Oil and CSR means Business : CSR as a Business Strategy among Oil Companies in South Sudan 2005-2011

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Oil and CSR means Business

C SR as a Business Strategy among Oil Companies in South Sudan 2005-2011

Sindre Sørhus

Master thesis Human Geography SGO 4090

Autumn 2012

Department of Sociology and Human Geography Faculty of Social Sciences

University of Oslo

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Acknowledgements

This master-thesis, though sometimes felt as a solitary endeavour, is a result of collaboration and massive support. I have relied heavily on assistance and support from countless persons and institutions to who I am forever grateful. First of all I would like to express my gratitude and sympathy towards the people of South Sudan who opened their country, doors and hearts to a bewildered and bearded Norwegian.

From the offices at the Ministry of Energy and Mining to the open-air churches, meeting diplomats, former child soldiers or the street-kids at Konyo-Konyo, my encounters with the South Sudanese people were always positive.

I would also like to thank the informants at the Ministry of Energy and Mining, ECOS, PACT Sudan, PETRONAS, WNPOC, Total, and “Peter” from the local community who agreed to be interviewed. Without your participation I would have been stranded.

Jamus at Norwegian People`s Aid became an important discussion partner in developing my thesis questions. In Juba he and the rest of the hardworking staff at Norwegian People`s Aid assisted me with accommodation, transportation, contacts, excursions and valuable discussions. The reputation and high standing NPA in South Sudan reflected positively on me and I am proud to have been associated with you.

My cousin Kari at the Norwegian embassy made sure I saw more of South Sudan than offices and laptops and introduced me to a world of fun and interesting expats as well as Juba’s number one boda-boda driver: Alex. Thank you all for showing me Juba and South Sudan.

At the University of Oslo, my supervisor, Hege M. Knutsen, has been immensely helpful. It has no doubt been frustrating going through my unfinished manuscripts that made little sense, but her comments have been important to guide me towards the final result. She has undoubtedly supervised more than supervisors are supposed to and saved me from the gravest errors. As for the remaining errors, they are my own.

Finally I want to thank my beautiful wife, Christina, for supporting me and for letting me skip work to study in South Sudan. Not every wife would visit in Juba, and very few would be happy spending her holiday volunteering when her husband is organising interviews all day. I will now return from the computer and give you the attention you deserve (almost a full week before September 7^th whey you are scheduled to give birth to our child).

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This study is conducted to shed light on the conditions that affected the corporate social performance of international oil companies operating in what is today South Sudan during the period from 2005 to 2011. The impacts of the oil industry can be devastating and it is of vital importance that companies behave responsibly, especially in poor countries where marginalized communities are more vulnerable to exploitation.

The oil producing areas in South Sudan contain large oil-reserves, but are still among the least developed areas on the planet. Following the discovery of oil, a war broke out in 1983 between the central government of Sudan and a southern rebel group called Sudan People`s Liberation Army (SPLA). During the civil war that lasted more than 20 years, approximately two million people were killed and twice as many were displaced. Because of their proximity to the oil fields, the local communities in the oil-regions suffered more than others and were subject to forced displacement and violent attacks by government troops and local militia. Villages were destroyed, civilians killed, raped or taken as slaves. Oil companies have been criticized for complicity in these war crimes and their actions during the war created resentment in South Sudan. The Comprehensive Peace Agreement (CPA) that was signed in 2005 brought peace and promises that the local communities in the areas of oil production shall benefit from oil extraction. This study will look at whether and how the companies contribute to this through their Corporate Social Responsibility (CSR) and why the companies have acted as they have. Conducted using the qualitative methods of semi-structured interviews, informal data gathering and desktop research this study will examine both the policies and actions of the oil companies and the conditions present in South Sudan during the time of the CPA in order to explain their policy and practice.

The term Corporate Social Responsibility (CSR) has become the most common term used to express the responsibility business has towards greater society. CSR has been embraced by companies and nations across the globe and promoted by global institutions through initiatives such as the UN Global Compact. The concept of CSR is not new, but gained renewed attention in the 1990s when scandals on child labour,

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human right abuses and pollution uncovered the negative effects of globalisation. As a response to its own scandals, the oil industry have been among the leading industries in promoting CSR and oil companies have been at the forefront when it comes to CSR-reporting and development of CSR-policies [CITATION Fry10 \m Sha061 \t \l 1044 ].

Literature on CSR has differed based on the economic theories the writers base their research in [ CITATION Bro07 \l 1044 ]. While literature based in neoliberal economic theories generally portrays CSR as a win-win solution that benefits both business and society, literature based in more radical economic theories has focused on the failures of both companies and CSR-itself (ibid). According to Frynas “…too many books on CSR fail to appreciate the importance of context in the evolution of CSR” [CITATION Fry10 \p 2 \l 31764 ]. Frynas further argues that context is important both to understand the emergence of CSR and to determine what companies can and should do in a given setting (ibid). In this study I have described both the nature of the oil industry in general and the particular economic and political conditions in South Sudan during the CPA-period from 2005-2011.

The oil industry is chosen as the object of study, because I noticed that oil companies behave differently in different parts of the world and became curious about how this is compatible with centrally developed CSR-policies. This study uses the CSR-policies as a starting point to analyse the practices of companies. It further goes on to discuss what responsibility civil society and government expected the companies to assume and discusses the achievements of CSR in South Sudan in the given period. Finally it discusses the conditions present in South Sudan and how they have affected the policy and practice of the companies.

1.1 Defining Corporate Social Responsibility (CSR)

Before I move on to my research questions I find it necessary to clarify the meaning of Corporate Social Responsibility (CSR). The term is widely used, but there are a number of different definitions and conceptions about what CSR is. After looking at 37 different definitions of CSR, Dahlsrud identifies five common dimensions: an environmental dimension, a social dimension, a stakeholder dimension, an economic

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dimension and a voluntary dimension[CITATION Dah06 \l 1044 ]. These five dimensions indicate that CSR is seen as something that goes beyond the law (voluntary) to manage their responsibility towards the nature (environmental), wider society (social) and various groups affected by the business (stakeholder) while being profitable (economic). None of the definitions actually address what social responsible practices entail, but rather describe CSR as a phenomenon (ibid).

