mncs and sustainable business practice: the case of the

MNCs and Sustainable Business Practice: The Case of

the Colombian and Peruvian Petroleum Industries

TITUS MOSER *

Shell International, London and University of Cambridge, UK

Summary. Ð Multinational corporations (MNCs) play an increasingly important role in theeconomic development strategies of many less developed countries (LDCs). At the same time thesustainable development of LDCs requires economic growth to be accompanied by environmentalprotection and greater social equity. This paper contributes to the literature concerned with MNCs'contribution to the sustainable development of LDCs. The concept of sustainable business practice(SBP) is proposed as relevant to understanding MNCs' contribution, and an analytical frameworkincorporating the content, context, and process of SBP is used to examine what SBP might consistof, as well as those conditions important for its widespread adoption. Results from a studyexamining the Colombian and Peruvian petroleum industries show that despite importantcontributions by MNCs to sustainable development, SBP is not yet widespread. The study alsoshows the importance of external institutional pressuresÐprincipally in the form of locallegislationÐfor MNCs' contribution to the sustainable development of LDCs. Finally the papershows how the process of change toward more SBP is closely linked to the external context in whichMNCs operate, the characteristics of their internal context, and the internal and external processeslinking these contexts. Ó 2001 Published by Elsevier Science Ltd.

Key words Ð MNCs, environmental and social policy, Latin America, Colombia and Peru,

sustainable business practice

1. INTRODUCTION

The private sector and multinational corpo-rations (MNCs) in particular, play an increas-ingly important role in the economicdevelopment strategies of less developed coun-tries (LDCs). This growing importance can beattributed to a shift in the predominanteconomic development paradigm adopted byLDC governments, and the globalization ofinternational business. The failure of importsubstitution policies and the demise of centralplanning accompanying the collapse ofcommunism, have led many LDC governmentsto adopt more liberal economic developmentpolicies that emphasize export-led growth, theattraction of foreign direct investment (FDI)and the use of markets to determine resourceallocation (Agosin & French-Davis, 1993;Hermann, 1995; Khan & Reinhart, 1990;Krueger, 1985; Ozawa, 1992). At the same time,MNCs are increasingly attracted to LDCs dueto the presence of some of the world's fastest-growing consumer markets, the potential forlower production costs, and the presence of

some of the world's most important unexplorednatural resources. These concurrent trendshave resulted in record levels of FDI to LDCs.

During 1981±96, foreign private capital ¯owsto LDCs grew from $13 to $244 billion, and in1996 accounted for 84% of all internationalcapital ¯ows to LDCs. They increased ®ve-foldduring 1986±93, and grew at over 30% perannum in the ®rst half of the 1990s (Economist,1997, p. 152; IIF, 1997; UNCTAD, 1995). Ofthis investment, the most important is foreigndirect investment (FDI) by MNCs, which in

World Development Vol. 29, No. 2, pp. 291±309, 2001Ó 2001 Published by Elsevier Science Ltd.

Printed in Great Britain0305-750X/01/$ - see front matter

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* This research was undertaken with ®nancial support

from the United Kingdom Economic Social Research

Council, Environmental Resources Management and

the Robert Monks Donation for Corporate Governance,

Judge Institute of Management Studies, University of

Cambridge. The author is grateful to Ingrid Fossgard,

Chris Hope, Caroline Moser, John Roberts and Peter

Sollis for their helpful comments in drafting this paper.

The views expressed in this paper represent those of the

author and should not be attributed to Shell Interna-

tional. Final revision accepted: 7 August 2000.

291

1996 accounted for 40% of all foreign privatecapital ¯ows to LDCs (French, 1997;UNCTAD, 1997). The World Bank furtherestimates that FDI will grow at 7±10% perannum over the next decade.

The importance of MNCs for the develop-ment of LDCs comes at a time when theparameters and policy mechanisms of devel-opment are themselves under question. Inparticular there is recognition that for thesustainable development of LDCs, economicgrowth needs to be accompanied by greaterenvironmental protection and social equity.The failure of traditional economic growthparadigms to incorporate environmental andsocial externalities, and the inadequacy of ``topdown'' development strategies to solve the longterm development problems of LDCs providethe background to recognition of the need formore sustainable development (Daly & Cobb,1994; Gore, 1992; Korten, 1995; WCED, 1987).

Against this backdrop of changing publicand private sector development roles andconcern for more environmentally sensitive andsocially equitable growth, the role of MNCs isof considerable importance. This paperpresents a conceptual framework, along withempirical evidence, to further understanding ofthe nature and scope of MNC contribution tothe sustainable development of LDCs. The casestudies analyzed are the petroleum industries inColombia and Peru.

2. CONCEPTUAL FRAMEWORK

The conceptual framework applied in thispaper ®rst develops the concept of sustainablebusiness practice, and then presents a frame-

work through which the conditions andconsequences of MNC policies and practicescan be analyzed and evaluated with respect tothis concept.

(a) Sustainable business practice

Conventionally the three central objectives ofsustainable development are social, economicand environmental in nature (Cernea, 1993;Khan, 1995; Munasinghe, 1993; Serageldin,1996; WCED, 1987). A triangular nexus, asillustrated in Figure 1 shows these di�erentobjectives.

The di�erent types of capital associated withsustainable development can be summarized asfollows (Serageldin, 1996):

ÐProductive capital comprises a country'sstock of ®nancial resources, plant, equip-ment, infrastructure and other productiveresources.ÐHuman capital comprises a country'sstock of investment in the education, health,and nutrition of individuals.ÐSocial capital comprises a country's stockof social institutions, both formal and infor-mal, that facilitate the functioning of society.ÐNatural capital comprises a country'sstock of environmentally provided assets,notably its stock of physical, biophysicaland natural reserves.

The objective of sustainable development canbe seen as one of balancing gains or losses inthese di�erent types of capital such that there isa net overall increase (Munasinghe, 1993). 1

In terms of the contribution of MNCs andother private sector companies to the develop-ment of LDCs, the concept of sustainabledevelopment implies that their impact, both

Figure 1. The sustainable development nexus. (Source: Adapted from Khan, 1995, Munasinghe, 1993, and Serageldin &Steer, 1994.)

WORLD DEVELOPMENT292

positive and negative, needs to be assessed notsimply in economic, but also environmentaland social terms. From this perspective, it ispossible to de®ne sustainable business practiceas business behavior that leads to a net overallincrease in the di�erent forms of capital asso-ciated with sustainable development.

(b) Framework for examining sustainablebusiness practice

While the concept of sustainable businesspractice (SBP) provides a potentially rich basisfor understanding MNCs' impact on thesustainable development of LDCs, there iscurrently a paucity of conceptual frameworksthrough which to explore and evaluate whatsuch practice might consist of, as well as what isrequired to promote its adoption. This paperdraws upon work within organization theoryand speci®cally Pettigrew's work on themanagement of change (Pettigrew, 1987a,b,1985) to pursue these questions.

