Pipeline Leaks and Stakeholder Theory

When oil spills in a forest, does everybody matter? That’s the question posed by the events recounted in this recent CBC story: Wrigley residents voice pipeline spill concerns.

The story is about an Enbridge pipeline that sprung a leak in a tiny, remote town in Canada’s Northwest Territories. Not surprisingly, residents of tiny Wrigley are unhappy about the spill, and so Enbridge has to figure out not just what to do about the spill (i.e., how to clean it up) but what to do about the people of Wrigley. More generally, managers at Enbridge have got to figure out, on an ongoing basis, what their obligations are, and to whom those obligations are owed.

There’s an older school of thought (or more likely a caricature of an older school of thought) according to which shareholders are the only ones whose interests really need to be taken seriously. According to this view, an oil company’s managers’ only real obligations are owed to shareholders. After all, says this view, shareholders own the company, and they’re the ones who (indirectly) hired these managers to make money on their behalf. If anyone else matters, they matter in a strictly instrumental way. Don’t treat your customers badly, for example, because they’re the key to making a profit. Or, in the present case, don’t irritate the people of Wrigley, because if you do they might do something inconvenient, like protesting.

A leading modern alternative to the only-shareholders-matter view is sometimes called the “stakeholder” view (or sometimes, in academic circles, “stakeholder theory.”) The core of the stakeholder view is the idea that the real ethical task of corporate managers is to balance the interests of various stakeholders — various individuals and groups whose interests intersect with those of the corporation. After all, many people contribute to the success of a firm, from customers to suppliers to members of local communities. And if they all contribute, they all have the right to ask for something in return. (You can read a summary of my review of a recent book on the topic, here: Managing for Stakeholders.)

The pipeline story is an excellent example of both the strengths and the limits of the stakeholder perspective. It’s surely useful for executives at Enbridge (or any other company, in the midst of an environmental crisis) to survey the situation and ask, “Who do we need to talk to? Who has a stake in this?” So, are the people of Wrigley stakeholders in Enbridge? Pretty clearly, yes. But after that, things get complicated. Does the environment itself automatically count as a stakeholder of some sort, or does it only count if the well-being of the people of Wrigley is jeopardized? What about the residents of Zama, Alberta? That’s the little town, 850 km away from Wrigley, to which Enbridge is planning to ship the contaminated soil. What about me? Like most people, I’m a consumer of oil. I clearly have a stake, here, don’t I? Pretty clearly, there are stakeholders and then there are stakeholders.

But anyway, once you’ve figured out who the stakeholders are, then what? Let’s take the easy one, a group that’s directly affected, namely the people of Wrigley. What are they owed? Are they owed the cleanup? Are they owed a speedy one? At what cost? Do they have a right to participate in the decision-making, or just to be kept informed? Or are they owed, as one resident of Enbridge suggested, a “swimming pool or a hockey arena or something for the kids”?

As you can see, one problem with the stakeholder view is that the word “stakeholder”, itself, doesn’t actually clarify much. Yet some people tend to sprinkle it on like fairy dust, as if simply anointing someone a Stakeholder™ clarifies what is owed to them, ethically. Life in the little town of Wrigley should be so simple.

2 comments so far

  1. Romy88 on

    Indeed it true there’s no firm clarification on stakeholder it depend on type of business, product, area of operation and etc. The word stakeholder itself too big to class everything in one word. As for Wrigley resident case they might be the secondary stakeholder for Enbridge but the oil spill effect to them are disastrous not just health condition but environment itself will be affected. When company making millions shareholder enjoy the profit but when thing like this happen the innocent pay the price. (moral hazard to Wrigley residents).

    Enbridge should come out with aggressive action to settle thing out before the communities start taking action on them. Though its already happen but space for improvement always available.

    sincerely CRS is important!

