Will Day, CARE International
Gerry Matthews, Dept. of Planning, Environment and Social Affairs, Shell International
Toby Webb, Editor, Ethical Corporation Magazine
1. Toby Webb is the editor of Ethical Corporation Magazine, one of the leading UK outlets for written articles and innovation in the area of corporate social responsibility and the business perspective on sustainable development.
2. Gerry Mathews: within Shell International we have tended to concentrate at the 'thin end of the wedge' of social performance, i.e. philanthropy, and risk management through community investment. We know we need to shift our thinking to the 'thicker end', where our social performance is integrated with the core business in what we call 'social management'. The B2C (business-to-civil society) partnerships that are the topic of today fall more within this second aspect of our business.
3. We have many examples of partnerships ranging from strategic alliances, to joint ventures, to contractual partnerships. These are driven by a number of objectives: building the skill-base in an unfamiliar country; accessing concessions and finance; legal models of partnership etc. On the contractual side, if you are involved in a drilling operation then the exercise is by its nature a 'community of operations', with the whole supply chain co-existing under a common set of stringent safety and financial conditions. Partnerships with NGOs and communities are also having an increasing presence with our operations.
4. There is a need for companies such as Royal Dutch/Shell to work with others to ensure that oil and gas investments in developing countries yield developmental benefits. "The question is how many of these [social and developmental) externalities should be embraced by business? It's a fraught question and times are very interesting at the moment - it's both crisis and opportunity."
5. With regard to the operations of the Shell Petroleum Development Corporation (SPDC) in Nigeria, there is an ecology of relationships with domestic suppliers and manufacturers that bring different types of developmental benefits. There are also numerous Community Development programmes developed with and through NGOs and there are emerging partnerships in a number of areas.
6. A shipyard in one of our operating regions in Russia closed in 1989, leaving large numbers of workers unemployed. The Shell operation was subsequently involved in using these facilities to construct oil production infrastructure, but a sub-plot was to revitalise the shipyard and its specialised technological tradition. The challenge of re-skilling the workforce was huge. Examples of partnerships such as this happen frequently in the oil and gas sector, but rarely receive much airtime.
7. The hydrocarbon industry is on the cusp of some large-scale changes. The mid 1990's saw Royal Dutch/Shell and the other oil majors develop truly global businesses. Forces are thus working concurrently to both consolidate the industry, and 'atomise' (de-centralise) business operations. This places enormous pressures on corporations and "there is really no model to follow". In the past business had very clear boundaries about where it invests beyond its core business, such as in science and technology institutes and perhaps some education. Today those boundaries are less clear.
8. For example, we have been involved in new (developmental) partnerships with CARE in Bolivia and in a variety of ways in Nigeria. We have also been involved with the World Bank best practices group and the World Bank Gas Flare initiative sponsored by the Norwegian government. Although the gas flaring project started out looking at the issue from an upstream environmental management perspective, it rapidly turned into a project about gas marketing opportunities. This type of example presents a whole different dimension to the debate about boundaries of responsibility.
9. Another example. The SPDC operation in Nigerian has begun a partnership venture with the International Finance Corporation of the World Bank and a local bank. A $30m revolving venture capital fund is being established to support domestic SMEs and provide better access to our supply chain. This is an interesting departure for Shell, and our first private sector initiative with the World Bank Group. If it works it could act as a template for other of our businesses.
10. The WSSD 'Type 2' partnership initiative is another platform where we are experimenting with the new forms of developmental partnerships. For example, we were given Ethiopia to look at to see if we could develop a locus of interest in the country to attract Foreign Direct Investment (FDI).
11. The World Bank's Extractive Industries Review was initiated in Prague in 2000 and driven principally by the concerns of environmental NGOs who would like the World Bank to pull out of involvement in hydrocarbon investments. However, if over the next 20 years $10, $20 or $30 trillion is to be invested in the hydrocarbons sector, much of this in developing countries, then the question for the World Bank (and the wider development community) is what will be its role in assuring that these investments yield developmental benefits beyond the conventional business. Such investments can be a "force for good" as well as generating social and environmental externalities. This investment is going to take place. The development 'around the business' may or may not take place.
