corporations, institutions and better governance

Corporations, institutionsand better governance

By Toby Webb and Meg Carstens

MARCH 2008

CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCECONTENTS

3 Acknowledgements

4 Background to this report

4 Institutions and social capital

5 Roles for business

6 The corporate responsibility agenda

6 Issues to be explored

7 Case one: Customs reform in East Africa: The case of Business Action for Africa

10 Case two: Human rights training in Burma: The case of Premier Oil

13 Case three: Judicial human rights training in Venezuela and Nigeria: The case of Statoil

16 Case four: Economic capacity building in Azerbaijan: The case of BP

18 Trends observed from cases and literature

19 Practical implementation issues raised by the changing role of business

22 Questions raised by the broader boundaries/legitimacy debates

25 Conclusions

26 Epilogue: Outlook for future involvement and unanswered questions

27 References and footnotes

About the authorsToby Webb is co-director of the Ethical Corporation Institute and founder of Ethical Corporation magazine.He has a MSc in Corporate Governance and Ethics from the University of London, Birkbeck College.

Meg Carstens is undertaking a MSc in Public Policy at the London School of Economics.

Editing assistanceIan Welsh

DesignAlex Chilton Design Ltd

Contents

2

INTRODUCTIONCORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE

The authors would like to thank the followingindividuals for their time, comments and assistancewith this report. Peter Davis of the Ethical Corpora-tion Institute, Professor Sue Konzelmann of Birkbeck,University of London, Richard Jones, formerly ofPremier Oil, Martin Summers of British AmericanTobacco, Richard Morgan of Unilever, Christian Braunand John O’Reilly. Much of this report formed partof Toby Webb’s Corporate Governance and Ethicsmaster’s degree dissertation, reviewed and marked byacademics at the University of London in 2006 and2007. Meg Carstens undertook several months’full-time work on broadening its scope duringsummer 2007.

Acknowledgements

3

CORPORATIONS, INSTITUTIONS AND BETTER GOVERNANCE

Business has for someyears been criticised byNGOs andthemedia for sourcing and operating in nationswhere

the rule of law is badly enforced. The absence of an adequatelegal framework, poor enforcement of it, or the lack ofrequisite institutions that publicly encourage such enforce-ment and accountability often mean that labour,environmental and overall human rights standards arelower inmany countrieswherewesternbusiness buys fromand sells to. There is also a growing recognition that thebuilding andmaintenance of essential institutions requiresthe help and support of companies, as well as traditionalNGOs, inter-governmental organisations (IGOs) andgovernments in order to develop in poorer countries. Theauthors believe the subject area of this report fits well withthe emerging agenda around the links between countrygovernance and economic development. It appears obviousto say it, but the same institutions and cultures required tosupport human rights and effective labour law are veryoften the same as those needed to protect contracts andproperty rights.

As a result of the scrutiny under which theyoperate and the evolving recognition of a role forbusiness in delivering public goods,1 a small numberof international companies are increasingly findingthemselves promoting better governance throughcontributions to institutional capacity building indeveloping countries. Business Action for Africa andinitiatives such as the Kimberley Process, theExtractive Industries Transparency Initiative (EITI),the Ethical Trading Initiative (ETI), and the VoluntaryPrinciples on Security and Human Rights are allrecent larger scale examples of business coalitionsworking to influence public policy and encourage thestrengthening of institutions. These partnershipsoften consist of corporate contributions of finance,lobbying, management experience and logistics.These are combined with NGO monitoring, lobbyingand willing government participation. Because of theissues that arise when operating in the intersection ofprivate, public, and civil society spheres, however,companies do not necessarily find this role acomfortable one. Rather they deem it necessary andprudent given the realities of doing business incertain areas and expectations in their home nations.

Through case studies and interviews withpractitioners, NGOs and academics, this report seeksto explore some recent initiatives in this area. Theauthors seek to underline the commonalities that existbetween cases and the lessons that can be learnedfrom on the ground experience. The report also drawsattention to the practical and theoretical issuesencountered thus far, attempting to give a balanced

picture of the debate from the point of view ofdifferent actors involved. In doing so, the report aimsto inform the actions and thinking of other largemultinational companies that are considering howthey might best contribute to the creation, develop-ment and support of the necessary government andcivil society related institutions within poorer nations.

Institutions and social capitalThe term ‘institution’ commonly refers to the rulesand limits within which individuals and organisa-tions pursue their desires2 or structure theirinteractions. This definition encompasses a varied listincluding laws, language, monetary transactions,social etiquette, and property rights. Institutions caninclude formal, codified rules (the focus of thisreport) as well as informal social norms.

According to (among others) the Nobel prize-winner Douglas North, formal institutions underlieeconomic performance in society and play the keyrole in controlling the welfare of citizens within astate.3 They do this by promoting cohesion andpartnership,4 by protecting property rights and

contracts, and by managing their exchange.5 Effectiveinstitutions also encourage savings and investment,knowledge adoption, resource mobilisation andpublic service provision by states.6

Institutions are closely linked with the concept ofgovernance, which the World Bank defines as the“traditions and institutions by which authority in acountry is exercised for the common good. Thisincludes (i) the process by which those in authorityare selected, monitored and replaced, (ii) the capacityof the government to effectively manage its resourcesand implement sound policies, and (iii) the respect ofcitizens and the state for the institutions that governeconomic and social interactions among them.”7

Key institutional and governance barriers togreater economic wealth include poor legal systems,

The background to this report

4


corruption, underperforming and onerous bureau-cracy, civil liberty and media suppression, inequality,ethnic tensions and a lack of property rights andaccess to basic services.8

Another variable connected to effective institu-tions is social capital. The concept is related to theextent of trust, associational memberships, andgeneral social and political participation present in asociety.9 It is “arguably about the capacity to collabo-rate and interact peacefully and with high degrees oftrust and voluntary co-operation”.10 Ineffective insti-tutions and pervasive corruption are associated withlow levels of social capital.11

Linked to social capital is the concept of capacitybuilding, a term increasingly used by NGOs, develop-ment organisations, and others to refer to the processesby which members of a society – institutional orotherwise – develop the ability to engage in problemsolving and achieve their objectives.12 Evidence isemerging to demonstrate that the people of developingcountries are beginning to recognise the role businessmight play in contributing to better governance bycontributing to the building of this capacity.13

Roles for businessA 2006 report by the International Business LeadersForum (IBLF) demonstrates that local companies andmultinational firms are also engaging with the notionof institutional capacity reform.14 Despite thisrecognition, there is not yet a template for theappropriate and specific roles for business to play.Lobbying for corporate advantage has a long andcontroversial history, but the notion of corporationspublicly or privately seeking change on wider issueshas a shorter lifespan.

Recent initiatives not covered in the following casesinclude business groups lobbying governments in theUS and the UK on climate change regulation frame-works;15 BP’s involvement in some 8,000 soldiersundergoing human rights training in Colombia;16 andInfosys’s engagement with the Indian government ona broad reform agenda.17 The prominence of JohnRuggie’s work as the UN Secretary-General’s SpecialRepresentative on Business and Human Rights alsopoints to the importance currently placed on tryingto clearly define the roles and responsibilities ofbusiness in governance as well as the controversialnature of this task.

According to the IBLF’s 2006 report, companiescan act as awareness raisers on the need to generallysupport human rights, humanitarian activities andpeace building. Other reform areas that lend

themselves to corporate involvement include protec-tion of ownership rights, security of transactions,honouring of contracts, respecting of titles and adher-ence to law. Decentralisation strategy, transparencyand legal, fiscal, and administrative capacity are alsoseen as relevant.

Determining what kinds of activities in these areasare appropriate usually comes down to analysing theparticular context. In the case of BP’s work inColombia, the company feels that it has made a positivecontribution18 but makes clear that its work there hasits limits. “The company is not training the army,”notes Christine Bader of BP,19 “which they should notbe…the company has helped to get this (institutionalcapacity building on human rights) going…but hasfound an appropriate way to fund it… (By fundinginfrastructure that helps the training take place)…we’renot involved in ongoing maintenance of it or the devel-opment of the curriculum (for soldiers) or the actualtraining”. In this case the Colombian government hasthe capacity to perform that role itself.

The UNDP’s work on partnerships in developmentprovides guidance on some specific roles that mightbe appropriate for business involvement. Theseinclude the training of local authorities to cope withchange and improve basic services.20 Practical actionssuch as the development of associations and supportstructures to encourage co-operation on the issuesmentioned above are also suggested by businessorganisations as important contributions companiesmight make to institutional development.21 Throughsuch mechanisms, business can enable the creation ofanti-corruption coalitions, support watchdogs, createcollaborative collective networks to lobby government,and enable discussion about key areas of education.22

It is important to highlight that in any institutionaldevelopment process, scholars and practitioners notethe importance of partnerships in achieving sustain-able gains.23 The UNDP and the UN Global Compact,among others, have demonstrated that their mandatehas evolved over the last five years to work much moreclosely with businesses as well as civil society groups.24

In short, the growing evidence from practice andscholarship seems to indicate – if not directly address– that there is a role for business in governance andinstitutional capacity building in developingcountries. George Frynas, Professor of CorporateResponsibility and Strategic Management atMiddlesex University and a critic of many corporatesocial responsibility programmes, believes thatcompanies can play a constructive role in what hecalls “macro-level” governance and development.25

5


This distinction may be useful in discriminatingbetween two categories of roles companies can play.The first is of direct benefit for specific entities andgovernance institutions via training, policy develop-ment and implementation assistance. The second typeis a more general engagement in ‘good’ lobbying forhigher level governance improvements.26 Both typesare being undertaken by business, with local govern-ment, national government, and internationalgovernance arrangements (such as the EITI).27 These

kinds of collaborations may take place bilaterallybetween companies (or business alliances) andgovernment agencies or make take the form of multi-stakeholder business initiatives, driven by companiesas well as NGOs, IGOs and governments.28

The corporate responsibility agendaThis kind of private engagement with public institu-tional policy diverges from more standard corporateresponsibility and community involvement strategies.In one way it has a much narrower focus, but inanother it goes well beyond traditional corporateresponsibility boundaries.29 The majority of corporateresponsibility strategies for transnational companiesoperating in developing countries are almostexclusively focused on the workplace, supply chainand local communities, rather than engagement withnational institutions.30 Engagement with governmentinstitutions may potentially be more influential in thelong run, however, as institutional frameworkstypically play a crucial role in determining thebusiness climate.31

Furthermore, if the corporate responsibility agendais increasingly moving towards a focus on managingimpacts in society – mitigating negative impacts andamplifying positive ones – then engagement with thegovernance agenda is crucial, as this typically hasgreater impact on business and society than manyother potential activities. As noted above, however, the

appropriate roles for business are thus far poorlydefined and their implications under-examined.32

Issues to be exploredAs corporate involvement of this kind evolves,potential problems begin to arise. The most obviousinvolves potential conflicts of interest (real orperceived) between governments, their citizens, andcompanies. Institutional capacity building by compa-nies essentially gives unelected foreign actors a handin shaping the political agenda. Given this accounta-bility problem, companies must decide how to engagewith other actors, including NGOs and IGOs, as wellas governments. Sometimes these relationships aremore easily built and maintained than others.Partnerships such as those mentioned above, betweencompanies and NGOs and governmental organisa-tions may do something to address this challenge oflegitimacy. Additionally, thought must be given toensuring transparency, monitoring and reporting ofprogress, which can be complicated by the long-termnature of capacity building outcomes.

All of these issues fall under a broader, complexdebate about the legitimacy of – and appropriateboundaries for – this type of involvement. As PhilipCrowson’s 2007 report for the Oxford Policy Insti-tute phrases the question: “Can the managements ofcompanies – that are ultimately responsible toforeign shareholders and which are subject to thecampaigns of a variety of pressure groups withintheir home countries – properly assess the publicinterests of their host countries?”33 On a practicallevel, companies make decisions on a daily basisabout what constitutes boundaries of appropriate“business as a business”.34

The heated nature of such issues was brought tolight with the strong reaction to the attempt to drawup a comprehensive set of standards, or ‘norms’, onbusiness responsibilities with regard to humanrights. In his 2007 interim report on the issue, JohnRuggie states that one of the main problems withthe UN Norms was their lack of a guiding principlewith which to divide responsibilities betweencorporations and states. This left the responsibilitiesto be determined by the concept of ‘spheres of influ-ence’, which may have practical applicability butlacks legal grounding.35 While the scope of thisreport does not allow for a thorough theoreticalexploration of these debates, it will attempt topresent a rounded view of the current questionsbeing discussed and the viewpoints of a range ofactors involved.

