Corporations, Institutions and better Governance


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Corporations, Institutions and better Governance

  1. 1. Corporations, institutionsand better governanceBy Toby Webb and Meg CarstensMARCH 2008
  2. 2. CONTENTS CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEContents3 Acknowledgements4 Background to this report4 Institutions and social capital5 Roles for business6 The corporate responsibility agenda6 Issues to be explored7 Case one: Customs reform in East Africa: The case of Business Action for Africa10 Case two: Human rights training in Burma: The case of Premier Oil13 Case three: Judicial human rights training in Venezuela and Nigeria: The case of Statoil16 Case four: Economic capacity building in Azerbaijan: The case of BP18 Trends observed from cases and literature19 Practical implementation issues raised by the changing role of business22 Questions raised by the broader boundaries/legitimacy debates25 Conclusions26 Epilogue: Outlook for future involvement and unanswered questions27 References and footnotesAbout the authorsToby Webb is co-director of the Ethical Corporation Institute and founder of Ethical Corporation magazine.He has a MSc in Corporate Governance and Ethics from the University of London, Birkbeck College.Meg Carstens is undertaking a MSc in Public Policy at the London School of Economics.Editing assistanceIan WelshDesignAlex Chilton Design Ltd 2
  3. 3. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE INTRODUCTIONAcknowledgementsThe authors would like to thank the followingindividuals for their time, comments and assistancewith this report. Peter Davis of the Ethical Corpora-tion Institute, Professor Sue Konzelmann of Birkbeck,University of London, Richard Jones, formerly ofPremier Oil, Martin Summers of British AmericanTobacco, Richard Morgan of Unilever, Christian Braunand John O’Reilly. Much of this report formed partof Toby Webb’s Corporate Governance and Ethicsmaster’s degree dissertation, reviewed and marked byacademics at the University of London in 2006 and2007. Meg Carstens undertook several months’full-time work on broadening its scope duringsummer 2007. 3
  4. 4. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEThe background to this report usiness has for some years been criticised by NGOs and picture of the debate from the point of view ofB the media for sourcing and operating in nations wherethe rule of law is badly enforced. The absence of an adequate different actors involved. In doing so, the report aims to inform the actions and thinking of other largelegal framework, poor enforcement of it, or the lack of multinational companies that are considering howrequisite institutions that publicly encourage such enforce- they might best contribute to the creation, develop-ment and accountability often mean that labour, ment and support of the necessary government andenvironmental and overall human rights standards are civil society related institutions within poorer nations.lower in many countries where western business buys fromand sells to. There is also a growing recognition that the Institutions and social capitalbuilding and maintenance of essential institutions requires The term ‘institution’ commonly refers to the rulesthe help and support of companies, as well as traditional and limits within which individuals and organisa-NGOs, inter-governmental organisations (IGOs) and tions pursue their desires2 or structure theirgovernments in order to develop in poorer countries. The interactions. This definition encompasses a varied listauthors believe the subject area of this report fits well with including laws, language, monetary transactions,the emerging agenda around the links between country social etiquette, and property rights. Institutions cangovernance and economic development. It appears obvious include formal, codified rules (the focus of thisto say it, but the same institutions and cultures required to report) as well as informal social human rights and effective labour law are very According to (among others) the Nobel prize-often the same as those needed to protect contracts and winner Douglas North, formal institutions underlieproperty rights. economic performance in society and play the key As a result of the scrutiny under which they role in controlling the welfare of citizens within aoperate and the evolving recognition of a role for state.3 They do this by promoting cohesion andbusiness in delivering public goods,1 a small number partnership,4 by protecting property rights andof international companies are increasingly findingthemselves promoting better governance throughcontributions to institutional capacity building indeveloping countries. Business Action for Africa andinitiatives such as the Kimberley Process, theExtractive Industries Transparency Initiative (EITI),the Ethical Trading Initiative (ETI), and the VoluntaryPrinciples on Security and Human Rights are allrecent larger scale examples of business coalitionsworking to influence public policy and encourage thestrengthening of institutions. These partnershipsoften consist of corporate contributions of finance,lobbying, management experience and logistics.These are combined with NGO monitoring, lobbying contracts, and by managing their exchange.5 Effectiveand willing government participation. Because of the institutions also encourage savings and investment,issues that arise when operating in the intersection of knowledge adoption, resource mobilisation andprivate, public, and civil society spheres, however, public service provision by states.6companies do not necessarily find this role a Institutions are closely linked with the concept ofcomfortable one. Rather they deem it necessary and governance, which the World Bank defines as theprudent given the realities of doing business in “traditions and institutions by which authority in acertain areas and expectations in their home nations. country is exercised for the common good. This Through case studies and interviews with includes (i) the process by which those in authoritypractitioners, NGOs and academics, this report seeks are selected, monitored and replaced, (ii) the capacityto explore some recent initiatives in this area. The of the government to effectively manage its resourcesauthors seek to underline the commonalities that exist and implement sound policies, and (iii) the respect ofbetween cases and the lessons that can be learned citizens and the state for the institutions that governfrom on the ground experience. The report also draws economic and social interactions among them.”7attention to the practical and theoretical issues Key institutional and governance barriers toencountered thus far, attempting to give a balanced greater economic wealth include poor legal systems, 4
  5. 5. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEcorruption, underperforming and onerous bureau- themselves to corporate involvement include protec-cracy, civil liberty and media suppression, inequality, tion of ownership rights, security of transactions,ethnic tensions and a lack of property rights and honouring of contracts, respecting of titles and adher-access to basic services.8 ence to law. Decentralisation strategy, transparency Another variable connected to effective institu- and legal, fiscal, and administrative capacity are alsotions is social capital. The concept is related to the seen as relevant.extent of trust, associational memberships, and Determining what kinds of activities in these areasgeneral social and political participation present in a are appropriate usually comes down to analysing thesociety.9 It is “arguably about the capacity to collabo- particular context. In the case of BP’s work inrate and interact peacefully and with high degrees of Colombia, the company feels that it has made a positivetrust and voluntary co-operation”.10 Ineffective insti- contribution18 but makes clear that its work there hastutions and pervasive corruption are associated with its limits. “The company is not training the army,”low levels of social capital.11 notes Christine Bader of BP,19 “which they should not Linked to social capital is the concept of capacity be…the company has helped to get this (institutionalbuilding, a term increasingly used by NGOs, develop- capacity building on human rights) going…but hasment organisations, and others to refer to the processes found an appropriate way to fund it… (By fundingby which members of a society – institutional or infrastructure that helps the training take place)…we’reotherwise – develop the ability to engage in problem not involved in ongoing maintenance of it or the devel-solving and achieve their objectives.12 Evidence is opment of the curriculum (for soldiers) or the actualemerging to demonstrate that the people of developing training”. In this case the Colombian government hascountries are beginning to recognise the role business the capacity to perform that role itself.might play in contributing to better governance by The UNDP’s work on partnerships in developmentcontributing to the building of this capacity.13 provides guidance on some specific roles that might be appropriate for business involvement. TheseRoles for business include the training of local authorities to cope withA 2006 report by the International Business Leaders change and improve basic services.20 Practical actionsForum (IBLF) demonstrates that local companies and such as the development of associations and supportmultinational firms are also engaging with the notion structures to encourage co-operation on the issuesof institutional capacity reform.14 Despite this mentioned above are also suggested by businessrecognition, there is not yet a template for the organisations as important contributions companiesappropriate and specific roles for business to play. might make to institutional development.21 ThroughLobbying for corporate advantage has a long and such mechanisms, business can enable the creation ofcontroversial history, but the notion of corporations