Pettigrew o�ers a three-fold framework foranalyzing organizational change processes andthe deliberate management of these processes.He suggests that organizational change can beunderstood in terms of the three interlinkeddimensions of content, context and process.Pettigrew proposes that the content ofchangeÐattempts to introduce new strategies,systems and practices into organizations isÐonly one aspect of understanding the changeprocess. Understanding also requires consider-ation of context and process. The contextdimension is concerned with how an organiza-tion's internal context and aspects of its exter-nal environment promote (and inhibit) thechange process, as well as ways in whichdi�erent aspects of context can be mobilized topromote change. The process dimension refersto how change within an organization is e�ec-ted over time.

The adoption of SBP can also be understoodin terms of the three interrelated dimensions ofcontent, context and process, as next consid-ered with reference to Figure 2.

The ®rst dimensionÐcontentÐrefers to theeconomic, social and environmental impacts,both positive and negative of current MNCpractices and operations, as well as the ways inwhich MNCs seek to mitigate or enhance theseimpacts.

The second dimension concerns the ways inwhich di�erent aspects of context act as driversor obstacles to change. Context is necessarily

multifaceted; it can be understood in terms ofthe characteristics of the internal organization;its structure, culture and politics, and how thesehave shaped and continue to shape operationalpractices. Within MNCs these characteristicsare not necessarily homogenous since theorganization itself has to work across manygeographic and cultural boundaries; corporatepolicies do not necessarily translate intouniform practices across all operations.

A similar complexity characterizes MNCs'external context. At both the headquarters andsubsidiary level, it is possible to distinguishbetween a ``formal'' institutional component ofcontext and an ``informal'' socio-politicalcomponent. The formal institutional compo-nent consists of such factors as host countrylegislation, shareholder and investor pressure,and industry codes of conduct. The informalsocio-political component comprises noninsti-tutional factors, such as public and localcommunity pressure, and demands fromnongovernmental organizations (NGOs) andother forms of agency. For the subsidiaries ofMNCs, the external context is de®ned both bythe local context, and the context of the MNCas a whole. This includes headquarter policies(Gladwin, 1977; Rosenzweig & Singh, 1991),host and home country regulatory frameworks,international regulations and codes of conduct(see E&P Forum, 1991; Hagg, 1984; ILO, 1989;OECD, 1992), local and international NGOdemands, and media comment.

The ®nal dimension of the frameworkÐprocessÐis concerned with how and underwhat conditions ideas and values relating toSBP are introduced and integrated into MNCs'routine operational practices. These processesrepresent the very fabric of social and organi-zational life and concern the complex inter-

Figure 2. The sustainable business practice nexus.(Source: Adapted from Pettigrew, 1987a,b, p. 18.)

MNCs AND SUSTAINABLE BUSINESS PRACTICE 293

weaving of intentions, actions and conse-quences in relationships between individualsand groups within and beyond the MNC. Anyanalysis is thus necessarily partial and selective.The framework presented here focuses on threeareas of process as shown in Figure 3.

The ®rst area, referred to as External±Inter-nal relates to the process by which MNC deci-sion-makers de®ne those aspects of externalcontext that are relevant to their organizationand its operations. The manner in which theseboundary relationships are de®ned in¯uenceswhich external actors and organizations arejudged to be important (e.g., environmentalauthorities, NGOs, contractors and communi-ties), and hence, how their interests are takenaccount of within the organization (Daft &Weick, 1984; Dutton & Dukerich, 1991; Isa-bella, 1990).

The second area, referred to as Internal±In-ternal concerns the internal process by whichenvironmental and social issues are attributedimportance and integrated into the operationsof MNCs. Organizations di�er in the extent towhich corporate ®nancial objectives aresupplemented by formal policies relating toenvironmental and social impacts. Furthermorethere is considerable variation in the extent towhich such policies are adopted at an opera-tional level, or instead remain no more than acomponent of corporate public relations.Finally there is potential for substantial varia-tion in precisely how polices are translated intonew structures, systems and practices at anoperational level.

The third area of process Internal±Externalrefers to how a MNC conceives and managesits boundary relationships and the occurrenceof SBP. At the operational level it concerns theextent to which MNCs engage in activitiesÐnotably consultation and participationÐen-abling the interests and concerns of otherstakeholders to be incorporated into the designand management of the relevant development.At the level of the national subsidiary and

MNC headquarters, it relates to the ability ofMNCs to in¯uence and change their externalcontext, particularly in relation to environ-mental and social issues (for example theweakening or strengthening of legislation)(Choucri, 1993).

Finally it is important to note that whileanalysis of the individual dimensions ofcontent, context and process is important, theinvestigation and analysis of the dynamic rela-tionship among these dimensions is alsonecessary for understanding the adoption ofSBP. As Pettigrew states: ``Practically usefulresearch on strategic change should involve thecontinuous interplay among ideas about thecontext, the process and the content of change''Pettigrew (1987a, p. 6).

3. INVESTIGATING SBP: THE CASE OFTHE COLOMBIAN AND PERUVIAN

PETROLEUM INDUSTRIES

This section illustrates the potential of theconceptual framework for illuminating theconditions that might enable the widespreadadoption of SBP, by using it to compare andcontrast the management of environmental andsocial impacts caused by di�erent types ofpetroleum companies operating in Colombiaand Peru. 2

(a) Characteristics of the Colombian andPeruvian petroleum industries

The petroleum industry is one of the mostimportant in the world and is dominated by anumber of large multinational oil companies(MNOCs). 3 For many of the earlier identi®edreasons, there is extensive expansion byMNOCs in LDCs. They are attracted both bythe potential existence of undiscovered hydro-carbon reserves and the policies of LDCgovernments emphasizing the role of MNOCsin the development of under-exploited and

Figure 3. The process of sustainable business practice. (Source: Moser, 1998.)


unexplored petroleum resources (Brown &Daniel, 1991; Mayorga-Alba, 1992). Concur-rent with this expansion, there is growingawareness of the negative environmental andsocial impacts that can accompany hydrocar-bon activity. 4 This is particularly the case forhydrocarbon activities in remote, frontierregions of LDCs that are frequently charac-terized by extreme environmental and socialsensitivity, as well as an absence of basicservices, infrastructure and formal governmentpresence (de Angulo & Chelela, 1994; Thomson& Dudley, 1989).

The Colombian and Peruvian petroleumindustries exemplify the above trends, whilealso embodying a number of di�erences inrelation to each other, relevant to the study ofSBP. Key characteristics of these industries, asillustrated in Table 1, can be summarized asfollows.