6


Business Action for Africa is an internationalnot-for-profit network established in 2005 after

the G8 Business Action for Africa Summit. Its hasthree main objectives: to positively influence policiesneeded for growth and poverty reduction by creatinga platform for a clear African and internationalbusiness voice; to promote a more balanced view ofAfrica by highlighting success stories and balancedreporting; and to develop and showcase good businesspractice by facilitating new partnerships and commu-nicating existing ones. The group currently includesover one hundred organisations, composed of approx-imately sixty businesses, thirty strategic businessorganisation partners, and ten civil society groups.Governments and international financial institutionsare also group members.

Its specific areas of focus are governance andtransparency in general, the climate for business inAfrica, trade, enterprise and employment, andperceptions of the continent. As part of its commit-ment to increasing Africa’s capacity to trade, somemembers are working in the specific area ofimproving customs administration to facilitateinternational and regional trade.

Business Action for Improving CustomsAdministration in Africa (BAFICAA)Led by Unilever, British American Tobacco, SITPRO(the UK’s trade facilitation body) and Diageo,BAFICAA is an “international coalition of businessescommitted to identifying, promoting and supportingeffective measures to improve customs administra-tion and enhance trade facilitation in Africa.”36

BAFICAA has no formal structure or plans to createa new institution, and it does not consider itself apressure group. Rather, it is a network of businesspartners attempting to complement existing reformwork underway in Africa by being an active driver ofchange and making practical contributions toimproving customs capacity.

Its guiding principles also include the importanceof trade facilitations, the removal of regulatorybarriers, and the promotion of improved governance.They recognise that part of pursuing their aims effec-tively will be to persuade governments thatcompanies can and should be active and trustworthypartners.37 In light of this, BAFICAA’s first stepsinclude measures to build dialogue and trust betweenbusiness and governments. Its stated intention is thento help devise and implement practical proposals thatcan improve customs procedures and trade in asustainable way.

Practical steps – a timelineBAFICAA began its work by funding an initial reporton the state of customs in Africa. The report waspublished in June 2006 and written by an experi-enced independent consultant, Andrew McTiernan.It aimed to create an accurate picture of existingpractices and reform efforts within customsadministration across 20 African countries. As aresult of initial findings, the group decided to focuson three east African countries for pilot projects.38

A series of private sector workshops facilitated byPricewaterhouseCoopers (PwC) Kenya were held inUganda, Kenya and Tanzania to discuss the feasibilityof the recommendations from the initial report.These initial workshops included 20-30 local andinternational companies and trade associations. Theydiscussed the initial report and established commonagreement on what reforms needed to be made sothat taskforces then approaching governments wouldhave the backing of a representative variety ofbusinesses behind them.39 As a result of theseworkshops, BAFICAA created country taskforcescomposed of companies willing to commit to helpdevelop these initiatives.

Further workshops in late 2006 and early 2007 wereheld with BAFICAA taskforce members and customsofficials from the revenue authorities in each country.According to Morgan, the Kenyan government wasvery enthusiastic about the proposals presented: “It waspushing against an open door.”40 As a result, theKenyan Revenue Authority seconded three staff to actas a bridge between the private companies and theirown institution in order to expedite change andcapacity building.

In May 2007, a regional East African workshopbrought together revenue and customs authoritiesfrom Uganda, Tanzania, and Kenya along with thethree country BAFICAA taskforces, representatives ofthe East African Community (EAC) Customs Secre-tariat, the Investment Climate Facility (ICF), and theEast African Business Council (EABC), with the goalof coordinating efforts and formally introducing theBAFICAA to the Customs Secretariat and the EABC.Francis Kamulegeya of PwC Kenya is the facilitatorof the project, which is funded in large part by theICF as under its remit to encourage business actionson economic reform in Africa.41 As a well-connectedlocal figure, Kamulegeya’s relationships on theground make him well-placed to help theproject succeed.42 SITPRO, the UK trade facilitationbody, and the World Customs Organisation will beinvolved in the practical training and implementation

Case 0ne: Customs reform in East Africa:The case of Business Action for Africa

7


of customs reform across the region, organising ameeting for customs commissioners (without compa-nies present) to come up with a concrete plan ofaction.43

The May workshop was followed by a meeting inSeptember 2007, organised by the World CustomsOrganisation and SITPRO, and attended by theBAFICAA Taskforces and the heads of customs for allthe EAC countries (except Burundi). It fulfilled its aimof discussing a regional approach to customs admin-istration reform and identifying how best to achieveprogress on introducing the Fastrack proposal, other-wise known in customs circles as the AuthorisedEconomic Operator (AEO) concept. The Fastrackrecommendation was one of the highest priorities forreform mentioned in the original BAFICAA report.

The heads of customs for EAC have now agreed topilot a regional Fastrack programme, meaning fasterclearance times for qualifying firms with ‘trustedtrader’ status. BAFICAA has capitalised on the appetiteand progress towards customs reform within severalof the EAC’s own customs services. It has howevermade a major difference in raising business issuesand helping drive a coordinated approach to reformacross the region, which should help intra-regionaltrade enormously if the reforms are implementedeffectively.

BAFICAA reports that strong interest has beenexpressed in similar programmes in west andsouthern Africa. Richard Morgan of Unilever believesthere is the potential – and government interest – forthis programme, or something like it, to be promotedin other reasonably stable countries soon, specificallyRwanda and Burundi. Because west African nationsare not as dependent on one port (as Kenya, Uganda,and Tanzania are on Mombasa’s port), it has beendecided that specific companies will lead workshopsand act as catalysts there on an individual basis.44

Currently Maersk is leading BAFICAA’s work inNigeria, while Shell is leading in Cameroon, andUnilever in Ghana.

Proposals for reformBAFICAA’s initial aim – in partnership with govern-ments and international donors – is to, in their ownwords, quickly offer some “definable and measurableprojects which we could then roll out as ‘bestpractice’ more widely in other regions.”45 Figure oneoutlines the six key issues highlighted by the privatesector that are common to the three countries.46

These issues formed the basis for the discussion atthe May 2007 East African regional workshop.

Figure 1: BAFICAA suggestions for customs reform

Source: BAFICAA Arusha Conference Report June 2007

Revenue authorities in each country have all madevarying degrees of progress on their own in creatinga fast track system for compliant traders. BAFICAA’sgoal is now to coordinate reform efforts. Workshopparticipants also suggested creating a legal basis forfast track guidelines that was well publicised so as notto be seen as favouring particular industries orcompanies. PwC is now carrying out research as tobest practice in such systems that will be submittedto the EAC sub-committee on customs.

Workshop participants also stressed the need toensure that BAFICAA’s taskforces included represen-tatives from all factions of the region’s private sector,including the EABC’s members and trade organisa-tions in each country. With regards to makingprogress on automation and training, BAFICAA urgedthe revenue authorities, through the EAC sub-committee, to identify specific areas where theprivate sector could offer support and facilitation.

One of the biggest institutional challenges toreform is the current system of revenue targetswithin various customs agencies. Targets are oftenmet by the levying of fines for (supposed) discrepan-cies in paperwork or goods. Such incentives operateto slow, rather than speed up, trade and have beenrecognised by BAFICAA as an urgent area forreform.47 During the East African regional workshop,the CEO of the EABC stressed the need to balance the

8

•The need for fast track customs services forcompliant and low risk taxpayers and traders.

•The need to speed up automation of all customsprocesses and procedures.

•The adoption of a service charter between customsservices and the private sector, setting out theexpectations of each party from the other, as well assetting out the parameters for the expected leveland quality of services.

•The need for customs to work closely with andconsult regularly with the private sector to ensuresupport for the changes and reforms in customsadministration.

•Removal of duplication and bureaucracy in PostClearance Audits and valuation processes.

•The need for professional training, accreditation andcertification of clearing, forwarding, and customsagencies.


revenue authorities’ primary mandate of revenuecollection with the need to facilitate trade and protectcountries from illicit trade.48 There is recognition thatstreamlining customs processes will ultimatelyincrease the volume of trade in the region, and thusincrease revenue for the government. He noted,however, that progress still needs to be made inchanging the mindset of parties involved and buildingtrust between public and private sectors.

A new role for companiesRichard Morgan, an Africa expert from Unilever, talksof the corporate role being about encouraging the useof management processes once principles of changehave been agreed between business groups andCustoms institutions. Companies, via the taskforces,can also provide feedback to customs authoritiesabout how things are proceeding and where anydelays are still taking place.49 Morgan sees greatpotential behind BAFICAA’s work across Africa overthe next five years on customs reform. The aim issimply to move business and government to being ‘onthe same page’ in areas where reform will bringbenefit to society and away from ‘mutual suspicion’ totrade facilitation.50 Peter Kiguta, Director General ofCustoms and Trade for the EAC commended theBAFICAA initiative and remarked that “customsreforms resulting from a shared vision of the privateand public sector will ensure a win-win position forboth parties.”51

Unilever’s costs for the scheme, as with Statoil (seelater case) are low. To date these costs consist of stafftime, travel, and around £15,000 as a contribution tothe initial report, similar to other BAFICAA members.Corporate sponsors, including Unilever, are alsocontributing $500,000 a year into the InvestmentClimate Facility. Despite the relative low involvementcosts, SITPRO says that its main task initially was toconvince some companies that this was an area inwhich they could and should intervene to improveconditions.52 Previously, many companies had writtenoff slow customs processes as an unavoidable cost ofdoing business in Africa. SITPRO sees its role in thiscase as initially helping to bridge the gap betweenpublic and private actors’ attitudes towards the possi-bilities for customs reform. BAFICAA members seepotential for NGO and academic comment to beinvolved in the future, as a way of adding credibilityto BAFICAA’s work across Africa.53

As Andrew McTiernan, the consultant who wrotethe initial report for BAFICAA, concludes, companiesmust act as catalysts for change: “Customs reform in

Africa is not the daunting, impossible task ofcommon perception. African businesses themselveshave recognised this and given voice to these simple,practical, meaningful suggestions to help enhancetheir capability to trade and grow. Improvement incustoms administration in Africa and the consequentinevitable growth in Africa’s prosperity is now readyfor take-off. All that’s needed is ignition.”54 Martin

Summers of British American Tobacco, summariseshis view thus: “There has been a lot of positivefeedback on the BAFICAA project, not least becausethe growing prominence of various global competi-tiveness indicators (such as the World Bank’s annualDoing Business surveys) has made the developmentcommunity aware that the poorest countries are theones with the worst institutional frameworks, soprivate sector involvement in helping improve theseframeworks is appreciated as a valuable contributionto sustainable development.”55

Conclusions from the caseThe case of BAFICAA and African customs reform isclearly only a nascent one, so assessing its measur-able impact on trade – or the wider implications ofimproved African economic rights on the globaleconomy – is not yet feasible. However, local, nationaland international business participants in theworkshops have indicated their enthusiasm for theproject, as have government officials. The project isongoing, and significant progress has already beenmade in creating a space for dialogue between privatesector and government officials in East Africa. Theprogramme is also making inroads in other countriesin Africa. The narrow and practical focus ofBAFICAA’s efforts is in an area where companiesclearly have much experience to offer. This studyprovides one example of the significant potential forprivate sector actors to facilitate practical reform inAfrican institutions which often slow down, ratherthan encourage economic growth and trade.

9


In 2001 and 2002, Premier Oil organised and rantraining seminars and workshops on human rights

for the Burmese military government and its admin-istrators. They undertook the project because theysaw no one else willing or available to coordinatesuch capacity building and felt that they could makea unique contribution in this area. Premier also feltthat such activities would ultimately contribute to itscorporate social responsibility programmes by raisingawareness of key issues around human rights andproviding senior government (military) figures withan understanding of the basis for human rightstheory, and what such theory means in practice.