anti-corruption coalitions, support watchdogs, createpublicly or privately seeking change on wider issues collaborative collective networks to lobby government,has a shorter lifespan. and enable discussion about key areas of education.22 Recent initiatives not covered in the following cases It is important to highlight that in any institutionalinclude business groups lobbying governments in the development process, scholars and practitioners noteUS and the UK on climate change regulation frame- the importance of partnerships in achieving sustain-works;15 BP’s involvement in some 8,000 soldiers able gains.23 The UNDP and the UN Global Compact,undergoing human rights training in Colombia;16 and among others, have demonstrated that their mandateInfosys’s engagement with the Indian government on has evolved over the last five years to work much morea broad reform agenda.17 The prominence of John closely with businesses as well as civil society groups.24Ruggie’s work as the UN Secretary-General’s Special In short, the growing evidence from practice andRepresentative on Business and Human Rights also scholarship seems to indicate – if not directly addresspoints to the importance currently placed on trying – that there is a role for business in governance andto clearly define the roles and responsibilities of institutional capacity building in developingbusiness in governance as well as the controversial countries. George Frynas, Professor of Corporatenature of this task. Responsibility and Strategic Management at According to the IBLF’s 2006 report, companies Middlesex University and a critic of many corporatecan act as awareness raisers on the need to generally social responsibility programmes, believes thatsupport human rights, humanitarian activities and companies can play a constructive role in what hepeace building. Other reform areas that lend calls “macro-level” governance and development.25 5
  6. 6. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE This distinction may be useful in discriminating appropriate roles for business are thus far poorlybetween two categories of roles companies can play. defined and their implications under-examined.32The first is of direct benefit for specific entities andgovernance institutions via training, policy develop- Issues to be exploredment and implementation assistance. The second type As corporate involvement of this kind evolves,is a more general engagement in ‘good’ lobbying for potential problems begin to arise. The most obvioushigher level governance improvements.26 Both types involves potential conflicts of interest (real orare being undertaken by business, with local govern- perceived) between governments, their citizens, andment, national government, and international companies. Institutional capacity building by compa-governance arrangements (such as the EITI).27 These nies essentially gives unelected foreign actors a hand in shaping the political agenda. Given this accounta- bility problem, companies must decide how to engage with other actors, including NGOs and IGOs, as well as governments. Sometimes these relationships are more easily built and maintained than others. Partnerships such as those mentioned above, between companies and NGOs and governmental organisa- tions may do something to address this challenge of legitimacy. Additionally, thought must be given to ensuring transparency, monitoring and reporting of progress, which can be complicated by the long-term nature of capacity building outcomes. All of these issues fall under a broader, complexkinds of collaborations may take place bilaterally debate about the legitimacy of – and appropriatebetween companies (or business alliances) and boundaries for – this type of involvement. As Philipgovernment agencies or make take the form of multi- Crowson’s 2007 report for the Oxford Policy Insti-stakeholder business initiatives, driven by companies tute phrases the question: “Can the managements ofas well as NGOs, IGOs and governments.28 companies – that are ultimately responsible to foreign shareholders and which are subject to theThe corporate responsibility agenda campaigns of a variety of pressure groups withinThis kind of private engagement with public institu- their home countries – properly assess the publictional policy diverges from more standard corporate interests of their host countries?”33 On a practicalresponsibility and community involvement strategies. level, companies make decisions on a daily basisIn one way it has a much narrower focus, but in about what constitutes boundaries of appropriateanother it goes well beyond traditional corporate “business as a business”.34responsibility boundaries.29 The majority of corporate The heated nature of such issues was brought toresponsibility strategies for transnational companies light with the strong reaction to the attempt to drawoperating in developing countries are almost up a comprehensive set of standards, or ‘norms’, onexclusively focused on the workplace, supply chain business responsibilities with regard to humanand local communities, rather than engagement with rights. In his 2007 interim report on the issue, Johnnational institutions.30 Engagement with government Ruggie states that one of the main problems withinstitutions may potentially be more influential in the the UN Norms was their lack of a guiding principlelong run, however, as institutional frameworks with which to divide responsibilities betweentypically play a crucial role in determining the corporations and states. This left the responsibilitiesbusiness climate.31 to be determined by the concept of ‘spheres of influ- Furthermore, if the corporate responsibility agenda ence’, which may have practical applicability butis increasingly moving towards a focus on managing lacks legal grounding.35 While the scope of thisimpacts in society – mitigating negative impacts and report does not allow for a thorough theoreticalamplifying positive ones – then engagement with the exploration of these debates, it will attempt togovernance agenda is crucial, as this typically has present a rounded view of the current questionsgreater impact on business and society than many being discussed and the viewpoints of a range ofother potential activities. As noted above, however, the actors involved. 6
  7. 7. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCECase 0ne: Customs reform in East Africa:The case of Business Action for Africa usiness Action for Africa is an international Practical steps – a timelineB not-for-profit network established in 2005 afterthe G8 Business Action for Africa Summit. Its has BAFICAA began its work by funding an initial report on the state of customs in Africa. The report wasthree main objectives: to positively influence policies published in June 2006 and written by an experi-needed for growth and poverty reduction by creating enced independent consultant, Andrew McTiernan.a platform for a clear African and international It aimed to create an accurate picture of existingbusiness voice; to promote a more balanced view of practices and reform efforts within customsAfrica by highlighting success stories and balanced administration across 20 African countries. As areporting; and to develop and showcase good business result of initial findings, the group decided to focuspractice by facilitating new partnerships and commu- on three east African countries for pilot projects.38nicating existing ones. The group currently includes A series of private sector workshops facilitated byover one hundred organisations, composed of approx- PricewaterhouseCoopers (PwC) Kenya were held inimately sixty businesses, thirty strategic business Uganda, Kenya and Tanzania to discuss the feasibilityorganisation partners, and ten civil society groups. of the recommendations from the initial report.Governments and international financial institutions These initial workshops included 20-30 local andare also group members. international companies and trade associations. They Its specific areas of focus are governance and discussed the initial report and established commontransparency in general, the climate for business in agreement on what reforms needed to be made soAfrica, trade, enterprise and employment, and that taskforces then approaching governments wouldperceptions of the continent. As part of its commit- have the backing of a representative variety ofment to increasing Africa’s capacity to trade, some businesses behind them.39 As a result of thesemembers are working in the specific area of workshops, BAFICAA created country taskforcesimproving customs administration to facilitate composed of companies willing to commit to helpinternational and regional trade. develop these initiatives. Further workshops in late 2006 and early 2007 wereBusiness Action for Improving Customs held with BAFICAA taskforce members and customsAdministration in Africa (BAFICAA) officials from the revenue authorities in each country.Led by Unilever, British American Tobacco, SITPRO According to Morgan, the Kenyan government was(the UK’s trade facilitation body) and Diageo, very enthusiastic about the proposals presented: “It wasBAFICAA is an “international coalition of businesses pushing against an open door.”40 As a result, thecommitted to identifying, promoting and supporting Kenyan Revenue Authority seconded three staff to acteffective measures to improve customs administra- as a bridge between the private companies and theirtion and enhance trade facilitation in Africa.”36 own institution in order to expedite change andBAFICAA has no formal structure or plans to create capacity building.a new institution, and it does not consider itself a In May 2007, a regional East African workshoppressure group. Rather, it is a network of business brought together revenue and customs authoritiespartners attempting to complement existing reform from Uganda, Tanzania, and Kenya along with thework underway in Africa by being an active driver of three country BAFICAA taskforces, representatives ofchange and making practical contributions to the East African Community (EAC) Customs Secre-improving customs capacity. tariat, the Investment Climate Facility (ICF), and the Its guiding principles also include the importance East African Business Council (EABC), with the goalof trade facilitations, the removal of regulatory of coordinating efforts and formally introducing thebarriers, and the promotion of improved governance. BAFICAA to the Customs Secretariat and the EABC.They recognise that part of pursuing their aims effec- Francis Kamulegeya of PwC Kenya is the facilitatortively will be to persuade governments that of the project, which is funded in large part by thecompanies can and should be active and trustworthy ICF as under its remit to encourage business actionspartners.37 In light of this, BAFICAA’s first steps on economic reform in Africa.41 As a well-connectedinclude measures to build dialogue and trust between local figure, Kamulegeya’s relationships on thebusiness and governments. Its stated intention is then ground make him well-placed to help theto help devise and implement practical proposals that project succeed.42 SITPRO, the UK trade facilitationcan improve customs procedures and trade in a body, and the World Customs Organisation will besustainable way. involved in the practical training and implementation 7
