Choose an ASX Top-100 company and report on the company’s CSR activities and Governance structure, applying analytical frameworks from the Corporate Responsibility & Ethics Course, including Carroll’s Pyramid and Wartick and Cochrane’s Typology. Your analysis should critically analyse the company’s response to key stakeholder expectations and highlight any gaps between espoused and realised performance on CSR.
Overview of Caltex Corporation
Caltex is a vertically integrated oil company, which is to say it is involved in all aspects of the oil industry (exploration, extraction, refining and marketing). Its supply chain involves the use of pipelines, depots, terminals and fleets. Its marketing operations involve the operation of service stations, convenience stores (Caltex, Woolworths, and Starmark), retail fuels, automotive products (ATFs, grease and engine and gear oils), groceries, fast foods, automotive services as well as car wash. They offer online account management where clients can through their website access information as regards the company, its products and services. Caltex adopts the local hiring policy where more than 85% of its employees are nationals of the countries within which it operates. It has major presence in East Africa, East Asia, China, Middle East, South East Asia, and South Pacific and is the only international petroleum firm that operates in all major Asian markets.
Despite the importance of the oil industry, petroleum still remains to be a great pollutant in the environment in all of its stages from extraction to consumption. Its compounds (hydrocarbons) are highly toxic and whose combustions emit compounds such carbon dioxide, nitrous oxides and aerosols which leads to increased acid rain and climate change, (Tuccella et al., 2017). Oil spills in the oceans and seas are a great threat to marine life and even occur on land when pipelines leak. Also the emission of volatile organic compounds such as benzene have adverse effects on both the human life and environment, (Epa.gov, 2015). The 2010 Deep-water Horizon Oil Spill involving BP which killed 11 workers and injured 17 as well as leading to loss of revenue for thousands of people who rely on fishing and tourism in the affected areas puts the oil industry players on the spotlight. This paper seeks to establish whether Caltex activities are aligned with its corporate social responsibility and giving back to society.
CSR refers to a corporation’s ability to assess and take responsibility for the negative effects of their operations on the society and individuals (Mallin, 2007). More often than not it also involves giving back to society through charities for instance. Large companies trump on people and the environment in pursuit of the big bucks which they can also use to effect positive change in the society. They can give back to society through charities and also use the influence brought about by their financial standing to pressure governments and other companies to act ethically to the society in large in terms of people and resources, (Staff, 2018).
Impact of oil industry on environment
Companies responsibilities are to strive to make profits, ensure they obey the law by operating in adherence to the laws of the land in which they operate, engage in ethical practices such as ensuring their products are safe for consumption, of the right quantity and quality and by not misleading consumers and lastly be a good corporate citizen through philanthropic acts of giving back to the society, for instance, through charities, (Carroll and Buchholtz 2015).
The Carroll model is based on four pillars namely, economic, legal, ethical and philanthropic responsibilities (Carroll, 1989). The economic pillar requires companies to act profitably by undertaking activities that lead to this end. The legal aspect of this model requires companies to abide by the laws of the land in which they operate in relation to their activities. Companies are also expected to behave ethically through developing relationships with customers and their employees. The Philanthropic aspect of this model involve giving back to society and is usually through charitable activities. The importance of CSR increases with the size of the company since the bigger the company the more coverage it gets.
Caltex Corporation has been highly successful in the economic arena and is a big player in the oil industry. Caltex being in the oil industry, its main social responsibility is to the environment given the pollution effect attributable to its activities and products. Caltex is committed to limiting their environmental impact as well as addressing climate change, being a choice employer given its vast activities in different regions, adding value to their businesses to maximize shareholders wealth and being a great neighbor to all. In regard to the environment they have undertaken various initiatives such as use of recycled water in their refineries saving up to 4.5m liters water for consumption by households and underground tank replacement and monitoring (Microsites.caltex.com.au, 2008).
The Wartick and Cochrane Model
The Wartick and Cochrane model postulates that there is an underlying relationship among the philosophical (social responsibility), institutional (social responsiveness) and organizational (policies and programs) orientations of CRS. In this model the principles of social responsibility (philosophical) are identified as economic, legal, ethical and discretionary. The discretionary responsibilities in this case is defined in terms of the extent to which a company’s volitional or philanthropic activities extend and the nature of its community involvement. Social responsiveness refers to a company’s ability to respond to changes in conditions. A company can be categorized as proactive, reactive, defensive or accommodative. The organizational aspect seeks to determine the management’s ability to minimize surprises through careful and thorough issues identification, analysis and responses development should they come to pass.
Definition of CSR
Caltex demonstrates a proactive approach in management towards social responsiveness. To ensure reliability of supply and protection of the environment surrounding their tanks, they conducted a replacement program in 2007. During this exercise they investigated the age of their tanks and their placement in relation to water supply and the natural environment. As a result 12 stations in Australia had their underground tanks replaced or repaired in 2008 and monitoring ensued to ensure no leakage into the surrounding environs.
Key Stakeholders of Caltex
Stakeholders of a company refer to people or organizations that have an interest or concern in the company such that they can affect or be affected by the achievements of the company. Effective communication off the management and the stakeholders is very important in shaping their attitudes, decisions and actions towards issues that may affect the organization and its ability to operate efficiently. To this end the stakeholders need to be kept sufficiently motivated, say through attractive remuneration packages in the case of employees, (Salt and Lewis, 2018). For Caltex they include:
- Communities - these are the most affected by operations of the company in terms of jobs, impact on local resources, infrastructure as well as the environment (pollution). Communities expect to benefit from them in terms of jobs and expect them to care for the environment as its pollution greatly affects them and their health.
- Industry associations - they work hand in hand with in search of solutions to complex problems in the industry.
