beyond business: evaluating the drivers for and effects of corporate social responsibility policies of multinational corporations in the non

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beyond business: evaluating the drivers for and effects of corporate social responsibility policies of multinational corporations in the non

renewable resources extractive sector.

Melanie rose brooks

noragric - Department of international environment and development studies Master Thesis 30 credits 2009

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The Department of International Environment and Development Studies, Noragric, is the international gateway for the Norwegian University of Life Sciences (UMB). Eight departments, associated research institutions and the Norwegian College of Veterinary Medicine in Oslo.

Established in 1986, Noragric’s contribution to international development lies in the interface between research, education (Bachelor, Master and PhD programmes) and assignments.

The Noragric Master theses are the final theses submitted by students in order to fulfill the requirements under the Noragric Master programme “International Environmental Studies”,

“Development Studies” and other Master programmes.

The findings in this thesis do not necessarily reflect the views of Noragric. Extracts from this publication may only be reproduced after prior consultation with the author and on condition that the source is indicated. For rights of reproduction or translation contact Noragric.

Department of International Environment and Development Studies P.O. Box 5003

N-1432 Ås Norway

Tel.: +47 64 96 52 00 Fax: +47 64 96 52 01

Internet: http://www.umb.no/noragric

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Declaration

I, Melanie Rose Brooks, declare that this thesis is a result of my research investigations and findings. Sources of information other than my own have been acknowledged and a reference list has been appended. This work has not been previously submitted to any other university for award of any type of academic degree.

Signature………..

Date………

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Abstract

This study examines the existing regulations of corporate social responsibility (CSR) of

multinational corporations (MNCs) in the non-renewable resources extractive sector (NRRES) as well as discerning how companies who choose to engage in socially responsible behavior can design their policies to include provisions for human rights and development. Current guidelines for CSR are for the most part non-binding or aspirational initiatives and are therefore not

complied with by a significant number of companies in the NRRES and other sectors. MNCs who do choose to practice CSR and extend their policies to include human rights and

development most often do so to improve their corporate image or because of pressure from shareholders or other stakeholders. In the Katanga Province of the Democratic Republic of the Congo (DRC), there is a large concentration of multinational mining companies with extractive operations in the region, which is infamous for underdevelopment and inadequate human rights.

Of the multinational mining companies operating in Katanga, many of them have developed CSR policies that include funding for local development projects. The most common types of projects funded by companies in the study are infrastructure, healthcare, education and other training, and employment. Unfortunately, many of these programs are wholly dependent on corporate funding to keep them afloat and are often unsustainable beyond the period of MNC involvement in the region.

It is clear that without binding international legislation, not all MNCs will be dedicated to responsible business practices and even fewer will include provisions for human rights and development in their broader CSR agendas. The current global economic crisis has had the surprising effect of mainstreaming CSR concerns as citizens and organizations around the world call for increased transparency and accountability from banks, corporations and other

institutions, which may be the catalyst needed to make CSR mandatory rather than optional.

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Acknowledgements

I would like to take this opportunity to thank the many people in my life whose support and encouragement have been indispensable during the process of researching and writing this thesis.

Without them, this would have been a much more difficult task.

To my family in the US and in Norway, thank you so much for believing in me and never doubting that I would achieve everything I hoped for. Even though we are often far apart, your interest in my education and my thesis has helped keep me on track and never forget what I set out to do.

To my supervisor, Professor Darley Jose Kjosavik, thank you for understanding how important this topic was to me and agreeing to supervise my thesis. I have so much appreciated your wisdom, insight and kindness throughout this process.

To my colleagues in Paris, thank you for your interest in my thesis and for letting me rant about CSR during coffee breaks and lunches. Your ideas have offered me a new perspective on many subjects and challenged things I was sure I knew before.

To Olivier, thank you for everything. You have been there to share my enthusiasm for my thesis, comfort me when I have been discouraged or overwhelmed and encourage me to keep going when I did not feel like I could continue working. Your patience as a sounding board for all my ideas has been wonderful and I cannot imagine having done this without you.

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List of Tables and Figures

Overview of CSR Initiatives and Guidelines………...……39

Stakeholder Interest vs. Influence Matrix………..………..59

Examples of Development Project sponsored by mining sector MNCs as part of CSR……….……61

Multiple Stakeholder Identification………..…….………..67

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List of Abbreviations

BLIHR – Business Leaders Initiative for Human Rights CMI – Christian. Michelsen Institute

CSR – Corporate Social Responsibility DRC – Democratic Republic of the Congo

EITI – Extractive Industries Transparency Initiative ESG – Environmental, Social, Governance

EP – Equator Principles

EPFIs – Equator Principles Financial Institutions GMI – Global Mining Initiative

GRI – Global Reporting Initiative

ICMM – International Council on Mining and Metals IFC: International Finance Corporation

IIED – International Institute for Environment and Development LDC – Less Developed Country

MMSD – Mining, Minerals and Sustainable Development MNC – Multinational Corporation

NRRES – Non Renewable Resources Extractive Sector

OECD – Organization for Economic Co-operation and Development SAI – Social Accountability International

SRI – Socially Responsible Investment UNEP – United Nations Environment Program UNDP – United Nations Development Program

UNEP FI – United Nations Environment Program Finance Initiative UNGC – United Nations Global Compact

UNPRI – United Nations Principles for Responsible Investment VPSRH – The Voluntary Principles on Security and Human Rights WBCSD – World Business Council for Sustainable Development

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Glossary of Important Terms

Corporate Social Responsibility

While there is no universal definition for CSR, there is a broadly accepted conceptual meaning with room for minor variations to encompass an expanded or more limited scope of attention.

According to the International Financial Corporation (IFC) which is a member of the World Bank,

“Corporate social responsibility is the commitment of businesses to contribute to sustainable economic development by working with employees, their families, the local community and society at large to improve their lives in ways that are good for business and for development.”

Another more general definition of the social responsibility is:

“The principle that businesses should actively contribute to the welfare of society and not only maximize profits” (Downes, 2006:656).