  8. 8. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEof customs reform across the region, organising a Figure 1: BAFICAA suggestions for customs reformmeeting for customs commissioners (without compa-nies present) to come up with a concrete plan ofaction.43 • The need for fast track customs services for The May workshop was followed by a meeting in compliant and low risk taxpayers and traders.September 2007, organised by the World Customs • The need to speed up automation of all customsOrganisation and SITPRO, and attended by the processes and procedures.BAFICAA Taskforces and the heads of customs for all • The adoption of a service charter between customsthe EAC countries (except Burundi). It fulfilled its aim services and the private sector, setting out theof discussing a regional approach to customs admin- expectations of each party from the other, as well asistration reform and identifying how best to achieve setting out the parameters for the expected levelprogress on introducing the Fastrack proposal, other- and quality of services.wise known in customs circles as the Authorised • The need for customs to work closely with andEconomic Operator (AEO) concept. The Fastrack consult regularly with the private sector to ensurerecommendation was one of the highest priorities for support for the changes and reforms in customsreform mentioned in the original BAFICAA report. administration. The heads of customs for EAC have now agreed to • Removal of duplication and bureaucracy in Postpilot a regional Fastrack programme, meaning faster Clearance Audits and valuation processes.clearance times for qualifying firms with ‘trusted • The need for professional training, accreditation andtrader’ status. BAFICAA has capitalised on the appetite certification of clearing, forwarding, and customsand progress towards customs reform within several agencies.of the EAC’s own customs services. It has howevermade a major difference in raising business issues Source: BAFICAA Arusha Conference Report June 2007and helping drive a coordinated approach to reformacross the region, which should help intra-regional Revenue authorities in each country have all madetrade enormously if the reforms are implemented varying degrees of progress on their own in creatingeffectively. a fast track system for compliant traders. BAFICAA’s BAFICAA reports that strong interest has been goal is now to coordinate reform efforts. Workshopexpressed in similar programmes in west and participants also suggested creating a legal basis forsouthern Africa. Richard Morgan of Unilever believes fast track guidelines that was well publicised so as notthere is the potential – and government interest – for to be seen as favouring particular industries orthis programme, or something like it, to be promoted companies. PwC is now carrying out research as toin other reasonably stable countries soon, specifically best practice in such systems that will be submittedRwanda and Burundi. Because west African nations to the EAC sub-committee on customs.are not as dependent on one port (as Kenya, Uganda, Workshop participants also stressed the need toand Tanzania are on Mombasa’s port), it has been ensure that BAFICAA’s taskforces included represen-decided that specific companies will lead workshops tatives from all factions of the region’s private sector,and act as catalysts there on an individual basis.44 including the EABC’s members and trade organisa-Currently Maersk is leading BAFICAA’s work in tions in each country. With regards to makingNigeria, while Shell is leading in Cameroon, and progress on automation and training, BAFICAA urgedUnilever in Ghana. the revenue authorities, through the EAC sub- committee, to identify specific areas where theProposals for reform private sector could offer support and facilitation.BAFICAA’s initial aim – in partnership with govern- One of the biggest institutional challenges toments and international donors – is to, in their own reform is the current system of revenue targetswords, quickly offer some “definable and measurable within various customs agencies. Targets are oftenprojects which we could then roll out as ‘best met by the levying of fines for (supposed) discrepan-practice’ more widely in other regions.”45 Figure one cies in paperwork or goods. Such incentives operateoutlines the six key issues highlighted by the private to slow, rather than speed up, trade and have beensector that are common to the three countries.46 recognised by BAFICAA as an urgent area forThese issues formed the basis for the discussion at reform.47 During the East African regional workshop,the May 2007 East African regional workshop. the CEO of the EABC stressed the need to balance the 8
  9. 9. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCErevenue authorities’ primary mandate of revenue Africa is not the daunting, impossible task ofcollection with the need to facilitate trade and protect common perception. African businesses themselvescountries from illicit trade.48 There is recognition that have recognised this and given voice to these simple,streamlining customs processes will ultimately practical, meaningful suggestions to help enhanceincrease the volume of trade in the region, and thus their capability to trade and grow. Improvement inincrease revenue for the government. He noted, customs administration in Africa and the consequenthowever, that progress still needs to be made in inevitable growth in Africa’s prosperity is now readychanging the mindset of parties involved and building for take-off. All that’s needed is ignition.”54 Martintrust between public and private sectors.A new role for companiesRichard Morgan, an Africa expert from Unilever, talksof the corporate role being about encouraging the useof management processes once principles of changehave been agreed between business groups andCustoms institutions. Companies, via the taskforces,can also provide feedback to customs authoritiesabout how things are proceeding and where anydelays are still taking place.49 Morgan sees greatpotential behind BAFICAA’s work across Africa overthe next five years on customs reform. The aim is Summers of British American Tobacco, summarisessimply to move business and government to being ‘on his view thus: “There has been a lot of positivethe same page’ in areas where reform will bring feedback on the BAFICAA project, not least becausebenefit to society and away from ‘mutual suspicion’ to the growing prominence of various global competi-trade facilitation.50 Peter Kiguta, Director General of tiveness indicators (such as the World Bank’s annualCustoms and Trade for the EAC commended the Doing Business surveys) has made the developmentBAFICAA initiative and remarked that “customs community aware that the poorest countries are thereforms resulting from a shared vision of the private ones with the worst institutional frameworks, soand public sector will ensure a win-win position for private sector involvement in helping improve theseboth parties.”51 frameworks is appreciated as a valuable contribution Unilever’s costs for the scheme, as with Statoil (see to sustainable development.”55later case) are low. To date these costs consist of stafftime, travel, and around £15,000 as a contribution to Conclusions from the casethe initial report, similar to other BAFICAA members. The case of BAFICAA and African customs reform isCorporate sponsors, including Unilever, are also clearly only a nascent one, so assessing its measur-contributing $500,000 a year into the Investment able impact on trade – or the wider implications ofClimate Facility. Despite the relative low involvement improved African economic rights on the globalcosts, SITPRO says that its main task initially was to economy – is not yet feasible. However, local, nationalconvince some companies that this was an area in and international business participants in thewhich they could and should intervene to improve workshops have indicated their enthusiasm for theconditions.52 Previously, many companies had written project, as have government officials. The project isoff slow customs processes as an unavoidable cost of ongoing, and significant progress has already beendoing business in Africa. SITPRO sees its role in this made in creating a space for dialogue between privatecase as initially helping to bridge the gap between sector and government officials in East Africa. Thepublic and private actors’ attitudes towards the possi- programme is also making inroads in other countriesbilities for customs reform. BAFICAA members see in Africa. The narrow and practical focus ofpotential for NGO and academic comment to be BAFICAA’s efforts is in an area where companiesinvolved in the future, as a way of adding credibility clearly have much experience to offer. This studyto BAFICAA’s work across Africa.53 provides one example of the significant potential for As Andrew McTiernan, the consultant who wrote private sector actors to facilitate practical reform inthe initial report for BAFICAA, concludes, companies African institutions which often slow down, rathermust act as catalysts for change: “Customs reform in than encourage economic growth and trade. 9
