Business Ethics - Report on Petrochina

Title Page

Report on PetroChina

Table of Contents

1. Comment on changes in the assignment        1

2. Introduction        1

3. Stakeholders and CSR strategies        2

3.1        Main stakeholders: theory and PetroChina fact        2

3.2        CSR claims and actual implementation of CSR strategies        4

3.3        Critical assessment on the CSR strategy of the company        6

4. Assessment of a social enterprise option        7

5. Reflection and self-assessment        8

Reference        9

1. Comment on changes in the assignment

In response to feedback received and reflection on the task, what have revised been revised in this resit assignment are: 1. The ethical issue studied is changed to PetroChina’s violation of human rights; 2. Including the discussion of definitions of core concepts like stakeholder theory, ethics of rights and justice, and social enterprise; 3. Trying to conduct more in-depth analysis on PetroChina’s CSR strategy claims, CSR practices and the potential social enterprise alternative; 4. Enhancing writing style, increasing in-text references, and changing the format of references into standard Harvard style. Actually, the whole report is rewritten and restructured.

1. Introduction

In the introduction part, company presentation and justification of selection are showed. PetroChina had revenue of $18 billion in 2012, and is listed on the New York, Hong Kong and Shanghai stock exchanges simultaneously. It is established on November 5, 1999. The segments of PetroChina include the following: Natural Gas and Pipeline, Refining and Chemicals, Exploration and Production, and Marketing. It is both an oil and gas producer and an oil and gas distributor. The major businesses of PetroChina are: 1. exploration, developing, producing and selling of natural gas and crude oil; 2. refinement of petroleum products; 3. producing and selling derivative chemical products; 4. transmission and sales of natural gas.

The major reasons that PetroChina is chosen for this portfolio are: 1. It is one of the world’s largest oil companies. Actually, it is the largest Chinese oil/gas producer and distributor, and is a domestic leader in Chinese oil and gas industry. 2. PetroChina is a giant Chinese SOE, which possesses near-monopoly power over both supply side and demand side within oil industry (Yan and Pu, 2014). Due to its monopoly power and its SOE status, the company can potentially be less vulnerable, in terms of its business reputation and image, to controversial ethical issues and complaints. Furthermore, its success can possibly be more attributable to its monopoly power rather than its corporate management efforts. 3. Moreover, it indeed get involved with several controversial scandals in recent years. One controversial issue is bribery. For example, in 2015, Jiang Jiemin, former chairman of PetroChina accepted the sentence and would not appeal the ruling by the Hanjiang Intermediate People’s Court in Hubei (Chen, 2014). Jiang Jiemin used his power to sell and rent the oil field that is of low quality. Also, his son gained illegal profits from buying low and selling high oil fields illegally through utilizing his father’s former position in PetroChina. The other controversial issue, and also our main focus in this portfolio is about human right. Ever since 2005, CNPC, i.e. China National Petroleum Corporation, the Chinese state-owned oil company, and PetroChina, which is its listed subsidiary, have been accused of violating human rights in some countries like Sudan and Burma. They were collaborating with these autocracies to generate oil and gas revenues, and therefore were considered to be guilty of complicity of serious violating the rights of locals through the course of developing the oil and gas projects.

1. Stakeholders and CSR strategies          

In this section, analysis on the main stakeholders of PetroChina is conducted, utilizing both stakeholder theories and the practices in PetroChina. And then its CSR claims and its actual implementation of CSR strategies in different countries are analysed.

1. Main stakeholders: theory and PetroChina fact

Teece, Pisano and Shuen (1997) argued that, if consider companies as rational agents, their goal should be profitably developing and exploiting core competencies. Thus, in order to achieve this goal, it is important for the company to have relationships of good quality with its stakeholders, both internal ones and external ones. Besides, companies can still run into moral hazard issues and challenges which are not expected even when companies have strong cooperation with all stakeholders (Donaldson and Preston, 1995; Pauly, 1968; Arrow, 1968).

Hall and Soskice (2001) insisted that success of a company is hugely dependent on whether it is able to conduct coordination with a wide variety of its stakeholders. Freeman (1984) did not propose a pure ethical theory within the business management context, however, comparing with Friedman (1970), its improvement is that it added the consideration of ethical reflections. Since stakeholder theory can concretely address interests of different groups and also clearly state specific responsibilities of the firms with regard to specific groups, or, in other words, it overcomes the shortage, i.e. conceptual vagueness, of CSR, therefore, stakeholder theory can be a helpful supplementary tool when we are doing CSR issues related researches (Crane and Matten, 2016). However, Crane and Matten (2016) also pointed out that a major critique on stakeholder theory is that it would be classified as one of the consequentialist theories, or in other words, it only considers about the final distributional outcomes. Stakeholder theory can be used to investigate that who has the influence over decision making process and who gets the benefits from the decision making process.

As for the practice of stakeholders in PetroChina, according to its sustainability reports in recent years, PetroChina proposes its stakeholders in the following order: 1. Government; 2. Shareholders; 3. Employees; 4. Consumers; 5. Business; 6. Partners; 7. NGOs; 8.Community. It is not striking at all that the leading stakeholders for PetroChina are the government and shareholders due to its corporate structure. The reason is that, in year 2011, over 86% of shares of PetroChina are owned by CNPC in the form of state owned shares, which also suggests that CNPC is the ultimate controller of PetroChina. It is also very reasonable that NGOs are included in the PetroChina’s sustainability reports as one of the major stakeholders, since it plays a prominent role in the civil society in the oil and gas industry. However, the dominant status of stockholder and government and the dominated status of NGOs and community stated in the PetroChina’s sustainability report can potentially be a warning sign, suggesting that PetroChina has high possibility of sacrificing less important stakeholders’ interests, especially the interests of civil society (including NGOs), in order to protect the government’s interests. And therefore, PetroChina may have higher risk in conducting unethical behaviours comparing with its not stately owned counterparts.

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