Thursday, April 26, 2012

Corporate Social Engagement and Mineral Extraction in Colombia

I want to make four simple points regarding corporate stakeholder engagement and mineral extraction in Colombia. I presented these ideas several weeks ago at a Harvard Law School seminar sponsored by the Colombian government. We had senior officials present along with a great many Colombian graduate students studying at Boston-area schools. I think these prescriptions apply globally, but they are especially relevant in Latin America.

Corporate Stakeholder Engagement (CSE) provides a new point of entry for those concerned about the social and environmental impacts of mineral extraction.

Corporations around the world are being pressed by their shareholders to do a better job of taking local concerns into account when they initiate mineral extraction projects. Indeed, both stakeholders and risk managers are demanding this. Many companies are now systematically assessing the concerns of a wide range of stakeholders and seeking to demonstrate (in annual reports to their shareholders) that they are taking their responsibilities seriously.  A great many mineral extraction disputes occur because multinational and national companies purchase concessions or apply for mining permits, but make little or no contact with relevant local governments, civil society or community groups before they begin work.  Development impacts surprise and upset local interests. More up-front interaction with these groups -- and a genuine effort to understand and respond to their concerns -- could minimize much of the damage that triggers demonstrations and concerted campaigns against mineral extraction projects in Latin America.  

Many countries (and international law) now require “Free, Prior Informed Consent (FPIC) by indigenous communities likely to be affected by proposed activities on their lands. Leading mining, oil and gas companies (and their investors) now recognize that their  responsibilities for community engagement – including FPIC -- must be taken seriously. That recognition now provides greater traction for local groups who are usually put in a position of having to oppose whatever is happening (without their consent) because they are were not given a chance to make constructive suggestions or stipulate their concerns beforehand.

Global (and stockholder) pressure on major companies to take their responsibilities for stakeholder engagement seriously can provide a new source of leverage for governments and communities. Both should be able to engage mining project developers and investors in a dialogue before concessions are granted and infrastructure investment decisions are made.  Governments can insist on seeing evidence of genuine offers to collaborate with local interests before allowing concessions or licenses to be activated. Certainly, multilateral lending institutions ought to demand evidence of such efforts before funding mineral extraction projects. National governments should support the involvement of professional mediators to help facilitate such local conversations in an even-handed way.  They can cover the cost out of the substantial royalties that mining companies are required to pay for permission to mine or drill. 

All sides benefit when joint fact-finding and Community Benefit Agreements are put in place.

There is great value to both companies and communities from conducting joint fact-finding on social and environmental impacts, both before projects have begun and after they are underway. Such joint assessments should be seen as  value-creating moves. That is, they should be used to define in measurable ways what the impacts of development are likely to be, to decide how adverse effects will be minimized and mitigated, and to establish benchmarks that both the company and local stakeholders can use to gauge the performance of the mining companies involved.  

Being explicit in this way will help companies clarify the baseline against which their operations should be assessed, and reduce the risk that local stakeholders will see mining operations as the source of all the problems in the region.  Joint fact-finding can also provide a basis for national and regional governments to insist that companies take appropriate action to hold the impacts of their mining operations to an absolute minimum. Regardless of how many jobs are created or how much tax revenue is generated, there should be a “cap” on the social and environmental impacts that mining or mineral extraction projects are allowed to have.  Contingent obligations to mitigate and compensate,  if caps are exceeded, should be spelled out before hand.

Social and Environmental Impact Assessments (SEIAs) are required in most countries in Latin America. The preparation of SEIAs can provide a context for the kind of joint fact finding I am talking about. 

Beyond joint fact finding, mining companies can and should offer to work with representative local, regional and national stakeholder groups, with the assistance of a neutral mediator, to negotiate what might be called “Community Benefit Agreements."  These should take the form of contracts that commit the company to meet pre-specified impact mitigation and compensation requirements (based on agreed upon data and forecasts generated jointly with federal, regional and local officials and the heads of civil society groups). They should also protect the reputations and limit the liabilities of companies that meet regulatory standards and live up to their commitments to the community.

