Can Coal Mining Corporations Operate Sustainably - UK Coal Plc, BHP Billiton Plc and Xstrata - Research Paper Example

1.0 Introduction How can companies make profit by exploiting nature and human capital as well as maintain long-term sustainability? In recent years, few notions have so fully captured the corporate imagination as that of corporate social responsibility (CSR), defined broadly as a company’s “status and activities with respect to its perceived societal or, at least, stakeholder obligations.”1 While CSR is by no means a new idea2, more companies than ever before are backing CSR initiatives such as corporate philanthropy, cause-related marketing, minority support programs, and socially responsible employment and manufacturing practices—and they are doing so with real financial and marketing muscle3. The web sites of more than 80% of the Fortune 500 companies address CSR issues, reflecting the pervasive belief among business leaders that in today’s marketplace CSR is not only an ethical/ideological imperative, but also an economic one4. In other words, companies today are increasingly aware of both the normative and business case for engaging in CSR5; not only is “doing good” “the right thing to do,” but it also leads to “doing better” through its positive effects on key stakeholder groups6. Thus sustainability in 21st century for businesses across the globe is enhancing corporate social responsibility on long-term basis i.e. stakeholder perspective. The question that arises after initial discussion is how can coal mining corporations enhance corporate social responsibility or sustainable development as their business mode revolves around eradicating natural resources from surface of earth? 2.0 Research Question Can Coal mining corporations operate sustainably? Case Research on UK Coal Plc, BHP Billiton Plc and Xstrata In this research note we would be analyzing the corporate social responsibility index and strategies sketched by coal mining companies to enhance sustainability on long-term basis. 3.0 Literature Review The term CSR became rife after the works of Bowen in his book Social responsibilities of the Businessman (1953). Since then this field has been growing rapidly and a wide range of theories have been formulated to capture this notion (Bowen, 1953). Society and business, social issues management, public policy and business, stakeholder management, corporate accountability are just some of the terms used to describe the phenomena related to corporate responsibility in society (Bowen, 1953). The western CSR understanding is framed in a partly polarised debate on CSR. Management issues related to CSR arise due to two mutually opposing views on how a firm should interact with its stakeholders with respect to the interests of its shareholders (Chalmers, 1999). The varying views of many management thinkers in this arena constitute a rather heated global debate on CSR (Ehrlich et al., 1977). This is also what makes this subject extremely interesting and challenging (Chalmers, 1999). The Shareholder Perspective is basic; it calls for the Manager to act for a single goal of maximising the wealth of its share holders. Any expense on the account of pure philanthropy is condemned and viewed as wealth destroying (Emshoff et al., 1978). The Stakeholder perspective suggests that a firm should give equal importance to the interests of all its stakeholders by seeking a balanced solution involving a reasonable distribution of costs and benefits among them (Emshoff et al., 1978). This can also be known as the freeman approach that provides radical support for CSR. According to Porter & Kramer (2002) stakeholder approach a manager should follow seven rules of stakeholder engagement, as follows: The manager should put together a deal that simultaneously satisfies multiple stakeholders Each stakeholder is important for the deal to be sustainable Stakeholders consist of real people with faces and children (Porter & Kramer, 2002). People are complex It is important to communicate with all stakeholders, not only the friendly ones It is useful to generalize the marketing approach to all stakeholder groups (Ehrlich et al., 1977). Stakeholder relationships can be managed, influenced and led, but not manipulated. Great companies create win-win relationships with stakeholders that endure over time. Another aspect of CSR deals with Reporting and Accounting (Porter & Kramer, 2002). The importance of this issue arises from the need to quantify the impact of CSR activities of a company in terms of real gains to the stakeholders (Ehrlich et al., 1977). The most accepted approach towards CSR accounting is known as triple bottom line (Drumwright & Murphy, 2001). This is derived from the assumption that the long term value creation does not only relate to just economic value, but concerns value creation in three dimensions which is called the Triple