Business Ethics – Anglo American Case Study

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Ethics represent the study of morality and moral behavior, but it is a relative concept, and ethical behavior is usually seen as the behavior which is morally “right” and which is not conflicted with the law regulations. However, when it comes to doing business, we usually relate ethical behavior with the concepts of corporate responsibility and sustainability. Mining operations can have a big impact on the environment and on the societies where they work. Anglo American seeks to adopt fair and sound business practice. The company believes that it has an important role to play in building the capabilities of the communities where it works. There are four well-known categories of corporate responsibility and they are usually represented in a particular order, as follows: economic responsibilities, legal responsibilities, ethical responsibilities and discretionary responsibilities. After defining the concepts of business ethics and CSR and providing some examples of good and bad practices in performing business activities, and in accordance to the aforementioned categories, we will try to analyze the case of Anglo American Company and show how it achieves the balance between economic, environmental and social considerations. Also, one of the ideas exposed in this paper is that the concept of CSR can be explained as a strategic intangible resource for gaining competitive advantage in operating a business.

Anglo American is one of the world’s leading mining companies. It is a UK public limited company and operates on a global scale. Anglo American operates mainly in the primary sector of the world economy. This, as the name suggests, covers industries involved in the first stage of economic activity, such as mining and agriculture. Anglo American operates throughout the world. It has extensive operations in Africa, where 76% of its employees live. It is also a major employer in Europe. Its Tarmac aggregates and construction products business employs nearly 7,000 people in the UK. As a primary producer, Anglo American plays an important role in the world economy.

Introduction

Despite decades of this pure stockholder approach forming the basis for discussions of corporate ethics, it is difficult to reason that corporate decision makers can completely ignore the interests of other parties affected by the actions of the corporation. In step with other theorists such as Freeman, etc., Paine (1996) is one of several scholars who have suggested business managers should employ moral thinking alongside traditional business decision-making considerations. According to Paine, existing moral obligations as human beings supersede imposed profit-making priorities.

Anglo American is one of the world’s leading mining companies and in this sector the sustainable progress which is in accordance with all the dimensions of CSR can be achieved through following practices:

Economic development which is based on the investments dedicated to sustainable life of local communities (Epps, 1996);
Protection of the environment, which represents the cuts on the use of natural resources and ensuring that they can be re-used (Sanchez, 1998);
Social cohesion, which can be described as cooperation among stakeholders, preservation of the ambient in terms of culture and society and the transparency in performing business activities.

According to Hilson and Murck (2003, p. 38), sustainable development in this sector “requires a commitment to continuous environmental and socioeconomic improvement, from mineral exploration, through operation, to closure”. Therefore, we can conclude that the concept of corporate responsibility is related to the contribution of businesses to the stability of economic, social and environmental dimensions. CSR relates to the activities of businesses, particularly in terms of their contribution to achieving sustainability. According to Hamman (2003), we are witnessing a global shift in the way that business is perceived and that is the key factor for the development of today’s corporate responsibility initiatives.

Business ethics and CSR

It is commonly known that ethics represent the study of morality and moral behavior, but we are also aware that it is a relative concept. Ethical behavior is usually seen as the behavior which is morally “right” and which is not conflicted with the law regulations. However, when it comes to doing business, we usually relate ethical behavior with the concepts of corporate responsibility and sustainability which are some of various expressions for describing how businesses contribute to the society and the environment, and also which are the consequences of their business activities for the society and the environment. Furthermore, these concepts are closely related to the dimension of economic development, protection of the environment and cohesion with the society. Therefore, it is based on and gravitates towards the idea of social progress, sustainable use of resources, sustainable growth and efficient protection of nature.

