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Corporations, Institutions and better Governance

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Corporations, institutions
and better governance


By Toby Webb and Meg Carstens

MARCH 2008
CONTENTS                                                                  CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE...
CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE            INTRODUCTION




Acknowledgements


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Corporations, Institutions and better Governance

  1. 1. Corporations, institutions and better governance By Toby Webb and Meg Carstens MARCH 2008
  2. 2. CONTENTS CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE Contents 3 Acknowledgements 4 Background to this report 4 Institutions and social capital 5 Roles for business 6 The corporate responsibility agenda 6 Issues to be explored 7 Case one: Customs reform in East Africa: The case of Business Action for Africa 10 Case two: Human rights training in Burma: The case of Premier Oil 13 Case three: Judicial human rights training in Venezuela and Nigeria: The case of Statoil 16 Case four: Economic capacity building in Azerbaijan: The case of BP 18 Trends observed from cases and literature 19 Practical implementation issues raised by the changing role of business 22 Questions raised by the broader boundaries/legitimacy debates 25 Conclusions 26 Epilogue: Outlook for future involvement and unanswered questions 27 References and footnotes About the authors Toby 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 assistance Ian Welsh Design Alex Chilton Design Ltd 2
  3. 3. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE INTRODUCTION Acknowledgements The authors would like to thank the following individuals for their time, comments and assistance with this report. Peter Davis of the Ethical Corpora- tion Institute, Professor Sue Konzelmann of Birkbeck, University of London, Richard Jones, formerly of Premier Oil, Martin Summers of British American Tobacco, Richard Morgan of Unilever, Christian Braun and John O’Reilly. Much of this report formed part of Toby Webb’s Corporate Governance and Ethics master’s degree dissertation, reviewed and marked by academics at the University of London in 2006 and 2007. Meg Carstens undertook several months’ full-time work on broadening its scope during summer 2007. 3
  4. 4. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE The background to this report usiness has for some years been criticised by NGOs and picture of the debate from the point of view of B the media for sourcing and operating in nations where the 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 large legal framework, poor enforcement of it, or the lack of multinational companies that are considering how requisite 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 and environmental and overall human rights standards are civil society related institutions within poorer nations. lower in many countries where western business buys from and sells to. There is also a growing recognition that the Institutions and social capital building and maintenance of essential institutions requires The term ‘institution’ commonly refers to the rules the 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 their governments in order to develop in poorer countries. The interactions. This definition encompasses a varied list authors 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 can governance and economic development. It appears obvious include formal, codified rules (the focus of this to say it, but the same institutions and cultures required to report) as well as informal social norms. support 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 underlie property 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 a operate and the evolving recognition of a role for state.3 They do this by promoting cohesion and business in delivering public goods,1 a small number partnership,4 by protecting property rights and of international companies are increasingly finding themselves promoting better governance through contributions to institutional capacity building in developing countries. Business Action for Africa and initiatives such as the Kimberley Process, the Extractive Industries Transparency Initiative (EITI), the Ethical Trading Initiative (ETI), and the Voluntary Principles on Security and Human Rights are all recent larger scale examples of business coalitions working to influence public policy and encourage the strengthening of institutions. These partnerships often 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 Effective and 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 and private, public, and civil society spheres, however, public service provision by states.6 companies do not necessarily find this role a Institutions are closely linked with the concept of comfortable one. Rather they deem it necessary and governance, which the World Bank defines as the prudent given the realities of doing business in “traditions and institutions by which authority in a certain 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 authority practitioners, NGOs and academics, this report seeks are selected, monitored and replaced, (ii) the capacity to explore some recent initiatives in this area. The of the government to effectively manage its resources authors seek to underline the commonalities that exist and implement sound policies, and (iii) the respect of between cases and the lessons that can be learned citizens and the state for the institutions that govern from on the ground experience. The report also draws economic and social interactions among them.”7 attention to the practical and theoretical issues Key institutional and governance barriers to encountered thus far, attempting to give a balanced greater economic wealth include poor legal systems, 4
  5. 5. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE corruption, 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 also tions 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 areas general social and political participation present in a are appropriate usually comes down to analysing the society.9 It is “arguably about the capacity to collabo- particular context. In the case of BP’s work in rate and interact peacefully and with high degrees of Colombia, the company feels that it has made a positive trust and voluntary co-operation”.10 Ineffective insti- contribution18 but makes clear that its work there has tutions 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 (institutional building, a term increasingly used by NGOs, develop- capacity building on human rights) going…but has ment organisations, and others to refer to the processes found an appropriate way to fund it… (By funding by which members of a society – institutional or infrastructure that helps the training take place)…we’re otherwise – 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 actual emerging to demonstrate that the people of developing training”. In this case the Colombian government has countries 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 development contributing to the building of this capacity.13 provides guidance on some specific roles that might be appropriate for business involvement. These Roles for business include the training of local authorities to cope with A 2006 report by the International Business Leaders change and improve basic services.20 Practical actions Forum (IBLF) demonstrates that local companies and such as the development of associations and support multinational firms are also engaging with the notion structures to encourage co-operation on the issues of institutional capacity reform.14 Despite this mentioned above are also suggested by business