Is it ethical or not for Origin Energy, and/ or other, to obtain Coal Seam Gas (CSG), against the will of land owners?
The purpose of the report was to establish if it was ethical for Origin Energy to obtain Coal Seam Gas (CSG), against the will of land owners. It is established that the activities of Origin Energy were governed by the 2004 Petroleum and Gas Act, which gives the government the power to own the minerals beneath the land of the farmers. Thus, the company acted within the confines of the law. Nonetheless, it was not ethical for for Origin Energy to obtain CSG against the will of land owners because people like George Bender have the right to property. Linc Energy/Origin Energy can be classified as a mixed blessing as well as non-supportive stakeholder because of the high level of threat to the society. Principles 3 and 7 of the ASX 2010 Principles and Recommendations have not been fully applied based on the case study analysis, and therefore, Origin Energy failed to maintain a respectful relationship with the landholders. It is recommendable for Origin Energy to ensure that meetings are held between the Conduct and Compensation Agreement (CCA) representative and landholders. Agreements between Origin Energy can also be provided to ensure effective acquisition of CSG and better working relationships.
Is it ethical or not for Origin Energy, and/ or other, to obtain Coal Seam Gas (CSG), against the will of land owners?
Background and Ethical Question
Ethical theory plays major roles on provision of rational justification of fundamental moral rules and principles to promote moral judgment. Also, it plays a significant role in solving ant conflicts of interests that arise between two or more biding moral principles and rules (Carroll & Buchholtz, 2014).
The land in central and southwest Queensland’s Bowen and Surat basins has millions of dollars’ worth of methane gas, and companies such as Orange Energy and others have acquired the land and began extraction of methane gas. Nonetheless, the Australian Petroleum Production and Exploration Association (APPEA) and other stakeholders have not provided report related to environmental impact, rights of individuals and multinational corporations and that of the local community. After exploration, the companies have polluted the environment and subsequently, some of farm animals like pigs have died. The challenge faced related to rights to ownership of land and minerals. According to “the 2004 Petroleum and Gas Act, while farmers in Queensland own their land, the State Government owns the minerals beneath it” (Whiting, 2016). Thus, the landowners have limited rights over the minerals because energy companies apply through the government for tenement as well the right to use land for exploration and production, without even the consent of the landowners. Because laws are necessary but not sufficient, ethical responsibilities are required to uphold these practices, standards, and activities that are prohibited or expected by the society even when they have not been codified by the law (Carroll & Buchholtz, 2014).
The case study focuses on ethical issue related to acquisition of Coal Seam Gas (CSG) by Origin Energy and others against the will of the land owners and the local community. The report paper is based on, corporate social responsibility, stakeholder management and ASX P&R principles whereby the behaviour of Origin Energy and other mining companies is criticized and defended. Ethical Question: was it ethical for Origin Energy to obtain Coal Seam Gas (CSG), against the will of land owners?
Stakeholder analysis provides information on primary stakeholder, and it is used to determine their influence, levels of interest, roles, facts, and names of the major stakeholders (Schwalbe 2009). Thus, stakeholder analysis is significant in the identifying stakeholders’ behaviour, including those with competitive threat and cooperative potential (Freeman 2010). It assists in explaining stakeholders’ behaviours in regard to their beliefs, values, and objectives of the organization. Stakeholder analysis established the commonly shared interests and behaviours in order to promote coalition analysis (Freeman 2010). According to Wilson and Gilligan (2005), stakeholder analysis ensures that the interests of major stakeholders are protected by an organization.
Carroll and Buchholtz (2014), the five questions applied in stakeholder’s analysis focus on who are the stakeholders, stakeholder’s stake, opportunities and challenges, responsibilities, and strategies or actions. The stakeholders involved in the case study are Origin Energy, the Australian Petroleum Production and Exploration Association (APPEA), Energy companies, landholders from the Chinchilla area, Linc Energy, Environmentalists, the Department of Natural Resources and Mines, and the local community. The second question focuses on stakeholders’ stakes and focuses on legitimacy, power, and urgency. The landholders from the Chinchilla area and the local community are the owners, APPEA belong to the government, and Environmentalists are environmental activists, while Origin and Linc Energy are investors. The responsibilities of the stakeholders are presented in the matrix below.
|Types of Responsibilities|
|Linc Energy/Origin Energy||CSR||Giving back to the society through water and infrastructure|
|Department of Natural Resources and Mines|
The corresponding strategies required when dealing with stakeholders include collaborative, involvement, defending, and monitoring. Employees are supportive stakeholder because they have high potential of cooperation and low for threat. Carroll and Buchholtz (2014), the strategy is involvement of the employees through participative management. The magnitude stakeholder is the local community, environmentalists, and others because they have low potential for cooperation and for threat. Monitoring strategy is applicable in this case. The nonsupportive stakeholder has low potential for cooperation and high for threat. Examples include Linc Energy/Origin Energy and defending strategy is most appropriate. Lastly are the mixed-blessing stakeholder has both potential for cooperation and threat. They include some employees Department of Natural Resources and Mines, APPEA, and some environmentalists. The most appropriate strategy is through collaborative approach in order to realize mutual understanding and support
Corporate Governance Based on ASX 2010 Principles and Recommendations
Corporate governance is, “the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations” (ASX Corporate Governance Council, 2010, p. 3). Thus, corporate governance entails structures and systems that employed control corporations and ensure that they operate within the confines of set standards and rules. Corporate governance entails the mechanisms that corporations and those in control and management are held accountable. The objectives of a corporation are influenced by corporate in terms of how they are set and how to be achieved, and risk involved, in order optimizing performance. Du Plessis, Hargovan, and Bagaric (2011) noted that in accordance to the on ASX 2010 Principles and Recommendations provide standards that are used to determine if an organization works within the set governance practices.