P bottom line (Drumwright & Murphy, 2001): Profit: the economic dimension. This dimension refers to the creation of value through the production of goods and services and through the creation of employment and sources of income (Drumwright & Murphy, 2001). The financial returns reflect the appreciation of consumers for the company’s products and the efficiency with which factors of production are used. The long-term profit motive should provide the financial basis for the continuity of the company (Drumwright & Murphy, 2001). People: the social dimension. This has a variety of aspects concerning the effects for human beings, inside and outside the organization, like good labour relations, safety etc. Planet: the ecological dimension. This dimension relates to the effects on the natural environment (Drumwright & Murphy, 2001). Triple bottom like reporting can be found in the sustainability reports or the annual reports of many major companies (Ehrlich et al., 1977). Thus from the above theoretical perspective it could be seen for coal mining companies such as UK Coal Plc, BHP Billiton Plc and Xstrata enhancing triple P bottom line is essential for improving long-term sustainability or corporate social responsibility index. 4.0 Strategic dimensions of corporate social responsibility In this section we would be subjecting and rating UK Coal Plc, BHP Billiton Plc and Xstrata to diverse strategic dimensions pertaining to corporate social responsibility. Looking at the company’s initiatives and strategic investments in enhancing the Trip P bottom line we would analyse the best practices on how coal mining companies can operate sustainably on long-term basis. The process of formation of these dimensions is in line with the grounded theory approach adopted in the literature review. The steps involved in the process are as follows: Looking at the board data set and trying to identify unique trends/observations. Looking at the theoretical model and grouping these observations under possible theoretical explanation Grouping trends that don’t fit in the existing framework Conducing several iterations between the empirical data and the theoretical base until a complete set of dimensions are identified Analysing the trends that didn’t fit the theoretical explanations and dividing them into distinct groups and suggest a dimensions for each Strategic Dimensions of CSR to which UK Coal Plc, BHP Billiton Plc and Xstrata will be subjected are as follows: Strategic Philanthropy Pure Philanthropy (social) – Company Pure Philanthropy (social) – controlling Families Environment and Pollution Employees and Working Conditions These dimensions allow us to categorically group a company’s CSR activities based on the possible strategic motives/focus of these activities. Strategic Philanthropy: Activities that are aimed at empowering the Cluster from which the company operates form the basis of strategic philanthropy (Bhattachary, 2004). Other CSR expenditure that has long term profit bearing motive can also be grouped in Strategic Philanthropy. The list these activities are (Bhattachary, 2004): Supporting higher education and literacy in the Region/Cluster Building own educational institutions Building support infrastructure Empowering suppliers and supporting industries/entrepreneurs Supporting Human Development/Health Care in the region/cluster Pure Philanthropy (Firm Level): Activities that have no long term profit bearing motive other then intentional/unintentional social goodwill, and are funded by company itself (Smith et al., 1997). Local/National Aids and Grants for immediate causes ( natural calamity, accidents, tragic events) Local/National Aids and grants for Social Causes (health care, medical research, grants to NGO’s etc) Funding and running own Social Institutions (Hospitals, NGO’s) Putting resources directly in non strategic social/public welfare activities Pure Philanthropy (controlling families): CSR activities that are not funded by the company but from the own personal wealth of the controlling companies through different means. Funding social causes indirectly Establishing Social/Pubic institutions directly through Foundations and trusts Funding Strategic Causes Some of the CSR activities by the controlling families may also be of Strategic nature but are grouped in Pure Philanthropy structure because since it’s done from individual wealth it can’t be considered as a long term profit bearing activity for the company. Although it may have social impacts that might benefit the underlying companies (Smith et al., 1997). Environment and Pollution: This is a dimension that is often difficult to quantify. It has been hard to establish to what extent a company should work towards reducing its environmental impact. Looking back to theory, Emshoff & Freeman (1978) in his radical view argued that companies should do everything possible in order to reduce