Right now, most company-community consultation processes produce nothing more than justifications for what industry already has in mind.  There are ways, though,  in which both government permitting processes and community stakeholder engagement can be used to inform site-specific community benefit agreements that governments could then enforce.

The missing ingredient in too many mining disputes is trust.

It is important for mining companies to build trust with local governments and communities before they begin work.  If  good working relationships are developed and maintained, whatever problems emerge can be handled expeditiously. In the absence of trust, however, it is quite common for all sides to assume the worst about everyone.  This causes conflict to escalate.  When there is no trust, even reasonable offers to make amends or put things right are likely to be rejected.

There are two keys to building trust.  The first is to "say what you mean.” If you have bad news to deliver, don't try to sugar-coat it. If there are organizational, legal, financial or other limits on what a company can offer, it should make those clear. The company’s representatives must begin this practice from the first day they come into contact with community stakeholders, and must maintain consistency throughout the process of exploration, development and operations. Each and every miscommunication will cost the company dearly in lost trust and damaged relationships. The second key is to “mean what you say.” Whenever anyone, whether motivated by a desire to "help" or not, makes promises they can't keep, that undermines trust.  Once it becomes clear the a promise was not genuine, trust is lost. It is extremely difficult to reestablish trust once it has been lost. 

Companies make things worse when they do not ensure alignment between what their community engagement team in the field is saying and what corporate headquarters is ultimately willing to do. Often, companies will hire locals to represent them. These new staff members are likely to be sympathetic to the neighbors with whom they now have to deal in a new role.  When they promise to make best effort to get headquarters to be responsive, however, and then fail, local attitudes toward both the community engagement team and the parent company are likely to sour immediately. Companies must make sure that all staff representing them in the field understand exactly what they can and can't commit.

Grievance-handling mechanisms, while important inside most major companies, are often poorly linked to the company’s broader strategy and practice of stakeholder engagement. Before any and all mineral extraction projects begin, local grievance-handling mechanisms should be in place.  Ideally, these should be part of an overall community engagement plan, spelling out who the point of contact is, what the company's promises are with regard to minimizing social and environmental impacts and maximizing benefits, and what penalties they are prepared to have enforced if they violate the terms of their agreements.  These should be signed off on by government officials who are empowered to make sure they are enforced.

Collaborative adaptive management is now Best Practice.

Wherever possible, joint implementation of mineral extraction projects (however large or small) should be the goal. All mining operations are likely to have unintended effects.  Close monitoring of social and environmental impacts, by joint teams of company staff, public officials and non-governmental representatives should be par for the course. This will allow adjustments in scheduling, operations and mitigation in response to timely and trusted information.  Small scale experiments are also desirable. When stakeholders are not really sure what the full effects of a certain mining procedure will be, a small scale (controlled) experiment, monitored jointly, can be extremely valuable. 

Collaborative adaptive management requires neutral assistance.  That is, all the relevant parties should help to choose someone to facilitate the kinds of joint monitoring and adjustment efforts I have described.  Management by non-partisan professionals makes it easier to build and maintain trust. 

Conflicts surrounding mineral extraction in Colombia are substantial and growing, especially as project scale increases.  For the foreseeable future, oil, gas, coal and other mining activities will constitute a substantial portion of the national economy.  That does not mean, though, that better ways cannot be found of making site specific decisions about particular mining operations.  New international norms for corporate stakeholder engagement provide a foothold for the national government, indigenous communities and environmental advocates to hold extraction companies accountable.  

Joint fact finding requirements, overlaid on top of existing laws regarding the allocation of mining rights and responsibilities could help to build trust and engage local governments and other affected communities in conversations before mining operations begin.  These could lead to the negotiation of formal Community Benefit Agreements with clear caps on allowable levels of impact along with contingent mitigation and compensation requirements if negotiated caps are violated. Trust building will be enhanced if companies commit to collaborative adaptive management, or CAM. CAM assumes that project impacts will change over time in unexpected ways. And, unexpected interactions with other land management, economic development and conservation efforts will need to be addressed.  Putting monitoring and dispute handling arrangements in place beforehand is the best way to proceed.  