  10. 10. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCECase two: Human rights training in Burma:The case of Premier Oil n 2001 and 2002, Premier Oil organised and ran lasting change be affected.”62 It was with this in mind,I training seminars and workshops on human rightsfor the Burmese military government and its admin- writes Jones, that the company created the Premier Corporate Social Responsibility Programme that ledistrators. They undertook the project because they to their institutional capacity building contributions.63saw no one else willing or available to coordinate According to Jones, the main drivers for thesuch capacity building and felt that they could make company’s activities on human rights in Burma werea unique contribution in this area. Premier also felt a desire to deal in a consistent and predictablethat such activities would ultimately contribute to its manner with social impacts; to tackle some of thecorporate social responsibility programmes by raisingawareness of key issues around human rights andproviding senior government (military) figures withan understanding of the basis for human rightstheory, and what such theory means in practice.Premier’s involvement in a highly troubled countryPremier Oil, a small independent UK oil company,had a presence in Burma from 1990 until 2002. InSeptember 2002, it sold its operations in the countryto Malaysian state oil company Petronas. During thisentire time, Burma’s human rights record was thesubject of much criticism. According to Human operational and security challenges the companyRights Watch’s 1998 report, “respect for human rights faced around its operations; and to demonstrate thatin Burma continued to deteriorate relentlessly” in the action was being taken in light of the criticism theprevious year. In 1999, there were “no signs during company faced for investing in the country.64 Hethe year that fundamental change was on the notes that many critics did not make a distinctionhorizon”, and by 2002 “grave human rights violations between the small corridor that represented Premier’sremained unaddressed”.56 Among the many accusa- operational footprint and the wider accusations facingtions levelled at the Burmese military in this period the security forces throughout the country. Forwere the forcible recruitment of child soldiers and Premier, this necessitated “dealing with human rightsvillage labourers and the rape of Shan minority – and related issues such as security – at a local aswomen.57 well as national level”.65 During the early and mid 1990s, campaignersbegan to call upon Premier Oil to pull out of Burma Practical steps – making capacity buildingbecause of the political and human rights situation in contributionsthe country.58 Attacks on the company from Over a two-year period in 2001-2002, Premier Oilcampaigns focused on three main arguments: first, funded and organised a series of nine human rightsthat the company was providing a ‘financial lifeline’ workshops, run by specialist human rights lawyersfor the repressive government; second, that its hired by Premier.66 Approximately 250 participantspresence in Burma benefited from the infrastructure from the army, police, energy ministry, labour andbuilt by forced labour; and third, that military forces immigration departments were taught in two-dayprotecting the pipeline area were likely to commit seminars about human rights issues.67 Thehuman rights abuses while doing so.59 Aung San Suu workshops were structured to provide the officialsKyi, the imprisoned Burmese pro-democracy leader, taking part with knowledge about the concept ofstated in April 1998 that, “Premier Oil is doing a great human rights, its origins and nature, and aboutdisservice to democracy. It should be ashamed of human rights as an international legal system.68itself.”60 In April 2000, Robin Cook, then UK Foreign They focused heavily on humanitarian law, prima-Secretary, said: “We do not approve of what Premier rily the Geneva Convention, and outlined theis doing.”61 minimum requirements for operating within it. Richard Jones, Premier’s Corporate Social Respon- They were purposely conducted in an interactive andsibility Manager, explains that they took a different discursive rather than formal format and wereview of the situation: “Only through dialogue and adapted to resonate with attendees’ experiences andengagement, as well as sustainable development, can background.69 10
  11. 11. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE The workshops also covered practical issues, such capacity it needed to create and sustain a nationalas monitoring and accountability systems, human Human Rights Committee, and supporting Burma’srights and armed conflict, the use of forced labour, own stated understanding that “they have an obliga-and the state’s duties and challenges for imple- tion to look after their people”.76 Another promisingmenting human rights obligations in government. development noted in the evaluation of the AustralianJones said that the workshops were a contributing workshops is the fact that participants began to realisefactor to the Myanmar government’s decision to set that members of the international community wereup a Human Rights Committee and beginning to interested in what was going on in Myanmar and thatdevelop a framework for educating administrators of through these contacts they could have outsidevarious departments. Many of these people were support in improving the human rights capacity ofcareer bureaucrats who, as Jones put it, “were there their organisations, if desired.77before the current government and will be thereafterwards”. The idea was to build capacity in the Figure 2: Premier’s conclusions as to how it was ableprofessional civil service as well as with the current to use its position togovernment.70 Premier’s aim in convening these workshops was • Influence the Myanmar government in a progressiveto bridge the gap between the theories of human manner.rights and “equitable and correct law enforcement • Encourage the government of Myanmar to activelypractice”.71 Participants indicated to Premier the participate in human rights and humanitarian lawimportance of “practical skills-related instructions” training for a variety of officials.for the “true application of human rights standards • Encourage the government of Myanmar toin law enforcement”, according to Jones. During one participate in the establishment of a Nationalworkshop, at which the Minister for Home Affairs in Human Rights Committee.Burma was present, the Chief of Police stood and • Engage with the State Peace and Developmentinformed his colleagues that violent crowd control Council in order to begin the eradication of the usemethods, such as beating people with truncheons, of forced labour in the country.should not be generally permitted from that point on, • Implement a comprehensive programme of humansince it represented behaviour that was now outdated rights monitoring in Premier Oil’s areas of operation.and not permitted by the country’s laws.72 • Write – and then actively promote – a proposal and David Kinley was one of Premier’s workshop framework for the government of Myanmar tofacilitators who also conducted similar human rights become a signatory of, and eventually to ratify, theworkshops for Myanmar authorities (not including International Convention of Economic, Social andmilitary or police) during this time period that were Cultural Rights (ICESCR).supported by the Australian government. In their • Hold dialogue with the Myanmar authorities inreview of the Australian government’s efforts, Kinley relation to the health and safety of politicaland the former Australian Ambassador to Myanmar, prisoners.Trevor Wilson, note that although impact from these • Hold constructive dialogue with the NLD (andefforts was very hard to gauge, “in the climate of a groups and individuals in exile) in relation to therelatively open attitude to engagement (upon which role of business in advancing transparency,the workshops fed and to which they contributed) governance, environmental protection, and humanother agencies and organisations were able to under- rights in Myanmar.take human rights initiatives that were not possiblebefore, including a first-ever visit by a delegation Source: Jones, R. (2006) “Corporate Contribution to Modern Diplo-from Amnesty International in 2003”.73 macy. In Wilson, T. (ed) Myanmar’s Long Road to National Reconciliation Singapore: Select Books (p185) Although its impact on human rights violations onthe ground was never evaluated, Premier called thisprogramme “an important first step,”74 which was In 2002, the year it left the country, Premierrecognised as a positive contribution by all those planned to increase the breadth and scope of futureinvolved. By the end of the initiative, the government training programmes. The company also had plans towas “identifying areas of interest and asking [Premier] put in place a system to monitor how they wereto run workshops on them”.75 Premier was actively documenting and addressing human rights concernsworking with the government in building the and allegations within their “sphere of influence”.78 11
