Social Responsibility of Nigerian Companies

SOCIAL RESPONSIBILITY OF NIGERIAN COMPANIES. A CASE STUDY OF SHELL PETROLEUM DEVELOPMENT COMPANY AND CHEVRON

The concept of social responsibility has attracted increasing attention among business economist Companies in the purist of the objective of profit optimization forget that they operates in an environment that gives them succor without which they will not exist in the first place. As the society become more educated and more conscious of its environment it now demands that companies should contributed to the society in which they carried out their businesses.  It is this thinking that gives rise to the concept of social responsibility.

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It is difficult to define precisely what the concept is hence different authors take different angle to the concept while some see it as an obligation of business to be socially responsible others see it as the obligation of companies to restrict their activities purely to commercial purpose.

Keith Davis and Blanstron (1975-39) defined the concept simply as the obligation of decision makers to take action, which protect and improve the welfare of society as a whole along with their own interest

Howard Bowen (1953.6) defined social responsibilities as the obligation of business to purpose those policies to make those decision or to follow those line of action which are desirable in term of the objectives and value of our society”

Bob Osaze (1991:120) define the concept as the contribution of the organization to the development of the environment” he added.

Social responsibility is  obligation of corporate entity to get practically involved in the socially responsible activities that will improve that lot of the society at large and company’s image in particular.

Also Schneider Hein (1973:73) gave two dimension to the concept when he define it as “ the performance (or non performance) of activities purely to commercial purpose of improving the social well being of the community or one of its consistent group.

The two dimension according to him are:

1.Activities with no expected economic returns because of the resulting social benefits this business is required to take one social goals independent on its economic goal.

2.       Retaining business is asked not to perform certain activities although these promise to be profitable in traditional economics analysis

however when social consequence are considered it is felt that actual harm out weight the economic benefit one can conclude from the above definition that social responsibility involves company conforming with legal requirement while pursuing its economic goals the company should anticipate new social  demand and prepare in advance to meet them the company should also meet public expectation and the company should set standards of business with regard to social performance.

 

2.2 CONTROVERSY OVER THE CONCEPT

Two major schools of though have developed over the concept of social responsibility one argues that a business organization should be socially responsible no matter the cost this is the idealist school the other argues that profit maximization should be the primary motive of business organizaiton.

According to Agbonitoh (1992:98) business has argued against corporate philanthropy based on the fact that this action conflicts with corporate goal of maximizing shareholder wealth in response to this argument Baumol (1970:98) argues that.

As businessmen see more clearly and are more able show to their shareholder that the company prosperity depends on the health of the communities in which it operate it will become clearer that self interest is indeed served  by high price contribution.  The company pays a high price for operating in the region where education is poor where living standard are deplorable where health is poorly protected where property is unsafe and where cultural activity is all but deal.  As it becomes clear to stockholder and other immediately concerned these circumstance are more expensive than corporate giving the relationally of business philanthropy must become obvious”

For further understanding of the concept of social responsibility it would be interesting to examine the argument for and against the concept.

2.3.1    ARGUMENT FOR THE CONCEPT

Most consumer group pressure group are agitating for manageemnt to become involved in socially responsible activities. These have stressed better jobs and promotion opportunities financial and managerial support for improving the health and medical care financial support for education leadership and financial support form when Urban renewal and the means to reduce environment pollution the major argument for the acceptance of the concept of social responsibility by company can be summarized as follows

1)      People expect company and other institutions to be socially responsible due to the fact that some of their activities pose health hazard to the society and the fact they reap huge profit

  1. It is in the best interest of companies to pursue socially responsibly programme because in the long- run it will help them to maximize profit and will also promote their public images
  2. A company must be concerned about society’s interest and need because society in effect sanction company operations through government regulation and the exercising of consumer purchasing power
  3. If a companies not response to societies meds public will press for more government regulation requiring more socially responsible behaviour.
  4. A company should involved in social project because it has the resources by doing so it will help reverse the standard of living of the community and this in turn raises patronage and consquently  profit
  5. Socially responsible actions may increase profit in the long run.

