Corporate Social Responsibility (CSR) has been a comfortable homily for the corporate conscience. Simplistically put, it is where corporations return a part of the profits they make to the communities they operate in, to improve some aspects of it. This could be the greening of its environment, setting up schools and libraries or scholarships, creating community programmes for the disabled or homeless, or towards some other larger social cause. They could even implement improvements in the community that benefits the company’s own welfare, like roads, power, and community training.
Does CSR always work – whether to benefit the company or the community it aims to serve?
Shell, one of the largest companies in the world, has been operating in the Niger Delta since 1958. In 2014 alone, Shell-operated ventures contributed USD 202 million to the Niger Delta Development Commission. Some USD 112 million was directly invested in social investment projects making Nigeria the largest concentration of social investment spending in the Shell Group.
Yet local communities are not satisfied. They accuse Shell of greenwashing consumers to believe that their products and processes are environmentally friendly, and blame the company for unethical business practices. Shell faces numerous lawsuits and massive criticism. Recently, Shell was tasked to pay USD 15.5 million as part of the settlement for its oils spills and leakages in Ogoniland. Several human rights activists have joined hands with the local communities to fight against the operations of Shell in the Niger Delta. One slogan reads “Get the (S) hell out of Nigeria”.
Shell is not alone in facing such large and mounting criticism about the ethics and sustainability of its business operations, despite pouring huge amounts of funds into being a good corporate citizen. Others like Exxon, Chevron, Halliburton and Total have also faced a similar situation.
CSR in its current formulation is not gaining traction – and winning hearts – the way it is supposed to, in engaging meaningfully with the communities they operate in. This does not augur well for defusing future tensions in an increasingly viral environment that is quick to coalesce and agitate.
Consider, by contrast, the case of how another company articulated its CSR responsibilities in Nigeria - Indorama Corporation, which took over the underperforming state-run petrochemical plant in Eleme-Eleme Petrochemicals Company Limited (EPCL) in 2006.
Starting in 2006 with a USD 300 million investment, the plant now known as Indorama Eleme Petrochemicals Limited (IEPL), has pumped in USD 575 million by 2014. This investment is expected to increase by USD 4.4 billion by 2019, making IEPL the largest petrochemical company in Africa. Its USD 1.2 billion investment to start the world’s largest single-line fertiliser plant in 2016 also makes Indorama the largest integrated fertiliser player in Africa.
IEPL alone employs more than 1600 Nigerians; has captured 85% of the domestic market for petrochemical products; and has most importantly, won the Presidential award for exports in 2010.
What has this company done differently from global giants like Shell and Chevron? How has IEPL managed to get support from the local communities, while so many other larger companies haven’t, despite their CSR activities?
An analysis shows that after the kidnap of two of its expatriate executives in 2008, IEPL initially followed the conventional path adopted by any other foreign company operating in that region - increasing security around their factory premises and deploying security forces outside.
Then they went one step further.
IEPL offered local community members a chance to become shareholders. In this innovative public-private partnership scheme, the company distributed 7.5 per cent of its shares to six local host communities. The sincerity of the gesture was deepened when, after the communities failed to gather funds to buy these shares, the company arranged access to funds for them by giving their personal guarantee to the financial institutions. The whole process of increasing their commitment to the local communes took three and a half years. Since then, the company has been an integral part of the communities in which it is located - with no altercations with local terrorist or human rights groups.
This public-private partnership with local communities, implemented in 2012, is the first of its kind where a multinational company has successfully brought the representatives from the host communities into its boardroom.
In the 1960s, the Nobel laureate Milton Friedman had professed that profit maximisation for the shareholders should be the sole aim of any business. This approach to doing business was challenged by Edward Freeman when he proposed the stakeholders theory in 1983, that businesses hold responsibility towards each stakeholder and not just its shareholders.
Thus, the concept of employee engagement was introduced in 1990s which focused on keeping the employees happy at work by giving them autonomy and freedom so that they are ready to go ‘extra mile’ for their organisation. Employee Stock Ownership Plan was introduced as part of their compensation plan to increase employee engagement.
Simultaneously, the concept of Corporate Social Responsibility (CSR) started to gain recognition. But what we have witnessed with Indorama’s success is a new kind of CSR. It is no longer enough for companies to make gestures in the name of CSR, no matter how large it is. It is important to show unconditional concern for the well-being of local communities by embedding itself into the community.
Is the example set by Indorama – inviting the community into the boardroom - the next big thing in garnering that ‘extra mile’ contribution from demanding host communities? Organisations, including family businesses such as Indorama, continue to evolve and innovate.
About the authors
Prof. K. Ravi Kumar is the Shaw Chair Professor and Associate Provost (Special Projects) at Nanyang Technological University. Dr. Divya Bhutiani is a Postdoctoral Research Fellow at Nanyang Business School’s Centre for Business of Culture.
This commentary was published in The Business Times on 26 May 2017.