Premier’s involvement in a highly troubled countryPremier Oil, a small independent UK oil company,had a presence in Burma from 1990 until 2002. InSeptember 2002, it sold its operations in the countryto Malaysian state oil company Petronas. During thisentire time, Burma’s human rights record was thesubject of much criticism. According to HumanRights Watch’s 1998 report, “respect for human rightsin Burma continued to deteriorate relentlessly” in theprevious year. In 1999, there were “no signs duringthe year that fundamental change was on thehorizon”, and by 2002 “grave human rights violationsremained unaddressed”.56 Among the many accusa-tions levelled at the Burmese military in this periodwere the forcible recruitment of child soldiers andvillage labourers and the rape of Shan minoritywomen.57

During the early and mid 1990s, campaignersbegan to call upon Premier Oil to pull out of Burmabecause of the political and human rights situation inthe country.58 Attacks on the company fromcampaigns focused on three main arguments: first,that the company was providing a ‘financial lifeline’for the repressive government; second, that itspresence in Burma benefited from the infrastructurebuilt by forced labour; and third, that military forcesprotecting the pipeline area were likely to commithuman rights abuses while doing so.59 Aung San SuuKyi, the imprisoned Burmese pro-democracy leader,stated in April 1998 that, “Premier Oil is doing a greatdisservice to democracy. It should be ashamed ofitself.”60 In April 2000, Robin Cook, then UK ForeignSecretary, said: “We do not approve of what Premieris doing.”61

Richard Jones, Premier’s Corporate Social Respon-sibility Manager, explains that they took a differentview of the situation: “Only through dialogue andengagement, as well as sustainable development, can

lasting change be affected.”62 It was with this in mind,writes Jones, that the company created the PremierCorporate Social Responsibility Programme that ledto their institutional capacity building contributions.63

According to Jones, the main drivers for thecompany’s activities on human rights in Burma werea desire to deal in a consistent and predictablemanner with social impacts; to tackle some of the

operational and security challenges the companyfaced around its operations; and to demonstrate thataction was being taken in light of the criticism thecompany faced for investing in the country.64 Henotes that many critics did not make a distinctionbetween the small corridor that represented Premier’soperational footprint and the wider accusations facingthe security forces throughout the country. ForPremier, this necessitated “dealing with human rights– and related issues such as security – at a local aswell as national level”.65

Practical steps – making capacity buildingcontributionsOver a two-year period in 2001-2002, Premier Oilfunded and organised a series of nine human rightsworkshops, run by specialist human rights lawyershired by Premier.66 Approximately 250 participantsfrom the army, police, energy ministry, labour andimmigration departments were taught in two-dayseminars about human rights issues.67 Theworkshops were structured to provide the officialstaking part with knowledge about the concept ofhuman rights, its origins and nature, and abouthuman rights as an international legal system.68

They focused heavily on humanitarian law, prima-rily the Geneva Convention, and outlined theminimum requirements for operating within it.They were purposely conducted in an interactive anddiscursive rather than formal format and wereadapted to resonate with attendees’ experiences andbackground.69

Case two: Human rights training in Burma:The case of Premier Oil

10


The workshops also covered practical issues, suchas monitoring and accountability systems, humanrights and armed conflict, the use of forced labour,and the state’s duties and challenges for imple-menting human rights obligations in government.Jones said that the workshops were a contributingfactor to the Myanmar government’s decision to setup a Human Rights Committee and beginning todevelop a framework for educating administrators ofvarious departments. Many of these people werecareer bureaucrats who, as Jones put it, “were therebefore the current government and will be thereafterwards”. The idea was to build capacity in theprofessional civil service as well as with the currentgovernment.70

Premier’s aim in convening these workshops wasto bridge the gap between the theories of humanrights and “equitable and correct law enforcementpractice”.71 Participants indicated to Premier theimportance of “practical skills-related instructions”for the “true application of human rights standardsin law enforcement”, according to Jones. During oneworkshop, at which the Minister for Home Affairs inBurma was present, the Chief of Police stood andinformed his colleagues that violent crowd controlmethods, such as beating people with truncheons,should not be generally permitted from that point on,since it represented behaviour that was now outdatedand not permitted by the country’s laws.72

David Kinley was one of Premier’s workshopfacilitators who also conducted similar human rightsworkshops for Myanmar authorities (not includingmilitary or police) during this time period that weresupported by the Australian government. In theirreview of the Australian government’s efforts, Kinleyand the former Australian Ambassador to Myanmar,Trevor Wilson, note that although impact from theseefforts was very hard to gauge, “in the climate of arelatively open attitude to engagement (upon whichthe workshops fed and to which they contributed)other agencies and organisations were able to under-take human rights initiatives that were not possiblebefore, including a first-ever visit by a delegationfrom Amnesty International in 2003”.73

Although its impact on human rights violations onthe ground was never evaluated, Premier called thisprogramme “an important first step,”74 which wasrecognised as a positive contribution by all thoseinvolved. By the end of the initiative, the governmentwas “identifying areas of interest and asking [Premier]to run workshops on them”.75 Premier was activelyworking with the government in building the

capacity it needed to create and sustain a nationalHuman Rights Committee, and supporting Burma’sown stated understanding that “they have an obliga-tion to look after their people”.76 Another promisingdevelopment noted in the evaluation of the Australianworkshops is the fact that participants began to realisethat members of the international community wereinterested in what was going on in Myanmar and thatthrough these contacts they could have outsidesupport in improving the human rights capacity oftheir organisations, if desired.77

Figure 2: Premier’s conclusions as to how it was ableto use its position to

Source: Jones, R. (2006) “Corporate Contribution to Modern Diplo-macy. In Wilson, T. (ed) Myanmar’s Long Road to NationalReconciliation Singapore: Select Books (p185)

In 2002, the year it left the country, Premierplanned to increase the breadth and scope of futuretraining programmes. The company also had plans toput in place a system to monitor how they weredocumenting and addressing human rights concernsand allegations within their “sphere of influence”.78

11

• Influence the Myanmar government in a progressivemanner.

•Encourage the government of Myanmar to activelyparticipate in human rights and humanitarian lawtraining for a variety of officials.

•Encourage the government of Myanmar toparticipate in the establishment of a NationalHuman Rights Committee.

•Engage with the State Peace and DevelopmentCouncil in order to begin the eradication of the useof forced labour in the country.

• Implement a comprehensive programme of humanrights monitoring in Premier Oil’s areas of operation.

•Write – and then actively promote – a proposal andframework for the government of Myanmar tobecome a signatory of, and eventually to ratify, theInternational Convention of Economic, Social andCultural Rights (ICESCR).

•Hold dialogue with the Myanmar authorities inrelation to the health and safety of politicalprisoners.

•Hold constructive dialogue with the NLD (andgroups and individuals in exile) in relation to therole of business in advancing transparency,governance, environmental protection, and humanrights in Myanmar.


When Premier announced that it was leaving, theyagreed with the Burmese Home Minister to continueto sponsor humanitarian law training for Burmesepolice during 2003 due to the progress that hadalready been made.

Events since Premier’s departure from BurmaAfter Premier left Burma in 2002, there was littleopportunity for the company to influence humanrights issues in the country. Much was accomplishedbetween 1999 and 2002 on the basis of trust and therelationships that the company had built up in thecountry, particularly with the Ministry for HomeAffairs.79 An indication of progress came in 2004, when

Burma’s recently convened Center for Strategic Studiesheld a conference, inviting Dr Jones of Premier tospeak about the development of human rights inBurma. Later that year, however, much of the progresswas stymied as Burma’s military leader purged manytop officials – including the Minister for Home Affairs– from power in what appears to be a sign ofincreasing paranoia concerning the outside world.80

The Human Rights Committee still exists, but has notbeen active since the political upheaval of 2004.81

Conclusions from the caseThe case of Premier Oil’s involvement in Burmademonstrates that companies can have some positiveimpact – at least on government discourse – in eventhe most challenging situations. By building up trustwith individuals and persuading the government thatit should enforce its own signed conventions, Premierwas able to persuade senior government figures of theneed for incremental reform. Although the case studyended in 2002, it demonstrates the potential for whatcompanies can achieve as conveners and catalysts ofinstitutional capacity building and change. HadPremier remained in the country and had the polit-ical situation remained more stable, their work couldhave aided in advancing the human rights protectioncapabilities of the government.

12


The Norwegian state owned oil company Statoil, inpartnership with both local and international

organisations, provided backing for judiciary humanrights training programmes in Venezuela from 1999to 2004, resulting in what appears to have been thetraining of all active judges in the country.82 AnneKristin Sydnes, Vice-President for national risk andhuman rights in Statoil at the time, said that theirefforts in Venezuela were a pilot project and repre-sented “a new model for collaboration betweenindustry, the UN, Amnesty and the authorities” fromwhich Statoil hoped to draw lessons for futureactivities.83 They also funded a similar programme inNigeria from 2002 to 2006, partnering with aNigerian legal rights NGO to train Shari’a judges inhuman rights theory and practice.

Rationale for involvementStatoil, considered a CSR leader by many, officiallyincorporated respect for human rights into its state-ment of values in 2003.84 The company is a foundingmember of the Business Leaders Initiative on HumanRights (BLIHR), and executives and employees haveundergone human rights training themselves.85

This commitment to human rights was one of theunderlying reasons for Statoil’s initiation of theprogramme, along with its desire to help foster amore stable business environment.86

According to the United Nations DevelopmentProgramme (UNDP), Statoil began the Venezuelaproject because it wished to fund initiatives whichhad a social development component and alsocovered human rights issues. UNDP suggested thatthe company work with a national chapter ofAmnesty International to provide training for judgesin human rights.87 At the time, the government,which remains the current administration, wasseeking to reform Venezuela’s legal system. Accordingto a 1998 survey, less than one percent of Venezue-lans had confidence in the legal system, comparedwith some 28 and 29 percent for the church andprivate business respectively.88

Another factor contributing to Statoil’s desire toundertake these projects is obviously the context ofthe individual countries. Oil companies in Nigeria,for example, faced attacks for doing business underthe pre-1999 military dictatorship and for operatingCSR policies that were merely a “sticking plaster” tothe problems in the Niger Delta.89 In 2002, a Nigerianwoman was sentenced to death by stoning by aShari’a court because she had a child born out ofwedlock. Amid international outrage, Amnesty Inter-

national Norway asked Statoil to officially protest theverdict. Statoil felt it could not take a position on thispolitical issue, but it instead continued to commis-sion a project to train Shari’a judges on the principlesof fair trial according to the UN Declaration ofHuman Rights.

According to Ms Sydnes, because manyNorwegians see Statoil as an arm of the state, theybelieve it can and should influence social conditionsin other countries.90 Statoil states on its website thatit thinks businesses with overt and significant ethicspractices should be present in nations with troubled

human rights situations. By doing so, says Statoil, thecompany can then show their commitment to humanrights and make a practical, positive contribution toprogress.91 The company also believes that its institu-tional capacity building activities will help attract theright kind of talent to work for it and build a goodcompany culture in the long term. They realise,however, that they must be cautious in undertakingsuch activities so as not to exceed their legitimate rolevis a vis the governments in those countries.

Practical steps in VenezuelaThe judges and public defenders training scheme inVenezuela was officially a UNDP initiative funded byStatoil Venezuela, with the heavy involvement of thelocal Amnesty International chapter and theVenezuelan state agency responsible for appointingand training judges. Once a Memorandum of Under-standing had been signed between the partiesinvolved, preparations began for the first phase of atraining programme involving twenty-four speciallyselected experienced judges. The week-long intensiveworkshop was led by specialists in international lawand covered humanitarian law and regulations as wellas human rights in general.