Multi-National Corporations (MNCs)

How a Corporation comes to be classified as multinational or transnational can depend on several factors with ownership, production and management being the most important. However, other factors such as a Corporation’s structure and business strategy also contribute to its

classification (Downes, 2006). Simply put, the most basic requirement for a company to be deemed multinational is that it must have production facilities in at least one foreign country outside of the country in which it is headquartered (Downes, 2006).

In today’s business world and economy, it is all too common for a corporation to be multinational. To relate this modern business development to the subject at hand, many if not the majority of the owners of MNCs are from countries that are considered part of the ‘Developed World’ while a significant part of their productive and extractive operations take place in Less Developed Countries (LDCs), which is where CSR initiated development comes into play.

Non-Renewable Resource Extractive Sector (NRRES)

Corporations that are part of the non-renewable resource extractive sector are those involved at any level in the exploitation of such resources. According to Neil Harris at Griffith University’s School of Public Health in Queensland, Australia, the NRRES “encompasses the location,

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extraction and primary refinement of the planet’s non-renewable resources including fossil fuels, metallic minerals and non-metallic minerals” (Harris, 2005).

The discussion of the NRRES can be directly tied to that of MNCs as well as the discussion of Sustainable Development in terms of the multinational ownership and operation of many Corporations in the NRRES as well as the obvious lack of sustainability of such exploitation.

Sustainable Development

To clarify the applicable meaning of sustainability in terms of Development I will refer to the widely used definition offered by the World Commission on Environment and Development (WCED).

“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987:8).

Human Rights

Generally speaking, human rights are the most basic of rights that belong universally to all humans, based on the fact that they are human, and can neither be created nor taken away.

(businessdictionary.com). In the context of development human rights can refer to access to water, healthcare and education as well as equality, dignity and employment (un.org, ohchr.org).

Unfortunately, these most basic of rights are those most often violated and most difficult to assure, despite global efforts to do so.

The Virginia Declaration of Rights, which was drafted in 1776 and had significant influence on the US Declaration of Independence, addressed the meaning of human rights in its first section.

Section 1 of the Declaration reads:

“That all men are made by nature equally free and independent and have certain inherent rights, of which, when they enter into a state of society, they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety.” (billofrights.com) Stakeholder

According to the Business Dictionary, a stakeholder is a “Person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the

organization's actions, objectives, and policies. Key stakeholders in a business organization include creditors, customers, directors, employees, government (and its agencies), owners

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(shareholders), suppliers, unions, and the community from which the business draws its

resources. Although stake-holding is usually self-legitimizing (those who judge themselves to be stakeholders are de facto so), all stakeholders are not equal and different stakeholders are entitled to different considerations” (business.dictionary.com).

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1. Introduction

1.1 Background

The primary goal of this study has been to explore the burgeoning subject of Corporate Social Responsibility (CSR) of Multinational Corporations (MNC’s) in the Non-Renewable Resources Extractive Sector (NRRES), with an emphasis on multinational mining companies. While the ownership and headquarters of many MNCs in the NRRES are located in wealthy countries their extractive operations, of minerals for example, often take place in impoverished countries severely lacking in the areas of social and economic development and human rights. Of special interest to me is the question of whether or not and, if so, how can such MNCs actively promote and enhance human rights and facilitate multi-level social and economic development in the developing countries in which their extractive operations are based. To answer this question requires an examination of not only the corporations themselves and their individual CSR policies and programs but also of the manner in which mining sector MNCs are regulated in terms of their basic operations and voluntary endeavors which can each have serious

implications, both positive and negative, on development and human rights in host countries.

The study that I have conducted is based in a relatively new and rapidly growing ideology about the responsibility of corporations in which expectations go above and beyond financial gain in the corporate sector. This emerging ideology identifies the corporation of the twenty-first century as a globally influential and astonishingly powerful socio-political-economic entity. In fact, many MNC’s boast yearly economic turnovers higher than the GDPs of the countries in which they operate (Bendell, 2000). With this power and influence comes the opportunity to create or destroy, ameliorate or impoverish, empower or disenfranchise. The goal of increasing CSR in the NRRES is not only to keep MNCs from negatively affecting the societies in which they operate, but also to encourage them to actively contribute to the enhancement of the lives and livelihoods of those who their operations affect either directly or indirectly. The domain of this ideology transcends that of the Global Political Economy with the creation of a new Moral Economy (Whiteford, 2005), in which business ethics are not considered simply the means to more

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profitable ends but rather ethical behavior which respects and promotes human rights and development as an ‘end’ in itself.

1.1.1Evolution of CSR

While the practice and scope of Corporate Social Responsibility has increased considerably under various pressures over the past several years, CSR as a concept is not a novelty. Though the creation of the term itself has been credited to Howard Bowen who in 1953 penned “Social Responsibilities of the Businessman”, the concept of the socially responsible business dates back to the late 1930s (Thinking Shift, 2007). The early objectives of CSR were localized and fairly general as companies were usually operating ‘in their own backyard’, so to speak, and the demands and expectations of stakeholders and the community at large were relatively few (Thinking Shift, 2007). The earliest Corporate Executive practitioners of socially responsible activities did so by donating to charity organizations and by practicing this type of philanthropy they were able to ‘give back’ to the community at the end of the year, which would assumedly fund some beneficial projects or needy organizations. This also made the company appear a generous, helpful entity in the public eye, preserving favorable public and employee opinion and, finally, the company likely received a very attractive tax break because of their charitable giving.

Therefore, the concept of CSR stuck and continued to metamorphose to greater serve both the Corporation and the Community, at least in theory. It seems, though, that from the get-go there was always an ulterior motive, or motives, for CSR beyond simply the desire to do good and behave responsibly.

