Issues faced in BHP billiton and infosys

BHP Billiton and Infosys, though both successful in their own right, have emerged from different industrial sectors, and hugely contrasting geopolitical environments.

BHP Billiton is the world’s largest mining organisation, and was formed in 2001 by the merging of the Australian Broken Hill Proprietary Company, and Billiton of the UK. The company’s primary interests are in Iron ore, Manganese, Petroleum, Aluminium, Base Metals, Metallurgical Coal, Thermal Coal, Stainless Steel resources, and Diamonds/Speciality materials.

BHP Billiton’s scale and diversity appear to have cushioned it from the worst ravages of the contemporary economic downturn, although, as will be discussed, this has not necessarily helped all of its employees and stakeholders. Unconcerned by such vagaries, Chief Executive Officer Marius Kloppers has recently judged that ‘…Commercial market mechanism will ensure that developing nations’ raw material demand is met, that suppliers obtain sufficient investment to meet demand and that new deposits of raw materials are discovered.’ (Smith ‘BHP chief’ 2009) However, as other reports concede, BHP expects the majority of this demand to come from developed, rather than developing economies. ‘…Despite the low metals inventories in developed economies, there is little evidence yet of sustainable demand for metals emerging post the northern [hemisphere] summer.’ (MacNamara 2009) 2009 has seen mining profits depressed by the fall in commodities prices: however, BHP has confounded this trend by paying a final dividend which matched its interim payment, i.e. 41 cents. As MacNamara points out, BHP has been ‘…one of the more successful players in the sector, bigger and better able to handle difficult market conditions than rivals such as Anglo American and Xstrata, which have suspended their dividends until further notice.’ (2009) Uniquely amongst British mining concerns, BHP has the advantage of a petroleum division, which is now its third most profitable business. (MacNamara ‘glass’ 2009) During 2009, BHP also abandoned plans to create a joint marketing company with Rio Tinto, which was to sell up to 15 per cent of Western Australian iron ore production. (Smith BHP & Rio 2009)

Infosys is another company which has made comparatively good progress during the economic downturn, and claims to have emerged from it already. Infosys is India’s second largest software services exporter, reporting a 17 per cent rise in first-quarter profits during 2009. Its UK clients include the UK’s Waitrose supermarket chain and many leading international banks. Its business has now developed to the point where it is a viable competitor to long established IT providers, such as IBM, Hewlett-Packard, and Accenture (Fontonella-Khan 2009). Along with other Indian-based outsourcers, such as Wipro, Genpact, and Tata Consultancy Services, Infosys has a macro-economic significance far beyond its own industrial sector, having helped power the Indian economy to 9 per cent growth prior to the 2008-9 financial crisis. (Lamont 2009) London School of Economics analysts attribute this partly to the status of English as an official language in India, making the industry’s services highly scaleable in western markets, and constituting a competitive advantage over new entrants such as China. As Ilan Oshri of the LSE Outsourcing Unit observes, ‘…India is not a powerhouse because it is cheap but because it is smart. That’s not the same with China…We don’t see Chinese vendors emerging to be powerhouses…China is much cheaper than India. But the game is not about cost, it’s about accessing talent…’.(Lamont 2009).

Section 1: Similarities and Differences.

Mitchell et al. identify three possible themes within stakeholder saliency: power, legitimacy, and urgency. (1997: p.853) Both of the companies in question have extended stakeholder chains, but they are rather different in character. It is this contrast which has determined the behaviour of each: altered in one case, unaltered in the other. Of the two, the company which has moved most swiftly to change – and signal that change – is Infosys, a series of events which may be interpreted according Mitchell et al.’s saliency model. Infosys’ power is intrinsically linked to its legitimacy, and this in turn rests squarely on its relationship with important stakeholders. In the first instance, the company’s fortunes are interdependent with the Indian government in its role as an economic facilitator and arbiter of structured growth: significant investor cooperation is contingent upon this relationship. If the emerging Indian economy wavers, the latter will worry about the skills base, infrastructure, and political stability which is necessary to grow Infosys shareholder value. Moreover, in a globalised economy, influence of investors upon customer attitudes cannot be underestimated. Infosys is an exemplar business to business operator, so its corporate responsibility profile impacts directly on that of its corporate customers. For example, Waitrose of the UK, which markets itself as a profit-sharing, employee friendly, ethical retailer, could not maintain its own CSR status whilst in cooperation with a pariah multinational. Infosys, therefore, must avoid such status at all costs.

