Sustainability Reporting and the Model of Organized Hypocrisy: Evidence from the Arctic National Wildlife Refuge Charles H. Cho, ESSEC Business School Michelle Rodrigue, Université Laval Robin W. Roberts, University of Central Florida
The secret to success is honesty and fair dealing. If you can fake those, you ve got it made. Groucho Marx Quoted by Nils Brunsson in Organized Hypocrisy 2
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Sustainability reporting Growing stakeholder pressure to report on sustainability issues. From sections in annual reports to standalone sustainability reports. 80% of the Global 250 companies issue stand-alone sustainability reports (KPMG International, 2008). Choice to issue reports is voluntary and nonregulated. Why organizations engage in this type of reporting? 4
Unerman et al. (2007) on sustainability reporting Positive Just as conventional management and financial accounting has been a powerful tool in the management, planning, control and accountability of the economic aspects of organizations, broader techniques of sustainability accounting and accountability can also be powerful tools for addressing the impacts of firms social and environmental actions. Negative Many critics of the sustainability accounting trend see the reports as little more than public relations tools designed to win (or maintain) the approval of those stakeholders whose continued support is crucial for the survival and profitability of the business. 5
Motivation of the study Motivations driving sustainability reporting and emanating issues. Special Section of Accounting, Organizations and Society on Accounting and the environment Call for research to further explore the various motives implicated in the production of environmental and sustainability reports and detailed internal case studies could [ ] be useful, as would deeper understandings of the interaction of such concerns with the relevant regulatory authorities, he media and political circles (Hopwood, 2009, p. 438, emphases added). Introduction and inclusion of Brunsson s model of organized hypocrisy organized hypocrisy (1989, 2002, 2003, 2007) to the sustainability reporting literature. 6
Hypocrisy Hypocrisy is a way of handling situations when what is said cannot be done and when what is done cannot be talked about. Hypocrisy means that we can continue to talk about things that can be talked about and do things that can be done. What can be said is not limited by what can be done, and vice versa. Nils Brunsson (2007) 7
Purpose of study To advance research on sustainability reporting by applying Brunsson s model of organized hypocrisy (1989, 2002, 2003, 2007), which provides the theoretical lens to examine the talk, decisions, and actions of seven highly visible U.S.-based multinational oil and gas corporations as they strategically manage conflicting stakeholder demands for profit and environmental stewardship. 8
Hypocrisy as a solution in managing legitimacy and conflicting stakeholder interests (1) Legitimacy theory and stakeholder theory Grounded notion that implicit contract(s) exists between organizations and society in which they operate (Chen and Roberts 2010). LT and ST should not to be treated as two distinct theories but as commensurate theories that differ in their level of analysis and complexity. LT very broad level of analysis (single contract; society is a unified actor) LT focuses on whether norms exhibited by an organization are congruent with the most general norms of society (unified actor). ST focuses on relationships between an organization and its various stakeholders who constitute society s representative contractual parties. ST acknowledges that stakeholder groups have unequal influential power and ability and suggests that expectations of those stakeholder groups are often conflicting so, the ability to maintain legitimacy depends upon how well conflicting expectations are balanced and managed. 9
Hypocrisy as a solution in managing legitimacy and conflicting stakeholder interests (2) Hypocrisy as a legitimacy strategy Managing conflicting stakeholder demands can tempt organizations to adopt specific strategies that lack internal consistency, raising fundamental concerns over the behavioral integrity of the organization (Simons, 2002). Response to those conflicting demands through engaging in organized hypocrisy (Brunsson, 2002, 2003, 2007). Hypocrisy is a response to a world in which values, ideas, or people are in conflict a way in which individuals and organizations handle such conflicts [ ] a way of handling conflicts by reflecting them in inconsistencies among talk, decisions, and actions (Brunsson, 2007, p. 113/115). 10