Definitions of CSR therefore provide little guidance for business on how to manage their social responsibilities.

In this study I will use a definition of CSR similar to the one applied by Blowfield and Frynas [CITATION Blo05 \n \t \l 1044 ]. They propose that given the plethora of definitions it may be more useful “…to think of CSR as an umbrella term for a variety of theories and practices all of which recognize the following: (a) that companies have a responsibility for their impact on society and the natural environment, sometimes beyond legal compliance and the liability of individuals; (b) that companies have a responsibility for the behavior of others with whom they do business (e.g. within supply chains); and (c) that business needs to manage its relationship with wider society, whether for reasons of commercial viability or to add value to society” (Blowfield & Frynas, 2005, p. 503)

I see social and environmental impacts as the core of CSR. Hence, in this study CSR is viewed as an umbrella term covering various ideas and practices that recognise that business has impacts on society and the natural environment and that business has a responsibility to limit their negative and maximise their positive impact. CSR-activities are thus activities on part of the company to limit the negative or enhance the positive impact of the company. This way of viewing CSR is intentionally wide, and includes ideas and practices that don’t necessarily contain a voluntary or stakeholder dimension. This allows me to look at any part of the operation of the oil companies that has social or environmental impacts.

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1.2 Objectives and research questions

Developing countries with large oil resources are found to perform worse than their neighbours with fewer natural resources [ CITATION Aut93 \l 1044 ]. At the same time international oil companies operating in developing countries have been criticised for unethical behaviour. This has made me curious about how the oil industry can contribute positively to the economic and social development of a country.

My study consists of two research objectives. The first research objective addresses the CSR-practice of the international oil companies in South Sudan in the CPA- period, how this corresponded with their CSR-policy and how local government and civil society experienced their actions. I will shed light on this with the following three research questions.

- What is the CSR-policy of the oil companies in South Sudan?

- How does the CSR-practice of the oil companies correspond with their CSR-policies?

- How do civil society and the Government of South Sudan (GoSS) consider the practice of the oil companies?

My second research objective is to explain the CSR-practice of the companies by looking at conditions that impact how they practice CSR. Using institutional theory and stakeholder theory as starting points I will analyze how the organization of the oil industry and the ability of various stakeholders¹ to hold the companies accountable can explain the social performance of the companies. This is done with the help of the following two research questions.

1 A stakeholder is defined as ”any group or individual who can affect or is affected by the achievement of the organisation’s objectives” (Freeman, 1984 p. 46).

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- What conditions in South Sudan have influenced the culture of CSR in the oil industry?

- What stakeholders did the oil companies listen to, and what was the relationship between the companies and their main stakeholders?

1.3 Choice of case

The case was chosen for several reasons. The oil industry is of interest because of its negative externalities² combined with large profits. For the oil industry, the most obvious negative externalities are connected to environmental damage. Pollution and oil spills affect negatively on third parties without the companies bearing the total cost of it [ CITATION Hum07 \l 1044 ]. The large profits provide the companies with the means to invest in managing the impact of their activities, while the negative effects of oil production provides them with a reason.

South Sudan provides an interesting case because of its dire needs and high dependency on oil revenue. It is also interesting because the regulation of the oil industry in South Sudan was weak which means that there was a large scope for voluntary action from the oil companies. During the war the companies were severely restricted by security concerns, so the period of 2005-2011 was chosen because this was a period with consistent regulation. The Government of South Sudan was extremely weak in this period and there were disputes over the regulation of the oil industry. The scope for agency on part of the oil companies was therefore anticipated to be particularly large. After independence things changed and it is too early to judge how this will affect the companies.

My aim is that this study will provide new information on CSR in international oil companies in developing countries. Research on CSR among oil companies operating in Africa is mainly focused on companies from Europe and North America who are most active in West Africa. The oil industry in South Sudan, on the other hand, is dominated by Asian companies on which the literature is more limited.

2 Externalities are costs or benefits that are inflicted upon third parties.

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1.4 Structure of the thesis

In Chapter 2, I will present the theoretical framework of my study. I start by accounting for economic theories that form the basis for much of the discussion on CSR. First I will look at how different economic theories view CSR. I will then present Carroll`s hierarchical CSR-pyramid as well as some of its critics. A presentation of the views of Simon et al [CITATION Sim72 \n \t \l 1044 ] on affirmative and negative injunction duties follows, before I present institutional theory and stakeholder theory. Finally I will present the theory of the resource curse as put forward by Richard Auty [CITATION Aut93 \n \t \l 1044 ].

Chapter 3 presents background information for my study. I will briefly present the historic, geographic and social context in which the companies operated. After presenting the context, I turn to the oil industry. The account of the oil industry in South Sudan contains the companies involved; their operating areas, as well as how it has been regulated.

In Chapter 4, I account for my choice of method and challenges I faced during the fieldwork. Before presenting my choice of method I will state what theory of science this research is conducted in relation to. Following the reasons for my choice of method, I will present my preparations for the fieldwork and the choice of informants.

Thereafter I will go through the different methods used and their strengths and weaknesses. The chapter will end with an account on the practical and ethical challenges encountered during the fieldwork.

Chapter 5 and 6 forms my analysis. In chapter 5 I look at the CSR-policy of the different companies, before I turn to how they have actually performed. Following this, I look at how different groups view the actions of the oil companies. I further discuss why there is a discrepancy between how oil companies present themselves and how others experience their actions, using the views of stakeholders and different theories. In chapter 6 I analyse the oil industry based on institutional theory and stakeholder theory and discuss whether this can help explain the performance of oil companies in South Sudan.

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Chapter 7 is the conclusion. I will present a summary of my findings and its implication for policy and theory, as well as give some recommendations for future research.