First, the structure of the oil industry inboth countries is similar, with oil explorationand production undertaken in both cases by acombination of multinational corporations,overseas independent, and local companies. 5

Second, in both Colombia and Peru themajority of hydrocarbon activity occursonshore in remote, rural, and environmentally,as well as socially, sensitive areas. In Colom-bia, oil production occurs predominantly(71%) in the eastern ¯at land llanos regions;

whereas in Peru, the majority of production(85%) and exploration (97%) activity takesplace in Peru's eastern jungle areas. 6 In bothcountries, although particularly Peru, theseregions are of signi®cant environmental andcultural importance (Dallmeier & Alonso,1998; ERM, 1994; USAID, 1995) and arecharacterized by a limited and precariousinstitutional presence of national, regional andlocal government. In Colombia, left-wingguerrilla and right-wing paramilitary groupsalso have a strong presence in many areas ofhydrocarbon activity.

Third, although both countries emphasizethe importance of the private sector and espe-cially MNOCs for the development andexploitation of their respective oil and gassectors, the mode of private sector participationis distinct (Forsyth, 1997; Oil and Gas Journal,April 19, 1993, pp. 30±31). 7 In Colombia, thegovernment through the State Owned Enter-prise, Ecopetrol, adopts a 50% equity positionin all commercially viable hydrocarbonprojects. As a consequence between 85% and90% of all hydrocarbon revenues are returnedto the Colombian State. In Peru, privatecompanies are granted exclusive explorationand production rights, and are required to paya royalty on the value of any producedhydrocarbonsÐtypically between 15% and40%.

Table 1. Characteristics of the Colombian and Peruvian petroleum industriesa

Colombia Peru

Oil industry structure Combination of multinationalcorporations, overseas indepen-dent companies and localcompanies

Combination of multinationalcorporations, overseas indepen-dent companies and localcompanies

Location of hydrocarbon re-sources

Predominantly onshore in remoteand rural eastern regions ofColombia

Predominantly onshore in remoteeastern jungle areas of Peru

1995 oil production 585,000 bpd 120,000 bpdOil development policy Emphasis on FDI Emphasis on FDI

Association contracts: Govern-ment 50% equity position

Concession Contracts

Oil revenue distribution policy 12% of all oil revenues returnedto region of production

No speci®c policy

Constitution 1991 Constitution emphasizingdecentralization

Centralization of power

Institutional framework for envi-ronmental management

Ministry of Environment Managed through Ministry ofEnergy and Mines

Legislative approach Command and Control Market BasedInformal context NGO and communities with

participatory powerFormal power of NGOs andcommunities weak

Other Strong guerrilla presence

a Source: Moser (1998).


Finally, Colombia and Peru have adopteddistinct approaches to the management of theenvironmental and social impacts caused byhydrocarbon companies. Colombia hasconstructed a more rigorous institutional andlegislative frameworkÐincluding an autono-mous Ministry of Environment, legislation thatemphasizes the use of command and controlregulatory instruments (Drummond & Mars-den, 1995), and policies that encourage thedecentralization of decision-making processes.Importantly, as part of Colombia's 1991Constitution, there are formal mechanisms bywhich local communities and NGOs canparticipate in decision-making processes relatedto the environmental and social impacts ofhydrocarbon developments. In addition, 12%of government-generated hydrocarbon reve-nues are by law returned to the region ofproduction to both compensate for the negativeimpacts of hydrocarbon activity, as well asbring bene®ts.

In contrast the Ministry of Energy Mines inPeru has a small unit (12 people in 1995) thatmanages environmental and social issuesprimarily through auto-regulatory instrumentsthat emphasize trust and reciprocity (Fukuy-ama, 1995) between industry and government.Government power remains largely centralizedand there are few formal mechanisms by whichlocal communities and NGOs can participate indecision-making processes. In principle, up to10% of hydrocarbon revenues are returned tothe region of production; however, in realityrevenue redistribution remains at the discretionof Central Government.

(b) Research ®ndings

(i) The ``content'' of sustainable businesspractice

The study indicated that the ``content'' ofsustainable business practice in the hydrocar-bon industry is concerned with:

Ðthe identi®cation and mitigation/minimi-zation of potential negative environmental,economic and social impacts directly associ-ated with hydrocarbon activity;Ðthe identi®cation and optimization ofpotential positive environmental, economicand social impacts directly associated withhydrocarbon activity;Ðthe undertaking of ``social investments''that more broadly contribute to the econom-ic, environmental and social development ofa region of hydrocarbon activity, but that

are not necessarily related to the activity it-self.

The research indicated that the ®rst two areasare most important for the contribution ofMNOCs to the sustainable development ofLDCs. Illustrative examples from the Colom-bian and Peruvian petroleum of contributionsby MNOCs and other company types to thedi�erent objectives of sustainable developmentinclude the following.

Contributing to the economic objective ofsustainable development: One overseas inde-pendent company in Colombia constructedover 600 km of roads (accounting for half theregion's roads) and frequently changed therouting of these roads to include localcommunity interests. It also established a roadmaintenance scheme managed by localcommunities; thereby maximizing communityinvolvement, reducing costs (road maintenancecosts dropped by 75% compared withmanagement by the company and localgovernment) and building local capacity. In thearea of electri®cation, this company frequentlyinstalled overcapacity generators within itsproduction facilities, and in collaboration withlocal government worked to provide electricityto local communities. Finally the companyconstructed a number of schools, and imple-mented an innovative transportation system toensure that children are not required to spendlong periods of time walking to school.

To maximize local employment opportunitiesand reduce migratory pressures, petroleumcompanies in Colombia frequently assisted inthe creation of local workers co-operatives tomanage the allocation of work to local people.The ``unemployed co-operative'' was an exam-ple of such a co-operative. This organizationwas informed by the relevant MNOC of anyvacancies and selection of workers was then leftto the co-operative, which had a strict policy ofrestricting membership to people with at leastthree years residency in the region and distrib-uting work equitably among members.

Contributing to the environmental objective ofsustainable development: One MNOC operatingin Colombia adopted various approachesaimed at reducing its negative environmentalimpacts. These included the drilling of multiplewells from a single site, the re-injection ofproduced waters and gas, and an environmen-tally friendly approach to the disposal of drillcuttings. 8 Rather than the norm of disposingof cuttings in lined pits, the company experi-mented with using biodegradation to make the


cuttings inert, followed by combination withcement to make bricks suitable for construc-tion. This strategy not only reduced the nega-tive environmental impact of drilling wells, butalso created the foundations for a new industry,including considerable local employmentopportunities.

Contributing to the social objective ofsustainable development: Recognizing thenegative social and environmental impacts thatcould accompany migration to its area ofoperation in the Peruvian jungle, the relevantMNOC chose to manage its project as ano�shore operation. This included a commit-ment to build no access roads to the region andinstead transport all necessary infrastructureusing barges, hovercrafts, helicopters andairplanes. To diminish the negative sociale�ects of contact between oil workers andindigenous peoples living in the region, thecompany also adopted a strict policy restrictingcontact between workers and communities. Inaddition, local communities were o�ered inoc-ulations against ``foreign''diseases and a medi-cal passport system introduced whereby allworkers and visitors to the region received afull set of vaccinations. Finally, the MNOCintroduced a policy for third-party monitoringwhereby local communities and NGOs wereinvited to monitor the company's compliance

with its environmental and social commit-ments.

