Global Business Ethics: ExxonMobil and the Chad Oil Crisis

Introduction: Ethics, Globalization, and the Oil Curse

The compatibility of ethical values across cultural borders — referred to as globalization and society by Daniels, Radebaugh, and Sullivan (2007) — has gained much importance over the past decades. According to these authors, the law does not cover all forms of unethical behavior, and common decency must be relied upon to govern acceptable conduct. However, conflicts of interest that can impede doing what is 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 country 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 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) — the adoption of a strategic focus for fulfilling the economic, legal, ethical, and philanthropic social responsibilities expected of an organization 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 Chad Investment Model and World Bank Oversight

The model for investment in Chad was supposed to be dramatically different from those involving multinational investment in other countries. The oil consortium, consisting of ExxonMobil, PETRONAS, and Chevron, sought participation by the World Bank, which helped implement an agreement requiring transparency and poverty reduction. Specifically, it required passage of the 1999 Petroleum Revenue Management Law, which mandated that Chad's 12.5% share of direct revenues from oil production be placed into a London-based Citibank escrow account monitored by an independent body (Zissis, 2006).

In addition, a portion of the funds were to be allocated to a future generations fund — intended as a reserve once oil reserves were exhausted — as well as funding for priority sectors including public works, health, education, rural development, and environmental projects (Zissis, 2006). To prevent fraud, an independent oversight board was required to approve or deny spending projects based on their prospects for reducing poverty (Green, 2008).

Chad's Breach of Agreement and the World Bank Response

Despite the fact that the oil investment had provided more than $1 billion a year in oil revenues, Chad did not honor 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). Chad later formally amended the Petroleum Revenue Management Law. Its parliament approved the following changes (Bank freezes pipeline funds to Chad, 2006):

Increasing the amount of petroleum revenues deposited into general government coffers from 15 to 30 percent; bypassing the joint government–civil society revenue oversight committee; liquidating the future generations fund (FGF) and using the accumulated funds (more than US$36 million) for immediate expenditures; and redefining "priority sector" expenditures to include spending on security.

The World Bank responded to Chad's reneging on its agreements in 2006 by suspending disbursement of $124 million in loans to Chad and freezing the country's $125 million in assets held in the London-based Citibank escrow account (Zissis, 2006). In effect, the World Bank ceased its involvement in Chad. However, the total Chad oil investment stood at $3.7 billion (Zissis, 2006), and the majority investor — the oil consortium — was not prepared to withdraw. In fact, the consortium continued business operations as usual and was actively expanding its drilling activities in both existing and new oilfields in Chad (Bank freezes pipeline funds to Chad, 2006).

Conclusion: Lessons for Ethical Investment in Corrupt States

It is the opinion of this author that if corrupt, undemocratic nations are allowed to reap financial prosperity in the midst of unethical behavior, they will certainly continue to do so. There is simply no incentive to change. For this reason, the oil consortium should be regarded as a contributor to unethical behavior undertaken for its own financial gain. The oil drilling activities in Chad began with noble goals but perhaps moved forward too quickly, without a demonstrated commitment from Chad to support the transparency and anti-poverty goals of the World Bank. Once invested, the oil companies were too deeply committed to withdraw.

In the future, investments in countries with known corruption and authoritarian governance should be more carefully paced so that governments have no other choice but to reform their behavior. As scholars of business ethics have argued, the structural conditions that enable corruption must be addressed before large-scale capital commitments are made — not after. Otherwise, many more situations like Chad's will continue, and the "oil curse" will prove very difficult to overcome.

References

Bank freezes pipeline funds to Chad. (2006, January 20). Bretton Woods Project.

Daniels, J. D., Radebaugh, L. H., & Sullivan, D. P. (2007). International business: Environments and operations. Pearson/Prentice Hall.

Ferrell, O. C. Corporate citizenship: Integrity, stakeholders & exemplars. [University presentation].

Green, M. (2008). [Referenced in text regarding Chad's noncompliance and World Bank response].

Polgreen, L. (2008, September 10). World Bank ends effort to help Chad ease poverty. The New York Times. http://www.nytimes.com/2008/09/11/world/africa/11chad.html

Zissis, C. (2006, April 27). Chad's oil troubles. Council on Foreign Relations.