It is generally agreed that modern business is an integral part of society and its actions, and that businesses must participate in society in a responsible and ethically symbiotic way. In management literature, the issues relating to sustainable and responsible ways of conducting business are typically discussed within the concepts of CSR, business ethics, Corporate Responsibility (CR), Corporate Citizenship (CC), stakeholder issues, and sustainability, etc. The concept of CSR is rather imprecise at the moment, there being no one universally accepted definition, and exist multiple related concepts and terms which are interchangeable with CSR. The concept of “business ethics” is the interaction between ethics and business, which deals with moral standards and principles in business operations. The “stakeholder approach” emphasizes that organizations should not only be accountable to their shareholders but also balance the interests of their other stakeholders, who can influence or be influenced by organizational activities. It considers stakeholder rights and their legitimate interests, and links ethical theory to managerial theory, but it cannot provide a sufficient and specific objective function for the corporation, and is primarily concerned with the distribution of final outputs. It is widely recognized in the literature and discussion that responsible business covers three separate dimensions: economic, social, and environmental. Within this paradigm, business organizations were principally regarded as economic entities responsible for providing products and services to meet social needs and making an acceptable profit. Economic responsibility typically meant the profitability and competitiveness of the company, as well as the socio-economic impact of its business. There is a dramatic increase in the environmental consciousness and the concerns on the effects of business activities on natural resources. Environmental responsibility becomes the most critical dimension in the sense of meeting the needs of the corporation and society without compromising the environment. Environmental responsibility highlights issues such as emissions, waste, energy use, and product life-cycle. Corporations do not operate apart from the society we live in, and business behavior has many direct and indirect impacts on society. Social responsibility pertains to fair and beneficial business behavior toward those involved people, such as employees, the community, and the region.

The definition of CSR that this paper starts from is that “corporate social responsibility involves the conduct of a business so that it is economically profitable, law abiding, ethical and socially supportive. To be socially responsible then means that profitability and obedience to the law are foremost conditions when discussing the firm’s ethics and the extent to which it supports the society in which it exists with contributions of money, time and talent” (Carroll, 1983, p. 608). There are four well-known categories of corporate responsibility and they are usually represented in a particular order, as follows: economic responsibilities, legal responsibilities, ethical responsibilities and discretionary responsibilities.

Why is it so important to perform business with regard to business ethics? From the point of view of the business itself, and not only from the altruistic point of view, we can define the responsible business as a “strategic resource” or a strategy that improves the competitiveness of a company. According to the definitions of some authors (Amit and Schoemaker, 1993), strategic resources represent a certain amount of available factors that the company controls or owns. They, with use of a wide range of other property and various activities of companies, are converted to the final products and services. Organizational skills are related to the features and capabilities that the company has in order to recruit resources, using organizational processes. Types of resources can be viewed through different divisions. There is a known classification of “tangible” and “intangible” resources (Grant, 1998). Some authors distinguish physical capital, human capital, and organizational capital resources. Others mention financial, physical, managerial, human, organizational and technological resources. Finally, there is a division into classes: resources based on knowledge and resources based on property. Many resources are very specific and not easily maneuverable and cannot be imitated. Therefore, companies and organizations differ in their resources. It is this diversity which can be a potential source of competitive advantage that provides above-average income.

By working towards the goals of sustainable development, Anglo American hopes to gain a competitive advantage. By demonstrating a more caring and sustainable approach, the company is able to differentiate itself from rival mining companies. It makes Anglo American more likely to be the partner of choice for many governments and communities in the developing world. As a basis for achieving competitive advantage and creating added values “intangible resources” are more and more important in the modern economy. The definition of intangible resources might be that it is a recognized non-cash property with no physical characteristics which is owned with the purpose of use in the production and procurement of goods and services, for the purpose of managerial motives. They have a relatively high resistance to attempts of imitation by competitors. Therefore, they represent organizational knowledge that can be used to create a differential advantage. Regarding the establishment of a competitive advantage, which is related to the return of profits, the first significant requirement is the limitation of resources or opportunities. If anything, as the quality, is widespread and accessible, then it is not a source of strength and potential above-average profit. Also, a resource or possibility must be significant enough to bring success.

Ethical and unethical businesses practices

The best example of unethical practices is the one that every person would easily understand, and without doubts those include the unethical practices appearing in the sector of healthcare industry. One of the examples is the case when healthcare practitioners are not willing to provide their services to the clients/patients without insurance or without a proof that they are able to pay for such services. Another example is income boosting by excessive treatment of patients or performing surgical procedures out of hospitals (Weber, 2003, p. 6).

Other examples of unethical practices in doing business are different types of “false communications” which can include false reports resulting from auditing or other kinds of control, which are not truthful or which are misleading. Such false reports include falsification of the reports on tax returns or wrong expenses (Brennan et al. 1961, p. 164). Providing the stakeholders with false reports in order for the organization to gain a positive image is not a rare practice. For example, there is the Enron case, when they submitted false data on their losses because they thought that the diminished amount “could be explained reasonably without doing more damage to the falling stock price of the company” (Collins, 2007, 3).