7.Most problems of society environment are created by the company and as such should be responsible

Keith Davis a leading prominent of this school summarize the  argument with what he terms “the iron law of responsibility which states that in the long-run those who do not use power in a manner in which society consider responsibility will tend to lose it.

“Corporate enterprise operate under franchised from public opinion and that it can be modified or withdraw by the people’s representation in government at any tome they so wish that is why according to Keith Davis that business must act in socially manner in order to justify the privilege of operating in a free economic system.

Further he maintained that “No worthwhile privilege or freedom comes without a price

The council on the trends and perspective of chamber of commerce of the united states of American are to continually change demand for social as well as economic performance they must do something more fundamental then response to the proposal of others. Business must structure their objective so that social goal are put at per with economic goals company is therefore multi purpose and this derived form  the fact that there is increasing awareness that economics can no longer  be divorced from other dimension of society and that a company though basically an economic institution is more and held accountable for externalities such as contamination of the environment allocation of scare resources the well- being of its workers and of the communities in which it operates.

Therefore it is very much management’s self interest to be concerned with social problem this if business organizations are to retain their social power and role they must be objective responsive to society needs.

2.3.2      ARGUMENT AGAINST THE ASSUMPTION SOCIAL  RESPONSIBILITY

As long as there are argument favouring the concept so also are there arguments against company assuming an active role of social responsibility. A leading opponent of business assumption of social responsibilities is Milton fried is one view can be social as follows “ there is one and only one social reasonability of company to use it resources and engage in activities designed to increase its profit so long as it stays within the rules of the game which is to say engages in open and free competition without deceptions and fraud- few trends could so thoroughly undermine the very foundation of our free society as the acceptance corporate officials if a social responsibilities other than to make as much money for their stock holder as possible.

He further asserts:

Fundamentally subversive doctrine and argument that mangers are agents of the owners of the enterprise and that to engage in any activities not related to earning profit may be illegal and so is diverting funds to social area could lead to less economic  efficiency and therefore actually be determined to society.

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Similarly Peter F Drucker believed that the first responsibility of manager  to society is to operate at a profit and that profitability is the first and absolute.  Low for Juvient management and that this responsibility cannot be abdicated and so Friedman and other like P Drucker who share his argument believed that the business and responsibilities of the government to deal with the social demand of the society the major argument against social responsibility may be summarized as follows.

  • It violates sound economic decision-making that should rightful concentrated do earning profit.
  • It mighty be illegal executive do not have the legal right to use exported resource to pursuer social responsibility
  • Costs are excessive compare to the benefit to society and would tend to vase process.
  • Mangers are trained not do they pose the skills or resources to determined which society desirable project to support.
  • Concentrates too much power in the hands of business executives
  • Lead to the deterioration of the free price system.

Both position for and against the assumption of social responsibility by business make logical argument to support their cases often time though and executive are every “por” social responsibility when profit are high or social conditions unfarvourable and “ant” social responsibility when company is under great pressure or when social condition do not warrant great deal of concern Friedman’s argument against the assumption of the concept by business firms have been criticized on a number of grounds. First he implied that business should engage in open free competition as a part of the rules of the game” however open and free competition does not in most sector of most economic including Nigeria.

Another fundamental counterpoint to Friedman’s position is that business firms (particularly large one’s) cannot  ignore their social responsibility this is because almost every decision made in an organization has impact on various groups in and out side the organization

  • APPROACHES TO SOCIAL RESPONSIBILITY BASED ON THE MOTIVE OF THE ENTERPRISE

Social responsibility as seen by Okerete (1987) can be approaches from three angles these are socio economic motive pure social motive and pure economic motive pure economic motives.