Principle 2 on the structure of the board is well followed by the company as part of promoting corporate governance. For instance, the Board has been structured in such a manner that its duties can be discharged in an effective manner and add value via its annual deliberations (Origin Energy Limited, 2016). Directors are provided with reports by Board Committees and executive management elated to finance, risks, opportunities, and business as well as operational strategy. All Directors in the company have direct access to Company advisers and records and employees. In addition, they also receive advice from the Company Secretary, the Chairman, and the Group General Counsel (Origin Energy Limited, 2016). As part of promoting transparency and accountability, the company is responsible for provision of the numeration of all the Board of Directors in its Annual reports. In addition, the Board is responsible for the review and increment of salaries of different executives (Du Plessis et al., 2011). The s size and composition of the Board is usually determined by the Directors, and it requires a Board to be composed of 5 to 12 Directors.
According to the Origin Energy Limited (2016), the Company’s policy on the Independence of Directors stipulates that the Board must be composed of independent Directors who are majority. To ensure independent Directors, Origin’s Board makes use of the ASX Principles, accompanied with the Company’s businesses and operations to ensure that this principle is realized. Thus, there is independence in Origin’s Board of Directors whereby all the Non-Executive Directors are independent. The chairman is also selected from the set of independent Directors whereby his responsibilities remain totally separate and different from those of Managing Director (Origin Energy Limited, 2016). The annual report provides the list of all the Independent Non-Executive Directors, their position, responsibilities, and tenure. Board appointments are conducted in a transparent manner during Annual General Meeting to promote transparency and accountability.
Principle 3 related to Acting Ethically and responsibly by employees and Directors. With regard to the case study, the company did not act ethically and responsibly when it was exploring and mining methane in Queensland. For instance, there was no report that indicated the process of dealing and compensating the locals and producing a report related to the bores on Chinta. The actions of Origin Energy do not align with Principle 7 on risk recognition and management. The company is required to have policies as well as procedures put into place to management risks, which are provide by the Risk Committee. The company policy on risk management stipulates that Origin undertakes environmental and social risks assessment related to all its operations and projects (Origin Energy Limited, 2016). Additionally, given that the company works in the energy sector, it is faced with environmental challenges related emission of methane gas and other pollutants. However, from the case study, environmental risks were experienced whereby the land and bores in Chinta were affected by the CSG activities. Also, Origin failed to maintain a respectful relationship with the communities and landholders (Origin Energy Limited, 2015), and as a result George Bender died because he was not willing to give his land to the company.
CSR and Corporate Social Performance
Based on Porter and Kramer’s (2011) Creating Shared Value concept, there are three ways which can be used by corporations to create value: Reconceiving markets andproducts, redefining productivity, and local luster development. With reference to Origin Energy shared value can be achieved by ensuring that social and environmental problems across its value chain are addressed in order to increase productivity. For instance, by addressing the problems linked to CSG such as pollution and depletion of water table, the corporation can be allowed to produce more methane, hence increased productivity. Porter and Kramer’s (2011) noted that heightened environmental awareness and new approaches can be applied to enable better utilization of resources. For example, Origin Energy can reduce water wastage and consumption through the use of water-saving technology in an effort of ensuring that the welfare of the society and locals is put into considerations.
Corporations make mistakes knowingly or unknowingly; they also contribute to society in other ways. This can be demonstrated through the use of the CSR is Carroll’s four-part pyramid model, whereby CSR is composed of four responsibilities: economic, legal, ethical, and philanthropic (Carroll, 2016). According to Simionescu and Gherghina (2014), CSR is related to the social, economic, and legal practices applied by corporations in an effort to deal with societal issues. Through CSR, companies are in a position to create value for their customers and other stakeholders. With reference to Philanthropic responsibilities, the corporation contributes resources such as infrastructure and health and clean water in order to improve quality of life. For instance, in “during FY2016, Origin, as upstream operator of Australia Pacific LNG, contributed a further $3.36 million in community investment, including community infrastructure and partnerships in the Surat Basin” (Origin Energy, 2016). Under Ethical responsibilities, the corporation is required to do what is just, right and fair and avoid harm at all costs. Based on the case study, the company other than taking the CSG from landowners, it has done fairly, just, and avoided any form of environmental and social harm. For instance, the spokesperson for Origin Energy noted that the bores were affected before the commissioning of methane extraction
Legal responsibilities require corporations to follow the set rules, law, and regulations (Carroll, 2016). While meeting the existing legal responsibilities such as the the 2004 Petroleum and Gas Act, the company has been able to perform in a way in which is consistent with prospects of the law and government. In addition, the company complies with local, state and federal regulations. It also conducts itself as law-abiding corporate identity, and this is achieved when it fulfills its legal obligations to different stakeholders (Carroll, 2016). Lastly, the company in its annual report (2016) acknowledged that under the Australia’s law, it cannot carry out any form of development activity on a land which is without gaining agreement first with landholders on the manner in which the rights provided under Origin Energy, 2016 are to be exercised. Moreover, even under the case study, the Compensation and Conduct Agreements (CCAs) was part of the negotiation between landholders and the Origin Energy such as compensations and other details.
