New on the Shine blog – Fairytales for the boardroom: When it’s time to ‘kiss the frog’

By Yasmin Crowther

Driving through a forest on the edge of Dartmoor last night, the car’s lights picked up the eyes of creatures in the undergrowth – a startled deer, then a fox bolting for cover. When I stopped and wound down the window, all I could hear was the distant rush of a river and the call of owls.  Moments before, I had been listening to the news on the radio and thinking about the role of business in society and how it is framed – from pure profit motive to triple bottom line and shared value. Something about the nocturnal drive got me to thinking about fairy tales and if they can shed light on the corporate’s journey.

Here’s where I got to:

Jack & The Beanstalk as a myth of demons coming home to roost

The tale of Jack and the Beanstalk seems to be a fairy tale of endless growth; where a life of hard work is exchanged for magical seeds that, when planted in the ground, grow eternally fruitful up into the skies.

But there is a serious downside. If you clamber up the vast unfettered vines of profit, at the top, you find only disaster – a devastated landscape dominated by a monster in his castle, looking out for human bones to make his bread.

The corporate allegory should be obvious: excessive unfettered growth – far from being the easy road to endless, consequence-free riches – risks devouring the society from whence it has sprung. We’ve learned this one, right?

Cinderella as a tale of unexpected values and rewards

Cinderella is a fairy tale that perhaps best befits those with an emerging awareness of the need to be sustainable – to take care of the neglected orphan girl who diligently sorts through seeds and lives in frugality, unlike her ugly sisters who prance and consume like modern celebrities.

The lesson, of course, is that Cinderella is the one whose virtue and value soars over the tale, and who ultimately is chosen to be the most prized princess in the land – albeit a princess who is dependent on the incumbent patriarchy and monarchy to give her due place and recognition.

In the same way that Prince Charming eventually seeks out Cinderella from the scullery, maybe much-needed sustainability solutions will spring from similarly humble and unexpected origins – as long as we have the skills to search them out and foster their success.

Red Riding Hood as a battle between wisdom and deceit

Red Riding Hood works well as a tale about the quest for authenticity and truth.  Red Riding Hood is the most courageous heroine.  Unlike Cinderella, she leaves her safe and predictable confines to venture out into the big bad wood of the world. Her journey is one of care and generosity, almost a social enterprise – a shepherding of resources for her ailing grandmother.

When the little girl wanders off the path in search of more fruit and flowers, she comes across the big bad wolf – a wolf of cruelty, greed, temptation and excess. The wolf leaves Red Riding Hood this time, and goes off to gobble-up her grandmother and lie in wait for more.

Red Riding Hood’s challenge – upon arrival at her grandmother’s cottage– is to interrogate the creature in the bed, to assess if it is authentic and deserving of her gifts or corrupt and exploitative.  She does battle with the wolf, defeats it and lives to tell the tale.

It makes me wonder about other social enterprises and campaign groups that enter into collaborations and partnerships with big business, or even buy-outs, and how they appraise if they are delivering their social value into hands that are trustworthy or that will just gobble them up once and for all!

The Frog Prince as a tale of transformation and just rewards

Finally, the Frog Prince is the story of an ugly frog that helps a Princess retrieve a golden ball, from where she has lost it in a deep, slimy pond.

The Princess eagerly accepts the frog’s help in retrieving the object of great value, but does not want to pay for its services, hoping that she can get away with taking the good without suffering any costs at all.  And yet, when the princess finally does accept that the frog deserves acknowledgement and offers her kiss, she finds that he transforms into a prince and is a source of even greater riches, not of ugliness and inconvenience.

As before, the corporate allegory seems obvious – that internalising externalities or ‘kissing the frog’ is a route to eventual prosperity, however uncomfortable and counter-intuitive it may feel at the time.

Happily ever after?

So the lesson for me from my night time foray through the woods and through some favourite fairy tales is that stories sometimes provide useful frames for looking at the world and thinking about our role in it – as individuals or as organisations.  There is something in the simplicity of a well-trodden fairy tale that reveals contradictions and possibilities effortlessly: we see the big bad wolf in disguise, and we relish his defeat.