  12. 12. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEWhen Premier announced that it was leaving, they Burma’s recently convened Center for Strategic Studiesagreed with the Burmese Home Minister to continue held a conference, inviting Dr Jones of Premier toto sponsor humanitarian law training for Burmese speak about the development of human rights inpolice during 2003 due to the progress that had Burma. Later that year, however, much of the progressalready been made. was stymied as Burma’s military leader purged many top officials – including the Minister for Home Affairs – from power in what appears to be a sign of increasing paranoia concerning the outside world.80 The Human Rights Committee still exists, but has not been active since the political upheaval of 2004.81 Conclusions from the case The case of Premier Oil’s involvement in Burma demonstrates that companies can have some positive impact – at least on government discourse – in even the most challenging situations. By building up trust with individuals and persuading the government that it should enforce its own signed conventions, Premier was able to persuade senior government figures of theEvents since Premier’s departure from Burma need for incremental reform. Although the case studyAfter Premier left Burma in 2002, there was little ended in 2002, it demonstrates the potential for whatopportunity for the company to influence human companies can achieve as conveners and catalysts ofrights issues in the country. Much was accomplished institutional capacity building and change. Hadbetween 1999 and 2002 on the basis of trust and the Premier remained in the country and had the polit-relationships that the company had built up in the ical situation remained more stable, their work couldcountry, particularly with the Ministry for Home have aided in advancing the human rights protectionAffairs.79 An indication of progress came in 2004, when capabilities of the government. 12
  13. 13. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCECase three: Judicial human rights training inVenezuela and Nigeria: The case of Statoil he Norwegian state owned oil company Statoil, in national Norway asked Statoil to officially protest theT partnership with both local and internationalorganisations, provided backing for judiciary human verdict. Statoil felt it could not take a position on this political issue, but it instead continued to commis-rights training programmes in Venezuela from 1999 sion a project to train Shari’a judges on the principlesto 2004, resulting in what appears to have been the of fair trial according to the UN Declaration oftraining of all active judges in the country.82 Anne Human Rights.Kristin Sydnes, Vice-President for national risk and According to Ms Sydnes, because manyhuman rights in Statoil at the time, said that their Norwegians see Statoil as an arm of the state, theyefforts in Venezuela were a pilot project and repre- believe it can and should influence social conditionssented “a new model for collaboration between in other countries.90 Statoil states on its website thatindustry, the UN, Amnesty and the authorities” from it thinks businesses with overt and significant ethicswhich Statoil hoped to draw lessons for future practices should be present in nations with troubledactivities.83 They also funded a similar programme inNigeria from 2002 to 2006, partnering with aNigerian legal rights NGO to train Shari’a judges inhuman rights theory and practice.Rationale for involvementStatoil, considered a CSR leader by many, officiallyincorporated respect for human rights into its state-ment of values in 2003.84 The company is a foundingmember of the Business Leaders Initiative on HumanRights (BLIHR), and executives and employees haveundergone human rights training themselves.85This commitment to human rights was one of the human rights situations. By doing so, says Statoil, theunderlying reasons for Statoil’s initiation of the company can then show their commitment to humanprogramme, along with its desire to help foster a rights and make a practical, positive contribution tomore stable business environment.86 progress.91 The company also believes that its institu- According to the United Nations Development tional capacity building activities will help attract theProgramme (UNDP), Statoil began the Venezuela right kind of talent to work for it and build a goodproject because it wished to fund initiatives which company culture in the long term. They realise,had a social development component and also however, that they must be cautious in undertakingcovered human rights issues. UNDP suggested that such activities so as not to exceed their legitimate rolethe company work with a national chapter of vis a vis the governments in those countries.Amnesty International to provide training for judgesin human rights.87 At the time, the government, Practical steps in Venezuelawhich remains the current administration, was The judges and public defenders training scheme inseeking to reform Venezuela’s legal system. According Venezuela was officially a UNDP initiative funded byto a 1998 survey, less than one percent of Venezue- Statoil Venezuela, with the heavy involvement of thelans had confidence in the legal system, compared local Amnesty International chapter and thewith some 28 and 29 percent for the church and Venezuelan state agency responsible for appointingprivate business respectively.88 and training judges. Once a Memorandum of Under- Another factor contributing to Statoil’s desire to standing had been signed between the partiesundertake these projects is obviously the context of involved, preparations began for the first phase of athe individual countries. Oil companies in Nigeria, training programme involving twenty-four speciallyfor example, faced attacks for doing business under selected experienced judges. The week-long intensivethe pre-1999 military dictatorship and for operating workshop was led by specialists in international lawCSR policies that were merely a “sticking plaster” to and covered humanitarian law and regulations as wellthe problems in the Niger Delta.89 In 2002, a Nigerian as human rights in general.woman was sentenced to death by stoning by a After the completion of the first phase, the newlyShari’a court because she had a child born out of qualified judges traveled around Venezuela to pass onwedlock. Amid international outrage, Amnesty Inter- what they had learned. This phase covered judges and 13
  14. 14. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEpublic defence counsel in the country’s most training be expanded to police and public prosecu-populous states – Zulia in the west and Anzuatagui, tors in the future, to achieve a greater awareness andin the east – where Statoil’s business ventures are expertise throughout the system. By 2005 thelocated. In late 1999, the total budget for the first two programme was formally completed, and Statoil’sphases was announced to be some 2 million krone CSR portfolio became more focused on human rights(approx £167,700). In 2002 the second module of the and business, as evidenced by their work with BLIHRtraining was completed. In 2000 the project was and their local work with factories.95temporarily suspended while the Venezuelan govern-ment embarked on a comprehensive review of its Figure 3: Three phases of Statoil’s judicial humanlegal system. Once this was reviewed and changes rights training in Venezuelaimplemented, the programme was restarted inDecember of that year. As a result of the reforms, Phase (date) Outcomehundreds of judges and public prosecutors eitherretired or were dismissed and the judges within the 24 criminal court judges from Caracas,Statoil funded scheme were then retrained under the selected by the Judicial Council and thenew legal system. According to UNDP’s 2004 report: Ministry of Justice, trained in key inter-“Fortunately, those formerly selected were still in One (1999) national instruments, nationalposition and eager to continue (a tribute to the high legislation, and practical examples ofstandards used in the original selection process).” how to identify abuses and take By 2003, Statoil was saying on its website that the human rights into consideration ininitiative “appears to be one of the few long running their judgments.examples of co-operation between an internationalorganisation, an NGO, a government authority and a Drawing on logistical help from thecompany”. After a positive evaluation of the pilot Judicial Council, the 24 newly trainedphase by an independent party, the third stage of the Two (2002) judges share their human rightstraining programme was completed by the end of knowledge with over 60 more judges2004. It was able to reach the rest of Venezuela’s in Anzuatagui and judges – including those outside Statoil’s areasof operation – as well as other officials, such as social Training provided for 1,200 judgesworkers, who worked with the court system.92 Three (2004) across the country, including all 400 According to Statoil, its continued goal was to criminal court judges, as well as other“help enhance awareness and professionalism in the officials.judicial system, and to create a force against humanrights abuses”.93 According to UNDP’s 2004 report on Source: UNDP (2004) “UNDP and the Private Sector: Building Partnerships for Development” p44-46 Practical steps in Nigeria A similar programme has been in operation in Nigeria since 2002, when Statoil decided that it wanted to support broader work on the human rights issues that had long been neglected in the country. The company has been present in Nigeria since 1992 and was already doing award-winning CSR work with its Akassa community investment projects in the southern part of the country.96 After a thoroughthe initiative, judges indicated the training had screening and selection process to find the appro-enabled them to “translate the broad human rights priate partner for its human rights work, Statoilcommitments contained in the new constitution into decided to provide support to the work of the Legaloperational reality” and underscored the seriousness Defense and Assistance Project (LEDAP), a Nigerianof Venezuela’s pledges to uphold international human NGO composed of law professionals.rights principles.94 The judges recommended that Between 2002 and 2006, 450 judges from seven 14
