BP: three challenges of the third age

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Posted in: Environment, Sustainable Development

BP: three challenges of the third age

June 01, 1997

BP has been much in the news recently, with stories confirming again, if confirmation is needed, the central role companies are now expected to play in society. Its chairman, Sir David Simon, was appointed minister for European trade and competitiveness. Less positively for BP, its operations in Colombia have been criticised for complicity in human rights abuses and on the environment.

It was timely, then, that in April BP published a new account of its international corporate citizenship, last issued in 1995. This describes a shift of focus away from community programmes alone, to recognise that social impact is far wider, through jobs created, tax revenues paid, goods supplied, skills and technology transferred. Changing public expectations are cited, especially over the environment and more recently over social and ethical behaviour. Companies’ response to environmental concern – devising explicit policies, setting clear targets, reporting more comprehensively- is now being mirrored in social issues, and BP has pledged to report annually its social and ethical practices with new measurement methods.

Third age business

Developments in the business make this is even more relevant, as BP moves into what John Browne, group chief executive, calls the company’s “third age”, one of production in difficult frontier areas. The first age was rooted in the Middle East, where BP started as a government initiative to secure strategic oil supplies during the first world war; the second age centred on opening up the North Sea and Alaska – challenging areas environmentally and technically, but not socially. Now third age operations centre on developing countries with unstable political systems; in Eastern Europe, West Africa, Algeria, Vietnam, China and South America – notably Columbia where BP is developing oil reserves in the Casanare province, together with Occidental of the US and Total of France; areas where the social and ethical dimensions are often acute.

At the corporate centre, responsibility for these dimensions is acknowledged: BP’s annual review says – “BP’s operations and actions influence the lives of people worldwide. As an international business, we are striving to ensure that we make a positive impact: setting clear targets against which our performance on health, safety and the environment can be judged; working together with communities for mutual benefit; empowering our people to take responsibility for their own actions, allowing them the freedom to make a difference; achieving excellent financial performance for our shareholders”. The challenge is to give practical effect to these commitments.

In 1992 BP plunged to a post tax loss of nearly ?500 million. Recovery since then has been achieved in part by containing costs and focusing on empowering front-line managers. Layers of staffing were removed, cutting the head-count down from 105,000 in 1992 to 53,000 today. This was reflected in the central community affairs department, where the (admittedly generous) 24 staff in the late 1980s are now down to 5 today. The scale of the community programme has reduced: in the early 1990s, BP was investing ?14 million in the UK, today that figure is ?6 million, although this has been balanced by increased commitments in other parts of the world.

Community programme

Today the programme spans the five continents, spread between the main issues of:

community development 38%

education 33%

arts 11%

environment 8%

diverse projects 10%.

At first glance, the small score for the environment is surprising, but many of the educational projects have an environmental theme and the substantial spending on environmental protection in the operations is not included.

The UK accounts for 30% of global programme spend, with a broad range of projects. One example is BP Schools Link which encourages employees in the UK to work with schools close to sites; around 400 staff are involved with some 200 schools. The BP Educational Service also produces curriculum materials, distributing 170,000 items in 1996. Another example is BP’s Team Development in Universities programme which has given more than 1,000 students experience of skills related to work and their future careers, through practical exercises in teams on problem solving.

North and South America accounts for 31% of global community spend, with more than a third of BP’s business assets in the USA and rapid growth in operations in Colombia and Venezuela. Projects in the United States include the Teacher of Excellence Program, an awards scheme to highlight the best teachers in Alaska, and the Minorities in Engineering Program, providing scholarships and other support for African American, Hispanic and Native America engineering students.

In Colombia, BP has developed Casanare 2000, a joint vision for that region’s development, drawn up with its business partners, the community and the government, and with participation by the World Bank. This covers training, small business support, environmental projects and infrastructure investment, along with help to strengthen social and political institutions. Total social investment by BP and its partners in the province in 1996 was nearly 69.7 million.