- Employees are the people responsible for attainment of the company’s objectives by diligently and efficiently conducting their duties in the companies. They expect fair treatment at work in terms of remuneration and promotions to keep them motivated and focused on the company objectives.
- Non-governmental agencies - these are mainly important in enabling the company fulfill its corporate social responsibility for instance in environmental conservation.
- The government is responsible for establishing a conducive environment through the laws and regulations they enact for the company (ies) to thrive. The company pays taxes to the government thus a source of revenue for the government.
- Shareholders and analysts. Shareholders are very important for any company as they are the owners. Any profit seeking company seeks to maximize shareholders wealth. They expect the company to efficiently seek maximization of their wealth.
All these stakeholders are engaged in its running through different platforms such as public consultations, websites, town halls and the AGM in the case of shareholders where there air and share ideas alongside other matters.
With the rising energy demand by the world and the increasing need for lower carbon energy sources towards a clean environment, Caltex has not been left out. To ensure sustainability it has undertaken certain measures to this end as briefly outlined below.
The Caltex Risk Management Framework
This is used to identify, monitor and report on the most significant risks faced by the company be it to the people, environment, business and strategic risks to Caltex operations. Frequent workshops are held with the senior management to ensure they are kept abreast of any new risks which are once identified are monitored to completion and reported to the Board and the relevant board committees quarterly in the risk report. Caltex Lytton refinery and its 4 licensed terminals across Australia are accredited with ISO-14001 Environmental Management System (externally audited).
Starting 2014 Caltex embraced activities which improved its energy efficiency coupled with reducing its greenhouse gas emissions. One of these measures involved the installation of light fittings in service stations that consumed lower energy. This led to lower energy usage as well as reduced operational and maintenance costs at those locations.
Caltex has been faithfully reporting compliance to the Carbon Price Mechanism where it accounts for its greenhouse gas emissions from its refineries as well as those emissions associated with the sale of its non-transport related gaseous fuels. Caltex also administers carbon pricing for domestic jet fuel, (Microsites.caltex.com.au, 2014)
The Carroll model of CSR
Caltex Corporation plays a role in poverty alleviation through job creation. Caltex adopts a local hiring policy in its activities beyond Australia. 85% of its employees are usually local hires. Through the nationals in the host country employment in Caltex, they earn an income which helps them improve on their standards of living and their households’. Also it goes without saying that the community also becomes a source of raw materials for the company. The company also pays taxes to the government which in turn uses this to fund projects in the nation that call for labor thus creating employment opportunities for the nationals.
There has been an increasing trend of wage fraud amongst Caltex franchisees. Caltex has had issues of compliance to wage laws with one of its franchisers the Rana Group which reportedly had been paying its attendants a wage of $13 which falls below the required $19.6 an hour, with the attendants facing to lose their day wages should customers drive away without paying. Attendants also face death threats when they come out complaining thus making them suppress their voices over tis. Caltex promised to terminate their contract with the Rana Group if these allegations were found to be true. Cases of employees being underpaid have been increasing over time which has necessitated Caltex to take over the running of 80 of its service stations in Australia as they conduct investigations, (Digest, 2017).
Caltex is determined to ensure fair treatment in the market places in which it operates. Keeping true to this it is committed to ensure compliance with the relevant competition and consumer laws in all their businesses both within and beyond Australia. These laws seek to protect consumers as well as promote and protect competition in the market. Any deviation from these laws damages the financial aspect of Caltex through payouts and compensation as well as tits reputation. Through the Competition and Consumer Act Compliance Policy and Manual Caltex provides a guideline to its employees and management on how to comply to these laws, (Segal, 2016).
Caltex’ corporate governance is set in line with activities aimed at ensuring that the best interest of the shareholders and other stake holders is upheld through increase of the value of the company. Consequently regular reviews of governance policies and practices are held to inculcate government regulations and meet shareholders and other stakeholders’ expectations. Caltex adopts a proactive approach in its corporate management as it seeks to prevent rather than resolve issues. Caltex has a clear outline of its code of conduct for the employees’ to follow to ensure that they are in line with the companies objectives. It clearly states what to do and what not to do. Through their constant monitoring and maintenance of their supply lines, underground tanks as well as wells they have been able to avert disastrous effects of cases of oil spills thus environmental conservation/preservation, (Caltex, 2018). However there’s a growing need for Caltex to revisit its franchising decision following the below minimum wage saga for the employees.
Caltex's initiatives towards environmental sustainability
It promotes the education sector through programs such as Caltex Fuel Your School (CFYS) in Manila. This focuses on STEM courses, that is, science, technology, engineering and mathematics. It achieves this through donations to help public high schools purchase equipment and classroom materials to facilitate these studies. It also funds the mobile mechanic program for disadvantaged youth who have completed training with the Don Bosco Technical Institute who upon graduation form part of the “call a mechanic” service. Caltex sponsors the automated weather systems units around manila which collects and stores weather data as well as showing rainfall intensity. It is also involved in regular coastal clean-up in San Pascual in an effort to prepare a nesting field for turtles as well as providing training on turtle encounter awareness in that community seeing as they are an endangered species, (Caltex Philippines, 2018).
For long run profitability of a company all aspects of CRS need to be addressed as they are all interrelated such the good performance of one aspect is so easily derailed by the bad performance of the other. Caltex as can be seen above has been able to balance the 4 pillars of corporate social responsibility. However the franchising aspect needs to be looked into more in an attempt to ensure employees’ rights in the service stations are upheld by the franchising companies in all aspects but most importantly on wage. Caltex needs to explore other avenues of energy production beyond oil and biofuels. For instance it needs to identify its stance on the electric vehicles in terms of its energy source production.
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