians by the military regime, or if the relative power of the regulators changes. Possible examples of the latter may include a future coalition or strengthening of the collaboration of critical NGOs or an effective multinational ban on western commercial activities in Burma. The relative power could also change if the CSR Internal Tools become weaker for example through increased inconsistencies. If an increasing proportion of Total’s staff finds the company’s engagement in Burma problematic, it may be difficult for Total to maintain a consistent set of actions. Our model suggests that the company through its CSR Internal Tools has possibilities to affect and counterbalance the drivers and enablers. The company’s media department may collaborate with certain members of the press to ensure early publication of the story in a less hostile manner than would be the case if a more critical newspaper uncovered the story at a later stage. Similarly, the company’s legal department may weaken the enablers by highlighting ambiguous legal precedence. Furthermore, the CSR Internal Tools may prevent the regulatory powers of the drivers and enablers completely by ensuring that the rules are followed, that issues are dealt with and solved in-house and thus that there is no ‘‘washing of dirty linen in public’’. With regard to company response, our model predicts that the company will always try to manage the situation. Of the three cases we have presented, 504
only Total is able to do so at least for the time being. There is an analogy to the medical field where an infection is primarily treated with relatively mild and general medication. If this fails more radical surgical intervention is required, followed by acute life saving activities in the worst case. In the Statoil case, the removal of the CEO and the Chairman of the Board was performed by surgery. If circumstances change, Total may have to resort to surgery in the future and might even have to withdraw from Burma. For Total it is important that the decision to remain or withdraw is based on a rational cost/benefit analysis – not pride or standoff with the international community. In extreme cases, for example Exxon Valdez, where neither management nor surgery was possible, the only remaining option was mitigation. For Exxon damage control became essential, which meant mitigation to minimise the harmful consequences.
Managerial Implications Based on the findings we will highlight three managerial implications. First, be aware of inconsistencies within the company that may weaken the internal tools that have been designed to handle CSR critical incidents. Discrepancies in the interpretation of an incident may open up for ‘‘whistle blowers’’ and thereby increase the impact of the incident. Secondly, understand that ‘‘bad episodes’’ are dynamic in several ways. The immediate cause of action when the incident emerges can easily change an insignificant event into a severe case, for example when a company tries to hide realities. The incident is also moving through existing enablers and drivers. Assessing the modus operandi of the most relevant drivers and enablers is necessary to prevent these factors from inflating the significance of the incident. The third implication is related to the company’s interpretation of actual situation in relation to the regulators, primarily drivers and enablers. In a situation where the incident characterises a ‘‘continuous’’ situation (e.g. as in the Total case), it is of utmost importance to avoid prestige and pride and carefully assess the cost and benefits of challenging the drivers and enablers. In this respect the financial benefits from maintaining the operations in Burma are far easier to estimate than the intangible negative consequences such as, loss of company reputation and image.
Limitations Case studies have two essential drawbacks. First, the evidence is based on qualitative data derived from secondary data sources, which implies that some relevant data for the study will not be included in the analysis. This is particularly apparent in the Total and Exxon cases where much of the ‘‘inside informaEuropean Management Journal Vol. 23, No. 5, pp. 495–506, October 2005
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tion’’ is inaccessible. Furthermore, by employing cases from only one industry the results and applicability is limited and primarily valid for the specific sector. On the other hand the purpose of the study is not to test the external validity of our findings, but rather to explore and generate hypotheses and ideas.
coming up. By understanding the regulators, how they work, how they change over time and understanding their anticipated effect, the episodes can be examined and responded to by using the appropriate strategy.
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Further Research We concur with Paton and Siegel’s (2004) assessment that CSR is in the embryonic stage and that several issues regarding frameworks, measurements, and empirical methods are yet to be resolved. Among the numerous challenges in an emerging research field we suggest further studies of the role and function of the regulators, not at least in other contexts than the oil and gas industry. Furthermore, we call for studies of the relationship between the regulators and business benefits. Or to be more specific, studies that focus on how the interplay between incidents and regulators can determine the benefits for company and society.
Concluding Remarks We have introduced a conceptual model for exploring the dynamics of ‘‘bad episodes’’. By using the model, we have examined how drivers, enablers and internal tools can regulate CSR Critical Incidents. As discussed, drivers may increase the significance of the episode to grow through, for example, media exposure. Enablers may make the episode grow through legal mechanisms or other conventions and standards, while internal tools can be used to limit the significance. In some cases the significance of the episode completely outweighs the effects of the three regulators, for example, in large environmental disasters. The impact of the episode can be minimised by a combination of awareness and insight into the regulators, and selection of a proper responsive strategy. The first, CSR management strategy implies that the episode can be handled by means of internal tools, and presupposes internal organisational consistency and a CSR incidence of manageable proportions. The second strategy, CSR Surgery, is activated if the management strategy fails, and implies firing responsible managers, reorganisation, withdrawal or other activities signalling that the company takes responsibility. When facing incidents of catastrophic proportions, the two strategies will fail, and survival of the company depends on how the impact of the episode can be minimised in relation to external society through a CSR mitigation strategy. Difficult episodes will always emerge. It is therefore important to learn from ‘‘bad episodes’’ and make the company more responsive to the new episode European Management Journal Vol. 23, No. 5, pp. 495–506, October 2005
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˚ LAND, TERJE I. VA University of Stavanger, N-4036 Stavanger, Norway. E-mail: [email protected]
MORTEN HEIDE, University of Stavanger, N-4036 Stavanger, Norway. E-mail: morten. [email protected]
Terje V aland is Associate Professor of Industrial Marketing at the University of Stavanger, with research interests in B-to-B marketing, relationship management and industrial networks.
Morten Heide is Research Professor of Marketing at the University of Stavanger and an ex-diplomat. His research interests centre on market research, relationship management and internationalization.
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