2. Theoretical framework

In this chapter I will give a summary of the theoretical framework for this study. I will start by providing some economic theories that form the basis for much of the debate on CSR, before I turn to the discussion on CSR itself. The next part of the chapter will focus on theories on CSR and different approaches to the phenomenon. I will start with Carroll’s CSR-pyramid that provides a model to identify different dimensions of CSR before I look at Simon et al’s [CITATION Sim72 \n \t \l 1044 ] theory on the importance of different responsibilities. I will further account for two different theories on why companies engage in CSR: institutional theory and stakeholder theory. Finally I will present the theory of the resource-curse to highlight the specific challenges of CSR in the oil industry.

2.1 Economic theories

Different views on CSR are based in different economic theories. I will therefore give a summary of the different economic theories that have shaped the CSR-debate to understand the different approaches to CSR and their arguments. Obviously attitudes towards CSR vary among adherent to the different economic theories. This is not an attempt to give a thorough account of all the different views on CSR, but to outline how different views of CSR are based in different economic theories.

2.1.1 Neoliberal theories

Neoliberal theories are economic theories that focus on the laws of supply and demand and stress the importance of open markets and free trade. Neoliberalism further supports deregulation of markets and believe that competition among the private sector will yield the best result for society. Full employment is reached

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through non-intervention, as market forces will make sure capital and manpower is allocated to sectors where they are most needed.

The neoliberal view of a company’s social responsibility has generally corresponded with the famous statement of Milton Friedman in 1970:

“… there is one and only social responsibility of business –to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud” [ CITATION Fri70 \l 1044 ].

Among neoliberal approaches an extreme attitude to CSR has been to view CSR as an intrusion on business and a distraction from their real objective. According to this view, CSR is principally wrong because companies, by pursuing social and environmental targets, may hurt shareholders by lowering their profit [CITATION Lev58 \m Hen04 \l 1044 ]. This has lead critics of neoliberal theories to argue that CSR is not compatible with neoliberal theory and that these theories must be discarded once one admits that CSR is desirable[ CITATION Dub \l 1044 ]. However, most neo-liberal adherents see engagement in CSR as a profitable choice for business in the long run and therefore rational [ CITATION Bro07 \l 1044 ]. Neoliberal definitions of CSR tend to see it as “…the adaptation of a set of voluntary principles and guidelines, initiated and driven by the corporation” (ibid p. 6), with the ultimate goal of increasing profit. CSR is seen to minimize risks and therefore cutting costs and is promoted as a win-win situation between business and society [ CITATION Gro05 \l 1044 ]. This argument has been named the “business case” for CSR. It is the central message of most books on CSR and is widely adopted by companies and business students [ CITATION Vog05 \l 1044 ].

The neoliberal approach to CSR has been criticised for ignoring the negative impacts of business as well as neglecting instances where ethical behaviour runs contrary to profit. Critics also claim that neo-liberal theories pay too little attention to market failures and market manipulation. The fiercest criticism has come from various radical political economic theories.

2.1.2 Radical political economic theories

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Opposed to neoliberal economic theory are a number of political economic theories inspired by Marxism and socialism. In development studies these theories are labelled dependency theories, but other economic theories also fall under the category of radical political economy. These theories trace their roots to Karl Marx and Andre Gunder Frank’s theories on development and underdevelopment.

Radical political economic theories are sceptical to free markets and promote an active state to regulate the private sector. The neoliberal idea that the interest of business and society are always in harmony is seen as unrealistic and is therefore rejected by radical political economy. Radical political approaches instead see large corporations as powerful entities with self-interests that sometimes collide with the rest of society [ CITATION Bro07 \l 1044 ]. Pollution, child labour, corporate fraud and tax evasion are seen as examples of the mismatch between the interest of society and corporations. Just as adherents to radical theories are critical to free markets and the role of multinational corporations, they are also critical to CSR. The abuse of corporate power has lead these radical approaches to view many of the current CSR initiatives as naïve, ineffective and inadequate. CSR-policies are seen to avert attention from proper regulation of business because of the self-regulatory and voluntary nature of many CSR-initiatives (ibid). The role of the state and civil society in controlling the potentially negative impact of private companies is therefore a major concern.

Many political analysts and activist groups based in radical political theories reject voluntary CSR completely and prefer to talk about Corporate Social Accountability.

Instead of focusing on how business should behave responsibly, they rather focus on how to hold them accountable when they don’t. This position has been particularly common among activist groups and NGOs, but has also gained a foothold within larger international organisations such as the UN [ CITATION Utt02 \l 1044 ]. Still, radical theories have been criticized for not acknowledging the positive impact of business and the positive effort conducted by individual firms.

As shown, neoliberal and radical political economic theories provide very different justifications for engagement in CSR. While neoliberal theory claim companies

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should engage in CSR when, and if it is beneficial for the company, radical political economy claim companies have an obligation to act responsibly. CSR should therefore be enforced on companies to limit their negative impact on society. There are a number of economic theories that occupy the middle ground between these theories. However, the main disagreement are found between neoliberal and radical political theories, with alternative views positioned somewhere on the spectre.

2.1.3 An account of the CSR-debate between different economic theories

In the on-going debate between adherents of the different economic theories the debate has focused on different aspects of CSR. A heavily debated subject has been the business-case for CSR; the idea that its good for business to engage in CSR.

Critics claim that evidence shows that companies often make choices indicating that sound ethics is bad for business. They pollute, violate human rights, use child labour or treat workers poorly. This has led some to argue that CSR needs to be regulated. As we have seen, neoliberal approaches have generally heralded CSR as a win-win solution for business and society. By incorporating ethics in their business strategy, companies will not only contribute positively to the society, they will also experience new opportunities, better PR, saved expenses, limited risks and new markets. As Grossman concludes, there is therefore no need for regulations: “The link between social engagement and financial performance ultimately suggests that companies will be motivated to self regulate and implement socially responsible strategies regardless of legislative reform” (Grossmann, 2005, p. 594). This is what Vogel calls “The market for virtue” [ CITATION Vog05 \l 1044 ], where companies gain a competitive advantage by being virtuous, i.e. act responsibly.