recognition, there is not yet a template for the organisations as important contributions companies appropriate and specific roles for business to play. might make to institutional development.21 Through Lobbying for corporate advantage has a long and such mechanisms, business can enable the creation of controversial history, but the notion of corporations anti-corruption coalitions, support watchdogs, create publicly 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 institutional include business groups lobbying governments in the development process, scholars and practitioners note US 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 mandate Infosys’s engagement with the Indian government on has evolved over the last five years to work much more a broad reform agenda.17 The prominence of John closely with businesses as well as civil society groups.24 Ruggie’s work as the UN Secretary-General’s Special In short, the growing evidence from practice and Representative on Business and Human Rights also scholarship seems to indicate – if not directly address points to the importance currently placed on trying – that there is a role for business in governance and to clearly define the roles and responsibilities of institutional capacity building in developing business in governance as well as the controversial countries. George Frynas, Professor of Corporate nature of this task. Responsibility and Strategic Management at According to the IBLF’s 2006 report, companies Middlesex University and a critic of many corporate can act as awareness raisers on the need to generally social responsibility programmes, believes that support human rights, humanitarian activities and companies can play a constructive role in what he peace 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 poorly between two categories of roles companies can play. defined and their implications under-examined.32 The first is of direct benefit for specific entities and governance institutions via training, policy develop- Issues to be explored ment 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 obvious higher level governance improvements.26 Both types involves potential conflicts of interest (real or are being undertaken by business, with local govern- perceived) between governments, their citizens, and ment, 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, complex kinds of collaborations may take place bilaterally debate about the legitimacy of – and appropriate between companies (or business alliances) and boundaries for – this type of involvement. As Philip government 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 of as well as NGOs, IGOs and governments.28 companies – that are ultimately responsible to foreign shareholders and which are subject to the The corporate responsibility agenda campaigns of a variety of pressure groups within This kind of private engagement with public institu- their home countries – properly assess the public tional policy diverges from more standard corporate interests of their host countries?”33 On a practical responsibility and community involvement strategies. level, companies make decisions on a daily basis In one way it has a much narrower focus, but in about what constitutes boundaries of appropriate another it goes well beyond traditional corporate “business as a business”.34 responsibility boundaries.29 The majority of corporate The heated nature of such issues was brought to responsibility strategies for transnational companies light with the strong reaction to the attempt to draw operating in developing countries are almost up a comprehensive set of standards, or ‘norms’, on exclusively focused on the workplace, supply chain business responsibilities with regard to human and local communities, rather than engagement with rights. In his 2007 interim report on the issue, John national institutions.30 Engagement with government Ruggie states that one of the main problems with institutions may potentially be more influential in the the UN Norms was their lack of a guiding principle long run, however, as institutional frameworks with which to divide responsibilities between typically play a crucial role in determining the corporations and states. This left the responsibilities business climate.31 to be determined by the concept of ‘spheres of influ- Furthermore, if the corporate responsibility agenda ence’, which may have practical applicability but is increasingly moving towards a focus on managing lacks legal grounding.35 While the scope of this impacts in society – mitigating negative impacts and report does not allow for a thorough theoretical amplifying positive ones – then engagement with the exploration of these debates, it will attempt to governance agenda is crucial, as this typically has present a rounded view of the current questions greater impact on business and society than many being discussed and the viewpoints of a range of other potential activities. As noted above, however, the actors involved. 6
  7. 7. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE Case 0ne: Customs reform in East Africa: The case of Business Action for Africa usiness Action for Africa is an international Practical steps – a timeline B not-for-profit network established in 2005 after the 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 was three 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 existing business voice; to promote a more balanced view of practices and reform efforts within customs Africa by highlighting success stories and balanced administration across 20 African countries. As a reporting; and to develop and showcase good business result of initial findings, the group decided to focus practice by facilitating new partnerships and commu- on three east African countries for pilot projects.38 nicating existing ones. The group currently includes A series of private sector workshops facilitated by over one hundred organisations, composed of approx- PricewaterhouseCoopers (PwC) Kenya were held in imately sixty businesses, thirty strategic business Uganda, Kenya and Tanzania to discuss the feasibility organisation 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 and are also group members. international companies and trade associations. They Its specific areas of focus are governance and discussed the initial report and established common transparency in general, the climate for business in agreement on what reforms needed to be made so Africa, trade, enterprise and employment, and that taskforces then approaching governments would perceptions of the continent. As part of its commit- have the backing of a representative variety of ment to increasing Africa’s capacity to trade, some businesses behind them.39 As a result of these members are working in the specific area of workshops, BAFICAA created country taskforces improving customs administration to facilitate composed of companies willing to commit to help international and regional trade. develop these initiatives. Further workshops in late 2006 and early 2007 were Business Action for Improving Customs held with BAFICAA taskforce members and customs Administration 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 was BAFICAA is an “international coalition of businesses pushing against an open door.”40 As a result, the committed to identifying, promoting and supporting Kenyan Revenue Authority seconded three staff to act effective measures to improve customs administra- as a bridge between the private companies and their tion and enhance trade facilitation in Africa.”36 own institution in order to expedite change and BAFICAA 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 workshop pressure group. Rather, it is a network of business brought together revenue and customs authorities partners attempting to complement existing