Business and Human Rights – Conflict Zones and
Corporate Human Rights Violations
MSc Business Administration – International Management Author: Natalia Polasik-Lipinska (10967958)
Date: 29th January 2016
Supervisor: Dr. Michelle Westermann – Behaylo Second Supervisor: Drs. Daniel van den Buuse Word Count: 13186
Statement of Originality
This document is written by Student Natalia Polasik-Lipinska who declares to take full responsibility for the contents of this document.
I declare that the text and work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
List of Abbreviations
BHRC Business & Human Rights Resource Center CHRD Corporations & Human Rights Database Project CSBP Conflict-Sensitive Business Practice
CSR Corporate Social Responsibility FDI Foreign Direct Investment
GVC Global Value Chain
HIIK Heidelberg Institute for International Conflict Research IDP Internally Displaced Person
MNE Multinational Entreprise
MNL Multinomial Logit
NGO Non-Governmental Organization
SRSG Special Representative of the Secretary-General
UN United Nations
In recent years, the topic of business and human rights has become very controversial (Arkani & Theobald, 2005). On one hand, firms need to generate profits and maximize their revenues (Friedman, 1970); on the other hand, they are asked to be ‘good citizens’ towards people (Porter & Kramer, 2006). Moreover nowadays, many firms invest in developing countries which are subject to conflict (Drimmer, 2010). Among these companies are extractive multinational firms. Addressing the limitations, this paper develops a theoretical framework as an attempt to explain the drivers of corporate human rights violations using conflict and its intensity as predictors of the violations. In this thesis, 261 observations of alleged human rights violations among oil and gas transnational companies over the period of 2009 – 2013 have been used in order to examine violations in conflict zones in three different countries. This study is the first to question whether intense levels of conflict have varying impact on corporate abuses. The main findings suggest that there is a positive correlation between the occurrence of corporate violations of rights to life and liberty, and violent conflict.
Keywords: Human right violations, Multinational Enterprises, Conflict, Conflict Intensity,
Table of Content
STATEMENT OF ORIGINALITY ... 2
LIST OF ABBREVIATIONS ... 3
ABSTRACT ... 4
1. INTRODUCTION ... 6
2. LITERATURE REVIEW ... 8
2.1 THE RIGHT TO DEVELOPMENT ... 8
2.2 THE RIGHT TO LIFE, LIBERTY AND SECURITY ... 9
2.3 THE RIGHT TO A HEALTHY ENVIRONMENT ... 10
2.4 ‘PROTECT, RESPECT AND REMEDY’ FRAMEWORK ... 12
2.5 BUSINESS RESPONSIBILITY IN CONFLICT ZONES ... 15
2.6 CONFLICT AND CORPORATE HUMAN RIGHTS VIOLATIONS ... 17
2.7 POLITICAL CONFLICT AND CONFLICT INTENSITY ... 17
2.8 CONFLICT-‐SENSITIVE BUSINESS PRACTICES ... 19
2.9 EXTRACTIVE INDUSTRY IN CONFLICT ZONES ... 20
2.10 RESEARCH QUESTIONS ... 23
2.11 CONCEPTUAL FRAMEWORK ... 23
3. DATA AND METHOD ... 29
3.1 SAMPLE ... 29 3.2 DATA COLLECTION ... 31 3.3 VARIABLES ... 33 3.3.1 Dependent variable ... 33 3.3.2 Independent variables ... 33 3.3.3 Control variables ... 36 4. RESULTS ... 39 4.1 DATA ANALYSIS ... 39
4.1.1 Missing data and two-‐, and multi-‐item scales ... 39
4.1.2 Descriptive statistics ... 40
4.1.3 Correlation analysis ... 41
4.1.4 Multinomial logistic regression ... 42
5. DISCUSSION ... 46
5.1 RECOMMENDATIONS FOR PROFESSIONAL PRACTICE ... 49
5.2 LIMITATIONS AND FUTURE RESEARCH ... 50
CONCLUSION ... 53
REFERENCES ... 54
In 2013, the entrance of Shell and Chevron into the Ukrainian market was marked with high hopes not only for the excavation tycoons but also for the country itself. Shale gas could have been a ticket to Ukrainian freedom and a promise for lower reliance on Russia, while giving the companies an opportunity to profit greatly from the investment (Raymond, 2014). Already in 2014, the concerns about Shell’s questionable practices in Ukraine, among which were alleged environmental damage and corruption, were raised by Friends of the Earth Netherlands (FoE Netherlands, 2014). A few months later, as the conflict between Russia and Ukraine emerged, both Shell and Chevron pulled out of the project (Grochinskaya, 2014). There seemed to be no end to the outbreaks of violence in the Eastern part of Ukraine, trapping Royal Dutch Shell and Chevron in the middle of fights between pro-Russian separatists and Ukrainian military forces (Donovan, 2014). When the conflict emerged unexpectedly, the possible lucrative investment turned out to be a threat to the safety of companies’ personnel (Kutlu & Cabbaroglu, 2014).
With the rising globalization effects, many large corporations acquired subsidiaries in developing countries, thus having to operate in completely different setups (Demirbag & Glaister, 2010). In the 1990s, the concept of business and human rights evolved, preventing companies from denying their responsibility for human rights violations in a broad context of firms’ operations (Ruggie, 2013). Nowadays, managing business complexities has become a true challenge for most multinationals as their accountability for human rights or lack of it is questioned by international institutions (Ruggie, 2013). This lack of responsible behavior, which in fact is considered an extracurricular activity, can have a huge negative impact on the local community and the corporation itself (Arkani & Theobald, 2005). With a rising awareness of human rights, businesses need to take all necessary steps to prove their respect for human rights, whereas states are required to do everything in their power to protect their
Shell and Chevron pulled out of Ukraine as the brutal conflict with Russia emerged. The unpredictable politics of war made the companies divest from a potentially lucrative project. Chevron and Royal Dutch Shell were obligated to secure the safety of their employees in the unstable conflict setup (Kutlu & Cabbaroglu, 2014), or else the companies could have been accused of labor law violation and risked their reputation due to unsustainable operations (Arkani & Theobald, 2005). From this example, we should acknowledge how important it is to understand the war economies and their relationship to human rights. Conflict zones attract marginal and illicit businesses as, in practice, they operate as lawless areas (Ruggie, 2013). Moreover, the conflicts are sponsored through the presence of extractive industries (Martin-Ortega, 2008) whose operations should be questioned by the states. Nowadays, with the eruption of a brutal conflict between Ukraine and Russia, it is crucial to understand the relationships between war, human rights, states and businesses.