environmental impact and Emshoff & Freeman (1978) has come to bail out the corporate by arguing that asking everything is not realistic, but companies should definitely do whatever is manageable. What is still not clear is what can be defined as being enough. Calculates direct environmental impact of its operations and has taken initiatives to normalize them (environmental accounting) Even calculates indirect impacts Has Developed an Environmental friendly working environment and culture within employees Invested in technology to reduce impact and minimize damage Employees and Working Conditions (Emshoff & Freeman, 1978): Fair or above average employee compensation scheme for direct as well as indirect employees Division of wealth amongst employees through stock options Development of support infrastructure for employees and their families Employee and Family Health cover Non Discrimination and Social Empowerment Policies for the minorities Physically as well as Mentally healthy working environment Allocating Scope Weights: All of the above 5 set of dimensions will be given a maximum 100% rating. To receive 100% in one dimension the company mush show involvement in several and preferably all types of activities in that dimension and in a satisfactory fashion. The involvement data of all three coal mining companies for five strategic CSR dimensions will be gathered from secondary sources such as Annual Reports, Sustainability Reports, press releases and other third party search engines. 5.0 Case Research 5.1 UK Coal Plc (2009 UK Coal mining market share: 17.6%)7 UK Coal is engaged in coal mining, property regeneration and management, and power generation activities (Datamonitor, 2009). The group operates four deep mines located in Central and Northern England. It also has seven surface mines that produce 1.5 million tonnes of coal per year. UK Coal develops and regenerates brownfield sites, manages business parks and an agricultural portfolio of land and buildings (Datamonitor, 2009). UK Coal Plc Dimension Activities Scope Score Intensity Total W Strategic Philanthropy: 100% 30% 30 Supporting higher education and literacy in the Region/Cluster UK Coal Plc has taken several initiates for education and literacy programs in many developing regions where it operates. UK Coal Plc also indirectly supports several higher education institutions in United Kingdom, its home base. Building own educational institutions UK Coal Plc has not built any major education institutions in the cluster mainly because of large public investment in this sector that eliminates the need Building support infrastructure UK Coal Plc invests significantly in developing infrastructure in many regions of its operations especially in the developing world Empowering suppliers and supporting industries/entrepreneurs UK Coal Plc has several programs and policies for empowering the suppliers in several ways. For example helping the Chinese suppliers to benefit from new technologies etc. Supporting Human Development/Health Care in the region/cluster UK Coal Plc is phenomenally aware of the social implications of its operations. Every activity is carefully planned for its social impacts and significant investments are made to preserve and develop the society. Pure Philanthropy 50% 10% 5 Local/National Aids and Grants for immediate causes UK Coal Plc has proactively contributed to the immediate causes world wide, like a immediate £5 million aid to the tsunami victims in Asia and help during other national calamities around the world such as earthquakes etc Local/National Aids and grants for Social Causes - Funding and running own Social Institutions (Hospitals, NGO’s) - Putting resources directly in social/public welfare activities UK Coal Plc promotes several important causes worldwide such as Human Rights and Corruption. It has protectively taken up these cause on several international forums and taken steps towards improvement. Pure Philanthropy (families) - Funding social causes indirectly Establishing Social/Pubic institutions directly Funding Strategic Causes Environment and Pollution 90%% 30% 27 Basic Environmental Accounting UK Coal Plc maintains detailed accounts of its emissions and environmental impact of its operations. Carbon emission declined by 20% on year-on-year basis in 2005-2009. Awareness and Policies for Sustainability UK Coal Plc is phenomenally environment conscious. Every project is analyzed deeply for its possible environmental impacts and only the projects that can be executed sustainable are taken up. Environmental friendless is rooted deep inside the work culture of UK Coal Plc and its employees Environmental Technologies and Research UK Coal Plc has invested large resources in the technologies and machinery to reduce curb the environmental impacts of its operations. UK Coal Plc has some of the most environmental friendly technologies and operations