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governments of oil-producing states came to own a substantial part of
the oil produced. As we pointed out in Chapter 1, about half of the
world™s known oil and gas reserves are controlled by just five national
oil companies in the Middle East, and state-owned companies from
48 Beyond Corporate Social Responsibility

countries such as Venezuela, Russia and Nigeria control another large
part of the oil reserves. Therefore, oil sales on the world market are
often negotiated by the government (via a national oil corporation),
not the private oil companies. The government either sells a cargo of
oil on the spot market or by using a so-called ˜term contract™. Unlike a
spot sale, where a single cargo is sold, a term contract usually involves
multiple deliveries of oil to a specific buyer for a fixed time period at
an agreed price formula (but the price is usually linked to the spot
prices of the specified benchmark crude oil).
While governments tend to sell their crude oil on the world market
(with a few exceptions, such as Kuwait Petroleum with its interna-
tional network of petrol stations), larger integrated oil companies
such as Shell or Exxon often use their crude oil within their own
company (although they also sell and buy crude oil on the spot
market). As a result of these complex trade relationships, oil from
the same oilfield may end up in different hands in various parts of the
world. For instance, Angolan oil is sold both on the spot market and
through the use of ˜term contracts™ with regular buyers including
oil refineries on the east coast of the United States (such as Sun
Oil), oil traders (such as Glencore of Switzerland) and multinational
oil companies (such as Chevron). The buyers may, in turn, resell
the oil to others. Indeed, an oil cargo sold at a loading terminal in a
developing economy may change ownership many times before it
reaches the oil refinery. The marketing of natural gas is similar to that
of oil, but the sale of natural gas tends to rely to a much larger extent
on long-term contracts than spot contracts.
As the above account shows, marketing operations in the oil and
gas sector raise the issue of the degree of involvement of different
actors along the global supply chain, which in turn raises questions
over the degree of responsibility of a particular company for the social
and environmental impact of oil operations. The global integration of
production, where one company (e.g., Shell or Exxon) controls all of
the stages of the supply chain “ starting with production of crude oil
The context of CSR 49

and ending with marketing petroleum products to the end-consumer “
is not the norm. The host governments and the companies that
produce crude oil on their behalf have a lot of power over the supply
and the pricing of the product, often far exceeding that of the buyer in
the petrochemical sector. State-owned companies control a signifi-
cant part of the global supply of crude oil, while ˜middlemen™ such as
trading companies may also be involved. Therefore, in contrast to
˜buyer-driven™ global supply chains that exist in the clothing industry
or the food industry (Barrientos and Smith 2007; Tallontire 2007),
the attribution of social responsibility for ˜upstream oil activities™ to a
buyer (e.g., a refiner such as Sun Oil) is often not possible.
The complex relationships in the oil and gas sector also raise the
question of the responsibility of a range of actors other than oil
companies. It is useful to summarise who these key stakeholders are,
which we shall do in the next section.


Multinational oil companies such as Shell could not operate successfully
without the involvement of other stakeholders, who provide the legal
guarantees, funding, equipment, technical expertise for oil operations
and legitimacy. The web of relationships of an oil company is very
complex. As an example, Figure 3.4 provides a typology of the stake-
holder groups of Shell International “ the Shell company™s London-
based hub. Behind each of the headings, there may be numerous
organisations with sometimes very different interests. Figure 3.4 does
not even include stakeholders involved in operational activities in
developing economies; Shell™s subsidiaries in different parts of the
world will have many other stakeholder groups. For instance, the stake-
holders of Shell™s oil-producing subsidiary will also include international
subcontracting firms such as Schlumberger and Wilbros, local firms,
local communities represented by different organisations and persons,
different government agencies and so on. It may be useful to sketch out
50 Beyond Corporate Social Responsibility




Services Shell Human
International resources
procurement STAFF



Figure 3.4: Stakeholders of Shell International
Source: adapted from Platform Website at www.carbonweb.org/
Reproduced with permission of Platform.

the importance of a number of key stakeholders/actors and the respec-
tive roles they play in CSR policies (see Table 3.1 for a summary).