12. In conclusion, Royal Dutch/Shell has its own 'search space' where it looks to achieve its objectives. Likewise the development community has its own search space and objectives. "The trick is try and get some of these 'search spaces' to coincide, or at least to work towards some consensus as to how we [can] work together. At the moment, it is almost a blank piece of paper."
13. Will Day - CARE's interest in partnerships grew out of our work on urban poverty. The urban population of India will increase by 280m people over the next 20 years - the population of the US and Canada put together. Indian cities do not work too well at the moment as they are, if you add that number of people they will work less well. Is this a job for the tax base in India? Unlikely. Is it for the International aid community to build a Manhattan a year for 20 years? Even less likely. And you can be sure it won't be NGOs. Some way has to be found to better understand the mechanisms of private sector investment, and to find means to ensure that it meets the needs of poor people.
14. CARE joined the Business Partners for Development (BPD) programme to better understand business drivers and the way private capital works. We have spent three years looking at the how to use tri-sector partnerships between business, government and civil society as a vehicle to deliver 'win-win-win' outcomes for development, business and governance.
15. We would not want to oversell the role of tri-sector partnerships, there are plenty occasions when it doesn't work and it shouldn't be applied as a blanket response. For example, it may not be effective in areas of open conflict since you need a degree of trust to build the partnerships, and you must be able to hold each partner accountable for its commitments and performance. Having said this, we have found that tri-sector partnerships do have value.
16. The outcomes of CARE's engagement in the BPD programme are available on the BPD website. One example is where CARE Bolivia has been working with Transredes, an oil pipeline operation, part owned by Shell. The partnership was brought about by a major oil spill, the compensation programme for which the company felt would be better managed with assistance from specialists in community development. The aim was to transform an emergency short-term cash-based response, into a long-term community development programme.
17. Another example from the BPD programme, though not involving CARE, examines the role of partnerships in the social strategies pursued by the Shell Petroleum Development Company in Nigeria. These experiences lead us to question whether SPDC should be performing such a direct community developmental role. Is it really a core competency of SPDC to do this sort of work. Might it not be better for the company to learn from another BPD example, the Sarshatali coal mine in West Bengal in India. Here the company, initially sceptical of the partnership approach, are now "evangelists". They have seen how tri-sector partnering can reduce both the risks and cost of constructing operational infrastructure, in this case by integrating construction with the strategic objectives of the District Government for developing transportation infrastructure. But there are also reasons to be sceptical about partnerships.
The danger that companies who engage in partnerships are 'window-dressing'. Communities must hold the participating company accountable for the developmental outputs, not just the business wins;
i) partnerships can easily be confused with public relations. If partnerships sit within the Corporate Affairs department then you know that they are not really embedded in the company;
ii) the corporations currently involved in partnerships are the 'usual suspects'. With perhaps the exception of the aforementioned Sarshatali coal mine example (which is a relatively minor company), we are missing the smaller firms and those that operate in countries where issues are less important. For example, a Malaysian logging company experienced less pressure than a European logging company;
iii) there is a tradition of mutual antagonism which may partly be based on ignorance, though is often underpinned by historic fact and maintained by polemic.
18. We also found a number of key success factors:
i) The role of government is critical to the long-term sustainability of the developmental and governance components of the partnership.
ii) There is also a need for companies to put more effort into exploring which of their core competencies might be best deployed in these types of partnershipFor example, oil companies may find that their main contribution is project management, something that may not even have been considered as relevant to community development
iii) There is an absolute need for transparency. A formally agreed, signed and visible document on the division roles in the partnership is the best way to build and maintain trust.
iv) It cannot be enough to only reduce corporate risk or costs. This must be balanced with the needs of the community and improvements in public sector governance. We were concerned that at one point the BPD programme was becoming more about 'Development Partners for Business', than what it set out to achieve, namely: 'Business Partners for Development'.
19. Throwing stones at big companies is often fun, and often more fun than engaging. As CARE has found, there is a degree of risk associated with engagement with the corporate sector, not least in relation to the wider NGO community.
20. In summary, tri-sector partnering can be thought of as 'a game of Judo'. In Judo the trick is to use the strength and weight of your opponent to achieve your own objectives. So let us use the weight of that $30trillion investment in oil and gas development that Gerry was talking about to achieve some of our own developmental objectives. On the theme of partnerships "pleasure or pain", the jury is out, but the methodology developed by the Business Partners for Development programme offers a chance to test the approach systematically and improve as we go.