After the completion of the first phase, the newlyqualified judges traveled around Venezuela to pass onwhat they had learned. This phase covered judges and

Case three: Judicial human rights training inVenezuela and Nigeria: The case of Statoil

13


public defence counsel in the country’s mostpopulous states – Zulia in the west and Anzuatagui,in the east – where Statoil’s business ventures arelocated. In late 1999, the total budget for the first twophases was announced to be some 2 million krone(approx £167,700). In 2002 the second module of thetraining was completed. In 2000 the project wastemporarily suspended while the Venezuelan govern-ment embarked on a comprehensive review of itslegal system. Once this was reviewed and changesimplemented, the programme was restarted inDecember of that year. As a result of the reforms,hundreds of judges and public prosecutors eitherretired or were dismissed and the judges within theStatoil funded scheme were then retrained under thenew legal system. According to UNDP’s 2004 report:“Fortunately, those formerly selected were still inposition and eager to continue (a tribute to the highstandards used in the original selection process).”

By 2003, Statoil was saying on its website that theinitiative “appears to be one of the few long runningexamples of co-operation between an internationalorganisation, an NGO, a government authority and acompany”. After a positive evaluation of the pilotphase by an independent party, the third stage of thetraining programme was completed by the end of2004. It was able to reach the rest of Venezuela’sactive judges – including those outside Statoil’s areasof operation – as well as other officials, such as socialworkers, who worked with the court system.92

According to Statoil, its continued goal was to“help enhance awareness and professionalism in thejudicial system, and to create a force against humanrights abuses”.93 According to UNDP’s 2004 report on

the initiative, judges indicated the training hadenabled them to “translate the broad human rightscommitments contained in the new constitution intooperational reality” and underscored the seriousnessof Venezuela’s pledges to uphold international humanrights principles.94 The judges recommended that

training be expanded to police and public prosecu-tors in the future, to achieve a greater awareness andexpertise throughout the system. By 2005 theprogramme was formally completed, and Statoil’sCSR portfolio became more focused on human rightsand business, as evidenced by their work with BLIHRand their local work with factories.95

Figure 3: Three phases of Statoil’s judicial humanrights training in Venezuela

Source: UNDP (2004) “UNDP and the Private Sector: BuildingPartnerships for Development” p44-46

Practical steps in NigeriaA similar programme has been in operation inNigeria since 2002, when Statoil decided that itwanted to support broader work on the human rightsissues that had long been neglected in the country.The company has been present in Nigeria since 1992and was already doing award-winning CSR workwith its Akassa community investment projects in thesouthern part of the country.96 After a thoroughscreening and selection process to find the appro-priate partner for its human rights work, Statoildecided to provide support to the work of the LegalDefense and Assistance Project (LEDAP), a NigerianNGO composed of law professionals.

Between 2002 and 2006, 450 judges from seven

14

Phase (date) Outcome

One (1999)

24 criminal court judges from Caracas,selected by the Judicial Council and theMinistry of Justice, trained in key inter-national instruments, nationallegislation, and practical examples ofhow to identify abuses and takehuman rights into consideration intheir judgments.

Two (2002)

Drawing on logistical help from theJudicial Council, the 24 newly trainedjudges share their human rightsknowledge with over 60 more judgesin Anzuatagui and Zulia.

Three (2004)Training provided for 1,200 judgesacross the country, including all 400criminal court judges, as well as otherofficials.


northern states and representing 19 percent ofNigerian Shari’a judges attended training run byLEDAP. The Shari’a system contains provisions foracts – such as flogging and stoning – that are clearlyagainst human rights norms and the prohibitions ontorture contained in treaties that Nigeria has ratified.97

LEDAP’s challenge in the two-day workshops was toengage with participants to increase understandingof basic human rights principles and women’s rightsas well as how to integrate just interrogation princi-ples into the practice of Shari’a law.98 According toinitial evaluations carried out by LEDAP, the partici-pating judges indicated that the material they learnedwas directly applicable to their daily work.99 AlthoughStatoil is no longer funding the project, it is still inoperation, along with LEDAP’s other legal and civilsociety human rights training programmes. A forth-coming full evaluation hopes to gauge the overallimpact on the Shari’a administration.100

The value of partnerships in institutional capacitybuildingRelationships between human rights organisationsand oil companies have traditionally been of an adver-sarial nature, but the strategic partnerships formedfor these programmes proved key in their success.Fernando Fernandez, Amnesty International’s repre-sentative for the Venezuela project, says that fromtheir perspective the project was so far a success, buthe warns that “NGOs working with oil companies inthe field of human rights are treading a fine line”.101

The partnership between LEDAP and Statoil inNigeria was the first that either partner knew ofbetween an oil company and an NGO in the country,and they took great care to make sure that the fit wasright and the provisions for their arrangement clearlyunderstood by all.

The relationship with an international develop-ment agency was also important in facilitatingdiscourse with diverse actors in the Venezuelaproject. UNDP’s capacity to translate abstract ideasinto operational reality and its role as intermediarywas critical to establishing and maintaining theintegrity and independence needed in a projectdealing with sensitive human rights issues.102 Thegovernment in Venezuela does not trust the privatesector, but UNDP’s support gave the project a legiti-macy beyond what could have been achieved by thecompany alone and promoted dialogue betweendiverse groups.103 Having a trusted partner such as theUN was also critical to Statoil, which was keen tosecure its investment in the project as well as its

overall business ventures in Venezuela by creating amore stable operational environment.

Figure 4: Overall lessons learned from the judicialtraining in Venezuela

Source: UNDP (2004) “UNDP and the Private Sector: BuildingPartnerships for Development” p44-46

Conclusions from the caseAlthough Statoil’s involvement with both cases isnow complete, the relative longevity of these initia-tives and the feedback they obtained encourageStatoil to conclude that it was furthering humanrights promotion and protection by strengtheninginstitutions in Venezuela and Nigeria.104 Statoil alsobelieves the initiatives helped maintain its reputa-tion of leadership in social responsibility issues andenhanced its operational legitimacy in thesecountries generally.105

One of the major factors that made these initia-tives successful appears to be the multi-stakeholderstructure and the efficiency with which they werecarried out. The fact that Statoil is a state owned (andnon-American), rather than a private company mayhave helped its cause in working with the blessing ofthe Venezuelan government, which is deeply suspi-cious of profit seeking foreign business.106 Thepartnership was also noteworthy for the relativelylow level of investment required and the self-sustaining potential of the “training-trainers” modelas well as its non traditional approach to corporateresponsibility.

15

•Clear and appropriate division of roles and responsi-bilities ensures transparency and effectiveimplementation.

•Partnerships in which UNDP acts as a neutralintermediary between governments, civil societyand the private sector can provide legitimacy forprojects that strengthen governance and build stateinstitutions.

•Partnership projects that ‘train trainers’ enhancesustainability and can achieve significant resultswith relatively small financial resources.

•Partnerships based on diverse organisations requirea personal commitment to encourage continuousdialogue and establish trust.


BP’s substantial business investment in the Caspianregion represents a significant opportunity to

positively influence this socially and economicallychallenged area. Taking the many lessons it haslearned from other projects, the company is engagedin a wide range of activities in and around the Baku-Tbilisi-Ceyhan (BTC) pipeline region designed to

foster stability and growth. They are funding humanrights training for security forces, contributing tolocal enterprise development and civil societycapacity building as well as contributing to the provi-sion of knowledge and training in soundmacro-economic policies for government officials.This report will only focus on BP’s work withinAzerbaijan, and specifically on its economic capacitybuilding work.

Political and economic backgroundAzerbaijan, once Europe's top oil producing nation,became independent from the Soviet Union in 1991amid separatist violence in one of its main regions. Thecurrent President is Ilham Aliyev, the son of the formerPresident Heydar Aliyev. Both the presidential electionsof 2003 and the parliamentary elections of 2005 weremarred by accusations of intimidation and vote rigging,and corruption is perceived as a major problemthroughout the government.107

In the last 13 years, many oil and gas companies,particularly BP, have invested large amounts of moneyin extracting Azerbaijan's oil and gas reserves. In 1994,Azerbaijan signed an oil deal worth $7.4bn with aWestern consortium of companies led by BP. Since oilbegan flowing through the Baku-Tbilisi-Ceyhan (BTC)pipeline – which also goes through Georgia andTurkey – in 2005, the country has experienced arapid increase in public savings, almost exclusivelythrough oil revenues.108 In 2006, the gross domesticproduct of Azerbaijan grew by 34.5 percent to some$20.6bn, making it the most rapidly growingeconomy in the world for the second year running.The IMF’s estimate for 2007 growth is 29 percent.109

Despite this rapid growth, the general economyhas not benefited as much as it could have and infla-tion has mounted steadily over the last three years.The Caspian Developments Advisory Panel (CDAP)predicts that inflationary pressures could get worse asthe government increases expenditures ahead of the2008 elections.110 The war ending in 1994 left thecountry with ethnic and religious divisions and adisplaced population of more than half a million.111 Inshort, potential for economic and social conflict inthe country and the region remains great.

Rationale for involvementAs by far the largest foreign investor and revenuegenerator in the country, BP believes it has a respon-sibility to contribute to stability and economic probityin the country, as it does in other nations.112 Giventhe risks of operating in unstable nations,113 BP clearlyhas a substantial interest in contributing to thecurrent and future stability of the country if it wantsto ensure sustainable returns on considerable invest-ment over the approximate 40 year life of the project.It recognises, however, that it must carefully considerthe limits to its legitimacy in contributing to gover-nance capacity in a region as complex as Azerbaijan.114

CDAP was set up by BP as a panel of internationalexperts tasked to provide public reports on its viewsof BP’s approach to the region in terms of socio-economic and political impacts during theconstruction phase of the project.115 This is the firsttime that an extractive industry project has volun-tarily opened itself up to the level of scrutiny withwhich BP has empowered the panel.116 The CDAP haspointed out that development of non-energy areas ofthe economy will be extremely important forAzerbaijan in the long term to help it avoid the worstimpacts of what is known as the ‘oil curse’, wherebyover-dependence on oil income distorts the economyand politics of a nation in a highly negative manner.117

Practical steps to improve government economiccapacity in AzerbaijanOne of the CDAP’s biggest concerns is how the oilincome generated by BP for the government is spentby Azerbaijan and the company’s ability to influencethe transparency of government expenditure.Azerbaijan is a signatory of the EITI, a multi-stake-holder scheme encouraged by western governments,oil companies and civil society groups which aims tofoster transparency with regard to sums of moneybeing paid by international oil and gas companies togovernments or state oil funds.118 The panel suggestedthat BP pressure the government to further reveal

Case four: Economic capacity building inAzerbaijan: The case of BP

16


how their vastly increased revenues are being spent,using their dialogue with the government to“encourage a more detailed accounting of suchexpenditures”.119

BP agreed in 2006 that it would maintain itsdialogue with the government on encouragingrevenue transparency, but was at pains to point outthat there are “quite properly”, limits as to how mucha company can influence government decisions onhow to best manage revenues from oil.120 Thecompany stresses that the biggest impact they canhave in combating corruption will result from rigidlyenforcing their own corporate governance andencouraging high standards in its enterprise develop-ment work with the local and national privatesector.121 BP is also engaging with civil society groupsand media to enhance their finance and revenuemanagement knowledge in order to improve outsidemonitoring capability in those sectors.122

BP has also taken measures to directly enhance theeconomic planning and management capacity of thegovernment and state oil fund. They have convenedtwo workshops for high level government economicsand treasury officials in Azerbaijan.123 The firstworkshop lasted two days and centred on discussionof the experiences of other resource-rich countriesin handling increased income from natural resources.It featured former ministers from other countries,consultants in resource economics, and the formerhead of a petroleum directorate. Its aim was to impartthe knowledge gained from these countries’ experi-ences without dictating a course of action forAzerbaijan.124 The second workshop discussed the roleof economic modelling in policy making and was ledby specialist experts from Oxford, Dundee and Sussexuniversities. As with the previous cases, BP did notdirectly conduct this training but acted as a catalystfor their creation and covered logistical costs.

