Mikkelsen A., Langhelle O. (eds.) Arctic Oil and Gas. Sustanability at Risk?
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of the Parties included in Annex I, have deposited their instruments of ratification,
acceptance, approval or accession’. The Protocol entered into force on February 16,
2005 as a consequence of ratification by Russia, which secured parties representing 55
per cent of total CO
2
emissions in industrialized countries.
8CO
2
is, however, by far the most important greenhouse gas in developed countries.
9 See http://unfccc.int/ghg_emissions_data/information_on_data_sources/definitions/
items/3817.php (accessed 23 May 2007).
10 According to Ecology North, these emissions could be offset by the following
measures: ‘Preserving at least 21 million acres of forests. Repairing 8 million houses
(all houses in the Northern Territories, B.C., the Prairie Provinces and Ontario) to
improve their energy efficiency. Building 15,660 wind turbines in Alberta. Buying
carbon credits’.
11 Our translation.
12 Ramsar sites are wetlands of international importance designated under the Convention
of Wetlands (Ramsar, Iran, 1971). These wetlands are commonly known as Ramsar sites.
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Perceptions of Arctic challenges 349
13 Managerial implications
Aslaug Mikkelsen, Ronald D. Camp II and
Robert E. Anderson
Introduction
In the preceding chapters, we examined the context in which managers in the oil
and gas industry must make decisions with respect to operations in the Arctic.
This examination was conducted through the lens of corporate social responsibil-
ity with particular attention paid to increasing expectations around sustainable
development – economic, social and environmental factors together, as the triple
bottom line. In addition, we conducted this examination from the perspective of
the major actors involved: communities, corporations, civil sector groups,
government at all levels and supranational organizations (see Figure 13.1).
Finally, this examination was done at various geographic scales: global, national,
sub-national region (focusing on the Arctic within each of the subject states) and
local/community.
The purpose of this chapter is to set out the major contextual forces that
managers need to consider when deciding on strategy and actions with respect
to oil and gas operations in the Arctic and then, more generally, make suggestions
as to effective responses to these contextual forces. We do this in the four sections
of this paper: (1) introduction; (2) corporations, social responsibility and sustain-
able development; (3) communities, oil and gas corporations and sustainable
development in the Arctic and (4) managerial implications. Section 2 revisits
corporate social responsibility (CSR) and proposes a matrix of possible
approaches based on the corporation’s view of the strategic importance of socially
responsible behaviour and the nature of that behaviour. Section 3 addresses the
different and often conflicting expectations of the different actor groups about
appropriate corporate behaviour from the perspective of community, civil sector,
state and environmental actors.
Then, in Section 4, we address the managerial implications on the oil and gas
industry of the material in Sections 2 and 3, with a primary focus of the Arctic.
Among other things, we explore possible approaches to CSR and sustainable
development; for example: (i) whether to lead or lag behind relative to competi-
tors and demands from other actors; (ii) whether to treat CSR as a constraint or
potential source of competitive advantage and (iii) whether to treat the demands
of actors as elements of a key strategic issue or as tactical issues differing by
geographic scale and actors.
Managerial implications 351
We conclude that it is better to lead than lag and, by doing so, to treat CSR
as a source of competitive advantage. To do this, CSR and sustainable development
must be treated as a key strategic issue and not a tactical one. Although particular
issues must be responded to at the national, regional and local levels, this must be
done within a thoughtful corporate-wide strategic approach, not a reactive tactical
location or incident specific one.
Corporations, social responsibility and sustainable
development: corporate social responsibility
In the new global economy, it can be argued that directors and managers
of transnational corporations (TNCs) have no particular national allegiance
but rather ‘are ideologically disposed to have each branch of the corporation
behave like a “good corporate citizen” of the country in which it is domiciled’
(Stander and Becker, 1990: 197). According to Stander and Becker, this behav-
ioural disposition of TNCs, called ‘the Doctrine of Domicile’ by Sklar (1987),
arises because:
The TNC’s interest in maximizing global profitability and avoiding sub
optimization at a subsidiary level will be weighed against another, equally
outcomes
4
outcomes
1
2
3
Unconditional
participation
Indigenous people as
potential strategic
partners/resource
Indigenous people as
a problem or threat
Indigenous people
as neither potential
or threat
Assertively prgamatic
participation
Transformational
participation
Resistance and non-
participation
Local or
indigenous
community
Modes of development
Integrating,
transforming
and
excluding
mechanisms
Corporations as
principal actors
in the global
economy
Supranational bodies
The state
The civil sector
Figure 13.1 Major actors associated with the oil and gas industry in the Arctic.
