Global business and ethics

Global Business and Ethics

The compatibility of ethical values across cultural borders, referred to as globalization and society by Daniels, Radebaugh and Sullivan (2007), has gained much in importance over the past decades. According to these authors, the law doesn't cover all forms of unethical behavior and common decency must be relied upon to govern acceptable behavior. However, conflict of interest that can impede doing what's ethically right may be considerable. Most notably, although foreign direct investment may inject needed capital and expertise into a host country, some believe that an unfair share of benefits accrues to the home country while the host common assumes an unfair share of the costs (Daniels, Radebaugh and Sullivan, 2007). For instance, the term "oil curse" refers to the fact that many countries that are rich in natural resources continue to remain underdeveloped and unstable. In response to ethical concerns regarding this situation, today's mantra has become corporate social responsibility (CSR) which is the adoption of a strategic focus for fulfilling the economic, legal, ethical and philanthropic social responsibilities expected of it by its stakeholders, including: a) business ethics, b) social responsibility; c) corporate volunteerism, d) compliance, and e) reputation management (Ferrell). With their investment in oil drilling in Chad, an oil consortium led by ExxonMobil set out to embrace CSR, but as this paper reveals the situation turned out horribly wrong for many reasons.

The model for investment in Chad was supposed to be dramatically different than those involving multinational investment in other countries. The oil consortium, consisting of Exxon Mobile, PETRONAS and Chevron, sought participation by the World Bank who helped implement an agreement requiring transparency and poverty reduction. Specifically, it required passage of the 1999 Petroleum Revenue Management Law that required that Chad's 12.5% share of direct revenues from oil production be placed into a London-based Citibank escrow account that would be monitored by an independent body (Zissis, 2006). In addition, a portion of the funds were supposed to be allocated to a future generations fund intended to be used as reserve funds when the oil reserves were exhausted as well as funding for priority sectors that included public-works, health, education, rural-development, and environmental projects (Zissis, 2006). To avoid fraud, an independent oversight board was required to approve or deny spending projects based on their prospects for reducing poverty (Green, 2008).

However, despite the fact the oil investment had provided more than $1 billion a year in oil revenues, Chad did not keep its agreement (Green, 2008). From the very beginning, Chad cheated as shown by an investigation that found that, "much of the money was being wasted on abuses like shoddy school desks made of buckled wood, computers and printers purchased at inflated prices, and wells, schools and hospitals that were paid for but not completed" (Polgreen, 2008). Later, it formally changed the Petroleum Revenue Management Law. Chad's parliament approved the following amendments (Bank freezes pipeline funds to Chad, 2006):

increasing the amount of petroleum revenues deposited into general government coffers from 15 to 30 per cent;

bypassing the joint government-civil society revenue oversight committee;

(FGF) and using the money accumulated (more than U.S.$36 million) for immediate expenditures; and redefining "priority sector" expenditures to include spending on security.

For its part, the World Bank responded to Chad's renegging on its ageements in 2006 by suspending disbursement of $124 million in loans to Chad, and froze the country's $125 million in assets in the London-based Citibank escrow account (Zissis, 2006). In effect, the World Bank has ceased its involvement in Chad. However, the Chad oil investment was $3.7 billion (Zissis, 2006) and the majority investor, the oil consortium wasn't prepared to back out. In fact, to this day, this consortium continues business operations as usual and is actually expanding its drilling activities in both existing and new oilfields in Chad (Bank freezes pipeline funds to Chad, 2006).

World perceptions of the consortium as a result of the failed Chad experiment vary. Critics believe the company is guilty of helping to finance a corrupt regime in which poor subsistence farmers do not receive compensation to make up for lost livelihoods, local villagers are extorted for money from local authorities and the military, human rights activists have to confront death threats when they are try to defend the rights of local people, and pollution is extracting its toll on the health and crops of desperately poor people (Bank freezes pipeline funds to Chad, 2006). Yet, the oil consortium believes they are merely trying to do business in a corrupt country that lacks democracy and that the people are still better off with the project moving forward.