I suppose a challenge for us all, in the wild forest of reality, is that we are no longer the safely ensconced readers of a tale, but involved players in a drama that is yet to unfold, and where we are still working out who is the frog and who is the wolf after our blood, and what does that mean for the choices we make in the broad light of day.

Take the test – which character are you?

#AskBigBiz: This is a tale of the London Whale, and a great big epic Twitter FAIL

Reblogged from our Shine sustainability blog: http://shinesustainability.com/blogs/post/66978581623/askbigbiz-this-is-a-tale-of-the-london-whale-and-a

 

(Apologies to the children’s laureate.)

The internet has been alive with corporate social-media disasters the last couple of days. The first was yesterday’s misbegotten Twitter Q&A, planned for today, with JP Morgan investment banker Jimmy Lee. The initiating hashtag #AskJPM was quickly and decisively overtaken by the internet’s indefatigable snark machine, and the company speedily backed out, tweeting unceremoniously: “Tomorrow’s Q&A is cancelled. Bad Idea. Back to the drawing board.”

I’ll say it was! JP Morgan is near the top of many Wall Street critics’ hit lists. Between the $13bn settlement JP Morgan has been forced to pay for misselling mortgage-backed securities, to its $6bn ‘London Whale’ losses, to today’s accusations of buying influence via the daughter of Chinese premier Wen Jiabao, it’s an easy target.

So what did the world want to #AskJPM? Here’s a selection:

  • “As a young sociopath, how can I succeed in finance?”
  • “Why aren’t you in jail for sending a literal ton of gold bullion to Iran in violation of sanctions?”
  • “Has the raw cunning of the electricity bid-rigging scheme been unfairly overshadowed by the scale of the mortgage settlement?”
  • “How are you planning to spend the savings made from firing your social media team?”

Or even:

  • “Where do babies come from?”

and:

  • “What’s the best way to get blood stains out of a clown suit?”

If it’s any consolation to JP Morgan, they have plenty of company. British Gas recently tried the same Twitter Q&A, this time with its head of customer service – on the very day the company announced an increase in customers’ rates of nearly 10%. You can imagine the sort of stuff that came back from its invitation to #AskBG, but to give you a sense for it: “How hard is it to sleep at night with Cameron’s foot on your head, and the stench of dead pensioners in your nostrils?”; “Do the @BritishGas board prefer to bathe in £20 or £50 notes?”, and “Hi Bert, which items of furniture do you, in your humble opinion, think people should burn first this winter?”

We’ve also had a new advertisement from Toys R Us making the rounds. It shows what purports to be a forest ranger from the ‘Meet the Trees Foundation’ leading a bus full of children on an excursion. The ‘ranger’ bores the kids rigid with pictures of leaves while the bus trundles toward its destination – ultimately revealed to be a trip to the toy store!!!

When the ranger is revealed to be an actor, the kids are welcomed inside the store, given run of the place to play with whatever they want, before taking home a toy of their choosing.

Maybe it’s a nice gesture from a big company that they would make a busload of children’s dreams come true – that’s surely what Toys R Us had in mind. But the ad was so simplistic and craven in its message that middle class parents and teachers took huge offense at what they saw boiling down to: Nature is boring. Learning is boring. Toys are where it’s at.

TV satirist Stephen Colbert got into the act, too, declaring: “Toys ‘R’ Us has really captured the magic of having a stranger take your kids on a bus, lie about where they’re going, then take off their clothes and promise them toys. This commercial shows kids the ‘great outdoors’ is nothing compared to the majesty of a strip mall. And they still get some nature because, remember, that confetti used to be a tree!” Cue angry letters and promises of boycotts. This one took a bit longer to get going, with the ads first aired in the US on 20 October, but at time of writing Toys R Us’ Facebook timeline is filled with comments such as: “’Meet the Trees’ field trip shows just how out of touch with reality Toys R Us is. You should be ashamed of airing this advertisement. Retract and apologize for it immediately.”

