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MEDM604 Ethical Decision Making, Athabasca University, Canada

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Energy Sector and Corruption: A Case Analysis

Assignment Task

1. Final Case Study – Question 1:

Develop a post-conviction Action Plan for Niko Resources. The action plan should delineate the activities Niko should undertake as a response to their conviction under the Corruption of Foreign Public Officials Act, i.e. from an ethical standpoint, what activities must be undertaken to ensure the long-term sustainability of Niko?

Consider shareholders, key stakeholders including employees, the Canadian energy industry, Canadian society, and Bangladesh in your response. Support your suggested actions with justification and rationale from your readings and research. Identify the key barriers to implementation of your action plan and how they may be overcome.

2. Final Case Study Question 2

From an ethical point of view, what should be the role of Canadian business with respect to resource development as it pertains to

a) development within Canada?

b) Canadian resource companies in other countries?

Solution

Introduction

Niko Resources is an oil and natural gas exploration and production company based in Canada. In their endeavour to expand internationally, the company ventured into opportunities in exploration and development in several eastern countries, Bangladesh is one of them. It formed Niko Bangladesh, and Qasim Sharif was appointed the president in 2003. Niko Bangladesh forged a joint venture agreement (JVA) in 2003 with Bangladesh’s state-owned gas company BAPEX to carry out exploration in the countries natural gas fields. The Gas Purchase and Sales Agreement (GPSA) was signed later on December 27, 2006. The company began its drilling operation on the New Year’s Eve 2004 in the north- eastern part of Bangladesh. Just after seven days, there was a blowout in the site, which despite not causing any deaths led to a mass evacuation as the ensuring gas fire burned for weeks. The incident raised fingers at Niko and the government of Bangladesh and their alleged JVA.

In May 2005, Niko Bangladesh presented a new Toyota Land Cruiser worth $190,000 to the Bangladesh state minister for energy and natural resources A.K.M. Mosharraf Hossain. Interestingly, the car was registered to BAPEX but was delivered to the home of the minister in Dhaka Bangladesh. Furthermore, the company financed the minister for his travel to Calgary to attend an oil and gas exposition, then to New York and Chicago to meet his family living there. The trip cost $5,000 for the company. The incident was made public by media in Bangladesh who also alleged that the minister delayed the payment of compensation by Niko Bangladesh for the first blowout.

On June 18, 2005, Mr. Hossain was called on to the Prime Minister’s office of Bangladesh where he submitted his resignation. Two days later, BAPEX took the SUV back. Back in Canada, a case was initiated against Niko Resources under the new Corruption of Foreign Public Official Act, an anti-corruption law. The RCMP began
investigating the case with cooperation from many law enforcing agencies like Bangladeshi Anti-Corruption Commission, the United States Department of Justice, The FB, and on June 24, 2011, the company was convicted. It was sentenced to a fine of $9.5 million and was subjected to a probation period of three years.

Ethical Reasoning And Principles On Which The Action Plan Rests

The ethical reasoning founded on which the action plans should be formulated as follows: both individuals and businesses have the capability to affect the welfare of the fellow individuals or business or the society and natural environment through their actions and behaviours. Businesses are capable of either benefiting or harming both its shareholders and the stakeholders with their policies and practices (Paul and Elder, 2014). Therefore, they should be careful and vigilant enough to stay away from any practice that harms either of them irrespective of from where they are operating. The principle of ethics that will govern the action plans is Deontology, which is a normative ethical theory focusing on the correctness or unfairness of an action within a framework of rules notwithstanding the result that action generates (Misselbrook, 2013). That is to say, no matter how much a company benefits from bribing a government official, the act of bribing itself remains unethical within the socio-normative framework of the society and nation.

