“The Gulf of Mexico oil spill.” The fall of Corporate Social Responsibility.

CORPORATE SOCIAL RESPONSIBILITY In The OIL & GAS Sector In UGANDA

 

Corporate Governance is a system of rules, practices and processes by which companies are directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community.   

According to Frynas, oil and gas companies have expressed various criticisms resulting in three main views: “CSR is a waste of time; CSR is about managing perceptions and making people inside and outside the company feel good about themselves; CSR is a red herring in terms of development projects”.^[1] In instances when the companies have included CSR onto their agenda, they have failed to fulfill that mission such as the requirement to employ residents from the local communities and yet CRS would require that the local community is trained to work.

CSR appears to be an emerging issue because companies are increasingly being held responsible not only for their own activities but for those of their suppliers, the community where they are located and the people who use their products. This is at least partly due to the highly visible negative effects of day today operations such as oil spills and the resulting protests by civil society groups and indigenous people. Prominent examples of publicized industry ‘debacles’ include oil tanker accidents such as the Exxon Valdez, indigenous unrest such as anti-Shell protests in Nigeria and the involvement of oil companies in human rights abuses such as BP in Colombia. Such events are widely reported by the media and have put particular pressure on multinational oil companies such as Shell and BP, which are perhaps more visible and their brand image is more vulnerable than companies in some other sectors of the economy.^[2] 

The implementation of CSR is affected by profitability, industry sensitivity, size of the company, media exposure, board composition and liquidity ratios.

 The expectation of corporates to ‘give back to society’ closely relate to the theory of ‘social contract’, developed by Donaldson wherein society grants legitimacy to the company as long as the social benefits exceed the social costs.^[3] CSR activities undertaken by corporates are expected to bring competitive advantage and ultimately, improve the financial performance of the company. 

 

Additionally, in countries where labour unions are more prominent it is expected that companies will perform better on ‘implicit’ CSR areas, since powerful unions are likely to push for extended benefits for employees, focusing more on health and safety provisions and progressive labour relations policies.^[4] Likewise, it has been claimed that a combination of strong state regulation and collective bargaining encourage socially responsible behavior in companies and are likely to increase the level of social and environmental standards in corporate operations.^[5] Most companies purport to pursue not only the goal of increased revenues and profits, but also the goal of community and societal betterment.

  “The Gulf of Mexico oil spill.” A tale of Corporate Social Responsibility.

On April 20, 2010, 11 oil workers lost their lives when the Deepwater Horizon, a semi-submersible offshore drilling rig in the Gulf of Mexico, exploded and created one of the largest environmental disasters in U.S. history. In the weeks and months that followed, hundreds of millions of liters of crude oil spewed into the Gulf of Mexico, threatening the waters and surrounding lands, marshes, and beaches; damaging fish and wildlife; and disrupting the lives of many residents and communities in the Gulf region. This is not the first oil spill disaster. Other oil spill catastrophes have occurred in the United States and around the world. But, the Gulf oil spill is distinctive in its magnitude, in its duration, and in the complexity of its assessment. Unlike most spills in which there is a single event and measurable release of oil, the Deepwater Horizon spill has been plagued not only by its resolution (as of this writing, the success of capping the well is still in doubt) but also by its wide-reaching and likely prolonged impact on communities in the affected regions. The extensive, prolonged use of dispersants is also unprecedented, and the risks associated with their use are unknown, as are risks associated with fumes from the oil and controlled burns. In fact, it may be the sheer level of uncertainty that best defines the Gulf of Mexico oil spill.[6]

Aspects of corporate governance in relation to the Oil spill

 The management resolved to cut costs for maintenance to increase its revenue which was a total mishap as the plant ought to have been maintained so that overflow could be detected and controlled.  This too was a bad step in the governance of the oil activities.

The negligence of the management in dealing with preceding accidents however minor, is also a weakness of the management regime. The engineering problems could have been addressed had the management taken a step the very first time when the refinery caused the first accident thus the inexcusably poor corporate governance which led to the deep water horizon.