The aim of this study is to shed more light on relationships between conflict economies, business responsibilities and human rights policy. The following paper can positively contribute to the current academic research, as it will explore the topic of human rights violation in war economies. Firstly, it will analyze the concept of human rights and businesses, and investigate the impact of war zones on businesses. Building on this research, the study will test the potential relationships between firms, human rights and conflict, proposing the framework for further understanding of the matter. Finally, with the outcome of the study, it will create a possible arena for the scientific future research on human rights in war context and raise business awareness among directors operating in conflict zones.
2. Literature review
Differences in beliefs result in distinct approaches to human rights as people consider distinct behaviors ethical, therefore it is difficult and challenging to impose standard trans-national human rights regulations that every individual would be satisfied with, aligned with and obliged to follow (Ishay, 2008). Still, in 1948 the first universal declaration, enforced by the General Assembly of United Nations, was signed as after a brutal war, the strong need for protection of basic human rights emerged. The Human Rights Commission members, originating from different backgrounds, had to come to a consensus in order to identify what should be considered as universal in terms of human rights (Ishay, 2008). Different cultures, religions and overall the variations between nations brought the challenge of the effective establishment, imposition and execution of human rights. Finally, the Universal Declaration of Human Rights, consisting of two convenants, supported life, liberty, security, economic and social rights.
2.1 The Right to Development
According to United Nations General Assembly, the right to development is “an inalienable human right by virtue of which every human person and all peoples are entitled to participate in, contribute to, and enjoy economic, social, cultural and political development, in which all human rights and fundamental freedoms can be fully realized” (UN General Assembly 1986, p 186). Human beings are at the center of the Declaration of the Right to Development.
Both duty and the right to formulation of national development policies lies in the power of states (UN General Assembly, 1986). Although states are primary duty bearers of the right to development, businesses are obliged to respect this fundamental human right (Drimmer, 2010). On one hand, it is claimed that international firms enrich and empower poor
global elite at the expense of poor nations (Brune & Garrett, 2005). As stated in the World Development Report from the World Bank, extreme poverty has been long defined as people living on no more than $1,08 per day at the 1993 purchasing power parity (Banerjee & Duflo, 2007). However, recently the World Bank set adjustments for the poverty line at $1,90 a day (The Guardian, 2015). This international financial institution projects that in the year 2015 there will be 702 million people living in extreme poverty (The Guardian, 2015).
As proven by Brune & Garrett (2005), businesses have substantial control over wealth distribution in countries where governments are weak and social support is merely existent (Ruggie, 2013). Additionally, openness to trade and international capital constrains governments from intervening in domestic markets (Brune & Garrett, 2015) and partially shifts the power from governments to MNEs (Ruggie, 2013). Multinational firms invest heavily in developing countries where strong regulatory gaps and cheap labor are present (Ruggie, 2013). Yet, corporations and society are interrelated as they need each other in order to function properly (Porter & Kramer, 2006). Successful corporations are in need of a healthy society that creates an expanding demand for business and can afford their products’ purchase (Porter & Kramer, 2006). At the same time, a healthy society necessitates successful firms as they are the ones producing wealth, creating jobs and innovation while improving the standard of living (Porter & Kramer, 2006). Due to the fact that there is a mutual dependence of corporations and society, poverty alleviation and development benefit both firms and local citizens.
2.2 The Right to Life, Liberty and Security
“Everyone has the right to life, liberty and security of a person” (UN General Assembly 1948, p. 2). The right to life is acknowledged in all international human rights declarations and a multitude of national constitutions (Forsythe, 2009). In many legal
documents, it is claimed to be the most fundamental of all human rights. According to the United Nations Human Rights Committee, it is the supreme right (Forsythe, 2009). As mentioned by Forsythe (2009), central to the debate on human rights are: capital punishment, abortion, disappearances, non-judicial executions and armed conflict. The legality of war is in question, as people have the right to peace as a corollary of the right to life. As stated by the UN Human Rights Committee, war takes away the lives of thousands of innocent people annually and the state should exercise force in self-defense only. Governments have a supreme duty of war prevention, the strengthening of international peace and the protection of human life.
Although the central role for the protection of human right to life should be performed by states, businesses should also respect this right. Various breaches of the human right to life have been reported amongst which are: arbitrary detentions, cruel or inhumane treatments and sexual violence (ESCR-Net, 2008). Multinational corporations can abuse the right to life, liberty and security of a person directly or indirectly through their ties with third parties (ESCR-Net, 2008). According to the Collective Report performed by ESCR-Net (2008) that has been submitted to the United Nations Human Rights Council, businesses comply in international crimes such as torture or war crimes. Oftentimes, they also undermine the right of indigenous people and violate the right to adequate and secure housing.
2.3 The Right to a Healthy Environment
Surprisingly, the right to a healthy environment has not been included in the leading human rights documents, such as the Universal Declaration of Human Rights (UN General Assembly, 1948) or the International Covenant on Civil and Political Rights (UN General Assembly, 1966). It has been only 50 years since the human right to fresh potable water and clean air has been recognized. The first recognition of the right to a healthy environment
emerged with the Stockholm Declaration in 1972 according to which “man has the fundamental right to freedom, equality and adequate conditions of life in an environment of quality that permits a life of a dignity and well-being, and he bears a solemn responsibility to protect and improve the environment for present and future generations” (UNEP, 1972).
As reported by the Intergovernmental Panel on Climate Change (2014), the recent anthropogenic emissions of greenhouse gases are the highest in history, the atmosphere and ocean have warmed and the sea level has risen. The noticeable environmental changes can be associated with the industrial era and have been greatly driven by economic and population growth. Moreover, climate change negatively affects natural and human systems around the world and further warming could lead to irreversible impacts for people and ecosystems. The risks posed by the changes in climate are unevenly distributed. It is expected that climate change will contribute greatly to increased health problems, specifically in developing countries with greater poverty rates.
“Business, non-governmental organizations, and civil society all play an important role in shaping social change” (Metz 2011, p. 2). Since the emergence of corporate sustainability, in the 1990s, businesses are encouraged to take responsibility for the impact of their daily operations on the environment (Whiteman et al., 2013). As stated by Whiteman et al. (2013), it is clear that multinational enterprises contribute greatly to global environmental problems. MNEs have a moral obligation towards host communities, which involves, for example, refraining from polluting, carrying out sustainable consumption of natural resources or preserving the rain forests (Eweje, 2007). Companies have become more engaged in sustainable practices, yet there is a lack of explicit quantifiable goals and corporate measures tend to be detached from natural science’s findings on environmental impact (Whiteman et al., 2013). Whiteman et al. (2013) introduce a concept of Planetary Boundaries claiming that natural systems exhibit non-linear dynamics with abrupt changes some of which are
irreversible. Multinational companies individually and collectively affect chemical pollution, climate change and fresh water use. The number of governmental policies that require firms to minimize their environmental impact has been rising (Metz, 2011). Companies can either innovate or compensate for their harming of nature (Kolk & Pinkse, 2010) and they can no longer stay indifferent to corporate violations of human right to a healthy environment.
