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Mining and oil companies as mediators?

October 24, 2013

Today I attended the London annual general meeting of one of the largest global mining companies, and I am writing this en route to South America where I will spend a week with staff from another. What makes them so interesting?   Obviously there is something fascinating to the non-engineer about how engineers extract minerals from the ground, often from great depth, and then retrieve the elements they want – which are invisible to me – from the ore, and then market them halfway round the world. But beyond that, miners and oil drillers occupy a truly fascinating role in society as mediators.   This is because by virtue of their business niche they mediate – on behalf of the rest of us, one might say – between interests and issues which are often in tension. In this way they symbolize our wish, in modern society, to have our cake and eat it. Perhaps they are a kind of Gollum – representing our wish for wealth and power (“the ring, my precious!”) and our simultaneous moral desire to be good. No wonder they get so much stick from different quarters. I will try to explain this briefly, in terms of three of these contradictions or tensions.  

1.       Local vs. national

Minerals sit on or under the ground (or seabed), somewhere. That somewhere is where God, the gods, or geology put them, depending on your point of view. So they are on one very basic level, local. But in our modern era of nation-states, they tend legally to belong to the “nation”, and are thus at the disposal of the state, on the nation’s behalf. In poorly governed nations, that makes them vulnerable to being seen as the patrimony of the ruling elite, rather than the population as a whole. While in democracies they are managed as national patrimony for the benefit of the nation as a whole. But in any case, democracy or no, there will always be a tension between the needs, interests, desires and beliefs of local populations in the area where minerals lie, and those of the nation as a whole. And even more so in colonial or post-colonial situations where there is an underlying tension between indigenous people and the colonial invaders or their descendants; or in nations where one particular indigenous group, region or class holds sway over others. Most often, this tension is expressed in terms of local populations wanting to hold onto the resource (perhaps by preventing it from being mined, perhaps by wanting greater ownership and control of the resource once mined). AGMs of mining companies always provide illustrations of this, when local representatives who have purchased a single share, use this as a licence to remonstrate against the company’s destruction of their environment or its failure to mine in ways they find acceptable.   So miners and other diggers and drillers (for oil, gas, geothermal power, etc.) straddle the very difficult fault line between local communities and the state, and have to mediate between the competing interests of both.

This is difficult enough in democratically mature polities like the USA and UK, but that much harder of course in countries run by relatively unrepresentative governments, where many of the most important mineral deposits occur. Miners are forced to mediate between these competing interests – all the while trying to maximise their own primary interest, getting the best return on shareholder investments now and in the future.

2.       Growth now vs sustainability

Where we humans love to have our cake and eat it, is inherent in the tension between sustainability and development. Phrases like “sustainable development” trip neatly off the political tongue. But when we are honest, we know that the kind of development we can most easily envisage perforce involves economic growth, and since the days of Newton if not before, we have known that economic growth of the kind we are familiar with is inherently unsustainable. This is because it involves using up natural resources at a faster rate than they can be replaced – and in many cases using up natural resources which simply cannot be replaced.  

Our improved understanding of climate change has brought this into sharper focus, just at a time when billions of humans whose parents and grandparents were largely excluded from the proceeds of fast and unsustainable growth are obtaining access to them. We are now acutely conscious that we are moving towards a cliff-edge in a headlong rush that we don’t seem to know how to stop.  

Enter the mining and oil companies, whom we have charged with the task of helpfully providing many of the irreplaceable raw materials we need, to take us over the cliff: oil, gas, coal, iron, copper, potash and the like. Oh! how we want them to provide these materials as cheaply as possible – witness the current political non-debate over energy prices in the UK, or over carbon pricing in Australia; oh! how we want an above-average return on our shares; and oh! how we love to castigate the same mining and oil companies for destroying the environment and pushing us over that cliff….  

So once again the very same companies find themselves caught in the midst of a schizophrenic debate between people who want to keep their cake while stuffing their faces with it, and thus mediating between our two Gollums. This is because governments and intergovernmental organisations seem incapable of doing so – not least because we don’t really want them to.   This tension was illustrated at the AGM of BHP Billiton today, where a thoughtful climate activist named Ian Dunlop had put himself forward for election to the company’s Board, citing the need for a better understanding and commitment on climate change issues by directors of this huge company, whose portfolio includes energy and coking coal, oil and gas. Needless to say, he stood no chance of being adopted as a director by the company’s investors – who like most other investors have not yet really begun to factor the costs of climate change into their short-termist investment plans.  