On the other hand, regarding the matter of transparency, we have the example of GSK (Glaxo Smith Kline), a pharmaceutical company which is a leader in providing complete and public results regarding their clinical tests. This company has decided to create a website completely dedicated for disclosure of all those results, initiating the culture of being open in front of the public which is often suspicious about pharmaceutical companies, gaining their trust. Today, this company has a profit of more than 45 billion dollars and employs thousands of people in more than hundred countries all over the world. The main business is the development of new medicines and vaccines and the great part of their income is invested in researches for new medicines. Their good practice in publishing the information regarding the testing helps them to create deeper level of trust with their stakeholders. Although people generally trust in such companies, it is not the case when it comes to clinical trials. Therefore, their proactive decision plays a crucial role in maintaining that trust and sets a good example for other companies in the sector, stating that even publishing information which is not completely positive can help in gaining a good image.

Another very important aspect of ethical business practice is, of course, the environment. The example of good practice is the French company Lafarge and their engagement in using alternative fuel and sources of energy, in order to reduce the level of greenhouse gas emission, especially in their cement factories in Africa. In those factories they have been conducting experiments with the goal to reduce CO2 emissions, and the benefits are both financial savings and employing the members of local communities. In doing so, the referent year is 1990 and the target cut amounts for 20% of that level. Lafarge is focused on the developing countries, and not the developed markets, because they are growing more rapidly, and it is more difficult there to reduce the emissions.

Moreover, Lafarge is engaged in different projects around the globe, trying to find alternative sources and the main alternative fuel are coffee husks or palm kernel shells. Also, in North Africa their factory’s electricity is generated by the wind power, cutting large amounts of CO2. Since the cement industry affects the climate greatly, it is important for the cement plants to keep trying in finding the solution for the environment. The positive image comes also from the awareness that it is not easy to keep providing the market with enough cement and at the same time to reduce the emissions.

CSR in the mining industry – Anglo American case study

As Warhurst (2001) notes, a large number of the environmental accidents or incidents related to human rights incidents in the last few decades are linked with the mining sector, and all of them have elevated the attention and worries of the public about the corporate responsibility issues of the factories from the industry, making them an unavoidable part of all the ongoing debates concerning this matter. Analyzing the reasons for such a situation, Walker and Howard (2002) emphasize why CSR is important for the companies such as Anglo American:

The public in general does not have a very positive opinion of the mining industry, and this is caused mainly by the social and environmental concerns and less by the matter of prices, quality etc.
Some interested organizations and groups, such as non-government organizations, are opposing the operation of the companies in this sector, making them seem illegitimate.
The CSR aspect becomes more and more important for the financial institutions dealing with the companies form the mining industry, in terms of granting funds and estimating the risks.
For many companies form the sector it is very difficult to keep the permission to operate their businesses, due to the opposition of numerous organizations.

Another very important issue concerning the CSR of all companies, and therefore those in the mining sector, is the issue of social and environmental disclosure, which Gray, Kouhy and Lavers (1995) define as voluntary and mandatory disclosure performed by businesses concerning issues that are important form their stakeholders, encompassing more than only economic concerns. Tilt (2001) notes that social disclosure is a broader concept then environmental disclosure, which is its part. As we can assume, environmental one is related to the environment protection, use of resources, while social disclosure is related to the society in general, local community etc. Analyzing the roles of the disclosure, we can point out the following:

Estimating the impact of a business on the society and the environment;
Estimating the efficiency of social and environmental programs of a company;
Making a report on their responsibilities;
Creating an information system which allows the assessment of the resources and impacts.

Having all that in mind, we can note that Anglo American supports the following initiatives:

The Global Reporting Initiative, which is a framework used by companies to produce sustainability reports about their activities.
Extractive Industries Transparency Initiative, which is a global standard designed to ensure that companies publish what they pay for raw materials and governments publish the revenues that they receive.
The United Nations Global Compact, which is the means by which businesses worldwide can complement the objectives or the United Nations through adherence to ten core principles covering human rights, labor rights, environmental good practice and anti-corruption.