FB1

With parents heading toward Christmas-shopping time, this anger can be harmful. Already those turned off by the ad campaign are looking to buy elsewhere, or – horrors! – buy less. Perhaps in the future, such viral fails will become a massive advertising opportunity to promote alternative brands that stand for opposing values. As far as Toys R Us is concerned, the National Trust’s championing of Natural Childhood work in the UK does just that.

So what’s going on here? Why do these sort of corporate Twitter initiatives go viral in all the wrong ways? Why does it always look like a bad idea in the rear view mirror, but not through the front windscreen? Can a company ever engage with social media authentically – and not get plastered for it? A Twitter user asked today:

TW1

I think the answer to Lynne’s specific question is that this campaign was indeed always bound to fail for JP Morgan (and similarly for British Gas). Its communications team is smart enough to know it’s a controversial company, and the straight-faced invitation to “ask me anything you want” is bound to result in plenty of people asking questions about the highest-profile issues the company is currently facing – especially the ugly ones. And Jimmy Lee would never have been equipped to respond appropriately – it’s not his role.

Companies mistakenly believe they know in advance which eyes will be attracted by their social media campaigns – and when different eyes show up, that’s when the hashtag takeover happens. JP Morgan clearly believed the participants in their Twitter audience would be interested in views from the investment banker behind their recent Twitter flotation – because Twitter users are interested in Twitter? – and failed to take into account the nature of broader public opinion.

Of much greater concern is the more fundamental error JP Morgan made with this campaign. Analyst Debra Williamson was quoted in today’s Financial Times as saying: “I think companies sometimes forget that social media belongs to the people.” Twitter is famously quick to remind its clumsier corporate members of this fact.

But JPM and British Gas are hardly the first companies to invite people to “ask me anything you want.” Shell established its now defunct Tell Shell forum on its corporate website in 1998 – an open space for anyone to ask any question, with content organized by headers such as corporate values, social and environmental issues, customer complaints and others. Participants’ remarks were unedited, and Shell’s responses were transparent. And the comments and questions were no less hostile to the company than the recent JPM tweets, and it was freely available and accessible. Yet none of that went viral. Why?

In great part, it’s to do with the rise of social media itself as the mechanism for sharing – none of which existed in 1998. But it’s also to do with the fact that Tell Shell is Shell’s own platform, not an external one such as Facebook or Twitter the company attempted to colonize.

So companies, by all means, use Twitter. It’s an enormously useful resource, and millions of people have fun and do serious work in it. But use Twitter to share information – specific information about specific company activities or issues. Coca-Cola Enterprise used the #CCECollaboration hashtag to invite ideas, experiences and frustrations related to changing recycling behavior, and share the results. An #AskUs open invitation will be seen as just that – by fans and trolls alike.

And as for Toys R Us, an expensive, high-profile, Christmas-buildup advertisement is hard to erase once it’s been released – though the company has pulled the ads from on-air media, confining it to online only. Of course, the online space is exactly where their problem is, and thus far, the company has been silent in responding to its many critics’ posts, letters and blogs taking issue with what they see as an insult to their sensibilities. Perhaps they’re working on a new surprise, a response that would defy all expectations? They could do worse than a Christmas ad showing kids leaving their freshly-unwrapped presents inside while they go out and play in the snow…nature is the ultimate playground, after all.

Want to understand more about social media and corporate responsibility? Check out our report for Ethical Corporation.

Asymmetric transparency

Updated 16 October, 2013: See below for a note on the Electronic Frontier Foundation

 

I’m certainly not the only one to be blogging about digital privacy in the last few days. Thus far, most of the anger over the US National Security Agency’s PRISM program has been directed at the government. But they’re not the only ones involved. It’s been alleged that major online services providers, including AOL, Facebook, Google, Apple, Skype, Microsoft and others have given the government ‘back door’ access to their users’ data, though this has been disputed by the companies in question.