worldwide Employees 100% 30% 30 Fair Wages High wage standards Division of Wealth Generous Infrastructure World class Working conditions World class Healthcare Good health care policies Social Policies UK Coal Plc has come very far in developing a very global, multicultural, and multiethnic working environment backed by its strong and non discriminatory social policy. Total 92 Source: Annual Report and Sustainability Report 5.2 Xstrata Plc (UK Coal mining market share 2009: 8.6%) Xstrata AG, the predecessor of Xstrata plc, was established in Switzerland in 1926 to invest in infrastructure and power projects in Latin America (Annual Report, 2008). Beginning in 1990, Xstrata built a portfolio of businesses operating in the natural resources sector. In 2002, Xstrata plc merged with Xstrata AG and became the holding company for the Xstrata group of businesses. The company was taken public in 2002 through the IPO of Xstrata plc (Annual Report, 2008). Xstrata Plc Dimension Activities Scope Score Intensity Total W Strategic Philanthropy: 40% 20% 8 Supporting higher education and literacy in the Region/Cluster Nothing directly by the company Building own educational institutions Basic rural education institutions and adult and women literacy programs in the region Building support infrastructure Basic infrastructure for smooth functioning Empowering suppliers and supporting industries/entrepreneurs No evidence Supporting Human Development/Health Care in the region/cluster Few initiatives in surrounding areas, rural health care programs, rural education programs Pure Philanthropy 20% 5% 4 Local/National Aids and Grants for immediate causes No major donations Local/National Aids and grants for Social Causes No major donations Funding and running own Social Institutions (Hospitals, NGO’s) Donations to the Family Run NGO’s and support in implementing the programs Putting resources directly in social/public welfare activities Some expenditure in social welfare outside the cluster but minimum Pure Philanthropy (families) 80% 40% 32 Funding social causes indirectly Several social initiatives Establishing Social/Pubic institutions directly Establishment of several education institutions, public utility centers and hospitals around the country such as Cancer research institutes, and some prestigious education institutions. Scholarships to students for higher education etc. Funding Strategic Causes Basic development activities around the cluster in terms of empowering the poor and unprivileged Environment and Pollution 40% 10% 4 Basic Environmental Accounting No accounting on environmental issues reported Awareness and Policies for Sustainability The section on environment in the Annual report shows that the company is aware of the environmental issues but it seems weekly anchored into the working culture. Environmental Technologies and Research Company spent significant capital in environmental friendly equipment and has earned several national and international certifications. Nevertheless there is a much more scope for improvement Employees 50% 25% 12.5 Fair Wages Standard Division of Wealth None Infrastructure Basic Working conditions Good on the national scale but basic on the international scale Healthcare Standard health cover to employees Social Policies Basic Total 60.5 Source: Annual Report and Sustainability Report 5.3 BHP Billiton (UK Coal mining market share 2009: 8.6%) BHP Billiton, the world's largest mining group, was formed from the unification of Billiton plc and BHP Ltd in June 2001 (Corporate website, 2009). The merger has resulted in a group with a diverse asset base and strong pipeline of greenfield and brownfield projects, many of which are due to come on stream in the next few years (Corporate website, 2009). The group's operations are divided into seven Customer Sector Groups (CSG): Aluminium, Base Metals, Carbon Steel Materials, Diamonds and Specialty Products,Energy Coal, Petroleum and Stainless Steel Materials (Corporate website, 2009). BHP Billiton Dimension Activities Scope Score Intensity Total W Strategic Philanthropy: 100% 40% 40 Supporting higher education and literacy in the Region/Cluster BHP runs several schools that provide high quality education to thousands of students Building own educational institutions The company has founded some of the most important institutes in the region for advanced and professional education that have contributed significantly to the nationals development Building support infrastructure BHP has built an entire township abundant with infrastructure around its steel plant. It has built, stadiums, parks, airports, conference halls, roads etc Empowering suppliers and supporting industries/entrepreneurs No info available in the research material Supporting Human Development/Health Care in the region/cluster BHP has invested generously in Hospitals and medical research, sports, arts, empowerment