Nothing that I have suggested requires laws to be changed or new laws to be enacted.  Companies and communities can proceed in the ways I have described on a voluntary basis, with explicit links between their agreements and governmental permitting and regulatory requirements. Even in cases where governments are not willing or capable to enforce company-community agreements, the company’s recognition that its social license to operate depends on effective stakeholder engagement, and the community’ recognition that there is potential for mutual gains through good faith negotiation and partnership, can generate strong commitments to follow through on both sides.  

In short, in Colombia and around the world, taking a mutual gains approach to stakeholder engagement can help both companies and communities minimize impacts and maximize benefits from mining operations.

Wednesday, April 25, 2012

Confessions of a Pracademic

The School for Conflict Analysis and Resolution at George Mason University held a very interesting conference last week entitled Practice in the Academy.  It was organized by Professors Kevin Avruch and Susan Allen Nan.  The focus of the event was evident from the titles of some of the talks:  "The Strains between Theory and Practice in the Academy" (Gene Rice); "The Challenges and Self-Motivation of the Practitioner in the Academy" (Joyce Neu); "Merging Theory and Practice: Toward a Grand Theory in Conflict Resolution Practice" (Jay Rothman); "The Necessary War between Conflict Resolution, Practice and Academia" (Marc Gopin); and "The Late 20th Century Academia:  A Taxing Environment for Conflict Resolution Practice" (Christopher Mitchell).  Many of the presenters were pessimistic about the survival of what some have called "pracademics" -- scholars who try to maintain their dispute resolution practice while trying to maintain a base in an academic department or practitioners who are trying to win a tenure positions at a university.  I was probably the most optimistic person there.

My talk was entitled "Confessions of a Pracademic:  A Virtuous Cycle of Theory-Building, Professional Education and Action Research." I am an academic.  I have been teaching full time at MIT for 42 years.  I have supervised more than 60 doctoral students and several hundred professional degree candidates in the urban planning field.  I am an action-researcher -- which is to say that I document and analyze my practice as a public dispute mediator and try to build prescriptive theory.  I begin with "problems in the world" that I think need attention rather than with problems in theory.  I measure success by how well the "problem havers" think we have done, not solely by the reactions of my academic peers. I helped to found the inter-university research center called the Program on Negotiation at Harvard Law School and I have been actively involved there for 30 years as part of interdisciplinary research teams.  I have published more than 20 books in nine languages.  I am also a mediation practitioner, having founded the not-for-profit Consensus Building Institute that provides mediation services in complicated public disputes around the world.  CBI, a company with $3 million or more in annual reeves and 16 full time staff, is now managed by my former students.

I offered the following nine confessions:

1.  I never had a career plan. I took the opportunities that presented themselves and always believed that if the university didn't want me, I could find a place in the world practice;  and if my practice didn't work out, I would find a scholarly assignment of some other kind.

2. I didn't care very much whether the world of theory was happy with what I did. I knew I would be criticized for not being sufficiently theoretical or detached. All action-reseachers have that problem.

3. My teachers were pracademics, so I thought that was normal.  That has always been the case, by the way, in Schools of Architecture and Planning. It always seemed inappropriate to me for a professional school faculty to be dominated by scholars who were not familiar with the ins and outs of practice.

4. I enjoy teaching in all possible contexts (from elementary school, to undergraduates, to graduate school, to mid-career practitioners, to the public-at-large).  I've presented many short-courses in community, agency and corporate settings in more than 30 countries. Teaching has always been the bridge for me between my research and my practice.