Some of the language used is very grand, and rightly so. To think that millions of people are the subject of everyday surveillance is out of keeping with everything we’ve come to believe about modern freedoms. Edward Snowden, the former intelligence specialist who has outed himself as the story’s leak, has been quoted justifying his actions by saying: “It is not that I do not value intelligence, but that I oppose . . . omniscient, automatic, mass surveillance. . . . That seems to me a greater threat to the institutions of free society than missed intelligence reports, and unworthy of the costs.”

A few years ago, a friend of mine in a knowledge-economy company told me she thought privacy was about to burst through as the defining sustainability issue for the sector. I have to confess I didn’t fully grasp it at the time, since ‘privacy’ has been on the internet agenda for as long as any of us can remember, and because it encompasses such a huge range of possible impacts. Privacy covers everything from protection of children’s identities online to political protest in countries of concern. Meanwhile, we users of web services have been warned time and time again about how to protect our interests, and a new round of reminders comes around every time Facebook updates their privacy policy.

This is no longer news. We know to a degree that our online lives leave our control when we click the mouse. We know that wiretapping laws allow access to our clicks these days as much to our phone calls.

We also know we’ve made a grand bargain with the purveyors of internet services we love and use every day – we know they’re not giving us this for ‘free’. They are mining our likes and dislikes, our interests, worries, prejudices, relationships, buying habits, desires – and they’re looking for ways to satisfy our needs and ambitions, principally through parting with our money.

But now we hear that government agencies – the most secretive and unaccountable such agencies, to boot – are using the very same data to monitor us routinely. Why does this change our analysis? Commercial interests mine our data all the time, and they have no duty to protect us.

Your privacy is extremely valuable to us

The difference may be that in the case of routine intelligence surveillance, this is just something we didn’t think democratic governments in free societies did. On the other hand, we’ve known for a long time that commercial surveillance (and they wouldn’t use this term; they’d call it data mining) is the price of free on the internet. (In a somewhat different, but related light, the newly introduced European social media privacy laws introduce a ‘right to be forgotten’, in response to the damage online information can do to individuals; critics contend the very name creates an unrealistic expectation of what control individuals can expect to have.)

It’s said that the expression ‘I have read and accept the Terms of Service’ is the biggest lie on the internet. But at least when we click the ‘Accept’ box on a commercial site, we accept the fact that such terms of service exist. We’ve not been given the option to click that box with respect to government surveillance. The service providers are required to assist in law enforcement; we just didn’t think we were legitimate targets.

Then again, what are they getting? Perhaps the term ‘target’ is part of the problem, in that nobody is actually ‘targeted’ by this program; we’re all just swept up in the giant trawling nets. The mining of this data isn’t done by real people; just as it is in the commercial world, no person is sitting down and looking at my Google searches. That’s left to algorithms, which look for patterns.

http://imgs.xkcd.com/comics/dwarf_fortress.png

The fact that the surveillance is done by computer rather than by sentient beings is no excuse. One reason why online privacy is such a thorny issue is that the computer code that enables big data applications doesn’t have anything against you or me, and doesn’t have any values or morals or sense of accountability governing its application or results.

One particularly interesting twist in this story is the fact that some of the biggest and best-known of the companies fingered in the snooping scandal are members of the Global Network Initiative, a program designed to instil respect for and protection of human rights on the internet. GNI members, including Facebook, Google, Microsoft and Yahoo! sign up to a set of principles, including the following, from GNI’s website:

Privacy

Privacy is a human right and guarantor of human dignity. Privacy is important to maintaining personal security, protecting identity and promoting freedom of expression in the digital age.

Everyone should be free from illegal or arbitrary interference with the right to privacy and should have the right to the protection of the law against such interference or attacks.

The right to privacy should not be restricted by governments, except in narrowly defined circumstances based on internationally recognized laws and standards. These restrictions should be consistent with international human rights laws and standards, the rule of law and be necessary and proportionate for the relevant purpose.

Participating companies will employ protections with respect to personal information in all countries where they operate in order to protect the privacy rights of users.

Participating companies will respect and protect the privacy rights of users when confronted with government demands, laws or regulations that compromise privacy in a manner inconsistent with internationally recognized laws and standards.