2.4.1  SOCIO- ECONOMIC MOTIVE

Approach places emphasis on the short and  long-run benefit on organization derived by carrying out certain social obligations they come out of the need fro the firm to make beneficial surroundings so in the case organization try to make some economic gains by performing the economic function of business which is the primary responsibility of companies produces needed goods and services provide employment contributed to economic growth as well as earn a profit while doing this management must be aware of such concerned as the efficient utilization of resources reducing environmental pollution providing safe products providing a safe working environment and being aware of changing social goals values and demands.

 2.4.2 PURE SOCIAL MOTIVE

This is situation where an enterprise rationalizes its profits goals with the need to respond to the expectation of its primary and secondary environmental this may not necessary have benefit effects on organization in the short run it  mostly concerns itself with serving the people interest because its existence depends on the people and must therefore be prepared to assists the community through special aid to support government effect most especially in the area of provision of essential public goods and in solving social problems.

As much as social responsibility is desirable it must however be noted that business organization are not philanthropic institution they are out to make profit through this should not be their sole motive but they are not to serve society at their own expense as their approach seem to emphasis.

  • PURE ECONOMIC MOTIVE

A situation where the main responsibility that they consider societal interest in every step it takes therefore in the of economist and industrialist the society benefit because people’s material expansion increasing productivity availability of a wider ranger of goods at cheaper prices more employment opportunities more revenue for government and in the end improved standard of living this approach tend to support the view that business organization exists solely for profit and would engage only in activities that would maximize profit without any consideration for the communities in which in operates this may in  the long run not auger well for an organization adoption this approach they opt to adopt it is very important that they consider societal interest in every step it takes therefore in the business own interest management has to carefully evaluate the impact of any approach it adopts this is because the organization long-runs survival depend on society attitude toward it.

 2.5     ROLE OF GOVERNMENT IN SOCIAL RESPONSIBILITY

  • NO SOCIAL ROLE RESPONSIBILITY

In a free enterprise system welfare is supposed to be automatic and where it is not become government is not business and business is no government and unless these functions are resolutely separated in all respects they are eventually combined in every respect in the end the danger is not government will runs business or that business will run government but rather that the two of them united (Louitt19698)

In this Levithian approach business is along operated to enhance the owner self interest they had not social responsibility this view was consistent with the philosophy of and perception of business the later part of eighteen and nineteenth century.  A philosophy that perceived of business as a solely economic institution this view which was first echoed by Milton Friedman maintain that social responsibility of business is to seek profits and not to seek other social ends expect as decreed by government.

 

  • UNLIMITED SOCIAL RESPONSIBILITY

The supporters of this view argument that business must be seen solely as a social enterprise.

Robert Dahi (1979) posits that every large corporation should be though of as an entity whose existence and decision can be justified in as much as they serve the public in another variation Ekenete (1987) has put forth what he described as “pure” social motive in essence the goods or responsibility corporate citizen in the business organization that hold itself accountable to the society a long said its primary economic motive of profit maximization

 

  • LIMITED SOCIAL RESPONSIBILITY

This view is based on the premise that which corporation is a beneficially of the power of corporate system it is however constrained by the little independent discretion outside he scope of the system.

The essence of limited social responsibility has been summed up as follows.

It is partly the purpose of business to meet community needs. It can do so however in partnership it self in the conduct of it own affairs of courses business also have a responsibility to obey the law to have a first concern for the welfare of the employee to be good citizen in the community which it operate and use its resources talents and imagination to provide the goods and services which the community need

Consequently as no company can willingly  incur cost which could jeopardize its completive position and threaten its sundial in the process it thus follows terms of benefits that are excepted to be produced.

The implication of this is that any substantial investment in social improvement programmes would have to contribute to earning and it is the extent of such contribution that would be the major determinant of  the mix of a company commercial and social activities.

2.6     BUSINESS POWER

Power is a very important dimension  of concept of social responsibility this refers to the amount of power and influence which the business man or group holds due to accumulated resources. Since a business has a vast amount of social power an equal amount of social power an equal amount of social responsibility is required to match it T.H Spraton (1973) assert that it business does not assume social responsibility than it will lose out to big government big labour or some pressure or  countervailing power government in he society in  essence company should be socially responsible.