  15. 15. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEnorthern states and representing 19 percent of overall business ventures in Venezuela by creating aNigerian Shari’a judges attended training run by more stable operational environment.LEDAP. The Shari’a system contains provisions foracts – such as flogging and stoning – that are clearly Figure 4: Overall lessons learned from the judicialagainst human rights norms and the prohibitions on training in Venezuelatorture contained in treaties that Nigeria has ratified.97LEDAP’s challenge in the two-day workshops was to • Clear and appropriate division of roles and responsi-engage with participants to increase understanding bilities ensures transparency and effectiveof basic human rights principles and women’s rights well as how to integrate just interrogation princi-ples into the practice of Shari’a law.98 According to • Partnerships in which UNDP acts as a neutralinitial evaluations carried out by LEDAP, the partici- intermediary between governments, civil societypating judges indicated that the material they learned and the private sector can provide legitimacy forwas directly applicable to their daily work.99 Although projects that strengthen governance and build stateStatoil is no longer funding the project, it is still in institutions.operation, along with LEDAP’s other legal and civilsociety human rights training programmes. A forth- • Partnership projects that ‘train trainers’ enhancecoming full evaluation hopes to gauge the overall sustainability and can achieve significant resultsimpact on the Shari’a administration.100 with relatively small financial resources.The value of partnerships in institutional capacity • Partnerships based on diverse organisations requirebuilding a personal commitment to encourage continuousRelationships between human rights organisations dialogue and establish trust.and oil companies have traditionally been of an adver-sarial nature, but the strategic partnerships formed Source: UNDP (2004) “UNDP and the Private Sector: Buildingfor these programmes proved key in their success. Partnerships for Development” p44-46Fernando Fernandez, Amnesty International’s repre-sentative for the Venezuela project, says that fromtheir perspective the project was so far a success, but Conclusions from the casehe warns that “NGOs working with oil companies in Although Statoil’s involvement with both cases isthe field of human rights are treading a fine line”.101 now complete, the relative longevity of these initia-The partnership between LEDAP and Statoil in tives and the feedback they obtained encourageNigeria was the first that either partner knew of Statoil to conclude that it was furthering humanbetween an oil company and an NGO in the country, rights promotion and protection by strengtheningand they took great care to make sure that the fit was institutions in Venezuela and Nigeria.104 Statoil alsoright and the provisions for their arrangement clearly believes the initiatives helped maintain its reputa-understood by all. tion of leadership in social responsibility issues and The relationship with an international develop- enhanced its operational legitimacy in thesement agency was also important in facilitating countries generally.105discourse with diverse actors in the Venezuela One of the major factors that made these initia-project. UNDP’s capacity to translate abstract ideas tives successful appears to be the multi-stakeholderinto operational reality and its role as intermediary structure and the efficiency with which they werewas critical to establishing and maintaining the carried out. The fact that Statoil is a state owned (andintegrity and independence needed in a project non-American), rather than a private company maydealing with sensitive human rights issues.102 The have helped its cause in working with the blessing ofgovernment in Venezuela does not trust the private the Venezuelan government, which is deeply suspi-sector, but UNDP’s support gave the project a legiti- cious of profit seeking foreign business.106 Themacy beyond what could have been achieved by the partnership was also noteworthy for the relativelycompany alone and promoted dialogue between low level of investment required and the self-diverse groups.103 Having a trusted partner such as the sustaining potential of the “training-trainers” modelUN was also critical to Statoil, which was keen to as well as its non traditional approach to corporatesecure its investment in the project as well as its responsibility. 15
  16. 16. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCECase four: Economic capacity building inAzerbaijan: The case of BP P’s substantial business investment in the Caspian Despite this rapid growth, the general economyB region represents a significant opportunity topositively influence this socially and economically has not benefited as much as it could have and infla- tion has mounted steadily over the last three years.challenged area. Taking the many lessons it has The Caspian Developments Advisory Panel (CDAP)learned from other projects, the company is engaged predicts that inflationary pressures could get worse asin a wide range of activities in and around the Baku- the government increases expenditures ahead of theTbilisi-Ceyhan (BTC) pipeline region designed to 2008 elections.110 The war ending in 1994 left the country with ethnic and religious divisions and a displaced population of more than half a million.111 In short, potential for economic and social conflict in the country and the region remains great. Rationale for involvement As by far the largest foreign investor and revenue generator in the country, BP believes it has a respon- sibility to contribute to stability and economic probity in the country, as it does in other nations.112 Given the risks of operating in unstable nations,113 BP clearly has a substantial interest in contributing to thefoster stability and growth. They are funding human current and future stability of the country if it wantsrights training for security forces, contributing to to ensure sustainable returns on considerable invest-local enterprise development and civil society ment over the approximate 40 year life of the project.capacity building as well as contributing to the provi- It recognises, however, that it must carefully considersion of knowledge and training in sound the limits to its legitimacy in contributing to gover-macro-economic policies for government officials. nance capacity in a region as complex as Azerbaijan.114This report will only focus on BP’s work within CDAP was set up by BP as a panel of internationalAzerbaijan, and specifically on its economic capacity experts tasked to provide public reports on its viewsbuilding work. of BP’s approach to the region in terms of socio- economic and political impacts during thePolitical and economic background construction phase of the project.115 This is the firstAzerbaijan, once Europes top oil producing nation, time that an extractive industry project has volun-became independent from the Soviet Union in 1991 tarily opened itself up to the level of scrutiny withamid separatist violence in one of its main regions. The which BP has empowered the panel.116 The CDAP hascurrent President is Ilham Aliyev, the son of the former pointed out that development of non-energy areas ofPresident Heydar Aliyev. Both the presidential elections the economy will be extremely important forof 2003 and the parliamentary elections of 2005 were Azerbaijan in the long term to help it avoid the worstmarred by accusations of intimidation and vote rigging, impacts of what is known as the ‘oil curse’, wherebyand corruption is perceived as a major problem over-dependence on oil income distorts the economythroughout the government.107 and politics of a nation in a highly negative manner.117 In the last 13 years, many oil and gas companies,particularly BP, have invested large amounts of money Practical steps to improve government economicin extracting Azerbaijans oil and gas reserves. In 1994, capacity in AzerbaijanAzerbaijan signed an oil deal worth $7.4bn with a One of the CDAP’s biggest concerns is how the oilWestern consortium of companies led by BP. Since oil income generated by BP for the government is spentbegan flowing through the Baku-Tbilisi-Ceyhan (BTC) by Azerbaijan and the company’s ability to influencepipeline – which also goes through Georgia and the transparency of government expenditure.Turkey – in 2005, the country has experienced a Azerbaijan is a signatory of the EITI, a multi-stake-rapid increase in public savings, almost exclusively holder scheme encouraged by western governments,through oil revenues.108 In 2006, the gross domestic oil companies and civil society groups which aims toproduct of Azerbaijan grew by 34.5 percent to some foster transparency with regard to sums of money$20.6bn, making it the most rapidly growing being paid by international oil and gas companies toeconomy in the world for the second year running. governments or state oil funds.118 The panel suggestedThe IMF’s estimate for 2007 growth is 29 percent.109 that BP pressure the government to further reveal 16
