Sample Master Thesis


This sample master thesis is on the discipline of Management, and the thematic focus is corporate social responsibility with a case study of international oil investment in Iraq. The 48-page document might offer valuable insights into ways of carrying our Master-level research and how to define a research problem and generate findings based on elaborate empirical data collection and analysis methodologies.


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Title: CSR and international oil investment in Iraq: What should and what can be done

Abstract

Multinational oil companies (MOCs) usually face a major challenge of promoting legitimacy of their operations in foreign countries. One of the ways through which they seek this legitimacy is corporate social responsibility (CSR). In social responsibility activities, the core areas of focus include social action, environment, and employee welfare. In the present study, focus is on social action. This paper assesses the CSR performance of MOCs in the Rumaila oil field in Iraq specifically in terms of social action projects, initiatives, and programs.

The findings of this study indicate that no universal standards of governing choice of social action projects in Iraq. The situation in Iraq resembles that of other oil-rich developing countries such as Nigeria, Azerbaijan, Ethiopia, and Sudan as far as choice of CSR projects and the perceptions of local communities towards MOCs and IOCs are concerned. The micro-level approach to social action programs by MOCs operating in Iraq is greatly informed by the need to reduce the high business risk associated by problems of political instability, imprudent use of revenue, and war. There is a need for further research on the CSR initiatives being undertaken by MOCs in Iraq. This research will contribute to a creation of accepted best-practice standards that enable oil companies choose CSR programs that impact positively on local communities, thereby leading to sustainable production and economic prosperity.

 

Contents

Abstract 2

Chapter 1: Introduction. 5

Background to the study. 5

Aim and Objectives. 8

Aims. 8

Objectives. 8

Chapter 2: Literature review.. 10

Explaining CSR. 10

Social elements of CSR. 11

Micro and macro levels of CSR. 12

Practices underpinning social responsibility. 14

CSR in Iraq. 17

How oil companies identify local needs. 19

MNOs’ choice, selection, and implementation of micro-level social responsibility projects. 20

Lundin Petroleum’s choice of CSR projects in Ethiopia and Sudan. 25

Shell’s choice of micro-level CSR projects in Nigeria. 26

Determining CSR actions in Azerbaijan. 28

Legislative and regulatory considerations in choice of social responsibility projects. 31

Chapter 3: Research methodology. 34

Introduction. 34

Data collection methods used: Reasons of use and limitations. 34

Qualitative methods. 34

Quantitative methods. 38

Justification of methodology used. 39

Data analysis tools and methods: Reasons of use, limitations, and justification. 40

Chapter 4: Results and discussion: 2500 words. 42

Overview of MOCs’ approach to social responsibility issues. 42

ROO’s procedure for choosing social action projects. 43

Mechanisms for identifying local community needs and expectations in Rumaila. 44

ROO’s efforts towards implementation of social projects. 45

ROO’s social actions targeting villages in Northern Rumaila. 45

Interaction between oil companies operating in the Rumaila oil field and society. 46

Aspects of organization hierarchy in Rumaila: Relations between MOCs and various entities in social action projects. 50

Perceptions of social responsibility projects within Rumaila. 52

Challenges encountered during project implementation process. 53

Findings and conclusions. 54

Appendices. 69

Chapter 1: Introduction

Background to the study

Iraq is one of the richest developing countries in terms of oil wealth. According to the BP Statistical Review of World Energy of June 2013, Iraq’s is endowed with estimated reserves of 150 billion barrels. This puts the country in the fifth place in terms of oil reserves. This puts the country in very important place in the global oil industry, especially considering today’s steady  increase in the global demand for energy.

Politically, Iraq suffered a long period of regional war and sanctions, which extended from early 1980s until 2003 when a U.S.-led invasion ousted the regime of Saddam Husain (Evuleocha, 2005). Saddam’s regime was replaced with a democratic that was more acceptable to the Iraqi community as well as regional and international community. Similarly, the Iraqi economy has been operating in a social environment characterized by operational difficulties as well as lack of recourses and support. A massive proportion of the country’s resources were being directed to military support and defense capabilities of the country. This led to decades of economic neglect, lack of growth in the country’s GDP, and economic instability. This resulted in a negative impact on oil production, which support’s 95 percent of the Iraqi national budget (Salaheddin, 2013).

In 2003, a chain of change started unfolding in Iraq in all aspects of life. The country’s economic and market conditions started improving. Legislative developments also started taking shape, forming the foundation of a modern and up-to-date legal base. These urgent improvements were required to support proposed journey of the country’s development aimed at creating a prosperous future. Unfortunately, the flame of internal civil conflict emerged to make scene more complicated to the entire nation and more difficult for improving the intended economic and internal governance landscape.

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In 2007, the Iraqi parliament approved a draft for the new oil and gas law, which allows international oil and gas companies to participate and invest in the Iraqi oil industry through the development of oil fields and production operations (Shafiq, 2013). Many international oil companies (MOCs) demonstrated their interest in joining Iraq oil industry and investing in Iraq. They were aware of the projected growth in production capacity of Iraq from about 3.5 million barrels a day to a capacity of 4.5 million barrels by the end of 2014 (Yahoo News, 12 June 2013). For these MOCs, investment in the Iraqi oil and gas industry is aimed at securing a better market position internationally. This desire is driven future expectations of huge profits that will benefit both the companies involved and the country.

Iraq is a developing country with serious socio-economic problems that are reflected in the recent history of conflicts and economic decline. For MOCs to achieve the goal of sustainability in their business activities, they are compelled by circumstances to engage in corporate social sustainability (Eweje, 2007, Gulbrandsen & Moe, 2007). They are forced by circumstances to engage in social action in cooperation with government agencies, international organizations, and non-governmental organizations (Smith, 2012).

Because of their large economies of scale, MOCs are able to contribute immensely to a wide range of social and environmental problems being encountered by local people in Iraq (Smith, 2012). This potential tends to trigger a pile-up of pressure from different groups and commentators, particularly those who are concerned about social action (Anderson &  Bieniaszewska, 2005, Kotler & Lee, 2005, García-Rodríguez et al, 2013). In engaging in CSR, one of the greatest challenges that the MOCs face is that of choosing the right initiatives to demonstrate commitment as well as positively participate in and maintain the environmental and social tapestry of the host community.

According to the World Business Council for Sustainable Development (WBCSD), corporate initiatives of social involvement are defined as “a broad range of activities, including community assistance programs that support educational needs; foster a shared vision of a corporation’s role in the community; ensure community health and safety; and enable employees to do voluntary work within the local community”.

The oil companies are also faced with the need to adopt proper evaluation mechanisms to assess the impact of social and environmental initiatives on the community as well as the local and the international authorities in order to ensure suitability of the CSR policies (Kotler & Lee, 2005; Blowfield & Murra, 2011). This way, the companies can avoid catastrophic feedback from local communities and national governments.

MOCs, and indeed other corporate entities operating in the oil industry, are expected to be more socially conscious with wider-reaching initiatives that can go beyond environmental and ethical issues. The existence of such international companies in unstable and politically volatile regions normally attracts attention from local and international media. They also draw the attention of many local and international non-governmental organizations. These entities actively evaluate the CSR performance of the companies in these regions mainly in terms of social action (Gulbrandsen & Moe, 2007).

 

Aim and Objectives

Aims

This dissertation sets out to:

  1. Examine the CSR actions and plans being rolled out by MOCs and IOCs operating in the Iraqi oil industry.
  2. Evaluating the ability of MOCs and IOCs to maintain a sustainable model that leads to profitability, economic prosperity, and positive social outcomes.
  3. To understand the nature of social action being undertaken by MOCs by examining the extent to which multinational oil companies have been successful in their social responsibility efforts in their newly launched operations in Iraq.
  4. To address the impact of various external factors and complications that influence MOCs’ social initiatives, including Iraq’s legislative framework and infrastructure both locally and nationally, with the aim of comparing what the companies really do and what they can do.
  5. To assess the mechanisms that MOCs use to address society issues as part of their CSR strategies.
  6. To evaluate the effectiveness of micro-level CSR strategies that the MOCs use to promote social action and gain legitimacy in their business operations in Iraq.
  7. To investigate the MOCs’ social initiatives in Iraq in terms of planning, execution and organizational implications.

 

Objectives

The objectives of this study include:

  1. To explore the effectiveness of multinational oil companies’ approach to social responsibility within the new operational and social structure in Iraq by focusing on the CSR activities of BP and CNPC/Petro China in Rumaila oil field at Basra state.
  2. To determine how multinational oil companies work with local communities to understand social needs
  3. to evaluate the ways in which the companies select projects aimed at creating positive social impact
  4. To determine how closely these social-action projects meet local needs.
  5. To contribute to literature on CSR in the Iraqi oil industry.
  6. To emphasize the important role of MOCs and IOCs in adopting CSR in the Iraqi oil industry.
  7. To identify ways of bridging the gap between what is being done and what can be done in the social aspect of corporate social responsibility in the Iraqi oil industry.

 

Chapter 2: Literature review

Explaining CSR

Corporate social responsibility (CSR) is one of the most critical factors to consider when analyzing the success of the oil industry in a country. The nature of this industry demands special emphasis on ensuring that all activities relating to the production process are undertaken in a socially responsible manner. Conversely, the most successful oil companies are those that have managed to integrate CSR into their overall business strategy. Such companies are normally keen to ensure that their activities in new cultures and territories are not met with hostility from local communities because of their negative social impact.