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Major Impacts On Shareholders And Stakeholders

Now that Niko Resources has been indicted for bribery and sentenced with a fine and a period of probation, it is high time for them to think ahead and take necessary measures so that in future the company does not get embroiled into such cases of corruption. Maintaining transparency and ethical practices in its dealings have become mandatory aspects of its sustainability. The company needs to prepare an Action Plan that should involve shareholders, key stakeholders including employees, the Canadian energy industry, Canadian society, and Bangladesh. As a first step, the company should start with an inward looking approach; filling the gaps that led to perpetuation of unethical practices. It must revise and revamp its company policies and rules pertaining to anti-bribery and anti-corruption. In the document, they must define these terms clearly, outline the scope of these definitions vividly, and make stringent policies to prevent them. They must declare in unambiguous words that the company in no way appreciates or encourages offering or accepting gifts, donations, hospitality, and sponsorship in any shape or form by any individual or group of individuals belonging to the company irrespective of stature or rank.

However, in the course of business the company may have to either accept or offer gifts or hospitality, but they should meet three criteria. First, it must be legitimate in the sense that it must have an authentic business purpose; second, it must be proportionate i.e., reasonable and not extravagant; and lastly, it must be transparent. Above all, there should not be any conflict of interest or undue influence. The message should be clearly communicated to all the employees throughout the hierarchy that no act of corruption and bribery will be tolerated and anyone found indulging in such activities will face strictest punishment. This rule will be applicable to all the employees who work for the parent company and its subsidiaries in other countries.

The employees will also be sensitized with the help of training sessions about what constitutes corruption, what the law of the land regarding corruption are, and how to deal with tricky situations without getting involved into shady businesses. Moreover, the company must encourage whistleblowing to unearth any unethical deal or business practice conducted either inside the company in Canada or in any overseas subsidiary. There must be established whistleblowing channel in the company where employees can report about actual or suspected case of bribery and corruption. At the same time, the company need to ensure that the interest of the whistle-blowers is protected, and no innocent is victimised unduly (Callister, 2016).

The company must set up an Internal Control Framework to manage the bribery and corruption risks. This system will perform risk assessment of the company to determine its exposure to the corruption and bribery risk and help review and update the risk profile regularly.

The antibribery and anti-corruption principles of the company must be spread across all the stakeholders of the company through the inclusion of anti-corruption clauses and ground rules of fair practices in all agreements and contracts with suppliers, vendors, and customers along with termination sections for suspected violations. As Niko Resources is a company that must deal with government officials within Canada or outside, it should have a transparent policy and practice for dealing with them. The leadership must lead by example by, on principle, not trying to influence the government officials for any advantage or benefits in business. The Bangladesh incident should be an eye opener for them on how devastating the impact of bribery can be. Moreover, the company must formulate well-structured and comprehensive policies and procedures to deal with government officials in foreign lands. This must include following the relevant written standards, laws of the land, pertinent regulations, and codes of conduct while interacting with government officials.

Niko should further allow the subsidiary companies to formulate their own codes of conduct in light of the one prescribed by the headquarter incorporating the culture and practices of the country where the business is operating. However, the basic premise of the codes must remain the same with a strong commitment on ethics and refusal to commit any unlawful activity to garner the business.

The company officials working in foreign lands should be directed and guided to keep a close watch on different indicators, such as unusually high-fee or commission, emphasis on maintaining secrecy or carrying out activities in unnecessary haste and the like, which can be prelude to any corrupt practice. They should not waste any time to report them to the concerned authority. These officials must strictly instructed not to make any facilitation payment to speed up work of the government or semi-government or private agencies. The company needs to put emphasis on conducting due diligence on third parties to stay protected from cases of bribery and corruption. Every consultant, associate, agent, must be carefully scrutinized along with their claims and credentials before incorporating them into the business. These third party connections must be monitored frequently, and their modus operandi must be critically judged.

