Petroleum And Human Rights: The New Frontiers Of Debate

To give the first of two Southeast Asian examples, Myanmar may appear relatively infrequently on international television screens, but political and economic developments in the country-including the affairs of the offshore gas industry-are covered in an array of specialist internet and online information services.

Meanwhile, in Indonesia, the political succession from Suharto to a new government has opened the door to a series of investigations on past contracts and business practices. The energy sector has been subjected to particular scrutiny.

Advocacy groups

National and international NGOs have been quick to appreciate the benefits of the internet as a source of information. At the same time, the internet provides them with a "shop window" to promote their own viewpoints. More importantly, they also use the web as a means of coordinating campaigns involving widely scattered organizations with similar aims.

One of the most spectacular recent NGO campaigns involved an international institution, the Organization for Economic Cooperation and Development. In 1995, the OECD's 29 member countries began negotiations on a proposed Multilateral Agreement on Investment (MAI), which was intended to give foreign investors the same rights as domestic companies in signatory countries. Negotiations continued in comparative obscurity until early 1997, when the MAI came to the attention of a group of North American NGOs. They argued that-among other failings-the draft treaty paid insufficient attention to environmental safeguards; undermined the sovereignty of host governments; and gave too much influence to multinational companies.

The NGO campaign was remarkable for the breadth of its international reach. In early 1998, the Council of Canadians used the internet to publish a joint statement on the agreement, which was endorsed by 560 organizations in 67 countries. The internet was used to disseminate information rapidly. As the council's chair commented: "If a negotiator says something to someone over a glass of wine, we'll have it on the internet within an hour, all over the world."²

This campaign, which, from the OECD's point of view had suddenly "descended from nowhere," led directly to the formal suspension of MAI negotiations in the spring of 1998.

Legal action

In the US, NGO demands for corporate accountability on human rights and environmental issues have been backed up by legal action.

The two prime examples are the 6-year legal case brought by representatives of Ecuadorean Indians against Texaco Inc. and a similar case between representatives of Myanmar farmers and Unocal Corp.

In the Texaco case, lawyers acting on behalf of about 30,000 Ecuadoreans have accused the company of a combination of environmental negligence and racial discrimination during 1964-92. Meanwhile, Unocal has been accused of complicity in the Myanmar government's policy of forced relocation and other abuses in connection with the construction of a gas pipeline from the Gulf of Martaban to the Thailand border.

In both cases, one of the key issues is whether the companies can be brought to trial in the US on account of activities abroad. The legal arguments have been based on a new interpretation of an ancient law-the 1789 Alien Tort Claims Act-which allows foreigners to sue in a US federal court for violations of international law.

Regardless of the US legal technicalities, the two cases are symptomatic of a wider trend. Human abuses are increasingly regarded as offenses against international law, which are therefore open to trial outside the jurisdiction where the offenses are said to have taken place. Former Chilean leader Gen. Pinochet is all too well aware of this trend: He is currently in Britain contesting extradition proceedings to Spain on account of torture allegations in his home country.

Meanwhile, human rights lawyers have raised the possibility that companies as well as individuals could in future be brought to trial before the International Criminal Court, which is to be created under the terms of an international treaty signed in Rome in July 1998. The offenses for which companies might be liable could include complicity in human rights abuses apparently inflicted on their behalf.

Accountability, power, mandates

These developments raise new questions about accountability. What exactly are the mandates of international companies, and to whom are they accountable?

In the past, the answers appeared straightforward. Companies' mandates were strictly restricted to commercial activities and, provided they operated within the laws of the land, they were primarily accountable to shareholders. Oil executives were often tempted to dismiss human rights controversies as being beyond their remit: "Business is business, and politics is politics."

Now clear dividing lines have become increasingly blurred. At a minimum, it is now widely accepted that companies should be accountable to a broader range of "stakeholders"-such as local communities-who are directly affected by their operations. However, their influence and responsibility arguably goes well beyond this.

The companies' traditional claims to apolitical status are undermined when, for example, US-based energy companies are seen to exercise considerable lobbying power on issues relating to global warming. In doing so, they are clearly behaving as political actors.

Similarly, advocacy groups point to petroleum companies' potential leverage in economies such as Nigeria, Angola, or Colombia that depend heavily on oil for their foreign exchange earnings. They argue that the companies should use this leverage to press governments on issues relating to human rights or the distribution of wealth produced by their own industries. By contrast, companies argue that their influence on sovereign governments is limited both by the scope of their mandates and by competition. The power of governments may appear to be receding, but they retain the authority to dismiss "difficult" companies in favor of their competitors.