To prevent the tendency by some multinational oil corporations to impact negatively on society in the course of their operations, governments have come up with strict regulations that need to be adhered to before a license can be awarded. In many cases, the extent to which these regulations focus on social factors varies from one country to the other. Anderson & Bieniaszewska (2005) point out that in some countries, CSR issues always take center stage once the technical capacity and operational performance of an oil company has been verified.

CSR means the same thing for the oil industry as for all other industries. It encompasses all corporate initiatives aimed at assessing and taking responsibility for the impact of the company on social welfare and environment. This term is conventionally used to refer to company efforts that extend beyond the requirements imposed by regulators and environmental protection groups.

Social elements of CSR

Companies tend to wield a lot of power both within the national economy and in the context of local communities. They tend to own many assets that they use to undertake various investments. The level of endowment for these companies creates a phenomenon in which they can afford to undertake socially conscious investments. Although some oil companies simply feign interest in CSR, many others have been devoting a lot of their money and time to programs aimed at promoting sustainability programs. They have been engaging in numerous social welfare initiatives aimed at benefiting customers, employees, and local communities.

For a long time, oil companies have been using CSR as a tool for gaining legitimacy in society (Du & Vieira, 2012). Du & Vieira (2012) found out that in all the six oil companies whose CSR activities they analyzed, efforts were being made to promote cross-sector partnerships as well as address the needs of all stakeholders. These companies were also found to be relying on multimedia technologies and social media platforms to enhance the accessibility of CSR information.

According to Stanaland, Lwin, & Murphy (2011), the manner in which the activities of MOCs are perceived tends to vary from one local community to the other. For instance, developed and developing countries tend to have different priorities in terms of social needs. Social actions that are frowned upon in the developed world may easily be tolerated in some developing countries (Stanaland, Lwin, & Murphy, 2011). In this regard, differences may emerge regarding the way MOCs choose CSR projects targeted at developing and developed countries.

Idemudia (2007) argues that most MOCs based in developing countries operate in a social environment where a long-standing tradition of strict expectations from society is lacking. According to Idemudia (2007), there is a disjuncture between global expectations and local priorities in developing countries as far as CSR is concerned. In Idemudia’s, (2007) view, this disjuncture is attributed to the fact that northern actors and their agents are largely the ones driving the CSR agenda. This means that the CSR activities being undertaken by most Western oil corporations in the developing world are a reflection of the concerns and priorities of Western societies.

Micro and macro levels of CSR

In the micro-level perspective of CSR, oil companies engage in activities such as the construction of individual hospitals and schools. In many oil-rich countries whose governments are unstable and undemocratic, the micro-level perspective has been identified as one of the antecedents of the so-called “resource curse”. In this curse, increase in the income of the state because of oil exploitation does not do much in helping avert violent conflict and negative social development. In efforts to deal with curse, a trend has emerged whereby oil corporations are expected to shift from micro-level CSR to macro-level CSR.

In macro-level CSR, the objective is to ensure that oil companies contribute to the socioeconomic development of the communities where they operate. For macro-level CSR to succeed, oil companies are compelled to address highly sensitive issues of oil revenue spending, corruption, social inequality, and lack of transparency in governance. However, many multinational corporations are reluctant to address these issues for fear that they may upset the governments that have given them permission to conduct business in the country. Such companies are forced by circumstances to stick to micro-level CSR.

In micro-level CSR, individual corporations put efforts to invest in various projects that are of benefit to the regions in which they operate. In contrast, the macro-level CSR looks at development from a holistic point of view. At this level, the participation of multiple actors such as consumers, governments, employees, and nongovernmental organizations is critical to success in achieving the goals of development. Moreover, in this approach, it is necessary for competing companies to join hands for the sake of actualizing the dream of development in the regions in which they operate.

One of the countries where the shift from micro-level to macro-level CSR is taking shape is Nigeria (Frynas, 2005). Recently, Shell Petroleum Development Company (SPDC), Shell’s Nigerian affiliate, reorganized its corporate social responsibility unit by renaming it Sustainable Community Development unit (Frynas, 2005). The new unit puts emphasis on long-term perspective and sustainability for all its community development projects. Since then, the company has gradually been moving away from infrastructure projects such as schools and hospitals towards more promising projects, for example micro-credit schemes (Frynas, 2005). In this endeavor, the SPDC has been partnering with external development organizations such as USAID (United States Agency for International Development). The rationale for such partnerships arises from the fact that these organizations have greater on-the-ground expertise in the implementation of development projects.

Practices underpinning social responsibility

In CSR literature, many efforts have been made to elaborate on the practices underpinning social responsibility in business organizations. In many cases, emphasis is on both practical and theoretical aspects of such practices. In the meantime, it is evident that business organizations that trade in petroleum products continue to jump into the CSR bandwagon. For all of them, one of the stated objectives is to bring about positive social change. Theories of corporate governance, organizational justice, and varieties of capitalism are increasingly being used to explain why organizations are under pressure to undertake CSR activities. However, in engaging in corporate social responsibility, each of these organizations is driven by different relational, instrumental, and moral motives.

One of the areas where controversy arises in the oil industry is disclosure. Consequently, disclosure has been identified as one of the practices underpinning social responsibility in the industry (Haufler, 2010). Transparency is widely being viewed as one of the most viable solutions to governance-related weaknesses particularly in oil-rich developing countries. Those who support this view argue that public disclosures regarding of all payments made to governments would motivate citizens to hold these governments accountable for their social welfare and development (Haufler, 2010).

On the larger part however, the debate on CSR focuses not just on responsibility but also on rhetoric (Akpan, 2006). Rhetoric thrives because of grey areas in the existing institutional frameworks both on the part of the companies and the government. However, it is worthwhile to note that companies that truly embrace CSR are those that go beyond the laws and regulations established by the government. Meanwhile, it is unacceptable for companies to engage in rhetoric simply to be seen to be engaging in CSR activities.

Ideally, the intention of promoting the ideals of CSR is to ensure that the close link between the business organization and the social environment in which it operates is maintained (García-Rodríguez, 2012). This connotes that altruistic motives should be present on the part of the company. However, in today’s highly competitive business environment, most companies cannot afford to rely primarily on the ideals of altruism in the furtherance of their CSR goals (García-Rodríguez, 2012). Therefore, they look for ways of ensuring that CSR goals are achieved in a manner that is beneficial for the company’s long-term survival (García-Rodríguez, 2012).

Numerous questions continue to be raised regarding the extent to which multinational oil corporations are really contributing to sustainable development in their host countries through CSR activities. García-Rodríguez (2012) points out that whenever CSR projects are integrated into the business strategy, the real intention of social responsibility activities becomes even more questionable. This is simply because improvement in the social context in which the company operates may not immediately translate into a competitive advantage.

Oil companies have also been accused of using divisive tactics to trigger conflicts and to win over different segments of the population in order to secure lucrative business deals (Smith, 2012). Such weaknesses make it impossible for local communities to forge a common plan governing the way in which they should relate with foreign oil corporations. In most cases, oil companies have tended to adopt a reactive approach in their CSR strategies (Hilson, 2012). Their CSR practices are triggered by intense criticism of their operations.

For a long time, Western multinational oil corporations dominated the international oil business. However, today, Chinese  oil companies are increasingly competing with these western corporations (Pegg, 2012). This trend is driven largely by China’s growing demand for petroleum products to drive its rapidly growing economy. A major question that lingers on many people’s minds is on whether China’s companies are adopting a different approach as far as CSR practices are concerned. According to Pegg (2012), it is anticipated that Chinese oil corporations are not likely to start pushing for the promotion of democracy and respect for human rights by resource-rich countries. Pegg (2012) also argues that fears that China’s entry into the global corporate map has a negative impact on CSR has been misconceived and blown out of proportion. Arguably, such misconceptions are based on baseless assumptions regarding the true nature of CSR and what its proponents in the West have really achieved.

CSR in Iraq

For many decades, the oil-rich nation of Iraq has been struggling to overcome numerous challenges to achieve success in the exploitation of this crucial natural resource (Visser et al, 2007). Years of war, neglect, and international sanctions have seen the nation suffer serious setbacks in efforts to develop all its oil and gas reserves. Following the U.S.-led invasion of the country in 2003, many foreign oil companies were reluctant to venture into the country because of deterioration of security (Visser et al, 2007). However, since 2008, the country’s security situation has improved dramatically. The Iraq government has awarded oil and gas contracts to many international energy companies, including Total, BP, and Exxon Mobil. Since then, production has increased dramatically. In 2008, Iraq was producing 2.4 million barrels daily; today, the country produces 3.4 million barrels daily (USAToday.com, 2013).

Very few researchers have explored the issue of CSR in Iraq’s oil industry. According to Shakleman (2006), one of the main sources of information in this regard includes reports from multinational oil companies (MOCs) operating in the country. One of the MOCs that have ventured into Iraq’s Rumaila oil field is BP. In 2009, BP gained entry into the Rumaila oil field in November 2009 after entering into a technical service contract with the South Oil Company, Iraq’s state-owned corporation. The aim of this partnership was to increase the level of production from the oil field.