Additionally, BP supported work by OxfordEconomic Forecasting to collaborate with the state oilfund to develop a long-term model of the Azerieconomy. By 2007 this model had been completedand was under the ownership of the state, but BPpledged to continue to provide training to maintainand update the model as the economy develops.125

The country does not currently have the humancapacity needed to engage in this type of large scaleplanning and modelling exercise, but the goal is to

create that capacity by the project’s end so that Azerismight better understand the possible future ramifica-tions of current economic decisions.126 BP alsoconfirmed that as part of its contributions to institu-tion building, it had “for some time”, been involvedin an informal advisory group, created by the UK andUS ambassadors in Azerbaijan, that discussed ways ofimproving revenue management by the govern-ment.127

To further support objective research on bestpractice in the management of resource revenues, BPhas endowed $14m for the BP Chair in Economics atthe University of Oxford. This person will serve as thedirector of the recently launched Oxford Centre forthe Analysis of Resource-Rich Economies. Former BPChief Executive Lord Browne explained at the Centre’sopening that: “Its role is grounded in the legitimacywhich comes with academic independence.”128

Conclusions from the caseAs with the case of Business Action for Africa, BP’swork in Azerbaijan is ongoing though still nascent.Much of the work around contributions toeconomic capacity building and lobbying for greaterparticipation in EITI is in its early stages, and it willtake some years before it becomes clear just how

much sustainable impact these activities have had.The case as it is demonstrates, however, the poten-tial for contributions that can be made by a companyin a powerful position, as BP acknowledges it is inAzerbaijan and the Caspian Region. Peter Eigen,Chairman of the EITI and founder of TransparencyInternational, describes BP’s work in Azerbaijan as“ground breaking” and the company as “one of theleaders” in the field of working with developingcountry governments in a constructive way. 129

17


These case studies are based on published sourcesreinforced by selected interviews, rather than on

detailed fieldwork. The authors would stronglyadvocate that these cases be further researched anddeveloped. Nevertheless, despite being ‘work inprogress’, these cases collectively demonstrate thatcorporate contributions to institutional capacitybuilding, though nascent, have significant potentialfor contributing to the alleviation of systemicproblems within government institutions. Asmentioned previously, standard corporate responsi-bility initiatives, particularly in developing countries,often have limited impact on communities and oftendo not attempt to address the underlying causes ofmajor problems. The authors would argue thatcorporate engagement in capacity building is likelyto be more beneficial to shareholders in the longterm, if done wisely.

Motivations for involvement vary significantly, butin each case, a company or group of companiesdecided that there was a specific public sector compe-tency issue on which they could and should engagegovernments. These issues – customs reform,economic planning capacity, human rights knowledge– were generally accepted as developmentalchallenges in the host countries. Even so, each initia-tive began with government acceptance of the needfor assistance, or corporate lobbying to the effectthat the government is persuaded to engage on atrial basis.

In each of the case studies, the companies involvedare (or were) major investors in the host countries.This is both a motivation for their involvement and areason for its success. Because of the financial riskassociated with operations in certain countries,companies have ongoing budgets to spend on helpingsecure their investments and contribute to creating astable operating environment. The ability to applyresources in a consistent manner may be an advan-tage over programmes susceptible to donor demandsand sudden policy changes. In the cases of BAFICAA,Statoil and Premier Oil, the initiatives began on a verysmall scale, with low risks of time and engagementfor the governments and companies, before expan-sion was considered. In the case of BAFICAA, the firstcompanies involved used their experience and initialsuccess to persuade other companies that this was anarea in which engagement with government couldbe useful.

A further commonality is the logistical power ofthe companies in each country and how the initia-tives are managed. Although they are not often

undertaking the capacity building activitiesthemselves, companies are able to use their extensivelocal and international contacts to drive action. Thecompanies in question also excel in project manage-ment capabilities, and they often have the ability toundertake decisions and apply resources quickly.Company networks on the ground do not necessarilyinvolve a representative sample of NGOs and commu-nity representatives, however, and it appears from thecases that civil society involvement in institutionalcapacity building work is not always well integrated.

This paper does not attempt to conduct a thoroughsurvey of emerging practices beyond the casespresented, but a few studies that look at other insti-tutional capacity building initiatives are worthmentioning for the trends they identify. The OxfordPolicy Institute conducted a series of workshops in2006 examining “corporate investments in publiccapabilities” specifically in extractive industries.130

They find that most companies involved in large scaleprojects invest in a variety of ‘hard’ and ‘soft’ infra-structure beyond the narrow scope of their projectbut that this investment is usually a by-product ofother corporate objectives rather than a separatelyarticulated policy. They find that the motivation oftenlies in protecting their investments from the effects ofweak governance, responding to pressure from NGOs,and enhancing their own reputation, among otherreasons. The extent and type of investment is also“greatly influenced by the character, experiences, andinterests of their senior managers and directors” aswell as the characteristics of the host countries.

Multi-stakeholder initiatives (MSIs) such as theEITI, the Voluntary Principles on Business andHuman Rights, or the Kimberley Process are alsoconcerned with correcting weak governance, thoughthey are wider in scope than the cases presented here.They often involve entire industries as well as civilsociety actors and are usually concerned with negoti-ating a oversight framework for a particular issue orindustry. A report published in early 2007,131 looks atthe effectiveness to date of MSIs in the oil and gassector and outlines components that are necessary forsuccess. In the initial formation stage, they argue thatsix components are necessary: “(i) a clearly statedproblem (ii) a commitment for change and a clearlystated mission (iii) strong political leadership (iv) theadded value of another initiative and a clear timeframe (v) committed individuals able to carry theissue into their organisation and (vi) the time andspace for trust to be built amongst participants andeffective dialogue to grow.”

Trends observed from cases and literature

18


Despite the momentum and potential observedfrom this new role for companies, everyone

close to these cases admits that there are majorquestions to be addressed, both in implementationand in the underlying legitimacy of such involve-ment. Turning first to practical implementationissues, there is an obvious need to avoid situationswhere one or more partners feel that their abilityto act in a fair and independent manner is compro-mised. Rigorous monitoring and transparencyare one way to guard against this, but no clearframework exists to guide what is ultimately a verychallenging undertaking.

Even sceptics, however, see the potential for insti-tutional capacity building work involving companies.Patricia Feeney at RAID admits that she can see astrong argument for using the personal contacts and

influence that companies have in regions where theyoperate. NGOs have been pressuring companies totake more responsibility with respect to human rightsabuses for some time, and this is one way in whichthey can do so. How precisely they should engage inorder to avoid conflicts of interest and achieve lastingimprovements is just starting to be addressed bypractitioners and academics.

Conflicts of interestIn all four cases covered here, the companies hadvested financial interests that at least in part drovetheir involvement. This was not merely the action ofdisinterested or independent parties. Thus, the possi-bility exists that the programmes they facilitatedmight have had anti-competitive elements or providedthe opportunity for discreet lobbying on behalf of thecompany. This is not to say that this happened inthese cases, and the authors have seen no evidencethat it did, or that any intention to do so existed, butthe implications of such conflicts need to be consid-ered if institutional capacity building is to form partof corporate responsibility strategies more frequently.

In addition to making transparency and a cleardivision of responsibilities and expectations of centralimportance, there might also be ways to structureprogrammes from the outset that protect againstpotential abuse by either party. Patricia Feeney atRAID suggests that single-company initiatives maynot be as advisable as coalition-based initiatives.When acting alone, there is more scope for acompany to use a situation to its own advantage,while groups can serve a monitoring function.A ‘foundation of foundations’ type arrangement,whereby several companies fund an independentbody to do capacity building work on their behalf,might also be a possible solution. Corporatefoundations also face questions about theirindependence, however. John Ruggie suggests that awide variety of arrangements, such as MSIs and theUN Global Compact, are useful possibilities forstructuring business’ response to its human rightsresponsibilities.132

No matter how such corporate-driven programmesare organised, however, there remains the underlyingproblem of legitimacy. As Patricia Feeney of NGORights and Accountability in Development puts it:“Can you be game keeper and poacher at the sametime?” It should ideally be the remit of governmentto ensure that all foreign investment is in the bestinterests of its citizens. The government’s lack ofcapacity to carry out its basic functions, however, isone of the very reasons companies are involved in thefirst place. If they are present and have the resourcesto help, it is difficult to argue against actions thatcould possibly strengthen legitimate actors’ ability toperform their rightful roles.

Monitoring, reporting, and transparencyCompanies have arguably engaged in informalcapacity building activities for some time, butmodern interpretations of corporate responsibilitynow require that these activities be monitored andmade public. Exactly how this should be done has yetto be legally agreed upon, however. Arvind Ganesanof Human Rights Watch notes that there does notcurrently seem to be a great deal of communicationas to what companies are doing to strengthen govern-ment institutions and what the outcomes are.Without common and binding reporting require-ments for non-financial activities, it is up to thediscretion of each company what they choose todisclose and which projects they highlight overothers. Managers may feel that they stand to lose byputting more information than necessary in the

Practical implementation issues raised bythe changing role of business

19


public domain. By keeping sensitive or potentiallycontroversial information to themselves, companiescan move more quickly, avoiding the intransigence ofofficial processes and the scrutiny of critics.133

Even if reporting and monitoring requirementswere agreed upon, measuring outcomes in non-financial areas is always problematic. Institutionalcapacity is inherently difficult to quantify. This isexacerbated by the fact that companies’ timehorizons are often quite short term, while publiccapacity building is a slow and incremental process.Furthermore, Virginia Haufler questions whether afocus on outcomes or processes is most appro-priate.134 Ultimately, improvements in institutions aredetermined by a variety of factors outside the controlof the actors involved. Does a negative or inconclu-sive outcome mean the initiative has failedaltogether?

Managing partnershipsIn some of the cases covered here, partnershipsfeatured more prominently than in others. However,it is increasingly obvious that companies are part ofwhat Jane Nelson and Ira Jackson term ‘relationshipnetworks’ that include many different private andpublic actors.135 Managing these relationships iscentral to ensuring that the benefits of engaging ininstitutional capacity building are worth the costs.

In practice, Arvind Ganesan of Human RightsWatch notes that development work tends to takeplace in ‘silos’. Different agencies and actors do notconsider the broader perspective and often end upwith overlapping, competing, or contradictoryapproaches. The capacity building contributions bybusiness will be unlikely to have much impact ifthey do not align with the strategies and efforts ofthe UN, donor agencies, governments, and NGOs.

Jane Nelson and Ira Jackson also suggest that allalliances between companies and other actors needto focus on “purpose, process, and progress”.Everyone involved should share a common set ofgoals for the programme, a detailed understandingof each partner’s responsibilities, and the bench-marks by which progress will be measured. JenniferZerk of CSR Vision suggests that signing a‘memorandum of understanding’ or similardocument seems like it would be necessary in orderto clarify expectations and responsibilities to protecteach actor in case a problem arises with thepartnership.

Sune Thorsen, Director of Lawhouse.dk andexpert in legal corporate responsibility issues, notes

that while partnering with development agenciesand governments is central in increasing legitimacyfor companies involved in capacity building, it mustbe an equal partnership in which all members feelthey have a say in outcomes and processes. Potentialnon-corporate partners need to be aware of thecompetitive advantage the company will derive fromthe alliance and how the programme will affect theirown reputation and capabilities. Some largeragencies have safeguards in place to ensure that theyenter into fair and equal partnerships, but smallerorganisations may be more easily co-opted. Exactlyhow this harmony is achieved can be difficult, andJane Nelson and Ira Jackson note that “successfulalliances require a difficult balance of idealism andpragmatism…of self-interest and mutual benefit”.

It is unclear how the legitimacy of a project isaffected when civil society involvement is notfeasible or practical, such as with the BAFICAA case.

In this instance, the topic was highly specialist andnot within the remit of any local or internationalNGOs. Companies should be aware that in thesecases that they may be asked to justify this absenceand prove that they acted in the best interest of hostcountry citizens. In BAFICAA’s case, the nationalgovernment suggested that a wider spectrum ofAfrican companies be involved to increase the legit-imacy of the project and its likelihood of success.While multinationals drove the process, greatemphasis was placed on the inclusiveness of thenational BAFICAA task forces.

Building institutional capacity effectivelyDevelopment practitioners admit that there are noeasy solutions for improving a government’s abilityto function effectively and in the best interest of itscitizens. Patricia Feeney at RAID notes that even ifprogrammes are reasonably well intentioned andwell-executed, the question still remains of how toactually build capacity and fast track governance in

20


countries where is has not already taken root.Furthermore, it is important that that capacitybuilding work by outside actors does not underminethe incentives for government-led efforts. Allprogrammes should incorporate a plan for transi-tioning skills over to the government, paving the wayfor the exit of the company and the organic growthof institutions.