Despite such ``pockets'' of best practice, SBPis not yet widespread and the activities ofMNOCs remain largely focused towardsful®lling short-term ®nancial objectives. As oneMNOC manager summarized:

We're conscious that environmental matters areimportant, but at the end of the day we're in this busi-ness to make money.... Consequently managers tendto adopt an approach towards environmental issuesof `I'll sort out what has to be sorted out today, andsomeone else can sort out tomorrow's problems'.

The research also found important variations inthe priority attached to environmental andsocial issues, as well as di�erences in environ-mental and social practices of di�erentcompany types, and between Colombia andPeru. Figures 4 and 5 and Table 2, summarize anumber of representative research results.

Figure 4 shows the percentage of companieswith environment and community a�airsdepartments, as well as the percentage ofcompanies employing environmental andcommunity a�airs specialists. The data arepresented according to all companies, bycompany type, and country of operation. In asimilar format, Figure 5 shows the percentageof companies providing training on environ-

Figure 4. Presence of environment and community a�airs departments and suitably trained personnel, by company typeand country. Notes: MNOCs�Multinational oil companies; O.I�Overseas independent companies; Local�Local

companies. (Source: Moser, 1998.)


mental and social issues, as well as thepercentage of companies providing ®nancialincentives to all employees for environmentallyand socially responsible business behavior.Finally Table 2 shows the spending of petro-leum companies on environmental and socialissues, as a percentage of total capital expen-diture.

The data allow a number of conclusions to bedrawn. First, cross-issue comparison showsthat petroleum companies consider the mitiga-tion of environmental impacts to be moreimportant than social impacts. As shown inFigure 4, a greater number of companies haveenvironment departments than communitya�airs departments and employ more environ-

mental specialists. There is also more trainingon environmental issues, as well as ®nancialincentives for environmentally compliantbehavior (cf. Figure 5). Finally there is around®ve times as much investment in environmentalimpact mitigation compared with social impactmitigation. As one Health Safety and Envi-ronment (HSE) manager summarized:

HSE is a core aspect of (company name)'s businessthroughout the world. Community relations does alot, but it is very speci®c to Colombia, so there isn'tthe headquarters support or follow-up in communityrelations in the way there is in HSE.

Second, cross-company analysis shows thatMNOCs are overall more environmentally and

Figure 5. Percentage of companies providing employee training on environmental and social issues, and ®nancialincentives for environmentally and socially responsible behavior, by company type and country. Notes:MNOCs�Multinational oil companies; O.I�Overseas independent companies; Local�Local companies. (Source:

Moser, 1998.)

Table 2. Estimated mean funding for environmental and social issues (as a percentage of total capital expenditure), bycompany type and countrya

Environmental issues(% of total CAPEX)

Social issues (%of total CAPEX)

Ratio of environment tosocial issues spending

All (n � 19; 11) 10 2 5:1MNOCs (n � 5; 2) 12.1 0.75 16:1Overseas independent (n � 8; 5) 6.9 2.9 3:1Local Companies (n � 6; 4) 13.5 3.7 4:1Colombia (n � 11; 7) 13.4 3.9 3:1Peru (n � 5; 3) 6.2 0.9 7:1



socially responsive than other company types.Figure 4 illustrates that environment andcommunity a�airs departments, as well asrelevant specialists are most prevalent inMNOCs. The same pattern exists with respectto training and ®nancial incentives, as illus-trated in Figure 5. Despite these overall ®nd-ings, the most innovative social practice wasobserved in overseas independent and localcompanies operating in ColombiaÐas suppor-ted by Table 2Ðwhich shows that thesecompany types spend more on social issuesthan MNOCs. Qualitative research furthersupported this ®nding as illustrated by thefollowing quotes contrasting the di�erentpriorities given by a MNOC, and an OverseasIndependent company towards the importanceof good community relations.

Within (company name), community relations isusually seen as something undertaken by women onmaternity leave. (TNOC representative)

The situation with local communities is such that ifyou don't have a good relationship with them, youcan not operate (Overseas Independent companyrepresentative).

Finally Figures 4 and 5 and Table 2 showthat there is greater environmental and socialresponsiveness by companies operating inColombia compared with Peru. This ®ndingsuggests that corporate response to environ-mental and social issuesÐeven in the case of

MNOCsÐis context dependent and in partic-ular driven by local legislative demands. As oneMNOC manager acknowledged:

There is a minimum standard that they [referring tosubsidiaries] will adopt, but we can not a�ord to havea uniform standard across the whole group, because itcosts too much money. We have to identify what therisks are in each country and also, taking account ofthe local regulations, spend the appropriate amountof money.

The variability in the environmental andsocial responsiveness of MNOCs and othercompany types highlights the complexity ofresearch concerned with analyzing the privatesector's contribution to the sustainable devel-opment of LDCs. But as illustrated in the nexttwo sections, consideration of the ``context''and ``process'' dimensions presented in theconceptual framework enables a more preciseunderstanding of this contribution.

(ii) The ``context'' of sustainable businesspractice

The research shows that pressure associatedwith the formal institutional component ofMNOCs' external context is the most impor-tant driver of MNOC response to environ-mental and social issues. Most importantly inthis respect are local legislation and MNOCheadquarter policies, as shown in Figure 6. 9

Figure 6. Explanation for MNOC response to environmental and social impacts. (Source: Moser, 1998.)


The presence of formalized legislation forenvironmental issues, but not social issues,provides the principal explanation for thegreater emphasis of petroleum companies onenvironmental issues. Similarly the fact thatcompared to other company types, MNOCsface headquarter institutional pressures, inaddition to local legislative pressures, explainstheir greater environmental responsiveness.Finally the key to understanding the greaterenvironmental and social responsiveness ofcompanies operating in Colombia comparedwith Peru, is found in Colombia's morecomprehensive approach to managing theenvironmental and social impacts caused bypetroleum companies. 10

Case study research indicates that locallegislation, rather than MNOC headquarterpolicies, is most important for determining theenvironmental and social responsiveness ofMNOC subsidiaries. This ®nding correspondsto the di�erent operational consequences ofnoncompliant behavior. Failure to comply withlocal legislation can lead to closure of MNOCfacilities, ®nes and reputation damage, bothnationally and internationally. In contrast,failure to comply with internal headquarterpolicies does not convey similar consequences.Indeed there was evidence that MNOCsubsidiaries are on occasion left to interpretheadquarter policies as they see appropriate. Asthe environment manager from one MNOC'sheadquarters pointed out:

All our overseas subsidiaries are provided with envi-ronmental guide-lines. It is up to them to apply theseas they see appropriate, but local legislation is mostimportant . . .. We have so many businesses and are in-volved in so many activities, that it would be impossi-ble to govern them all.