reform from Uganda, Tanzania, and Kenya along with the work underway in Africa by being an active driver of three country BAFICAA taskforces, representatives of change 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 goal of trade facilitations, the removal of regulatory of coordinating efforts and formally introducing the barriers, 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 facilitator tively will be to persuade governments that of the project, which is funded in large part by the companies can and should be active and trustworthy ICF as under its remit to encourage business actions partners.37 In light of this, BAFICAA’s first steps on economic reform in Africa.41 As a well-connected include measures to build dialogue and trust between local figure, Kamulegeya’s relationships on the business and governments. Its stated intention is then ground make him well-placed to help the to help devise and implement practical proposals that project succeed.42 SITPRO, the UK trade facilitation can improve customs procedures and trade in a body, and the World Customs Organisation will be sustainable way. involved in the practical training and implementation 7
  8. 8. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE of customs reform across the region, organising a Figure 1: BAFICAA suggestions for customs reform meeting for customs commissioners (without compa- nies present) to come up with a concrete plan of action.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 customs Organisation 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 customs the EAC countries (except Burundi). It fulfilled its aim services and the private sector, setting out the of discussing a regional approach to customs admin- expectations of each party from the other, as well as istration reform and identifying how best to achieve setting out the parameters for the expected level progress 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 and Economic Operator (AEO) concept. The Fastrack consult regularly with the private sector to ensure recommendation was one of the highest priorities for support for the changes and reforms in customs reform mentioned in the original BAFICAA report. administration. The heads of customs for EAC have now agreed to • Removal of duplication and bureaucracy in Post pilot a regional Fastrack programme, meaning faster Clearance Audits and valuation processes. clearance times for qualifying firms with ‘trusted • The need for professional training, accreditation and trader’ status. BAFICAA has capitalised on the appetite certification of clearing, forwarding, and customs and progress towards customs reform within several agencies. of the EAC’s own customs services. It has however made a major difference in raising business issues Source: BAFICAA Arusha Conference Report June 2007 and helping drive a coordinated approach to reform across the region, which should help intra-regional Revenue authorities in each country have all made trade enormously if the reforms are implemented varying degrees of progress on their own in creating effectively. a fast track system for compliant traders. BAFICAA’s BAFICAA reports that strong interest has been goal is now to coordinate reform efforts. Workshop expressed in similar programmes in west and participants also suggested creating a legal basis for southern Africa. Richard Morgan of Unilever believes fast track guidelines that was well publicised so as not there is the potential – and government interest – for to be seen as favouring particular industries or this programme, or something like it, to be promoted companies. PwC is now carrying out research as to in other reasonably stable countries soon, specifically best practice in such systems that will be submitted Rwanda 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 to and 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 making Nigeria, while Shell is leading in Cameroon, and progress on automation and training, BAFICAA urged Unilever in Ghana. the revenue authorities, through the EAC sub- committee, to identify specific areas where the Proposals for reform private sector could offer support and facilitation. BAFICAA’s initial aim – in partnership with govern- One of the biggest institutional challenges to ments and international donors – is to, in their own reform is the current system of revenue targets words, quickly offer some “definable and measurable within various customs agencies. Targets are often projects 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 operate outlines the six key issues highlighted by the private to slow, rather than speed up, trade and have been sector that are common to the three countries.46 recognised by BAFICAA as an urgent area for These 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 GOVERNANCE revenue authorities’ primary mandate of revenue Africa is not the daunting, impossible task of collection with the need to facilitate trade and protect common perception. African businesses themselves countries 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 enhance increase the volume of trade in the region, and thus their capability to trade and grow. Improvement in increase revenue for the government. He noted, customs administration in Africa and the consequent however, that progress still needs to be made in inevitable growth in Africa’s prosperity is now ready changing the mindset of parties involved and building for take-off. All that’s needed is ignition.”54 Martin trust between public and private sectors. A new role for companies Richard Morgan, an Africa expert from Unilever, talks of the corporate role being about encouraging the use of management processes once principles of change have been agreed between business groups and Customs institutions. Companies, via the taskforces, can also provide feedback to customs authorities about how things are proceeding and where any delays are still taking place.49 Morgan sees great potential behind BAFICAA’s work across Africa over the next five years on customs reform. The aim is Summers of British American Tobacco, summarises simply to move business and government to being ‘on his view thus: “There has been a lot of positive the same page’ in areas where reform will bring feedback on the BAFICAA project, not least because benefit 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 annual Customs and Trade for the EAC commended the Doing Business surveys) has made the development BAFICAA initiative and remarked that “customs community aware that the poorest countries are the reforms resulting from a shared vision of the private ones with the worst institutional frameworks, so and public sector will ensure a win-win position for private sector involvement in helping improve these both parties.”51 frameworks is appreciated as a valuable contribution Unilever’s costs for the scheme, as with Statoil (see to sustainable development.”55 later case) are low. To date these costs consist of staff time, travel, and around £15,000 as a contribution to Conclusions from the case the initial report, similar to other BAFICAA members. The case of BAFICAA and African customs reform is Corporate 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 of Climate Facility. Despite the relative low involvement improved African economic rights on the global costs, SITPRO says that its main task initially was to economy – is not yet feasible. However, local, national convince some companies that this was an area in and international business participants in the which they could and should intervene to improve workshops have indicated their enthusiasm for the conditions.52 Previously, many companies had written project, as have government officials. The project is off slow customs processes as an unavoidable cost of ongoing, and significant progress has already been doing business in Africa. SITPRO sees its role in this made in creating a space for dialogue between private case as initially helping to bridge the gap between sector and government officials in East Africa. The public and private actors’ attitudes towards the possi- programme is also making inroads in other countries bilities for customs reform. BAFICAA members see in Africa. The narrow and practical focus of potential for NGO and academic comment to be BAFICAA’s efforts is in an area where companies involved in the future, as a way of adding credibility clearly have much experience to offer. This study to 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 in the initial report for BAFICAA, concludes, companies African institutions which often slow down, rather must act as catalysts for change: “Customs reform in than encourage economic growth and trade. 9
