Discuss about the Assessment of Saudi Aramco from CSR and Business Ethics Perspective.
The purpose of this report is to evaluate Saudi Aramco Company from the perspectives of the business ethics and corporate social responsibility using conceptual approaches. As the organization currently operates in the oil and natural gas industry thus the business operation of the organization is responsible for various sufferings of the commoners and environmental misbalance (Al-Tawfiq et al. 2014). Thus the management of the organization takes various initiatives to maintain proper business ethics and willingly invests a lot for social and environmental causes that makes the organization one of the leading organizations who invests and takes actions regarding these issues (Brammer and Pavelin 2016). In this report detailed information regarding business ethics and social responsibility of the organizations are shared along with a recommendation section for the business organizations operating in oil industry. Saudi Aramco is a Saudi Arabian oil company that is widely known as Aramco is an organization that operates in the industry of petroleum and natural gas. The business corporation’s net market value is approximated between 3 trillion to 10 trillion US dollars that makes it the most valuable business organization (Abro, Khurshid and Aamir 2016). The business corporation currently owns the second largest reserve of crude oil and ranks second in daily production of oil. The oil industry falls under the focal point of all the debates regarding sustainability as it is the chief source for more than half portion of the energy that the world population consumes. It can be said that the usage of oil is immensely resource and energy intensive and in addition to that, it leads to major emissions. The global media often presents reports regarding inadequacy of the business ethics and the disclosure of such unethical behaviors can invoke significant ethical issues and can contribute to the advent of necessary awareness in this context (Gideon Jojo and Baffour Awuah 2017). This report highlights the relation between the corporate social responsibilities, the firm value and the ethical behavior in the industry of oil and natural gas.
The ethical behavior along with the social responsibility of the chosen oil and Gas Company are conceptualized by a series of social and ethical indexes to observe and represent those concepts (Berkowitz, Bucheli and Dumez 2017). This particular study focuses on the knowledge base of the theories of business ethics and corporate social responsibility construct presenting empirical evidence to find out whether CSR along with other standards are linked with the firm value of Aramco that operates in the industry of oil and natural gas. The oil and gas industry is an immensely expanded and diversified industry that collects revenue more than 2.5 trillion US dollars each year. This particular report focuses on the relation between Saudi Aramco company’s business ethics and corporate social responsibilities.
The business ethics have become a major issue for all the business organizations nowadays and not only for the oil and natural gas industry (Crane and Matten 2016). It can be seen that the increasing environmental performance can be considered as a standard for the business organizations operating in all types of industries and not only for the oil industry. In a recently arranged pole of almost 4000 people from across the kingdom of Saudi Arabia presented the fact that nearing 85% of them would prefer to purchase products from the business corporations that are comparatively socially minded (Jamali et al. 2017). 90% of the individuals who participated in the pole stated that they expect organizations like Aramco should use the resources they have to solve various social issues like poverty, health issues and unemployment (Kolk 2016). It is seen that the business organizations operating in Saudi Arabia sometimes show reluctance to communicate their deeds that are good as they think that some individuals might look at that like the organizations are exploiting the charities. In this regard, it must be mentioned that as long as the business organization’s donations provide help for the society, these organizations will be safe from any types of criticism and will also have a powerful justification for maintaining more lasting and positive relationship with all the stakeholders.
It can be said that Immanuel Kant’s method of deontological ethics is one of the most effective approach to ethical reasoning (Hill et al. 2015). It is a matter of fact that Kant’s authority on the ethical theories I so significant that some of the authors refer theory of deontology as Kantianism. This particular approach of Kant sheds light on universal rules to determine right actions and on duty. Kant stated that good will and taking action from the good will is the most important thing nowadays. It is worthwhile to mention that Kant said that the basic principle of ethics is categorical imperative (Idemudia 2017). Kant’s analysis shows three formulations and those are mentioned below;
- Humanity should be treated in a person as an end and never merely as a means.
- The individuals should act on the laws that support the nature’s universal laws.
- An individual should act as if he or she is a member of an ideal kingdom where the individual can be compared with both the sovereign and the subjects.