It is very important for the company at post-conviction stage to clear its image in the public sphere. For this purpose, the company need to make a written commitment on business ethics that must be embodied in the mission, vision or value statement of the company published in its annual reports (OECD, 2003). These statements must be elaborated on company codes of conduct which must be communicated to diverse audiences including regulators, general public, employees, associates, and suppliers. To reach out to its different stakeholders and the world beyond the company should utilize its website. Over there, the company must make a promise to the outside world that it has learnt from its past mistakes and now is ready to progress in the path of fairness and transparency. The company can publish its codes of conduct for the knowledge and understanding of the greater audience and also publish its performance in this area so that the both its stakeholders and the energy industry of Canada be sure of its intentions and commitment to ethical practices. The company should also take help from media to enhance its image and spread its new resolution to carry out clean operations and run a fair business.

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Areas of Highest Risk

The areas of highest risk are is the reputation of the company both domestically and internationally. This is also associated with its ability to attract and retain talents. Many may want to quit because none wants to be associated with a company that encourages trained practices as continued service in such a company may put their integrity into question. New talents will not prefer to work for a company that has some kind of infamy attached to it. A scare on the image of the company can restrict its possibilities of collaboration with other reputed companies of foreign origin. Customers may also avoid the company because of its bad reputation.

Action Plan Items That Address Risk Areas

Key barriers to implementation

The implementation part of the Action Plan is never going to be smooth as it involves commitment from many people and people across countries, which is difficult to ensure. Although in writing all the rules and policies may be fair and transparent indicating the changed approach of the company to the business but putting them into practice will take real strength of character from people right from the leadership to the lowest rank of the company. It is true that fear of being detected and punished will keep a group of people who are prone to corrupt practices away from indulging in unfair activities. But many of the employees may not be very clear about what exactly comprises corruption and what are called ethical practices. To bring the employees on the same page with the thinking of the company management, they should arrange for training of the employees that will create an awareness and understanding about ethical practices.

These training sessions will also equip them with a legal understanding of different unethical actions and abreast them with soft skills to deal with tough situations and negotiate effectively to get the best result. Another problem that the company may face while implementing the action plan across countries is cultural differences. In some countries offering gifts may not be considered a part of bribery but a cultural gesture. Employees in those countries may find this objectionable to accept. What is thus required is cultural sensitization of the plan depending on which country it is targeting. Thus, with some efforts, Niko can bring its house in order. However, the problem will emanate from the outside environment on which the company has no control.

Especially, when the company is operating in countries like Bangladesh where corruption is rampant, it is very difficult to stay honest and run a business ethically. In
countries like Bangladesh, the governmental systems are not well developed or well monitored. It is a general practice over there to twist the legal provisions and make easy ways. Also, the systems are highly dependent on the personal whims of individuals in power. Unless these people are made happy, the interest of the business will remain buried under the bureaucratic red-tape. The political parties also interfere with the business in their bid to satisfy their petty interest which causes difficulty in the operation. If not entertained, they create problems such as labor trouble, instigating the communities around the business site against the company and the like.

Mitigation of barriers

To find ways of dealing with these obstacles, the company needs to identify who the agrents are that can help in their struggle against corruption. Firstly, the top brass of the political system in the country is less prone to corruption and hence establishing a connection with them can help the company stay clean. Secondly, the media is powerful in developing countries and are active in unearthing scandals. They can also support Niko to refurbish its image in the public preview. Thirdly, the company can start performing various corporate social responsibility activities which will allow it to get in touch with people from diverse backgrounds who can be of great help for the company in implementing transformed work ethics. Such activities will also bring the company to the notice of the general public. Moreover, their good deeds will draw support from the local people who will not be easily instigated against the company by miscreants. The non-government organizations can also
support the cause of the company and spread their well-meaning intentions to the people at ground level. Finally, the company must take care of its employees and workers and support them with health and safety networks, incentives, and autonomy.