Even in those MNOC subsidiaries wherethere was evidence of a commitment towardapplying global operating standards, thegeographic separation between headquartersand the subsidiary, as well as an underlyingprioritization of ®nancial operating criteria,appeared to result in a compromise of envi-ronmental and social performance objectives.As one MNOC environment manager summa-rized:

Headquarters can have the strongest environmentalpolicy imaginable.... But unless that gets translatedinto an expectation in every single operation thatyou have in the world, it means absolutely nothing.There is a tendency in big bureaucratic corporations

to send a mission out... To make the tacit assumptionthat all these policies and procedures and expectationsthat I hold dear to my heart in (the company's head-quarters), will be carried to (name of a LDC), and notto realize that when I make phone calls to (name ofLDC) and when I go and see them and my questionis always: ``Have you found oil? Can you drill the nextwell for 10 million less? Is it possible to drill the nextwell in 6 months instead of a year.'' The conversationtends to be about those things that enable the businessto succeed.

What happens when you deliver those sorts of mes-sages, without realizing it, you are subverting all theother messages. You are saying production, costsand schedule are most important. That is not whatyou mean to say, but that is what gets heard becausethe boss on the ground is saying: `If I don't produceand save money, I'm a gonna'. So inevitably judg-ments will be made in the ®eld a long way from homewhich wouldn't necessarily be consistent with whatyou would want to have done under your HSE policy.

Corporate MNOC policies on environmentaland social issues do not in themselves translateinto uniform policies across the organization.The operationalization of these policiesrequires complementary measuresÐin suchareas as training and performance targetsÐwhich cause environmental and social objec-tives to be accorded equal priority as ®nancialoperating objectives. As one MNOC subsidiarymanager commented with respect to the impactof a policy whereby all departmental bonusesvaried by up to 50% according to their HSEperformance: ``Oh mercy! That was an atten-tion getter. It galvanized the whole organiza-tion''. The study, however, showed thatmeasures such as this remain uncommon (seeFigure 5).

The research further highlighted a number ofpoints concerned with the importance ofpetroleum companies' internal context for theadoption of SBP. It ®rst showed that thein¯uence of the inner context is subordinate inthe presence of strong institutional forces.Under such circumstances, the institutionalcontext establishes the overall expectations ofMNOCs, and factors related to their internalcontext are important for determining the exacttype of response (for example, a proactiveversus reactive response to environmentallegislation).

In the absence of strong institutional pres-suresÐnotably the case of social issuesÐtheimportance of the inner context is, however,more apparent. Organizational responsivenessbecomes in¯uenced by the priority organiza-tions and decision-makers inside them accord


to socially responsible behavior for the successof their operations.

Among the di�erent dimensions of MNOCs'inner context, Figure 6 shows that seniormanagement support, as well as previous companyexperience are particularly in¯uential. Oneenvironment manager summarized the impor-tance of senior management support as follows:

The personality of the person leading the conscienceof the organization makes a big di�erence... It is lessa function of my leadership, will-power and force ofpersonality, than it is of the people who sit at thetop of the organization... How he (referring to thePresident) feels, what he is willing to stand up forand demand of everyone else has a far bigger impact.On a relative scale, if I have an impact of ®ve, he hasan impact of nine and a half.

In terms of previous experience and theaccompanying organizational learning (Fiol &Lyles, 1985; Levitt & March, 1988), MNOCsand their subsidiaries appear to learn from theirown local and international experiences, as wellas those of other companies. Various MNOCrepresentatives cited the importance of the 1988Piper Alpha oil rig disaster (in which aproduction rig exploded with fatal conse-quences) (Patecornell, 1993) in the North Seafor raising health, but most importantly safetystandards within the oil industry. Similarly theExxon Valdez oil spill (Clarke, 1991), as well asthe experiences of Shell in Nigeria and theUnited Kingdom (Danler & Brunner, 1996;Fentiman, 1998; Financial Times, June 21,1995, p. 1), were highlighted as important forchanges in the environmental and social prac-tices of petroleum companies.

Finally, the research showed how factorsrelated to MNOCs' informal socio-political-context also act as drivers of change. Althoughof lower overall ranking, the importance ofMNOCs' local and international pro®le is evi-dent in Figure 6. As one MNOC environmentmanager stated:

It [referring to the company's environmental policy] isnot altruistically motivated. I think that we truly be-lieve that our ability to operate in the world dependson our reputation all over the world. Everything thathappens in (name of LDC) a�ects what we do in (thecompany's other countries of operation).

Notwithstanding the relatively high impor-tance of factors linked to MNOC subsidiaries'reputation, other aspects of the informalexternal context, such as community pressure,

local and international NGO pressure areconsidered less important. 11 This is the casedespite the fact that local communities directlysu�er the impacts of hydrocarbon activity, andNGOs frequently are those that best under-stand the social and environmental character-istics of areas of hydrocarbon activity.

(iii) The ``process'' of sustainable businesspractice

The process of SBP is considered throughreference to the three areas of process identi®edin Figure 3. In relation to the ®rst area, theresearch shows an important relationship existsbetween the occurrence of SBP and howMNOC decision-makers establish the bound-aries de®ning those entities or stakeholdersconsidered important and those not consideredimportant for the organization's ability tooperate. Of particular signi®cance is the relativeimportance attributed to the interests of formaland informal stakeholders. The tendency is forMNOCs to prioritize those entities thatcompose the formal component of their exter-nal contextÐnotably Central Government. Asone manager summarized:

We de®ne the community as ®rst comprising all thoseentities related to government, next those entities thatinclude our contractors and sub-contractors, and thensome public relations entities. Finally at a local level,the government sometimes obliges us to talk with lo-cal organizations.

An important consequence of prioritizingalignment with Central Government expecta-tions is that these MNOCs perceived them-selves as operating largely in isolation fromtheir local context, notably local communitiesliving in the project area. They overemphasizedtheir own importance, while underplaying thesigni®cance of the broader local social contextof which they formed only a part. Theyfrequently failed to acknowledge the indirectimpacts of their activities upon parallel socialprocessesÐwith the ``content'' of their envi-ronmental and social strategies largely restric-ted to what was legally mandated, as well asimpacts considered to be directly related to theMNOC's operations. As one MNOC environ-ment manager acknowledged in this respect:

We will bring a hundred thousand trucks through thisarea delivering materials. This will tear the hell out ofthe road. So what we will do is take over maintenanceof this road and when we have ®nished, we are goingto pave it. That's an example of a direct impact and a


solution. Now the fact that people will migrate to thearea and somebody will set up a whorehouse. That isnot an issue we are going to have to solve. It is an issueand it is one that will require some attention, but thesesort of remote impacts are not things we can be helddirectly responsible for.