Things are different for BHP Billiton, whose corporate responsibility effort, as will be discussed, rests on engagement rather than action. The most striking recent fact pertaining to BHP Billiton’s social responsibility profile is its dismissal of six thousand employees and contractors in 2009 alone. (Smith ‘axe’ 2009). However, for complex reasons, its stakeholder profile can accommodate such crises relatively comfortably.

Section 2: Responsible business approach, has it increased/decreased, and why?

As it is the world’s principal extractive company, it is not surprising that the areas of contention surrounding BHP Billiton’s operations span the environment, ecosystem, climate change, human resources, community disruption, land rights, political lobbying, and financial malpractice, to name but a few. It is far beyond the scope of this discussion to engage meaningfully with the empirical circumstances of all of these issues and concerns. It may be argued however, that its strategy is one of maximum engagement, and minimum change, a dynamic whose provenance lays in the nature of its stakeholder networks.

The important point here is that BHP Billiton’s is not a unique position. As Brewster reports, an ever higher proportion of blue-chip organisations are joining the ranks of those who publish regular CSR reports. (2007). However, the only thing which this signals – in absolute positivist terms – is the willingness to open a dialogue with concerned stakeholder groups. At the same time, it can usefully reassure less concerned stakeholders – i.e., conventional or ‘unethical’ investors – that the corporate responsibility issue is being fielded in an acceptable way. This is not to say that such reports merely convey a facile dialogue of inaction: however, as will be discussed, they do define – and confine – responsibility within certain manageable parameters.

It may be argued that Infosys has adopted the same kind of logic in its corporate social responsibility effort: its 2008-9 report states that ‘We understand the implications our business has on the economy, environment and society. We also recognise that there is much to learn and engage with our stakeholders to improve our performance in all areas.’ (Infosys 2009) It goes on to remind the reader that its board members participate in advisory councils, governments and not-for profit organisations ‘…to formulate…policies on topics such as corporate governance, healthcare, education, climate change, and other key sustainability areas.’ (Infosys 2009: p.9) The over-arching message is clearly that Infosys is representing itself as a learning organisation, in the defined sense of that term. As Lane et al. point out, each organisation, whether formally constituted or otherwise – possesses its own learning culture, subsumed within compatible norms and values, operational priorities, or ‘dominant logics’. (2001: p.1143).

Of the two organisations however, Infosys has exhibited by far the greatest degree of change in its behaviour. Along with Tata Consulting Services and Wipro, are at the centre of a controversy concerning the ‘importing’ of non-EU IT workers into the UK: Infosys has itself brought in 3,030 of these employees. The ‘transfer’ route is, as a consequence, being tightened by the UK Home Office, with the result that temporary workers will no longer have any rights of settlement: in addition, employees will have to have been with a company for a minimum of one year, before transferring to the UK branch (Boxell 2009). However, as both companies as the government are aware, such ‘transfers’ are sometimes the only means by which specific human resources shortages may be addressed: as Phil Woolas, the immigration minister, concedes, ‘….Intra-company transfers are an important part of making the UK an attractive place in which to do business, and therefore keep industry and the economy moving.’ (Boxell 2009). The point here is that Infosys’ extended stakeholder chain implies pressures which must be balanced out through this, and other, important structural issues. It cannot afford to be less competitive than its rivals in terms of corporate responsibility, or it will simply lose business. Conversely, BHP Billiton will not. Its stakeholder chain is wider, more diffuse, and far less responsibility-dependent: in short, the world knows what kind of organization it is, and it grows no poorer.

Section 3: Contrasting Viewpoints.