In the rest of the world, Africa and the Middle East accounts for 17% of spend, Asia Pacific 11% and mainland Europe 7%, with the 4% balance on international projects run from London. One such example is the BP Conservation Programme which makes awards to scientific projects run by teams of students working with local communities and contributing to global conservation.

Management and reporting

In the UK, representatives from corporate centre, major plants and regional teams meet regularly in a community affairs forum to oversee programme delivery by the three business divisions: exploration, oil and chemicals. The staff at corporate centre coordinate some national programmes like Schools Link, provide back-up and advice to the divisions, and develop policy and research. They also coordinate international activities, with a similar forum to oversee programme delivery.

One consequence of recent corporate downsizing is the loss of middle management, often people with much accumulated experience and good links in the community. Without community relations specialists, corporate citizenship must be built in as an inherent part of business, part of the culture, part of routine performance monitoring. BP is developing new group guidelines in key areas such as for ethics, quality of external relationships, and health, safety and environmental protection. A Board level Ethics and Environmental Assurance Committee monitors performance.

However better measures of performance are needed and a series of internal workshops have resulted in pilot studies covering a range of countries, after which the lessons can be applied across company. BP’s promise of detailed annual reporting is intended to show more clearly how it is meeting performance criteria in three areas: business success, health, safety and environment, and social and ethical responsibilities. As with environmental reporting, it takes time to put in place reliable systems capable of sustaining the reporting process, before going public. The particular need is to develop appropriate measures for impact, not just spend, including the social impact of business as a whole – jobs created, taxes paid, economic benefits generated for an area of operation.

Frontier developments

By definition, the business of a natural resources company is finding raw materials in distant parts of the world and transport them long distances to primary markets. Very large sums are invested for long term return. The scale of operations inevitably makes an enormous impact on the people living locally, some beneficial, others unwelcome.

The allegations in Colombia about human rights abuses centre on relations with the armed forces, criticising BP’s cooperation with the military and the payments required for protection against the guerillas attracted to area because of oil activity. BP argues that it can only operate within rules set down by governments and that it should not usurp the proper role of government. BP maintains that its ethical and other performance standards apply equally in Colombia as elsewhere and believes that in the long run its impact will be of significant benefit to the people of Colombia.

Future challenges

Despite downsizing and international diversification, BP is still a major employer in the UK and there is scope to expand employee involvement. The Schools Links programme offers a good base to build on, as does existing employee matched giving, which raised a combined total of ?1.8 million in 1996.

On the other hot topic’ of corporate community involvement in the UK, cause-related marketing, new opportunities are opening up to enhance the brand. Retail operations across Europe are being merged with Mobil, creating a much larger market presence of 3,000 BP branded sites. In the UK, a joint venture with Safeway is creating 100 food and fuel sites in prime locations. For BP, the brand name of the company and of the product is identical and omnipresent, from the original oil rig to the pump at the filling station, making its high standing vital at a time when its visibility is growing.

The final challenge is central to the future of the business, BP’s role in international development. Project appraisal for new major capital investments look at probable rates of return given likely levels of risk. Traditionally they appraised economic risk only. Now they include environmental factors and the associated risk. For the future, companies like BP must build in the third element, social factors and the impact on society, assessing risks in the social arena on rates of return too. In forward thinking companies, the managers of effective community relations programmes should be providing invaluable input to scenario planing and investment appraisal.

benchmark

British Petroleum Company

Chairman: Peter Sutherland

Chief Executive: John Browne

Turnover: ?44.7 billion after customs duties and sales taxes (669.8 billion)

Pre-tax profit: ?3.7 billion (65.7 billion)

Employees: 53,700; in UK: 15,950

Year end: December 31, 1996

Community contribution: ?18.4 million (628.6 million); in UK: ?6.2 million

Percentage of profit: 0.5%

Per head of staff: ?343 (6533); in UK: ?389

Policy focus: community development, education, environment, arts

Flagship projects:

1. Schools Link programme in the UK.

2. Teacher of Excellence Program in the USA.

3. Casanare 2000 in Colombia.

Employee involvement: matched giving is growing, with a company contribution in the UK this year of £1.24 million and a £1,000 maximum per person.