  17. 17. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEhow their vastly increased revenues are being spent, create that capacity by the project’s end so that Azerisusing their dialogue with the government to might better understand the possible future ramifica-“encourage a more detailed accounting of such tions of current economic decisions.126 BP alsoexpenditures”.119 confirmed that as part of its contributions to institu- BP agreed in 2006 that it would maintain its tion building, it had “for some time”, been involveddialogue with the government on encouraging in an informal advisory group, created by the UK andrevenue transparency, but was at pains to point out US ambassadors in Azerbaijan, that discussed ways ofthat there are “quite properly”, limits as to how much improving revenue management by the govern-a company can influence government decisions on ment.127how to best manage revenues from oil.120 The To further support objective research on bestcompany stresses that the biggest impact they can practice in the management of resource revenues, BPhave in combating corruption will result from rigidly has endowed $14m for the BP Chair in Economics atenforcing their own corporate governance and the University of Oxford. This person will serve as theencouraging high standards in its enterprise develop- director of the recently launched Oxford Centre forment work with the local and national private the Analysis of Resource-Rich Economies. Former BPsector.121 BP is also engaging with civil society groups Chief Executive Lord Browne explained at the Centre’sand media to enhance their finance and revenue opening that: “Its role is grounded in the legitimacymanagement knowledge in order to improve outside which comes with academic independence.”128monitoring capability in those sectors.122 BP has also taken measures to directly enhance the Conclusions from the caseeconomic planning and management capacity of the As with the case of Business Action for Africa, BP’sgovernment and state oil fund. They have convened work in Azerbaijan is ongoing though still nascent.two workshops for high level government economics Much of the work around contributions toand treasury officials in Azerbaijan.123 The first economic capacity building and lobbying for greaterworkshop lasted two days and centred on discussion participation in EITI is in its early stages, and it willof the experiences of other resource-rich countries take some years before it becomes clear just howin handling increased income from natural resources.It featured former ministers from other countries,consultants in resource economics, and the formerhead of a petroleum directorate. Its aim was to impartthe knowledge gained from these countries’ experi-ences without dictating a course of action forAzerbaijan.124 The second workshop discussed the roleof economic modelling in policy making and was ledby specialist experts from Oxford, Dundee and Sussexuniversities. As with the previous cases, BP did notdirectly conduct this training but acted as a catalystfor their creation and covered logistical costs. Additionally, BP supported work by Oxford much sustainable impact these activities have had.Economic Forecasting to collaborate with the state oil The case as it is demonstrates, however, the poten-fund to develop a long-term model of the Azeri tial for contributions that can be made by a companyeconomy. By 2007 this model had been completed in a powerful position, as BP acknowledges it is inand was under the ownership of the state, but BP Azerbaijan and the Caspian Region. Peter Eigen,pledged to continue to provide training to maintain Chairman of the EITI and founder of Transparencyand update the model as the economy develops.125 International, describes BP’s work in Azerbaijan asThe country does not currently have the human “ground breaking” and the company as “one of thecapacity needed to engage in this type of large scale leaders” in the field of working with developingplanning and modelling exercise, but the goal is to country governments in a constructive way. 129 17
  18. 18. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCETrends observed from cases and literature hese case studies are based on published sources undertaking the capacity building activitiesT reinforced by selected interviews, rather than ondetailed fieldwork. The authors would strongly themselves, companies are able to use their extensive local and international contacts to drive action. Theadvocate that these cases be further researched and companies in question also excel in project manage-developed. Nevertheless, despite being ‘work in ment capabilities, and they often have the ability toprogress’, these cases collectively demonstrate that undertake decisions and apply resources quickly.corporate contributions to institutional capacity Company networks on the ground do not necessarilybuilding, though nascent, have significant potential involve a representative sample of NGOs and commu-for contributing to the alleviation of systemic nity representatives, however, and it appears from theproblems within government institutions. As cases that civil society involvement in institutionalmentioned previously, standard corporate responsi- capacity building work is not always well integrated.bility initiatives, particularly in developing countries, This paper does not attempt to conduct a thoroughoften have limited impact on communities and often survey of emerging practices beyond the casesdo not attempt to address the underlying causes of presented, but a few studies that look at other insti-major problems. The authors would argue that tutional capacity building initiatives are worthcorporate engagement in capacity building is likely mentioning for the trends they identify. The Oxfordto be more beneficial to shareholders in the long Policy Institute conducted a series of workshops interm, if done wisely. 2006 examining “corporate investments in public Motivations for involvement vary significantly, but capabilities” specifically in extractive industries.130in each case, a company or group of companies They find that most companies involved in large scaledecided that there was a specific public sector compe- projects invest in a variety of ‘hard’ and ‘soft’ infra-tency issue on which they could and should engage structure beyond the narrow scope of their projectgovernments. These issues – customs reform, but that this investment is usually a by-product ofeconomic planning capacity, human rights knowledge other corporate objectives rather than a separately– were generally accepted as developmental articulated policy. They find that the motivation oftenchallenges in the host countries. Even so, each initia- lies in protecting their investments from the effects oftive began with government acceptance of the need weak governance, responding to pressure from NGOs,for assistance, or corporate lobbying to the effect and enhancing their own reputation, among otherthat the government is persuaded to engage on a reasons. The extent and type of investment is alsotrial basis. “greatly influenced by the character, experiences, and In each of the case studies, the companies involved interests of their senior managers and directors” asare (or were) major investors in the host countries. well as the characteristics of the host countries.This is both a motivation for their involvement and a Multi-stakeholder initiatives (MSIs) such as thereason for its success. Because of the financial risk EITI, the Voluntary Principles on Business andassociated with operations in certain countries, Human Rights, or the Kimberley Process are alsocompanies have ongoing budgets to spend on helping concerned with correcting weak governance, thoughsecure their investments and contribute to creating a they are wider in scope than the cases presented here.stable operating environment. The ability to apply They often involve entire industries as well as civilresources in a consistent manner may be an advan- society actors and are usually concerned with negoti-tage over programmes susceptible to donor demands ating a oversight framework for a particular issue orand sudden policy changes. In the cases of BAFICAA, industry. A report published in early 2007,131 looks atStatoil and Premier Oil, the initiatives began on a very the effectiveness to date of MSIs in the oil and gassmall scale, with low risks of time and engagement sector and outlines components that are necessary forfor the governments and companies, before expan- success. In the initial formation stage, they argue thatsion was considered. In the case of BAFICAA, the first six components are necessary: “(i) a clearly statedcompanies involved used their experience and initial problem (ii) a commitment for change and a clearlysuccess to persuade other companies that this was an stated mission (iii) strong political leadership (iv) thearea in which engagement with government could added value of another initiative and a clear timebe useful. frame (v) committed individuals able to carry the A further commonality is the logistical power of issue into their organisation and (vi) the time andthe companies in each country and how the initia- space for trust to be built amongst participants andtives are managed. Although they are not often effective dialogue to grow.” 18
  19. 19. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEPractical implementation issues raised bythe changing role of business espite the momentum and potential observed In addition to making transparency and a clearD from this new role for companies, everyoneclose to these cases admits that there are major division of responsibilities and expectations of central importance, there might also be ways to structurequestions to be addressed, both in implementation programmes from the outset that protect againstand in the underlying legitimacy of such involve- potential abuse by either party. Patricia Feeney atment. Turning first to practical implementation RAID suggests that single-company initiatives mayissues, there is an obvious need to avoid situations not be as advisable as coalition-based initiatives.where one or more partners feel that their ability When acting alone, there is more scope for ato act in a fair and independent manner is compro- company to use a situation to its own advantage,mised. Rigorous monitoring and transparency while groups can serve a monitoring function.are one way to guard against this, but no clear A ‘foundation of foundations’ type arrangement,framework exists to guide what is ultimately a very whereby several companies fund an independentchallenging undertaking. body to do capacity building work on their behalf, Even sceptics, however, see the potential for insti- might also be a possible solution. Corporatetutional capacity building work involving companies. foundations also face questions about theirPatricia Feeney at RAID admits that she can see a independence, however. John Ruggie suggests that astrong argument for using