It is also important to recognise that the relativepower of each player will shape outcomes and thatthis power will evolve throughout the life of aproject. As previously noted, a company that repre-sents a large portion of a region’s economy is likelyto generate more co-operation and buy-in fromgovernments. During boom economic periods,however, host countries may be less receptive to ‘soft’investment, seeking instead to capture as muchfinancial rent as possible.136 This potential evolutionof power should be recognised in the guidelines forthe programme, if possible.

There are quite a few internal constraints thatcompanies face when undertaking an activity notrelated to core business. Shareholder expectations,competing strategic priorities, and the longer termnature of these investments make it difficult toapproach them systematically, as does lack of appro-priate capacity. Even if the actual training isconducted by outside experts, companies and theiremployees who are facilitating the work are not

usually experts in development and institutionbuilding. Involving the right mix of local andexpatriate staff is another challenge to creating andimplementing a genuinely effective programme.Companies can add value, however, if they are able toapproach capacity building with the same rigour thatthey do core business functions. This includesgetting commitment at the top, setting clear targetsand metrics, reporting publicly on progress, andcommitting to learning and adaptation.137

In addition to the previously mentioned problemwith measuring outcomes, another tricky situationcompanies may face is what to do when there is‘backsliding’. In the Burma case, the government wasclearly not as serious about human rights as Premierwould have liked, but does this mean the programmeshould have been discontinued? At what point doesit harm the company’s reputation to be associatedwith a ‘failed’ project?

Philip Crowson, for the Oxford Policy Institute,summarises the problem that is central to imple-menting effective institutional capacity building work:“No matter how strong the internal incentives and theexternal pressures for companies to invest in the publicsector capabilities, their success relies on the responsesof the host countries. Those in turn depend on howclosely the objectives and interests of the governmentin power are aligned with maximising the wealth andwelfare of the nation at large over the long term.”138

21


What are the appropriate boundaries for corporateinvolvement in institutional capacity building?Despite a growing recognition by business thatcapacity building work may be an effective way topromote investment stability and growth, companieswould rather not have to be involved in this work inthe first place. The reality of doing business in certainparts of the world necessitates engagement ingovernance issues for a variety of reasons, however,and companies must define the boundaries of wherethey will and will not intervene. Initiatives such asEITI push companies to become more active ingovernance, but real constraints are imposed by acompany’s limited legitimacy in other countries.139

Virginia Haufler suggests that, in general, companieswould prefer to define boundaries as narrowly aspossible, while civil society actors and those seekingrapid results would define them more broadly.140

Principles for negotiating this tension have yet to beagreed upon and vary according to context. Ifboundaries are not well-defined, companies may findthemselves in a situation where they are in conflictwith a public authority, involved in work noteasily justifiable to shareholders, or generatinguncomfortable expectations by stakeholders.141

In the absence of effective governance in hostcountries, companies’ legitimacy boundaries may beslightly broader than they would like to admit.According to George Frynas, managers of oil compa-nies that shy away from intervening in ‘political’issues are denying the reality, which is that they arealready involved in politics, either directly orindirectly, just by doing business in the country.142

Sometimes the notion of ‘spheres of influence’ is usedas a boundary gauge, but this concept has no legalunderpinning and is open to individual interpreta-tion. Companies may use it as a justification for notgetting involved in certain controversial issues, butthis logic does not hold if they then engage in otheractivities unrelated to their core business.

In certain cases there is a very tangible businesscase for institutional capacity building. McKinsey’s2007 survey of UN Global Compact members foundthat companies feel the need to maintain their legit-imacy for operating in a country in order to createlong term shareholder value.143 Forty-four percent ofCEO respondents believe that poor public governance(e.g. weak states, corruption, conflict zones) is one ofthe most critical issues to address for the futuresuccess of their business. Top issues, including gover-nance, “demand both systemic change and sustainedengagement by business.”144 As one CEO put it:

“Companies have far more control over their destinythan in the past, as the lines between government andbusiness are becoming more and more blurred allaround the world.”

Despite these blurred boundaries, the appropriate-ness for capacity building undoubtedly varies withcontext. The type of institutional capacity being built(ie social, political, economic) is one key variable, asis the current stability and capability of the govern-ment (ie failed, semi-failed, fairly capable). VirginiaHaufler suggests that a matrix with these variablesalong the horizontal and vertical axes may be a usefulstarting point from which to analyse potentialinterventions.145

The boundaries issue is extraordinarily complex,however, and there will never be a framework thatencompasses all the relevant variables. One questionidentified by BP is the differing strength of civilsociety in different areas. When NGOs have limitedinfluence in a country, is that licence for companiesto use their influence more broadly – or less?146

Ultimately, decisions are made according to theindividual judgment of management and theirperceptions of appropriateness given the situation onthe ground. John O’Reilly, formerly with BP inColombia and Indonesia, articulates this commonsense approach: “There is a risk that even though thetraining is conducted by a third party, for the corpo-rate sector to be involved in such fundamental issuesas, say, a judiciary…even if the motives areadmirable…there is a question mark as to whetherthat is appropriate…if you asked the average personon the street, they might find it questionable.”147

What are the implications for host countrysovereignty and accountability?As this report highlights, demands are placed oncorporations to help provide the social benefits thatare considered the responsibility of the state in moredeveloped countries. McKinsey’s report found that 95percent of UN Global Compact CEOs agreed thatsociety has greater expectations for business than itdid five years ago.149 Meanwhile, trust of companieshas decreased. Ultimately, companies are onlyaccountable to their shareholders, employees, and thelegal systems under which they operate. This leavesa gap in accountability with respect to decision-making and policy formation, something that isseldom explored in studies of public-privatepartnerships.150

The increased role for companies in governancemeans that accountable public authorities are no

Questions raised by the broaderboundaries/legitimacy debates

22


longer making all decisions about social, economic,or political priorities for citizens in host countries.From the perspective of democratic political theory,this gives citizens very little recourse if they feel that

the capabilities created by companies are not thosewith the greatest social return. If in practice, however,there is little opportunity for this expression of publicopinion in the first place, can a company more easilyjustify investing in capabilities it feels are ultimatelyof value to a country?

This investment arguably offers an unofficial routefor western governments, through companies, toinfluence policy at home and abroad. It is unrealisticto think that companies do not, to some extent,represent the governments of the countries in whichthey are based. BP’s involvement in Azerbaijan hasobvious implications for US energy security – ahighly political issue – and thus helps shape USpolicy. This not only leaves an accountability gap for

US citizens, but also has implications for the globalbalance of power. William Wallace and DaphneJosselin, in their 2001 study of non-state actors inworld politics, highlight the recurrent question ofhow much “the structural advantages which accrue tothose which are based in the USA or in the widerwest leave public and private actors from the devel-oping world in peripheral positions”.151

Attempts to codify and standardise capacitybuilding involvement by companies (such as the EITIand the Kimberley Process) do not satisfactorilyaddress accountability issues. Virginia Haufler, whohas studied these initiatives in depth, concludes that“industry self-regulation and multi-stakeholderregulation both suffer from the fact that they do notrest on any system of accountability, democratic orotherwise…all this undermines the legitimacy of eventhe most reasonable standards, rules, and enforce-ment procedures”.152 Patricia Feeney of RAID, worriesabout what she calls the “privatisation of the humanrights sphere”.153

One potential way to incorporate opinions andfeedback from citizens and thus increase accounta-bility is through partnership arrangements withNGOs or other civil society organisations. Companiesshould be aware, however, that NGOs are notimmune to questions of legitimacy. Large interna-tional NGOs are often western-based and have expat

staff on the ground, while smaller local NGOs maynot have systems in place to guard againstco-optation by special interests. George Kell, head ofthe UN Global Compact, concludes that “ultimatelyyou need governments as legitimisers, there is no wayaround that…I see the future as an interplay betweenon the one hand advanced experimentation withnon-state actors trying to arrive at pragmaticagreements and understandings and then atsome point governments stepping in and thenlegitimising it.”154

23

Boundaries in practice: BP in AzerbaijanThese boundaries issues are not just theoretical. In2006, BP’s Communities and External Affairs team inAzerbaijan held a workshop, facilitated by IIED, whichattempted to explore some of the boundariesquestions they were facing on the ground. IIEDproduced a paper that outlined the key insights fromthe day.148

In particular, participants created a list of questionsstaff might consider when deciding on appropriateboundaries for capacity building action: Does itaddress reputational concerns? Is it important forinvestment stability or sustainable business? Is itmatched to a core competency? What is the overallgovernance framework (codes of conduct, etc)?Ultimately, however, they conceded that it will alsocome down to the individual judgment of BP staffon the ground.

BP also identified factors that may inhibit thefull realisation of engagement up to these barriers.These include local political constraints (aroundelection times perhaps), lack of knowledge insideBP as to the appropriate approach, reluctance ofhost governments, and the previously mentionedtension between legitimacy constraints and thepush by certain international actors to becomemore involved. BP concludes that it may not bewise to establish firm boundaries that would functionprescriptively, preferring to analyse each situationand its context individually.


What, if any, frameworks govern this type ofintervention?International relations theory struggles to accord arole to non-state actors in matters of global gover-nance – as John Ruggie argues: “The roles ofnon-state actors have not sufficiently crystallised tolock in any particular interpretation.”155 Governmentshave been slow to address the opportunities andchallenges associated with a growing role for compa-nies in development, and there is no clear,

universally agreed-upon legal framework governingtheir activity. “Corporations clearly have the powerand capacity to significantly influence political,economic and social conditions throughout theworld, yet international law permits them to operatewith virtual impunity.”156

Sune Thorsen notes that organisations such as theOECD are just now determining how to scope corpo-rate involvement within development agencies. Oneinitial obstacle to doing so is the need for a common

understanding of ‘corporate responsibility’, prefer-ably one that goes beyond either purely legal orpurely voluntary measures. It will also be necessaryto have a common understanding of the absoluteminimum obligations of states and corporations indifferent contexts.

Development agencies, governments, NGOs andcorporations would then ideally all use a commonapproach (a rights-based approach) to assessing riskand need. Companies could design their proactivecapacity building measures (above and beyond legalrequirements) to address the risks that are mostrelevant to their business activities and core compe-tencies. If all development actors were using acommon framework and communicating with eachother, coordination would be facilitated and expertiseput to best use. How this broad sketch could operatein reality is far from clear, however, as minimumobligations are still unclear. In the meantime, it is upto the parties involved to come up with propergovernance frameworks for individual projects.

Under his remit, John Ruggie is looking at theentire repertoire of instruments available to publicand private actors to improve their performance inhuman rights. This includes working with theexisting capacity of states to regulate the actions ofcorporations by expanding the international humanrights scheme horizontally and clarifying the dutiesof states. He agrees that “many elements of an overallstrategy lie beyond the legal sphere altogether” andthat ultimately the solution will be “beyond compli-ance” but also “beyond voluntarism”.157

24


There is broad agreement that institutional capacitybuilding is one necessary ingredient for successful

development. Scholars and practitioners are begin-ning to recognise that there is a role for companies inthis work. Michael Hirschland predicts that, movingforward, “the most credible and promising efforts toaddress the dislocation and to extend the promise ofmarkets will be those CSR arrangements that includean important role for government capacity building”.These contributions towards governance might havemore developmental impact in the longer run thanisolated charitable giving and social programmes.

As evidenced by the case studies and examplesherein, exciting and promising work is already beingdone by companies operating in the forefront oncorporate responsibility issues. Peter Eigen, founderof EITI and Transparency International, and JonasMoberg, now head of the EITI’s secretariat, write inAccountAbility’s 2007 State of Responsible Competi-tiveness Report: “While we fight debates overlegislation and international norms and conventions,pragmatic solutions – with different interest groupsgetting together in innovative multi-stakeholderapproaches – should not be overlooked.”158 As casestudy evidence grows, however, practical questionsabout implementing these programmes and morefundamental questions about boundaries and legiti-macy will remain. Companies can and should engagein these discussions, but it seems likely that, until

other actors can match the resources and influence ofthe private sector, business will play an increasinglyimportant role in institutional capacity building.