 

The recent revelations put this principle in jeopardy. How will online service providers give assurance that it has not been compromised? (Indeed, how can they reassure us that they even can implement the commitment they’ve made?) It also raises big questions about who’s responsible, and how:

Responsible Company Decision Making

The implementation of these Principles by participating companies requires their integration into company decision making and culture through responsible policies, procedures and processes.

Participating companies will ensure that the company Board, senior officers and others responsible for key decisions that impact freedom of expression and privacy are fully informed of these Principles and how they may be best advanced.

Participating companies will identify circumstances where freedom of expression and privacy may be jeopardized or advanced and integrate these Principles into their decision making in these circumstances.

Participating companies will implement these Principles wherever they have operational control. When they do not have operational control, participating companies will use best efforts to ensure that business partners, investments, suppliers, distributors and other relevant related parties follow these Principles.

We will no doubt hear more from the companies in question as events unfold. But the damage to their reputations and trustworthiness may be significant. They will be at pains to demonstrate their independence, good governance, and technical nous – all of which were never in any doubt in the past. They may find themselves battling the perception that, as David Kirkpatrick, writing in a LinkedIn blog, put it: “To be an American service is now to be a tool for U.S. surveillance.”

 

–> Update 16 October, 2013: On 10th October, the Electronic Frontier Foundation (EFF), a well-known online privacy and freedom of expression advocacy organization, announced the end of its association with the Global Network Initiative (GNI), citing the ‘serious compromises GNI members may be forced to make’ in relation to their ability to speak freely regarding their internal security and privacy systems. This decision followed the revelations of PRISM and similar activities by US authorities that called into question how free companies operating under US authority may actually be to secure their customers’ privacy and security concerns. For EFF’s full statement, see https://www.eff.org/press/releases/eff-resigns-global-network-initiative. To the best of my knowledge, GNI has not (yet) issued any statement in response.

I’m no lawyer, but… What’s Chevron not saying about its liabilities?

We’ve had an embarrassment of riches this past week when it comes to CR (and PR!) catastrophes – Facebook’s dirty tricks campaign against Google, the Girl Scouts’ mishandling of debate over unsustainable palm oil in their cookies, the Yes Men’s brilliant ‘Coal Cares’ spoof website (LOVE the Justin Bieber-themed inhaler!) and Peabody’s pitiable threatening response – but a report released into liabilities faced by Chevron for historical pollution in Ecuador is of an altogether different and more substantial nature. It calls into question just how well informed investors and others really are when it comes to the environmental and social impacts of the company’s behavior.

The report, An analysis of the financial and operational risks to Chevron Corporation from Aguinda v. ChevronTexaco, written by Simon Billenness and Sanford Lewis, two corporate-responsibility and shareholder-activism veterans, outlines the company’s recent maneuvering with respect to a lawsuit filed by local communities and indigenous peoples in the Ecuadorean rainforest. The lawsuit alleges significant and systematic pollution from the company’s operations (historically Texaco) from the early 1960s through the early 1990s. The lawsuit stems from 1993, and the Ecuadorean courts issued a final judgment in February of this year – a judgment of a staggering $18 billion in fines and punitive damages.

As you would no doubt expect, it’s all rather complicated, with Chevron alleging a lack of due process and collusion between prosecutor and judge, not to mention the responsibilities shared among the other corporate partners (including state-owned Petroecuador) involved in the oil consortium. (See last month’s post about risks in the ever-complex oil and gas contracting chain.) The judgment remains under appeal in Ecuador, and the outcome unclear.