Keith Davis (1960) has the same view that the lesson of history suggest that their social responsibility should be equated with it put in the from that social responsibility of business men need to be commensurate with their social power.

David and Blamstron (1975) believe that social power may serve as an agent of responsible social improvement they opined that the business man’s social power is functional in nature this as a result of pressure from claimants the business man is able to keep his power with responsible limits this implies power that is necessary for performing an appropriate function.

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Theodore levitt holds that there is no justification what so ever for society to want to add more power to business already immersed in power. Viz economic environmental technology etc.  the assumption here is that more responsibility would necessity giving more  power and authority to business.

 

2.6     THEORIES OF SOCIAL RESPONSIBILITY

The current confusion owner the social role of business lies in the criterion by which it should be judge many theories have been put forward about the motivation and behaviour of business enterprise these theories differ from each other in it emphasis upon particular psychological a economic factor.

The theories which have succeeded each other historical are the classical market model the managerial model and the social environment  model the latter provides a rational explanation of corporate social action the are consistence with the motive of profit maximization

  • CLASSICAL MARKET MODEL

The classical market model of enterprise behaviour was put forward by members of the of the classical school of British economic theory which began with Adams Smith and was developed mainly through the writing of David Ricardo John Stuart will and Alfred Marshall the classical Marson was based on observation of the industrial structure and  process in Britain.

The classical school held that expect for natural monopolies and illegality among compactors for atomistic market structure and for perfect competition. The limited resources of the enterprise made it necessary for the entrepreneur to maximize his profit in the short run.

Under perfect competition classical theory gave a counseling explanation of the way the efforts of the entrepreneur served the interest of the society completion compelled each firm to produce with maximum efficiency and at cost.  As Adam Smith puts it the entrepreneur will be “lied” by an invisible hand to promote the interest of society more efficiency than when he really intend to promote it some other writers  like Levitt (1950) are also in support of the classical doctrine this he expressed in the following words

The function of business is to produces sustained high level of profit os the essence of the enterprise private property system is to after profits in any way that is consistent with its own survival as an economic system. Furthermore Selekman (1959) in an importation new analysis suggestion that attention to social responsibility will undermined the main objective would be a catastrophe. The explained further that primary objective of business will lose its reason for existence.

The classical marked model not contemplate involvement by the firm in the solution of social problem in the sense that it now understand guided by the rule of profit maximization the enterprise was considered to have discharged its responsibility to society it efficiently met market demands for its products such essentially was the view of business social responsibility up through the initial decades of the 20th century (Jacoby 1973p195)

  • THE MANAGERIAL MODEL

As the economist become as are of the gap between the classical market model and the them current mature of corporate business the catastrophe of the great depression appreciated a critical examination of all economic instructions including the business corporation.

Bevue and means (1932) as quoted  in Jociby (1973) analyzed the implication of the separation of ownership from management of large business corporation they concluded that this institutional changes has altered he goals of the enterprise. It puts decision making powers of the firm in the hands of manager responsible to directors and stock holders managers see the giant corporation  as the dominant action in the   economy because  many industries output is concentrates in a few great companies the  economy is seen to be permeated with oligopoly. Professional managers hold the remain of power they are effectively free from control either by the organized stock holders or  by board of directions whose compositions they  control through the proxy machinery hence the corporation is no longer operated to optimize profit for stokehold its goal is to maximized the  satisfaction of its mangers who seen security power and presage for themselves through the growth of he firm the behaviour of the firm are largely determined by the discretionary power of manageemnt and is only loosely constrained by competition.  Clearly a  considerable involvement of  business the managerial model. Managers have wide authority to allocate corporate resources for different purpose in justifying this model Thomas Petit (1967) argues that manger must conduct the affaires of the corporation in the way to solver at least ameliorate the problem of the society the managerial theory assumes that manager have ample monopoly a oligopoly profit to spend on social involvement is limited only be the human Italian properties of its management

 

  • THE SOCIAL ENVIRONMENT MODEL

Just as the  market model of enterprise behavior gave way to the managerial model so the managerial model is now being challenged for its ability to depict and explain current realities. As can already be observed large corporations refuse to behave has expanded alone new dimensions and   has come to involve many various in addition to price.