  10. 10. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE Case 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 rights for the Burmese military government and its admin- writes Jones, that the company created the Premier Corporate Social Responsibility Programme that led istrators. They undertook the project because they to their institutional capacity building contributions.63 saw no one else willing or available to coordinate According to Jones, the main drivers for the such capacity building and felt that they could make company’s activities on human rights in Burma were a unique contribution in this area. Premier also felt a desire to deal in a consistent and predictable that such activities would ultimately contribute to its manner with social impacts; to tackle some of the corporate social responsibility programmes by raising awareness of key issues around human rights and providing senior government (military) figures with an understanding of the basis for human rights theory, and what such theory means in practice. Premier’s involvement in a highly troubled country Premier Oil, a small independent UK oil company, had a presence in Burma from 1990 until 2002. In September 2002, it sold its operations in the country to Malaysian state oil company Petronas. During this entire time, Burma’s human rights record was the subject of much criticism. According to Human operational and security challenges the company Rights Watch’s 1998 report, “respect for human rights faced around its operations; and to demonstrate that in Burma continued to deteriorate relentlessly” in the action was being taken in light of the criticism the previous year. In 1999, there were “no signs during company faced for investing in the country.64 He the year that fundamental change was on the notes that many critics did not make a distinction horizon”, and by 2002 “grave human rights violations between the small corridor that represented Premier’s remained unaddressed”.56 Among the many accusa- operational footprint and the wider accusations facing tions levelled at the Burmese military in this period the security forces throughout the country. For were the forcible recruitment of child soldiers and Premier, this necessitated “dealing with human rights village labourers and the rape of Shan minority – and related issues such as security – at a local as women.57 well as national level”.65 During the early and mid 1990s, campaigners began to call upon Premier Oil to pull out of Burma Practical steps – making capacity building because of the political and human rights situation in contributions the country.58 Attacks on the company from Over a two-year period in 2001-2002, Premier Oil campaigns focused on three main arguments: first, funded and organised a series of nine human rights that the company was providing a ‘financial lifeline’ workshops, run by specialist human rights lawyers for the repressive government; second, that its hired by Premier.66 Approximately 250 participants presence in Burma benefited from the infrastructure from the army, police, energy ministry, labour and built by forced labour; and third, that military forces immigration departments were taught in two-day protecting the pipeline area were likely to commit seminars about human rights issues.67 The human rights abuses while doing so.59 Aung San Suu workshops were structured to provide the officials Kyi, the imprisoned Burmese pro-democracy leader, taking part with knowledge about the concept of stated in April 1998 that, “Premier Oil is doing a great human rights, its origins and nature, and about disservice to democracy. It should be ashamed of human rights as an international legal system.68 itself.”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 the is doing.”61 minimum requirements for operating within it. Richard Jones, Premier’s Corporate Social Respon- They were purposely conducted in an interactive and sibility Manager, explains that they took a different discursive rather than formal format and were view of the situation: “Only through dialogue and adapted to resonate with attendees’ experiences and engagement, 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 national as monitoring and accountability systems, human Human Rights Committee, and supporting Burma’s rights 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 promising menting human rights obligations in government. development noted in the evaluation of the Australian Jones said that the workshops were a contributing workshops is the fact that participants began to realise factor to the Myanmar government’s decision to set that members of the international community were up a Human Rights Committee and beginning to interested in what was going on in Myanmar and that develop a framework for educating administrators of through these contacts they could have outside various departments. Many of these people were support in improving the human rights capacity of career bureaucrats who, as Jones put it, “were there their organisations, if desired.77 before the current government and will be there afterwards”. The idea was to build capacity in the Figure 2: Premier’s conclusions as to how it was able professional civil service as well as with the current to use its position to government.70 Premier’s aim in convening these workshops was • Influence the Myanmar government in a progressive to bridge the gap between the theories of human manner. rights and “equitable and correct law enforcement • Encourage the government of Myanmar to actively practice”.71 Participants indicated to Premier the participate in human rights and humanitarian law importance of “practical skills-related instructions” training for a variety of officials. for the “true application of human rights standards • Encourage the government of Myanmar to in law enforcement”, according to Jones. During one participate in the establishment of a National workshop, 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 Development informed his colleagues that violent crowd control Council in order to begin the eradication of the use methods, 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 human since 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 to facilitators who also conducted similar human rights become a signatory of, and eventually to ratify, the workshops for Myanmar authorities (not including International Convention of Economic, Social and military or police) during this time period that were Cultural Rights (ICESCR). supported by the Australian government. In their • Hold dialogue with the Myanmar authorities in review of the Australian government’s efforts, Kinley relation to the health and safety of political and the former Australian Ambassador to Myanmar, prisoners. Trevor Wilson, note that although impact from these • Hold constructive dialogue with the NLD (and efforts was very hard to gauge, “in the climate of a groups and individuals in exile) in relation to the relatively open attitude to engagement (upon which role of business in advancing transparency, the workshops fed and to which they contributed) governance, environmental protection, and human other agencies and organisations were able to under- rights in Myanmar. take human rights initiatives that were not possible before, 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 on the ground was never evaluated, Premier called this programme “an important first step,”74 which was In 2002, the year it left the country, Premier recognised as a positive contribution by all those planned to increase the breadth and scope of future involved. By the end of the initiative, the government training programmes. The company also had plans to was “identifying areas of interest and asking [Premier] put in place a system to monitor how they were to run workshops on them”.75 Premier was actively documenting and addressing human rights concerns working with the government in building the and allegations within their “sphere of influence”.78 11