But what’s fascinating about this case, as the report argues, is that there is a significant body of information in the public domain that shareholders should consider enlightening with respect to any risks they face from the case, the company’s strategy, and the ultimate resolution or settlement. While the company’s 10K report made no mention of liabilities from the case until 2009 – 16 years after it was filed – it does now. There are also sworn representations and testimony of company officials in the court records. The report’s authors reviewed these materials and offer some insights worth mulling carefully:

1)   There are risks stemming from the company’s legal strategy. While the case was originally filed in the New York courts, Texaco succeeded in having it dismissed, on the condition that the company would submit to its being heard in Ecuador, and would recognize the validity of the Ecuadorean court’s judgment. Chevron is now arguing again before the US District Court that it should not be subject to the Ecuadorean legal system for the reasons stated above, even though the plaintiffs had objected to transferring the case to Ecuador in the first place, on similar grounds. In the meantime, the company has been granted a preliminary injunction in the United States blocking the plaintiffs’ ability to seize or attach the company’s US assets in enforcement of the court judgment.

The problem with this notion is that it doesn’t protect any of the company’s non-US assets from facing seizure or attachment, including its operations in Venezuela, Argentina, Brazil and Colombia, all of which have signed up to the Organization of American States’ Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards. This treaty requires signatories to recognize one another’s court judgments, and it is entirely plausible to think they would do so in this case. Indeed, the company’s original insistence on having the case heard in Ecuador and not the US, over the plaintiffs’ objections, only to have them argue they weren’t happy with the standard of justice they received, may not go over too well with other Latin American countries. This caper smacks of bad faith, which may damage the company’s ability to compete for future business in such countries.

And of course, it is not at all clear how the US District Court can prevent plaintiffs of a foreign country from seeking judicial relief in foreign courts, thus calling into question the robustness of the preliminary injunction that currently stands. I’m no lawyer, but this seems like a stretch to me.

2)   There are risks to the company’s stock price from the case and its resolution. $18 billion is a great deal of money (just ask BP’s shareholders). While Chevron’s SEC filings have argued that it’s impossible for them to know what, if any, damages might accrue from this case, analysts have been happy to give it a go. Stock research company Trefis issued a report in March into the case, suggesting very significant damage to the company, even assuming none of the punitive damages are paid: “Given the substantial $9.5 billion potential payout [in fines], this appears to be the biggest environmental battle ever fought by an oil company.” Trefis estimates the cash loss would translate to a 5% drop in equity value.

Again, this only takes account of the cash loss associated with the court judgment, and not other risks to the company’s business, bringing us to…

3)   There are risks to the company’s operations and future success quite apart from damages in the case itself. These risks have been acknowledged in open court, but have not been specified or estimated for shareholders. Chevron Deputy Comptroller Rex Mitchell testified before US District Court that attempts to enforce the Ecuadorean judgment, through, for example, “the seizure of Chevron assets, such as oil tankers, wells or pipelines…would disrupt Chevron’s supply chain and operations and seizures in multiple jurisdictions would be more disruptive.” Mitchell went on to characterize the fallout from this eventuality as: “irreparable injury to Chevron’s business reputation and business relationships that would not be remediable by money damages.”

Well again, I’m no expert in the specifics of Chevron’s business operations, but this sounds rather serious to me. The judge found it serious, too, and quoted this testimony in his decision to grant the preliminary injunction against enforcement of the judgment.

Under the circumstances, you would think Chevron shareholders would be entitled to know a bit more about just what such “irreparable damage” might amount to, where it might derive from, and how it would affect their company’s operations and ability to compete. Incidentally, the company’s sustainability report isn’t any help on this, as it declines to provide the relevant information under the GRI Guidelines, notably item 1.2 Description of key impacts, risks and opportunities; and the Disclosures on Management Approach related to economic and environmental areas. It is also not obvious how the company has applied the recommended guidance on determining materiality of report information provided in the IPIECA industry voluntary guidelines. Here’s hoping they give this some real consideration this year.

Lastly, and as a side note, I did wonder how a band of poor Ecuadorean communities and marginalized indigenous groups could have managed to sustain this legal challenge against such a powerful company for so many years. Billenness and Lewis enlightened me on this as well: it seems the plaintiffs have investors. Burford Capital – a Guernsey-based fund that invests in commercial claims and disputes – along with an online gaming entrepreneur have put up funds enabling the plaintiffs to hire some pretty hotshot lawyers. With the $18 billion judgment in hand, they will be able to raise even more funds if required. Unlike so many cases in history in which a plaintiff is simply outspent by its rich, well-connected adversary, this one is unlikely to go away soon.