The profile of business roles in institution-building appears set to rise as political and economicdevelopment experts will likely draw increasingattention to the underlying institutional barriers tosolving many key CSR and development issues,alongside emerging key areas such as climate changeand water use.

Conclusions

25

Key lessons for managers

•Work in partnership or multi-stakeholder formats toincrease legitimacy and decrease the potential forconflicts of interest, but recognise that this doesnot eliminate these problems.

•Coordinate with other actors involved in relateddevelopment activities.

•Ensure a clear understanding of institutionalcapacity building goals, each actor’s responsibilities,and a timeline for progress. Outline these points ina ‘memorandum of understanding’ to help protectthe interests of all involved.

•Prepare stakeholders for the longer term nature ofoutcomes and focus on transparent processes.

•Design a plan up-front for transitioning the owner-ship of programmes and capacity over to the state.

•Link institutional capacity building activities to oneor more of a company’s core competencies.


Since this is such an unexplored area of research,only by amassing a body of evidence based on case

studies over perhaps a ten-year period and then

assessing progress made by such projects that wasuniversally accepted to have been a good thing canwe draw meaningful conclusions. As more compa-nies undertake this kind of work (since some logically

reach the conclusion they must make a contributionwhen they spend enough time looking at barriers toeffective corporate responsibility projects in the tradi-tional sense) there will be a need for coordination andcommunication of case studies, evidence and learn-ings via forums and media/journals. On the basis oftheory developed from such cases, variations on themodels so far used can be tried, particularly in theaccountability arena when it comes to NGO and IGOmonitoring and assessing impacts. John Ruggie’s finalconclusions may well point in this direction givenwhat he has indicated so far. This report only aims tocomplement his work where it relates to practicalmechanisms. A distinction will need to be drawnbetween company involvement in countries withweak governance in some respects and so-calledfailed states, where some form of stable governancewill need to developed before institution buildingcan occur.

Epilogue: Outlook for future involvement andother unanswered questions

26


List of interviewees

Christine Bader: Manager, Policy Development, BP

Shondeep Banjeri: Senior Policy Advisor, SITPRO

Peter Eigen: Founder, Transparency International,Chairman, Extractive Industries Transparency Initiative(EITI)

Patricia Feeney: Executive Director, Rights andAccountability in Development (RAID)

Bennett Freeman: Senior Vice-President for Social Researchand Policy, Calvert

Arvind Ganeson: Director, Business and Human RightsProgramme, Human Rights Watch

Odd Godal: Manager, West Africa, Statoil

Adam Greene: Vice-President, Labor Affairs and CorporateResponsibility. United States Council for InternationalBusiness

Virginia Haufler: Associate Professor, Department ofGovernment and Politics, University of Maryland

Mark Henstridge: Head, Macroeconomics Department, BP

Richard Jones: Coordinating Manager, Corporate SocialResponsibility, Premier Oil (departed the company 2007)

David Kinley: Chair in Human Rights Law, University ofSydney

Richard Morgan: Corporate Affairs Adviser, Middle East andAfrica, Unilever

John Morrison: Director, Business Leaders Initiative onHuman Rights

John Ruggie: UN Secretary General’s Special Representativeon Business and Human Rights

Paul Stevens: BP Professor of Petroleum Policy, Centre forEnergy, Petroleum, and Mineral Law Policy (CEPMLP)University of Dundee

Martin Summers: Corporate Sustainability Manager, Corpo-rate and Regulatory Affairs, British American Tobacco

Sune Skadegaard Thorsen: Partner/Director, Lawhouse.dk

Jennifer Zerk: Principal, CSR vision

Footnotes

1 Besley, T. and Ghatak, M. (February 28, 2006) “RetailingPublic Goods: The Economics of Corporate Social Responsi-bility” London School of Economics

2 Scott, R. (2001) Institutions and Organizations Sage Publi-cations; Commons, J. (1931) “Institutional Economics”American Economic Review vol. 21, p648-657

3 North, D. C. (1990) Institutions, Institutional Change andEconomic Performance Cambridge University Press; North,D. C. “Economic Performance Through Time” Nobel Prizelecture, 19 December 1993

4 Hodgson, G. (March 1998) “The Approach of InstitutionalEconomics” Journal of Economic Literature, p166-192;Williamson, O. (1996) The Mechanisms of GovernanceOxford University Press; Mantzavinos, C. (2001) Individuals,Institutions, and Markets Cambridge University Press

5 Foss, K. and Nicolai, J. (2000) “Theoretical isolation incontract theory: suppressing margins and entrepreneur-ship” Journal of Economic Methodology vol.7(3), p313-339;Maurer, N., Haber, S. and Razo, A. (2003) The Politics ofProperty Rights: Political Instability, Credible Commitments,and Economic Growth Cambridge University Press

6 Bianchi, P. and Labory, S. (2004) The Economic Importanceof Intangible Assets Aldershot, UK: Ashgate Publishing

7 World Bank (2007) “What Is Our Approach to Governance?”Available from:http://web.worldbank.org/WBSITE/EXTERNAL/WBI/EXTWBIGOVANTCOR/0,,contentMDK:20678937~pagePK:64168445~piPK:64168309~theSitePK:1740530,00.html Accessed 21 April2007

8 Coyle, D., Alexander, W. and Ashcroft, B. (eds) (2005) NewWealth for Old Nations: Scotland’s Economic ProspectsPrinceton, NJ: Princeton University Press; InternationalOrganization of Employers (2001) “The ILO and the SocialDimensions of Globalization” Available from: www.ioe-emp.org.preview11.net4all.ch/fileadmin/user_upload/documents_pdf/papers/position_papers/english/pos_2001nov_sdg.pdf Accessed 11 February 2006

9 Temple (1998) p11, as quoted in Chanda, A and Putterman,L. (undated) The Capacity for Growth: Society’s CapitalBrown University Department of Economics

10 Author interview with M. Summers (2007)

11 Sobel, J. (March 2002) “Can We Trust Social Capital?”Journal of Economic Literature vol.40(1), p139-154

12 Moore, M. (1995) “Promoting Good Government bySupporting Institutional Development” IDS Bulletin,vol.26(2), p93; Schacter, M. (2000) “Capacity Building: ANew Way of Doing Business for Development Assistance

References and footnotes

27


Organizations” Institute on Governance Policy Brief No.6

13 Frynas, J.G. (2005) “The false developmental promiseof Corporate Social Responsibility: evidence frommultinational oil companies” International Affairs vol. 81(3),p581-598

14 Amis, L., Hodges, A., and Jeffrey, N. (2006) “Development,Peace, and Human Rights in Colombia: A Business Agenda”International Business Leaders Forum

15 Cambridge University for Programme and Industry (2006)“Corporate Leaders Group on Climate Change” Availablefrom: www.cpi.cam.ac.uk/bep/clgcc/ Accessed 21 April 2007

16 Author interview with C. Bader (2007)

17 UNDP (2004) “UNDP and the Private Sector: BuildingPartnerships for Development” Available from:http://www.undp.org.cn/downloads/ppp/undpandprivatesector.pdf p33 Accessed 21 April 2007



20 Petersen, S. Sorensen, M. and Struck, S. (2006) “Partneringfor Development – Making it Happen” UNDP, Availablefrom: www.undp.org/partners/business/UNDP-booklet-web.pdf Accessed 5 January 2007

21 Author interview with A. Greene (2006); InternationalOrganization of Employers (2006) “Business and HumanRights: The Role of Business in Weak Governance Zones”Available from: http://www.business-human-rights.org/Documents/Role-of-Business-in-Weak-Governance-Zones-Dec-2006.pdf Accessed 12 April 2007

22 Author interview with J. Morrison (2007); Author interviewwith C. Bader (2007); Author interview with A. Greene(2006)

23 Narayan, D. and Woolcock, M. (December 1999) “SocialCapital: Implications for Development Theory, Research andPolicy” World Bank Research Observer vol.15(2); Petersen,S. Sorensen, M. and Struck, S. (2006) “Partnering forDevelopment – Making it Happen” UNDP, Available from:www.undp.org/partners/business/UNDP-booklet-web.pdfAccessed 5 January 2007

24 UN Global Compact (2007) “What is Global Compact?”Available from:www.unglobalcompact.org/AboutTheGC/index.htmlAccessed 1 March 2007; UNDP (March 2007) “PrivateSector Partnerships” Available from:www.undp.org/partners/business/ Accessed 9 January 2007

25 Frynas, J.G. (2005) “The false developmental promise ofCorporate Social Responsibility: evidence from multina-tional oil companies” International Affairs vol.81(3), p598

26 Roemer-Mahler, A., ed. (2006) “The Scope for CorporateInvestments in Public Sector Capabilities” workingpaper for OPI-NCBS-ESRC seminar series: AddingPublic Value: the Limits of Corporate Responsibility,OPI-Oxford; International Organization of Employers(2006) “Business and Human Rights: The Role ofBusiness in Weak Governance Zones” Available from:http://www.business-humanrights.org/Documents/

Role-of-Business-in-Weak-Governance-Zones-Dec-2006.pdfAccessed 12 April 2007; Author interview with A. Greene(2006)

27 Roemer-Mahler, A., ed. (2006) “The Scope for CorporateInvestments in Public Sector Capabilities” working paperfor OPI-NCBS-ESRC seminar series: Adding Public Value: theLimits of Corporate Responsibility, OPI-Oxford

28 Roemer-Mahler, A., ed. (2006) “The Scope for CorporateInvestments in Public Sector Capabilities” working paperfor OPI-NCBS-ESRC seminar series: Adding Public Value: theLimits of Corporate Responsibility, OPI-Oxford

29 Crowson, P. (April 2007) “Adding Public Value: The Limits ofCorporate Responsibility” final report for OPI-NCBS-ESRCseminar series: Adding Public Value: the Limits of Corpo-rate Responsibility, OPI-Oxford


31 World Bank’s annual Doing Business surveys:www.doingbusiness.org

32 Exception is Frynas, J.G. (2005) and Crowson, P. (2007)

33 Crowson, P. (April 2007) “Adding Public Value: The Limits ofCorporate Responsibility” final report for OPI-NCBS-ESRCseminar series: Adding Public Value: the Limits of Corpo-rate Responsibility, OPI-Oxford

34 International Institute for Environment and Development(2007) “Boundaries to business action at the public policyinterface: issues and implications for BP-Azerbaijan”

35 Ruggie, J. (2007) “Business and Human Rights: mappinginternational standards of responsibility and accountabilityfor corporate acts” United Nations Webcast, the 4th sessionof the human rights council, 30 March 2007, Availablefrom: www.un.org/webcast/unhrc/archive.asp?go=070329Accessed 20 April 2007

36 Business Action for Africa (June 2007) “Report of theBAFICAA East Africa Arusha Workshop 21 May 2007”

37 Business Action for Africa (June 2007) “Report of theBAFICAA East Africa Arusha Workshop 21 May 2007”;Author interview with M. Summers (2007); Author inter-view with R. Morgan (2007)

38 Business Action for Africa (2006) “What is BAA?” Availablefrom:www.businessactionforafrica.org/about_eng_whatisBAA.htmAccessed 2 November 2006

39 Author interview with R. Morgan (2007)


41 Author interview with R. Morgan (2007); Business Actionfor Africa (2006) “What is BAA?” Available from:www.businessactionforafrica.org/about_eng_whatisBAA.htmAccessed 2 November 2006


43 Author interview with S. Banerji, (2007)


45 Author interview with R. Morgan (2007); Author interview

28


with M. Summers (2007); Business Action for Africa(2006) “What is BAA?” Available from:www.businessactionforafrica.org/about_eng_whatisBAA.htmAccessed 2 November 2006







52 Author interview with S. Banerji, (2007)


54 McTiernan, A. (July 2006), “Customs and Business in Africa:A Better Way Forward Together” BAFICAA Report, p38


56 Human Rights Watch World Report (2003) “Burma”Available from: http://hrw.org/wr2k3/asia2.htmlAccessed 6 January 2007

57 Blyth, A. (February 2003) “Premier Oil and Burma – Whoare the Real Winners?” Ethical Corporation Available fromwww.ethicalcorp.com/content.asp?ContentID=399 Accessed10 November 2006; Human Rights Watch (2003)