2.4 ‘Protect, Respect and Remedy’ Framework
The concept of human rights is a belief that every human being inherits a dignity and non-negotiable rights that are not subject to entitlement nor granted by the grace or the discretion of others (Ruggie, 2013). Traditionally, human rights have been perceived as a set of norms and practices, with the purpose of the protection of individuals, the responsibility for which lies within the states. With globalization, the influence of international private sector actors has been rising, enabling the economic growth enhancement through FDI and liberalization of both politics and economy (Shermann, 2001). In the 1990s, with the emergence of transnational companies, of a larger number and a greater scale than ever before, various human rights advocacy groups have started drawing attention to corporate responsibility for human rights violation (Ruggie, 2013).
As Ruggie (2013) claims there has been a switch from arm’s length exchange to internal transaction within global value chains (GVCs) which resulted in the creation of hierarchical businesses that were internally very complex, thus difficult to manage. The researcher states that the firms capitalized on liberalization of trade and privatization, which led to their fast-paced development and profit maximization. However, not everyone has benefited from the robust growth. Neither the companies nor the states have been ready for such a rapidly augmenting influence of transnational corporations (Ruggie, 2008). As early as 2007, Ruggie had alerted to the existence of globally operating transnational firms that were
particular operation. The lack of proper regulation and the inability of the states to control the expanding international power of the companies created governance gaps (Ruggie, 2008). These governance gaps resulted in numerous corporate human rights breaches (Ruggie, 2013). Furthermore, the previous corporate attempts, namely Corporate Social Responsibility (CSR), did not address the role of the states, thus were not able to close the gap. Today, powerful multinational enterprises (MNEs) with widely spread global value chains contribute to, and have a great impact on, the change or stagnation of the human lives conditions (Baker, 2004). Yet, human rights’ responsibility of MNEs, independent of their legal obligations, is a relatively new idea and the one that is still not universally accepted (Ruggie, 2013).
As aforementioned, the lack of global jurisdiction for transnational companies has resulted in governance gaps that have led to corporate human rights abuses, specifically in the extractive sector (Ruggie, 2007). The issue has been raised by the UN Sub-Commission on the Promotion and Protection of Human Rights. As Ruggie (2007) mentioned, in 1998 Sub-Commission established a working group on business and human rights, that later produced a draft, the feasibility of which has been widely questioned– “Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights”. In 2005, Koffi Annan, the UN secretary-general, appointed John Ruggie as a Special Representative of the Secretary-General (SRSG) on human rights and transnational corporations and other business enterprises. John Ruggie studied the limitations of the proposed obligatory norms and their implications on the conflicted actors: companies, states and human rights advocates (Ruggie, 2013). The first group favored voluntary regulations over mandatory and binding ones, claiming that the markets should be driving the process of change. States, fighting to attract foreign investment, were afraid of losing out to less rigorous competitors, and thus were supportive for the preferences of the corporations they hosted. The
last group, human rights advocates, supported mandatory international treaties encompassing businesses and states so as to prevent human rights abuses.
As a result of a three-year post as SRSG, John Ruggie proposed an alternative framework for business and human rights - “ Protect, Respect and Remedy” (Ruggie, 2008). The framework was aimed at establishing a common global normative platform and policy guidance. It was based on three guiding principles: the state’s international legal duty to protect individuals from human rights abuses by the corporate actors, the concept of the business responsibility to respect human rights and finally the idea of the development of remedies for victims of corporate human rights violations.
Business accountability for human rights has been a very controversial topic long before Ruggie’s appointment (Arkani & Theobald, 2005). Arkani and Theobald (2005) had argued that since the agents of the state, for instance military or law enforcement agencies, have been the principal authors of the abuses, the MNEs would have had little control over the illegitimate and wrongful acts. The authors claimed that influencing human rights has not been an area of managerial competence. With his framework, Ruggie (2013) was not entirely opposed to the previous scholarly research. In fact, he revealed that the topic of accountability for human rights was not that straightforward, as imposing the responsibility on the companies solely could lead to the entire loss of business freedom by the private sector actors. He also recognized the current CSR’s limitations, amongst which are: lack of addressing states’ responsibility and lack of accountability, resulting in an unclear remedy process (Ruggie, 2008). Having introduced his “Protect, Respect and Remedy’ model, Ruggie (2008) acknowledged the encompassing role of different actors in human rights protection, proving the complexity of this issue in today’s world. Secondly, he validated the idea that businesses are accountable for human rights violations. As Ruggie stated: “…simple laws of probability
alone suggest that corporations will be subject to increased liability risks for international crimes in the future” (Ruggie 2007, p. 831).
2.5 Business Responsibility in Conflict Zones
In the most recent times, researchers have been discussing, exploring and drawing public attention to cross-national human rights problems. However, these concerns have already emerged previously. As mentioned before, in 1948 the first Universal Declaration of Human Rights was issued by a formal international institution, the General Assembly of the United Nations. The need for this document emerged with the increased awareness of the necessity for human protection after two brutal wars, namely the First and Second World Wars (Ishay, 2008). Today the world wars are a bygone era, however there are still various conflicts between and, even more, within countries. These conflicts make the countries subject to the risk of human rights violations. Since the end of the Cold War, there have been over 100 civil wars, mainly in developing countries, that took the lives of over 7 million people (International Alert, 2005). Looking back in history, it is clearly visible how wars have stimulated brutal acts and have affected the demand for obvious human rights regulations.
‘The idea that foreign investment can contribute to instability and violence is nothing new’ (Haufler 2010, p. 19). The bloodshed during the Cold War was financed greatly by the extraction of natural resources. However, till 1990 transnational enterprises were neither held responsible for fueling conflicts nor expected to implement conflict-sensitive behaviors (Haufler, 2010). The business and conflict agenda has only emerged 25 years ago. The scholarly attention has been drawn to the role of private investors and their ability to facilitate or even cause conflict in weakly-governed states (Haufler, 2010). Currently, it is recognized that investment and trade contribute to civil conflicts. Moreover, it is often claimed that any
business activity carried out in a conflict-affected country endangers its peace (Ballentine & Nitzschke, 2004). Furthermore, oftentimes the companies are portrayed as contributing to and stimulating conflict (Ballentine & Nitzschke, 2004).