Surely this is some sort of an indicator in its own right – that we are now at the stage where an environmental claim brought by poor people in a developing country stands such a good chance of success as to be considered investable in its own right? This feels like new territory in sustainability, a journey that could be transformative all by itself.

More from the AA1000 User Group

As many will know, the AA1000 User Group has been organizing a series of meetings in key markets worldwide to discuss and debate options for future governance of AA1000 Standards. A meeting took place in London last week that generated a lengthy and ultimately productive discussion of the reasons why users should or should not agree to engage with AccountAbility towards this purpose, and produced a position statement, which has now been conveyed to AccountAbility management. The position statement expresses the conditions under which further engagement and involvement between members (users of the Standards) and the organization is possible:

“AAUG London’s proposition to AA, regarding the immediate future of governance for the AA1000 Series

To maintain the legitimacy of the existing Standards, AAUG will collaborate actively with AA, but certain preconditions must be met:

·         AA will drop any legal actions against former AA staff and Standards Board members as their continuance is not conducive to a collaborative and sustainable outcome and is damaging the reputation of the AA1000 standards;
·         AA must recognize the mandate of the User Group to represent the main stakeholders of the existing AA1000 standards and therefore a right to sign off on the process for the creation of an independent governance structure for these standards.
·         AccountAbility will honour the agreement of 23rd March with SES Technical Committee
·         AccountAbility will recognize the existing AA1000 Series Standards to be under the auspices of Creative Commons.

As a first step, the AA1000 User Group will collaborate with the Executive of AA to create and sign off the criteria for selecting the Interim Standards Board and Terms of Reference for the Interim Standards Board.”

The AA1000 User Group has extended this offer on a time-limited basis until 16.00 UK on Friday 13th May 2011. This time limitation exists to enable there to be a clear agreement before the newly appointed Nominating Committee meets to consider applications to the Interim Standards Board, which may include any interested User Group members.

If you would like to see the London meeting record in full, please click the AA1000 User Group page at the top and read the post there.

Information for stakeholders: AA1000 User Group

Many people will be aware of the issues affecting AccountAbility in recent months. I won’t say much about that at the moment, but you can refer to a number of sources, such as Maya Forstater and Toby Webb, who have written excellent blogs about some aspects of the recent controversies.

In the wake of these challenges, a group of committed AA1000 standards practitioners set up an informal user group to discuss, debate and steer a way forward on behalf of its members, independently of the formal organizational workings. That group is now at a crossroads, and needs to make some judgments about what steps to take next.

If you are interested in these issues – and especially if you would like to take part in the debate – please visit the page I’ve posted to share some key documents, here. If you would like to share your own thoughts, please visit the user forum on the LinkedIn site, where there will be discussions set up to channel comments pertaining to these documents.

Feel free to download, share and post as well – it’s essential that word gets out to the full community of stakeholders, so their voices can be heard and reflected in the decisions to come.

One year on: what most needs to change?

It can’t have escaped your notice that it is now one year since the explosion and fire on board the Deepwater Horizon platform in the Gulf of Mexico. The worst environmental disaster in United States history, the incident has cost BP billions, and the potential for a legal judgment of gross negligence hangs like a cloud over the company.

But you knew all that already. Many tons of ink have already been spilled in analyzing what went wrong, why the disaster happened (and we still don’t know all the answers) and what future disasters loom in the near future. But we probably already know more than we realize.

BP wasn’t alone in the Gulf – they were at the helm of a large and complex chain of contractors and subcontractors, each of whom had their own roles to play – and many of whom haven’t escaped scrutiny for the roles they played or didn’t play. Cameron International, supplier of the blowout preventer, Halliburton, in charge of the cementing, and Transocean, owner of the rig, are all coming under fire for their contributions (and some seem less willing than others to face up to this increased scrutiny, as Transocean shareholders will have discovered already).