Chamberlain and Robinson (1938) further challenged classical  theory of computation by observing that it failed to take into account the phenomena of product variation advertising and selling cost the social environment model emphasis that the enterprise reacts to the total society environment and not monetary to market Malabree (1971) provide that the heart of he debate on social responsibility no way day has in the relationship between business and is environment and the society at large in particular possible conflict between business and societal goals are receiving attention.

Another argument in favour of this model was put for ward by will  and Mcgowen (1990) they started that corporate involvement helping to solve social problems gives some stock holders some psychological satisfaction. The social environmental model an explanation of actual corporate behaviour as a basis for suggestive of the  norm a profit seeking enterprise should follow in relation to social problem Jocoby (1974) later gave example of issues in the debate as product safety environmental pollution employment of minorities decay and besetting certain countries

The most important characteristic of the social environment model is the explicit recognition that corporate behaviour responds to political as well as market forces. The theory analysis corporate behaviour as a response to both market and non market forces because both affects the firms costs  revenues and profits

 

  • LEGAL CONSIDERATION IN CORPORATION SOCIAL RESPONSIBILITY

The law is one improtant area everyday looks up to in  the society. It help to harmonize the conflicting interest group of individual in any given society the right to establish a business as well as the incentive to be provided by the law the idea of corporate social responsibility is a new to company can only engage in  an supply its funds for business which are authorized by its objects claims in the  memorandum of association. It is therefore ultra vires fro a company to expand resources for social political or charitable purpose excepts such is justified as being in the interest of the company and to promote its prosperity the law puts a corporate blanket around the business man by marketing a distinction between the company as a  legal entity and the members which constitute the company. Apart from the company’s act of 1968 other laws that have relationship with corporate social responsibility in the oil industry (such as harmful waste decree 1988) relates to large extent to oil spill clean up and compensation but not on the destructive effect of the activities of the oil companies. The united nations commission on grants national corporation in 1984 clause 41 require that transnational corporation must carry out their activities accordance with the host country’s laws regulation administrative practices and policies relating to the preservation of the environment in which they standards in all other operations transitional  fiscal corporations must  take step to protect the environment when they damage the environment they must restore it to the extent appropriate and feasible” (Omotola 1990)

Environmental pollution and compensation have been placed under the consul of the law how ever there are some factors which hinders the successful implementation of environmental protection some  problem derive from the fact that the more serious pollution or damage to the  environment are usually by big corporate entities by their nature prove difficult to  deal with through legal mechanism because of the abundant resources at their disposal to neutralize attempts to control their behaviour the secrecy difficult to collect information about their operation.  Companies make huge profit every year but now accounts is taken on the cost of society of the environmental pollution effect of its chemical operation ( Anao1990)

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The new industrial policy of Nigeria 1988 requires that all existing industries should treat their waste to a stages where discharge will not pose danger to lives and properties the environmental laws are of different types and these include the following

  1. Statutory regulation one of the law made to control oil pollution is the oil malligate water decree of 1968 as amended in 1988 as a result of the distance between the production and consumption of oil it has to be transported by various means the law makes it an offence if the quality of effluents from any industry outside the effluent limitations guideline for Nigerian industries set by the federal environmental protection agency in may 1990 the also requires the installation of equipment considered suitable for the prevention or reduction of oil discharge the equipment concerned are to be specified by the minister of transport the decree also requires the operation to conduct its operation in line with good oil field practices” this the operator is bound by the law to maintain all alliance used for operations as well as putting all oil wells and boreholes in good conduction.
  2. Criminal liability Uchegbu (1983) argues that the operations of oil mines whether in storing oil or ship owe society a public duty which is enforceable to the criminal law with particular reference to oil pollution where the offender is a corporate body. In addition it shall be responsible for the cost of removal such pollutant restoration of natural resources damaged as a result of the discharge.