It has been the increase in the expectations of stakeholders, authorities and society along with other factors such as globalization, environmental concerns, technological advances, and requirements about transparency in business that CSR has evolved as it has (natural-

resources.org). It was during the 1970’s and 80’s that CSR took a huge leap to encompass a wider range of complex social, economic, and environmental issues in an increasingly global economy and an era of heightened social awareness and public participation, demands and pressure on companies. This is marked by the development of guidelines and ‘codes of conduct’

for MNC’s by both the Organization for Economic Co- operation and Development (OECD) and the United Nations Centre on Transnational Corporations (UNCTC) (corporatewatch.org).

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If CSR grows in response to the demands raised by stakeholders, governments and public

pressure, it seems inevitable that Development activities would eventually enter into the realm of CSR policies of MNCs.

There are countless motivations and explanations for the inclusion of development-facilitating programs in CSR policies and programs and the reasoning behind this varies along a broad spectrum of drivers. At one end of the spectrum, there is a genuine sense of ethical responsibility to give aid where there has only been exploitation. At the other end is the Corporation’s need for positive media coverage and the continued acquiescence of the governments and communities in which they operate to maintain their viability. And in between the idealist’s and cynic’s views of why an MNC would dig into its coffers to promote development outside of the wealthy country where it is likely headquarted lies an array of arguments including environmental concerns, improving the sustainability of a project, bowing to stakeholder demands and decreasing social and environmental risks to the project. More difficult than identifying drivers for MNCs to invest in development through CSR is discerning whether it is the Corporation or the host communities that benefit most from these expenditures and also how to regulate CSR and insure that

companies are more than just paying lip service to expectations for social and environmental responsibility.

1.2The Research Problem

In this research project, I have studied how CSR policies of MNCs in the NRRES, particularly those in the mining sector, can be crafted to promote human rights and development in

impoverished countries host to their extractive operations. I have also explored existing

guidelines and initiatives for governing CSR and related development projects and the issue of the apparent absence of a mandatory international code of social conduct for MNCs and the implications of this on CSR. The type of data sought and acquired during this study has primarily been qualitative data and in the framework of Moral Economy and the Assignment Approach to analyze the correlation between CSR regulations, norms, CSR policies, and social and economic development.

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1.3 Objectives

1.3.1Objective 1:

To understand how the operations and behaviors of MNCs in the NRRES are regulated at the international level in terms of CSR.

Research Questions:

• What types of CSR guidelines are currently in place?

• What are the repercussions for MNCs who do not adhere to existing guidelines and regulations?

• What are the strengths and weaknesses of current methods of international regulation of CSR?

• What is the role of Socially Responsible Investment (SRI) in relation to CSR?

1.3.2Objective 2:

To understand the effects of CSR policies of MNCs in the NRRES on human rights and development in the countries host to their extractive operations.

Research Questions:

• How are CSR policies formulated with respect to human rights and development?

• Why do MNC’s choose to incorporate human rights and development in their CSR policies?

• What types of social programs and development projects are funded by MNC’s as part of their CSR strategy?

• What types of CSR policies are most effective in promoting human rights and development?

• Are CSR motivated programs for human rights and development sustainable beyond the timeframe of a corporation’s physical presence in the area?

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1.4 Outline of the Thesis

This thesis is the result of my personal research conducted during the course of my studies on the subject of Corporate Social Responsibility and Development. It is presented here with the goal of conveying my motivation and interest in the subject as well as the experiences of the research itself and the findings and conclusions I have made as a result of this study. The layout of this work includes a background chapter made up of a literature review and an explanation of the theoretical foundation of the study, to give an academic introduction to the subject of CSR.

Following the Background chapter is a chapter dedicated to the presentation and discussion of the primary research objectives and research questions that have been the basis of this study and from which the body of my research has been drawn. Subsequently, there is a brief chapter describing the study area, multinational mining companies and the operation of MNCs in

impoverished regions as well as a discussion of the ‘resource curse’ phenomenon experienced by many resource-rich but economically impoverished countries. While I was unable to conduct fieldwork in the specific area where the extractive operations of the companies I have studied take place, the presentation of the study area will be focused on the Katanga Province of the Democratic Republic of the Congo (DRC). This was the originally intended site for data collection and is a site of operations for each of the companies I interviewed during this study.

Following the description of the study area is a chapter to present and discuss the methodology of the research undertaken for this study. This chapter includes a discussion of the research approach and strategy, methods of data collection and analysis, ethical considerations and finally the limitations of the study. The fifth and sixth chapters are dedicated to addressing the research objectives and related questions. In these chapters, I examine the existing guidelines and

regulations for CSR in general, as well as those specific to the mining and extractive sectors, and follow this examination with a discussion of how multinational mining companies are currently including development activities as part of their broader CSR programs and objectives. The final chapter of this work covers the findings and discussion of the study. This section also includes the strengths, possibilities, challenges and weaknesses of the concept and practice of CSR, as it exists at this point in time. My personal insights and recommendations are also presented at the end of this chapter.

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2. Applied Theory and Literature Review

2.1 Theoretical Basis

I have chosen to analyze CSR in the NRRES through the framework of the assignment approach and the moral economy.

2.1.1 Human Rights: The Assignment Approach

Researchers at the Christian Michelsen Institute (CMI) in Bergen, Norway, have taken what I will refer to as an “assignment approach” in assessing the duties allotted to corporations in terms of securing and assuring human rights. The discussion of the duties of realizing human rights is attributed to Nobel Prize-winning economist Amartya Sen who questioned that, if universal human rights as a concept are universally accepted, whose duty would it be to guarantee them?

(Kolstad, 2007). CMI researcher Ivar Kolstad presents the “assignment approach” in which primary, secondary and tertiary duty-bearers are designated in a division of moral labor (Kolstad, 2007). It is a normative approach to business ethics and “focuses on the optimal division of moral labor between agents, i.e. an efficient division of moral tasks between corporations, state institutions and other agents.” (Kolstad, 2007:2). CMI differentiates between positive and

negative duties in terms of human rights. Positive duties are those performed to actively promote, deliver or affirm human rights while negative duties are those that act to uphold the rights of others by refraining from activities that would undermine or infringe upon human rights. The category of negative duties is also referred to as unconditional duties since they are duties that apply to all individuals, corporations and government institutions alike. (Kolstad, 2007).

