CSR-related governance is increasingly being applied to international operations.
When Talisman Energy purchased a 25 percent stake in the Greater Nile Petroleum Operating Company (GNPOC) in Sudan for C$278 million ($290 million) in 1998, the Canadian oil and gas producer was almost immediately battered by shareholder activists who believed oil production from the project was providing financing that was prolonging Sudan’s civil war.
In November 2001 the Presbyterian Church of Sudan filed a $1 billion class-action lawsuit in the US, alleging that Talisman had helped Sudanese government officials ‘bomb churches, kill church leaders and attack villages in an effort to clear the way for oil exploration’. The company’s reputation had been tarnished, and it had to act.
Although Talisman tried to address the issue by voluntarily preparing annual ‘corporate responsibility reports’, developing a GNPOC Code of Ethics, implementing human rights training and openly complying with the International Code of Ethics for Canadian Business, selling the tainted assets and starting a campaign to restore the company’s reputation were the only real fixes for the problem.
In October 2002, the company announced a deal to sell its interest in GNPOC. In a statement, Talisman president and CEO Jim Buckee underlined the major reasons why: ‘Talisman’s shares have continued to be discounted based on perceived political risk in-country and in North America to a degree that was unacceptable for 12 percent of our production. Shareholders have told me they were tired of continually having to monitor and analyze events relating to Sudan.’
Buckee also used the sale of the assets to establish Talisman’s commitment to CSR. ‘We have long argued that Talisman’s presence in Sudan has been a force for good and we have taken steps to ensure that the benefits created through our involvement will continue to improve the lives of the people of Sudan both now and in the future,’ the statement read.
Talisman made good on Buckee’s promise by funding medical assistance, shelter, clean water and vocational training projects in Sudan, as well as in other under-developed areas around the globe, all while the genocide lawsuit against the company was winding through the US courts. The company also continued to issue annual corporate responsibility reports and conducted risk assessment studies on internal conflicts, employee safety, human rights and security issues, as it did prior to doing business in Colombia.
The results of Talisman’s CSR efforts are hard to ignore. The genocide lawsuit against Talisman was dismissed in October 2009, and while the company lost its business in Sudan, it has been able to close a number of successful mergers and acquisitions in order to gain business in other countries – some of them aided by the company’s solid CSR record.
‘Talisman shows us that even under very difficult circumstances, effective management of CSR can be achievable and can facilitate international business objectives in a profitable way, if integrated into corporate strategy and governance,’ says Michael Torrance, a lawyer at Norton Rose who advises companies on international standards of corporate responsibility and sustainability as they pertain to corporate governance.
‘This is ultimately the business case for CSR,’ Torrance explains. ‘It has allowed Talisman to operate in some of the most difficult jurisdictions in the world with far fewer risks than many of its competitors.’
A greater spotlight might be placed on the impact of Talisman’s actions in Sudan, given the recent secession of southern Sudan from the north to form the Republic of South Sudan.
‘Talisman has become a world leader in CSR as a direct result of its experiences in Sudan,’ Torrance notes. ‘No proponent of CSR can start from the premise that business is inherently harmful to society. In other words, assuming business is a social good, CSR only considers how business should operate to meet the expectations of legitimate stakeholders.’
Creating an overall business strategy that meets the expectations of different groups of stakeholders, not just the financial needs of shareholders, is one of the newer applications of CSR. That means helping local community residents thrive, as well as making employee safety a high priority.
‘CSR is a natural fit for any industry, and it is all about opening the organization’s eyes to a wider group of stakeholders,’ says Janis Riven, a Canadian-based corporate governance consultant and lecturer at the John Molson School of Business, Concordia University. ‘It is all about businesses understanding that they have to be accountable to all the stakeholders in the environment in which they operate.’
All this means that showing the respect and willingness to act responsibly in another country – and furnishing reports to prove it – may soon become the price of admission when seeking to establish international subsidiaries in the future.
Top of the class
A recent list of the top 50 socially responsible corporations of 2010, released by weekly current affairs magazine Macleans, reveals that Canadian companies are particularly well positioned when it comes to effective CSR practices. Macleans partnered with Jantzi-Sustainalytics, a global firm that conducts sustainability analysis, to rate companies on their performance across a broad range of environmental, social and governance (ESG) indicators. The top companies demonstrated strong performance in areas such as environmental initiatives, impact on local communities, treatment of employees and supply chain management.