21. Toby Webb - Ethical Corporation has published a few of the case studies from the BPD programme. We have noticed that there are some basic requirements for good partnerships: genuine commitment; government authority and nation stability; sensible NGO contributions; good corporate management and leadership at a board level; good management systems for all three partners, including assessment tools and indicators; and the ability to use core competencies effectively.
22. A number of points were made in discussion:
a) In Nigeria, oil accounts for about 70% of the government's budget and there is growing interest in both Nigeria and the UK to know more about the resources generated by the oil industry and where they are going. This raises some awkward issues for the oil companies, I would imagine. Gerry Mathews - in Nigeria, legally we were not obliged to divulge information about revenue payments. However, this was an important issue for a lot of stakeholders, and it was perceived that we were taking the lion's share out of the country. We therefore managed to get a dispensation from the Nigerian President to put the true figures out into the public domain.
b) Partnerships are an institutional challenge for all three sectors, in particular developing country governments. Is it right that multi-nationals should offer to build the institutional capacities of governments. Does this not 'capture' governments in the corporate agenda.
c) In a partnership, what happens if one side fails to live up to the expectations written down the agreement? Is there a penalty, an appeal procedure? If so, then do we not end up with something that looks rather more like regulation than what was envisaged at the beginning? Gerry Mathews: I support the UN definition of "Common, but differentiated, responsibilities." The key to partnerships is clear objectives, and differentiated roles and deliverables. If you are going to invest money in any project then you need that at a minimum, as well as arbitration and penalties for non performance. "Let's get real, it's not for amateurs, and if you're going to do it properly you need proper frameworks." At the moment the boundaries within many partnerships are not clear.
d) It is interesting to note that the tri-sector partnership approach tries to embrace the sort of disciplines used in business. But we shouldn't rule out a more flexible approach if we are seeking genuine development objectives.
e) Will Hutton comes at these issues in an exciting way. He argues that what we are talking about here are very much a European understanding of the debate on corporations and development, and that it is a game which is more difficult to conduct at the global level given that one of the major players - the US - won't play. The American approach is centred far more on profitability to shareholders, with very little corporate responsibility to any other type of stakeholder. Will Day - even within CARE, the US and UK parts of our organisation disagree with each other on how to approach these. "But we know we're right and they're wrong". This said, there needs to a strong business-case for partnerships, but this case can and should go beyond profitability.
23. Will Day - On the issue of accountability and contractual relationships within partnerships, Michael Warner (formally Secretariat Co-ordinator of the NRC/BPD programme, now with ODI) worked on this and can say whether moves were made towards more legally based contracts. Michael Warner - in the partnerships brokered through the BPD programme we elected to adopt a formal structure and a signed Partnering Agreement. This agreement included both common and organisation-specific partnership objectives; inventories of complementary resources; a joint work plan; a reporting structure; and an agreed grievance mechanism. Although we choose not to make the agreement legally binding, wherever there were flows of money between parties then this would have a formal contract. However, if there were problems in the partnership the first port of call was always to bring the partners together and try and resolve the issue by consensus. If that failed then the agreed grievance procedure would be activated.
24. Gerry Matthews - There will be successes and failures here, and we should learn the lessons. Companies such as ours often borrow from you - the development community. We work very much on a project basis, but we increasingly use the tools of 'development' to build legitimacy. "Rapid rural appraisals and so on - this is becoming part of the lingua-franca of parts of Shell, and these are generic tools used by Europeans and Americans alike". There is a developing competence of people within Shell who apply these tools on the ground.
25. Toby Webb - What will become clearer over the next 6-12 months is how the 'Type2 Partnerships' announced at the WSSD will fair. These partnerships are listed on our website. We need to keep tracking these and see what progress is made. Only through doing that over a period of time will we be able to discover what constitutes best-practice.
This event discussed that there is a need for companies such as Royal Dutch/Shell to work with others to ensure that oil and gas investments in developing countries yield developmental benefits. "The question is how many of these [social and developmental) externalities should be embraced by business? It's a fraught question and times are very interesting at the moment - it's both crisis and opportunity."