Hypocrisy as a solution in managing legitimacy and conflicting stakeholder interests (3) Hypocrisy as a legitimacy strategy How can an organization continually engage in hypocrisy and maintain any legitimate standing within the organization or within society? Politicization of the organization no longer a unified structure but possibility to develop multiple sub-structures somewhat in isolation. If stakeholder pressures are handled independently (act autonomously) from other sub-structures then inconsistencies are less likely to be discovered or questioned (e.g., affirmative action office may no necessarily alter employment practices) Key strategy for senior management orchestrate the talk, decisions, and actions of the organization in a way that forms a legitimacy solution which pacifies conflicting stakeholder demands and yet does not reveal discrepancies. 11
Hypocrisy as a solution in managing legitimacy and conflicting stakeholder interests (4) Talk, decisions, and actions as tools of legitimacy Talk, decisions, and actions can be viewed as an organization s three dominant outputs (Brunsson, 1989) tools of legitimacy If the organization shows inconsistency across these outputs, the result is organized hypocrisy talk/decisions inconsistent with action, but they are coupled differently (Brunsson, 2003, p. 205-206): In the model of [organized] hypocrisy talk, decisions and actions s are still causally related, but the causality is the reverse: talk or decisions in one direction decrease the likelihood of corresponding actions, and actions in one direction decrease the likelihood of corresponding talk and decisions. The model of [organized] hypocrisy implies that talk, decisions and actions are coupled rather than decoupled or loosely coupled,, but they are coupled in a way other than usually assumed. 12
Hypocrisy as a solution in managing legitimacy and conflicting stakeholder interests (5) Talk, decisions, and actions as tools of legitimacy Counter-coupling : talk and decisions compensate for inconsistent action and that action may, conversely, compensate for inconsistent talk or decisions (Lipson, 2007) allows management to pacify some stakeholders though less costly activities while focusing more resources on more powerful stakeholders expectations. Communication strategies Different descriptions of the same decision depending on the stakeholder context. These are possible because the decision itself is equivocal (Brunsson, 2003). 13
The Arctic National Wildlife Refuge (ANWR) Located in Northern Alaska, covers about 19.8 million acres of coast. Managed by U.S. Fish and Wildlife Service, part of the National Wildlife Refuge System (world s premiere system of public lands and waters set aside to conserve America s fish, wildlife and plant). Largest single protected wilderness area in U.S. with abundant and diverse wildlife. 1002 area (designated coastal plain region of 1.5 million acres) subject to controversy: to drill or not to drill Uncertainty of ANWR oil resources vs. job creation and economic growth 14
Alaska natives and the ANWR Inuptiat Eskimos (Kartkovik, USA) support oil drilling in the refuge primarily for economic, thus survival reasons. But they want a say in the planning and development of the drilling. Gwich in Indians (Canada) are strongly opposed, using arguments centered around human rights and caribous sheltered by the ANWR every year (i.e., the ecosystem and their lifestyle). Yet, each group of Alaska natives has its minor share of dissenting voices (some Inputiats are worried about off shore oil development and some Gwich ins use economic arguments to push for ANWR drilling). Overall, however, both groups ultimately share concerns for their human rights and want their culture and traditions respected and protected. 15
Timeline for the ANWR and the ANWR Bill ANWR is declared federal protected area under President Eisenhower s administration. Question about drilling 1002 area becomes subject to much debate and controversy in U.S. media and politics. ANWR is secured and backed by the Alaska National Interest Lands Conservation Act of 1980. Political activities advocating for drilling of the coastal plain threatens the protection of ANWR. 1960 1977 1980 2005-2006 Timeline for the American-Made Energy and Good Jobs Act (House Bill H.R. 5429 or ANWR Bill) House of Representatives bipartisan coalition manages to remove drilling language in final reconciliation bill. House Bill H.R. 5429, sponsored by Richard Combo (House Resources Committee Chair), is introduced to the House of Representatives. House Bill H.R. 5429 is passed by a 225-201 vote. House of Representatives bipartisan coalition once again ensures that drilling language is not included in budget resolution. March 2005 May 19, 2006 May 25, 2006 Summer 2006 16