A related point of disagreement concerns the focus on voluntarism in CSR. Neoliberal approaches tend to see voluntarism as an essential part of CSR. If CSR is to give the corporations a strategic advantage it should come from the corporations, not be a legal requirement. Only by going beyond what the company is forced to do by law can a company be said to be responsible. While voluntary solutions puts more pressure on companies to develop strategies themselves, and allows consumers to reward companies that go the extra mile, at the same time it opens a window for companies that choose not to act responsibly. Some based in radical economic theories interpret

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the surge of CSR in the 90s as a strategic choice by the companies to avoid regulation [CITATION Jen051 \l 1044 ]. Being sceptical to deregulation, they therefore question the focus on voluntarism in CSR.

Critics of voluntary initiatives claim that focus on voluntarism leads to companies only acting responsibly when it serves their own economic interests[CITATION Cor06 \l 1044 ], which will not protect society from the abuse of corporations. The focus of companies is assumed to be on profit and additional responsibility will only be taken if it serves the financial interest of the company. Corporate Watch claims this happens because companies are governed by, often anonymous, shareholders. To a large extent profitability determines the stock-value, meaning that CSR-initiatives that lowers profitability are not welcomed by the owners (ibid). Neoliberal approaches don’t deny that profit is the motivation for engaging in CSR, but claim that profit- seeking companies will benefit all of society.

Vogel believes that this critic of CSR is based on two misunderstandings: That it never can be in a company’s financial interest to behave responsibly and that companies only care about profit (Vogel, 2005, p. 13). On the contrary, he argues, many business owners are concerned that their company have a positive impact on society. He claims there is a market for virtue, though it has limits.

A third argument concerns CSR´s implications for accountability.

Within radical political economic theory it is claimed that the focus on voluntary action makes it harder to hold companies accountable.

Voluntary initiatives like UNs Global Compact have been criticised for containing mechanisms that prevents accountability [ CITATION Due08 \l 1044 ]; particularly in third world countries where local communities are often marginalized and has limited capabilities to fight against large multinational corporations. These are also the ones suffering the most from the negative impact of large corporations [CITATION Jen05 \p 543 \l 1044 ]. As a consequence it is argued that ethical and social standards should be incorporated in national and international laws instead of being left to the goodwill

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of companies. Instead of focusing on encouraging companies to behave responsibly, one should focus on building mechanisms to hold them accountable [ CITATION Ben04 \l 1044 ].

A proposed solution to the accountability-problem has been to encourage civil regulation through multistakeholder-initiatives where different stakeholders meet, cooperate and hold each other accountable. Newell finds civil regulation partly problematic and links this to the power-relation between companies and local communities. Big multinational corporations tend to wield much more power than poorer local communities, especially in third world countries [ CITATION Jen05 \l 1044 ]. To enable communities to hold companies accountable, Newell argues that they must be able to hold local and national government accountable. As the regulator, the government has much more leverage towards large companies. Through access to justice and a functioning legal system and by applying pressure to government, the local communities may be able to influence companies. For this to work, though, the government needs to be able to sanction the companies. If not, the communities are dependent on the will of the companies to listen to the population (ibid p. 551). Vogel agrees that civil regulation is problematic and sees it as an attempt to bridge the gap between law and market. However, while many prefer that corporations be strictly and efficiently regulated through national and international law, this is not always possible. When it is not, civil regulation may be the second best option [CITATION Vog05 \p 9 \l 1044 ].

2.2 The concept of Corporate Social Responsibility

According to Frynas “There is no accepted theoretical perspective or research methodology for making sense of CSR activities” (Frynas, 2010, p. 12). This poses a challenge for a study attempting to shed lights on the phenomenon, and requires the researcher to chose both the appropriate method and theoretical perspective for his study. In the following section I will provide an overview of the different approaches to CSR I have found most relevant for this study.

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2.2.1 Carroll’s CSR pyramid

Archie B. Carroll’s CSR pyramid has been the most durable and widely cited model of CSR in the literature[CITATION Cra07 \l 1044 ] and serves as a good starting point. Though it has limitations, it provides a useful model for defining and exploring CSR.

Carroll claims there are different components of CSR and that companies have responsibilities that are arranged in a hierarchy [CITATION Car91 \t \l 1044 ]. The most fundamental responsibility for a company is economic. This responsibility is directed both to its shareholders, its employees and the larger society. Without profit a company will not be able to survive, people will loose their jobs, government will loose tax income and the company will no longer contribute to growth in a country.

Carroll acknowledge that companies pursue profit out of self-interest, but still claims that “...economic viability is something business does for society as well, although we seldom look at it this way” (Carroll, 1999, p. 284).

The second step on the pyramid is legal responsibilities. A company has a responsibility to follow rules and regulations. For those who define CSR as voluntary action by the company, this is not regarded as CSR, as it is taken for granted. It is however, possible to argue that a company that does not follow rules and regulations is irresponsible and cause social harm. Hence it is closely related to the company’s social responsibilities.

The third step is labelled ethical responsibilities. This is the companies’ obligation to do what is right, just and fair. It also includes the obligation to not cause harm. Ethical responsibility is connected to the core activities of the company and exceeds the legal requirements. Thus it falls within voluntary action by the company. This is not to say that the companies always do this by their own conviction. Carroll acknowledge that stakeholders influence companies and may push them to behave more ethically.

The fourth step is called discretionary or philanthropic responsibility. Hereunder lies gifts, sponsorships and social projects; efforts that contributes to a better society and shows good citizenship on part of the company, but are not related to its core

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operations. Carroll claims that philanthropic responsibility ”...is highly desired and prized but actually less important than the other three categories of social responsibility” (Carroll, 1991, p. 42). According to Carroll, companies that engage in philanthropic endeavours, but forget the more fundamental ethical responsibility, are less responsible.

Figure 1

Source: (Carroll, 1991, p. 42)

Figure 1 shows Carroll’s pyramid with explanations of the different responsibilities.