The assignment approach specifically relates to positive duties, those which are not considered unconditional, per se, but which must be upheld in order to secure universal human rights. In short, positive duties fall first upon the primary duty-bearer, such as the national government. In the case that the primary duty-bearer defaults on their positive duties, then those duties fall to the secondary duty-bearer, such as the international community or civil society. Finally, if the secondary duty-bearer is unable to perform their positive duties then those responsibilities must be taken on by the tertiary duty-bearer, such as the national or multinational corporation with operations in the region in question. Therefore, a corporation must be prepared to step in and

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fulfill the positive duties associated with human rights provisions in the event that primary and secondary duty-bearers are unable to do so. Moreover, if a corporation chooses to operate in a country where they have advance knowledge that the national government is not fulfilling their positive duties in relation to human rights and perhaps even falling short of their negative duties and the international community is unable assure human rights for some reason or another, then the corporation should have no choice but to take on those duties.

Since human rights and basic social and economic development share many of the same goals, I am also employing the assignment approach in relation to development and CSR as well. To apply this approach to CSR in the NRRES, I will use an example of a multinational mining company with extractive operations in the Democratic Republic of the Congo (DRC) A mining company pursuing mineral extraction in the DRC should take the initiative to research the human rights record and development status of the country, if not for ethical reasons then to assess the operational risks associated with the geopolitical situation. The company would discover, if for some reason they did not already know, that the DRC is an incredibly impoverished and war-torn country, with a particularly poor record of human rights and lack of development, infrastructure and services in the resource-rich Katanga province where most mines are established. Following this assessment, and in accordance with the assignment approach, the company would see that the primary duty-bearer, the DRC government, has not been fulfilling its positive or negative duties in terms of human rights and development to the country’s citizens. Moreover, while it is evident that the international community has made and is making efforts to secure human rights and encourage development in the region, they have been largely unsuccessful (UNSC, 2002).

Therefore, those remaining positive duties that are being fulfilled by neither the government nor the international community fall upon the corporation. According to the assignment approach, if the mining company is not prepared to take on those duties then they should not proceed with operations in the DRC.

Unfortunately, this is a hard pitch to sell to many MNCs since, from a business perspective, taking this approach negatively impacts their competitiveness because even if they do not proceed with operations in the country due to poor human rights and development, somebody else will. This observation underlines the need for a universally binding mandate that prevents any company from proceeding with projects in resource-rich countries such as the DRC, or

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Nigeria or Burma for that matter, if they are not prepared to assume the positive duties associated with human rights and development there.

2.1.2 Moral Economy

The idea of a moral economy is one that identifies the interplay between ethics and economic activity, where adherence to social norms and values is viewed as being more important than even profit. Within a moral economy, the responsibilities of institutions and individuals are considered along with the rights associated with different people and groups (Sayer, 2000). The moral economy is unique because it gives corporations responsibilities grounded in human moral philosophy rather than sets them free from such obligations as some other economic theories do.

The contemporary scenario where the main function of the corporation is to make a profit, at any cost, cannot exist in a moral economy.

2.2 Literature Review

Most of the existing studies on the topic of CSR used to promote human rights and development deal with three primary concerns (Bendell, 2000; Buhmann, 2007; Carroll, 1991; Jenkins, 2004;

Kolstad, 2006 and 2007; Pahle, 2007; BLIHR, 2003 and 2004). The first concern is whether or not promotion of human rights and development are the domain of business of corporations at all. One point of view is that while it is the responsibility of a corporation to adhere to legislation governing their operational activities it is up to the governments and civil societies of

impoverished countries to facilitate development and human rights, and that the corporation should not involve itself in this arena. On the other side of the debate is the argument that since corporations often have economic and political resources exceeding those of governments in host countries of their extractive operations (Bendell, 2000) then it is their moral responsibility to help the needy citizens of those states via the active promotion and enhancement of human rights and the facilitation of multi-level social and economic development. This second perspective is reflective of the assignment approach which has been presented by researchers from the CMI, and discussed in the preceding section of this paper, who attest the need for a moral division of labor whereby if “public institutions and others fail to protect rights, these positive duties fall on corporations” (Kolstad, 2007: 4).

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The second primary focus in this field is the different levels at which a corporation can practice CSR, and what happens when there is ethical or responsible behavior enacted at one level but not at another (BLIHR, 2003, 2004; Carroll, 1991; Pahle, 2007).

2.2.1. Spheres of Influence in CSR

The way in which an MNC practices CSR can occur at several different levels. In his report Business Matters, Simon Pahle asserts that there are three spheres of influence in which CSR can be practiced. The first is the Micro Sphere, which deals with the rights and treatment of workers employed directly by the company. The second is the Meso Sphere, which affects those who are not employed by the company but who are affected by the activities of the company nonetheless.

This sphere includes the people that live in the area in which a company operates who can often be negatively influenced by the company’s presence directly, such as the case with resettlement due to corporate activity, or indirectly in the scenario that a company overuses or contaminates a natural resource which the community depends upon (Pahle, 2007). The third sphere of influence is the Macro Sphere, which encompasses the consequences that the actions of a company can have on a society as a whole.

It is in the second sphere of influence, the Meso Sphere, where most development programs exist as part of CSR policies. This is because the geographic locations of the operations of many MNC’s fall within the boundaries of LDCs, and the communities that are most directly affected by the company’s activities are often very poor. They are also often lacking in infrastructure and highly dependent upon their access to the resources which can be impacted by the company’s physical presence and operations (Pahle, 2007). The MNC is then under various pressures to practice CSR and related development activities in this sphere by investing in basic infrastructure such as roads, water and power facilities and compensating people for their loss of land and/or access to natural resources.