Organized hypocrisy in corporate sustainability activities: The ANWR case Corporations use of sustainability reports to talk about their commitment to the environmental while engaging in political activities that promote oil and gas exploration may be best understood through the model of organized hypocrisy. Talk and decisions and corporate actions are often counter-coupled. Largest, most visible oil and gas firms that talk the most about sustainability are, under Brunsson s model, the ones expected to take the most unsustainable actions. Qualitative analysis of content of sustainability reports and contrast them with quantitative analysis of corporate political activities. 17
Data summary PACs of oil and gas firms Name Operations in Alaska PAC Contributions Total PAC Contributions Democrats PAC Contributions Republicans Chevron Yes $458,950 $60,200 $398,750 ConocoPhilips Yes $371,500 $31,000 $340,500 ExxonMobil Yes $957,500 $58,350 $899,150 Halliburton Yes $212,500 $21,500 $191,000 Koch Yes $1,048,500 $225,000 $823,500 Marathon Yes $207,450 $53,500 $153,950 Occidental No $520,000 $97,500 $422,500 Total $3,776,400 $547,050 $3,229,350 18
Talk and decisions in sustainability disclosure In the ANWR environmental context, oil and gas companies would use narratives in their sustainability reports to emphasize their concerns about environmental protection and performance, in Alaska or elsewhere. Methods Qualitative analysis of 2003-2005 stand-alone sustainability reports of seven very large and highly visible U.S. oil and gas firms (75% of oil and gas market share). 21 reports collected and all but one have operations in Alaska. Particular theme: biodiversity protection (major issue of ANWR). Coding and structuring analysis conducted with Atlas.ti visual mapping. Codes and quotations grouped into main categories according to common themes environmental protection, human rights and indigenous people and political strategy. 19
Environmental protection (1) Concerns for environmental issues and commitment towards environmental protection (past, present, future): Protecting people and the environment is a core value for Chevron. Our goal is to be recognized and admired worldwide for safety, health and environmental excellence by institutionalizing our Operational Excellence Management System. We strive to continually improve our environmental performance and reduce impacts from our operations (Chevron 2004, p. 42, emphases added). ExxonMobil is committed to operating responsibly everywhere we do business by implementing scientifically sound, practical solutions to meet energy needs in an environmentally responsible manner (ExxonMobil 2005, p. 20, emphases added). Koch companies worldwide will manage operations in a manner that protects the environment and the health and safety of employees, customers, contractors and the public while fully complying with applicable laws and regulations (Koch 2003, p. 2, emphasis added). 20
Environmental protection (2) Biodiversity protection: Biodiversity is the life support system of the planet, and its loss impacts all people. All aspects of society, including business, have a responsibility to conserve biodiversity, to encourage sustainable use of biological resources, and to promote equitable sharing of biodiversity benefits. ConocoPhillips HSE policy currently guides the company in protecting the natural environment and biodiversity wherever it operates. The company is studying the biodiversity issue and plans to develop a strategy for providing a consistent way to protect and conserve biodiversity (ConocoPhillips 2004, p. 36-37, emphases added). Sensitivity to the ANWR region: The tundra of the Alaska North Slope and northwest Russia hold vast oil reserves and also are important and sensitive ecological systems. ConocoPhillips recognizes stakeholders interest that any development be done in a manner that protects the environment (ConocoPhillips 2004, p. 30, emphases added). 21