Meanwhile, other actors have made the human rights equation still more complex. Regardless of the precise balance of power between companies and governments, the influence of consumers-informed by NGOs and the internet-is growing. Few companies can now afford the taint of being associated-wrongly or rightly-with human rights abuses. In the information age, reputation is everything.

Emerging best practices

The first thing companies can-indeed, must-do is to take the human rights debate seriously. As will be seen, many key issues of the debate remain unresolved, but the fundamental principle is clear. International companies are expected to implement-and promote-international standards in the field of human rights as much as in the environmental arena. Inevitably, human rights concerns overlap with other areas of best practice such as corporate ethics, employment standards, community liaison, and environmental policy. If these areas are properly addressed, human- rights controversies are less likely to arise.

Policy statements

A company's commitment to human rights implies an explicit declaration in business principles or ethics codes.

Royal Dutch/Shell's Statement of General Business Principles includes a commitment to "express support for fundamental human rights in line with the legitimate role of business."

Similarly, BP Amoco's code expresses support for the "principles set forth in the UN Universal Declaration of Human Rights, recognizing the role and enforcement responsibilities of governments."

Assessment, monitoring, consultation

Principles are of limited value unless they are seen to be practiced, and this requires knowledge.

The need for risk assessment is most obvious when companies are planning a new project. The host government will be an essential source of information, but official views are not necessarily balanced.

In sensitive regions, companies will also need to seek information and advice from a range of other sources, including official and unofficial media and NGOs. No one source can be expected to have all the answers, and all must be viewed critically.

Staff policies

Human rights policies, like other aspects of a company's ethical code, must become an integral part of a company's operations if they are to be taken seriously.

This means training staff members in advance when they are likely to be operating in complex situations.

It also means incorporating business values in the regular appraisals and reporting structures of senior staff.

Further, it means making sure that there is an effective communications structure so that staff members can communicate problems-if necessary direct to senior management-if they have ethical concerns.

Community relations

Many of the classic political and human rights problems in the energy sector have arisen because of tensions between the central government and the outlying regions where, by the vagaries of geological chance, oil and gas reserves are often located.

The inhabitants of these regions often are poorly represented in the national administration. All too often, they bear the environmental costs of petroleum development and receive few of the benefits. Nigeria's Niger Delta region is an obvious example. Other regions where similar claims have been made include Baluchistan, Pakistan, and, Indonesia.

Companies operating in such areas will need to find ways of communicating with local communities, and this may well mean operating outside formal political structures. If the government machinery does not provide a means of consulting local stakeholders before a project takes place, then the company will need to find ways of going direct. Any such approach will need to be handled carefully, so that government officials do not feel undermined, but the need for it is clear.

Social programs, auditing

It has now become near-standard practice for companies operating in developing countries to devote a portion of their budgets to "good-neighbor" programs, such as health clinics or schools. Such programs constitute a valuable form of local diplomacy provided that certain guidelines are followed.

At a minimum, it is essential to consult the local communities to make sure that the programs address real needs. In practice, it may be more effective for companies to involve development agencies as partners that administer such programs, rather than seeking to run them directly.

External and internal financial audits have long been mandatory; environmental audits are increasingly considered mainstream, and many international companies are extending the principle to include audits of their social impact.

Problem areas

While the principles of best practices are beginning to emerge, there are several sensitive areas of debate that have yet to be resolved. Typically, these have emerged in crisis situations, and this underlines the obvious, but important, message that "prevention" is better than "cure." Once companies become involved in major controversies, they may find it hard to extricate themselves.

Community tensions

In recent years, mainstream companies have learned to take community relations questions much more seriously than in the past. Nevertheless, problems frequently arise because of a combination of local government failures and unrealistic expectations.

In Nigeria's Niger Delta region, local communities complain, with some justification, that the central government has neglected local development in areas such as health and education. They look to the oil companies to make up for the government's deficiencies. To some extent, the companies are able to achieve this through their social programs. However, these programs typically are designed to complement the government's development initiatives rather than to replace them.

The communities look for more and-if the government fails to provide it-turn to the companies instead. All too frequently, they back up their demands with violence. In the last 2 years, there has been an escalation of short-term kidnappings of oil workers in Nigeria. A common theme has been demands for benefits that might reasonably have been seen as government responsibilities.