Under the economic responsibilities, a business has a duty to the society to ensure sustainability. The extraction of LNG by Origin Energy has economic benefits to the society because its production has made impact to lower global emissions. Other economic responsibilities include employment of the locals and pans to compensate those affected by the CSG activities.
Based on corporate social performance there are some activities that Origin Energy is doing good and bad. The issues in the social environment that the company is doing bad include depletion of Queensland’s underground aquifer, pollution of the environment, and mission of other harmful gases such as carbon dioxide and carbon monoxide (Carroll, 2016). However, the company has offered to install air-conditioners in an effort to reduce the harmful gases. Based on the case study, the corporate social performance is the company is poor because other than taking CSG against the will of land owners, the company has gone ahead and denied charges related to pollution and environmental disintegration.
The ethical question is: was it ethical for Origin Energy to obtain Coal Seam Gas (CSG), against the will of land owners? From a normative consequentialist perspective, an action is best if the consequences of an action provide the greatest good to most people. In regard to the actions of Origin Energy can be perceived as good because the industry has so far created 40,000 jobs and exported LNG worth of $16.53 billion. Therefore, by taking the land, Origin was to create employment and contribute to the economy, regardless of the environmental impacts of SCG activities. The actions were therefore ethical because there was maximization of good consequences. However, this perspective is not good for the society because the long-term consequences are bad for the society in general.
From Utilitarianism, developing infrastructure, creating jobs in the CSG industry, and contributing to economic growth is a moral good compared. From non-consequentialist theory of value, it can be noted that the actions of Energy oil were wrong because the freedom of the people was not put into consideration. Moreover, the industry and Origin Energy failed to indicate that CSG caused the pollution as well as depletion of Queensland’s underground aquifer, in addition to the depletion of bores. Thus, from non-consequentialist perspective, it was inherently wrong for for Origin Energy to obtain CSG against the will of land owners.
In Green’s (1991) article “When is ‘everybody is doing it’ a moral justification’, when everybody does it, it is deemed to be morally and ethically justifiable. For instance, when everybody was coerced by Orange to accept the deal and be compensated, it was perceived as morally justified. However, when the people like George Bender refused to accept the deal, it was perceived as not morally justifiable. However, since the people like George Bender and other opponents of CSG were concerned about the effects the exploration and mining of methane could have on the environment, it was morally permitted to act in such a manner. Given the authority 2004 Petroleum and Gas Act has on the people, the government had already given Origin Energy to explore and extract methane in the region. Thus, it was permissible for rest of the landholders and community to engage in harmful (allow extraction), but prevalent behaviour.
Based on John Rawls’ (2003) Justice as Fairness theory, all people in the society have access to resources, opportunities, and that the resources are allocated to in a fair share. Rawls (2003) specified that “fair equality of opportunity” needs “not merely that public offices and social positions open in the formal sense, but that all should have a fair chance to attain them” (p. 43). With reference to the ethical question, the people like George Bender and other land owners were supposed to be treated fairly by Origin Energy and other companies with respect regardless of the economic, social, and political class. Thus, based on Rawls’ (2003) Justice as Fairness theory, it was not ethical for Origin Energy to obtain Coal Seam Gas (CSG), against the will of land owners. On the other hand, Nozick’s Libertarian Theory of Justice contends that people have the rights to be left alone, and positive rights as well. For instance, taking land from farmers and landowners without permission, is unjust according to Nozick’s Libertarian Theory of Justice because people have a right to property (Rawls 1999). Although the 2004 Petroleum and Gas Act, allows farmers in Queensland to possess their land, while the State Government possess the minerals beneath it, (Whiting, 2016), it is the responsibility of the State to ensure that the welfare of the people is protected.
In order to address the ethical issue faced, it is recommendable for Origin Energy to maintain a respectful relationship with the landholders by ensuring that a meeting is held to solve the problems faced. In addition, a Conduct and Compensation Agreement (CCA) representative can send its representatives and negotiate with landholders on the compensation to be granted to each owner. A Landholder Relations Adviser (LRA) can be assigned to all landholders as a way of ensuring positive long-term working relationship. Origin Energy needs to address the issues related to pollution and depletion of water aquifers. Agreements can be written between landholders, which outline the manner in which the land would be accessed during development; the manner in which the company and business would be conducted; and how landholders can access legal advice as well as negotiate their agreements. Such agreements would ensure effective acquisition of CSG.
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