Human rights and indigenous people (1) Commitment to human right protection: Oxy s human rights policy, one of the most comprehensive of its kind in the petroleum industry, incorporates specific provisions into Oxy s business activities to protect and promote human rights for employees and residents in the areas where we operate (Occidental Petroleum Corporation 2004, p. 4). Defining scope and sharing responsibility: Governments have the primary responsibility for protecting and promoting human rights. However, the private sector also has a responsibility to respect human rights within the legitimate role of business. ExxonMobil places a high priority on promoting human rights throughout the world, not only because we believe it is the right and responsible thing to do, but also because doing so promotes stable and productive business environments (ExxonMobil 2004, p. 44). 22
Human rights and indigenous people (2) Specific concerns for indigenous people Respecting the rights, traditions, livelihoods and cultural attributes of indigenous and other local communities. (Chevron 2004, p.17) ExxonMobil works to help address the special needs of indigenous communities in the areas where we operate (ExxonMobil 2005. p. 59). Only one on Alaska natives specifically: ConocoPhillips engages with residents surrounding our operations on issues that affect their lifestyle, land and culture, particularly when there is the potential to impact indigenous communities. On the Alaska North Slope, the company employs subsistence representatives and village liaisons to promote clear and open communication, and consult with elders and subsistence hunters, scientists and traditional experts (ConocoPhillips 2004, inside cover page). 23
Political strategies Information on political activities (but in very limited number) ConocoPhillips engages in public policy discussions through different means, including membership in trade associations involved in public policy issues, research, and direct lobbying campaigns on specific issues. The company s current public policy areas of emphasis are energy policy, fuel standards, climate change and clean air issues, and industry health, environment, safety and social issues (ConocoPhillips 2004, p. 15, emphases added). Designations of PAC funds are made to candidates who favor the strengthening of the free enterprise system and hold view consistent with the best interests of Exxon Mobil Corporation (ExxonMobil 2005, p. 63, emphases added). Chevron makes contributions to political candidates and political organizations that support economic development, free enterprise and good governance (Chevron 2004, p. 38, emphases added). 24
Complementary qualitative analyses Examination and analysis of corporate website disclosure (archived pages) Search for advertisements Generally speaking, similar patterns to the disclosure found in sustainability reports. 25
Actions as evidenced by corporate political activity (1) Our research question concerning political activity is: Do members of the House Committee on Natural Resources of the U.S. 109th Congress receive significantly higher PAC contributions from firms in the U.S. oil and gas industry than their committee non-member counterparts? Methods Sample (unit of analysis is each member of 109 th U.S. House of Representatives): Must have cast vote on House Bill H.R. 5429 Must have a 2006 LCV voting record score available Must have party affiliation available Of 435 members, 9 did not vote (absences, vacant, ineligible) = 426 members House Bill H.R. was assigned to House Committee on Natural Resources 26
Actions as evidenced by corporate political activity (2) Methods (continued) Measurements of variables PAC contributions from the U.S. oil and gas industry (http://.www.opensecrets.org) Total hard dollar amount of campaign contributions made by the 7 oil and gas industry firms to members of the 109th U.S. House of Representatives during the 2004 & 2006 election cycles. Membership in the House Resources Committee binary variable coded as yes (or 1 ) if the Representative is a member of the Resources Committee and no (or 0 ) otherwise. Legislator ideology (control variable) legislator s voting record score computed by the LCV. Political party affiliation (control variable) binary variable coded as 1 if the House member is affiliated with the Republican Party and 0 otherwise. 27
Descriptive Statistics 109 th Congress HOR Panel A Data summary on House members and vote Party affiliation 197 Democrats 228 Republicans 1 Independent Vote for ANRW Bill 27 198 0 Vote against ANWR Bill 170 30 1 Panel B Data summary on House members and Natural Resources Committee membership House Committee on Natural Resources Committee members Committee nonmembers Membership during the 2004 and 2006 election cycles 59 367 Total PAC dollar contributions received from firms operating in the U.S. oil and gas industry $791,100 $2,985,300 Mean PAC dollar contributions received per member from firms operating in the U.S. oil and gas industry $13,408 $8,134 (p <.05)* * Significance level is based on a two-tailed test. 28