As according to Haufler (2010), multinational companies are currently recognized as affecting the dynamics of war and as a result, are pressured to help in conflict resolution. Recently, some activists and policymakers have been proclaiming that companies’ responsibility should not be narrowed to limiting their contribution to fuelling a conflict but should rather be expanded to the practice of conflict resolution. These parties have been arguing that, due to the high profile of multinationals in developing countries, conflict prevention has been highly reliant on the efforts of the private sector (Haufler, 2010). As already proven by Ruggie (2008), nowadays, the accountability for human rights protection has not been straightforward as it is extremely difficult to clearly indicate a single accountable actor. Multinational firms are often large and complex hierarchical organizations that manage their employees, suppliers and distributors on a transnational level (Hafuler, 2010). The business and conflict agenda is being promoted by NGOs (non-governmental organizations), governments, the UN and the World Bank. Business accountability in conflict zones has been additionally reinforced by the United Nations Global Compact (UNGC), a global corporate social responsibility standard, which in its first Policy Dialogue addresses the issues of businesses in conflict zones.
It is hard to define business responsibilities in conflict zones as it is neither illegal to do business nor to profit from trade during war times (Martin-Ortega, 2008). There has been a disaggregation of global governance and greater authority over conflict matters has been granted to transnational companies (Haufler, 2010). Activists that target private sector actors have been arguing that overall, conflict could impact negatively on business activities. They also believe that multinationals should cooperate with NGOs in order to protect human rights
in conflict zones (Haufler, 2010). According to Martin-Ortega (2008) there is a requirement for more research on how to regulate the behavior of businesses in conflict zones.
2.6 Conflict and Corporate Human Rights Violations
It is common knowledge that distinct conflicts, international and civil ones, increase the overall risk of human rights violation in different countries among various actors (Davenport, 2000). States are no longer the only actors involved in conflicts that result in human rights abuses as the conventional state-centric framework for human rights’ protection is outdated (Surya, 2003). Many companies are being prosecuted for corporate complicity in war crimes in countries like Angola, Liberia or Republic of the Congo (van Dorp, 2014).
As Ruggie (2013) believes, conflict zones attract borderline companies, which capitalize on law-free war zones. This leads to the possible misery of society. Having analyzed 65 publications carried out by human rights advocacy groups, issued between the years 2000 and 2005, Ruggie has concluded that human rights abuses happen mainly in low-income economies with weak and corrupt governments. What is more striking is that 2/3 of the cases included in the publications have taken place in countries that have recently emerged from, or are still in, conflict. The scholar suggests that conflict zones are highly susceptible to the most egregious human rights abuses committed by both states and corporations (Ruggie, 2008). Having conducted this study, Ruggie (2013) supports Martin-Ortega’s (2008) claim for the need for more in-depth studies and additional attention to conflict zones, due to their susceptibility to increased human rights violations.
2.7 Political Conflict and Conflict Intensity
“… A political conflict is a positional difference, regarding values relevant to a society – the conflict items – between at least two decisive and directly involved actors, which is being carried out using observable and interrelated conflict measures that lie outside
established regulatory procedures and threaten core state functions, the international order or hold out the prospect to do so” (Heidelberg Institute for International Conflict 2013, p. 4).
According to Oetzel and Getz (2010), research on business and conflict has treated conflict as a homogenous issue. However, conflicts do vary and the distinction between them resides in the fact that non-violent conflict is inevitable for social change, thus it is not always bad; whereas violent conflict is always problematic (Oetzel & Getz, 2010). Many recent conflicts happen due to certain trends, such as economic stagnation, inequality, governmental corruption or deep-rooted social differences (Oetzel et al., 2007). Moreover, they can be distinguished on several dimensions: duration, intensity, geographic scope and disruptiveness (Oetzel & Getz, 2010). Conflicts can last for years or decades, be geographically concentrated or dispersed, and disrupt the integrity of the surrounding infrastructure. As stated by Oetzel and Getz (2010), the intensity of a conflict can change over time, with the greatest severity levels during the outbreaks of violence. The lifecycle of conflict comprises of not necessarily sequential stages: relative peace, more unsettled period, the outbreaks of violence, unsettled-post violence period and back to relative peace (Oetzel & Getz, 2010).
McGowan and Moeller (2009) have studied the importance of understanding different conflict intensities and their implications for MNEs. These researchers have built a model for estimating political and economic risks for firms making FDI decisions. McGowan and Moeller (2009) used the Conflict Barometer, provided by Heidelberg Institute for International Conflict (2013), to estimate annual conflict intensities in four different countries: Brazil, Poland, United Kingdom and Russia. They have created the Foreign Investment Risk Matrix to provide MNEs with a tool facilitating FDI decision-making process.
Firms tend to intervene in conflicted-affected zones in order to prevent an outbreak of violence, its spreading or reoccurrence (Oetzel & Getz, 2010). As violence peaks MNEs shift their focus to self-protection rather than intervention and in some cases they decide to cease
their operations. As an example, in 2003 Chevron temporarily shut down its operations in the Niger Delta due to a high threat to employees’ safety (Oetzel & Getz, 2010). In general, MNEs try minimizing risks associated with the operations in conflict-affected areas, yet, depending on sector, some firms are unable to exit from host country during conflict’s eruption (Oetzel & Getz, 2010).
2.8 Conflict-‐Sensitive Business Practices
There are different business practices that are carried out in conflict zones, which have attracted scholarly attention. In order to mitigate the actual level of risk in a country at war, some MNEs proactively engage in political strategies in order to reduce exogenous political hazards and influence the decisions of dictators (Feinberg & Gupta, 2009). Other companies decide to disinvest in the conflict-affected areas, fearing a negative reputational impact, as in the case of Burma, where firms backed away from their investments due to a “naming and shaming“ vocal campaign (Martin-Ortega, 2008). However, it can be extremely challenging for the managers to operate in war zones, as both disinvestment and increased investment can result in conflict enhancement and can harm the local population (Shermann, 2001). Investment brings in the necessary capital to carry out the war, whereas disinvestment can result in local citizens losing their jobs and being cut off from the necessary means of survival – their salaries (Martin-Ortega, 2008).