  2. marie on

    You state that the managers of Enbridge need to “figure out” what to do about the leak in Wrigley, how fast and who they should consult etcetera. My statement is that Enbridge is completely responsible for the leak and the cleanup but they should not be the sole collaborators on this process. There should be no “figuring out” as the cleanup should be automatic and more than sufficient to put everything back together as it was before the spill. The government in consultation with the World Environmental Organisation (WEO), or Greenpeace for example should play a bigger part in implementing cleanups. There should be a course of action mandated by them regardless of corporate interests that puts greater pressure on corporations during a spill or leak to clean up fast and that also puts instruments in place to prevent a reoccurrence, as this seems to be very common. Governance will ensure that corporations are held fully responsible and directed to supply all necessary funding to enable the clean up to take place at a timely approach. Left to their own profit maximisation goals most corporations would not go to extra lengths during a clean up or think harder about the prevention. Profit for their stockholders or shareholders come first. In my opinion they are entitled to their goals of more profit, but when groups of stakeholders are affected adversely then laws need to change; powerful corporations will be forced to change and they can easily adapt. They would do what they were required to do within the law and even if the law was rigorous it would still be within their scope of the profit maximisation view.
    Every corporation or business that has the ability to have an effect on a large group of undefined stakeholders should be watched closely to enforce a duty of care towards those stakeholders and the environment which all stakeholders depend on to survive. So we are all stakeholders. I don’t believe the environment itself can be called a stakeholder as it is not a collection of humans but a natural system which depends on all parts of its system to operate according its own laws of nature. “Stakeholder” is a word created by humans in order to categorise a group of people affected by the actions of a lawful business unit. However, all stakeholders depend foremost on the natural environment to live a sustainable and healthy existence and this extrinsic human need should override the very narrow profit maximisation view.
    Previously there was no need for implementing such strong policies but since the industrial revolution business has changed on a huge scale. There is so much more money to be made and so much more damage to be done directly and indirectly to stakeholders. The phrase “social responsibility” has developed from experience and an understanding of the effects that major business has on humans and our existence. We want business to be responsible. We want them to follow the categorical imperative. We want them to be accountable for their actions. It’s time for governments to comprehend stakeholders concerns and modernise by putting tougher measures in place to control the damage corporations are doing to the world’s ecosystems. Punishment with a hefty fine is not enough of a detractor for oil spillages; many companies can afford the penalties and simply absorb the cost.
    I doubt that the community of Wrigley or any community where this happens has any group of people that have all the skills necessary to make the required objective decisions for a cleanup but some consultation with the locals is required. Specifics are needed from them to find out who and what has been affected and also what sort of microenvironments are present that are likely to have been affected.
    When a leak such as this happens recurrently then the piping itself needs to be examined. There must be a fault in the structure, design or placement (or all three) of the pipes and maintenance should be increased or complete replacement performed, with a government appointed independent inspector overseeing the work. An enforced complete overhaul of the manufacturing, laying and maintenance of all their pipes could be a good start for Enbridge, and the cost of such an action is directly passed onto them. Of course the people of Wrigley are owed something, but it’s not compensatory justice; a “thing” or money. An efficient and complete cleanup initiated by Enbridge (which probably has plenty of resources being an oil company) and a guarantee that it will never happen again is what’s needed. The government should mandate it with no exceptions. This would show a duty of care, an aim to prevent damage and the acceptance of Enbridge’s ongoing responsibility to preserve its stakeholder’s interests in the environment.
    There will always be accidents. Many accidents can be prevented and striving for prevention should also become law, along with the stricter enforced cleanup. Any action which could negatively affect the environment should be governed and anticipated with stricter laws and guidelines before it can happen. This way over time there will be reduced avoidable harm done to the environment – our only ecosystem.
    There are many other business and stakeholder concerns which demand ethical analysis but none as important as the study of the impact of adverse actions by corporations that affect our (the stakeholders) environment negatively and irreversibly. Corporations are not regulated enough by governments or world environment organisation and more power needs to be attributed to selected environmental groups to enable prevention and clean ups to be effective and efficient. Just like in employment law where workers are protected from oppression from more powerful and resourceful employers, stakeholders (everyone in the world) and their environment need to be empowered and protected from the control, destruction and domination of the world’s corporations with effective laws.

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