  12. 12. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE When Premier announced that it was leaving, they Burma’s recently convened Center for Strategic Studies agreed with the Burmese Home Minister to continue held a conference, inviting Dr Jones of Premier to to sponsor humanitarian law training for Burmese speak about the development of human rights in police during 2003 due to the progress that had Burma. Later that year, however, much of the progress already 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 the Events since Premier’s departure from Burma need for incremental reform. Although the case study After Premier left Burma in 2002, there was little ended in 2002, it demonstrates the potential for what opportunity for the company to influence human companies can achieve as conveners and catalysts of rights issues in the country. Much was accomplished institutional capacity building and change. Had between 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 could country, particularly with the Ministry for Home have aided in advancing the human rights protection Affairs.79 An indication of progress came in 2004, when capabilities of the government. 12
  13. 13. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE Case three: Judicial human rights training in Venezuela and Nigeria: The case of Statoil he Norwegian state owned oil company Statoil, in national Norway asked Statoil to officially protest the T partnership with both local and international organisations, 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 principles to 2004, resulting in what appears to have been the of fair trial according to the UN Declaration of training of all active judges in the country.82 Anne Human Rights. Kristin Sydnes, Vice-President for national risk and According to Ms Sydnes, because many human rights in Statoil at the time, said that their Norwegians see Statoil as an arm of the state, they efforts in Venezuela were a pilot project and repre- believe it can and should influence social conditions sented “a new model for collaboration between in other countries.90 Statoil states on its website that industry, the UN, Amnesty and the authorities” from it thinks businesses with overt and significant ethics which Statoil hoped to draw lessons for future practices should be present in nations with troubled activities.83 They also funded a similar programme in Nigeria from 2002 to 2006, partnering with a Nigerian legal rights NGO to train Shari’a judges in human rights theory and practice. Rationale for involvement Statoil, considered a CSR leader by many, officially incorporated respect for human rights into its state- ment of values in 2003.84 The company is a founding member of the Business Leaders Initiative on Human Rights (BLIHR), and executives and employees have undergone human rights training themselves.85 This commitment to human rights was one of the human rights situations. By doing so, says Statoil, the underlying reasons for Statoil’s initiation of the company can then show their commitment to human programme, along with its desire to help foster a rights and make a practical, positive contribution to more 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 the Programme (UNDP), Statoil began the Venezuela right kind of talent to work for it and build a good project 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 undertaking covered human rights issues. UNDP suggested that such activities so as not to exceed their legitimate role the company work with a national chapter of vis a vis the governments in those countries. Amnesty International to provide training for judges in human rights.87 At the time, the government, Practical steps in Venezuela which remains the current administration, was The judges and public defenders training scheme in seeking to reform Venezuela’s legal system. According Venezuela was officially a UNDP initiative funded by to a 1998 survey, less than one percent of Venezue- Statoil Venezuela, with the heavy involvement of the lans had confidence in the legal system, compared local Amnesty International chapter and the with some 28 and 29 percent for the church and Venezuelan state agency responsible for appointing private 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 parties undertake these projects is obviously the context of involved, preparations began for the first phase of a the individual countries. Oil companies in Nigeria, training programme involving twenty-four specially for example, faced attacks for doing business under selected experienced judges. The week-long intensive the pre-1999 military dictatorship and for operating workshop was led by specialists in international law CSR policies that were merely a “sticking plaster” to and covered humanitarian law and regulations as well the 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 newly Shari’a court because she had a child born out of qualified judges traveled around Venezuela to pass on wedlock. Amid international outrage, Amnesty Inter- what they had learned. This phase covered judges and 13
  14. 14. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE public 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 and in the east – where Statoil’s business ventures are expertise throughout the system. By 2005 the located. In late 1999, the total budget for the first two programme was formally completed, and Statoil’s phases 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 BLIHR training was completed. In 2000 the project was and their local work with factories.95 temporarily suspended while the Venezuelan govern- ment embarked on a comprehensive review of its Figure 3: Three phases of Statoil’s judicial human legal system. Once this was reviewed and changes rights training in Venezuela implemented, the programme was restarted in December of that year. As a result of the reforms, Phase (date) Outcome hundreds of judges and public prosecutors either retired 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 the new 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, national position and eager to continue (a tribute to the high legislation, and practical examples of standards 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 in initiative “appears to be one of the few long running their judgments. examples of co-operation between an international organisation, an NGO, a government authority and a Drawing on logistical help from the company”. After a positive evaluation of the pilot Judicial Council, the 24 newly trained phase by an independent party, the third stage of the Two (2002) judges share their human rights training programme was completed by the end of knowledge with over 60 more judges 2004. It was able to