Having understood the need for guidance in a conflict setup and the difficult position of extractive companies in this particular context, International Alert (2005), an independent non-governmental organization, produced the Conflict-Sensitive Business Practice (CSBP). CSBP constitutes practical guidance for extractive industry managers that operate at locations with a higher risk of conflict. It is meant to benefit both host communities and MNEs through helping companies in avoiding triggering or accelerating the war destructive dynamics (van
Dorp, 2014). CSBP targets the creation of informed conflict-management strategies. The authors of this publication believe that clarifying conflict risk and consequences can lead to a more effective conflict management. They further provide the legal instructions and various legal international instruments that could be addressed respective of their scope. International Alert (2005) proclaims that the adoption of standard business practices in war zones and ignorance of operations’ complexity by extractive companies could lead to condemnation by local civil society groups and result in numerous lawsuits, thus constituting inefficient business tactics.
2.9 Extractive Industry in Conflict Zones
In contrast to the cold war era, nowadays conflicts erupt with the aim of the control and plundering of resources, such as timber or oil (Renner, 2002). Conflict happens due to the resource distribution imbalance and is stimulated by the wealth obtained through resource extraction (Renner, 2002). It is common knowledge that armed conflict has become highly privatized and that many civil wars, among which are those in Angola and Sierra Leone, have been stimulated strongly by the extraction of natural resources, such as oil, timber and diamonds (Ballentine & Nitzschke, 2004). Long civil wars in Africa are ongoing thanks to the abundance of natural resources, mainly oil and diamonds (Haufler, 2010). Terrorists and dictators require financial support that they find among corporate accomplices, mainly extractive industry private sector actors (Bachmann, 2011). Many NGOs have been emphasizing the disruptive and accelerating effects of transnational extractive companies on conflict dynamics (Kolk &Lenfant, 2013). Ballentine and Nitzschke (2004), and Martin-Ortega (2008) believe that large private international oil companies fuel conflicts the most. Going further, these companies facilitate human rights violations through the financing provided to the rebellions and oppressors. Royal Dutch Shell, operating in the Niger Delta,
has worsened Nigeria’s political situation through payments for land usage and reliance on the country’s security forces (Shah, 2010). Frequently, during conflict periods, companies commit crimes through the violation of community rights and the right to security of a person (Ruggie, 2007). Since 2006, there have been more than 500 oil employees kidnapped from the premises of oil facilities in the Niger Delta (Shah, 2010).
International Alert (2005), Martin-Ortega (2008) and Ruggie (2013) point out the probable influence of conflict on corporate human rights violations, especially among extractive MNEs. Companies in the extractive sector are unable to move to another location in response to conflict eruption. Hence, they are pressured to collaborate with conflict prevention as they face the need to manage their reputational and political costs, and to keep their license to operate (Haufler, 2010). Facing a lawsuit does not only bear the cost of the potential remedy but also can result in a greater risk, namely reputational harm (Drimmer, 2010). The company might prevail in court, however obtaining a favorable decision takes time and meanwhile the publicity can substantially damage a firm’s image (Drimmer, 2010). As stated by Drimmer (2010), this image is important for extractive multinationals as they need to collaborate with host governments in launching every investment.
Haufler (2010) states that the wealth derived from natural resources is often used in a way that finances war and criminal activity. Furthermore, the revenue obtained from trading in high-value commodities is unequally distributed, is susceptible to corrupt management and, as a consequence, provokes dissatisfaction and rebellious acts by local communities. Commonly, oil and gas projects require contracting and partnership with local government. The local government is paid a percentage of revenue in the form of taxes and fees, becoming less dependent on taxation and therefore less accountable to its citizens. The contract forces foreign companies to secure their premises with the use of government military or police forces that usually resort to violence and breach human rights. Authoritarian rulers use high
revenues from oil and gas projects to exert control and repress local communities. As a result, these projects enhance underdevelopment and inequality, and produce conflict.
Activists are becoming more attentive to extractive industry as it generates huge revenues that tend to be misused. NGO Global Witness calls for transparency and responsible revenue management (Haufler, 2010). Global Witness produces informative reports linking oil revenues with conflicts in countries like Nigeria. There have been an increasing number of initiatives asking host governments for transparency regarding the ways in which revenues from natural resources are being used.
As businesses, with their voluntary codes of conduct and CSR practices, start acknowledging their responsibility for human rights, it is valid to ask how conflict impacts the business practices of extractive industries at subsidiary locations. Already Ruggie (2013) has discussed how the presence of conflict, corruption and weak governments attract unethical businesses that notoriously violate human rights. Still, the issue of human rights violations in the context of conflict has not received enough scholarly attention (Martin-Ortega, 2008). In addition to this, many scholars claim that in the presence of conflict any kind of business operations should result in conflict fueling (Ballentine & Nitzschke, 2004). Yet, none of the studies have been carried out with a focus on extractive industry businesses operating in conflict zones and differences between the types of violations. Secondly, none of the researchers take into account conflict severity in the analysis of war’s impact on violations of human rights by extractive industry corporations. The underlying aim of this thesis is to build on the research that has been already carried out by many prominent scholars and to discuss the importance of conflict on alleged corporate human rights violations. However, in this study, conflict specifics, namely conflict intensity, have been taken into consideration. A major contribution to further scientific research is the distinction between various conflicts
and the analysis of its impact on the number of corporate human rights violations. Here, conflict intensity has been studied in order to answer the following research questions:
2.10 Research Questions
Does conflict, in general, constitute an increased risk factor for the violations of rights to life, healthy environment and development among the extractive industry multinationals operating in conflict zones? Does conflict intensity have a greater positive impact on violation than the mere fact of conflict’s presence? Does conflict intensity play a differentiating factor in the number of alleged violations of rights to life, healthy environment and development? Finally, is there an observable distinction in how conflict intensity affects the probability of violations of a different type?
2.11 Conceptual Framework
Conflict acts as a risk factor for an increased number of corporate human rights violations (Ruggie, 2013). Summarizing the studies of Ruggie (2013) and Martin-Ortega (2008), MNEs are subject to higher exposure in terms of human rights abuses due to their business complexities and greater amount of foreign operations. In addition to this, extractive industry in particular has been widely blamed for being merciless and profit-oriented, thus has indicated a greater tendency for human rights violations (Renner, 2002). Extractive industry MNEs have been widely accused of both community and security rights violations (Ruggie, 2013).
This research focuses on the relationship between different violation types, conflict presence and conflict intensity measured according to HIIK (Heidelberg Institute for International Conflict, 2013). This paper hypothesizes that greater conflict intensity levels should lead to greater occurrence of corporate human rights violations, resulting in an increase or decrease in the number of lawsuits filed against a particular company. In this
study, the correlation of violent conflict, namely conflict with intensity level of 3 or higher (Heidelberg Institute for International Conflict, 2013), and corporate human rights violations is being tested.