There are various theoretical frameworks which might be employed to assess the relative corporate responsibility efforts of BHP Billiton and Infosys, despite their intrinsic differences. These range from the extreme Kantian ethical position, which argues that a corporation can have no duty other than to shareholder, or the virtue or Confucian ethical position, which argues that innately ‘good’ practice will eventually ensure rewards. Two modified positions which might allow a more measured assessment are Tinged Shareholder theory, as posited by Moore and others, and utilitarian ethics. As Moore has argued if tinged shareholder theory were to become a normative model , there would be a greater concentration on the ideal type virtues required of a “good” manager, and a “good” organisation. Consequently, a focus on the area of virtue ethics might prove central to the visualising of a corporate responsibility ideal (Moore 1999: p.126). Meanwhile utilitarian ethics arguably provides a useful perspective because of its outcome-focused, bottom-line orientated assessment of events. As Fisher and Lovell point out, utilitarianism, combined with cost-benefit analysis, tends to focus on ‘a good’ rather than the general good, and is therefore very valuable to organisations who wish to manage corporate responsibility, rather than be managed by it.

Infosys has indicated a heightened awareness of its stakeholder responsibilities – and potential vulnerability – by hastily re-constructing its corporate governance image in the aftermath of recent problems. Principal amongst these has been the financial scandal at Satyam Computer Services, its main rival in the software outsourcing sector. As the Financial Times reports, ‘…B. Ramalinga Raju, the former chairman of Satyam who is now in police custody, undermined confidence in the sector when he confessed to manipulating the company’s accounts last week, including by inventing a cash pile worth more than $1bn…'(Leahy ‘reassures’ 13.1.2009). Acutely sensitized to the negative fall-out from this, Infosys CEO S. Gopalakrishnan has reportedly judged that the entire IT outsourcing sector needs heightened transparency, adding that he himself had been receiving increasing requests for fiduciary details from clients and investors. As he put it, ‘…The reason we need to take some confidence measures at this point is that some queries have come in from customers… If you look at our disclosures, we have listed every single bank account and the amount of money we have in the bank so if investors are interested they can check and call the banks….’ (Leahy ‘reassures’ 2009). The important point here is that Infosys is attempting to avoid a utilitarian, outcome-orientated model of stakeholder analysis, by adopting a position informed by virtue ethics. It has not been accused of any wrong-doing – yet – and is attempting to avoid that contingency by exhibiting transparently ‘good’ behaviour. It has sound business reasons for doing so: as western companies reconstruct themselves following the recent economic downturn, they are downsizing by outsourcing, and Infosys is well placed to capture such business, if it is untainted by corporate responsibility problems. As Chief Executive Officer, S. Gopalakrishnan explains, ‘…You want to be cautious because it’s not completely out of the woods but we clearly see some growth…’ (Leahy 2009) Like that of many similar Indian companies, the stability and expansion of Infosys is contingent upon the expansion of outsourcing from client companies in the developed world. Infosys itself added a further 35 companies to its client portfolio in the second quarter of 2009. These combined factors have resulted in the addition of 1,548 new employees in the same period, bringing the total on its books to 105,500.

As well as reassuring its direct stakeholders, Infosys has also proved itself attentive to the needs of the wider social and political constituency. One example of this lays in the denouement of the Tata Nano car plant dispute, in which protesters alleged that the rights of farmers had been usurped in order to facilitate the development in West Bengal. Orchestrated by India’s principal opposition party the Trinamool Congress, the movement physically besieged the Singur site, drawing down foreign media attention and threatening to dampen foreign investment. CEO S Gopalakrishnan was initially ‘…impressed with the efforts of the state government in attracting such investments: however, he now concedes that ‘….Singur has created fear in the minds of India Inc and like all other companies we are watching the developments very closely We will rethink and re-examine our proposed investment if need be.’. The bottom line is that Infosys may not proceed with its own West Bengal development plans if the situation is not resolved (Leahy ‘nervous’ 2009).

