28305 ___________________ SOCIAL DEVELOPMENT NOTES CONFLICT PREVENTION & RECONSTRUCTION No. 16 / February 2004 REDEFINING CORPORATE SOCIAL RISK MITIGATION STRATEGIES This note looks at how companies engage with stakeholders in areas with high social or political tensions. It argues that most social risk-mitigation strategies often exacerbate tensions and risks to the companies. The note offers a checklist of risk indicators and a set of questions companies can use to gauge the state ofrelations with communities and other stakeholders. The real risk to corporations is not whether they take measures to benefit local communities, but the types of relations they build-not so much what they do, but rather how they do it. Unintentional Risk-enhancing Practices In these ways, company policies inadvertently create conflicts Visits to corporate operations in areas such as Indonesia, among individuals and groups or with the company, over access Nigeria, Nepal and Myanmar and contacts with over 60 to corporate benefits, rather than the company using its companies operating in difficult environments reveal strikingly resources to build relations based on shared interests. Such similar patterns in the challenges these companies face.' strategies lead to fragmentation of society. Most companies that work in areas of social or political tension Patterns among Companies aim to establish constructive relations with communities Companies need to develop positive relations with three, often surrounding their operations. They engage in community challenging, stakeholder groups: communities, outside critics relations efforts, employ staff from surrounding communities, (such as NGOs), and host govermments. Across different fund community projects, and provide contracts to local contexts and companies, we have observed the following operators-in some cases community relations budgets can be patterns in company actions that undermine positive relations. substantial. These efforts aim to mitigate the risks posed by communities that may negatively affect corporate activities such Risk-mitigation approachesthatunderminepositive stakeholder as sabotage, road blocks, kidnappings, or work stoppages. relationships. When a corporation approaches its stakeholder However, most companies design their social risk-mitigation relations solely as a risk mitigation strategy, it minimizes its strategies in a manner that may actually increase the risk to their contact with the risk-namely, the community (government or operations. Some company policies and practices leave NGO). This approach causes the company to respond or react communities with few choices other than to behave in only when there is a "need," which is typically a crisis, thus obstructive ways in order to access-company benefits: increasing the risk that crises will occur. In addition, companies * The more "difficult" a community, the more community generally minimize information sharing with the source of the projects it generally receives; risk on the assumption that information will be used against the * Companies generally respond immediately to threats company. Evidence shows that: (i) lack of contact means there sabotage, and blockages; but not to letters and verbal is no basis for anticipating or solving problems; (ii) a crisis- complaints. Peaceful behavior is not rewarded, violent response mode conveys a short-term approach, reinforcing a behavior is. When companies only respond to negative community's sense that it must push for immediate benefits triggers, they can be sure these triggers will occur; rather than engage in long-range planning and cooperation; (iii) * A non-inclusive approach to benefit distribution (e.g., only limiting information-sharing leads to rumors, disinformation. to the nearest communities) means that groups and and information manipulation; and (iv) when the company individuals have to compete to access benefits such as jobs, defines success purely in terms of "avoiding the negative," it contracts and community projects. This competition creates misses opportunities to have positive social impacts. conflict where it did not exist before; and * When companies do not engage with communities on a The assumption that difficulties with communities or conflict long-term basis, comTnunities pressur om iee f bti'n derives onlv fiom external factors. Company staff are often short-term gains. 9 quick to point out the inability or unwillingness of host rIL|C3 governments to provide employment and services, and feel that g SS there is little the company can do to have a positive influence in such environments. However, numerous day-to-day company This note was prepared by Luc Zandvliet based on 12 field visits policies and practices, and its corporate culture, can directly during 2 1/2years through the Corporate Engagement Project. exacerbate, feed into, or create conflict in communities. micromanagement. The challenge for companies is fmding a Ignoring these daily impacts undermines or offsets any positive constructive balance to engage positively with governments impacts of well-designed community projects. without either substituting for them or overstepping the bounds of inappropriate political involvement in host countries. Little alignment between responsibility and accountability. Unlike the case with technical problems, when it comes to Indicators of Failure stakeholder