The Main Aspects of Corporate Social Responsibility in Oil Companies in Kazakhstan - Case Study Example

Institution : xxxxxxxxxxx Title : Literature Review Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2010 The main aspects of Corporate Social Responsibility in oil companies in Kazakhstan Social issues Development of a conceptual framework for corporate social responsibility also involves social issues as well as topic areas in which the responsibilities are tied upon. These issues keep on changing and they are diverse in different industries. This is why the social issues approach to assessing business and society relationships has lead into managerial approaches that deal more with development or specification of generalized modes of response to each and every social issue that turn out to be important to an industry (Visser 2010). The social issues have evolved under the rubric of social responsibility and hence this change should be acknowledged. For instance, product safety, occupational safety and health in addition to business ethics were not that significant. As much, preoccupation with environment, consumerism as well as discrimination during employment was not very intense. The issues and in particular the level of organizational interest in the issues, are always changing. As a result, as time changes, the social issues should also be tackled as per the changes (Samuel 2008). The concerns regarding social issues vary with different types of businesses. For example, environment is not a major social issue to a bank as compared to an oil industry whereby environment is among the key social issues. Similarly, an oil industry is considerably more concerned with the issue of recycling when compared to an insurance company. There are various factors that the management should put into consideration when addressing the social issues within a given industry. These factors include; Matching of the social need to corporate need or the capacity to assist. Gravity of social need. Interest of top executives Public relations significance of the social action The pressure from the government Therefore, social issues should be identified as an important element of corporate social performance, even though there is no specificity on the issues that should be addressed. Consequently, each industry should give priority to the issues that affects the organisation the most. For instance, an oil industry must address environment as a social issue (Parket & Eilbirt). Philosophy of responsiveness Social responsibility within an organisation should include philosophy or the strategy by which the business is going to respond to both social responsibility and social issues. This element of responding to the issues is known as social responsiveness and can vary from ‘no response” to a proactive response. This means that businesses have the social responsibility and the main focus should not be in on the acceptance of the moral obligation but should be on the level and kind of managerial action taken in tackling the social issues (Subhabrata 2007). The oil industries’ climate change ethical dilemma Ethical dilemmas can be perceived as entailing a contradiction between socially detrimental procedure and the self-interested gainful results. In the context of oil industry in Kazakhstan, it is applicable as an ethical dilemma which comes forth between emitting greenhouse gases on one hand and making profits on the other hand. Concentrations of most of these greenhouse gases are as a result of oil industrial activities. This increases the danger of global warming of the earth surface temperature and of notable sea level rises and climate fluctuations. Carbon dioxide is one of the greenhouse gases which comes from burning of fossil fuels;, coal, oil and gas are among the leading causes of climate change (Zinkin 2004). It is consequently imperative that the oil industry is therefore confronting a major issue: its core product, oil as an energy source, is potentially highly damaging to the global environment. If greenhouse gases emissions change the global climate and if the oil industry wants to avoid or reduce climate change, the industrial’s net emissions should be reduced. This issue should be addressed at a preventive and at adaptive level (Inter-American Development Bank 2004). From a societal point of view, this can be considered in regard to reduction or suppression of an environmental risk that will bring about bad effects to the society. In this regard, the oil industry should acknowledge the ethical dilemma and the first thing should be to acknowledge the societal concerns. The other step includes real commitment since it is the acknowledgement of the social responsibility. With this, the oil industry will own the responsibility of addressing the impacts of the negative effects from the industry and making use of the industrial processes that have minimal effects (Skodvin 2003). Social responsibility and the oil industry Basically, companies running in industries such as oil industry are usually environmentally or socially damaging by their nature since they are subject to questions of legitimacy concerning on how they promote corporate social responsibility through planned business projects. For example, UK Offshore Operators Association is the agency that advises UK oil companies regarding their social conduct both locally and at international levels. The main aim of the agency is to improve the oil and gas industry’s competitiveness within the international environment by its capability to attract constant investment and hence deliver long term benefits to the economy of UK. To be specific, their social strategy is in facilitating business conduct with entire acknowledgment of the impact of the oil industry has on the society and their responsibility to the society. The chief aspects of this are constant improvement of the industry, involvement of the local stakeholders and assisting authorities as well as communities during phases of UK continental shelf development. Moreover, the oil industries have developed their own initiatives regarding sustainable development, community development, sponsorship and community participation (Radu 2008). The role corporate social responsibility (CSR) in an Oil company’s expansion into new territories Interest in the notion of (CSR) has increased at a higher rate in Kazakhstan. In most cases companies assess the prospective areas of operation using PESTLE (political, economic, social, technological, and legal in addition to environmental) analysis and through “a country risk assessment process”. After examining the directives of the government, the company can then concentrate on the “social needs” of the country. Therefore, before setting up an oil industry, the company should carry out a risk assessment of the locality and examine the regulations. The cultural aspects of the nationalities should be addressed before establishing an oil industry in a foreign territory (Janez 2006). Corporate Social Responsibility need to be managed through a combination of handling unexpected events that are likely to threaten the existing social responsibility as well as the long term decrease in the gaps that exist between the expectations of the stakeholders and the performance of the company (CSR enforcement). It basically entails building and maintaining relationships with the society between actors, resources and activities of the company. Corporate Social responsibility is important when an oil company is entering into new territory. This is because venturing into new territories entails SLEPT (social, legal, environmental, political as well as technological) analysis and also a nation risk assessment procedure, which entails a lot of research work. Furthermore, the