2.2.2. Deliveries

In addition to there being multiple spheres of influence of an MNC there are also different categories of assessment when measuring how ‘responsible’ a company is. According to a series of reports facilitated by the Business Leaders Initiative for Human Rights (BLIHR) in 2003 and 2004, and discussed by Pahle in his own work, we can apply the matrix of “Essential, Expected and Desirable Deliveries” to assess the performance and behavior of companies on an individual

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level. It is when analyzing this framework that the basis of some of the principal arguments against the participation of MNCs in development is brought to light.

In their Deliveries Matrix BLIHR considers essential deliveries to be “the minimum obligations that a responsible company is expected to comply with” such as acquiescence to laws of the host country and requirements of other governing bodies as well as market and industry regulations (BLIHR, 2003:9). Unlike the activities covered under essential deliveries, those qualified as expected deliveries are not mandatory. Expected deliveries include public reporting by the company on their development of social and environmental policies and programs and the ongoing monitoring and improvement of such programs. These types of activities are becoming increasingly more common with heightened public expectations of MNCs along with increased pressure to be seen as socially and environmentally responsible (BLIHR, 2003, 2004). Finally, the activities that fall under the heading of desirable deliveries include voluntary social

contributions and investments such as the empowerment of underprivileged groups, efforts to improve public policy and facilitating sustainable development projects that will continue to benefit the community after the company has left the region.

Most CSR facilitated development occurs within the final category of activities discussed within the BLIHR matrix. MNCs are by no means required to actively promote the development of communities in which they operate but it is becoming more and more common to do so, particularly in the case of NRRES companies whose influence in the aforementioned Meso Sphere is especially high. However, even if a company does choose to engage in activities in the category of desirable deliveries they may not have acted to the standards of essential and

expected behaviors. This means that companies whose actions may not have fully complied with national laws or industrial regulations, or perhaps failed to be environmentally or socially

responsible, can still make charitable donations to benefit communities and enhance their public reputation. The idea that damage to local communities, the economy, or the environment as a result of irresponsible company practices can be made up for by making a post-operative financial contribution is carelessly naïve and hypocritical. Moreover, “to hand out charitable petty cash from coffers that are filled by unjust or exploitative practices in the company’s own influence spheres is a perversion of CSR” (Pahle, 2007:14).

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Many critics of the role of MNCs in development activities by way of generous CSR policies are quick to point to companies guilty of such CSR ‘perversion’ (Bryane, 2003). Corporations often have large budgets set aside for spending on very public philanthropic programs and, often, development-related activities. An arguably larger amount still is spent on producing reports and impressive web pages to convince the public of the success of their philanthropic endeavors.

However, it is not the excessive spending or misspending but rather the source of the funds for all these activities that is the most problematic. The use of tainted money to fund programs to benefit communities that MNCs have damaged in some way in the course of making that money is like putting a band-aid on a self-inflicted cut that has begun to fester.

In such a scenario, the companies are practicing damage control for their negative actions rather than exclusively philanthropic activities. It is as if doing something good for a community will cancel out the negative effect that the operations of the company had on it. While some would say this is better than doing nothing at all, it remains a central argument for those who feel that MNCs should not be allowed a role in Development as they use CSR and development programs to make up for previous exploitation and to improve their public image (Bryane, 2003).

This brings us to the third major topic of discussion on the subject of CSR in promotion of human rights and development, which is the regulation of corporate behavior (Pahle, 2007). With proper regulation, an MNC would never be able to perform desirable deliveries of CSR without first adhering to essential deliveries. Unfortunately, it has proven very difficult to effectively regulate multi- and trans-national corporations whose ownership, operation, distribution and banking take place in many different countries with drastically varying legislation. International assemblages such as the United Nations (UN), the International Chamber of Commerce (ICC), the Organization for Economic Cooperation and Development (OECD), and the World Business Council for Sustainable Development (WBCSD) have all made efforts to address the problem of regulating the behavior of MNCs by developing guidelines and initiatives for CSR (Buhmann, 2007). This topic is the pillar of the first research objective of this thesis and will be discussed in detail in the following chapter.

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2.2.3. Challenges and Responses

Though there are certain legal requirements binding MNC’s to responsible practices, the extent of the activities that these regulations cover is limited to the most basic such as adherence to laws that forbid slave and child labor, paying taxes and refraining from other social abuses of power.

MNC’s will often tout their compliance with these basic moral standards as if they want to be distinguished for following intrinsic legal and ethical guidelines. The belief that abstaining from criminal activity constitutes CSR in the eyes of the Corporation is a huge challenge. The true responsibility of MNCs goes far beyond acquiescing to fundamental laws governing taxes and labor. Unfortunately, the legal requirements for the activities that go ‘above and beyond’ such inherent obligations are overwhelmingly insufficient. The growing recognition of challenges within CSR has spawned the creation of regulatory compacts, guidelines and initiatives meant to direct the behavior of MNCs and ensure responsible behavior (Pahle, 2007). There exist

numerous codes and initiatives aiming to govern more extensively the activities of MNCs in terms of their social and environmental performance, but the degree to which they are adhered to is largely voluntary. However, since most Corporations are dependent upon retaining an ethically responsible image in the public eye it is necessary for them to comply with certain standards of social responsibility for their own economic viability (natural-resources.org). Still, no matter how much good will and faith is put behind voluntary frameworks for CSR, MNCs are still free to choose whether or not and to what level they will be socially and environmentally responsible.

The fact remains that many companies who are more hidden from the public eye because of their geo-political orientation and other factors may have less initiative to adhere to voluntary CSR guidelines.

While the existence of such regulatory initiatives is encouraging for anyone interested in CSR and the role of MNCs in Development, without the legal power to enforce the guidelines the initiatives are little more than well-meaning and expensive pieces of paper. There must be concrete consequences for participating companies and countries that fail to meet the standards set or else there is no real driver to comply to the ‘recommendations’ other than media coverage and perhaps a sense of ethics, neither of which has been sufficient in the past. In addition, there should be a mandatory set of guidelines that all countries and companies must follow rather than an assortment of voluntary initiatives that they may or may not choose to comply with.

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However, these things do not happen overnight and it must be acknowledged that the creation of these guidelines and initiatives in recent years is definitely a step in the right direction.