Conflict increases inequality and poverty (Kanbur, 2007). As far as violent conflict is concerned, an augmented inequality effect stays present years after – during the post-war period (Bircan et al., 2010). The inequality decreases only 5 years after the post-war period (Bircan et al., 2010). Usually the ones that lose out on corrupt conflicts are already poor, as their lands are taken away from them and used for war purposes (Cosmato, 2010). Violent conflict exacerbates extreme poverty and food insecurity through forced displacement and the destruction of homes (United Nations Environment Programme, 2006).
Extractive industry multinationals are strongly reliant on local governments (Haufler, 2010). Extractive MNEs can indirectly contribute to poverty and underdevelopment since the governments collect the revenues from oil in the form of taxes (Haufler, 2010). States are responsible for wealth re-distribution, to ameliorate the lives of those in local communities (UN General Assembly, 1986). When violent conflict is in place, there is a stronger need for fund to be invested in weapons in enable carrying out a war (Haufler, 2010). The Nigerian government is supposed to direct 3% of its oil revenue towards the development of local communities; however the money is rarely invested in this developmental purpose (Eweje, 2007). The businesses claim it is beyond their scope to assure a proper wealth re-distribution, yet the local communities perceive it differently, blaming MNEs for their complicity in crimes. During an eruption of a violent conflict eruption oil revenue is used mainly for weapons’ purchase (Haufler, 2010).
H1a: Conflict co-occurs with corporate violations of a right to development among extractive MNEs.
H1b: Violent conflict co-occurs more often with the occurrence of corporate violations of a right to development than the mere presence of conflict among extractive MNEs.
The displacement of people is an overall characteristic of a serious conflict (United Nations Environment Programme, 2006). Since 1960, in Africa there have been more than eight million people killed as a result of wars (United Nations Environment Programme, 2006). Oftentimes, natural resources extraction takes place in remote locations with minor police protection. Nonetheless, these locations are subject to numerous security threats, such as demonstrations, tensions between different ethnic groups or even terrorism (Drimmer, 2010). This results in companies hiring private security providers. Moreover, the companies are also reliant on military forces through contractual agreements with states (Haufler, 2010).
“It is common to see human rights-related lawsuits against extractive companies premised on the conduct of security forces” (Drimmer 2010, pp. 4). Extractive multinational companies face claims in assisting state abuses of protestors in Africa or are even accused of complicity in genocide in Sudan (Drimmer, 2010). Violent conflict involves greater use of weapons and results in a greater number of casualties (Heidelberg Institute for International Conflict, 2013). Oftentimes, in the Niger Delta, where violent conflict continuously takes place, the protests are oppressed, with the help of oil MNEs, by military forces (Shah, 2010). The lack of basic infrastructure in politically sensitive regions during violent conflict contributes greatly to sabotage and kidnapping of oil companies’ personnel (Eweje, 2007). Companies fail to secure the premises of their upstream operations.
H2a: Conflict co-occurs with corporate violations of a right to life and bodily integrity among extractive MNEs.
H2b: Violent conflict co-occurs more often with the occurrence of corporate violations of a right to life and bodily integrity than the mere presence of conflict among extractive MNEs.
Modern wars tend to be very destructive not only for human lives but also for the environment (Cosmato, 2010). War and preparation for war constitute obvious threats to the environment (Conca & Dabelko, 2015). As Cosmato (2010) states, already during the two World Wars fuels leaked and spilled into the ocean as the planes and battle ships were defeated. Nuclear attacks resulted in toxic pollution harmful to air and surface water. Agricultural production was affected greatly as the soil became contaminated. In recent times, the African continent has been exposed greatly to conflict and has had the highest number of civil wars. The civil wars have contributed to an increasing number of farmers losing their lands in favor of domestic power. Refugees have been forced to use forest reserves and consume protected animals in order to escape starvation, hence have been adding to biodiversity loss and soil depletion. Many lands have been used as landmines, thus have been no longer suitable for farming (Cosmato, 2010).
Extractive companies are criticized greatly for the harmful impact of their upstream operations on the environment (Drimmer, 2010), such as oceanic and groundwater pollution, refinery waste disposal and the disruption of ecosystems. In the Niger Delta, which is subject to continuous war, host communities have experienced negative effects of oil exploitation, such as degradation of farmlands and increasing pollution (Eweje, 2007). This issue has led to flare-ups of violence and resentment towards extractive MNEs (Eweje, 2007). In the presence of conflict a government that is in need of money, in order to finance the war, (Ballentine &
Nitzschke, 2004) usually does not carry an in-depth environmental check to assess whether companies’ extractive operations damage the environment (Haufler, 2010). In conflict-affected zones natural resources can be exploited at unsustainable rates (United Nations Environment Programme, 2006). Extractive companies can benefit from regulatory loopholes when investing in conflict zones (Ruggie, 2014) or indirectly assist the government in damaging the environment. With violent conflict in place, the entire focus is placed on war dynamics and environmental issues become of a secondary importance (Cosmato, 2010), hence extractive MNEs are less pressured for acting responsibly towards the surrounding environment. This could lead to even greater benefiting from regulatory loopholes, and to firms taking advantage of an unstable political situation and being less attentive to the harmful impact of their operations on the environment.
H3a: Conflict co-occurs with corporate violations of a right to a healthy environment among extractive MNEs.
H3b: Violent conflict co-occurs more often with the occurrence of corporate violations of a right to a healthy environment than the mere presence of conflict among extractive MNEs.
Figure 2 presents the above-described hypothesized relations.
Figure 2. Conceptual model
3. Data and Method
In this section the data and methodology that have been used in order to answer the aforementioned hypotheses are presented.
The sample that has been used in this study consists of 261 observations concerning alleged human rights violations among extractive industry corporations in oil and gas sector in the following African countries: Ghana, Nigeria and Republic of the Congo. These three countries have been selected purposefully through non-random sampling. It was in order to secure a representative of three different cases: continuous conflict (Nigeria), fluctuations in conflict (Republic of the Congo) and peace (Nigeria). For the purpose of this study only multinational firms were chosen. The data of 32 multinational firms has been used.