Last but not least, the Niko leadership must have the courage and patience to fight the battle with firm conviction. They must be resolute in altering the bruised image of the company and give it a complete makeover. This will need consistent efforts, diplomatic skill, and the right strategy to get associated with people who matter. No doubt, there will be conflicts as people and officials habituated with reaping the benefits of unethical practices will resist and create obstacles and the conflicts may turn gory at the outset, but constant resistance to corruption is sure to break its backbone and pave ways for better future. Ethical Role Of Canadian Business In Resource Development

Within Canada

From the ethical perspective, the Canadian businesses need to be more responsible in resource development not only in their country but also outside. The Polly Mount mine disaster is an example at this point that indicates how resource development companies do not care for the interest of the people and the state of the natural resources in their process of converting raw material into final outputs. The also leaves no chance to use the lacuna in the laws to their advantage and carry on indiscriminate activities that are damaging to the community and the environment. What they are failing to understand is that their irresponsible conducts may be bearing them fruit today, but if the environment on which they are thriving is destroyed, they will not survive as well. Five years have passed after Canada’s largest copper mine disaster in Mount Polly; people are still under severe trauma. On August 4, 2014, the water of the Polly Lake, Hazeltine Creek and Quesnel Lake were contaminated with 25 billion litres of toxic wastes of copper and gold mining. These waterbodies are the source of drinking water and breeding ground of salmons. Right after the disaster, an emergency was declared over the concern for drinking water. Even after the five years and despite the cleaning efforts, local people are still afraid of eating salmon and other fishes from the rivers, lakes and creeks which were contaminated by the mine disaster (Amnesty International, 2017). Despite risk on lives and livelihood of the community of the region, the company, Imperial Metals, has not stopped dumping wastes in these fragile waterbodies. It is taking advantage of the mining regulations of British Columbia which does not require the mining companies to take up human rights responsibilities under the international law that Candida is an incumbent.

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This example demonstrates the lack of concern of the Canadian businesses engaged in developing resources towards people and the environment of the country. Theirmoney- making mindset is ready to put the lives of people at stake. In the future, laws will be changed, made stringent, new regulations and standards may come, which will force these companies to act responsibly, but what is required is the sense of ethics among the businesses that will drive them to act voluntarily to protect human rights and prevent them from degrading the environmental conditions and natural resources for the sake of amassing profit. To fathom the intensity of the problem, web-based research was conducted to find that in the list of the 2019 world’s most ethical companies, Capital Power is the only Canadian company functioning in the energy and utility industry that has managed to get itself included (Honoree, 2019). This is a trend that is very worrying for the people and authorities of Canada. Energy is essential for running a household to running a country, which makes these resource development countries very important. If these companies are not eager to be ethical in their practices they can cause severe damage to the country’s resources, people and the environment. These companies must be aware of the responsibilities they own and their duties towards the society and nature from which they are drawing a maximum of their resources and making handsome earnings. They must give it back to the ecosystem and should do justice to it. As mentioned before, laws can force compliance, but unless realization dawn on these companies they will always be on the lookout for a loophole to evade or bypass the law.

Outside of Canada

The same logic is applicable when Canadian businesses are expanding to other countries. There also they need to be respectful towards the people of that country, its environment, and its laws. The case in the discussion is a glaring example of how Canadian businesses got involved themselves in shady deals with a government official of Bangladesh for petty gain. The lack of ethics was apparent from their conduct. Resource development is an investment-driven business and involves substantial risk. Therefore, companies sometimes find compromising on ethical standards more beneficial to protect the interest of the business especially in a foreign land. However, the subsequent unveiling of incidents proved the point that gains, if any, ensued by unethical practices are short-term. They do more harm than good to the company. Niko Resources learned these lessons at the cost of $ 9.5 million.

Conclusion

Examples like Niko Resources should be treated like guidelines by Canadian businesses working towards resource development, on what should never be done while operating in a foreign country. In a country which is not its home ground, it becomes even more important for a company to be ethical in its manoeuvres as not only the image of the company is spoiled but also the country to which the company belongs earns a bad reputation internationally. As the world of business is changing, being ethical is not merely an option but something mandatory to ensure sustainability in the long run.

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