In Colombia and in response to the serioussecurity threat posed by the guerrilla, suchMNOCs also looked toward Central Govern-ment in the form of the army, for protection oftheir facilities. While this strategy of protectionfrom the local external context reduced thethreat of attack, it also created isolation fromthe communities located within the relevantregion of operation. The construction of heav-ily forti®ed and defended production facilities,physically isolated MNOCs from their imme-diate context, while their association with thearmy accentuated any perceptions localcommunities had of MNOCs acting as anextension of Central Government interests.Moreover, the close links between Colombia'sarmy, paramilitary groups and human rightsabuses, further deepened community distrust.

The research also identi®ed examples ofpetroleum company decision-makers accordingequal and sometimes greater importance to thealignment of corporate interests with local andinformal stakeholder interests. In these casesMNOCs and other company types acknowl-edged their participation in a broader socialframework and showed greater sensitivity inunderstanding how their activities mightdirectly and indirectly a�ect other actors withintheir local context of operation. Speci®cally,and as discussed in the ®nal section, thesecompanies engaged in activities that seeks topromote the longer term collective goals oftheir regions of operation.

Although the motivation for attributingsigni®cance to the interests of local stakehold-ers varied according to the context of opera-tion, overall it appeared related to theimportance of good community relations fororganizational legitimacy. As one manager inColombia summarized:

The company after so much time working and seeingwhat has happened to other companies has learnt thatif the community is not with us, we don't have a busi-ness... It might be that our spending on communityrelations is high, but I can also say that spending oninsurance policies and security is low.

In Colombia the security bene®ts thataccompanied good community relations often

provided the primary motivation for closecollaboration between MNOCs and localcommunities. As another manager stated:

We focus most on community a�airs. Why, because ifwe can keep the communities happy, this will also af-fect our environmental policies, because they (refer-ring to the guerrilla) won't blow up our pipe lines,they'll (referring to the communities) look after them,they themselves will look after our infrastructure, theywill help us with any spills.

In Peru, there were also examples of MNOCsemphasizing the importance of alignment withinformal stakeholder interests. In this context,the concern was primarily with the consequencethat poor community relations might have forthe respective MNOC's international reputa-tion.

With respect to the second area of process,the research found that the internal process ofresponding to and internalizing environmentaland social issues is part of a broader trend thatencompasses these issues, with health andsafety regulation. 12 While the latter have beenlargely internalized by MNOCs, external pres-sures remain most critical for the ongoingprocess of internalizing environmental and inparticular social issues. As one HSE mangeracknowledged: ``We've managed safety fromwithin. Environment was driven by legisla-tion.''

The research further showed that there aredistinct organizational and strategic approa-ches to the management of environmental andsocial issues by MNOCs according to the levelof legitimization and integration of these issues,as summarized in Table 3.

While most MNOCs manage social issuesthrough strategies emphasizing ``Reaction'' or``Accommodation,'' a more integrated approachis evident towards the management of environ-mental (as well as more traditional health andsafety) issues. Furthermore the internal processof legitimizing and integrating environmentaland social issues is closely linked to a number ofinterrelated external and internal factors. Thestronger external pressuresÐprincipally locallegislation, but also headquarter pressureÐthemore likely integration. In addition external``jolts'' (Meyer, 1982), such as new regulatorydemands, negative media coverage, or a speci®ccrisis (for example, a road blockage by commu-nities) act as important catalysts for change inthe environmental and social practices ofMNOCs. For example, one senior MNOC


executive described the impact of a documentary®lm criticizing the company's activities in thefollowing manner:

The ®lm criticizing (company name) was perhaps thebest thing that could have happened. Our CEO hasconsiderably changed his opinion on the importanceof good community relations and what the company'sapproach to these issues should be.

The research also showed that successfullegitimization and integration of environmen-tal and social issues depends on the ability ofrelevant managers to both manage theirinternal context, as well as exploit pressuresrelated to their external context for SBP. Forexample, in Colombia a number of communitya�airs managers actively exploited the coun-try's 1991 Constitution, and the accompanyingthreat to petroleum company activities fromrelated legislation, to internally justify theimportance of a priori consultation withcommunities and NGOs. 13 In a di�erentinstance in Peru, an environment managerused considerable criticism of the company'sprevious activities in Peru and elsewhere to®rst justify widespread consultation with awide range of stakeholders, and then used theoutcome of these meetings to promote inter-nally a more socially and environmentallyresponsible approach. 14

This ®nal section presents the research ®nd-ings concerned with the third identi®ed area ofprocess; how MNOCs manage their boundaryrelationships and the occurrence of SBP, as wellas the ability of MNOCs to in¯uence andchange the characteristics of their context ofoperation. Managing boundary relationships isconcerned with whether MNOCs engage inactivities that enable them to understand andrespond to the interests and concerns of thosea�ected by their activities. Most important inthis respect is widespread and ongoing consul-

tation with primary and secondary stakehold-ers (A�onso & Machado, 1997; Johnson, 1992;Jones, 1998; World Bank, 1991). 15 Voluntaryconsultation is far from universal and insteadmost MNOCs comply with legal require-mentsÐusually consulting with nationalgovernment (and relevant ministries) and onlywhere required, local communities (e.g.,MNOCs operating in indigenous or Afro-Co-lombian territories in Colombia). As onecommunity a�airs manager acknowledged:``Consultation, in reality we consult only whenthe law states that it is obligatory; but at themoment it is only obligatory when there areindigenous peoples.''

Commenting on another occasion:

It depends on how you de®ne consultation. It is not toask communities if they want a project and if they say``no'', then not undertake the activity. Instead it is tosay `we have this project that we are going to under-take, since we have a contract with National Govern-ment'.

In those rarer instances where MNOCs andother company types perceived their organiza-tional legitimacy enhanced through a goodrelationship with local stakeholders there wasgreater evidence of more widespread voluntaryconsultation. The bene®ts of consultation toMNOCs and local communities were apparentin a number of areas. From the communityperspective, relevant MNOCs were more likelyto engage in activities that integrated localinterests, customs and concerns into the designand management of the relevant project. Forexample, one MNOC with operations in thePeruvian rainforest chose to construct its workcamp facilities largely using local materials. Ona di�erent occasion, an employee from anotherMNOC described how it resolved a potentialcrosscultural con¯ict at one of its overseasoperations:

Table 3. Adoption phases of sustainable business practicesa

Organisational response Headquarter policy Strategic approach to environ-mental and social issues

Reaction Isolated individual ordepartment

Extremely limitedsupport

Reactive environmental and so-cial strategies

Accommoda-tion

Department with ownresources and personnel

Support at depart-mental level

Proactive but peripheral to keydecision making processes

Integration Integrated as part of alldepartmental activities

Full support Proactively included and mana-ged in all decision making pro-cesses



We wanted to employ the locals on the rigs. The onlything was, they didn't mind wearing hard hats, butthey didn't like wearing boots because they're usedto walking on the ground the whole time.... Therewas a large meeting one day and we said: ``All youguys are o� the rig unless you come up with a solu-tion.'' They went away and the next day they all re-turned wearing boots. It took a week to realize whatthey had come up with. What they had done wascut the soles out of the boots. Now that was great.Everybody was happy with that. They were wearingboots, but they were still in touch with the ground...That is compromise as I see it. It is not quite followingthe (company name) rules but we followed them en-ough for people to be happy. Nobody lost and every-body won.