Several aspects can motivate both country choice and extractive industry focus. There have been an increasing number of civil lawsuits filed against multinational companies and specifically the ones in the extractive sector (Drimmer, 2010). According to Drimmer (2010), in the US no other sector has faced as numerous lawsuits as that of extractive industry. In the Alien Tort Statue (ATS) extractive industry defendants are brought up in 25% of the cases. The interpretation of ATS allows foreign citizens to raise their claims and seek remedies for human rights violation in the US courts. This fact draws attention to oil and gas companies that disrespect basic human rights. Given the impact of oil companies on politics, economics and societies at host locations, extractive MNEs are pressured to act more socially responsible (Eweje, 2007). Nonetheless, the extractive sector is usually closely linked with war and the funding of conflict (Ballentine & Nitzschke, 2010). As mentioned before, armed conflict has become strongly privatized (Ballentine & Nitzschke, 2004). Governments and rebellions often use the revenue obtained from the extraction of natural resources to finance civil wars (Ballentine & Nitzschke, 2004). Multinational extractive companies are directly or indirectly
involved in this process (Martin-Ortega, 2008). They are usually reliant on governments and contractually committed to co-working with the oppressive political leaders (Haufler, 2010). Often, countries abundant in resources are also dependent on them and face the “resource curse” – a paradox that proposes that resource-rich countries develop with a slower pace comparing to resource-poor nations (Brunnschweiler & Bulte, 2006).
Africa, as a target location of this study, has been chosen for a number of reasons. First of all, it is common knowledge that Africa is a continent where political takeovers happen in many countries on a regular basis (Heidelberg Institute for International Conflict Research, 2013). According to the Heidelberg Institute for International Conflict Research (2013), overall there were 97 conflicts that took place in Sub-Saharan Africa in the year 2013, which accounted for a quarter of the world’s conflicts. The number of wars has been increasing, resulting in the highest observed in the year 2012 since 1945. The average annual cost of conflict in the African continent amounts to $18 billion (Kolk & Lenfant, 2013). Wars in Africa are ongoing thanks to the continent’s richness in natural resources (Haufler, 2010). Also due to the region’s abundance in resources, MNEs invest heavily in Sub-Saharan Africa. In 2014, Africa witnessed the biggest increase in inward foreign direct investment (FDI) with a total amount of $87 billion (fDi Intelligence, 2015). Ghana has moved to the top 10 destinations in the region by capital investment (fDi Intelligence, 2015). Coal, oil and natural gas were the second largest sectors for FDI in the year 2014 in which the investment has increased by 9% versus the previous year. Finally, as discussed by Kolk and Lenfant (2013), many African countries, despite being prone to conflict, have been understudied and the main scholarly focus has been placed on South Africa.
3.2 Data Collection
In this study multiple data sources have been used in order to depict: a) conflict presence and its annual intensity in a particular country; b) information about corporate alleged human rights violations; c) general MNEs’ information.
Conflict information stems from the Heidelberg Institute for International Conflict Research (HIIK, the acronym from the German name). The Heidelberg Institute for International Conflict Research (2013) performs an annual quantitative analysis in order to assess the intensity of various conflicts in five world regions. It is an independent association which studies conflicts in order to provide a better understanding of conflict dynamics (Heidelberg Institute for International Conflict Research, 2013). Given the availability of HIIK’s data, the timeframes of this study focus on the years 2009 to 2013. Within the continent of interest, Africa, three countries representing different categories were chosen: non-subject to conflict within the tested period, subject to continuous conflict within the tested period and subject to fluctuations in conflict eruption within the tested period. This was in order to understand whether there has been a potential correlation between conflict, its intensity and the alleged corporate human rights violations or the abuses have been taking place regardless of a conflict status of a country. In this way Ghana, Nigeria and Republic of the Congo have been chosen with a purpose of a further analysis. The choice of Republic of the Congo has additionally been supported by the fact that it is an understudied country within the African continent that has been susceptible to conflict (Kolk & Lenfant, 2013).
The Corporate Human Rights Database (CHRD) has been used with the aim of gathering information regarding claims on corporate human rights violations. CHRD provides systemic and detailed scientific information on alleged corporate human rights abuses. This database is being developed through a collaboration of Oxford University in the United Kingdom and the University of Denver in the United States, and the University of Amsterdam to track claims that have been raised against corporations and were published via Business &
Human Rights Resource Center (BHRRC) website (Olsen, 2014). BHRRC is an innovative nonprofit organization that tracks and publicizes human rights and environmental impacts of companies worldwide (Maitland, 2008). Since its foundation BHRRC has won credibility and reliability among governments, companies, investors, journalists and other non-government organizations (Maitland, 2008). As stated by Maitland (2008), the website covers human rights violations committed in 180 countries by 4,000 companies. It is also noteworthy to mention that the center has an international advisory network that was chaired by the former United Nations high commissioner, Mary Robinson. Moreover, John Ruggie, during his SRSG post collaborated with BHRRC with the purpose of publication of his “Protect, Respect and Remedy” framework. The collection of data on violations available through the CHRD database was crucial to the analysis of conflicts in Africa. As a result, 32 multinational firms violating the rights to life, development and healthy environmental in Nigeria, Ghana and Republic of the Congo were selected.
Finally, in order to understand the specifics of pre-selected firms, the Orbis Database provided by Bureau van Dijk and companies’ websites have been used. The Orbis Database is a website that provides information on 170 million companies worldwide (Bureau van Dijk, 2015). The information available through this database is being updated regularly with the use of a diverse range of sources (Bureau van Dijk, 2015). In this study, the main reason for using Orbis as a data provider is the fact that it runs accuracy checks in order to assure consistent quality levels in its database (Bureau van Dijk, 2015). For the purpose of further analysis, information on numbers of employees and companies’ addresses have been retrieved from the Orbis Database, whereas information on particular companies’ upstream operations worldwide and in Africa has been gathered through company websites.
3.3.1 Dependent variable
In this study, the impact of conflict and its intensity on human rights violations are being tested, thus claims on corporate human right violations are used as the dependent variable. The violations are coded as company abuse allegations (CAAs). As specified in the CHRD Project: “a CAA is an instance in which some group and/or individual accuses a company of a human rights abuse” (Olsen 2014, p. 2). The CHRD database includes CAAs that refer to all types of companies and subsidiaries within different sectors and at different geographical locations (Olsen, 2014).
This study is focused on CAAs relevant to multinational firms within the oil and gas sector that operate in Ghana, Nigeria and Republic of the Congo. The CAAs included in this research involve violations of rights to: life, development and a healthy environment. The aforementioned violations took place either between the years 2009 and 2013 or were ongoing within that period. The dependent variable, CAA, also denotes a lack of an allegation of violation of a respective right within the previously set timeframes.
3.3.2 Independent variables
The independent variables consist of conflict and violent conflict. These variables were estimated as according to HIIK’s annual report on political conflicts (Heidelberg Institute for International Conflict Research, 2013). Since 1991, the Heidelberg Institute for International Conflict Research (2013), HIIK, performs an annual analysis of political conflicts, with the main focus on conflict processes, in order to provide a broader empirical foundation for the conflicts’ assessment. This independent association, working on behalf of University of Heidelberg, determines conflict actors, measures and items when analyzing political conflicts. Heidelberg Institute for International Conflict Research (2013) measures three different factors of political conflict: conflict actors, conflict measures and conflict items.
