CHAPTER ONE: INTRODUCTION

1.1         Introduction

Corporate social responsibility (CSR) is a company’s commitment to operating in an economically, socially and environmentally sustainable manner whilst balancing the interests of diverse stakeholders. Companies are increasingly recognizing CSR as a business priority and are also recognizing the value of ensuring sustainability over the long-term rather than the short-term which leaves them open to social and environmental risks. CSR makes businesses more

competitive by supporting operational efficiency gains; improving risk management; increasing favorable relations with the investment community and thereby increasing access to capital ; enhancing employee relations; and improving reputation and branding.

Corporate social responsibility is a concept with a growing currency around the globe and it frequently overlaps with similar approaches such as corporate sustainability, corporate sustainable development, corporate responsibility, and corporate citizenship. While CSR does not have a universal definition, many see it as the private sector’s way of integrating the economic, social, and environmental imperatives of its activities. As such, CSR closely resembles the business pursuit of sustainable development and the triple bottom line. CSR also frequently involves creating innovative and proactive solutions to societal and environmental challenges, as well as collaborating with both internal and external stakeholders to improve companies’ performance.

Some critics of CSR believe that CSR is just a way in which companies attempt to placate the communities whose environment they are destroying and whatever they do cannot adequately compensate these people for the damage they do to their environment. This is especially true in the Nigerian situation.                                                                                                                    From oil multinationals in the Niger Delta region of Nigeria to telecommunications giants, drug makers and down to the consolidated banking sector, it has become common to engage in highly publicized charitable and philanthropic ventures as an actof CSR to placate the abused public. Over time, multinational companies in Nigeria simply signed agreements with indigenous government to carry out their industrial activities without deference to the immediate host communities. This led to the restiveness in the oil-rich Niger Delta, as the multinationals for decades continued to violate environmental rules to the detriment of the host communities. Successive civilian and military governments were accomplices in this abuse of human rights.

The companies have capitalized on weak laws and regulatory watch agencies in the country, who fail to regulate the activities of such multinationals in our corporate spheres, to short change the populace. Thriving on the ethnic disputes, resource control tussle between host communities and the federal government, the multinationals and other corporate bodies get away with their abuse of the environment through gas flaring, oil spillages and radiation poisoning from indiscriminate erections of telecommunication mast in residential areas. The resulting violence, especially in the Niger Delta region, has led to a great loss of lives and property that could have been avoided if the multinational companies had engaged in business practices that were more socially acceptable and people-oriented. Olorode (2000) traced the origin and the dynamics of the Nigerian Civil war of 1967 to 1970 to socio-political factors in the petroleum industry.

Stakeholders in the business communities are now concerned with how they are perceived by their host communities and they increasingly try to measure their corporate success based on their level of contribution to social development and their partnership with communities for economic enhancement Multinational such as Shell now try to placate the restive host communities by embarking on series of CSR ventures such as building classroom blocks, boreholes and roads; offering some employment opportunities to the natives in the community; and giving scholarships to selected students from the affected communities. The people however consider this a pin in the haystack in comparison to the huge take-home revenues of the multinationals and the government benefits.

On the overall, Corporate Social Responsibility (CSR) activities are gaining momentum in Nigeria as companies attempt to project a positive image to the society. Another reason for this may be that in 2007 Nigeria promulgated the Fiscal Responsibility Act. Observers perceived it as a way of enthroning a sound corporate responsibility delivery to the masses. The act empowers government to serve as custodian of the citizens’ rights - in relation to the activities of multinationals.