One of the reasons why MOCs such as BP are normally indispensable to oil-rich countries such as Iraq is that they have technical experience in oil extraction spanning many decades. BP, for instance, has far-reaching historical knowledge of the Rumaila oil field that dates back to its discovery in early 1953 (Woolfson, 2003). BP is the leading member of the Rumaila consortium with a 38 percent stake while CNPC has 37 percent stake (Woolfson, 2003). The State Oil Marketing Organization (SOMO), which is the representative of the Iraq government, owns 25 percent of the consortium whose operations have already been cemented by a 20-year contract (Abdelrehim & Maltby, 2011).

One of the issues that have been highlighted as far as CSR in Iraq oil industry is concerned is the country’s oil law. According to Jiyad (2008) the country’s oil and gas legislation has some fundamental problems that should be corrected before it is finally passed into law. Jiyad (2008) argues that the law fails to address the problems it was set out to remedy in an effective and comprehensive manner. One of the issues that the law sets out to address is sustainability. Jiyad points out that this issue has not been exhaustively been addressed in this proposed legislation, thereby rendering it dysfunctional, inadequate, and economically disadvantageous. In Jiyad’s (2008) view, the Iraq government and parliament should take into consideration popular, professional, and academic reflections before amending the law to ensure that all companies operate within a framework that enables them carry out oil exploitation activities in a sustainable manner.

How oil companies identify local needs

Different oil companies use different strategies to identify local needs. In many cases, these companies view local needs from the perspective of the “business case” (Kotler & Lee, 2005). Their actions are informed by the awareness of the fact that they are out there to do business and not deliver community development. As stated in the agency theory, managers of these companies have a responsibility to deliver value for shareholders. To do this, they must look for areas of congruence between CSR and the overall business strategy. The three areas of CSR that most companies look in the search for this congruence include employment issues, local community issues, and environmental issues. In respect of the scope of this dissertation, which focuses on micro-level CSR, the most important area is that of social issues affecting local communities. In most Western countries, these projects are labeled merely as acts of philanthropy. In contrast, oil companies operating in developing countries are widely expected to play active role in micro-level CSR.

Micro-level CSR is glorified in the developing world mainly because national governments tend to fall short in the task of delivering essential social services (Kolk & Lenfant, 2013). Consequently, multinational oil companies are expected to play a crucial role in building local capacity. Not all companies go a step further to assess the potential for these projects to spur development. For these reasons, elements of progress and sustainability in these projects are hindered by serious structural constraints.

One of the assumptions that drive CSR decisions is the view that firms should fill the gaps that global governance failures have left behind. For example, firms are currently being compelled to “do something” about community development, environment, and global warming (Ite 2004). For instance, in the recent past, BP and Exxon Mobil have been under intense pressure from nongovernmental organizations (NGOs) to make improvements on their level of social engagement (Idemudia, 2011).

The specificities of structural failures vary from one country to the other. These differences greatly inform the decisions by MOCs to adapt their overall CSR framework to the community needs of the various countries in which they operate. In the end, the companies ensure that the needs of the local people will be met in such a way that competitive advantage will be obtained, a stable working environment will be maintained, external perceptions will be managed, and employees will be kept happy (Frynas, 2010).

MNOs’ choice, selection, and implementation of micro-level social responsibility projects

Different oil companies use different approaches to address local needs. Typically, these companies respond to issues that have been highlighted by local people (Blowfield & Murray, 2011). MOCs operating in Iraq have been focusing on different CSR issues in efforts to obtain legitimacy. Some of the MOCs and MNEs operating in Iraq also happen to have operations in other developing countries where the business environment is more or less similar to that of Iraq. For example, Royal Dutch Shell and BP have established commercial operations in many developing countries. These two companies have at one point been operating in Iraq. For example, BP has since 2009 been engaging in oil development and extraction activities within the Rumaila oil field in Southern Iraq after entering into a technical service contract with SOC.

First, MOCs tend to outline guidelines or code of conduct for governing their operations in foreign countries. These guidelines comprise of elaborate statements regarding ethical and environmental behavior as well as a clear framework for charitable activities (Anderson and Bieniaszewska, 2005). For example, Royal Dutch Shell and BP provide excellent examples of MOCs that have stipulated clear guidelines for operations in foreign countries (Idemudia & Ite, 2006).

Specialist organizations in different parts of the world tend to support this approach because of the manner in which it encourages strict adherence to a standardized operational and behavioral framework. Some of these organizations tend to be based in the home countries of the MOCs. For example, the UK Offshore Operations Association (UKOOA) provides advice to UK oil corporations on the best social conduct for them to adopt across the world. In the case of BP, the underlying guiding principle is that all people at the company have a shared basic point of view that forms the basis of all human operations. From this perspective, BP has embraced the practice of outlining the same principles in all its policy statements. These policy statements are used as a starting point in the company’s efforts to operate in new countries and cultural contexts.

It is also common for MOCs to engage in the practice of carrying out in-depth assessments with the aim of examining potential areas of business operation. To do this, they start by conducting a PESTEL analysis, which involves an evaluation of the political, social, technological, environmental, and legal factors. This is normally followed by country risk assessment efforts. The MOCs carry out assessments of local areas as well as risk evaluation either on their own behalf or in cooperation with consulting NGOs and specialist organizations both locally and internationally. The objectively is normally to obtain an overview of the expectations and potentials from the local population. This information is viewed from the perspective of both insiders and outsiders (García-Rodríguez et al, 2013, Gulbrandsen & Moe, 2007).

BP, one of the leading MNOs today, is on record for stating that the so-called SLEPT  (social, legal, environmental, political, and technological) approach should be used in operations that require the company to enter new territories. Using the SLEPT approach, BP engages in a very lengthy research process of assessing country and area risk. This is followed by an assessment of the guidelines provided by the government of the host country. Once this stage has been dispensed with, the country’s social necessities are evaluated (Anderson & Bieniaszewska, 2005).

Different MOCs adopt slightly different strategies of assessing their business operations as far as CSR activities in developing countries such as Iraq are concerned. In other words, they respond to the business contexts of developing countries using different strategies. In Iraq, one of the things that the top executives of these oil corporations quickly notice is that oil is the highest revenue earner for the country. They also notice that the level of corruption is high, no efficient taxation system exists, and essential supplies for development are lacking. The same case applies in most developing countries that fall in the category of global oil producers.

Studies on developing countries with vast oil resources have shown that many MOCs and MNEs have been accused of failing to take cultural factors and historical backgrounds into consideration when addressing poverty and environment issues as well as resource conflicts (Anderson & Bieniaszewska, 2005; Blowfield & Frynas, 2005; Eweje, 2007). In these studies, focus is mostly on African countries. Some of the issues that have raised concerns in these countries include high unemployment and low levels of development. According to Eweje (2007), many African countries fear that MOCs are not doing enough to address these issues. This lack of commitment makes researchers to conclude that the positive impact of CSR efforts of oil companies in developing countries is still not supported by evidence. This has triggered criticism of failure by these companies to fail to nurture development and good governance in these countries.

The issue of selecting CSR initiatives is one that matters a lot not only to the oil companies but also to local communities. Effectiveness in the implementation of CSR initiatives is critical in ensuring that a relationship of trust is maintained between the MOCs and society (Stanaland, Lwin, & Murphy, 2011; Hillenbrand, Money, Ghobadian, 2013). To achieve this goal, a positive impact on the host community should be reflected. Failure to portray positive impacts leaves the multinational companies vulnerable to conflicts leading to a hostile operating environment.

Ordinarily, the first choice in terms of selection of initiatives is the micro level, whereby the oil companies engage in the development of local programs, particularly those relating to education and health. Alternatively, the companies select more specific projects that are a reflection of the unique challenges and realities of a specific local community. Most of these projects tend to be micro-level initiatives. Moreover, they tend to address the challenges that the oil company is in a position to address given its area of specialization. For example, BP, in collaboration with the Indonesian government, introduced the Tangguh Liquid Natural Gas project in several villages in West Papua. In these villages, the affected families had to be moved away from waterways and fields in anticipation of the commencement of new projects of extracting and transporting natural gas in 2009.

Another MOC, Exxon, has embarked on a collaborative initiative that brings together the USAID, NGOs, and local organizations in Nigeria to promote agriculture for communities affected by oil extraction activities (Smith, 2009). In this initiative, one of the greatest challenges was to bring these parties on a shared platform of contributing towards a micro-level project relating to agriculture.

Other than seeking cooperation from different parties, oil companies also face the challenge of  engaging different stakeholders in the decision-making process. Failure to involve all stakeholders may lead to a misunderstanding of the needs and expectations of the local community. Some stakeholders may fail to present their views to the companies in a proper manner, thereby creating a misunderstanding regarding the best way of adapting the companies’ CSR policies to local communities. In this case, it may be difficult for transparency between the local people, oil companies, and the international society to be established.

Nevertheless, success is often within reach for those MNOs and MNEs that are fully committed to the adoption of responsible policies that are beneficial to host communities. For example, Lundin Petroleum embarked on a successful CSR initiative in 2006 (Batruch, 2011). The company conducted responsible policies that immensely benefited local communities  (Batruch, 2011). The company embarked on a wide range of community development projects soon after acquiring exploration blocks in Ethiopia. However, before embarking on these initiatives, Lundin Petroleum carried out an assessment of the country. This was followed by meetings aimed at creating close engagement with stakeholders. Next, the company carried out social assessment in local communities where the exploration blocks were situated. Stakeholder awareness meetings were then held before the community development projects finally commenced.