3.       Resource nationalism vs market pragmatism

And then there is the fundamental tension between the desire of governments in mineral-rich countries to get the minerals to market as effectively and efficiently as possible, and their demand to have as much control and income as possible. This tension is most obvious where the minerals are technically difficult to extract – e.g. the North Sea – or in under-developed countries with inadequate skills and infrastructure which impede progress. In both cases, governments are tempted to overplay their hand – trying to extract a greater proportion of revenues than well-run companies can often stand; and sometimes good companies which would have produced a reliable flow of income from well-run mines and wells are displaced in favour of less principled operators who promise more, but end up delivering less and in ways which are more detrimental to the environment and society.  

Most often though, the company and the government remain in uneasy “partnerships”, and the ineptitude of governments leaves the company in the unenviable position of having to mediate between the government’s competing desires.  

———-

There are many other tensions integral to the extractive industries which I could cite. The most obvious one perhaps is between the need for good stewardship of mineral resource and the urgent need for funds. Minerals can only be dug up once, and despite recycling, can really only be sold once by the nation which owns them.

Prudent stewards of this patrimony would husband this resource very carefully, and avoid using royalty receipts to fund recurrent expenditure. They would treat mineral revenues as scarce capital, to be invested in projects which capitalise society – infrastructure, education, governance improvements, etc. But outside Norway and perhaps Alaska, this approach is all too rare: governments find it all-too difficult to resist the temptation to use royalties as just another form of tax income, thus creating unsustainable expenditure patterns and buying favour unsustainably with the electorate – or with “clients” in a patronage-based political system. But although mining companies need to be aware of this tension, they are less likely to be in a position of straddling the fault lines and mediating between the opposing interests, as they so often are in the three examples above.  

Given all the above, it is no great surprise that mining and drilling are so controversial. They encapsulate all too neatly the contradictions and opposing forces in modern society. Perhaps there will always be a Gollum, and society will always find ways to project its Gollum on someone else. Perhaps we should cut miners some slack. No, wait, perhaps we should close those evil drillers and diggers down!   But more seriously, what this means in practical terms is the need for the staff of miners and drillers to be thick-skinned, but above all principled,  politically savvy and – well – good at mediation, I guess.                      

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6 Comments leave one →
  1. October 26, 2013 5:46 am

    Agreed – mediation skills are essential for resource executives though the role of external professional mediators is also important where trust needs to be developed

  2. October 26, 2013 6:22 pm

    Mr. Vernon;

    I greatly appreciate your thoughtful article. You have done a good job of describing many of the tensions that exist regarding local communities, national stakeholders, immediate demand vs. stewardship, etc. You paint the picture of extractive industry corporations as having to serve as mediators to bring resolution to these tensions. There’s just one problem with your point of view and that is this: . I’m not sold on the extractive industries being “the good guys”. Like all of the other parties involved in the extraction of oil and gas, coal and other minerals…the corporations involved are clearly pursuing their own self-interests and that of their shareholders, which is realise the highest level of profitability, often at any cost concerning the financial interests of other parties or the environmental impacts and cultural impacts on local communities. Rather than being fair and balanced mediators they are self-appointed mediators with very real conflicts of interest.

    In any case it is an interesting article that made me think about mining and other extractive industries in the developing world, as well as in my own backyard, Canadad – The Oil Sands; Oil Pipelines to the U.S, across Canada and through the Rockies to the Asian Markets; shipping oil by Tankers; and most recently the debate about fracking between the exploration companies and the aboriginal communities of New Brunswick, You have done a good job of capturing the issues at stake.

    • October 26, 2013 9:26 pm

      Thanks for your comment, William. What I’d suggest is, some companies are trying hard to get this right; others less so. It seems important to support and try to enhance the efforts of those who are trying to square the circle, while holding all to account for doing things right. Unless we are ourselves living in ways which do not require the products the miners and drillers provide – which would be a rare lifestyle to follow – then we share their responsibility, after all. Phil

      • mfanawemkosi permalink
        October 26, 2013 11:18 pm

        Fair comment Phil about some companies trying to square the circle but I would suggest the number who are not living up to their corporate social responsibilities are in the majority. I get a daily e-mail from http://www.mining.com , which provides numerous examples of companies running into environmental problems, problems with the local communities and problems with the nations. I also read a report in the last week which stated that the amount of accounting theft by means of transferring price slight-of-hand has resulted in more than $38 billion in monies that should have been given to African countries, more than the total amount of development dollars spent in the entire continent and I am not proud of the fact that there are plenty of Canadian companies that are involved in these types of activities, since Canada is one of the leading mining nations in the world, controlling more than 40% of projects worldwide. As for the duty of the consumer/citizen, you are right, we do have a responsibility for playing our role in the demands placed on the extractive enterprises. Finding the right balance in a modern, fast-paced world is not easy, in fact, I would say it is next to impossible and on that front I do not have any answers, at least none that come to me right now.

        William

  3. May 21, 2014 3:00 pm

    Great post! Been reading a lot about corporate mediation like this. Thanks for sharing your thoughts!

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