Descriptive Statistics 109 th Congress HCNR (1) Party affiliation Democratic Republican Number of members 27 32 Number of members who voted for (against) the ANRW Bill 6 (21) 30 (2) Number of members who received PAC contributions from firms operating in the U.S. oil and gas industry 13 28 Total PAC dollar contributions received from firms operating in the U.S. oil and gas industry $139,600 $651,500 Mean PAC dollar contributions received per member from firms operating in the U.S. oil and gas industry $5,170 $20,359 (p <.001)** LCV voting score 78.30 10.03 (p <.001)** 29
Descriptive Statistics 109 th Congress HCNR (2) Vote on the ANWR Bill Against For Number of members 23 36 Number of members who are Democrats (Republicans) 21 (2) 6 (30) Number of members who received PAC contributions from firms operating in the U.S. oil and gas industry 7 34 Total PAC dollar contributions received from firms operating in the U.S. oil and gas industry $28,100 $763,000 Mean PAC dollar contributions received per member from firms operating in the U.S. oil and gas industry $1,222 $21,194 (p <.001)** LCV voting score 86.26 12.53 (p <.001)** 30
Analysis Tobit regression model OIL_GAS_PAC = a 1 + b 1 COM_RESOURCES + b 2 PARTY + b 3 LCV where: OIL_GAS_PAC = PAC dollar contributions made by firms in the U.S. oil and gas industry to members of the 109th U.S. House of Representatives during the 2004 and 2006 election cycles; COM_RESOURCES = Dummy variable, 1 if the Representative is a member of the House Resources Committee under the U.S. 109th Congress, 0 otherwise; PARTY = Dummy variable, 1 if the Representative is affiliated with the Republican party, 0 otherwise; LCV = Representative s environmental voting record score assessed by the League of Conservation Voters. 31
Results Model explanatory power Number of observations 426 Pseudo Chi-Square statistic 90.348 Pseudo R-squared 0.228 Parameter estimates Variable Predicted Parameter sign estimate t-stat Significance (p-value) * COM_RESOURCES (+) 5792.92 1.916 0.028 PARTY (+/-) -4729.75-1.166 0.244 LCV (+/-) -507.07-8.739 0.000 Intercept None 29376.86 6.190 0.000 Dependent variable = OIL_GAS_PAC * Significance levels are based on a one-tailed test for the COM_RESOURCES variables and two-tailed for the PARTY and LCV variables. 32
Limitations Limitations: Investigation of sustainability reporting practices for one single industry in a restricted time period (2004-2006) - extent of generalizability of results cannot be determined. PAC contributions do not solely drive or reflect corporate political strategies and activities while PACs help gain access, other omitted factors may have influenced the politics and outcome of the ANWR Bill. 33
Conclusions Sought to contrast the sustainability discourse of a sample of very large and highly visible U.S. oil and gas firms to their corporate political activities in the context of the passage of the Arctic National Wildlife Refuge Bill. Qualitative analysis of sustainability report disclosures. Quantitative analysis of corporate political strategies. Results provide evidence of gross inconsistencies between the firms talk and decisions on sustainability and the actions they take to exploit the natural environment for their own benefit. Research in sustainability reporting can benefit from additional research using the model of organized hypocrisy. 34
Conclusions Hypocrisy can be seen as a tribute that vice pays to virtue'. Morality does not necessarily gain from the cessation of hypocrisy. If we have previously talked and made decisions that were more moral than our actions, then the cessation of hypocrisy means that we are now talking and making decisions that are as immoral as our actions. For example, hypocrisy makes it possible for a company with a polluting production and product (e.g. a car producer) to establish environmental plans and to decide upon environmental goals. Without hypocrisy, it would admit that its operations were environmentally hazardous, that it planned to continue these operations, and it would have to defend them as being necessary and unavoidable. Then many people would probably think that the company polluted not only the physical environment but the moral environment as well. Nils Brunsson (2007) 35
THANK YOU! Questions and Comments Welcome 36