2.2.4. MNCs and Sustainable Development

Sustainability theory has been popularized in recent years and the word ‘sustainability’ itself has become a sort of buzzword not only in the field of Development Studies but also in business and economics. We often hear references to sustainable economic growth, sustainable business practices, sustainable management of resources and sustainable social or community

development among countless other examples. In fact, the concept of sustainability is used so often and in so many situations that it is easy to forget what sustainability really entails. It can seem somewhat contradictory then that many MNCs, particularly in the mining and other extractive sectors, often refer to sustainability and sustainable development in particular (Jenkins, 2004). Companies whose extremely profitable operations are based in unsustainable extractive practices will simultaneously facilitate and fund sustainable development programs that are discussed in their public reports concerning the environmental and social impacts of their activities. It is not uncommon for companies to take up the notion of sustainable development and proceed to use it as a framework to support their CSR programs and related activities, even when their own business practices are inherently unsustainable (Jenkins, 2004).

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3. Study Area and the “Resource Curse”

3.1. Description of the Study Area

Due to the international nature of my research project, the study area cannot be limited to a single village, region, organization or corporation. Therefore, my research activities took place in multiple locations in order to achieve firsthand knowledge of the various structures and

perspectives that have important implications for the stated objectives of the research project.

In order to avoid too broad or overly general accounts of CSR and development projects funded by companies in the mining industry, my focus has been directed at the infamously resource-rich Katanga Province in the Democratic Republic of the Congo. Katanga province is located in the geographic area of what is known as the “copper belt” found along the border shared by DRC and Zambia. Not only is Katanga resource-rich, but it is also in dire need of development and human rights reform. This makes it a prime location for studying the interaction of extractive sector MNCs with local communities and how these companies practice CSR at the local level.

Also, since there is a high concentration of companies with mining operations in the region, I have been able to compare the CSR policies and programs of companies all operating within a similar geo-political environment.

3.2. The Resource Curse

Many resource rich countries suffer from corruption, low public health and human rights standards, poor access to education and healthcare, not to mention very few environmental regulations or bodies ensuring transparency in government spending of taxes and royalties paid by foreign extractive sector companies.

Contemporary discussions about the DR Congo identify a connection between the country’s abundant extractible natural resource base and the simultaneous lack of economic development, or even active underdevelopment, and assiduous violent and nonviolent conflict. As a result of its classification as a mineral rich country which has seen more than its fair share of conflict and much less economic growth and development than one would expect from a country so abundant in extractible, internationally in-demand natural resources, DR Congo has become a prominent example of a country afflicted with the ‘resource curse’. This is not to say that resource

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abundance automatically dooms a state to economic stagnancy and interminable conflict, nor is it the only deciding factor in a country’s development. However, there is significant literature directly or indirectly linking natural resource endowment to an increase in the probability of conflict and economic decline, especially in states where poverty is already prevalent.

Economic analyses have shown that poverty actually increases rather than decreases in countries with a high dependency on natural resource commodities as a percentage of its overall exports while resource dependency has similarly been shown to correspond with lowered economic growth (Ross, 2003). As previously mentioned natural resource-abundance alone is insufficient to explain conflict though it has been found to increase the probability of conflict, especially when accompanied by another factors known to exacerbate conflict, such as increased poverty and negative economic growth (Ross, 2003).

It is natural to question how a country so rich in natural resources could perform so poorly economically. One well-known and widely accepted explanation for this phenomenon is ‘Dutch Disease’. This term refers to the effect of a state’s considerable increase in revenue from trading one commodity on the competitiveness of its other tradable goods and its overall economic growth. In the example of the Netherlands in the 1960’s, from which the term ‘Dutch Disease’ is derived, the discovery of natural gas created a booming trade in that particular sector but led to a de-emphasis of other sectors thus decreasing their competitiveness in global markets, resulting in a paradox of negative economic growth despite the country’s natural resource endowment (World Bank Institute, 2006).

Resource-based wealth also has a tendency to negatively affect government by making it weaker and more corrupt and lessening accountability (Ross, 2003). This is an incredibly relevant discussion in an era in which governance and, more importantly, good governance have become very common, even trendy, go-to words in the fields of international and development studies.

Without entering into a critique on the excessive use of these terms that has perhaps obscured their real meaning and implications for the developed as well as the developing world, it is important to address the decidedly negative way in which natural resource wealth has been found to effect governance at many crucial levels. For one, dependence on this type of revenue as a means of state funding as opposed to financing government through public taxation has been shown to decrease levels of accountability in bureaucratic sectors and increase the probability of

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the misallocation of state funds as well as undermine democracy (Ross, 2003 and Cramer, 2006).

Due to the lowered accountability of the government to properly allocate its natural resource generated wealth it is less likely to spend adequate funds on infrastructure, public health and education.

The lack of culpability in the spending of state funds is not exclusively because of the absence of a tax system that would encourage the public to hold members of the bureaucratic community more accountable for their actions. The fact that natural resource revenue, per se, is not easy to track and is therefore easily diverted due to lack of government capacity to manage such wealth makes corruption and embezzlement much more likely (Ross, 2003). It is not difficult to discern a cycle emerging from these observations where government accountability and transparency are negatively affected by natural resource abundance and are inversely related to corruption, lack of attention to public welfare or investment in infrastructure, increased military expenditures and the greater likelihood of conflict, all of which are mutually reinforcing.

It is important that through acknowledging this connection we find a way to break the ‘resource curse’ on developing countries such as DR Congo. In order to do this we must address the root issues underlying this affliction which include weak state infrastructure, over-dependency of the economy on natural resource exports , the lack of economic diversification and corrupt dealings between multinational corporations involved in the extraction and exploitation of natural

resources and host governments in resource rich countries. Giving aid and humanitarian support to DR Congo may offer a temporary or partial reprieve but it does not offer a real solution to the structural problems at the heart of the country’s predicament. One way to address the negative impact of natural resource commodity dependence in the economies of developing countries would be to diversify exports and therefore prevent the onset of ‘Dutch Disease’, as well as by placing restrictions on the international trade of primary goods from conflict-prone countries (Ross, 2003).