58 Blyth, A. (February 2003) “Premier Oil and Burma – Whoare the Real Winners?” Ethical Corporation Available fromwww.ethicalcorp.com/content.asp?ContentID=399 Accessed10 November 2006


60 As quoted in Blyth (2003) p22



63 Jones, R. (2002)

64 Jones, R. “Premier and Human Rights in Burma” – anunpublished paper by Jones provided to the authors

65 Jones, R. (2002)

66 Blyth, A. (February 2003) “Premier Oil and Burma – Whoare the Real Winners?” Ethical Corporation Available fromwww.ethicalcorp.com/content.asp?ContentID=399 Accessed10 November 2006; Jones 2006

67 Webb, T. (2003)

68 Webb, T. (2003)

69 Kinley, D. and Wilson, T. (2007) “Engaging a Pariah: HumanRights Training in Burma/Myanmar” Human Rights Quarterlyvol. 29 p368-402; Author interview with D. Kinley (2007)

70 Webb, T. (2003) p42

71 Jones, R. (2002)

72 Jones, R. (2006) “Corporate Contribution to Modern Diplo-macy” in T. Wilson (ed) Myanmar’s Long Road to NationalReconciliation Singapore: Select Books

73 Kinley, D. and Wilson, T. (2007) “Engaging a Pariah:Human Rights Training in Burma/Myanmar” Human RightsQuarterly vol. 29 p368-402

74 Jones, R. (2002)


76 Jones, R. (2002)


78 Premier Oil (2002) “2001 Sustainability PerformanceReport” Available from:www.premieroil.com/render.aspx?siteID=1&navIDs=19,311Accessed 3 February 2007, p43

79 Jones, R. (2006) “Corporate Contribution to Modern Diplo-macy” in T. Wilson (ed) Myanmar’s Long Road to NationalReconciliation Singapore: Select Books

80 Amnesty International (2005) “Amnesty InternationalReport” Available from:http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/25_05_05_amnesty.pdf Accessed 4 April 2007; BBC 2005


82 UNDP, Godal 2006, Castellanos 2007

83 Statoil (1999) “Training In Human Rights” Available from:www.statoil.com/STATOILCOM/SVG00990.nsf/UNID/4125671A004044884125677E002F4A09 Accessed 2 April 2006

84 Maung, Z. (2006) “Statoil and Capacity Building in Nigeria”unpublished article for Ethical Corporation commissionedby the author.

85 Statoil (2007) “About Statoil, Our Business, Venezuela”Available from: www.statoil.com/STATOILCOM/SVG00990.nsf?opendatabase&lang=en&artid=B81EDAD1FF718F2341256657004A168EAccessed 2 February 2007; UNDP (2004) “UNDP and thePrivate Sector: Building Partnerships for Development”Available from: http://www.undp.org.cn/downloads/ppp/undpandprivatesector.pdf Accessed 21 April 2007

86 UNDP (2004) “UNDP and the Private Sector: BuildingPartnerships for Development” Available from:http://www.undp.org.cn/downloads/ppp/undpandprivatesector.pdf Accessed 21 April 2007

87 UNDP undated p43

88 Statoil (2003) “Sustainable Development, Statoil inVenezuela”. Available from:

29


http://www.snohvit.com/statoilcom/hms/svg03116.nsf/UNID/0574AFEF513F6A6DC1256D49002E4F7C?OpenDocumentAccessed 23 January 2006

89 Maung, Z. (2006) “Statoil and Capacity Building in Nigeria”unpublished article for Ethical Corporation commissionedby the authors

90 Statoil (2004) “Conviction Politics”. Statoil Magazine Avail-able from:http://www.statoil.com/STATOILCOM/SVG00990.nsf?opendatabase&lang=en&artid=F339A511DE36C94B4125682D0050E669 Accessed 19 April 2007

91 Statoil (2004) “Conviction Politics”. Statoil MagazineAvailable from: http://www.statoil.com/STATOILCOM/SVG00990.nsf?opendatabase&lang=en&artid=F339A511DE36C94B4125682D0050E669 Accessed 19 April 2007

92 Statoil (2007) “About Statoil, Our Business, Venezuela”

93 Statoil (2003) “Sustainable Development, Statoil inVenezuela”. Available from:http://www.snohvit.com/statoilcom/hms/svg03116.nsf/UNID/0574AFEF513F6A6DC1256D49002E4F7C?OpenDocumentAccessed 23 January 2006


95 According to I. Castellanos in informal author interview(2007)

96 Maung, Z. (2006) “Statoil and Capacity Building in Nigeria”unpublished article for Ethical Corporation commissionedby the author

97 Email interview with LEDAP

98 Author interview with O. Godal (2007)

99 LEDAP report

100 Email interview with LEDAP


102 Maung, Z. (2006) “Statoil and Capacity Building in Nigeria”unpublished article for Ethical Corporation commissionedby the author

103 UNDP (2004) “UNDP and the Private Sector: BuildingPartnerships for Development” Available from:http://www.undp.org.cn/downloads/ppp/undpandprivatesector.pdf Accessed 21 April 2007

104 Business Leaders Initiative on Human Rights (2004)“Report 2: Work in Progress”. Available from:www.blihr.org/Pdfs/BLIHR%20Report%202004.pdf Accessed2 November 2006


106 Webb, T. (February 2006). “Venezuela: Life in the land of21st century socialism” Ethical Corporation, p25-32Available from: www.ethicalcorp.com/content.asp?ContentID=4091 Accessed 21 April 2007

107 BBC. (2007) “Country profile: Burma” Available from:http://news.bbc.co.uk/1/hi/world/asia-pacific/country_profiles/1300003.stm. Accessed 13 April2007; Central Intelligence Agency (2007) “The WorldFactbook, Azerbaijan” Available from:https://www.cia.gov/cia/publications/factbook/geos/aj.htmlAccessed 7 February 2007

108 BBC. (2007) “Country profile: Burma” Available from:http://news.bbc.co.uk/1/hi/world/asia-pacific/country_profiles/1300003.stm. Accessed 13 April2007

109 International Monetary Fund (June 2007) “Republic ofAzerbaijan – 2007 Article IV Consultation” Available from:http://www.imf.org/external/pubs/cat/longres.cfm?sk=21031.0Accessed 17 August 2007

110 Caspian Development Advisory Panel (January 2007) “FinalReport and Conclusions” p21

111 Central Intelligence Agency (2007) “The World Factbook,Azerbaijan” Available from:https://www.cia.gov/cia/publications/factbook/geos/aj.htmlAccessed 7 February 2007

112 Butler, N. (March 2000) “Companies in InternationalRelations”. Survival vol.42 (1) p149-164; US AzerbaijanChamber of Commerce. (2007) Available from:http://www.usacc.org/contents.php?cid=66Accessed 13 April 2007

113 Litvin, D. (2004) “Empires of Profit: Commerce, Conquestand Corporate Responsibility”. London: Texere

114 Author interview with M. Henstridge (2007)

115 Caspian Development Advisory Panel (2005) “Report on2005 Activities” p12

116 Caspian Development Advisory Panel (January 2007) “FinalReport and Conclusions”

117 Caspian Development Advisory Panel (January 2007) “FinalReport and Conclusions”; Litvin, D (2004) Empires of Profit:Commerce, Conquest, and Corporate ResponsibilityLondon: Texere; Mikesell, R. (1997) “Explaining theResource Curse, with Special Reference to MineralExporting Countries” Resources Policy vol.23(4) p191-199;Neumayer, E. (2004) “Does the Resource Curse Hold forGrowth in Genuine Income As Well?” World Developmentvol.32(10) p1627-1640

118 Extractive Industries Transparency Initiative (2007) “AboutEITI”. Available from:www.eitransparency.org/section/abouteiti Accessed 10 March2007

119 Caspian Development Advisory Panel (December 2005)“Report on 2005 Activities” p12

120 Caspian Development Advisory Panel (December 2005) “BPResponse to the Letter from the Panel to Lord Browne ofMadingly” p11

30


121 Caspian Development Advisory Panel (March 2007) “BPResponse to the Letter from the Panel to Lord Browne ofMadingly” p18

122 Caspian Development Advisory Panel (March 2007) “BPResponse to the Letter from the Panel to Lord Browne ofMadingly” p15-16

123 Author interview with M. Henstridge (2007)

124 Author interview with P. Stevens (2007)

125 Caspian Development Advisory Panel (March 2007) “BPResponse to the Letter from the Panel to Lord Browne ofMadingly”

126 Caspian Development Advisory Panel (January 2007) “FinalReport and Conclusions”; BP CDAP response 2007;Henstridge 2007

127 Caspian Development Advisory Panel (December 2005) “BPResponse to the Letter from the Panel to Lord Browne ofMadingly”

128 University of Oxford press release, 18 April 2007:http://www.admin.ox.ac.uk/po/news/2006-07/apr/18.shtml

129 Author interview with P. Eigen (2007)

130 Crowson, P. (April 2007) “Adding Public Value: The Limits ofCorporate Responsibility” Oxford: Oxford Policy Institute

131 Morrison, J. and Wilde, L. (March 2007) “The Effectivenessof Multi-stakeholder Initiatives in the Oil and Gas Sector”Summary Report, available fromwww.twentyfifty.co.uk/docs/2050_MSI_report_March_2007.pdf

132 John Ruggie email interview (2007)

133 Hirschland, M. (2006) Corporate Social Responsibility andthe Shaping of Global Public Policy, p108

134 Author interview with V. Haufler (2007)

135 Nelson, J. and Jackson, I. (2004) Profits with Principles NewYork: Currency

136 Crowson, P. (April 2007) “Adding Public Value: The Limits ofCorporate Responsibility” Oxford: Oxford Policy Institute,p24

137 Nelson, J. and Jackson, I. (2004) Profits with Principles NewYork: Currency

138 Crowson, P. (April 2007) “Adding Public Value: The Limits ofCorporate Responsibility” Oxford: Oxford Policy Institute,p26

139 IIED (December 2006) “Boundaries to business action atthe public policy interface: Issues and implications for BP-Azerbaijan”



142 Frynas, J.G. (2005) “The false developmental promise ofCorporate Social Responsibility: evidence from multina-tional oil companies” International Affairs vol.81(3),

143 Oppenheim, J. et al (July 2007) “Shaping the New Rules of

Competition: the UN Global Compact Mirror” McKinsey &Company, p8

144 Oppenheim, J. et al (July 2007) “Shaping the New Rules ofCompetition: the UN Global Compact Mirror” McKinsey &Company, p13


146 IIED (December 2006) “Boundaries to business action atthe public policy interface: Issues and implications for BP-Azerbaijan

147 Author interview with J. O’Reilly (2007)


149 In 2000 the project was temporarily suspended while theVenezuelan government embarked on a comprehensivereview of its legal system. Once this was reviewed andchanges implemented, the programme was restarted inDecember of that year. As a result of the reforms, hundredsof judges and public prosecutors either retired or weredismissed and the judges within the Statoil-funded schemewere then retrained under the new legal system. Accordingto UNDP’s 2004 report: “Fortunately, those formerlyselected were still in position and eager to continue (atribute to the high standards used in the original selectionprocess).”

150 Hirschland, M. (2006) Corporate Social Responsibility andthe Shaping of Global Public Policy

151 Wallace, W. and Josselin, D., eds (2001) Non-state actors inWorld Politics, p7

152 Haufler (2006) “International Governance and the PrivateSector: Historical Continuity and Change” in Chris May, edCorporate Power, p101

153 Author interview with P. Feeney (2007)

154 As quoted in Hirschland, M. (2006) Corporate SocialResponsibility and the Shaping of Global Public Policy, p113

155 Author email interview with J. Ruggie (2007)

156 Cutler, A.C. “Transnational Business Civilization,Corporations and the Privitisation of Global Governance” inMay 2007, Global Corporate Power

157 Ruggie, J. (September 2007) article for Ethical Corporation

158 Eigen, P. and Moberg, J. (July 2007) “Transparency andAccountability as a Driver for Growth” published in TheState of Responsible Competitiveness, AccountAbility

31