In the introduction of this paper, we have mentioned the different dimensions of CSR. Concerning the EITI initiative, it can be said that it falls into the category of ethical responsibilities. Extractive Industries Transparency Initiative is one of the attempts to deal with corruption in Africa, and its goals are to increase transparency regarding the payments by the sector companies to local governments or their representatives. Anglo American in its report (Anglo American, 2003, p. 10) describes their support to this initiative “as a means of increasing stakeholder confidence, reducing opportunities for embezzlement and stimulating debate around how revenues are allocated most effectively in resource-dependent economies”. Furthermore, in their “Good Citizenship” paper, Anglo American (2002, p. 3) states that “we are implacably opposed to corruption. We will not offer, pay or accept bribes or condone anti-competitive practices in our dealings in the marketplace and will not tolerate any such activity by our employees”.

Moreover, regarding the economic responsibilities, Anglo American’s economic contribution in Africa exceeds the gross domestic product of some African countries. Quoting once again their Report to Society (2003, p. 53) Anglo American insists that their “economic contribution extends far beyond the profits we generate and can be divided into:

Value added in the course of production and the wider effects of these activities (e.g. through payments to suppliers and multiplier effects) and through investments in staff development, technology transfer and investment;
The value to society of our products, which are used in the manufacture of goods that underpin our way of life and for which there are few ready substitutes”.

Anglo American is a good example also for the dimension of philanthropic responsibilities, and their main source for charity activities is the Anglo American Chairman’s Fund, founded almost 40 years ago with the aim “to enable people to take greater control over their daily lives” (Anglo American, 2003, p.48). Since they support the main contention of this section when they say that “in developing countries there is still a significant role for philanthropic programs” (p.48). This company also engages in HIV related activities and also provides treatments for their infected employees.

Finally, as for the legal responsibilities of Anglo American, all their official documents state that they always operate in accordance with the laws and regulations of their host countries, precisely: “we will comply with all laws and regulations applicable to our businesses and to our relationships with our stakeholders” (Anglo American, 2002, p. 3).

Conclusions

The concept of “business ethics” is the interaction between ethics and business, which deals with moral standards and principles in business operations. When it comes to doing business, we usually relate ethical behavior with the concepts of corporate responsibility and sustainability. Mining operations can have a big impact on the environment and on the societies where they work. Anglo American seeks to adopt fair and sound business practice. There are four well-known categories of corporate responsibility and they are usually represented in a particular order, as follows: economic responsibilities, legal responsibilities, ethical responsibilities and discretionary responsibilities. The “stakeholder approach” emphasizes that organizations should not only be accountable to their shareholders but also balance the interests of their other stakeholders, who can influence or be influenced by organizational activities.

There is a dramatic increase in the environmental consciousness and the concerns on the effects of business activities on natural resources. Environmental responsibility becomes the most critical dimension in the sense of meeting the needs of the corporation and society without compromising the environment. Environmental responsibility highlights issues such as emissions, waste, energy use, and product life-cycle. Corporations do not operate apart from the society we live in, and business behavior has many direct and indirect impacts on society.

By working towards the goals of sustainable development, Anglo American hopes to gain a competitive advantage. From the point of view of the business itself, and not only from the altruistic point of view, we can define the responsible business as a “strategic resource” or a strategy that improves the competitiveness of a company. Competitiveness is often defined as the ability of a firm to realize in the long run a sustainable and dynamic growth and development. As a basis for achieving competitive advantage and creating added values “intangible resources” are more and more important in the modern economy. They have a relatively high resistance to attempts of imitation by competitors. Therefore, they represent organizational knowledge that can be used to create a differential advantage.

Anglo American has a long history of social and environmental disclosure, and the nature and style of information have been more and more precise and sophisticated. This company has been making reports covering a wide range of the aspects of their business, and also has created their own standards and codes which are in accordance with all the principles of CSR. Concerning the EITI initiative, it can be said that it falls into the category of ethical responsibilities. Extractive Industries Transparency Initiative is one of the attempts to deal with corruption in Africa, and its goals are to increase transparency regarding the payments by the sector companies to local governments or their representatives. Regarding the economic responsibilities, Anglo American’s economic contribution in Africa exceeds the gross domestic product of some African countries. Anglo American is a good example also for the dimension of philanthropic responsibilities, and their main source for charity activities is the Anglo American Chairman’s Fund. As for the legal responsibilities of Anglo American, all their official documents state that they always operate in accordance with the laws and regulations of their host countries.

References

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