reach the rest of Venezuela’s in Anzuatagui and Zulia. active judges – including those outside Statoil’s areas of operation – as well as other officials, such as social Training provided for 1,200 judges workers, 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 human rights 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 thorough the 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, Statoil commitments contained in the new constitution into decided to provide support to the work of the Legal operational reality” and underscored the seriousness Defense and Assistance Project (LEDAP), a Nigerian of 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 GOVERNANCE northern states and representing 19 percent of overall business ventures in Venezuela by creating a Nigerian Shari’a judges attended training run by more stable operational environment. LEDAP. The Shari’a system contains provisions for acts – such as flogging and stoning – that are clearly Figure 4: Overall lessons learned from the judicial against human rights norms and the prohibitions on training in Venezuela torture contained in treaties that Nigeria has ratified.97 LEDAP’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 effective of basic human rights principles and women’s rights implementation. as 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 neutral initial evaluations carried out by LEDAP, the partici- intermediary between governments, civil society pating judges indicated that the material they learned and the private sector can provide legitimacy for was directly applicable to their daily work.99 Although projects that strengthen governance and build state Statoil is no longer funding the project, it is still in institutions. operation, along with LEDAP’s other legal and civil society human rights training programmes. A forth- • Partnership projects that ‘train trainers’ enhance coming full evaluation hopes to gauge the overall sustainability and can achieve significant results impact on the Shari’a administration.100 with relatively small financial resources. The value of partnerships in institutional capacity • Partnerships based on diverse organisations require building a personal commitment to encourage continuous Relationships 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: Building for these programmes proved key in their success. Partnerships for Development” p44-46 Fernando Fernandez, Amnesty International’s repre- sentative for the Venezuela project, says that from their perspective the project was so far a success, but Conclusions from the case he warns that “NGOs working with oil companies in Although Statoil’s involvement with both cases is the 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 encourage Nigeria was the first that either partner knew of Statoil to conclude that it was furthering human between an oil company and an NGO in the country, rights promotion and protection by strengthening and they took great care to make sure that the fit was institutions in Venezuela and Nigeria.104 Statoil also right 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 these ment agency was also important in facilitating countries generally.105 discourse 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-stakeholder into operational reality and its role as intermediary structure and the efficiency with which they were was critical to establishing and maintaining the carried out. The fact that Statoil is a state owned (and integrity and independence needed in a project non-American), rather than a private company may dealing with sensitive human rights issues.102 The have helped its cause in working with the blessing of government 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 The macy beyond what could have been achieved by the partnership was also noteworthy for the relatively company 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” model UN was also critical to Statoil, which was keen to as well as its non traditional approach to corporate secure its investment in the project as well as its responsibility. 15
  16. 16. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE Case four: Economic capacity building in Azerbaijan: The case of BP P’s substantial business investment in the Caspian Despite this rapid growth, the general economy B region represents a significant opportunity to positively 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 as in a wide range of activities in and around the Baku- the government increases expenditures ahead of the Tbilisi-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 the foster stability and growth. They are funding human current and future stability of the country if it wants rights 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 consider sion 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.114 This report will only focus on BP’s work within CDAP was set up by BP as a panel of international Azerbaijan, and specifically on its economic capacity experts tasked to provide public reports on its views building work. of BP’s approach to the region in terms of socio- economic and political impacts during the Political and economic background construction phase of the project.115 This is the first Azerbaijan, once Europe's 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 with amid separatist violence in one of its main regions. The which BP has empowered the panel.116 The CDAP has current President is Ilham Aliyev, the son of the former pointed out that development of non-energy areas of President Heydar Aliyev. Both the presidential elections the economy will be extremely important for of 2003 and the parliamentary elections of 2005 were Azerbaijan in the long term to help it avoid the worst marred by accusations of intimidation and vote rigging, impacts of what is known as the ‘oil curse’, whereby and corruption is perceived as a major problem over-dependence on oil income distorts the economy throughout 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 economic in extracting Azerbaijan's oil and gas reserves. In 1994, capacity in Azerbaijan Azerbaijan signed an oil deal worth $7.4bn with a One of the CDAP’s biggest concerns is how the oil Western consortium of companies led by BP. Since oil income generated by BP for the government is spent began flowing through the Baku-Tbilisi-Ceyhan (BTC) by Azerbaijan and the company’s ability to influence pipeline – 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 to product 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 to economy in the world for the second year running. governments or state oil funds.118 The panel suggested The 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 GOVERNANCE how their vastly increased revenues are being spent, create that capacity by the project’s end so that Azeris using 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 also expenditures”.