The most fundamental responsibility is at the bottom, while the least important forms the top of the pyramid. Carroll sees his pyramid as a metaphor and admits that it is not perfect. His pyramid is intended to “…portray that the total CSR of business comprises distinct components that, taken together, constitute the whole. Though the components have been treated as separate concepts for discussion purposes, they are not mutually exclusive and are not intended to juxtapose a firm's economic responsibilities with its other responsibilities” (ibid). However, Carroll does not give any reasons for the hierarchical order, something that has led others to speculate

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whether the pyramid should be seen as a descriptive or normative model (Visser, 2006, p. 46).

According to Visser [CITATION Vis06 \n \t \l 1044 ], Carroll’s CSR-pyramid may not be the best model for understanding CSR, especially not in Africa. He further claims that in an African context the same four elements are present, but the hierarchy is different from western societies. The African CSR-pyramid would have economic responsibility as the most fundamental, followed by philanthropic, legal and ethical responsibility, showing that CSR is understood differently in the West and in Africa.

While there certainly are differences between Africa and Europe or the U.S, differences also exist within Africa. Therefore, to talk of an African context does not cover the wide diversity of the African continent. However, Visser shows that what people understand as the social responsibility of business is dependent on culture[ CITATION Vis06 \l 1044 ]. A similar conclusion is reached by Crane and Matten who has examined how Carroll`s CSR-pyramid fit a European context (Crane

& Matten, 2007, p. 51). Hence, the CSR-pyramid should be seen as a dynamic model dependent on context.

Lantos [CITATION Lan02 \n \t \l 1044 ] uses neoliberal economy to challenge the morality of the different components of Carroll’s pyramid. He separates between ethical, altruistic and strategic CSR. Ethical CSR corresponds to the economic, legal and ethical responsibilities of a Carroll’s pyramid, while altruistic CSR corresponds to philanthropic responsibility. Finally strategic CSR is the philanthropic responsibilities

“…which will benefit the firm through positive publicity and goodwill” (Lantos, 2002, p. 2). Lantos claim that “…ethical CSR is morally mandatory and goes beyond fulfilling a firm’s economic and legal obligations, to its responsibilities to avoid harms or social injuries, even if the business might not benefit from this” (Lantos, 2001, p. 16). This goes beyond the business case for CSR by claiming that the responsibility to avoid harm trumps the economic responsibility of a company.

However, Lantos agrees with Milton Friedman that philanthropy is not the role of business and argues that altruistic CSR is immoral because it violates shareholder property rights and steals their wealth. On the other hand, Lantos argues that strategic CSR is good for both companies and society. His argument is that companies should only engage in philanthropy if they can expect to profit from it [CITATION Lan01

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\t \l 1044 ], thus making it part of the economic responsibilities of firms. The implication of this would be to remove philanthropic responsibilities from the CSR- pyramid altogether.

Carroll’s CSR-pyramid offers a valuable model to analyse CSR-policies and practices because it identifies different components of CSR. Their relative importance is disputed and they are not mutually exclusive. However they are valuable for discussion purposes and to identify nuances in CSR policies and practices.

2.2.2 Affirmative and negative injunction duties

A critique of Carroll’s model is that it does not say anything about instances where different responsibilities collide (Crane & Matten, 2007, p. 51). I will now look at theories that address this issue.

Simon et al [CITATION Sim72 \n \t \l 1044 ] introduced the distinction between affirmative and negative injunction duties in the CSR-debate. Affirmative duties are the responsibility to do good, while negative injunction duties are the responsibility to not cause harm. Simon et al [CITATION Sim72 \n \t \l 1044 ] argue that the duty to not cause harm is the most important and calls this responsibility a “moral minimum”

of which all men and companies are obliged:

”Although reasons may exist why certain persons or institutions cannot or should not be required to pursue moral or social good in all situations, there are many fewer reasons why one should be excused from the injunction against injuring others”

(Simon, Powers, & Gunnemann, 1972, p. 62).

Negative injunction duties as well as affirmative duties connected to the core activities of a company falls under what Carroll calls ethical responsibility, while affirmative duties unrelated to the core activities correspond well to what Carroll calls philanthropic responsibility. Simon et al [CITATION Sim72 \n \t \l 1044 ] claim that when different responsibilities collide, companies’ primary responsibility is to avoid causing harm. Thus they agree with Carroll’s view that ethical responsibility is more important than philanthropic responsibility.

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The relevance of this view on the oil industry has been examined. Through analysing the Nigerian oil industry, Uwafiokun Idemudia noticed that community development projects were popular among the oil-companies [ CITATION Ide \l 1044 ]. He further found that projects that were “bottom-up” oriented with communities having a stronger influence were more likely to have a positive impact on the communities than projects that were “top-down”. However, neither of these types of community projects changed the day-to-day activities of the companies with its negative impacts, which was the main concern of the communities. Instead of focusing on the negative injunction duties of their ethical responsibility, the companies focused on the affirmative duties corresponding to their philanthropic responsibility. The neglect of their negative injunction duties thus undermined the contribution to the host communities.

Idemudia shows that the size of the CSR-budget or the participation in different initiatives does not necessarily tell anything about the contribution to the society.

Though context determines what action will provide the best result in any given setting, Idemudia points out that the most fundamental part of CSR is to accept responsibility for the negative consequences of the operations of a company.

According to Simon et al [CITATION Sim72 \n \t \l 1044 ] the negative injunction duty may also install a moral responsibility on persons and companies to avoid harm even though they are not the ones inflicting the harm. This responsibility increases based on need, proximity, capability and last resort. Increased need increases responsibility to aid. Increased proximity and capability likewise increases the responsibility. Finally one becomes more responsible for providing assistance the less likely it is that someone else will be able to aid (Simon, Powers, & Gunnemann, 1972, p. 74).

Using a utilitarian perspective on CSR in the Angolan oil industry, Wiig and Ramalho come to a similar conclusion. They argue that oil companies have a moral obligation to take responsibility that normally would be taken by the government: ”If other institutions/agents do not take responsibility while corporations are able to (have the capability) take this responsibility, then the companies should take additional responsibility” (Wiig & Ramalho, 2005, p. 2). However, these views are contested.