Advocacy for ethical corporate practices and transparency in corporate-state dealings as an answer to natural resource fueled corruption and related under-investment in social and economic development has increased considerable in recent years. For instance, the United Nations Security Panel produced a study on the link between the exploitation of mineral wealth and corruption, underdevelopment and conflict in the DRC (UNSC, 2002). Other analysts of the

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‘resource curse’ call for transparency not only in the payments from extractive sector corporations to host governments, but also in how resource rich states allocate funds (Ross, 2003). The influence of this type of ideology has proved to be pervasive and has resulted in a considerable increase in pressure on multinational corporations with extractive operations in developing countries. The formulation of complex corporate social responsibility policies and regulations of such have become commonplace as the scope of corporate influence is beginning to be understood fully. Voluntary initiatives such as EITI and the UN Global Compact have been created to encourage levels of corporate responsibility that go beyond basic accordance with laws and adopt business practices with the environment, sustainability and social development in mind. Unfortunately, since compliance with these guidelines is not universal or mandatory they cannot be considered sufficient in breaking the ‘resource curse’, though they have raised consciousness of the predicament of impoverished, resource-rich countries such as DRC and increased public and shareholder pressure on MNCs with extractive operations there.

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4. Methodology

4.1. Research Approach

For this study, I chose a qualitative approach, which I felt was much more fitting than a quantitative approach because of the overwhelming emphasis on social, political and business concepts rather than quantifiable sets of data (Bryman, 2004). A constructionist ontology would help me understand the effects of notions of CSR, as well as related existing regulatory

framework, of extractive sector MNCs on human rights and development in the impoverished countries in which they operate. The qualitative research approach is in line with constructionist ontology.

4.2. Qualitative Research Strategies

As part of the overall research strategy, I decided to use interpretivism and constructionism since I considered them the most appropriate approaches for studying social phenomena and the interface between man-made structures, socio-behavioral expectations and ethics. These strategies take into account the often subjective and dynamic nature of social institutions and their meanings (Bryman, 2004) .The research design had to be flexible to accommodate the qualitative methods of data collection that were employed.

4.2.1. Positivism and Interpretivism

Since the study is based in part on the interactions between synthetic structures and concepts such as corporations, governments, communities, organizations and regulatory initiatives as well as human notions of responsibility, rights and morality the epistemological position chose to employ was that of interpretivism. An interpretivist epistemological approach is characteristic of qualitative research in which “the stress is on the understanding of the social world through an examination of the interpretation of that world by its participants” (Bryman, 2004: 266). I found that statement to be especially true in the context of my research where a given person’s

perception or understanding of what constituted CSR and to what extent companies should be held responsible was linked to their position in the company-government-community nexus.

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4.3. Selection of Study Area

My initial plan was to conduct fieldwork in the Katanga Province in the Democratic Republic of the Congo to observe first-hand the community level development projects of several mining companies with operations in the region. I had read on their websites and press releases about their CSR policies and development activities in rural DRC but I wanted to see for myself and talk to the people who were recipients of corporate aid to see how effective CSR really is in terms of social development. I wrote to many representatives of NGOs in DRC, specifically to Pact, an American organization funded by USAID who has a project in the DRC working with mining companies to develop local communities. Over the course of several months in the Spring of 2008, during the planning phase of my research project, I wrote repeatedly to PACT representatives, project coordinators, researchers and directors at their offices in Lubumbashi, DRC and Washington DC. Though I included a detailed explanation of my research proposal and I conveyed my interest in their programs and desire to volunteer with them for my fieldwork, I did not receive a single response.

Due to the security situation and dire lack of infrastructure in the Katanga province, there was no option for me to go alone; if I were to travel there for fieldwork I would have to be with a large organization or a company who had connections in transportation as well as security. Since I was also interested in addressing policy and regulatory issues in CSR and development, I devised a questionnaire for corporate representatives of mining companies to find out more about their CSR programs and the motivations behind them, beyond what was advertised on their websites.

During this process, I encountered a very helpful and informative Director of Corporate Social Responsibility at a small mining company developing a copper mine in DRC. This person stands out as the most valuable source of information throughout my research. Once he had responded to my questionnaire and answered all of my addition al questions in a series of emails and phone calls, the offer was made that perhaps I could do a traineeship in their CSR department, at their headquarters or in their field office in the DRC. I was thrilled and felt that this was my chance to do genuine fieldwork for my study without risking my safety by going independently to the DRC, an option that had already been forbidden by my family and my wonderfully caring supervisor.

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Unfortunately, when the price of commodities crashed in the fall of 2008, copper mining companies such as the one I had hoped to work with found themselves in a difficult situation, with production at many sites grinding to a halt and resulting in total layoffs of more than 300,000 people in the Katanga Province alone (mineweb.co.za). With insufficient funds to cover existing financial obligations, it was clear that the offer to host my research was a luxury that they could no longer guarantee. At that point, I had to accept that I would not be able to conduct fieldwork in the villages receiving CSR development aid from multinational mining companies operating in the DRC. However, if I get a chance in the future to do a field study in the area, that would be a priority as a follow up to this research.

Therefore, I had to alter the research objectives somewhat to accommodate my inability to do conduct first hand research in the host communities and the resulting increased emphasis on policies and regulations driving CSR and development in the mining sector. However, I decided to maintain focus on mining companies with operations in the Katanga Province of the DRC to keep the study grounded and allow for conclusions to be drawn based on companies all operating under similar geo-political factors.

4.4. Research Design and Methods

The type of data collected during the research was both primary and secondary. The primary data was collected through observation, interrogation and participation in the various study areas. In this study, I found it was necessary to rely heavily on secondary data to both support and build a basis of understanding the primary findings. Primary data is of course more desirable than secondary data, which has limitations such as a lack of familiarity with and control of the quality of data obtained through secondary measures (Bryman, 2004). It was often impossible to gain access to primary data, for reasons that will be discussed further in the challenges limitations section of this chapter, and in these cases secondary data was substituted for the primary data that I could not get. Some of the factors that contributed to the difficulty of acquiring primary data were issues such as safety, access to key player in the sector, confidentiality and privacy;

politicization of primary research objectives and questions and willingness of participants, among other factors.