According to Kant an action’s intentions rather than the consequences makes the action good. Thus the ethical person is the man who can act having right intentions. Without having free will no one can act this way. Utilitarianism is an ethical theory that is consequentialist; as it states that rightness of an act can be determined solely by the consequences of that particular act and not by the act’s features (Berkowitz, Bucheli and Dumez 2017). Theory of Utilitarianism discloses that a specific action would be right only if it is able to promote happiness and the action would be considered wrong if it invokes reverse of happiness. Thus it can be said that the concept of utilitarianism is that the individuals should take actions to bring in the consequences which are best for a particular situation (Kirat 2015). It is seen that the biggest controversy in this area of business ethics is the set standard of corporate obligations towards the society. In this regard it can be said that the business leaders do not have the obligations towards the society where they are operating their business beyond the obligation of them towards the stakeholders of their organizations as that would require making profits if they obey the set laws regarding this issue. In an economy with free market, the corporate executives are the workers of the business organizations where they have the responsibility to report to their employers (Crane and Matten 2016). Thus it can be said that it should be the responsibility of them to act as the agents of the organizations and help to run the business according to the wish of the employers. In this context it is evident that when these executives spend a certain amount of money as a form of charity, they spend money of other people or money of their employers and this act certainly reduces the monetary returns of the stakeholders (Hill et al. 2015). The term ‘social responsibility’ includes acceptance of a view that is generally socialist with political mechanism. It is the political mechanism and not market mechanism which is right process to determine distribution of limited resources to various other uses. In his popular theory of stakeholders, Freeman stated that effective corporate management needs consideration to the interests all important stakeholders and others (Memish et al. 2014). A compact definition discloses only about the groups which are important for the sustenance of a business organization, and on the other hand a broad definition discloses that any groups that is impactful or gets affected by the business corporation. In accordance with the theory of stakeholders, it is seen that a business organization’s economic success can be attained by providing the interests of the stakeholder’s consideration and also by adopting the policies of the organization that generates the best possible balance among those. Each and every business organization has to bear an ethical responsibility to all of its constituencies such as the workforce, clients, suppliers, shareholders and above all the community. The business corporation impacts every constituency and also gets affected by those. Every constituency thus becomes a stakeholder of the organization, and out of them each in return has a precise expectation regarding to what extent the management of the organization will do that and how (Crane and Matten 2016). The ethical responsibility of a business organization generates form the expectation that it will surely be a good citizen and will pay the share of taxes and along with that a zeal to run the operations of the business in such a way that it reduces the negative impact on the environment (Panwar et al. 2014).
Understanding Corporate Social responsibility
‘Corporate social responsibility’ this term actually refers to various things the business organizations perform as their effort to navigate the swirling currents of expectations that are changing and the expectations that never loomed bigger in the daily lives of the organizations that includes the companies that operates in the oil and natural gas industry. Nowadays the term CSR has become more popular than ever. It can be said that CSR refers to the operation of the business corporations that they perform as they have an obligation towards the external stakeholders (Akturan 2016). The word responsibility in this regard shows the duty of the organizations towards the community and the word social means the business corporation’s duty towards the society. This concept has various implications regarding many theories of the companies. The supporter of the theory of stakeholder on the other hand argues that the managements of the business organizations owe to the stakeholders of the organizations a range of ethical and legal duties (Ramady 2017). The business organizations, according to this theory, are organized not only to attain the efficiencies that would not be realized by arms-length exchange; and on the other hand, the organizations have legal personnel and they act according to the best interests of the business corporations (Michael et al. 2015). The operations of the business organizations might affect the customers, suppliers, employees, NGOs and governments. Thus it can be said that these people definitely have a stake in the business organization. It can be said that the general workforce and the managers are the nucleus of the business organizations and they are generally responsible for making decisions for the organizations.
Contrasting with the theory of Friedman
On the other hand, it is seen that Friedman describes CSR as a business organization’s responsibility to make as much money as it can for all of its stakeholders. When it is studied in deep, it can be said that there are no conflicts between the business organizations in pursuing a civil society and profit (Ouellette 2017). Economists understand that Frirdman’s admonition is a good route for a society to become socialized and civil. Thus precisely, it would be the responsibility of the business organizations to produce any kinds of social good than making rules regarding how a company can become socially responsible.
This report reviews various existing literature regarding business ethics and activities regarding corporate social responsibility in the backdrop of Saudi Aramco. Saudi Aramco built a positive reputation globally by recognizing the importance of investing for social and environmental causes. It can be said that the management of Aramco long before understood the importance of such activities as through their business operations the balance of the environment and society gets harmed in a way and the management should invest to help to rebalance the situation. The next section will discuss the findings by applying the existing theories in this context.
The business organizations like Saudi Aramco have always provided the funds of the company to charitable organizations and some highly regulated organizations operating in oil and gas industry have found out ways in which they can move beyond the compliances that are specifically with respect to the effects to the environment because of their business operations (Akturan 2016). The major focus of this should be on the issues that are specifically environmental and that too under the term of sustainability that has huge importance in the sector of CSR. The concept of sustainable development has grown from the sufferings o the common people due to various operations of the business corporations since the industrial revolution and it sheds light on the long term productivity (Abro, Khurshid and Aamir 2016). As an example, it can be said that incessant fishing would reduce the population of the fishes below the level that is sustainable and thus the sustainable yields would need to some extent government regulations and cooperative restrains. There is another concept of sustainability that involves various voluntary actions that aims to work for the best interests of the community; such benefits are reduced usage of toxic elements, organizations investment regarding conservation and many more (Ramady 2018).