Social and environmental reporting is also commonly referred to as corporate social responsibility reporting (Deegan, 2007). It can also be defined as an environmental management strategy to communicate with stakeholders, hence corporate social and environmental reporting (CSER). Besides, the CSER can command a pivotal role in the “greening” of corporate accountability (Sustainability/UNEP, 2002). For example, CER has been best described as a tool to spur corporate policies, strategies, and management systems geared to minimizing adverse environmental impact (Sustainability/UNEP, 1998). The development of these practices in early and mid 1990s had a trend taking the form of disclosure within annual report about the environmental (and subsequently social) policies, practices and/or impact of the reporting organization. Further, as such reporting practices become widespread and social and environmental disclosures made by some organizations become more extensive to report, companies started to publish it in a separate social and environmental report (Deegan, 2007). In Indonesia, the implementation and acknowledgement of corporate social and environmental reporting is relatively new and it has become the most popular term since the mid 1990s. In 2005, SWA Magazines conducted a research related to the most popular concepts.                      The result reveals that CSR is the most popular term conducted in strategic corporation (Hasibuan, 2006), as indicated by 31% of the respondents. In addition, the concept has also made popular due to the notorious environmental incidents in Indonesia, such as, the hot mud flood caused by oil and gas company, Lapindo Brantas Inc that caused massive mud flow in East Java in 2006. The incident submerged eight villages and caused Environmental destruction caused by the world's biggest miner - Grasberg in West Papua, operated by Freeport and Buy at Case has caused arsenic pollution in drinking water of people at Buy at Bay, where Newmont mines gold, and it was suspected that it also causes high mortality amongst children and women. These cases, among the many, have opened the eyes of the general public, and the regulated body and corporation on the importance of corporate social responsibility. Previous research in social and environmental accounting area has provided different explanations about the organization’s motives for implementing social and environmental reporting practices. In example, Gray, Koughy, and Lavers (1995) explain further that Decision-Usefulness perspective generally relates to the usefulness of accounting information, which is social accounting information in this case. Nevertheless, they also state that Decision-Usefulness studies lacks theoretical backing, as the discrepancy between corporate non-financial motives to get involved in CSR and the needs from financial stakeholders side, which are predominantly financial, being the main problem. Economic-Based Theory studies were conducted as a response to the unsatisfactory decision-usefulness approach. Social disclosure studies, using economic theory, have been in the periphery of Agency Theory and Positive Accounting Theory (PAT) research (Orij, 2007). Several studies have been carried out using this perspective to explain the existence and the contents of social and environmental accounting (e.g. Belkoui & Karpik, 1989; Cahan, 1992; Cahan et al., 1997; Crumbley, 2003; Ness & Mirza, 1991).             The basic argument relies on Watts and Zimmerman's Positive Accounting Theory (1986), which is based on positive research, an approach of analyzing “what is” as opposed to the normative theory approach which analyses “what should be” (Deegan, 2007). According to Belkoui and Karpik (1989), Positive Accounting Theory becomes an interesting rationale for CSR reporting. Moreover as indicated by Reverte (2009), positive accounting theory views the firm as a nexus of contracts between economic agents who act opportunistically. In social and environmental reporting context, this theory may be useful for describing the debt contractual obligations, managerial compensation contracts or political costs. This theory predicts that all people are driven by self-interest. As such, particular social and environmental activities and their related disclosures would only occur if they have positive wealth implications for the management involved (Watts & Zimmerman, 1986). Therefore, it is necessary to undertake research that predict and explain particular phenomena which occur in corporate social accounting. Thus this study assists in giving an understanding of why different firms choose Positive Accounting Theory to explain corporate social and environmental reporting.

1.2       Statement of Problem

In Nigeria, the activities of some multinational companies have been identified as questionable or even unethical because of the harm they perpetrated on the society. The emphasis is on the oil producing area there is a report that ten years ago, the Nigerian society was characterized by fragrant pollution of the air, of the water and of the environment as most corporate organizations are concerned about what they can take out of the society, and de-emphasized the need to give back to  the society.

In the same vain many organizations in Nigeria are driven by the need to make more and more profit to the detriment of all the stakeholders as some do not adequately respond to the needs of host communities, employees welfare (cheap labor often preferred) environmental protection and community development. This has translated to negative integrity and reputation on the part of corporate identity as people perceived this as exploitation and greed for a decaying economy of Nigeria.

In develop economy; the concept of business has change from profit making activities to social welfare activities where businesses are not only responsible to its shareholders but also to all of its stakeholders.

1.3       Research Questions

1.  What are the factors that influence the company’s corporate social responsibility?

2.      Does corporate social responsibility affect the profitability of the companies?

3.      How can companies improve in their corporate social responsibility?

4.      How does the activity of oil and gas companies affect their host communities?

1.4       Research objective

The primary objective of this research is to examine the factors that determine corporate social responsibility in the oil and gas sector. Other objective includes:

1.   To determine the factors that influences the company’s corporate social responsibility

1.     To determine whether or not corporate social responsibility affect the profitability of the companies

2.     To determine how to improve in their corporate social responsibility

3.     To determine whether or not the activity of oil and gas companies affect their host communities

1.5       Research Hypothesis

1.  There is no factor influence the company’s corporate social responsibility.

2.  Corporate social responsibilities do not affect the profitability of the companies.

3. There is no way to improve corporate social responsibility.

4. Activity of oil and gas companies does not affect their host communities.

1.6       Significant of the Study

The significance of this study is that, it will enable companies to appreciate the appraisal of their corporate social responsibility now that they are expected to improve in provision of corporate social responsibility. In essence, finding from the study will assist management and regulatory authorities in ensuring that companies operating in oil and gas industry make adequate provision for corporate social responsibility since doing that can reduce the hardship faced by the host communities.

This work will in no doubt will add and contributed to the already similar literature in abound. It will help researcher who will work further on this problem to afford him with material and act as a searchlight for those who are interest to duel on it for practical application.

1.7       Scope of the Study

The study will be conducted on companies engage in oil and gas activities and it covers period of five(5) Years from 2010-2014. Therefore, most references sorted through primary data are related to oil and gas industry.

1.8       Definition of key Terms

CSR: corporate social responsibility

Corporate social responsibility: is a service provided by the companies to their host communities as a sign of appreciation other than taxes and other related charges.

Host community: these are communities where companies are located.

Effect: is the impact a particular thing has on the other thing.

Quoted companies: these are companies which are listed in Nigeria stock exchange

Nigeria stock exchange: is and APEX regulatory authority of both primary and secondary market.

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