Lundin Petroleum’s choice of CSR projects in Ethiopia and Sudan

However Lundin Petroleum has had to face serious allegations of complicity in activities that were contrary to the values of CSR both in Ethiopia and Sudan. For example, Lundin Petroleum was linked to conflict in Sudan. However, the company claims that no solid facts were raised, no evidence was provided, and no direct link was established between the company and the Sudan conflict. In Ethiopia, the company was also faced allegations of wrongdoings, though they were never substantiated. According to Batruch (2011), the case of Lundin Petroleum’s community projects in Ethiopia provide a good example of how an MNO can conduct responsible policies towards local communities by first inviting community leaders to awareness meetings before starting any operational activities in the host community.

Batruch (2011) argues that the accusations that were leveled against Lundin Petroleum relate to macro-level issues. In Batruch’s (2011) view, one of the reasons why these allegations tend to surface is that international organizations, civil society groups, and non-governmental organizations tend to have to high expectations regarding the impact of MNO’s CSR operations on local communities in which they operate. Leaders of these organizations and groups often hold the view that the multinational oil companies should exert broader social influence on macro-level issues such as political rights, social equality, transparency, and greater contribution to the socio-economic agendas of the developing countries in which they operate.

Shell’s choice of micro-level CSR projects in Nigeria

Shell has in recent years faced numerous challenges in the choice of CSR projects in Nigeria. Just like Lundin Petroleum, Shell suffered major setbacks in its CSR strategy following accusations of fuelling conflicts in the country. For example, in October 2011, Shell was accused of giving payments to rival militants in Nigeria, thereby fuelling violence in the country (Batruch, 2011). These accusations were contained in a report by Platform, a global oil industry watchdog and were echoed by a number of NGOs operating in the country (Batruch, 2011).

One of the regions in Nigeria that have experienced oil-related conflict throughout the first decade of the twenty first century is the Niger delta. During this decade-long conflict, Shell was accused of exacerbating local violence by making routine payments (Idemudia & Ite, 2006). One of the cases pointed out in the Platform report is one where 60 people were killed and an entire town destroyed (Idemudia & Ite, 2006). In this investigation, Shell’s own managers testified that the company hired government forces to commit atrocities against local people, including systematic torture and unlawful killings.

One of the main factors that Shell put into consideration when launching CSR projects is the expectations of local communities (Philips, 2006). The company’s managers observed that local people expected the multinational oil companies to build schools, hospitals, and other social amenities. Shell responded by sponsoring several educational programs (Eweje, 2007). The company also launched a number of donation programs aimed at assisting local people benefit gain access to quality education and healthcare. The company also started paying teachers participating in the education programs directly. Furthermore, a number of programs were launched, culminating in additional funding for the construction of classrooms, libraries, and recreational centers.

Idemudia & Ite (2006) argue that in Nigeria, Shell lacks a standard of measuring social performance. Consequently, there are no mechanisms of determining whether the projects undertaken have achieved the intended objectives. In such situations, oil companies have to rely on a case-by-case assessment of local people’s perceptions. This is a risky approach because local people may be unwilling to disclose information that may make them appear ungrateful about the assistance provided to them by the oil firms (Eweje, 2007; Rwabizambuga, 2007).

Shell was compelled to address the challenge of high expectations by embarking on projects that would form a foundation for a prosperous future for local communities (Eneh, 2011). This option was better than that of simply choosing those projects primarily intended to create the impression that the company is acting in a socially responsible manner. According to Blowfield & Frynas (2005), this was the best way in which the company was going to succeed in addressing the high expectations of the host community.

Determining CSR actions in Azerbaijan

In Azerbaijan, the CSR activities being undertaken seem to create the impression of differences between U.S. and European MNEs and MOCs. For companies like Shell, BP, and Statoil seem to be pursuing macro-level CSR initiatives in their operations in the country. This is unlike US companies such as ExxonMobil, which have demonstrated reliance on more careful policies. They seem to be limiting all their CSR initiatives and community development actions to traditional micro-level approach particularly with regard to the way they interact with local communities (Gulbrandsen & Moe, 2007).

In Azerbaijan, the role of MNEs and MOCs seems to have acquired more importance, not just in terms of financial investment, but also in terms of efforts to invest in human capital as well as the development of local capability to provide motivation for local economic development. For instance, BP, which operates the largest oil and gas fields in Azerbaijan, has been endeavoring to eliminate elements of the so-called “resource curse” that affects many oil-rich developing countries (Muttitt, 2007).

The starting point was marked by a decision by BP to admit that it had a responsibility to address the problem of resource curse in those countries that it operated. The second step comprised of efforts to ensure that oil revenue transparency was promoted in across Azerbaijan. One of the ways in which BP did this was to make public the amount of its signature bonus payments. In next step, concerted efforts were made to ensure that Azerbaijan became the first country to become a member of the Extractive Industries Transparency Initiative, which is an initiative of Former Britain Prime Minister Tony Blair (Gulbrandsen & Moe, 2007).

Next, the company designed investment programs for development at community and regional levels (Wilson, 2010). BP’s top executives hoped that these programs could provide models for all extractive industries globally. The uniqueness of these programs arises from the fact that they bring together all oil companies to form joint ventures under the leadership of BP. The programs are linked formally and directly to the business consortia as well as the production sharing agreements (PSAs) governing their operations. This way, BP is able to share political risks and costs of all CSR activities with other MOCs (Hopkins, 2007). In this case, the objective is to ensure a long-term and more stable commitment to CSR (Hopkins, 2007).

Nevertheless, despite all these efforts, all is not well in the oil industry in Azerbaijan. No significant control mechanisms have been imposed on oil revenue spending while corruption remains an endemic problem. Moreover, it is worrying that BP is doing little by way of engagement with the Azerbaijan government in terms of seeking solutions to fundamental development problems compared to the bold rhetoric that the company emphasizes on in efforts to gain good publicity (Shakleman, 2006). Like in many other developing countries, BP is careful to upset the government, which is not committed to the development of democratic institutions. These circumstances provide a powerful interplay of factors that influence the choice of CSR projects at BP.

According to Gulbrandsen & Moe (2005), the task of identifying social needs is one of the greatest challenges facing MOCs in developing countries today. To address this problem, some of the companies have resorted to CSR collaboration (Gulbrandsen & Moe, 2005). This trend is gaining popularity not only in Azerbaijan but also in the neighboring Kazakhstan. In both countries, the thesis of “paradox of plenty” seems to hold (Gulbrandsen & Moe, 2005; Skjærseth, 2009). This thesis is defined by the presence of large mineral resources that goes hand in hand with exaggerated expectations, overspending, accumulation of loans, a weak taxation system, underdevelopment, and social inequality. During the process of forming partnerships, MOCs are compelled by circumstances to put into consideration all these factors.

Although MOCs must cooperate with people from local communities, they are also forced by circumstances to join hands to reduce the risk that comes with CSR projects in poor countries (Rosenstein, 2011). These oil companies are not willing to rule out the possibility that the social development projects may be perceived negatively, leading to negative political consequences such as imposition of restriction and even expulsion.

Gulbrandsen & Moe (2005) supports the view that CSR activities carry a high risk because they touch on very sensitive social issues. Therefore, like any other business entity, an oil company would be inclined to seek ways of reducing this risk. One of them is to collaborate with other oil companies. Another option is for them to focus on micro-level development projects that do not offset the existing social structures, philosophies, and perceptions (Newell, 2007). The risk involved in Azerbaijan could be one of the reasons why BP resorted to too much rhetoric accompanied by some micro-level projects at the expense of holistic contributions to the process of expediting the underlying macro-level problems facing the country.

In some cases MOCs do not act out of their own free will as far as CSR projects are concerned (Molchanov, 2011). Rather, they adopt a reactive approach, whereby they only swing into action after local communities, NGOs, and human rights activists have raised concerns about the need for more socially responsible business operations (Molchanov, 2011). This essentially means that these companies must always be keen to understand and assess the social issues that local people are most passionate about. This would eliminate some of the ugly scenarios in the past where some multinational oil companies have been compelled to adopt more socially responsible practices following public uproar. For example, BP, the main shareholder in the Baku-Tbilisi-Ceyhan (BTC) pipeline, was compelled to adopt more socially responsible practices by NGOs, international organizations, and human rights activists during its operations in the Transcaucasian-Caspian region (Molchanov, 2011).

Legislative and regulatory considerations in choice of social responsibility projects

Legal factors greatly influence the choice of social responsibility programs by MOCs. This is evident in Iraq as well as in other countries such as Nigeria, and Azerbaijan (Frynas, 2009). Every foreign company must comply with all the laws and regulations established in the host country (Hummels, 2004). Moreover, it must uphold the ethical and moral standards that are applicable in the host community (Blowfield & Murray, 2011). In social responsibility, both businesses and society are expected to take proper moral-ethical, legal, and philanthropic actions aimed at protecting the welfare of both business and society as a while. According to Eweje (2007), all of these actions must be accomplished in the context of the economic capabilities and structures of the parties involved.