the personal contacts and wide variety of arrangements, such as MSIs and the UN Global Compact, are useful possibilities for structuring business’ response to its human rights responsibilities.132 No matter how such corporate-driven programmes are organised, however, there remains the underlying problem of legitimacy. As Patricia Feeney of NGO Rights and Accountability in Development puts it: “Can you be game keeper and poacher at the same time?” It should ideally be the remit of government to ensure that all foreign investment is in the best interests of its citizens. The government’s lack of capacity to carry out its basic functions, however, isinfluence that companies have in regions where they one of the very reasons companies are involved in theoperate. NGOs have been pressuring companies to first place. If they are present and have the resourcestake more responsibility with respect to human rights to help, it is difficult to argue against actions thatabuses for some time, and this is one way in which could possibly strengthen legitimate actors’ ability tothey can do so. How precisely they should engage in perform their rightful roles.order to avoid conflicts of interest and achieve lastingimprovements is just starting to be addressed by Monitoring, reporting, and transparencypractitioners and academics. Companies have arguably engaged in informal capacity building activities for some time, butConflicts of interest modern interpretations of corporate responsibilityIn all four cases covered here, the companies had now require that these activities be monitored andvested financial interests that at least in part drove made public. Exactly how this should be done has yettheir involvement. This was not merely the action of to be legally agreed upon, however. Arvind Ganesandisinterested or independent parties. Thus, the possi- of Human Rights Watch notes that there does notbility exists that the programmes they facilitated currently seem to be a great deal of communicationmight have had anti-competitive elements or provided as to what companies are doing to strengthen govern-the opportunity for discreet lobbying on behalf of the ment institutions and what the outcomes This is not to say that this happened in Without common and binding reporting require-these cases, and the authors have seen no evidence ments for non-financial activities, it is up to thethat it did, or that any intention to do so existed, but discretion of each company what they choose tothe implications of such conflicts need to be consid- disclose and which projects they highlight overered if institutional capacity building is to form part others. Managers may feel that they stand to lose byof corporate responsibility strategies more frequently. putting more information than necessary in the 19
  20. 20. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEpublic domain. By keeping sensitive or potentially that while partnering with development agenciescontroversial information to themselves, companies and governments is central in increasing legitimacycan move more quickly, avoiding the intransigence of for companies involved in capacity building, it mustofficial processes and the scrutiny of critics.133 be an equal partnership in which all members feel Even if reporting and monitoring requirements they have a say in outcomes and processes. Potentialwere agreed upon, measuring outcomes in non- non-corporate partners need to be aware of thefinancial areas is always problematic. Institutional competitive advantage the company will derive fromcapacity is inherently difficult to quantify. This is the alliance and how the programme will affect theirexacerbated by the fact that companies’ time own reputation and capabilities. Some largerhorizons are often quite short term, while public agencies have safeguards in place to ensure that theycapacity building is a slow and incremental process. enter into fair and equal partnerships, but smallerFurthermore, Virginia Haufler questions whether a organisations may be more easily co-opted. Exactlyfocus on outcomes or processes is most appro- how this harmony is achieved can be difficult, andpriate.134 Ultimately, improvements in institutions are Jane Nelson and Ira Jackson note that “successfuldetermined by a variety of factors outside the control alliances require a difficult balance of idealism andof the actors involved. Does a negative or inconclu- pragmatism…of self-interest and mutual benefit”.sive outcome mean the initiative has failed It is unclear how the legitimacy of a project isaltogether? affected when civil society involvement is not feasible or practical, such as with the BAFICAA case.Managing partnershipsIn some of the cases covered here, partnershipsfeatured more prominently than in others. However,it is increasingly obvious that companies are part ofwhat Jane Nelson and Ira Jackson term ‘relationshipnetworks’ that include many different private andpublic actors.135 Managing these relationships iscentral to ensuring that the benefits of engaging ininstitutional capacity building are worth the costs. In practice, Arvind Ganesan of Human RightsWatch notes that development work tends to takeplace in ‘silos’. Different agencies and actors do notconsider the broader perspective and often end up In this instance, the topic was highly specialist andwith overlapping, competing, or contradictory not within the remit of any local or internationalapproaches. The capacity building contributions by NGOs. Companies should be aware that in thesebusiness will be unlikely to have much impact if cases that they may be asked to justify this absencethey do not align with the strategies and efforts of and prove that they acted in the best interest of hostthe UN, donor agencies, governments, and NGOs. country citizens. In BAFICAA’s case, the national Jane Nelson and Ira Jackson also suggest that all government suggested that a wider spectrum ofalliances between companies and other actors need African companies be involved to increase the legit-to focus on “purpose, process, and progress”. imacy of the project and its likelihood of success.Everyone involved should share a common set of While multinationals drove the process, greatgoals for the programme, a detailed understanding emphasis was placed on the inclusiveness of theof each partner’s responsibilities, and the bench- national BAFICAA task forces.marks by which progress will be measured. JenniferZerk of CSR Vision suggests that signing a Building institutional capacity effectively‘memorandum of understanding’ or similar Development practitioners admit that there are nodocument seems like it would be necessary in order easy solutions for improving a government’s abilityto clarify expectations and responsibilities to protect to function effectively and in the best interest of itseach actor in case a problem arises with the citizens. Patricia Feeney at RAID notes that even ifpartnership. programmes are reasonably well intentioned and Sune Thorsen, Director of and well-executed, the question still remains of how toexpert in legal corporate responsibility issues, notes actually build capacity and fast track governance in 20
  21. 21. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCEcountries where is has not already taken root. usually experts in development and institutionFurthermore, it is important that that capacity building. Involving the right mix of local andbuilding work by outside actors does not undermine expatriate staff is another challenge to creating andthe incentives for government-led efforts. All implementing a genuinely effective programme.programmes should incorporate a plan for transi- Companies can add value, however, if they are able totioning skills over to the government, paving the way approach capacity building with the same rigour thatfor the exit of the company and the organic growth they do core business functions. This includesof institutions. getting commitment at the top, setting clear targets It is also important to recognise that the relative and metrics, reporting publicly on progress, andpower of each player will shape outcomes and that committing to learning and adaptation.137this power will evolve throughout the life of a In addition to the previously mentioned problemproject. As previously noted, a company that repre- with measuring outcomes, another tricky situationsents a large portion of a region’s economy is likely companies may face is what to do when there isto generate more co-operation and buy-in from ‘backsliding’. In the Burma case, the government wasgovernments. During boom economic periods, clearly not as serious about human rights as Premierhowever, host countries may be less receptive to ‘soft’ would have liked, but does this mean the programmeinvestment, seeking instead to capture as much should have been discontinued? At what point doesfinancial rent as possible.136 This potential evolution it harm the company’s reputation to be associatedof power should be recognised in the guidelines for with a ‘failed’ project?the programme, if possible. Philip Crowson, for the Oxford Policy Institute, There are quite a few internal constraints that summarises the problem that is central to imple-companies face when undertaking an activity not menting effective institutional capacity building work:related to core business. Shareholder expectations, “No matter how strong the internal incentives and thecompeting strategic priorities, and the longer term external pressures for companies to invest in the publicnature of these investments make it difficult to sector capabilities, their success relies on the responsesapproach them systematically, as does lack of appro- of the host countries. Those in turn depend on howpriate capacity. Even if the actual training is closely the objectives and interests of the governmentconducted by outside experts, companies and their in power are aligned with maximising the wealth andemployees who are facilitating the work are not welfare of the nation at large over the long term.”138 21