of the minorities etc. Pure Philanthropy 0 Local/National Aids and Grants for immediate causes No major direct contribution Local/National Aids and grants for Social Causes No major Direct Contribution Funding and running own Social Institutions (Hospitals, NGO’s) Healthcare initiatives at small scale in different parts of United Kingdom and emerging economies. BHP Health Express provides health care to remote and left out areas Putting resources directly in social/public welfare activities No major contributions outside cluster Pure Philanthropy (families) 100% 30% 30 Funding social causes indirectly -Supports numerous NGO’s and social causes, but mostly around the cluster Establishing Social/Pubic institutions directly - Several Institutions for education, health care and medical research most around cluster and partially funded by the company Funding Strategic Causes - Literacy, Women Empowerment Environment and Pollution 50% 10% 5 Basic Environmental Accounting BHP has been proactive in monitoring its environmental impacts. But there is room for a lot more Awareness and Policies for Sustainability BHP environmental reporting shows a high degree of awareness towards environmental causes in the company. Environmental Technologies and Research Company has made some investments but no major breakthrough can be noticed. Employees 80% 20% 16 Fair Wages Standard wages Division of Wealth Employees bonuses Infrastructure Substantial investments in Infrastructure, built an entire township to house its employees and support their families and social needs Working conditions Good working standards, one of the best in United Kingdom in the industry Healthcare Generous health care program for employees Social Policies Strong and value based policies for treatment of employees and people Total 91 Source: Annual Report and Sustainability Report 6.0 Propositions It could be seen from sustainability accounting of UK Coal, BHP Billiton and Xstrata that coal mining companies can enhance corporate social responsibility via focusing on stakeholder perspective and consolidating presence in five strategic dimensions i.e. Strategic Philanthropy, Pure Philanthropy (social) – Company, Pure Philanthropy (social) – controlling Families, Environment and Pollution and Employees and Working Conditions. UK Coal Plc has the highest corporate social responsibility rating of 92. The company has made strategic investment and commitments in all five strategic dimensions. On the other hand Xstrata Plc fails in environmental pollution management i.e. neglecting third pillar (Planet). Neglecting any of the three pillars i.e. people, profit and planet will hamper long-term sustainability of coal mining companies in United Kingdom. Finally, coal mining companies can achieve long-term sustainability via tactical and strategic commitment towards three CSR pillars i.e. people, planet and profits (moving down the shareholder value curve towards stakeholder perspective). 7.0 References Annual Reports: UK Coal Plc 2008, 2007 Annual Reports: BHP Billiton 2008, 2007 Annual Report: Xstrata 2008, 2007 Annual Sustainability Report: UK Coal Plc 2008 Annual Sustainability Report: BHP Billiton 2008 Annual Sustainability Report: Xstrata 2008 www.datamonitor.com N. Craig Smith, “Corporate Social Responsibility: Whether or How?” California Management Review, 45/4 (Summer 2003): 52-76. Minette E. Drumwright and Patrick E. Murphy, “Corporate Societal Marketing,” in Paul N. Bloom and Gregory T. Gundlach, eds., Handbook of Marketing and Society (Thousand Oaks, CA: Sage Publications, 2001). Smith, op. cit., pp. 1-25; Keith B. Murray and Christine M. Vogel, “Using a Hierarchy of Effects Approach to Gauge the Effectiveness of CSR to Generate Goodwill Towards the Firm: Financial versus Non-financial Impacts,” Journal of Business Research, 38 (1997): 141-159. See, also, The World Economic Forum (2002). C.B. Bhattacharya, Sankar Sen “Doing Better at Doing Good”. CALIFORNIA MANAGEMENT REVIEW VOL. 47, NO. 1 FALL 2004 Bowen, H. R.: 1953, Social Responsibilities of the Businessman (Harper & Row, New York). Chalmers, A.F. (1999) what is this thing called science? 3rd ed. Buckingham: Open University Press Corporate Communication: A Strategic Approach to Building Reputation (2002), Brønn, P.S. and R. Wiig (eds.), Oslo: Gyldendal.) Emshoff, J. R. and R. E. Freeman: 1978, ‘Stakeholder Management’, Working Paper from the Wharton Applied Research Centre (July). Quoted by Sturdivant (1979). Porter, M. E. and M. R. Kramer: 2002, ‘The Competitive Advantage of Corporate Philanthropy’, Harvard Business Review 80(12), 56–69. The World Economic Forum (2002). Votaw, D.: 1972, ‘Genius Became Rare: A Comment on the Doctrine of Social Responsibility Pt 1’, California Management Review 15(2), 25–31. Ehrlich P., Ehrlich A.H and Holdren J.P (1977) Ecoscience population environment San Francisco W.H Freeman. Read More