Management: generally as part of external affairs, with national and international coordination through forums.

Contact in the UK: Jeremy Nicholls, head of community affairs

Address: Britannic House, 1 Finsbury Circus, London EC2M 7BA

Phone: 0171 496 4000

Royal Dutch/Shell Group

President: Cor Herkstr”ter

Chairman: John Jennings (Shell Transport & Trading)

Turnover: ?82.1 billion after sales and excise duties (6128.3 billion))

Pre-tax profit: ?10.9 billion (617.0 billion)

Employees: 101,000; in UK: 6,730

Year end: December 31, 1996

Community contribution: ?43.3 million plus substantial in-kind assistance (667.7 million); in UK: ?4.3 million

Percentage of profit: 0.4%

Per head of staff: ?429 (6670); in UK: ?639

Policy focus: education; medical and welfare; conservation and development; culture, arts and local community; youth, policy and misc.

Flagship projects:

1. Enterprise, especially job creation, youth and small businesses, training for environmental groups.

2. Sustainable development, promoting education and awareness of links between development, environment and social responsibility.

3. Education, scholarships enabling students of outstanding merit to study overseas in a subject relevant to the needs of their country.

Employee involvement: all employees are offered and many accept opportunity to volunteer; varied schemes for gift matching.

Management: over 97% of programmes are managed by local operating units in over 125 countries, with one third of spend in North America and a quarter in Africa and the Middle East.

Contact in the UK: Lillian Johns, social investment manager

Address: External Affairs, Shell Centre, London SE1 7NA

Phone: 0171 934 6535

Exxon Corporation

Chairman and chief executive: Lee Raymond

Turnover: 696.5 billion (after excise tax and duties)

Pre-tax profit: 611.9 billion

Employees: 79,000; in UK: 3,700

Year end: December 31, 1996

Community contribution: 654.8 million; in UK: ?2.8 million

Percentage of profit: 0.46%

Per head of staff: 6694; in UK: ?757

Policy focus: education, environment, health, civic and community service organisations, arts and museums, public information and research

Flagship projects:

1. Exxon Education Foundation, spending 619 million in 1996, focusing on science and maths, especially at pre-college levels and with science teachers.

2. Environment, conserving endangered species and habitats, particularly tiger conservation.

3. Health, with a five year 63 million grant to the Anderson Cancer Centre in Houston.

Employee involvement: staff are encouraged to volunteer, for example in support of education; in the USA, Exxon employees and retirees contributed ?6.1 million to United Ways in 1996 with the corporation adding ?3.6 million

Management: worldwide the programme is managed by Ed Ahnert who is also president of the Exxon Education Foundation. Country managers are normally part of public affairs.

Contact in the UK: Peter Truesdale, community action programme coordinator

Address: Esso UK plc, Victoria Street, London SW1E 5JW

Phone: 0171 245 3456

Texaco

Chairman and CEO: Peter Bijur

UK Chairman: D A Bennett

Turnover: 644.6 billion

Pre-tax profit: 62.0 billion

Employees: 27,000; in UK: 2,000

Year end: December 31, 1996

Community contribution: 617 million excluding sponsorship of Metropolitan Opera, New York; in UK: ?400,000

Percentage of profit: 0.85%

Per head of staff: 6630; in UK: ?200

Policy focus: arts, education, social, health and civic

Flagship projects:

1. Sponsorship of Metropolitan opera, New York, since 1940.

2. National Teacher Training Institute, partnership with public TV to develop teaching skills using technology.

3. In the UK, Texaco Young Musician of Wales competition and Community Links, East London.

Employee involvement: in the UK, employee fundraising supports NCH Action for Children, raising ?750,000 over six years.

Management: in The UK, managed by public affairs in line with world-wide corporate guidelines.

Contact in the UK: David Robinson, general manager, public affairs

Address: Texaco Ltd, 1 Westferry Circus, Canary Wharf, London E14 4HA

Phone: 0171 719 4453

Corporate Citizenship Briefing, issue no: 34 – June, 1997

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