issues and community relations those responsible A first step in addressing the challenges described above is to for unexpected outcomes are not held accountable. Unforeseen verify their relevance in any given context for any specific events are considered a crisis that can only be solved by a company. To do this, one needs to have signals that something "specialized" department. By treating these as unexpected is going wrong. Below, we outline some "indicators of failure" events that must be dealt by specialists, rather than relating to that we have consistently seen to reflect circumstances where corporate culture, the company remains in a reactive mode and company-stakeholder relations are negative. We have unlikely to learn from its mistakes. distinguished early from late indicators to highlight the relative intractability of the negative engagement or the existence of Failureto acknowledge non-tangible impacts. Non-tangibles, opportunities to transform negative into positive. Many such as trust, respect, neighborliness and caring, are seen by companies will recognize these failure indicators, but they can many company staff as murky, soft and un-measurable, and thus also help to point toward indicators for success. often treated as unimportant. Communities, on the other hand, define such notions in concrete terms. They speak about the Listing these indicators explicitly can be helpful to World Bank value of transparency, being kept informed about corporate staff (and to corporate managers) in diagnosing the extent to decisions that affect their lives, effective follow up on promises which the company is heading toward negative, or positive, made, addressing problems without the use of security forces, stakeholder engagement. A combination of questions about staff and ensuring maximum benefits for local people. These are the perceptions, analyzing some existing management tools, and a expressions of how people Jeel as a result of a corporation's visual observation of a corporate compound also provide presence in their area. Recognizing the importance of non- significant insights on the degree to which a company is tangibles can help a company understand why communities engaging positively or negatively with stakeholders. who have received many material benefits may still hold grievances against the company. The key to how a company Questions About Corporate Perceptions operates is not only what it does but also how it operates. Examples of questions about corporate perceptions and assumptions that provide insights on the quality of stakeholder Company-driven community-relations programs. Companies engagement include: often base their engagement with communities on three I. Does the company speak about communities/advocacy assumptions: (i) doing something is better than doing nothing; NGOs/the government in terms of "risks" and obstacles or (ii) more will produce better results; and (iii) communities want as potential partners? In Myanmar, companies that tangible "things". However, there is no evidence that good considered each discussion with the government an relations with communities are directly correlated to the amount opportunity to make the business case for respecting human of money spent on community-relations programs. On the rights and democracy where able to provide human rights contrary, there is evidence that too much spending can result in training to government officials. Companies that adverse effects. Costly community projects aimed at creating a considered this kind of interaction to be political positive community perception of the company will fail if interference were less successful in convincing outside community leaders, local people and government officials do groups they have a positive influence on the environments not feel involved in the design of the programs. When they in which they work. perceive company staff as arrogantly deciding what is best for 2. Does the company see the links between its presence and communities, community ownership of activities is limited and events in the local context? Does it recognize its does not yield the outcomes the company had hoped. interactions with local problems or does it see itself as a victim of dynamics over which it has no control? In Nepal, Advocacy NGOs seen as a nuisanceor threatratherthan as a companies that closely looked at their own activities in resourceto guidecompany actions. Companies are increasingly relation to their enviroment worked on creating local challenged by NGOs to live up to more demanding corporate ownership for their activities (so that Maoist rebels would citizenship standards. Many find it difficult to find the right tone find little local support to stage an attack on company and processes to engage constructively with these NGOs. operations). Other companies felt like "sitting ducks" and Ambivalence invested little in establishing local ownership. about engagement with local governments. in the cn .n establishing and Companies often face the consequences of being associated maintaining cons staeholde reltions? d with a non-representative government (e.g., through reliance on . . s state security forces). They are also pressured by communities ownership lie with every individual or only with the to provide services that the government is unwilling or unable Community to provide. In trying to strike a balance