352 A. Mikkelsen, R. D. Camp II and R. E. Anderson
important interest: the corporation must legitimize its host-country presence
in order to obtain the stability it needs to plan the maximization of capital
accumulation under its control.
(Stander and Becker, 1990: 198)
Tavis and Glade (1988) in their observations about the behaviour of TNCs
in developing regions offer support for the Doctrine of Domicile. They suggest
three possible approaches to interaction with developing regions available to
TNCs – power-based, participative and combined strategies. The authors contend
that, while power-based strategies dominated in the past, participative strategies
are now necessary, if TNCs are to ensure their long-term survival.
The authors attribute this shift to a number of factors including:
1 Changing expectations about what constitutes ethical and responsible
TNC behaviour.
2 Increased TNC experience in developing regions and especially the
partial naturalization of multinational management in overseas
subsidiaries.
3 The growth of a business infrastructure in developing regions.
4 More experienced, technically competent, and self-confident organiza-
tions for negotiation and economic administration in developing regions.
This TNC behaviour (the Doctrine of Domicile) is a manifestation of the approach
to CSR adopted by a firm’s managers or owners. Various authors address the
subject of the changing nature of CSR, as people perceive it at large and by those
within the corporation. James Brummer (1991) and Ahmed Belkaoui (1984)
provide particularly useful and comprehensive reviews of the subject.
James Brummer (1991) in his analysis of CSR suggests that there are four
perspectives on the issue: classical, stakeholder, social demandingness and social
activist. According to the classical perspective, economic performance is greatest
when corporate executives respond only to the economic interests of the
company’s shareholders. It is argued that society’s best interests are served when
its specialized institutions (for-profit businesses, non-profit organizations,
governments, etc.) focus exclusively on their particular functions. The social
obligations of businesses are confined to satisfying legal and economic criteria.
Socially responsible behaviour not mandated by law will not be pursued because
it imposes unnecessary costs on the business thus reducing profitability.
Proponents argue that, if a segment of society desires some goods or service,
they should build a market for it or urge government to either supply it or require
business to do so.
The stakeholder approach suggests that a business’ responsibilities extend
beyond shareholders to include all stakeholders; defined as those who: (i) are, or are
likely to be, directly affected by the decisions and activities of the business; (ii) have
an explicit contractual relationship with it and/or (iii) can directly affect the
corporation. Corporate executives may respond to the interests of stakeholders
out of corporate (shareholder) and/or individual self-interest; because such a
response is demanded by law; in response to, or in anticipation of, public
pressure; and/or from a genuine desire to benefit the lives of stakeholders.
According to the social demandingness approach, corporations are responsible
to carry out those activities that society expects or demands of them. Managers
should solicit and consider the opinions, demands and/or expectations of members
of the public (not just stakeholders) regarding corporate activities and respond
to the interests and needs expressed. Most theorists adopting this perspective
contend that society’s social and moral demands on businesses have been increas-
ing over the past decades. It is no longer enough for firms to provide goods and
services to the public for profit while satisfying the interests of stakeholders; they
are expected to meet social and moral responsibilities with respect to society
at large as well.
The social activist approach holds that a universal standard exists for
determining responsible corporate conduct that is independent of the interests
of stockholders and the claims of stakeholders. This standard demands concern for
the ideal or rational interests of the public, rather than their expressed or present
interests. Therefore, the standard of responsible corporate conduct is independent of
current circumstances and even current interests of various groups and is absolute
and universal – it has a scientific, ethical, religious and/or metaphysical basis.
In a similar vein, Belkaoui (1984), in his book Socioeconomic Accounting,
suggests that society increasingly expects businesses to consider issues beyond
profit maximization, and that these expectations have resulted in three new and
related paradigms: (i) the new economic paradigm; (ii) the rectification
paradigm and (iii) the ethical paradigm. The new economic paradigm seeks to
rationalize two extreme views, libertarianism and radical economics, on a contin-
uum of opinion concerning the pre-eminence of either the market or the state in
solving complex economic and social problems. In this new paradigm, social and
institutional economists hold that corporate behaviour can be guided by ‘a clear
statement of national and social goals based on a commitment to human welfare
and social justice and experimentation with institutional arrangements to solve
economic and social problems’ (Belkaoui, 1984: 13).
The basis of the rectification paradigm is the premise that the corporation is an
active market and social agent whose actions will either worsen or improve socio-
economic conditions. The continuum of rectification options available to the
organization extends from complete indifference to an active role in rectifying
social problems. Belkaoui suggests that indifference harms the long-term
interests of the firm, while ‘involvement in some forms of rectification is a way
of ensuring mutual acceptance by society and a role in securing social order and
affluence’ (Belkaoui, 1984: 14).