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 involved dialogue with the government on encouraging in an informal advisory group, created by the UK and revenue transparency, but was at pains to point out US ambassadors in Azerbaijan, that discussed ways of that there are “quite properly”, limits as to how much improving revenue management by the govern- a company can influence government decisions on ment.127 how to best manage revenues from oil.120 The To further support objective research on best company stresses that the biggest impact they can practice in the management of resource revenues, BP have in combating corruption will result from rigidly has endowed $14m for the BP Chair in Economics at enforcing their own corporate governance and the University of Oxford. This person will serve as the encouraging high standards in its enterprise develop- director of the recently launched Oxford Centre for ment work with the local and national private the Analysis of Resource-Rich Economies. Former BP sector.121 BP is also engaging with civil society groups Chief Executive Lord Browne explained at the Centre’s and media to enhance their finance and revenue opening that: “Its role is grounded in the legitimacy management knowledge in order to improve outside which comes with academic independence.”128 monitoring capability in those sectors.122 BP has also taken measures to directly enhance the Conclusions from the case economic planning and management capacity of the As with the case of Business Action for Africa, BP’s government 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 to and treasury officials in Azerbaijan.123 The first economic capacity building and lobbying for greater workshop lasted two days and centred on discussion participation in EITI is in its early stages, and it will of the experiences of other resource-rich countries take some years before it becomes clear just how in handling increased income from natural resources. It featured former ministers from other countries, consultants in resource economics, and the former head of a petroleum directorate. Its aim was to impart the knowledge gained from these countries’ experi- ences without dictating a course of action for Azerbaijan.124 The second workshop discussed the role of economic modelling in policy making and was led by specialist experts from Oxford, Dundee and Sussex universities. As with the previous cases, BP did not directly conduct this training but acted as a catalyst for their creation and covered logistical costs. Additionally, BP supported work by Oxford 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 company economy. By 2007 this model had been completed in a powerful position, as BP acknowledges it is in and 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 Transparency and update the model as the economy develops.125 International, describes BP’s work in Azerbaijan as The country does not currently have the human “ground breaking” and the company as “one of the capacity needed to engage in this type of large scale leaders” in the field of working with developing planning and modelling exercise, but the goal is to country governments in a constructive way. 129 17
  18. 18. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE Trends observed from cases and literature hese case studies are based on published sources undertaking the capacity building activities T reinforced by selected interviews, rather than on detailed fieldwork. The authors would strongly themselves, companies are able to use their extensive local and international contacts to drive action. The advocate 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 to progress’, these cases collectively demonstrate that undertake decisions and apply resources quickly. corporate contributions to institutional capacity Company networks on the ground do not necessarily building, 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 the problems within government institutions. As cases that civil society involvement in institutional mentioned 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 thorough often have limited impact on communities and often survey of emerging practices beyond the cases do 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 worth corporate engagement in capacity building is likely mentioning for the trends they identify. The Oxford to be more beneficial to shareholders in the long Policy Institute conducted a series of workshops in term, if done wisely. 2006 examining “corporate investments in public Motivations for involvement vary significantly, but capabilities” specifically in extractive industries.130 in each case, a company or group of companies They find that most companies involved in large scale decided 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 project governments. These issues – customs reform, but that this investment is usually a by-product of economic planning capacity, human rights knowledge other corporate objectives rather than a separately – were generally accepted as developmental articulated policy. They find that the motivation often challenges in the host countries. Even so, each initia- lies in protecting their investments from the effects of tive 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 other that the government is persuaded to engage on a reasons. The extent and type of investment is also trial basis. “greatly influenced by the character, experiences, and In each of the case studies, the companies involved interests of their senior managers and directors” as are (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 the reason for its success. Because of the financial risk EITI, the Voluntary Principles on Business and associated with operations in certain countries, Human Rights, or the Kimberley Process are also companies have ongoing budgets to spend on helping concerned with correcting weak governance, though secure 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 civil resources 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 or and sudden policy changes. In the cases of BAFICAA, industry. A report published in early 2007,131 looks at Statoil and Premier Oil, the initiatives began on a very the effectiveness to date of MSIs in the oil and gas small scale, with low risks of time and engagement sector and outlines components that are necessary for for the governments and companies, before expan- success. In the initial formation stage, they argue that sion was considered. In the case of BAFICAA, the first six components are necessary: “(i) a clearly stated companies involved used their experience and initial problem (ii) a commitment for change and a clearly success to persuade other companies that this was an stated mission (iii) strong political leadership (iv) the area in which engagement with government could added value of another initiative and a clear time be 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 and the companies in each country and how the initia- space for trust to be built amongst participants and tives are managed. Although they are not often effective dialogue to grow.” 18
  19. 19. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE Practical implementation issues raised by the changing role of business espite the momentum and potential observed In addition to making transparency and a clear D from this new role for companies, everyone close to these cases admits that there are major division of responsibilities and expectations of central importance, there might also be ways to structure questions to be addressed, both in implementation programmes from the outset that protect against and in the underlying legitimacy of such involve- potential abuse by either party. Patricia Feeney at ment. Turning first to practical implementation RAID suggests that single-company initiatives may issues, 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 a to 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 independent challenging undertaking. body to do capacity building work on their behalf, Even sceptics, however, see the potential for insti- might also be a possible solution. Corporate tutional capacity building work involving companies. foundations also face questions about their Patricia Feeney at RAID admits that she can see a independence, however. John Ruggie suggests that a strong 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, is influence that companies have in regions where they one of the very reasons companies are involved in the operate. NGOs have been pressuring companies to first place. If they are present and have the resources take more responsibility with respect to human rights to help, it is difficult to argue against actions that abuses for some time, and this is one way in which could possibly strengthen legitimate actors’ ability to they can do so. How precisely they should engage in perform their rightful roles. order to avoid conflicts of interest and achieve lasting improvements is just starting to be addressed by Monitoring, reporting, and transparency practitioners and academics. Companies have arguably engaged in informal capacity building activities for some time, but Conflicts of interest modern interpretations of corporate responsibility In all four cases covered here, the companies had now require that these activities be monitored and vested financial interests that at least in part drove made public. Exactly how this should be done has yet their involvement. This was not merely the action of to be legally agreed upon, however. Arvind Ganesan disinterested or independent parties. Thus, the possi- of Human Rights Watch notes that there does not bility exists that the programmes they facilitated currently seem to be a great deal of communication might 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 are. company. 