There is no single answer to such problems. Companies will need to do their utmost to ensure the security of their employees. At the same time, they will need to reinforce lines of communication with local communities, making it clear what they can and cannot realistically achieve in their social programs. This process is likely to prove both complex and time-consuming.

Security issues

Security arrangements are a second potent source of controversy.

Oil and gas employees have a right to work in a secure environment, and many companies establish their own guard teams to secure their immediate work sites and residence areas. However, they will depend on government forces for their broader security requirements, particularly in areas where there is political unrest or insurgency. If those forces are involved in real or suspected human rights abuses, the company is likely to be blamed. Companies have faced accusations of this nature in, among other countries, Nigeria and Colombia.

These accusations raise the question how far companies can or should influence government security forces. For example, the New York-based Human Rights Watch has called on BP Amoco to ensure that no soldiers involved in past human rights abuses are deputed to guard its operations. Most government forces are likely to regard any such vetting as unacceptable interference.

'Pariah' states

The final area of controversy is perhaps the most intractable. The profits from oil and gas operations frequently form a major source of income for host governments. To the extent that this revenue helps support repressive regimes, companies run the risk of being accused of complicity in government human rights abuses-even when these do not involve their operations directly. In such circumstances, should they be in the country at all? And who should decide? Such questions have arisen with regard to apartheid-era South Africa, the late Gen. Sani Abacha's Nigeria, and contemporary Myanmar.

Such questions may be tougher for petroleum companies by comparison with operations from other sectors. The investment required to finance, say, a clothing factory is much less than that required for an offshore oil rig. Once petroleum companies have moved into a country, they clearly will be reluctant to withdraw at short notice.

The classic defense for continuing to operate in so-called "pariah" states is that international commercial operations serve as a form of "constructive engagement." opening the host country to ideas and external contacts, as well as economic benefits. Total SA (France), Unocal (US), and Premier Oil PLC (UK) have presented this argument in relation to Myanmar but continue to face severe criticism from opposition leader Aung San Suu Kyi and her many foreign sympathizers.

Taking the debate forward

The debate on commercial involvement with pariah states (and on government-imposed sanctions) remains unresolved, and it would be unrealistic to expect an early consensus. Yet many of the most exciting oil and gas reserves are in complex and potentially unstable political environments. Risk-averse companies that avoid these regions completely may miss out on valuable commercial opportunities.

Meeting the political and human rights challenges will require companies to be "engaged" in the fullest sense: engaged with all sides, taking different points of view seriously, and finding innovative solutions.

There is no blanket formula for success, but the ingredients are likely to include skillful cooperation with a range of different interests at the local, national, and international levels. No company can afford to appear politically partisan; equally important, the most successful companies will be those that demonstrate a high level of diplomatic skill as well as technical expertise.

References

1. Cor Herkströter, "Dealing with contradictory expectations-the dilemmas facing multinationals," Speech made in Amsterdam on Oct. 11, 1996.
2. Madelaine Drohan, "How the Net killed the MAI. Grassroots groups used their own globalization to derail deal,". The Globe and Mail, Apr. 29, 1998. Cited on the Corporate Watch website: www.corpwatch. org/trac/ corner/ worldnews/other137.html.

The Author

John Bray is Principal Research Consultant at Control Risks Group, the international business risk consultancy. He studied History at Cambridge University, where he was awarded an Exhibition, and has lived and worked in Kenya, India, and Japan. He joined Control Risks in 1983 and was Head of Research from 1988 to 1996. His publications include: Burma: The Politics of Constructive Engagement (Royal Institute of International Affairs, 1995); No Hiding Place: Business and the Politics of Pressure (Control Risks, 1997); and Corruption and Integrity. Best Business Practice in an Imperfect World (Control Risks, 1998).

Phillip B. Watts, Group Managing Director, Royal Dutch/Shell"COMPANIES WORKING IN Africa must respect the human rights of all with whom they deal. This means treating employees fairly-rejecting discrimination, safeguarding health and safety, and developing skills and opportunities...And it means responding to the concerns of those affected directly or indirectly by their activities...It is only right that major companies should contribute to the communities among whom they work...And it may involve contributing to public debate-where (the company has) something worth saying. When this is proper must always be a matter of careful judgment. But it cannot exclude sensitive issues such as human rights...Shell South Africa publicly argued against apartheid. Shell Nigeria has spoken out about the situation in Ogoniland...What companies cannot do is to interfere in political or legal processes. I believe that would be a very dangerous course-and, as a citizen, an unacceptable one."

*From a speech given at the 4th African/African-American Summit at Harare, July 21-25, 1997.