The government

Work by institutional theorists reminds us that, despite globalisation,
nation-states remain the primary units of political competition and
mobilisation, national legal systems continue to standardise the nature
of property rights in an economy and national regulations continue to
The context of CSR 51

table 3.1: Key stakeholder groups in the oil and gas sector
and their interest in CSR

Interest in supporting CSR Limitations
Government Gain aid from donors Lack of capacity to support
Avoid the need for social and environmental
government intervention initiatives
Financial Protect own reputation Social benefits secondary to
Institutions Maintain operations of profits
companies in host Limited power to influence
countries oil-producing countries
Contractors Improved relationships Less concern with external
with local communities reputation
Continued business Small volume of trade with a
relationship with the oil specific client oil company
NGOs Pursue shared goals with Lack of accountability
the business community Ineffective at providing
Secure funding services
Influence emerging CSR
standards, codes and ˜social

govern industry entry and exit and many other aspects of market activity
(Whitley 1999). Even in the most dysfunctional African states, with
weak government authority, the state continues to exert an important
influence on the country™s development (Wood and Frynas 2006).
Accordingly, the crucial partner for an oil company is the govern-
ment, and this is particularly relevant in the oil and gas sector. In most
countries of the world, oil resources are vested in the state, and the
government decides which company gets access to the country™s
natural resources through the granting of oil licences. The govern-
ment also provides the regulatory framework, such as petroleum tax
and royalty, and defines the respective rights and responsibilities of
investors and the communities that host them through property
52 Beyond Corporate Social Responsibility

rights, planning rules and systems of redress. Since the oil and gas
sector is considered ˜strategic™ in many developing economies, the
government sometimes imposes minimum drilling obligations, price
controls, control over the development of oilfields (including restric-
tions on production) and, in some cases, can expropriate the assets of
oil companies or cancel contracts. Political decisions directly influ-
ence the day-to-day operations of the oil and gas industry, particularly
if the state has a shareholding interest in a company.
Furthermore, there is a direct relationship between state welfare
provision and the need for CSR initiatives. Multinational oil com-
panies have generally been asked to voluntarily take on greater social
and environmental responsibilities in countries where the govern-
ment has not been successful in providing public goods and effective
regulation. For example, oil companies in Nigeria have been pres-
sured to build schools and hospitals, because the state has failed to
provide those public goods for the local communities in Nigeria™s oil-
producing areas (Frynas 2001, 2005). In other oil-producing countries
such as Saudi Arabia and Kuwait, oil companies face less pressure to
fulfil such roles in large measure because the state has gradually
become more effective in providing public goods (Marcel and
Mitchell 2005, chapter 6). When asked about local community proj-
ects in Egypt, an oil company manager responded: ˜we give some
charitable donations, but the government takes care of things™, which
means that there is relatively little pressure on companies to engage in
social investment.
In general, the effectiveness of government (as well as stakeholder
pressure) can help to explain why companies devote more resources to
CSR in some countries rather than others. For instance, BP spent
millions on social initiatives and CSR in Angola; however, a former
BP manager pointed out the contrast with other countries: ˜BP is the
greatest investor in Algeria but nothing is done on CSR.™ Likewise, if
the government is able to effectively enforce high environmental
standards in an industry, there is no need for companies to voluntarily
The context of CSR 53

embark on environmental activities. To put it differently, if the govern-
ment ˜takes care™ of its citizens, there is relatively little need for CSR.
As a result, the very concept of CSR depends on the role of govern-
ment. In a country such as Nigeria, where the government has failed to
effectively enforce environmental regulation, a company™s care to avoid
oil spills can be considered voluntary and can be labelled ˜CSR™. In a
country such as Norway, where the government has effectively enforced
high environmental standards in the industry, a company™s care to avoid
oil spills can be arguably labelled ˜regulatory compliance™. Of course, a
company such as Statoil may act responsibly anyway, and it may be
partly motivated by social responsibility when it avoids oil spills in
Norway. However, the role of the government remains crucial in
determining what activities can be considered ˜voluntary™ and ˜beyond
legal compliance™ (the characteristics of a CSR definition).
It has also been shown that the effectiveness of some CSR strategies
in the oil and gas sector depends on government support (Frynas 2005;
Gulbrandsen and Moe 2007). Chapters 5 and 6 in this book illustrate
that the effective delivery of local community development projects
and governance initiatives depends on a co-ordination mechanism
provided by government. Even the more ineffective governments
have, none the less, a self-interest in promoting CSR in order to gain
the international respectability which can help to attract funding from
donors as well as to avoid the need for government intervention, since
the private sector can solve problems. But effective CSR can be con-
strained by the lack of government support, corruption or lack of a civil
society. This gives rise to the crucial dilemma that we shall explore in
later chapters: government failures can lead to calls for CSR, but


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