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For the oil industry operating in developing countries this view would mean that they share a responsibility to help the needy in their operating area. This responsibility increases with the proximity and capability of the companies, as well as the need of the people and the likelihood that others will correct the social injury. With oil companies often operating in areas where the needs are great and the capability of other actors to fulfil the needs are lacking, this way of thinking assign a lot of responsibility to the companies.

The view of Simon et al [CITATION Sim72 \n \t \l 1044 ] and Idemudia [CITATION Ide \n \t \l 1044 ] has implications for the oil industry where environmental or social concerns are often weighed against profitability. While the oil industry has been among the leading industries in the adoption and development of CSR [CITATION Sha061 \t \l 1044 ], this can in part be explained by the potentially harmful nature of the industry. Oil extraction potentially has a number of negative consequences for both host countries and local communities. Pollution, oil spills, corruption and violent conflict has followed oil-extraction and led to bad publicity and pressure from civil society and governments to change the business in a more ethical direction. According to Simon et al [CITATION Sim72 \n \t \l 1044 ] and Idemudia [CITATION Ide \n \t \l 1044 ] the primary moral concern of oil companies should be to limit the harm caused by the industry.

2.3 Why do companies engage in CSR?

According to Frynas, “What is particularly lacking is a general explanation as to why and how firms engage in CSR” (Frynas, 2010, p. 13). To understand why companies act as they do, it is important to understand why they accept social responsibility. By uncovering why companies engage in CSR it is also possible to uncover how they engage in CSR, as different reasons for engaging gives different strategies. Carroll’s pyramid is not an explanatory model to why business has adopted CSR. To answer this question we need to look at other theories. Frynas lists several different perspectives on CSR activities (ibid), but claims that two of these perspectives have become dominant: institutional theory and stakeholder theory.

2.3.1 Institutional theory

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Institutional theory focuses on the institutionalisation of behaviour. According to these theories companies adapt to institutions within a given context. Such institutions can be national norms or recognised ways of doing things within an industry.

Companies are believed to adapt to social norms because they cannot survive without a certain level of acknowledgment from its surroundings. In other words “companies imitates what others do in order to remain socially acceptable” (Frynas, 2010, p. 16).

The process where companies behave similarly within a defined business environment is called isomorphism. Isomorphism can be both competitive and institutional [ CITATION DiM83 \l 1044 ]. Competitive isomorphism is when competitive pressure excludes companies, whose organisation is unsuited to the environment, leaving the remaining companies with similar organisations [ CITATION Han77 \l 1044 ]. Institutional theory focuses on the second form of isomorphism, institutional isomorphism. DiMaggio and Powell [CITATION DiM83 \n \t \l 1044 ] identify three mechanisms that explain why companies become similar:

- Coercive isomorphism results from “…both formal and informal pressures exerted upon organizations by other organizations upon which they are dependent and by cultural expectation in the society within which organizations function” (ibid p.150). An important part of this pressure is the legal framework. Another way of applying pressure is by withholding financial funds or social approval.

- Mimetic isomorphism is the imitation of other companies to reduce uncertainty. “Organizations tend to model themselves after similar organizations in their field that they perceive to be more legitimate or successful” (DiMaggio & Powell, 1983, p. 152).

- Normative isomorphism is the result of professionalization and is a normative source for change. Professionalization rest on formal education and universities and other training institutions that are centres for development of norms and normative rules. Workers who are trained in these institutions develop common norms. After their training they spread to different companies and create professional networks.

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According to institutional theory oil companies will develop similar CSR-policies and practices due to the mentioned mechanisms. It explains why companies within the same industry often have the same approach to CSR, or why companies operating in the same country have similar CSR-policies. According to Kolk and Van Tulder

“MNCs appear only willing to state active commitment if others in their sector do as well” (Kolk & van Tulder, 2006, p. 798).

2.3.2 Stakeholder theory

Stakeholder theory has been the dominant perspective within the CSR-debate, following Freemans influential book “Strategic management - a stakeholder approach” [CITATION Fre84 \n \t \l 1044 ]. The theory evolved as a response to pressure on company managers from government regulators, media, and competitors.

According to Freeman, managers find”…an increase in external demands” (Freeman, 1984, p. V) and management of these demands is at the core of stakeholder theory. A stakeholder is defined as ”any group or individual who can affect or is affected by the achievement of the organisation’s objectives’” (ibid p. 46). Freeman believes that “if business organizations are to be successful in the current and future environment then executives must take multiple stakeholder groups into account“ (ibid p. 52). The ability of companies to manage their stakeholders will thus determine their success.

To manage their stakeholders successfully, companies need to be able to identify their stakeholders and their stakes in the company’s operations, have procedures to take the stakeholders and their concerns into account and balance the different interests to achieve the objective of company (ibid p. 53). CSR has been interpreted as a reply to demands and concerns and therefore a way of managing the stakeholders.

The importance of various stakeholders has been discussed in stakeholder-theory.

While Freeman acknowledges the dilemmas in conflicting interest, he is mainly

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concerned with the identification of stakeholders, not a further classification of stakeholders. The very process of identifying stakeholders assigns legitimacy because the firm acknowledges that the stakeholder is affected by, or can affect its business (ibid p. 45). Once the firm has recognised the legitimacy of the stakeholders, conflicting interests are to be resolved by the firm based on the expected actions of the stakeholders (ibid p. 132). Mitchell et al[CITATION Mit97 \n \t \l 1044 ] suggest that “… the degree to which managers give priority to competing stakeholder claims… goes beyond the question of stakeholder identification” (Mitchell, Agle, &

Wood, 1997, p. 854). According to Mitchell et al the importance of a stakeholder is based on three factors: “power”, “legitimacy” and “urgency”. Power refers to the ability of a stakeholder to bring about the outcomes they desire (ibid p. 865).

Legitimacy is determined by whether the claims (e.g., moral, legal and property based) of the stakeholder are considered legitimate by the company (ibid p. 882).