Therefore, oil companies are compelled to address the issues of legislation and moral compass of local communities when choosing social responsibility projects. The first encounter emerges when a foreign oil company applies for a license to operate in the host country. In most countries, the oil companies are required to indicate social responsibilities will fit into their business model. For example, in the Faroe Islands, MNOs are required to indicate how they will contribute to various social action programs relating to areas such as employment opportunities, environment, education and healthcare (Anderson & Bieniaszewska, 2005).

Other than laws of countries, oil companies also look out for the regulatory frameworks suggested to them by reputable agencies such as the SiRi Group, MHC International, CSR Europe, and UKOOA. Anderson & Bieniaszewska (2005) indicate that no universal CSR standards are yet to be developed. This provides a justification for multinational oil companies to seek guidance from reputable international regulatory agencies regarding the choice of social responsibility projects. However, given that most of these agencies are from the West, the MNOs risk alienating local communities in their choice of micro-level programs. In the case of Iraq, it is ideal for MNOs to take into consideration not just the expectations of local people but also Iraqi laws and advice from reputable international agencies. This way, chances of social responsibility projects being perceived positively by the local community may increase considerably.

 

Chapter 3: Research methodology

 Introduction

The methodology chosen always plays a critical role in the way research is undertaken in term of data collection, analysis, and interpretation. In this chapter, focus is on the methodology used to undertake research for the dissertation. Various data collection methods are discussed in terms of reasons of use and limitations. The chapter also discusses aspects of both qualitative and quantitative methods. A justification is then provided as far as choices relating to methodology and analysis are concerned.

Data collection methods used: Reasons of use and limitations

Qualitative methods

Data collection plays a critical role in a research study. Inaccurate methods of data collection may have a negative impact on the study. This may ultimately invalidate the results and findings of the study. The methods used to collect data in any given research study are categorized as either qualitative or quantitative. Qualitative methods of data collections play a critical role in creating a better understanding of the processes underlying the observed results. It also creates a platform through which changes in the way people perceive their wellbeing can be assessed. In the case of corporate social responsibility issues, such an approach would facilitate a better understanding of the way local communities perceive their interests vis-à-vis those of MOCs. Conversely, it would help MOCs understand the changes they should introduce in order to satisfy the development needs of local people.

One of the most dominant characteristics of qualitative research methods is that they adhere to less structured protocols. For example, interview questions tend to be both in-depth and open-ended. Moreover, researchers are allowed to change the strategy of data collection in terms of adding new techniques of analysis and refining interview questions. The researcher may also decide to look for new interviewees in case the ones he had sought to interview fail to show up on time.

Qualitative research is particularly ideal for situations where there is a need to measure the quality of initiatives in terms of effect as well as the ability to meet the needs of society. According to Taneja (2011), focus, methodologies, and paradigm keeps on changing even within the realm of qualitative research as far as CSR research is concerned. One would expect these changes to have an impact on the way quality of CSR initiatives is measured. In the past, ratings of companies in terms of how well they demonstrate social responsibility have tended to have a far-reaching impact on consumers, local people, activists, and even potential employees.

In the most widely used social responsibility ratings, past performances are used to estimate the likely future social performance levels. Oil companies that are poorly rated in terms of social performance are likely to face a hostile reception in most host countries especially in the developing world. Nevertheless, despite their growing popularity, social ratings tend not to be subjected to routine evaluations. They have also been widely criticized for being based on opaque practices. Care should therefore be taken to ensure that some oil companies are not criticized on the basis of social performance information that was not obtained in a transparent manner.

According to Arthaud-Day (2005), the ideal qualitative methodology is one that properly assesses the ability by various CSR projects to meet the needs of society. Such an approach should put into consideration universal dynamics while at the same time incorporating the adaptability and flexibility expected of international business research. This expectation continues to become increasingly popular in today’s world of globalization, leading to the emergence of the notion of corporate social citizenship. In corporate social citizenship, the expectation is for companies to put social responsibilities ahead of all basic legal and economic obligations.

Ritchie & Lewis (2003) suggests the use of self-reported disclosures as a basis for measuring the extent to which a company has successfully met the needs of society. In this approach, the researcher ought to look at internal publications of the company such as newspapers, magazines, newsletters, and annual sustainability reports. It may be particularly important for the researcher to evaluate the ways in which the company responds to criticism leveled against it by activists, local community, government authorities, consultant organizations, and NGOs. On the basis of the information obtained, the researcher can make an informed choice regarding the company’s level of commitment to social responsibilities. This is precisely the approach that this dissertation will adopt. The Akhbar Al-Rumaila, an internal newspaper produced by the ROO, will be a crucial source of information regarding various social projects undertaken in the Rumaila oil field. Through interviews, various answers will be sought from company executives, consultants, NGO representatives, and specialists regarding the ability of these social responsibility projects to meet the local people’s needs.

The iterative interview approach plays a crucial role in qualitative methods (Liamputtong, 2006). In this regard, it may be appropriate for a respondent to be interviewed many times in order to provide clarification on certain issues. By repeating the questions, researchers get a better perspective by ascertaining the reliability of data and cross-checking facts (Liamputtong, 2006). In qualitative research, the norm is for researchers to rely on multiple methods of data collection to determine whether the results obtained are authentic. Rather than generalizing their findings to a specific population, the researchers use each case study as a unique piece of evidence for use in seeking general patterns among all the studies that address the topic.

In this study, interviews constitute the main primary source of data. The researcher will interview representatives of oil companies NGOs, and various independent experts. Specifically, the interviewees will include executives of MOCs operating in the Rumaila oil field, London-based BP executives, SOC executives based in the Rumaila oil field in the city of Basra, and CNOC’s top officials based in the Rumaila oilfield. The independent experts to be interviewed include consultation companies and diplomatic commissions.

Other primary sources of data include public records, government records, newspaper articles, and articles that document original research findings. One primary source identified for use in gathering primary data for this study is the Akhbar Al-Rumaila, a newspaper published specifically for the Rumaila Operating Organization (ROO) and not for the public. Information gathered from this newspaper will serve as a crucial source of information for use in the presentation of research results and analysis of data. In other words, Akhbar Al-Rumaila is one of the internal documents to be relied upon to gather primary data for analysis and discussion. This data will be supplemented with information from secondary sources. Unlike primary sources, which demonstrate a close proximity to the phenomenon being described, secondary sources have been removed from the original source by one step. This is simply because they contain either interpretations or criticisms of primary sources.

The secondary sources that will be sought in this research study include books, critical analysis essays, empirical studies, and review articles. These sources will be accessed through the library-based approach. In this approach, current literature will be studied to review evidence as well as describe existing methods and models. These models will be reviewed in the context of the CSR practices adopted by MOCs in developing countries whose economic and operational structures are similar to those of the Iraqi oil industry.

The choice of secondary sources is critical in ensuring that the information obtained is verified for authenticity, validity, credibility, and reliability. One of the main limitation of secondary sources is that the process of searching, analyzing, and reviewing them is time-consuming. It may also be impractical for a review of all the information provided in secondary sources to be provided. In the case of the present study, it will also be important for comparisons to be made regarding the views held by top executives of different MOCs operating in Rumaila. This means that the data obtained from interviews will be accurately captured and stored for ease of retrieval and future use. At the same time, all efforts will be made to adhere to ethical principles governing research work.

Quantitative methods

The quantitative methods of data collection rely on instruments of random sampling followed by structured data collection. A key component of these methods is the persistent reliance on predetermined response categories into which diverse experiences are grouped. The results produced are easily summarized, compared, and generalized to a specified population. In quantitative research, hypotheses derived from various theories are tested. Efforts are also made to estimate the size of the phenomenon of interest. The research questions used may take a form that requires different participants to be assigned to different treatments in a random manner

Using quantitative methods, the ideal procedure for this dissertation would be for quantities of initiatives to be measured in terms of a number of variables, including number of implementations, size, cost, fund size, and size of targeted beneficiaries. Gathering information regarding each of these variables is a lengthy process, which may not be completed within the time frame allowed for the present study. Moreover, this approach may overlook numerous issues that cannot be captured in terms of quantitative aspects. Even after investing so much time and resources in data collection, the researcher may end up with a dataset that is narrow and sometimes even superficial. Moreover quantitative methods merely provide numerical descriptions instead of detailed narratives and elaborate descriptions of  phenomena from the perspective of human perception. For these reasons, the qualitative approach is chosen as the ideal methodology for collecting and analyzing data.

Justification of methodology used

In every study addressing CSR issues, many far-reaching issues need to be put into consideration. For example, the research has to be undertaken in an artificial and unnatural environment. The environment is unnatural and artificial in the sense that the researcher need not observe, tabulate, and record data on various CSR activities as they take place to gather relevant data. Most of the information is obtained through reports, mission statements, sustainability reports, newsletters, and critical analyses of CSR efforts of companies. This calls for the use of the qualitative methodology. Reliance on the quantitative methodology in such an unnatural environment may lead to the creation of a narrow dataset that may not reveal a lot about the company’s CSR activities.