Some experts say Canada has always been a leader in CSR. Other experts, however, are less convinced. In June 2005, the Standing Committee on Foreign Affairs and International Trade (SCFAIT) adopted a report of its Parliamentary Subcommittee on Human Rights and International Development, which was then submitted to parliament. ‘The SCFAIT report called for the Canadian government to, among other things, enhance incentives for fostering corporate compliance with international human rights norms and improve or create tools for monitoring corporate operations in the developing world,’ says Aaron Dhir, an associate professor at Osgoode Hall Law School. But, Dhir notes that 'the Canadian government tabled a response in October 2005 that neglected to adopt many of the SCFAIT Report’s recommendations,' though it did 'lead to a set of National Roundtables on CSR in the extractive sector'.
The Macleans report suggests that the US is lagging behind Canada due to its poor support of sustainability legislation in Washington. For example, the American Clean Energy and Security Act, which would have established an emissions trading plan similar to that adopted in the European Union, was approved by the House of Representatives in June 2009 but eventually died in the Senate. ‘In the absence of government pressure, there has been relatively little incentive for US companies to get involved in CSR in a big way,’ the Macleans report says.
Heather Lang, Jantzi-Sustainalytics’ director of research for North America, adds, ‘Canadian companies generally lead their US peers when it comes to issues surrounding employee relations and the environment.’
Dhir believes the emphasis on CSR in Canada will continue to grow because ‘there has been a strong wave of activity with respect to corporate accountability-related issues over the last few years.’ Canada is one of the world’s largest exporters of minerals and metals, and its mining industry has suffered a series of recent financial losses due to ineffective sustainability measures.
‘In the exploration and mining industry, there are a number of recent examples where companies have lost their investment due to poorly implemented or deficient CSR initiatives,’ says Mimy Fernandez-Maldonado, corporate secretary at Oro Mining. ‘Working within a CSR framework adds value to your business by gaining and maintaining goodwill and thereby reinforcing the security of your investments.’
Fernandez-Maldonado adds that ‘the proper implementation of CSR could be considered the best way to prevent socio-environmental conflicts, setbacks in the development of a mine and long-term liability issues, and it answers to the growing sophistication of the investment community with respect to the ethics of their portfolios.’
Walking the walk
Ultimately, good CSR must involve the corporate secretary, and part of his or her job is to align the company’s corporate vision with its strategic direction. Riven believes that companies should practice what they preach: ‘Many companies and boards say they have CSR at the top of their agenda, but a corporate secretary can help by turning the talk into action,’ he says.
Riven offers the following advice to corporate secretaries seeking to establish a holistic CSR approach:
• CSR policy: It is important to have a good understanding of the policy, because it dictates the firm’s actions. ‘As a corporate secretary you take this policy back to the board and make sure they are fulfilling these obligations,’ says Riven. It’s about understanding what CSR and sustainability mean to the company.
• Awareness: A good corporate secretary is always on top of the issues and is able to instantly provide the chair or special committee with information. In the case of the mining and other extractive industries, the corporate secretary should ensure the board is continuously updated on health and safety and environmental concerns.
• Compliance and risk management: ‘Companies must understand that there are risks involved in not having an effective CSR platform for implementing CSR policy,’ says Riven. Boards depend on legal and governance professionals to make sure the firm is in compliance with state laws as well as its own policies, and to have plans in place to manage potential risks.
Faced with a significant challenge, most boards will be willing to beef up their CSR efforts. Experts say economic investment in CSR often yields a short-term improved reputation that then sets the company up to reap financial benefits from an improving reputation over the long term.
Here's what other Canadian mining firms are doing:
• Argex Mining has recently completed an archeological study that identifies the location of any archaeological sites at or near the proposed mining or industrial sites and can be used to help propose alternatives if required. This will form an important part of the company’s baseline environmental study.
• Toronto-based Rencore Resources has signed an exploration agreement with Webequie First Nation (WFN) and will contribute toward the WFN Community Sustainability Fund in amounts based on a percentage of its exploration expenditures on its mining claims.
• Shore Gold has joined with Nipawin Biomass Ethanol New Generation Co-operative to sign a memorandum of understanding that allows Nipawin to remove waste timber from Shore’s mining site.