Finally urgency refers to “…the degree to which stakeholder claims calls for immediate attention” (ibid p. 867). The possession of any of these attributes makes an individual or group a stakeholder.

Mitchell et al [CITATION Mit97 \n \t \l 1044 ] further categorizes the different type of stakeholders based on their combination of attributes. Stakeholders who only possess one of the attributes are called latent stakeholders and receive the least attention from companies. There are three types of latent stakeholders:

- The dormant stakeholder possesses power, but lacks legitimacy and urgency in its claim. Its power is therefore not used.

- The discretionary stakeholder has legitimacy, but no power and no urgency in its claim. This is the group most likely to be recipients of what Carroll calls philanthropic responsibility. Lacking power and urgency, “there is absolutely no pressure on managers to engage in an active relationship with such a stakeholder” (Mitchell, Agle, & Wood, 1997, p. 875) and the discretionary stakeholder is dependent on the goodwill of the company.

- The demanding stakeholder has urgency, but lacks legitimacy and power.

While he can be bothersome to companies he is not considered a threat.

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According to Mitchell et al [CITATION Mit97 \n \t \l 1044 ] companies pay more attention to stakeholders who possess two attributes. These are called expectant stakeholders and are also divided into three types:

- Dominant stakeholders have power and legitimacy but lack urgency. Because they have power to enforce their claims, they receive much attention from company management. Examples of dominant stakeholders are owners and government.

- Dependent stakeholders lack power, but have urgent and legitimate claims.

They are called dependent because they depend on others for the power to carry out their will. These stakeholders are dependent on the voluntary action of the company or on advocacy by more powerful stakeholders.

- Dangerous stakeholders have power and urgency, but lack legitimacy on their claims. This type of stakeholders can be violent and use unlawful tactics to advance their claims.

Finally we have the definitive stakeholders, the ones who possess all three attributes of power, legitimacy and urgency. For company management, this is the group whose claims are considered most important. It is important to notice that any expectant stakeholder can become a definitive stakeholder by getting the last attribute (ibid).

Stakeholders are not static and may change categories over time by gaining or loosing attributes. Another important point is that the stakeholder-categories are based on how the stakeholder is viewed by the company. The stakeholders themselves may have different perceptions about the urgency and legitimacy of their claims.

According to stakeholder theory, a company will engage in CSR as a result of pressure from various stakeholders. The typology of Mitchell et al [CITATION Mit97

\n \t \l 1044 ] provides a framework to identify and evaluate the importance of different stakeholders. The CSR-policy and practices of companies are expected to be a response to claims from stakeholders with different attributes. Stakeholder theory can therefore provide valuable explanations for the CSR-policy and performance of oil companies in South Sudan.

Both stakeholder-theory and institutional theory are reactive perspectives; they both emphasise the role of external actors in influencing the companies. Furthermore, they

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are not mutually exclusive. Mechanisms described in institutional theory may exist together with mechanisms described in stakeholder theory. The same group or individual may also be classified both as an institution and a stakeholder. In the oil industry, the government is an important institution because it creates social norms as a lawmaker. At the same time it is an important stakeholder for the oil companies.

2.4 The resource curse

It has long been acknowledged that abundance of natural resources has had a negative impact on many countries. Resource abundance has been linked to increased corruption, eroding of institutions, inequality, poverty, the Dutch disease, rent-seeking behaviour and armed conflict. This phenomenon has been termed the “paradox of plenty” or “the resource curse” [ CITATION Aut93 \l 1044 ]. Since the social responsibilities of companies are connected to their impact on society, it is important to understand the impact of the oil industry when one analyses the CSR of oil companies.

According to Humphreys et al[CITATION Hum07 \n \t \l 1044 ] there are at least three different processes that come into play when a country starts extracting a valuable resource:

1. Currency appreciation

When the revenue of a country increases substantially because of income from a valuable natural resource, the currency will appreciate. This in turn has negative effects on other industry that becomes less competitive. Because of this effect, revenue from natural resources may lead to a deindustrialisation of the nation. This has been named the “Dutch disease” after the effect on the Dutch manufacturing industry when the country discovered natural gas in the North Sea in the 1970s (Humphreys, Sachs, & Stieglitz, 2007, p. 5).

2. Fluctuation in commodity prices

Commodity prices are highly volatile. For oil prices the history has shown that they are strongly affected by both disruptions in supply and demand and speculation. This makes long-term planning very difficult. An increase in the oil price may give the country unexpected revenue. This has led countries to increase spending and

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borrowing. When the price drops, it can leave a country unable to repay the loans and force it to cut spending.

The non-renewable nature of oil and gas resources has led some to argue that “…any consumption of revenues from sales should be viewed as a consumption of capital rather than consumption of income” (ibid p. 8). This view puts emphasis on how the revenue is spent. If it is not invested wisely in future income, the country’s total capital declines. This form of over-consumption is often coupled with underinvestment in important sectors like education and health. Countries depending on non-renewable natural resources tend to forget that they need to invest in building a diversified and skilled workforce for the future when the natural resource runs out (ibid p. 10).

3. Negative effect on political conditions

When a country receives a large share of their revenue from resource extraction they have less incentive to tax their population. The state becomes less reliant on its citizens. The consequence is that the linkages between state and citizen may weaken.

Relying on external income sources further limits the need for the state to develop institutions to raise revenue and may inhibit the flow of information from the state to the citizens. Controlling the revenue from the resource becomes more important than making sure people earn money to pay taxes.

Taken together these processes have also caused corruption and armed conflict to secure control of the resource. The evidence has been particularly strong in countries abundant in minerals or petroleum resources. The mining and petroleum-industry is capital-intensive and has historically been dominated by national companies and large multinational oil companies. The production is mechanised and requires special knowledge and skills, which means the oil multinationals tend to bring specialists from abroad instead of investing in the local workforce. Often the production takes place in remote areas where production-chains are unlikely to appear, thus further limiting the transfer of technology and knowledge [ CITATION Pot04 \l 1044 ].