As Carter (2007) points out, qualitative research methodologies are increasingly being employed in contemporary research in business and management. However, the qualitative methodology has been widely criticized for being subjective. Those who criticize this methodology on the basis of the claim of subjectivity hold the view that it is possible to conceive and explain the world using purely existential realities that exist independently of the researcher (Carter, 2007). Such a view restricts the researcher to the tangible things that can be touched, seen, and measured (Carter, 2007). Unfortunately, the world of business and management extends beyond the existential reality (Ghauri, 2004). For example, intangible business relationships, understandings, meanings, and interpretations are critical for decision-making. These relationships, understandings, and meanings are multidimensional and cannot be viewed independently of researchers, observers, respondents, and company executives.

Unlike the view held by proponents of the quantitative methodology, the qualitative researcher needs not visit the research site and act as a value-free agent to be able to gather data (Birkinshaw, 2011). Instead, he only needs to refrain from acting as a value-free agent and bring a raft of values into the research objectives, project scope design, and interpretation of results. These values may take the form of disciplinary focus, prior education, and understanding of literature. These understandings make the qualitative methodology the ideal choice for this research study.

Data analysis tools and methods: Reasons of use, limitations, and justification

The choice of the interview method supplemented with library-based analysis and evaluation of internal publications and documents within the Rumaila oil field fits in well within the realm of qualitative methodology. These sources of data collections were chosen simply because it is possible to use them in the context of qualitative research to achieve all the objectives of the dissertation. For instance, it is possible to conduct interviews with top executives of companies, NGO representatives, specialists, and CSR consultants within the time frame allocated for this study (McNulty & Zattoni, 2013). Similarly, the researcher will successfully carry out library-based research as well as the analysis of internal publications from the Rumaila oil field to obtain data for use in meeting all the research objectives.

In terms of analysis, the specific area of study is the Rumaila oil field, which is in Southern Iraq. The answers provided by executives of different companies will be analyzed to create a general perspective regarding the culture of CSR in the Rumaila oil field. The views of consultants, specialists, and NGO representatives will be compared with those of company insiders. Any similarities and inconsistencies in terms of views relating to the social impact of various CSR projects will be highlighted. Next, data obtained from library-based research will be used to map the CSR operations within the Rumaila oil field in the context of the entire Iraq oil industry as well as other oil-producing countries of the developing world with similar economic, social, and political structures. Focus will also be on those countries where companies operating in the Rumaila oil field have launched CSR projects. The reason for adopting this method of data analysis is to attempt to bridge the gap between what is actually being done in the CSR front by MNOs in Iraq and what actually should and can be done.

 

Chapter 4: Results and discussion: 2500 words

Overview of MOCs’ approach to social responsibility issues

The most candidly presented information regarding the approach used by MOCs to address social responsibility issues was accessed mainly through interviews, and to a certain extent Akhbar Al-Rumaila, an internal newspaper published within the Rumaila oil field. One of the interviewees was Tony, Deputy Department Manager at ROO. The other interviewee was Hassan Al-Mudhaffar, the Community Relationship Officer at ROO. Both Tony and Hassan work in the Cummunity & External Affairs (C&EA) Department.

Tony held the view that the way companies behave in their home countries differs from the way they behave in foreign countries. In the international environment, the companies are bound by international standards. Regarding CSR, Tony identified three types of behavior, which varied pending on strength of governance structures aimed at supporting local communities, the level of awareness by local and national governments, and how these governments respond to the needs o the people through service delivery. In the first type, CSR activities are restricted to efforts to comply with local law. In this behavior, companies do not engage in health, educational, and infrastructural projects.

In the second type of behavior, companies practice social actions in countries and localities in which they operate. These actions are guided by either license requirements or as part of the service contracts. The third type of CSR behavior occurs in areas where the level of risk is high. Tony gives the example of the operational environment of ROO in Iraq. This is a high-risk area where priority is on social actions that maintain good relations with the host community. The objective is to secure a stable and safe area of business operation.

Tony discussed the challenges faced by ROO in creating a safe and secure business zone in Rumaila at length. Some of these challenges include corruption in government and discrimination against people leaving near the Rumaila oil field. To deal with these challenges, ROO prioritizes on risk mitigation through avoidance of conflict with the host community, securing of safe operations, and promoting adherence to the terms of the Technical Service Contract (TSC) sighed between SOC and BP/PC (Akhbar Al-Rumaila, July 2012). However, according to Tony, a major problem with the TSC of 2009 is that the cost recovery procedure creates no room for recovery of costs directed to social actions.

According to Tony, international standards are always adhered to in the management and implementation of CSR projects at ROO. Some of these standards include IFRS (International Financial Reporting Standards), UN guidelines on human rights, regulations of the International Oil and Gas Association, OECD guidelines, ROO Management System (RMS), and BP Operation Management System (OMS) (Akhbar Al-Rumaila, April 2013).

ROO’s procedure for choosing social action projects

The first step was to establish contact with local communities living close to the Rumaila oil field. Tony pointed out that many parties were opposed to ROO’s involvement with local communities. They argued that it was none of ROO’s business or the oil industry to address social action. Another obstacle was that the TSC did not cover for cost recovery upon completion of social action projects. Moreover, ROO is not mandated to undertake any actions on behalf of the Iraqi state. Another major challenge was that the level of ignorance among local communities is high, thereby making it difficult to communicate with them and to make them appreciate the efforts the company was making. Nevertheless, these obstacles did not prevent the C&EA department at ROO to contact local communities. The company lowered its expectations to avoid major setbacks. After facing rejection many times, ROO finally succeed in reaching points of cooperation with local people.

Mechanisms for identifying local community needs and expectations in Rumaila

            ROO has no specific mechanisms or tools for communicating with local communities or identifying their social needs (Akhbar Al–Rumaila, October 2012). The company does not rely on third-party local or international organizations for any assessments of the local social needs. Instead direct assessment is normally carried out by the company’s community relationship officers. Each of these officers is assigned a specific segment of the community, where he or she focuses on the identification of various drivers of business risk mitigation. Using this information, ROO is able to understand the social need of the communities. Tony emphasized that ROO focuses a lot on respect for local people in efforts to meet their expectations as far as social needs are concerned.

In the partnership between BP Iraq and PetroChina, both companies teamed up with the leaders and staff of Iraqi Ministry of Oil (MoO) and Southern Oil Company (SOC) in the process of undertaking an assessment on gaps in social responsibility projects (Akhbar Al-Rumaila, September 2012). To gather data, these entities assembled a field assessment team which would enter into direct consultation with department heads in different branches of the MoO and SOC. The teams also conducted a detailed survey of the leadership provided by private oil companies with investment interests in the country.

ROO’s efforts towards implementation of social projects

Hassan stated that two types of investments have been undertaken by ROO. The first type addresses business risk. It is aimed at creating plans and implementing programs with a view to mitigate this risk. In the second type, focus is on small business investments whose incomes are donated to local communities. For example, ROO operates to coffee shops within the company’s premises. The income that is generated from these shops is channeled towards donations aimed at addressing different pressing social needs of the local people.

ROO’s social actions targeting villages in Northern Rumaila

When ROO’s operations commenced, its management was based in Northern Rumaila. In this area, two villages have sprung up. One of them belongs to the SOC while the other one is an illegal settlement that emerged as part of the expansion process of the first village. However, both villages have for a long time shared the same challenges occasioned by neglect, low employability, and lack of access to services. The management of ROO decided to launch social actions in each of these villages.

During an interview, Hassan, the Community Relationship Officer at ROO, pointed out that the first project involved  the reconstruction of four classrooms at a local school with only four classrooms. The company also built four additional classrooms. The choice of this social action was influenced by the school manager to make a formal request from ROO management after the school was threatened with closure.

The classroom project was followed by efforts to promote employability. In this social action, ROO brought on board security teams, contractors and other parties on board (Akhbar Al-Rumaila, September2012). The company also created employment to local communities by recruiting them in jobs involving the removal and disposal of industrial and production wastes generated during the exploration and extraction processes.

Hassan also singled out the scholarship project, whose objective was to promote social engagement. However, the efforts of the company have not been sufficient. For example, when the scholarships were first introduced in 2010 through a partnership with the Chevening Scholarships Program, 350 people sent in their applications yet only two qualified. In the second initiative, 30 applications were received and half of them were nominated to attend Oregon University for further studies.

Other major social responsibility initiatives include promotion of the education of the girl child, donation of references to the oil and gas at Basra University, oil and gas technical training, and rendering support to the Basra Oil and Gas Institution (BOGI) in its efforts to obtain international accreditation by OPITO (Offshore Petroleum Industry Training Organization). OPITO is an organization that works with international oil and gas companies with the aim of helping them in the approval and implementation of standards in accordance with international technical standards.

Interaction between oil companies operating in the Rumaila oil field and society

One of the areas in which the oil companies operating in the Rumaila oil field interact with society is in the choice, approval, and implementation of micro-level social responsibility programs. One of these programs is the establishment of a sewing workshop that was facilitated through cooperation among ROO, MercyCorps (an international NGO), and the people of Zubair-Basra.           Another program involved the purchase of 5000 t-shirts for ROO employees.

At Qarmat Ali area, ROO interacted with local people and got to know about the lack of basic social services, low income rates, and reduced government support. ROO’s program managers also noted that for the people of this area, the expectations of assistance from oil companies were higher than those of charity organizations. According to Hassan, the people always ask for more from oil and gas companies. Hassan noted that this not only makes their work hard, but also presents high business risk for the companies.