In addition to the three aforementioned elements, HIIK estimates conflict intensity, which is an attribute of the sum of conflict measures in a specific political conflict within certain timeframes and at a specific geographical location. Thanks to the introduction of conflict intensity, HIIK enables the understanding of conflicts’ monthly dynamics on a sub-national level. HIIK uses a five-level model for conflict intensity estimation: dispute, non-violent crisis, non-violent crisis, limited war and war. The first two levels constitute non-non-violent conflicts, whereas the others represent violent ones. A dispute refers to political conflict without any use of violence whatsoever, whereas non-violent crisis is a political conflict during which one of the actors resorts to the threat of violence towards the other.
In order to distinguish between the last three levels, which constitute violent conflict, the HIIK measures conflict means and consequences, and aggregates the values of five different indicators. The five indicators, that enable the determination of levels of violent conflict, are as follows: the use of weapons and personnel, the number of casualties, destruction, and refugees or internally displaced persons (IDPs). As far as weapons are concerned, the types of weapons and a manner in which they have been used are analyzed. The second proxy indicates numbers of personnel employed in a conflict with a categorization of low, medium and high numbers of personnel with thresholds of 50 and 400 people. Thirdly, casualties, that indicate a death toll with thresholds of 20 and 60 people killed, are measured. The fourth factor, destruction, measures the degree of harm to infrastructure, accommodation, the economy and culture. Finally, refugees and IDPs are estimated in a region-month combination with thresholds of 1000 and 20,000 refugees.
Figure 1. Indicators for three levels of violent conflict (Heidelberg Institute for International Conflict 2013, p. 9)
Hence, the Conflict variable denotes whether there has been a conflict within a particular year, given the timeframe of 2009-2013, and at a specific location, namely Ghana, Nigeria or Republic of the Congo. It simply takes into consideration conflict’s presence regardless of its specifics, namely 5 levels of conflict intensity established and measured by HIIK: dispute, non-violent crisis, violent crisis, limited war and war (Heidelberg Institute for International Conflict Research, 2013).
The second independent variable, violent conflict, indicates intensity levels 3, 4 and 5 which constitute violent crisis, limited war and war. This variable already assumes the presence of conflict at a particular geographical location within a given year. It is included in the model as it depicts whether conflict intensity and not just merely conflict’s presence increases the probability of human rights violations by multinational firms. Since, according to the Heidelberg Institute for International Conflict Research (2013), there are various ongoing conflicts of different intensities within a country at the same time, hence a particular conflict was linked with the specific location of an exemplar company. This is analyzed thanks to Orbis database that states the address of operations’ premises for each individual
MNE and HIIK’s Database that provides detailed information on conflict’s location and intensity.
3.3.3 Control variables
In this study, in order to isolate the effects that could have an impact on the relationship that is under observation, there are three control variables incurred in the model: employees #, countries in Africa, countries overall. These control variables constitute firm-related information and are implemented in order to verify whether conflict and its intensity or firm’s specifics impact the number of allegations of abuses to a more significant extent.
Employees # denotes amount of people working for a company that is claimed to violate rights to life, development and healthy environment in Ghana, Nigeria or Republic of the Congo within the years 2009-2013. The number of employees constitutes an indicator of companies’ size. Here it can be firstly hypothesized, that the larger the company the more the allegations are visible and publicly outspoken (Kalaitozglou, 2012), hence resulting in more lawsuits filed against a particular MNE. Going further, the greater the number of employees the more complex the firm’s structure should be, thus making the control of operations at each subsidiary level very difficult (Ruggie, 2013). In consequence, larger firms, which are pressured to introduce Corporate Social Responsiblity in their daily business operations, could face numerous difficulties when implementing and executing conflict-sensitive business practices. In addition to that, visible and large economic private actors are usually exposed to becoming subject to rebel attacks in the conflict-affected zones (Kolk & Lenfant, 2013) that could result in an enhanced likelihood of alleged corporate human rights violations. On the other hand, bigger companies invest more heavily in preventive procedures and CSR in order to protect for the firm’s brand (Kalaitozglou, 2012). Companies profit from acting socially
responsible when they exhibit high investment levels in CSR (Barnett & Salomon, 2010). This fact serves as an additional incentive for larger actors.
Countries in Africa signifies the number of countries with oil and gas upstream operations for a particular corporation within the African continent. This data can be found through companies’ websites and the research carried out by Alfonso and Alberto Colombano (2015). It serves as an indicator of a companies’ experience within the continent. Oil and gas industry can be split into three sectors: downstream, midstream and upstream. Upstream stage involves exploration and production; midstream constitutes gathering systems and downstream refers to the refining of crude oil, selling and distribution (Bacon, 1999). The greater the experience, the easier should it be for the company to adjust its functioning during the period of conflict’s eruption. As according to Benito and Gripsrud (1992), the experience of a specific firm can affect the cost and the uncertainty related to the operations in foreign markets. Additionally, as discussed by Qian et al. (2010), intra-regional diversification increases companies’ performance as managers are able to exert more control over their subsidiaries thanks to previously acquired and accumulated knowledge. Overall, more concentrated regional activity should benefit transnational companies to a greater extent than a broader multinational spread (Rugman &Verbeke, 2007). In this study, the focus has been placed on upstream operations since they, above all, are location-bound (Haufler, 2010). This suggests that despite facing difficulties the companies’ managers are pressured to put extensive work with the purpose of operations maintenance rather than quick withdrawal from investment. Additionally, the fact that the necessary capital for investment in the oil and gas sector is rather high (Ernst & Young, 2014) makes it even more difficult to cease operations at a particular location during the period of conflict. Hence, oil and gas companies are more likely to generate a wide range of experience with their upstream operations.
Countries overall constitutes the number of countries worldwide with upstream operations for a particular corporation. This data is also available through companies’ websites and included in the research carried out by Alfonso and Alberto Colombano (2015). This variable also serves as an indicator of experience. As according to Benito & Grisprud (1992), the companies firstly generate experience within spatially and culturally closer locations in order to invest later on in more distant ones. The gradual investment in countries with lower cultural, administrative, geographical and economic distances enables a firm to acquire the necessary experience in order to offset for an investment’s uncertainty in considerably more distant locations (Benito & Grisprud, 1992). In addition to this, as discussed by Delios (2011), firms that have experience and the possibility of experiential learning within the same industry are likely to perform better. Hence, globally present companies should be able to adapt their operations at a faster pace when a conflict erupts.