The oil companies have limited control over the processes of the resource curse. Still, the resource curse poses challenges for the oil industry because the negative impacts are related to their core operations. The cure for the curse has been heavily debated

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and while some focus on the actions of government [ CITATION Bar12 \l 1044 ] others also see an important role for oil companies (Humphreys, Sachs, & Stieglitz, 2007, p. 15; Frynas, 2010). There is currently consensus that transparency and accountability are important ways to overcome the resource curse (Humphreys, Sachs,

& Stieglitz, 2007, p. XIV). The contribution of oil companies is therefore to be transparent (ibid, Barma, Kaiser, Le, & Viñuela, 2012, p. 225) and to promote accountability. Guldbrandsen & Moe [CITATION Gul05 \n \t \l 1044 ] has named this responsibility “Macro CSR” saying: “Macro CSR refers to the responsibility for the indirect consequences of relatively sudden, steep rises in revenue from extractive industries on a country’s economic, political and social development” (Guldbrandsen

& Moe, 2005, p. 55). While there is little acceptance of Macro CSR among oil companies, it is included in this study to see if conceptions of Macro CSR explain the CSR-practices of the oil companies in South Sudan. A final way companies can help countries overcome the resource curse is to stay away from countries where government uses the oil revenue in a way that harms its people.

Oil is a particularly important commodity, whose importance for both the economy and security of states has been acknowledged for the last century[CITATION Moh25 \m Nor06 \l 1044 ]. Dependency theory suggests that the powerful nations will strive to control such a valuable resource through national and transnational corporations. Governments in resource rich developing nations are therefore permitted to continue a corrupt and damaging regime as long as they are loyal to the dominant nations and allow “the natural resource wealth within their borders to be looted by firms from wealthy countries” (Rosser, 2006, p. 17).

As opposed to dependency theory, which focuses on the role of the state in limiting the harmful effects of globalisation, neoliberal theory puts more emphasis on the role of the state in facilitating free trade. Ross (1999) proposes two different explanations as to why resource dependent nations perform worse: “that much of the resource curse is caused by the state’s ownership of resource industries”, which is seen as less efficient (Ross, 1999, p. 319), and “the failure of states to enforce property rights”

(ibid p. 320), thus discouraging investment in manufacturing and causing resource extraction to be the dominant industry. Other critics of the resource-curse theory claims it is too deterministic and points to the fact that there are huge differences

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among resource-rich countries as well as differences within the same country. They point to other factors, like good institutions that are just as important as the resource base [ CITATION Meh02 \l 1044 ]. Validating or discarding the theory of the resource curse is beyond the scope of this study. However, because of its impact on the conception of the oil industry in developing countries, it can help explain both the CSR-policy and actions of the oil companies in South Sudan, as well as the attitude of other stakeholders.

To sum up, there is no commonly accepted theoretical perspective for making sense of CSR activities. Instead a large number of theoretical perspectives exist that are based in different economic theories. This study incorporates theories that differentiate between different aspects of CSR as well as theories that explain why companies engage in CSR in order to examine how and why the oil companies have acted on their social responsibility in South Sudan.

3. Background

“South Sudan is one of very few places worthy of the description “Dark Africa””

NGO-worker in Juba

To understand the actions of companies and expectations of stakeholders, one needs to understand the context. The context has implications for both the bargaining power and the responsibilities of the companies. The situation in South Sudan is complex and this thesis does not allow for an in depth description of the context. Instead I have focused on giving a brief account of elements that influenced the situation during the CPA-period, as well as describing the oil industry in South Sudan.

3.1 Historical and geographical context

Sudan declared independence from its Anglo-Egyptian rulers 1^st of January 1956, but was soon cast into a civil war between a mainly Arab and Muslim North and a predominantly Christian South. In 1972 a peace agreement was signed, South Sudan was given semi-autonomy and peace ensued until oil was discovered in the border

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areas in 1979. Conflict ensued over the control over the resources and eventually a civil war between North and South broke out that left 2 million dead and 4 million displaced [ CITATION Col08 \l 1044 ].

On the 9^th of January 2005, after years of negotiating, the Comprehensive Peace Agreement (CPA) was signed. The Government of National Unity was formed in Khartoum where southerners participated, though in a minority. At the same time the Government of South Sudan (GOSS) with limited autonomy was formed. Among the provisions in the CPA was the right of South Sudan to hold a referendum on independence in January 2011 as well as regulations for the distribution of oil revenue [ CITATION CPA05 \l 1044 ]. Despite problems a referendum was held and about 99% of the voters voted in favour of secession. Finally, on the 9^th of July 2011, South Sudan celebrated its independence. This study examines the period between the signing of the CPA and independence. During this time the oil companies had to manage a tense political situation with an unknown outcome. There is little doubt that this shaped their CSR-policy and practices.

South Sudan is a landlocked country with great geographical and ethnic diversity.

Seasonal rainfall and geographical features such as the river Nile with its tributaries and the Sudd swamp creates flooding that damages what little exist of infrastructure in the country. The major oil fields are all located close to major rivers, thus being in environmentally fragile areas highly volatile to water pollution.

3.2 Socio-economic conditions in South Sudan

In their first calculation of GDP per capita after independence, the government of South Sudan estimated the GDP per capita of South Sudan to be US$ 1546 in 2010.

This is by far the highest in East Africa, amounting to twice that of Kenya. These high numbers are almost solely created by the oil industry, with oil exports amounting to 71 % of GDP in 2010 [CITATION Sou11 \l 1044 ]. The importance of the oil industry is also clearly visible in government budgets. In 2010 an estimated 97,8 % of GOSS revenue came from oil [ CITATION SSC11 \l 1044 ]. This makes South Sudan the most oil dependent nation in the world [CITATION Sha06 \t \l 1044 ].

Oil and CSR means Business : CSR as a Business Strategy among Oil Companies in South Sudan 2005-2011

Oil and CSR means Business

C SR as a Business Strategy among Oil Companies in South Sudan 2005-2011

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