Oil companies have also endeavored to interact with local communities by influencing the way contracts are awarded According to Akhbar Al-Rumaila, a local newspaper, contracts worth $477 million were awarded in 2012, thereby helping boost the local economy (Akhbar Al-Rumaila, February 2013). In this undertaking, efforts are being made to source suppliers from within Iraq as well as the local region. The objective is to create a thriving business community within the Rumaila area. To facilitate this growth, efforts have been made to strengthen the Procurement and Supply Chain Management (PCSM) agency. The PCSM is mandated with the task of ensuring that the improved skill sets of local companies are fully exploited in the spirit of promoting social responsibility.

Today, Rumaila has emerged as one of the most important regions as far as the economies of both Basra and Iraq are concerned. In light of this awareness, various stakeholders in the area are keen to ensure that all pillars of sustainability are firmly in place even as MOCs step up efforts to boost oil production. Some of the activities being undertaken as part of social responsibility efforts include mass casualty training exercises, the construction of the Rumaila Academy, and efforts to offer scholarships to employees to enable them further their studies.

MOCs are also involved in efforts to deploy web-based applications in efforts to mitigate the risks posed by landmines and unexploded ordnance (UXO) (Akhbar Al-Rumaila, January 2013). To address the risk posed by road accidents, employees at Rumaila are routinely reminded about the importance of the simple task of wearing a seat belt. Such seemingly simple activities normally go a long way in creating the social conditions that are necessary for socio-economic development in the oilfield.

Safety is one of the most critical considerations as far as interactions with the local community are concerned. To address this issue, oil companies working in Rumaila have popularized the phrase “Golden Rules of Safety” (Akhbar Al-Rumaila 2011). This phrase puts emphasis on simple, easy-to-follow rules that are highly effective in preserving life not only at the mining sites but also in the adjoining localities. Emphasis is on the right of every employee in the oilfield to work in a safe environment.

A case in point where the goal of safety has been achieved in Rumaila relates to the process of lighting up gas flares. Gas flares normally accompany gas wells, oil wells, landfills, and chemical plants around the world. They perform the critical role of eliminating waste gas that may not be feasible in terms of usage or transportation. Gas flares also serve the role of safety systems, whereby they release gas through a pressure relief valve whenever there is a need to relieve pressure on equipment.

At the Rumaila oilfield, these gas flares have been burning almost on a continuous basis for many years. These flares were originally being operated through safe ignition systems built using standard specifications. However, lack of maintenance and continuous operation has rendered these systems ineffective. Sometimes they have even been out of action. After two decades of a state of disrepair, the systems have created an environment where unsafe operating practices have been entrenched. For example, some employees have resorted to efforts to light up flares using manual methods. Some have also been using dangerous ignition methods such as throwing burning cloth torches. During the late 1990s, an oil rig operator in Rumaila lost his life tragically while trying to light up a gas flare manually (Akhbar Al-Rumaila, 2011). This led to the introduction of flare guns that could ignite the gas flare at a safe distance.

Interaction between the MOCs and the local community also became evident when the people of Basra in Iraq highlighted the need for the refurbishment of the Basra Museum. This commitment was demonstrated by the move by local people to hold a reception in which the need to preserve the rich cultural heritage of Southern Iraq was highlighted. This attracted BP, which donated $500,000 towards the museum refurbishment and development fund (Akhbar Al-Rumaila, March 2013).

Moreover, during the month of Ramadan of 2013, ROO gave out 1000 food packs to the people of the Al Khura community in Qarmat Ali district (Akhbar Al-Rumaila, July 2013). The food pack comprised of items such as rice, sugar, and lentils (Akhbar Al-Rumaila, July 2013). Previously, no oil company had made such a contribution in an area that has traditionally been plagued by the problems of poverty and deprivation. In this undertaking, the task of distributing the food was undertaken by AMAR, an international charitable foundation.

Another platform through which companies select the social initiatives in which they ultimately become involved in is workshops. Through workshops, major concerns of local communities are discussed in detail. Representatives of MOC attending these workshops get an “insider” perspective regarding the day-to-day problems of local people. For example, in April, 2011, 90 representatives from contractor companies working in the Rumaila oilfield came together to discuss health, safety, and environment issues. Representatives of MOCs operating in Rumaila also attended the workshop (Akhbar Al-Rumaila, June 2011). The main issues addressed in this workshop included lifting operations, energy isolation, confined space entry, and change management. During this workshop, employees expressed their desire for better cooperation between PetroChina and BP in bringing and sharing modern management techniques as well as the development of personnel at Rumaila.

Nevertheless, choice of CSR projects is not as simple an issue as it seems at first glance. In many cases, legal restrictions stand in the way of project implementation. For example, in its present form, Iraq’s draft petroleum law provides for uniformity of plans and policies with the primary objective of optimizing oil and gas exploration, development, and extraction. At the same time, these uniform standards are usually difficult to uphold because of domination by political interference and ethno-sectarian interests.

Aspects of organization hierarchy in Rumaila: Relations between MOCs and various entities in social action projects

MOCs operating in Rumaila have making efforts to interact and cooperate with each other in different social responsibility initiatives. For example, in February 2013, the SOC, BP Iraq, and PetroChina International Iraq entered into an agreement in which the three companies would allocate US$5 million to infrastructure, Training, Technology, and Scholarships. Through this fund, Iraqi national would get an opportunity to pursue higher education both within and outside Iraq. The fund would also be used to establish or upgrade research institutes in the country.

The requirement to allocate US$ 5 million is expressly stated in the Technical Service Contract (TSC) entered into by BP and PetroChina in 2009. Between 2010 and 2012, the infrastructure segment took up US$2 million, which was used to establish the Basra Oil institute. In terms of training the main projects related to production operation, core analyses, safety in terminals used in oil exportation, and intensive English language courses.

Cooperation among MOCs for the betterment of social action was also evident in November 2011 when a document containing potential solutions to the problems of the people of Rumaila area in the form of OPITO report was submitted to CNPC, SOC, and BP Iraq. The document expressly stated that no single stakeholder could succeed in implementing the goal social responsibility while working in isolation. However, the main weakness that is evident in this report is that it focuses too much on efforts that will lead to a concurrent reduction of business risk on the part of the oil companies. For example, emphasis is on the construction and refurbishment of training institutes that will churn out professionals who can work for the oil companies.

Through interaction and cooperation, the oil companies have been able to adopt an empirical approach in identifying the problems that the people of the Rumaila oil field face. For example, the OPITO report of  9 November 2011 singles out the problem of poor-quality education not just in Rumaila but across Iraq. According to this report, this problem started in the mid-1980s because of state intervention, disruption, and underfunding. Since then, education has been demand-led, with oil and gas companies leading the way in driving the education agenda. For example, in the oil industry, a lot of emphasis is on standardization, consistency, and quality control internationally. Iraqi MOCs are left with no choice but to promote these values locally with a view to maintain their competitiveness.

Perceptions of social responsibility projects within Rumaila

Evidence gathered through interviews shows that there is a positive perception of the CSR projects undertaken by various MOCs operating in the Rumaila oil field in Iraq. According to Hassan, one of the interviewees, the positive perception towards ROO is reflected in the way local residents interact with the employees of the company. Hassan pointed out that the reception from local people has not always been positive. During initial contact, the employees of the oil company had to endure extreme aggression. The aggressive attitude was portrayed whenever the company’s community relations officers attempted to visit them. As various social responsibility projects started being rolled out, the local people started exhibiting a more friendly behavior.

Initially, the most common way of seeking redress among local communities was violence. With time, people have started seeking alternative avenues of drawing the attention of executives of MOCs to things that may have gone horribly wrong as far as social responsibility initiatives are concerned. Instead of engaging in violence, the local people have over time been resorting to protests. Hassan observed that in some cases, the residents would inform the oil companies about the impending protests while at the same time offering them an opportunity to engage in talks.

To promote perception, the oil companies have had to work in cooperation with NGOs and other third-party organizations. Local NGOs have particularly been helpful in enabling the oil companies gain insights into the most expedient ways of dealing with local issues. The companies have also been interacting with international organizations. The greatest disadvantage of international NGOs over local ones is that the former have little or no experience of operations inside Iraq. During these interactions, local NGOs have benefited immensely through knowledge and experience. In many cases, this knowledge and experience is transferred to local people. For instance, employees sourced from the local communities gain an in-depth understanding of the opportunities that they can harness for the benefit of their kin. This way, local people feel empowered as far as the decision-making process of oil companies is concerned.

Challenges encountered during project implementation process

Although numerous opportunities exist for oil companies operating in Rumaila, many challenges are also inherent. One of them is that most of the CSR activities of oil companies are inherently tied to the partnerships entered into with SOC, the state-owned company responsible for handling issues of oil marketing. In these partnerships, SOC did not precisely state the position of social aspects as far as oil and gas exploration efforts are concerned. No clear framework exists for guiding the operations of MOCs in their relationships with host communities in Rumaila. Employees of ROO and BP have been making numerous efforts to change this culture. For instance, they routinely communicate problems faced by host communities. Consequently, some changes with regard to the approach of the SOC on the social responsibility front may be said to have occurred since the TSC agreement was signed in November 2009.