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4.5. Primary Data Collection

For primary methods of data collection, I conducted qualitative, semi-structured interviews, unstructured interviews and a questionnaire that could be answered by respondents in the event that they were unavailable or unwilling to participate in an interview. I also collected data informally through participant observation during my internship in the field of Socially

Responsible Investment (SRI) at an Investment Institution in Paris, France. Semi-structured and unstructured interviews were conducted with corporate representatives and others with specific, applicable knowledge in the field of CSR such as consultants specializing in CSR and analysts working in SRI. I also developed a detailed questionnaire concerning my research objectives that I could send to respondents via email when interviews were not possible.

Qualitative interviews have been described as having several benefits as opposed to participant observation, primarily because there are simply some social phenomena or issues that cannot be grasped through observation by the researcher which makes asking people who do experience or understand them the only way of obtaining knowledge about them (Bryman, 2004). I found this to be very true and believe that I obtained a larger quantity of well-rounded data by conducting qualitative interviews as well as utilizing the participant observation technique of data collection.

Often, what I observed as a researcher was not the same as what I was told by respondents or from consulting secondary data sources. Therefore, the data I collected while participating in the CSR sector as an intern and researcher is a valuable supplement to the data I collected via qualitative interviews and questionnaires.

4.6. Secondary Data Collection

Since primary data was not always available on the regulation, motivation and practice of CSR it was also necessary to use documents as sources of secondary data. To obtain relevant

information I conducted analyses of official documents such as policy documents, international legislation, voluntary initiatives concerning CSR and publicly available corporate reports

concerning CSR. In the analysis of official documents from private sources such as corporations, it is important to remember that these documents are not written objectively and are usually linked to a certain viewpoint or agenda (Bryman, 2004).

Analysis of documents for secondary data collection was especially important in gaining information and insight into existing guidelines and regulations for MNCs regarding CSR. In

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doing this, I studied the publicly available information on the specific guidelines and initiatives available on their websites and documents produced by researchers at the UN on the subject of existing CSR guidelines and regulations. I also had to rely heavily on publications such as press releases, case studies and other documents to assess how MNCs are addressing social and economic development and human rights in their CSR agendas.

4.7. Ethical Considerations and Limitations

Unfortunately, there were several limitations confronted during the course of this study of the implications and regulations of CSR for human rights and development, many of which were foreseeable due to the relatively delicate subject matter of the research. The most importent limiting factor was the lack of access to primary information for reasons of safety and lack of connections within the upper echelons of corporations and international regulatory bodies. Even at the beginning of this study, I was aware that that some of the information I wanted to attain was going to be beyond my reach, at least in the scope of this research project, but I just hoped for the best and have had to make do with the information available to me.

When conducting qualitative research there are many ethical issues that must be carefully

considered by the researcher (Bryman, 2004). According to Diener and Crandall (1978; Bryman, 2004), there are four main ethical issues to contemplate in social research including not

compromising the safety of participants, the necessity of informed consent of the participants, acting with respect to the privacy of participants and abstaining from any kind of deception during the research project. From the beginning of this study, I was aware that I needed to be cautious in my research so as not to risk my own safety and wellbeing or that of my informants (Bryman, 2004). One example of this is that, since the research topic remains controversial, I assured the anonymity of the corporate representatives and other experts and analysts who participated in qualitative interviews or responded to my CSR questionnaire.

In the case of this research, it was necessary to be very attentive to ethical considerations when conducting interviews with representatives of different groups. While trying to obtain

information I had to be sure to inform them of exactly how the information I was seeking would be used and abstain from overly intrusive questions and protect their anonymity when necessary (Bryman, 2004). Since I could not promise that the information I gathered from corporate respondents would be used to paint their companies in a positive light, I agreed to keep their

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identities anonymous and leave out the names of specific companies when reporting my findings.

Assuring their anonymity may have had positive results by allowing respondents to speak more openly about controversial or defensive issues. Unfortunately, as a result, I have been obligated to refer to respondents generally and to the corporations they represent as simply “the company”,

“the corporation’, or “the MNC”.

I encountered the biggest research challenge during my correspondence and qualitative interviews with mining company representatives. I found that there is a very fine line between asking the necessary questions to get the desired information, and asking too much of the informant at which time they are no longer cooperative. My instinct was to form an opinion, or judgment, about the activities of a wealthy MNC with operations in a developing country.

However, if I did this then I was sure not to gain their trust or compliance during the interview.

At the same time, I had to be true to my objectivity as a researcher and not just tell them what I believed that wanted to hear from me in exchange for the information I required from them. By

‘objectivity’ I do not mean value neutrality, but being open minded in the context of the subject matter.

I experienced mixed reactions to my questions and the more probing ones inspired defensive reactions. I suppose that in the context of this research, defensive facades are to be expected.

After all, mining companies receive much more criticism than praise for their social and environmental impacts and performance and as a student in Development Studies, it is possible that CSR representatives assumed that I already had a pre-conceived negative opinion about their company. Unfortunately, this limited the amount of pertinent original information I was able to extract from these interviews.

Another limitation was the lack of response to my inquiries from representatives of MNCs in the mining sector. Every company I contacted for an interview or response to my questionnaire had a very well crafted website detailing their commitment to CSR and giving examples of their social outreach and community level development programs. Despite this, only a very small percentage agreed to interviews with me to detail their programs and discuss their motivations and CSR obligations and practices. On more than one occasion, I received an initial positive response to my primary inquiry agreeing to answer my questionnaire or to set up an interview, but once I posed my questions to the company representative or CSR specialist I received no further

beyond business: evaluating the drivers for and effects of corporate social responsibility policies of multinational corporations in the non