The ethical paradigm also recognizes that a corporation’s actions have the poten-
tial to positively or negatively impact society. The continuum of ethical options
available to the organization extends a constructionist argument that a business
Managerial implications 353
354 A. Mikkelsen, R. D. Camp II and R. E. Anderson
serves society best when it concentrates on the objective of profit maximization,
only undertaking those social activities that aid in the pursuit of profit maximiza-
tion or are imposed by law. At the other end of the continuum are those who argue
that an ethical corporation has an obligation to behave in a socially responsible
manner, even if that behaviour interferes with profit maximization. Such a firm
pursues a set of goals including social objectives and fair profits.
A synthesis of the three development paradigms described by Belkaoui and the
approaches to corporate social responsibility described by Brummer, is possible. In
that synthesis, corporate approaches to social responsibility and long-term survival
range between two extreme stances, reactive and proactive (see Figure 13.2).
Belkaoui, Brummer and others (i.e. Armstrong, 1982; Davis, 1991; Goldman,
1995) suggest that society’s expectations and the requirements of flexible or agile
competition (the ‘new economy’) are combining to force businesses to shift their
approach towards the right end of the continuum. Goldman says that:
Management must support a proactive posture toward operations-relevant
social values. . . . Agility [flexible competition] reflects a competitive environ-
ment that links producers and consumers far more closely than the mass
production environment does. A hostile internal or external social environment
precludes agility. A company cannot routinely reconfigure itself in response to
changing market opportunities if it must continually fight battles . . . over the
environmental and community impact of its operations.
(Goldman, 1995: 20)
Goldman goes on to say that it is, therefore, ‘advantageous for companies to inter-
nalize social values, rather than having them constrain their operations from the
outside’ (Goldman, 1995: 30).
The preceding material can be combined into a 2 × 2 matrix of approaches a
corporation can adopt with respect to corporate social responsibly (Figure 13.3).
The horizontal continuum stretches from largely tactical, project-driven, reactive
responses, which, taken together, shape a corporation’s strategy at the left end,
to a strategic corporate approach at the right end emerging from a belief that a
corporation’s approach to social responsibility is critical to its long-term success
and which then shapes tactical strategies and decisions project by project. The cells
Satisfaction of social
responsibilities
considered a
constraint to the
essential corporate
objective of profit
maximization
Satisfaction of social
responsibilities
considered essential
to the earning of
returns adequate for
long-term corporate
survival
Reactive
stance
Proactive
stance
Figure 13.2 Corporate social responsibility and long-run survival.
consist of the four approaches to CSR described by Brummer. So, for example,
one could adopt a corporate-wide strategic approach based on the classical view
of CSR (cell 1), or a corporation could react tactically on a case-to-case basis with
a strong stakeholder orientation (cell 2) and so on. In general, we suggest that the
global environment in which all multinational and transnational corporations
operate requires a strategic (as opposed to tactical) corporate response at some-
thing beyond the level of the classic approach. This is not to say that the classic
concerns are not critically important, they are. Rather, satisfying classic concerns
is a necessary but not sufficient response to society’s complicated and often
conflicting and contradictory expectations about responsible corporate behaviour.
In the next section we turn our attention to oil and gas in the Arctic. In it we
summarize the forces that need to be considered by oil and gas companies
as they adopt their approach to CSR. Then in Section 4 we will return to the
matrix in Figure 13.3 to discuss where we feel oil and gas companies should
operate and why.
Communities, oil and gas corporations and sustainable
development in the Arctic
In the first parts of this section, we consider the rights, power, expectations and
needs of three groups – Indigenous communities, the civil sector and states – as
they relate to oil and gas companies operating in the Arctic and elsewhere.
We look at the civil sector and the state focusing on aspects of their rights, power,
expectations and needs that may conflict with or be supplementary to those of
Indigenous communities. Then, in the final part of this section, we draw together
these arguments under the umbrella of sustainable development (see also the
(2) Stakeholder:
Focus on stockholder and
stakeholder project
interests that may affect
the corporation
(1) Classical:
Focus on stockholder
interests associated with
specific project (i.e.
efficiency, effectiveness
& legal compliance)
(3) Social demand:
Organizational focus on
present/expressed
interests of stockholders
and stakeholders
(4) Sustainable development:
Organizational focus on
universal, ideal, rational
social interests
independent of
stockholders and
stakeholders
Tactical Strategic
Bottom line/
profit
maximization
focus
Triple-bottom
line/social
responsibility
focus
Figure 13.3 Corporate approaches to social responsibility.
Managerial implications 355