Those MNOCs that undertook widespreadconsultation were also more likely to empha-size: local employment in activities related tothe relevant operation; involvement ofcommunities and civil society organizations inthe monitoring of environmentally and sociallycompliant behavior; and the conversion ofhydrocarbon facilities into an importantresource for local communities. Finally in thedesign and implementation of communityprojects, MNOCs that emphasized consultationwere more likely to implement communitydevelopment projects that both targeted theirregion of operation as a whole, as well asgenuine and locally de®ned needs. In contrast,less inclusive MNOCs implemented communityprojects primarily focused toward achievingshort-term operating objectivesÐworking onlywith communities living in the direct vicinity oftheir activity and providing support in the formof nonsustainable interventions (referred tolocally as ``caramellos'').

The bene®ts of consultation to MNOCs werealso apparent in a number of areas. Mostimportantly the trust and mutual respectestablished through consultation frequentlyfacilitated the construction and operation ofthe relevant hydrocarbon project. At the locallevel, community-related obstacles typicallypresent during the di�erent phases of a hydro-carbon project, but in particular the construc-tion phase, such as strikes, protests and roadblockages were absent. To the contrary, therewere examples of communities facilitating theimplementation and operation of hydrocarbonprojects. For example, in one case after asizable oil spill by an overseas independentcompany, local indigenous communitieslobbied the relevant environment authority notto punish the company on the basis of theconsiderable support this company had provi-

ded to these communities. At the internationallevel, MNOCs were similarly often able tomobilize local community support to o�setnegative media and NGO criticism.

The research shows that MNOCs have thepotential to in¯uence public policy relating toenvironmental and social issues. As oneMNOC executive summarized:

You cannot sit back in a developing country and waitfor the government to get it right. You have got to goout and mobilise your own resources and others andset the agenda and that is what we have done here.

In both Colombia and Peru, MNOCs soughtto in¯uence both their formal (e.g., legislation)and informal operating context (e.g., the powerof communities and NGOs). But the extent andnature of change (i.e. to ful®ll self-interests orbroader interests), appeared closely linked withthe relative bargaining power of counterpartinstitutions (such as regulatory authorities andlocal communities), as well as the perceivedorigin of MNOCs' operational legitimacy.

In Peru, where governmental environmentalexpertise and bargaining power is relativelyweak, strong evidence existed of MNOCsseeking to manage their external contextprimarily for self-interest. In this respect, thepetroleum industry was highly instrumental inin¯uencing the overall legislative and institu-tional approach adopted toward environmentalmanagement. 16 Lobbying by one MNOC wasalso important for changes to Peru's 1990Environment and Natural Resource CodeÐwhich removed the prior condition prohibitingthe undertaking of hydrocarbon activity inprotected areas.

In contrast Colombia has a longer history ofenvironmental management (Bra~nes, 1991;International Environment Reporter, 1994).The Ministry of Environment retains bargain-ing power, and consequently initiatives under-taken by MNOCs appeared to seek a betterbalance between corporate operating objectivesand those of Colombian society as a whole. Forexample, MNOCs worked closely with theMinistry of Environment on a new legislativeframework related to the management of theenvironmental and social impact of hydrocar-bon activity. 17

At the local and informal level, there werealso examples of MNOCs seeking to in¯uencetheir external context. Indeed at this level, thein¯uence of MNOCs is considerably heighteneddue to the frequent absence of competent local


institutions and infrastructure necessary fordevelopment. The research provides examplesof MNOCs seeking purely to manage theirlocal context for self-interest (for instancethrough the co-option of problematic individ-uals or NGOs), as well to achieve corporateobjectives and those of local stakeholders. Forinstance, one petroleum company operatinginside indigenous territories in Colombia hireda lawyer on behalf of the Indians to pursuetheir land claims. In another case in Peru, aMNOC encouraged the formation of anindigenous commission and engaged in anumber of activities to promote the develop-ment of the region as a whole (where thetradition is for oil companies to attempt todivide and rule local communities). In bothcases the motivation for support at this levelderived from the perceived importance of localstakeholders to the implementation and oper-ation of the relevant hydrocarbon activity. This®nding supports research elsewhere. Forexample, Chance and Andreeva, whendiscussing the operational importance topetroleum companies of securing land titlerights for indigenous populations in the Prud-hoe Bay area of Alaska:

The assistance of the petroleum companies was partic-ularly signi®cant in the 1971 Congressional debateover the Alaska Native Settlement Claims Act. Recall-ing that oil could only be extracted from Prudhoe Bayafter the claim was settled, these companies eventuallyexerted considerable pressure on the government topass the Act (Chance & Andreeva, 1995, p. 236).

4. CONCLUSIONS, CONTRIBUTIONS TORESEARCH AND POLICY

IMPLICATIONS

Investigation of the Colombian and Peruvianpetroleum industries illustrates that despitesome important contributions to the sustain-able development of LDCs, SBP is not wide-spread and MNCs do not accord equal priorityto environmental and in particular social issues,as ®nancial operating objectives. Moreover,greater responsiveness to environmental issuesthan social issues by MNCs, as well as varia-tions between Colombia and Peru, andcompared with other company types, illustratesthat the contribution of MNCs to the sustain-able development of LDCs is not uniform.

Instead the paper shows the importance ofexternal institutional pressuresÐprincipally inthe form of local legislationÐfor determiningthe contribution of MNCs to the sustainabledevelopment of LDCs.

At a theoretical level, the conceptual frame-work presented in this paper has potentialapplicability elsewhere for understandingMNCs' role in the sustainable development ofLDCs. The concept of sustainable businesspractice provides an e�ective means ofcomprehending MNCs' impact on the di�erentobjectives of sustainable development. Simi-larly, the analytical framework presented andapplied in the paper has potential applicationelsewhere in understanding the nature andscope of MNC's contribution to the sustainabledevelopment of LDCs. In this regard, the paperhas moved beyond existing studies that focuson the environmental and social strategies ofMNCs (Flaherty & Rappaport, 1991; Levy,1995; McPhail & Davy, 1998; UNCTMD,1993) and through analysis of the content,context and process of SBP has shown bothwhat SBP might consist of, as well as importantconditions for its widespread adoption.

Finally, the paper contains a number ofimportant policy implications for LDC policy-makers, as well as corporate decision-makers.The study has shown the importance of LDCgovernments actively managing the environ-mental and social impacts caused by MNCsand other company types operating within theirjurisdiction. Furthermore the study has shownthe importance of policies and legislation thatsupport decentralization, by ensuring thereturn of hydrocarbon-revenues to hydrocar-bon-producing regions, and by providingconsultation and participation rights to NGOsand other civil society organizations, as well aslocal communities directly a�ected by hydro-carbon activity.