BHP Billiton’s needs in terms of communication and responsibility are quite different, and it has arguably opted for a utilitarian, relativist interpretation of ‘good’. This approach allows it relative freedom to pursue its vast portfolio of extractive activities in way which might be more difficult if it took a more obstructive stance. In its detailed deposition on BHP Billiton, the Ecumenical Council for Corporate Responsibility reported that it felt, ‘…in general, with a few exceptions outlined below, the company has developed a relatively advanced set of policies, which give consideration to many of the issues that our partners have raised in the Bench Marks document.’ (ECCR 2004: p.7) Moreover, an important part of its dialogue with ethical regulators such as the ECCR lays not in the discussion of specific or practical acts of corporate responsibility, but the demonstration of stakeholder awareness in the abstract. As it explains, ‘The company provides regular reports to all stakeholders that are independently verified on a plan detailing how the company and the suppliers have shared responsibility for compliance…’ and ‘…adopts a transparent policy and reports publicly to all stakeholders on its compliance programme, the findings, and what changes have been made at the factory level.’ (ECCR 2004: p.63). This is central to BHP’s entire CSR strategy: monitoring bodies are left facing a multi-headed hydra of good, bad, or indifferent practice across the company’s vast array of activities and geographical reach. As one area of neglect arises, another is dealt with, a process through which the dialogue of engagement and improvement is maintained. The other constant is shareholder value: as the regulators succeed in limiting less equitable practices in one area, less ethical investors may take comfort from the fact that more profitable centres elsewhere retain their potential for dividends. As Moore points out, ‘…it is a common feature of theories of the firm that they regard the firm as a nexus of contracts. The…theories differ as to the extent of these relationships, with shareholder theory restricting this to legal and implied contracts, while stakeholder theory takes a broader definition to include social/moral as well as legal and implied contracts.’ (Moore 1999: p.122) The point here is that the utilitarian approach adopted by BHP Billiton has, for the time being, balanced these two forces.

Conclusion

A common theme in the fortunes of these two different companies lays in their successful emergence from a difficult economic period. BHP has recently asserted that there are ‘…signs of stabilization in the developed economies, with positive signs of improvement in industrial production.’ (MacNamara 2009) Moreover, BHP will soon be free to refresh its takeover bid for Rio Tinto, under the terms of the UK takeover code. (Smith BHP and Rio 2009) BHP also told shareholders that market conditions had improved since it held its annual meeting in London. ‘…The velocity of the recovery…has indeed been surprising…’ CEO Kloppers said, whilst cautioning that ‘…BHP was expected to emerge from the downturn “less strongly than in previous cycles”. (Smith 2009). This may be interpreted as a restraining hand upon corporate responsibility: things are OK, but don’t interfere. Meanwhile, Infosys has also benefited from its more public, virtue-driven responsibility stance. Research by the London School of Economics indicates that western executives in western companies opted for outsourcing ‘…on quality of service more than price’. It also pointed out that Egypt, Hungary and Romania were most likely to join the shared service centre sector as key players in the near future’ (Lamont 2009). Infosys has of course already laid the foundations for such diversification, stating that ‘…As we grow further, we have to make sure our workforce reflects the regions from where we derive revenue to whatever extent possible…’ (Leahy 2006).

In conclusion, it seems reasonable to argue that corporate responsibility and stakeholder concerns are at their most harmonious -for better or worse – when the hegemony of liberal economics prevails. As Collier points out, ‘In the modern world of globalisation there are some fabulous ladders: most societies are using them. But there are also some chutes…’ (2007: p.5) If classical economics is afforded hegemony, then any expectation which does not implicitly recognise that snakes can swiftly become ladders -and vice versa ­- is inherently flawed. The collection of papers on globalisation edited by Timmons Roberts and Bellone incorporates commentary by some rather older commentators, who observed that, ‘…the bourgeosie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society.’ (Timmons Roberts and Bellone, 2007: p.27) As unfashionable as they may be, Marx and Engels may have distilled an essential truth here, regardless of the fact that they did so through observation of an earlier period of structural economic change. The unavoidable function of companies, including Infosys and BHP Billiton, is to serve shareholder value. When they cease to do so, they will also cede their position to other who will.