The oil and natural gas industry have faced various issues regarding environment for many years and various organizations responded to the fact differently. In Saudi Arabia Aramco is the first business organization that has adopted various responsibilities towards the environment and the community and it was before any actions taken by the government of Saudi Arabia in this regard. In this context, Saudi Aramco has become a role model for the other business organizations as they provide sustainable economic and social opportunities in substantial amount for the community (Abro, Khurshid and Aamir 2016). The organization’s goal is to become a global citizen by reducing the harms that can generate from the operation style of the company along with increasing the opportunities. In the CSR operations of Aramco there are four main areas and those are mentioned in this section of this report.
Community, economy, environment and knowledge are the four main areas. The organization in past 100 investments have already invested more than a few billions of US dollars to create more than thousand job opportunities and brought in more than 72 billion US dollars investment from foreign sources. The business organization backs up more than 100 non-profit organizations dedicated as charitable organizations in the Kingdom of Saudi Arabia. As the company is government undertaken, the generated profit goes to the government fund that in a way supports the citizenry (Story and Neves 2015). The management of the business organization engages the employees and the dependents of the organization to various CSR activities outside and inside Saudi Arabia. In a recent initiative, the management of Aramco has arranged a forum regarding CSR in the year of 2012 (Abugre and Nyuur 2015). The main aim of the forum is to create a platform to link the experts in this field to various CSR activities and the individuals are encouraged to share the expertise to fulfill the needs of the society and the environment.
In industrialized nations individuals expect that laws shall structure the relationship between external stakeholders with IOS and various conflicts with the stakeholders will be taken care of by government interventions (Alsubaie 2016). As an example, it can be said that the harms took place in the disaster of Deepwater Horizon shall be replenished by well developed governmental and legal system. In this context it is worthwhile to mention that in United States there are legal regulations regarding appointing the legal responsibility for environmental issues and other harms that occurred by oil spills and various explosions (Abro, Khurshid and Aamir 2016). It is seen that efficient legal systems would observe that whether the set rules are getting followed by the managements of the business organizations or not. Thus in this context it can be said that failure of government can be an important factor behind accidents of this sort. On the other hand in countries that are still developing the standards of the legal structure might be weaker and ability of controlling the situation of the government also might be weak. In this way the government might lack legitimacy according to the individuals of that particular country and the social and environmental conflicts in such countries must e solved with high priority to solve these types of issues (Berkowitz, Bucheli and Dumez 2017). These types of situations can bring in various confusions for the organizations that operate in the oil and gas industry. In this regard it can be said that Royal Dutch Shell is a business organization started extracting oil in the land of Nigeria in the 50s and at the cost of the freedom of the Nigerians. This incident has been widely famous as Oil Curse. The Nigeria is blessed with huge reserves of oil and that should have been a blessing but the Dutch company makes huge profit from them and gives a small donation to the state (Thorne et al. 2017). The business organization later realized the situation in the 80s and initiated investing for various social causes to regain the reputation in the global market.
Discussion and Conclusion
Various NGO organizations and other individuals say that the examples or cases that are mentioned above are some typical cases found in oil and gas industry. The management of the organizations operating in this industry should behave with more responsible approach. This is incessant process with the concept of IOCs as rational maximizing of the returns of the shareholders shall take the advantages of inadequate or non-existing laws and the regulatory standards (Abugre and Nyuur 2015). This will eventually exploit and pollute the local population as long as they are able to avoid the social liabilities. This particular concept turns down the forces that have been put CSR much closer to the ‘center of business decision making’ for the last few years. Various IOC in the oil industry shall be embracing CSR activities as they have a faith that it would not be right to leave behind a legacy of social dislocation, toxic contamination and poverty in the land of their business operation (Alotaibi 2016). It is likely that they indentify that the harm in reputation can be severely damaging as legal liability and investments for social and environmental causes can help them to gain returns that are positive in the long run.
Thus to conclude, it can be said that Business ethics and corporate social responsibility are two terms that have immense significance in today’s world. Organizations operating in oil and gas industry are naturally high risk businesses and various chemical explosion, fatalities, oil spills, labor litigations and many more issues have been inherent in the business operation. Thus these organizations need to significantly improve their ethics and awareness regarding their social and environmental liabilities. Especially the organizations that are operating in the oil and natural gas industry should take initiatives to fight for the social and environmental causes as each year due to various explosions and oil spills the nature gets affected and numerous people suffers a lot from situations of that sort. Apart from those, some responsibilities are there as those organizations are exploiting the natural resources and making profit and that raises the obligations that they have towards the society and environment. As in most cases these incidents take place due to lack of training and development procedure, the managements of such organizations should focus on such issues and it has been proven that substantial training facilities have improved the situation.
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