between being "too department? Coinpaniesorfalhing Affairs the inGoverment Relations papag the latter categor see gory close to" or "too remote from" government, companies feel similar problems and issues coming up repeatedly. caught between accusations of political interference and 2 Indicators of negative engagement with stakeholders Corporation-Community Corporation-Government Corporation-Critics Early * Community leaders, elders stating * Government presence in the area of * Questions are raised regarding Indicators home they do not feel respected operations is primarily through the company actions from govemment * Visits at the company gate/ people military or international staying at the gate with complaints * Government expects company to * Questions from local journalists on company activities * Reliance on 1-2 community build community infrastructure NGOs critical spokespersons (few representatives * Government disengages its services * International advocacy start indicate a narrow representation of from the area of corporate of company actions establishing local branches interests) operations * Being mentioned on activist web * The same problem arsing over and * Reliance on bribery to get the sites (getting on their radar screen) over govemment to fulfill its duties * Being accused of arrogant, * Evidence that individuals, rather * Limited access of company staff to tone ("we are than the community, benefit from govemment officials defensive or legalistic right and they are wrong") company-community interaction * Government interference with Refusal of NGOs to meet with the * Staff feels unsafe visiting internal company policies (eg. staff * company communities hiring/firing) * Cold reception in community during * Both government and company visits state that the other party is * Accusations of company responsible for community relations association with a repressive government * Community accusations that the company is 'arrogant', 'not carng' Late Rising trends in theft (no reporting NGO's encourage community * Government encourages * Indicators company and company seen as target) communities to demand (and demonstrations against against * Work stoppages expect) provision of social services * NGO Advocacy campaigns * Demands and hostile tone of from company company community demands increases Divestment campaigns * State security forces are involved in * * Bad press sabotage activities against the * Consumer boycotts * Increasing crime inthe area of company * Shareholder activism critical of company actions operations * State security forces are a risk to Web-sites against the company * Increased conflict between corporate staff and assets seeking communities or within communities Security forces associated with the NGOs and lawyers actively * Kidnappings, targeted assaults abuses (risk of litigation) witnesses for court cases toward the company X Government revenues are explicitly X Litigation * Sabotage used for warfare or violence against * Increasing reliance on police/army the citizenry company? Is such interaction in public 4. What do staff think are the expectations of communities community or at the doors? Community leaders in Nepal state and NGOs from the company's presence? For example, if or behind closed they believe that communities only want material things, that if the company provides them with information about use it to they probably are out of touch with real community normal procedures (employment policy) they can Lack of access to interests. How does the company claim to know what quiet the 'extremists' in their community. communities want? such information leads to immediate demands. 3. Are assessments of community relations programs based on example, is the emphasis on the Management Mechanisms inputs or impacts? For community visits, The presence, or absence, of certain management mechanisms number of schools built or the number of the schools are used (do they have determines to what extent the company is equipped to deal with rather than on whether stakeholder challenges and to establish positive relations: teachers, are they accessible, are there teaching materials?) or how visits occur and for what purposes? Do the company positively or 1. Do scheduled informal meetings with communities, NGOs communities perceive or the govemnment take place where information is freely negatively? exchanged or does engagement only take place when there 4. Who controls the Community Relations budget? Is it based is a crisis? Are there mechanisms for communities to on long- or short-term objectives? Does it emphasize How is express grievances in a non-violent manner? One company production objectives or community development? in Nigeria found that when it organized regular information the budget divided between infrastructure projects, evenings, the frequency of sabotage decreased. compensation and enhancing skills/business development? or only a few key people, 2. Are company policies and practices made transparent e.g., Is the community at large, though bulletin boards, radio broadcasts, newspapers, an involved in the selection of projects? information booth? Does interaction take place in the 3 5. Does the company have a local content policy aimed at groups. They can help determine how and why the traditional maximizing benefits for local communities through definition of social risk mitigation