Findings and conclusions

The MOCs and IOCs operating in the Iraqi oil industry may be said to have made significant progress in rolling out CSR initiatives aimed at creating a social impact within host communities. However, a high level of business risk is normally associated with social responsibility in the Iraqi oil industry. This risk arises from both the recent socio-political history of the country and the high expectations that host communities have regarding the social responsibilities of multinational oil companies.

Iraq has in recent years experienced economic meltdown, mismanagement of oil revenue, and war. For instance, in 1990, oil extraction was one of the main factors that led to the Iraqi invasion of Kuwait. More recently, the controversial US-led invasion of Iraq not only destroyed the country’s oil production facilities but also overthrew Saddam Hussein’s government. These circumstances have made oil exploration and production a risky venture for foreign firms.

The signing of the TSC agreement between SOC and BP/PC in 2009 heralded a new era in the Iraqi oil industry in general and Rumaila oil field in particular. It marked an era in which Iraq made long-term projections about increase in oil production. In many ways, these developments have impacted on the business dynamics of the industry. However, in terms of social responsibility, a sustainable model is yet to be established. The managers of MOCs, regulatory agencies, NGOs, consultancy bodies, and all the other stakeholders in the industry are yet to come up with a sustainable model that guarantees profitability, economic prosperity, and positive social outcomes for Iraq.

The SOC has a critical role to play in ensuring that such a model is established. For instance, during the signing of the TSC agreement in 2009, the SOC should have established cost recovery procedures in order to enable MOCs recoup the costs incurred through social responsibility projects. Such a provision would have motivated the MOCs to be more committed to CSR initiatives since they would not have to worry a lot about the high business risk that accompanies such initiatives in Rumaila.

Micro-level CSR initiatives constitute the most common social action projects for MOCs operating in Rumaila. Given the fact that Rumaila is one of Iraq’s super-giant oil fields, the choice of the micro-level approach in this region may easily resonate in other adjacent oil fields. The companies have  focused a lot on the construction of schools, higher learning institutions, training institutes, museums, hospitals, and social halls.

Most of the efforts have been directed towards the education sector. Surprisingly, this observation exposes one of the limitations inherent in this study. In this case, the limitation arises from the fact that it may inaccurate to conclude that the choice of education sector as a target of social focus initiatives was driven by the needs of local communities. This issue should be subjected to further research in future studies. In such studies, efforts should be made to determine whether too much focus on education-related CSR projects in the Rumaila oilfield is driven by the needs of the host community or by the business needs of MOCs and IOCs.

A cursory look of trends in education-related initiatives create the impression that the oil companies operating in Iraq have dedicated most of their efforts in education and training because this is the point at which the social needs of local communities meet the companies’ business interests. This is because in most cases, the sponsorships provided by the companies were related in one way or the other to the oil industry. In any case, many of the beneficiaries of these scholarships and training programs end up being inducted into the companies’ operations. This way, the companies benefit from a highly skilled workforce that is conversant with the local social environment. At the same time, the MOCs make significant progress in terms of efforts to gain legitimacy in their business operations.

The choice of the micro-level is driven largely by the unwillingness by MOCs and IOCs to offset the prevailing socio-political situation in the host country. In view of the delicate political situation in Iraq today, the companies seem to have resolved to adopt a less risky approach that is largely informed by the need to steer clear of country’s political issues. For example, the managers of the multinational oil companies seem to be reluctant about the prospects of achieving better CSR outcomes by putting pressure on the Iraqi government to spend oil revenues more prudent for the benefit of the Iraqi people as well as the business community.

It would be inaccurate to say that MOCs operating in the Rumaila oil field have achieved astounding success in their social responsibility. The companies have been compelled to endeavor to strike a balance among many weighty issues arising from the difficult post-war circumstances in which they operate. The SOC has not been at the forefront in setting high standards for social action by companies enjoined in the TSC agreement of 2009. This may have contributed to the failure by the Iraqi oil industry to entrench a strong culture of social action.

Today, the oil companies operating in the Rumaila oil field are embroiled in the ambitious goal of increasing oil productivity within the timelines established by the national government. In light of such high expectations in terms of business performance, the oil companies are increasingly constrained with the regard to the reasonable time that can dedicate to CSR activities. This essentially means that the activities of all the companies operating in Rumaila are greatly influenced by the laws and regulations established at the national level. On the other hand, the companies must strike a balance between local expectations and operating conditions established at the national level.

Efforts to identify local needs are heavily influenced by the operating standards and codes of conduct established in the home countries where the companies are incorporated. For example, BP’s choice of social action projects in Rumaila adheres to the standard operating procedures for the company’s operations in foreign countries. The company pursues these same standards in the other foreign countries in which it operates such as Azerbaijan.

The process of identifying local needs is also influenced by the unique socio-political and economic circumstances in which the MOCs operate. In most cases, a high business risk accompanies most CSR efforts particularly in developing countries such as Iraq. To minimize risk, focus on micro-level CSR activities such as the construction of roads, hospitals, and schools is necessary. Guidance on these activities is influenced by both local and international NGOs. Other than national laws and regulations as well as local expectations, the oil companies also rely on reputable agencies.

Preference is normally accorded to reputable agencies originating from the MOCs’ home countries. For example, BP has been relying heavily on the UK Offshore Operators Association (UKOOA) in its forays inside the Rumaila oil field. There is a lot of reliance on Offshore Petroleum Industry Training Organization (OPITO) among various MOCs operating in Iraq. This trend is likely to continue considering that no universal CSR standards are yet to be established. In fact, many multinational oil companies use this fundamental omission as a justification for relying on specific regulatory agencies in matters relating to the choice of social responsibility projects. Training institutes such as The Basra Oil Training Institute (BOTI) also contribute significantly in efforts to provide solutions regarding the choice of social responsibility initiatives. More significantly, a major milestone was reached through cooperation among BOTI, OPITO, and MoO in creating recommendations regarding appropriateness of launching CSR projects.

Just like in other developing countries such as Nigeria, Ethiopia, Azerbaijan, and Sudan, MOCs operating attract very high expectations from MOCs operating in Iraq especially within the Rumaila oil field. The expectations for MOCs in these countries are noticeably higher than in the case of other MNEs operating in these countries. One may expect these differences to persist even in situations where these organizations use mechanisms similar to those of MOCs insofar as the identification of social needs at the local level is concerned.

In terms of planning, different companies seem to have adopted different strategies and mechanisms. No benchmarking approach is being used to assess the CSR performance of individual companies by comparing it the best possible levels of achievement within the industry. The same thing may be said with regard to aspects of execution and assessment of organizational implications.

In terms of cooperation efforts, the MOCs and IOCs operating in the Rumaila oil field may be said to have achieved significant progress. This progress is mainly concentrated in the area of education and training. Various NGOs have successfully been enlisted in these cooperative ventures. So far, it seems that the greatest progress in terms of cooperation will be achieved through sustained consultations between the MoO and different entities, including the SOC, OPITO, and BOTI with a view to engage regularly and frequently with various IOCs and MOCs with a view to establish realistic and up-to-date recommendations relating to social responsibility initiatives. This will greatly increase the chances of improvement with regard to the way local communities perceive the social action efforts of multinational oil companies. At the same time, the efforts will enable the oil companies understand the social needs of local people better, thereby enhancing the selection, planning, execution, and assessment processes.

The decision by the parties to the PSC agreement of 2009 to omit social responsibility commitment seems to have been a deliberate move motivated by the high business risk in Iraq at that time. Today, some considerable progress has been made in Iraq as far as economic, political, and governance issues are concerned. The level of business risk may be said to have decreased considerably, such that oil companies may not be as reluctant to commit to strict CSR performance standards as they were in 2009. Therefore, the PSC agreement should be amended to reflect these changing realities. In the new contract terms, the companies should be provided with an enhanced framework through which they can promote social action and harmonious coexistence with host communities. Such a move would enable the companies achieve the goals of profitability, sustainability, and economic prosperity for Iraq and all other stakeholders.

In terms of research implications, this study has dwelt on a theme that few researchers have explored. The issue of CSR in the Iraqi oil industry has been visited by very few researchers. This paper has contributed, albeit in a small way, to the preliminary steps required to deal with the dearth in literature on social responsibility aspects within the Iraq oil industry. Going forward, CSR researchers need to carry out research regarding what is being done and what can be done as far as social action efforts in the industry are concerned. Although this paper barely scratches the surface, it provides some crucial leads regarding possible directions as far as research in this area is concerned. Similarly, it provides valuable insights into the issues that multinational oil companies and other stakeholders in the Iraqi oil industry may be compelled to address in the foreseeable future with a view to improve relations with communities living adjacent to oil fields.

 

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Appendices

BOTI: Basra Oil Training Institute

BP: British Petroleum

CNPC: China National Petroleum Corporation

CSR: Corporate Social Responsibility

IFRS: International Financial Reporting Standards

MNE: Multinational Enterprise

MoO: Ministry of Oil

NGO: Non-Governmental Organization

OECD: Organization for Economic Co-operation and Development

OPITO: Offshore Petroleum Industry Training Organization

PC: Petro China

ROO: Rumaila Operation Organization

SOC: South Oil Company

UN: United Nations

USAID: United States Agency for International Development


 

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