For corporate decision-makers, the paperhas shown that the management of environ-mental and social issues is not purely a cost,but instead that there can be important long-term strategic bene®ts to a proactive approachto these issues. The paper has further illus-trated that the management of environmentaland social issues requires more than corporatepolicy at the headquarters level. Complemen-tary measures are necessary to ensure thatthese issues are developed and adopted at alllevels of operation. Finally, the paper hasshown that despite their complexity, themanagement of social issues is primarily


concerned with incorporating the interests andconcerns of those potentially directly andindirectly a�ected by a development in itsdesign, implementation and management. Thisrequires companies to manage proactively

boundary relationships with a wide range ofconstituents, ranging from national govern-ments, to local communities and other civilsociety organizations present in their region ofoperation.

NOTES

1. Sustainability is typically de®ned along a spectrum

ranging from ``weak'' to ``strong'' (Beckerman, 1995;

Cabeza, 1996; Howarth, 1997). ``Strong'' de®nitions

emphasize the need for a net increase in each of the

forms of capital associated with sustainable develop-

ment. In contrast, weaker de®nitions acknowledge the

ability to transform one form of capital into another and

de®ne sustainability in terms of a net overall increase in

total capital (i.e., some may increase, while others

decrease). The very nature of upstream oil and gas

industry implies that there is always a reduction in levels

of natural capital following the extraction of hydrocar-

bon resources. This paper therefore applies a weak

de®nition that acknowledges the ability to transform one

form of capital into another.

2. For a more comprehensive description of the study

and its ®ndings see (Moser, 1998). The research

combined quantitative and qualitative methodologies.

A structured questionnaire provided data for the ``Con-

tent'' and ``Context'' dimensions of SBP, while case

study research methodologies (Yin, 1994) were used to

examine the ``Process'' dimension. In all cases the

research incorporated cross-issue (environmental and

social), cross-country (Colombia and Peru), and cross-

company (MNOCs, overseas independent and local)

analysis. The study involved 12 months ®eld research in

Colombia and Peru. The ®rst six months were spent

administering the questionnaire to the environment and

community a�airs managers of the 38 petroleum compa-

nies with exploration and/or production activities in

Colombia and Peru in 1996. There was a 74% response

rate to the questionnaire, with responses from compa-

nies operating across Colombia and Peru's most impor-

tant areas of hydrocarbon activity. The remaining ®eld

research was spent undertaking case study research with

two MNOCs and one overseas independent company

operating in Colombia, in addition to two MNOCs in

Peru. This involved further interviewing of headquarter

sta�, extensive site investigations, as well as interviews

with other stakeholders such as regulatory authorities,

NGOs, consultants, subcontractors and local communi-

ties.

3. In 1995, 12 of the top 100 companies ranked by

foreign assets were MNOCs (UNCTAD, 1997).

4. As illustrated by such cases as the Exxon Valdiz

disaster (Amba-Rao, 1989; Clarke, 1991; Shrivastava,

1994), and accusations of negligent social and environ-

mental practice by Shell in Nigeria (Danler & Brunner,

1996) and BP in Colombia (Financial Times, November

8, 1997; Observer, November 10, 1997).

5. Multinational corporations are de®ned as foreign

enterprises (a) comprising entities in two or more

countries, (b) which operates under a system of deci-

sion-making permitting coherent policies and strategies

through one or more decision-making centres and (c) in

which entities are so linked that one or more of them

may be able to exercise a signi®cant in¯uence over the

activities of the others, and in particular to share

knowledge, resources and responsibilities with others

(adapted from Westney, 1993). Overseas independent

companies are de®ned as foreign enterprises (a) compris-

ing entities operating in up to a maximum of four

countries, (b) but within which there is no system for

coherent decision-making on policies and strategies

throughout the organization and (c) within which

individual entities are unable to exert signi®cant in¯u-

ence over the activities of others. The category local

company comprises both state-owned enterprises, or

enterprises that are owned by the national government

of the country within which the enterprise operates; and

any privately-owned local enterprise, whose headquar-

ters are located in the country of investigation.

6. All ®gures relate to 1995 data.

7. In 1995, foreign companies were responsible for 83%

and 74%, respectively of hydrocarbon activity in Colom-

bia and Peru respectively.

8. Typically 30 m3 of drill cuttings is produced per day

per well site.

9. As considered earlier for MNC subsidiaries operat-

ing in LDCs, their external context is de®ned by both

their local operating context, as well as the context of the

MNC as a wholeÐincluding internal corporate policies.

10. A potentially important issue related to Colombia

and Peru's contrasting legislative frameworks concerns


the question of whether companies deliberately select to

invest in countries with weak legislative frameworks, or

alternatively terminate operations in countries where

environmental legislative demands are considered

prohibitiveÐthe ``Pollution haven'' hypothesis (Harri-

son & Eskeland, 1994; Pearson, 1987). Although not

explicitly examined by this study, the research suggested

that environmental legislative demands are not a critical

factor in MNOC investment decisions. In this respect,

Colombia's more rigorous legislative framework was not

considered by the MNOCs examined in this research a

su�cient hindrance to prevent investment or the termi-

nation of existing operations.

11. The importance of local and international NGO

pressure may in fact be higher than indicated if one

assumes that the importance given to local and interna-

tional pro®le is related to NGO activities and pressure.

12. Health and safety regulation refers to those policies

and practices undertaken by oil and gas companies to

ensure the health and safety of their employees while at

work.

13. The 1991 Constitution introduced a number of

mechanisms to encourage public participation in deci-

sion-making processes around such issues as hydrocar-

bon developments, particularly in the case of indigenous

or Afro-Colombian peoples.

14. A clear example of using the ®ndings of the

stakeholder workshops to in¯uence internal policy was

provided by the MNOC's decision to build no access

roads to its area of activity. This was a concern that

emerged at a number of the stakeholder meetings and

the relevant MNOC manager used the distinct possibil-

ity of negative NGO pressure and media comment if the

company went ahead with roads to internally justifying

the importance of a ``no roads approach.''

15. Primary stakeholders can be de®ned as those

directly a�ected by hydrocarbon activity; secondary

stakeholders as those with a speci®c interest in a region

of hydrocarbon activity, including planned programs or

activities.

16. Legislation that appears weak compared with

Colombia.

17. This framework was designed to shift the emphasis

from time-consuming and ine�cient environmental

licenses and permits for individual hydrocarbon activi-

ties, to a more auto-regulatory approach that seeks to

identify and mitigate the cumulative direct and indirect

environmental and social impacts associated with the

di�erent stages (i.e., exploration, construction, produc-

tion and decommissioning) and components (i.e., multi-

ple well sites, central processing facilities, etc.) of

hydrocarbon activity.

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