Roberto Frau
Social and Sustainability Team Leader
ERM
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View from the Top

Future Roadmap for Social Management

Wed, 01/22/2014 - 12:01

Q: What are the differences in the way PEMEX and private companies manage relationships with local communities?

A: The biggest difference lies in their respective level of comfort with open dialogue. Throughout its history, PEMEX has had some arguably negative experiences with open dialogue, placing it in a position where it sees communication on an as-needed basis. There have been exceptions as PEMEX has many ways of executing social management strategies, but in general, PEMEX is a little weary of giving out too much information and providing too much of a platform for communities to engage with them. When it is absolutely necessary to do so, it engages in a way that maintains a distance between the company and the community. That is the overall trend of community management, public disclosure, and social engagement at PEMEX. In the private sector, top-tier oil and gas companies have learned the hard way that, if they want their projects to be accepted and allowed to operate, they need to be proactive and egalitarian about information disclosure, engagement, and communication. The current state of affairs in the oil and gas industry, as it pertains to social management, requires companies to start these conversations very early in the process. They cannot wait until a situation arises that could boil over and become problematic. From the very beginning, companies must start identifying the key stakeholders, what information they must provide, and what level of engagement is required. Then, the engagement has to be executed throughout the lifecycle of a project. Private oil and gas companies have largely adopted this philosophy so they are very comfortable with it today. That might be the biggest difference, PEMEX simply has not had enough experience with early engagement to be comfortable with it. The company is still slowly but surely learning to adopt that early engagement philosophy and to see its results in its own projects and with its partners, such as Petrofac.

Q:How does being listed on the stock exchange influence the relationship between private companies and communities?

A: First of all, how publicly traded companies are viewed by outsiders impacts their bottom line. They are also competing with each other and with other entities, those that remain standing in the end are those that are best accepted by all key stakeholders. These stakeholders are not just government authorities but also marginalized and vulnerable communities that exist near a project’s location and can cause a ruckus if they feel that they are not being respected. These communities increasingly have ties to NGOs that are operating locally, nationally and internationally, which gives them leverage. It is not just a matter of whether a company is traded on the stock exchange or how high its operational costs are. Although these are important factors as well, community relations can govern the essential viability of projects.

Q: How will the entry of private operators impact the way in which PEMEX approaches local communities?

A: It is already starting to happen. These communities are quite close to one another and are attuned to receiving preferential treatment or not. Their expectations are being raised and that trend will continue. This will put pressure on PEMEX to align its own practices with international best practices. However, this will not be a rapid process as the weight of PEMEX’s legacy and methods prior to the introduction of more private sector players is still very solid. There needs to be a bigger presence from the private sector so that change can be accelerated.

Q: When working with communities, which areas do you advise clients to tackle first?

A: No part of this process is easy, but the issues that could arguably be addressed without many complications are the ones referred to as legacy issues. This refers to issues that the community perceives as being already caused by PEMEX. The incoming company then has to decide who needs to solve this burden: itself, PEMEX, or both together. The social liabilities that already exist in these communities are very complex, their intensities and nature vary according to culture, region, and the type of exploitation activity. Making an inventory of issues to be addressed with communities is easier than establishing a way forward that departs from these. Clients must never avoid this part of the process as it is the most important aspect. Creating a new system of interaction with a community that implements sustainable development without such legacy issues being solved is a lot trickier.

Q: Apart from legacy issues, what are the main community issues that companies should address in Mexico?

A: ERM recommends a three-pronged approach to community management for any new company coming in. The first of the three components is carrying out an inventory, which is agreed upon by the company and PEMEX, on outstanding issues such as spills, other issues of environmental liability, and aspects such as road conditions. These issues have to officially be part of an official inventory agreed to by both parties, which serves as the basis for negotiation. The second component, which has to happen in an almost parallel fashion to the first, is the identification of quick community investment projects. The company can work on these in a way that helps to deliver their message while the community moves forward. These projects will swiftly show the way in which the company wants to work with the community: nothing delivers a message better than these types of actual actions. The third component is to clearly move on from those early actions toward a long-term, sustainable vision for the relationship with the community. Companies must not remain in those quick, early actions for too long because that risks becoming their norm. Instead, they have to reiterate that these are early actions and that they have a longer-term vision of the relationship that will be fulfilled in a number of ways. We have seen a number of projects that present information gaps. Why has the productivity of the land decreased? Why has flooding increased? Companies can then find real technical solutions to solve issues and end up having a positive impact by creating long-term benefits for the community in question.

Q: How should companies integrate corrective measures or emergency responses into their strategy?

A: In general, there are two types of approaches in social management: the preventive, proactive approach, which is obviously preferable, and crisis response. What we recommend to our clients is that, if and when disaster strikes, the most important thing is to not stop everything else that is strategic, ongoing, long-term, and proactive. All that must be maintained as a basis for engagement while additional measures are implemented in order to address a particular contingency. It can be a matter of transparency and determining who is involved in resolving the situation, what the expectations are, and what compensation or mitigation measures could be adopted afterwards. We saw a lot of this in the Macondo oil spill, where BP had to be very transparent and admit that it could not control it. It stated its expectations in terms of dates and parties involved, and while it might be terrifying for a company to make itself open and vulnerable, the aftermath was kinder for these companies than for companies that try to keep everything under wraps. In the long-term, a transparent and forthcoming company can then start mending fences, rebuilding trust, and regaining the social license to operate in an easier and less expensive fashion.