strategies is insufficient- employment and contracting? Is this policy mandatory, and and often even counterproductive-to achieving constructive enforced for contractors? An oil company in Nigeria found relationships. Communities do not suddenly start to assault that an enforced local content policy led to a sharp decrease corporate staff or corporate assets. Serious threats to corporate in down-days due to community unrest. operations come only after the cumulative impacts of many, 6. Do stakeholder engagement efforts focus on the nearest and daily-often small-aggravations. The real risk to corporate most obstructive communities or individuals only, or on the operations arises from how corporate wider area? A mining policies are implemented company in PNG decided to focus its on a day-to-day basis in response to a local conditions. exit plan on the wider region rather than on the nearest communities in order to prevent clashes between the The real risks to companies' operations arise from: "haves" and the "have nots" after it leaves. * Not engaging with communities, NGOs, and governments on a regular, often informal, basis; Observations * Not being transparent about Observations at company policies and or around a company site also provide procedures that affect people's lives; and indications of the quality of community engagement. For * Responding to problems rather than pro-actively working example: toward preventing them and defining shared interests; and seeing communities, NGOs, and governments as risks to 1. What is the first visual impression of the company that corporate operations. communities get at the gate? Is there a dominance of security personal? Are they military, police or private Community relations can be predicted and managed-it security? Are they is not uniformed and/or armed? Is the security just about money and benefits. This may come as a force proportionate surprise to to the security situation? An oil companies. It implies that companies have much greater control company in Indonesia used uniformed soldiers to guard its over risk than is generally assumed. Many companies company gate. Villagers are only saw this as evidence of corporate starting to comprehend this reality. Outside agencies such as the arrogance and association with the former regime. World Bank can play an important role in helping companies 2. Does senior company staff reside in the community or on work toward understanding their options and opportunities for site? One oil company noted that when their staff relocated improving their businesses, by strengthening their stakeholder from the village to the corporate compound, this increased relations and building strong and mutually beneficial the distance between the company and the community. This community relations. relocation contributed to a confrontational relationship many years later. 3. What is the relative difference in quality of life between Further Reading: company compounds and adjacent communities? In Anderson, Mary B and Zandvliet, Luc. 2001. CorporateOptions for Nigeria, when an oil company tied an electrification Breaking Cycles ofConflict program to its flow station (using the gas it produced) it http://www.cdainc.com/cep/archives/2004/02/CorporateOptions.pho saw a decrease in violence around its site. People knew that if they attacked the station to stop production, they would Anderson, Mary B.2003. An Overview ofFindingsto Date:Five lose their electricity. Observations http://www.cdainc.com/cep/archives/2003/1 0/FiveObservations.php The Real Risks Of course the questions and observations cited above must be Banfield, Jessica, Virginia Haufler and Damian Lilly. applied in a context-specific 2003. way, rather than as prescriptive Transnational Coiporations in Conflict Prone Zones. formulae. They London: provide direction for companies to better gauge Intemational Alert. the impact of corporate activities on relations with stakeholder "Social Development Notes" are published informally by the Social Development Development Network Department in the of The World Bank. Environmentally and Socially Sustainable They are aimed at encouraging discussion practice insocial and comment among development. SD Notes the development represent the view community on good of their author(s) and do not necessarily reflect the officialpolicies of the WorldBank. This CPR Dissemination Note was commissioned by the CPR Unit and prepared by Luc Zandvliet It was edited by from Collaborative Ian Bannon (CPR). for Development Action The Note was also (CDA). published as Social disseminate good Development Note practice and key findings No. XX. This CPR note series is intended on conflict prevention to and reconstruction. Department of the It is edited by the Environmentally CPR Unit in the and Socially Sustainable Social Development Development Network of the World Bank. of the authors and The views expressed do not necessarily inthese notes are those reflect the views of the World Bank Group, its Executive Dissemination Notes Directors, or the are distributed widely countries they represent. to Bank staff and are CPR also available on the CPR website (http://www.worldbank.org/conflict). For additional copies, contact the Social Development Department, The World Bank, 1818 USA. Fax: 202-522-3247, H Street, NW, MSN MC5-507, Washington, E-mail: socialdevelopmenttaworfdbank.orq. DC 20433, 4