company should address the access directives by the country’s government and also tackle the social needs of the country (Walter 2009). Cultural research is also very important before entering new locality and this gives the oil company a good reputation even before initial operations like drilling starts. Even before a company begins maintaining a physical presence in the new territory, it should first establish substantial contact within the country’s representatives. CSR will always be there and hence oil industry should always be aware of CRS trends like globalization and oil companies which have a very big affect on the societies. Each and every oil company should have CSR as an element of its business since building relationships is much simpler if the company gets to understand people (Jill 2006). There should be a positive impact created by the company within the operational countries and concentrate less in reputation since being “socially responsible” is the selling point of the company. CSR is meant to be embedded in the Oil companies’ business strategy and should perceive being socially responsible is the right thing to do. The mandate of an oil company is different from a government’s mandate in that it would not be appropriate for an oil company to take on social responsibilities that are privilege of a host nation’s government. Nevertheless, the oil companies should for instance, try to improve, where possible the government’s present social funding programs (Michael 2007). Stakeholder, Accountability, Reputation and CSR- Profit Links There are two groups of stakeholders within the oil industry. The first group is of those expect the oil industry to be socially responsible because of negative impact on the environment and the society. This group consists of mainly the NGOs whose main aim is to promote the social and environmental goals and not the accomplishment of economic power within the market place. The second group consists of the host nations and direct clients, who are not normally concerned with social reputation of the company but are more concerned with the operational performance of the company (Kimberly 2006). Oil companies should carry out social audits as a type of stakeholder’s consultation on its social and environmental undertakings. There should be an indication of the oil industry being aware of the stakeholder’s concerns through their undertakings such as participation of the local community in the entire project and issues like Third World poverty in addition to investment within the environment. Social investment can be one of the ways oil industry can fulfil the social responsibility role (Pursell 2004). The oil industry should endeavour make the CSR to be a component of the central business strategy as this will be considerably more beneficial to the oil companies in the long term. Possibly, oil industry can benefit a lot if CSR underlies organizational culture. Research indicates that several companies acknowledge the connection between being socially active, reporting of the outcomes and hence increasing stakeholder expectations and creating profit. Putting CSR as an integral element of business strategy is highly advantageous in terms of defining CRS assessment and measurement and determining its impact on profit (Hazarika 1998). Therefore, the most effective CSR strategy is the one that is integral to the general business strategy of an organisation. In this matter, the oil industry is not different from any other organisation. Nonetheless, oil industry is different from the others in regard to expectations placed on it by two key groups of stakeholders, which impose on it in direct and indirect ways but with equal impact (Karl 1997). In this manner the oil industry is in an abnormal position where indirect stakeholders like pressure groups who have no business links with the company at all might be dictating a need for socially responsible policy. On the other hand, such policy could imply less to prospective host cultures or ‘workers’ who are most likely to associate the employability of a company with a high operational performance (Matthias 2005). The BP case has confirmed that that there are benefits of employing CSR as an integral component of business strategy, namely the development of value through positive stakeholder relations and reputation. CSR would result into positive effects when oil companies are entering in new cultures or territories (European Commission 2004). Measurement of corporate social responsibility Basically, there exist two methods that are commonly used in measuring CSR and they include reputation index and content analysis. In reputation index, knowledgeable observers rate organisation basing on one or more dimension of social performance. The advantage of this method is that it is internally consistent since the examiner applies the same criteria in every organisation. Another advantage is that it makes no pretence of applying a thorough objective measure to a dimension that can be essentially subjective and that it can summarize the perceptions of a main constituency of different organizations. This can be a very important element in determining the relationship between CSR and financial performance. Nevertheless, there are disadvantages of this method and they include; such ranking are highly subjective and therefore can differ considerably from one examiner to another and this indicates unreliability of the method. Another disadvantage is the sample size. This is because most reputation indexes are only able to cover a small number of organisations and therefore generalization of the results is not reliable (Wood & Gray 1991). The second method used in computing CSR is content analysis. Usually, the extent of the reporting of CSR activities in several organisation publications and in particular in the yearly report is measured. This can include of merely not if or not a certain item, for example a pollution control is discussed either qualitatively or numerically or can imply counting several items. The advantages of this method include; after choosing the variables (a subjective process), the process is significantly objective and hence the outcome is independent of the given research. Again, the method is more mechanical and therefore analysis of larger sample sizes is possible. Nevertheless, this method also has disadvantages and they include; the choice of variable to measure is subjective. Additionally, content analysis merely indicates what the companies say they are doing and this can be different from what they are actually doing (Franziska 2009). Conclusion The nature of oil industry in Kazakhstan requires that it should be proactive and socially accountable in addition to operating within an ethical and environmentally friendly manner. According to the literature above, it is particularly evident that communicating efficiently with the stakeholders on progress aimed attaining economic prosperity and environmental quality has proved to be the way to go. Social justice becomes a defining characteristic of the oil companies in Kazakhstan. Bibliography Franziska, R., 2009, Corporate social responsibility in Europe: rhetoric and realities, Edward Elgar Publishing, New York. European Commission, 2004, ABC of the main instruments of corporate social responsibility, Office for Official Publications of the European Communities, Toronto. Samuel, O., 2008, Global Practices of Corporate Social Responsibility, Walter Publishers, California. Janez, P., 2006, Competitiveness, social responsibility and economic growth, Nova Publishers, New York. Millin, C., 2009, Corporate social responsibility: a case study approach, Edward Elgar Publishing, New York. 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