The explosion imparts a bad reputation on the company as many stakeholders could not trust the company especially on hearing that the explosion was a result of a mistake that the management could have corrected henceforth the company lost some customers and shareholders to some competitors.

The British Petroleum company’s (BPC’s) inability to ensure the appropriate safety of its workers and prevent environmental disasters that are a risk during oil and gas-related operations was yet another blow. The company’s board put the lives of employees in danger by not giving safety the required level of rigor in terms of planning and implementation. Investigations revealed that the BP oil well was sealed after eighty-seven days of leakage, which also points to the lack of consideration of the corporation for environmental issues and the well-being of residents affected by the disaster.

According to a research and report by Margaret A. Mcoy and Judith A. Salerno[7], the oil spill had great hazardous effects on the health of people which up to date, are being suffered.

In Uganda, one important regulatory framework is to be found under the Petroleum (Refining, Conversion, Transmission and Midstream Storage) Regulations, 2016.

Regulation 34(1) of Petroleum (Refining, Conversion, Transmission and Midstream Storage) Regulations, 2016^[8] confers a duty on the licensee to report any accidental spillage of petroleum commodities, petroleum products or chemicals inside a refinery conversion plant to the Authority immediately but in any case not later than 24 hours from the time of the spillage. This would be to mitigate the possible disastrous consequences that may arise and endanger human life where if not prevented. 

Regulation 34(2) Petroleum (Refining, Conversion, Transmission and Midstream Storage) Regulations, 2016  ^[9] requires the licensee within 14 days after the accidental spillage occurs under sub regulation (1) to submit to the authority a written report describing the cause and nature of the spillage, the amount of spillage, precautionary measures taken since the spillage to prevent any hazard that may arise from the spillage and precautionary measures taken to prevent such spillage in the future. All the above is to ensure safety of not only employees but the surrounding communities.

Conclusion. Oil spills have in the past caused devastating consequences. The Albertine region may not be an exception to such spillage hence the justification for regulation and observance of proper corporate social responsibility by oil companies to protect the communities from a disaster that would befall them in the event of a spillage.

END.

"A family which Reads together, passes together"

 AHIMBISIBWE INNOCENT BENJAMIN

(Entertainment Lawyer)

 

                                                            

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[1] Jedrzej George Frynas., 2005. The False Development Promise Of Corporate Social Responsibility: Evidence From Multinational Oil Companies, In International Affairs, 582. see Also Isaac Christopher Lubogo; The Law of Oil and Gas in Uganda- Ed 1, 2021

[2] Jedrzej George Frynas., 2005. The False Development Promise Of Corporate Social Responsibility: Evidence From Multinational Oil Companies. see Also Isaac Christopher Lubogo; The Law of Oil and Gas in Uganda- Ed 1, 2021

[3] Thomas Donaldson. (1982). Corporations And Morality. Englewood Cliffs, Nj: Prentice Hall.

[4] Ioannis Ioannou., and George Serafeim. (2012). What Drives Corporate Social Performance? The Role Of Nation-Level Institutions. Journal of International Business Studies, 43, Pp. 834864. 

[5] John L Campbell. (2007). Why Would Corporations Behave In Socially Responsible Way? An Institutional Theory Of Corporate Social Responsibility. Academy Of Management Review, 32(3), Pp. 946-967.

 [6] Margaret A. Mcoy and Judith A. Salerno, Assessing the effects of the Gulf of Mexico oil Spill on Human Health: A Summary of the June 2010 Workshop ( The National Academies Press 2010)

[7] Assessing the effects of the Gulf of Mexico oil Spill on Human Health: A Summary of the June 2010 Workshop ( The National Academies Press 2010)

[8] Petroleum (Refining, Conversion, Transmission and Midstream Storage) Regulations, 2016

[9] Petroleum (Refining, Conversion, Transmission and Midstream Storage) Regulations, 2016