It’s this very business model that I am most interested in here. In recent decades, the oil and gas sector has evolved a way of working that involves complex and fragmented chains of contractors and subcontractors – since the mid-1980s, contractors have gone from providing a fairly small minority of man-hours in the industry to over 75% today (as this report from OGP illustrates). That means that the vast majority of the actual work being done in the sector – the actual boots on the ground – belong not to the branded, international company, but to its contracting chain. What the industry does together – as teams working on projects – determines their success in creating positive social and environmental outcomes. It’s also part of the reason why oil and gas companies deliver such divergent levels of performance in different locations.

The truth is that there are numerous – and daunting – problems facing the sector, but many of them stem from the fact that hydrocarbons are increasingly being exploited in difficult, remote and challenging environments. These may be deep water, tar sands, areas of high biodiversity, areas used for traditional livelihoods, regions of poverty and low social development, areas where governance and regulation may be weak – the result is that the challenges of delivering real benefits to shareholders and local communities simultaneously while also avoiding major environmental damage are immense. Lots of people shorthand this as the ‘end of easy oil’. (An oil-sector person once asked in response: ‘When was oil ever easy?’)

Here comes the shameless plug: Today, a new IIED report, Shared Value, Shared Responsibility: A new approach to managing oil & gas contracting chains has been launched, co-authored by Dr. Emma Wilson (IIED’s energy team leader) and me, looking at the environmental and social performance of oil and gas contracting chains. It builds on three years of research and interviews in the sector to understand the challenges and identify some possible solutions. The report is intended primarily for the international operating companies and their first-tier contractors, but we think it sheds light on the broader problems that governments and civil society would find useful as well.

Some of our main findings:

  • We believe many companies and contractors lack a sense of shared responsibility for the overall outcomes of a project. Their legal obligations, and their customary business practices, mean they tend to focus on their individual roles and responsibilities, which means there isn’t anyone who owns the totality of a project’s impact.
  • There is no real lack of systems and processes at the industry’s fingertips that can be used to define and enforce the standards of performance expected from a project. The problem is that they aren’t adequately implemented. Sometimes, it borders on being a paper exercise, and much more effort should go into supporting and ensuring contractors and subcontractors are able to meet expectations.
  • With oil and gas operations taking place in all sorts of countries and regions, there are bound to be cultural and contextual challenges in moving between these regions. Sometimes these challenges hamper contractors’ ability to meet international standards of performance, such as when local contractor markets are underdeveloped, or corruption has taken hold, or operating companies are unfamiliar with local practices.

As far as solutions go, each situation is unique, but in general:

  • Early-stage planning and assessment is key to success, and companies should collaborate across all their stakeholder groups to understand the local context to enable clear planning, as early as possible, even before contracts are signed.
  • Underdeveloped local markets are a limiting factor, making operations difficult and local benefits limited. Companies should work proactively to build long-term capacity in local markets to service the oil and gas sector (and broader economy) in the future.
  • Company procurement processes can play a role in proliferating performance standards, sharing good practices, resisting corruption and increasing transparency and accountability.
  • Contracts themselves need to contain a balance of incentives and penalties, to ensure that environmental and social performance are given equal treatment alongside speed and cost of delivery, and to ensure that standards and expectations are clearly understood and contractors are empowered to make the right decisions.
  • Training and capacity building on the job will help improve contractors’ ability to deliver in the real world, and to keep the focus on the overall outcomes, rather than just on distinct and limited tasks.
  • There are many good mechanisms for providing oversight and good quality communication throughout the contracting chain, including encouraging contractors to do more of the front-line engagement with stakeholders in the community.
  • Reporting, responsiveness and good community liaison activities will help build trust and accountability with external stakeholders.

It’s not our intention to point the finger of blame solely at the industry – governments can make it difficult and even impossible to ensure good performance; national oil companies are often inadequate in their response to the environmental and social challenges, and impossible to influence; under-developed local contractor markets are the result of long-term failures of markets and society. The solutions are long-term and require a lot more research and collaboration than we have been able to do, but we hope this is the beginning of a proactive and responsible debate and collaboration to come.

Please let us know what you think!

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