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 the that it did, or that any intention to do so existed, but discretion of each company what they choose to the implications of such conflicts need to be consid- disclose and which projects they highlight over ered if institutional capacity building is to form part others. Managers may feel that they stand to lose by of corporate responsibility strategies more frequently. putting more information than necessary in the 19
  20. 20. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE public domain. By keeping sensitive or potentially that while partnering with development agencies controversial information to themselves, companies and governments is central in increasing legitimacy can move more quickly, avoiding the intransigence of for companies involved in capacity building, it must official 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. Potential were agreed upon, measuring outcomes in non- non-corporate partners need to be aware of the financial areas is always problematic. Institutional competitive advantage the company will derive from capacity is inherently difficult to quantify. This is the alliance and how the programme will affect their exacerbated by the fact that companies’ time own reputation and capabilities. Some larger horizons are often quite short term, while public agencies have safeguards in place to ensure that they capacity building is a slow and incremental process. enter into fair and equal partnerships, but smaller Furthermore, Virginia Haufler questions whether a organisations may be more easily co-opted. Exactly focus on outcomes or processes is most appro- how this harmony is achieved can be difficult, and priate.134 Ultimately, improvements in institutions are Jane Nelson and Ira Jackson note that “successful determined by a variety of factors outside the control alliances require a difficult balance of idealism and of 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 is altogether? affected when civil society involvement is not feasible or practical, such as with the BAFICAA case. Managing partnerships In some of the cases covered here, partnerships featured more prominently than in others. However, it is increasingly obvious that companies are part of what Jane Nelson and Ira Jackson term ‘relationship networks’ that include many different private and public actors.135 Managing these relationships is central to ensuring that the benefits of engaging in institutional capacity building are worth the costs. In practice, Arvind Ganesan of Human Rights Watch notes that development work tends to take place in ‘silos’. Different agencies and actors do not consider the broader perspective and often end up In this instance, the topic was highly specialist and with overlapping, competing, or contradictory not within the remit of any local or international approaches. The capacity building contributions by NGOs. Companies should be aware that in these business will be unlikely to have much impact if cases that they may be asked to justify this absence they do not align with the strategies and efforts of and prove that they acted in the best interest of host the 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 of alliances 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, great goals for the programme, a detailed understanding emphasis was placed on the inclusiveness of the of each partner’s responsibilities, and the bench- national BAFICAA task forces. marks by which progress will be measured. Jennifer Zerk of CSR Vision suggests that signing a Building institutional capacity effectively ‘memorandum of understanding’ or similar Development practitioners admit that there are no document seems like it would be necessary in order easy solutions for improving a government’s ability to clarify expectations and responsibilities to protect to function effectively and in the best interest of its each actor in case a problem arises with the citizens. Patricia Feeney at RAID notes that even if partnership. programmes are reasonably well intentioned and Sune Thorsen, Director of Lawhouse.dk and well-executed, the question still remains of how to expert in legal corporate responsibility issues, notes actually build capacity and fast track governance in 20
  21. 21. CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE countries where is has not already taken root. usually experts in development and institution Furthermore, it is important that that capacity building. Involving the right mix of local and building work by outside actors does not undermine expatriate staff is another challenge to creating and the 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 to tioning skills over to the government, paving the way approach capacity building with the same rigour that for the exit of the company and the organic growth they do core business functions. This includes of institutions. getting commitment at the top, setting clear targets It is also important to recognise that the relative and metrics, reporting publicly on progress, and power of each player will shape outcomes and that committing to learning and adaptation.137 this power will evolve throughout the life of a In addition to the previously mentioned problem project. As previously noted, a company that repre- with measuring outcomes, another tricky situation sents a large portion of a region’s economy is likely companies may face is what to do when there is to generate more co-operation and buy-in from ‘backsliding’. In the Burma case, the government was governments. During boom economic periods, clearly not as serious about human rights as Premier however, host countries may be less receptive to ‘soft’ would have liked, but does this mean the programme investment, seeking instead to capture as much should have been discontinued? At what point does financial rent as possible.136 This potential evolution it harm the company’s reputation to be associated of 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 the competing strategic priorities, and the longer term external pressures for companies to invest in the public nature of these investments make it difficult to sector capabilities, their success relies on the responses approach them systematically, as does lack of appro- of the host countries. Those in turn depend on how priate capacity. Even if the actual training is closely the objectives and interests of the government conducted by outside experts, companies and their in power are aligned with maximising the wealth and employees who are facilitating the work are not welfare of the nation at large over the long term.”138 21

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