 

The environment protection agency decree demonstrates an increasing awareness on the parts of government of the dangers of environmental pollution in general and oil pollution’s in particular

Civil liability grad (1971) defines pollution as “an undesirables change on the physical chemical biological characteristics of air land and water hat may will harmfully affect human life or that of other desirable specifies industrial process living conduct and cultural assets” this in oral spillage Uchegbu (1983) argues that civil liability would emanate from the injured individual who need to be compensation for any harm will be interested in compensation fro damages done to their sources of livelihood  and the  cleaning up of a license shall pay compensation to any break age for leakage from the pipeline or an ancillary installation the implications of this is that oil companies owe a duty of are to the communities where they operate. The legislation serve to regulate the activities of oil companies and profit the interest of the victims of any oil spillage these law see to emphasis the prevention   of the spillage clean up liability and constitute an  aspect of corporate social responsibility

 

2.8     OTHERS VIEWS

Peter Drunker (1977) writing on the subject of social responsibility of business identified two approaches.  The first he called the traditional approach its concern was primarily with the social responsibility of business people.

Secondary he maintains that contrary to the wide spread belief that society’s hostility for business explains its increasing call  on the later to the socially responsible.

The emphasizes was on what business should contribute out side business however according to Drunker today’s perception concerns the problem of society. In a nut shell the demand for social responsibility is the prices of business success other possible explanations advanced include the growing disenchantment by society with government’s ability to solve mage social problem and management recent succession to the leadership position in society.

In summary Drunker maintain that central to the issues of social responsibility are first the social impact of business which are by products of the legitimate and necessary conduct of business and are also consequences of the fact that the institutions of business exist others include the issue of the responsibility of the ills of society and lately the leadership roles mangers now occupy in society secondary to these are such issue or moral behaviour of individual or business people.

Nicholas Siropoles (1977) in his contribution maintains that entrepreneurs rest of necessary act in ways that would enhance their community well being this assertions are based on the premises that social forces no less than market force operator to influence business success can hope to flourish fro long in a crumbling poverty stricken economy this investing in what a better environment should always be though about Siroplos then identified some possible areas where business an take up social responsibility roles these include.

  1. Help clean the air
  2. Make their plant a safe place to work in
  3. Hire minorities
  4. Help make the street safer
  5. Participates in polities

 

Keith Davis and Robbert Blomstron (1975) argue that the controversy surrounding the question of social responsibility lies not in whether business should be socially responsible or not as it has already assumer a c certain minimal role in this direction rather it centers around whether business should assume a more significant roles” they insist that his call for more socially responsibility is not directed at business alone rather all image or social institutions like the schools churches voluntary organization etc.  the advice that business should recognize the limitation involved in solving all society’s problems. Ti would be in its interest to use such resources carefully and put them to the best long run use any attempt to empts the work of the other institutions the deal with social problems but it would also threaten business growth and survival on the concepts David and Bloostom (1979p.6) see it as the first step in sequence of philosophy decisions and actions or social responses aim at creating a more effectives society according to what they described as the iron law of responsibility” in the long run those who do use power in a manner which society considers responsible will tend to losses it this.  Considering the immense power a business enjoys responsibility avoidance would rather than ensure continued profitability threaten the very basis upon which a business enjoys eminence in society today blessedly and Evans on the other hand see it as an issue which need nit be regarded with approval or not it need not be an external judgment of how fare a company deals with its environment by incorporating external concern into its decisions.  At whatever points a company is places in a spectrum or relationship with its environment does necessary make it better or worse off as different standards may be appropriate to different environment and other entrepreneurial conditions however the fact toward incorporating external concern of the company is the more socially responsible it is deem to be consequently a business social responsibility should not constitute an avenue for making moral judgments

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