5. I've never been committed to or defined myself in terms of a particular discipline. I started as an undergraduate major in sociology and English Literature (or urban studies as I preferred to call it). In graduate school I took classes in more than a dozen different departments. This may have freed me from certain narrow assumptions about what good research requires. I still don't identify with a single discipline.

6. I've always been more satisfied with doing something than with writing about what other people have been doing.

7. I don't think the path I followed would allow me to earn a tenure appointment in my current department.  Today, I tell my younger faculty colleagues that they will have to play by the prevailing rules (for at least seven years) if they want to get tenure. That means publishing in peer reviewed journals, using more traditional applied social science research methods, and focusing on questions that the academic community thinks are important.  That also means putting aside action-research and practice for at least a six year period.  But, once they have tenure, they can pursue their interests as pracademics.

8. I have always moved from practice to theory and not the other way around.

9.  I have always been cross-contextual and cross-cultural in my way of working.  We can learn a great deal by comparing the results we achieve when we try the same thing in different settings or try different ways of doing the same thing.

Here are two images I shared with my fellow conferees:

Above the horizontal line in the first diagram is the world of analysis.  Below is the word of prescription. To the left of the vertical line is the world of practice.  To the right is the realm of theory.  This creates four quadrants:  I. Where we take a first-hand look at problems in the world; II. Where we try to explain the causes of these problems; III. Where we offer prescriptions regarding the best ways of tackling the problems; and IV: Where we try to implement the solutions we have proposed.   By moving from quadrants I to IV we can link the worlds of theory and practice in a productive fashion.

The second diagram maps onto the first. It shows how pracademics make connections between their teaching and their practice in the four quadrants.  In the realm of Documentation we do field-based research, prepare case studies and encourage our students to write problem-focused theses and dissertations.  In the second quadrants we engage in Theory Building; that is, we reflect on our practice, prepare working papers and articles for all kinds of publishing outlets and attend seminars and conference.  In the third quadrant we engage in Teaching and Training, preparing teaching manuals, teaching exercises, university-based courses, on-line learning opportunities and executive training sessions.  In the fourth quadrant, we help to build Action Partnerships.  These create internship opportunities for our practice-oriented students, provide contacts through which we engage in action-research and provide opportunities for practicums, studios and other kinds of university-based consultations.

While not all university departments encourage linkages of these kinds, many do.  Certainly practice-oriented schools which claim to be training professionals value connections of these kinds.  Even in those settings, though, young academics seeking to win tenure must realize that others in the university, particularly in the social sciences, will judge them by traditional standards of scholarship.  So, for a period of time, they will have to play down or abandon their aspirations to link theory and practice while they show what they can do in more traditional forms of scholarship.  Once they have tenure, though,  they will be free to shift their style of work.  And, while seven years might seem like a long time to put certain ambitions on hold, most university faculty members will have an additional thirty years to enjoy their status as full time pracademics.

Monday, April 23, 2012

Mediating Municipal Bankruptcy

I participated in a recent discussion sponsored by the American Bar Associations' State and Local Government Law Section. The focus was on municipal bankruptcy -- an increasingly prevalent danger across the United States.  The moderator was Charles Blowsher, former Comptroller General of the United States.  He was in the middle of earlier efforts to bail out New York City.  Judge Christopher Klein, senior bankruptcy judge in California, a state with an increasing number of municipalities on the fiscal brink, explained federal and state laws regarding municipal insolvency.  Harriet Welch, a law partner at Squire Sanders and bond counsel to San Diego and Los Angeles, talked about the sale of municipal assets as a way of fending off insolvency.  Josh Rauh, a Professor at Kellogg School of Management and an expert on public pensions explained why the problem is going to just get worse until states adopt more realistic accounting methods. My job was talking about ways of getting the public involved in working things out before the bankruptcy courts take over and citizens lose control all together.

Municipalities must litigate their way into bankruptcy court.  One city in California paid more than $5 million it didn't have to get into bankruptcy court. The public employee unions in that city spent an equal amount trying to keep the case out of court (for fear that the court would impose reductions in long-standing pension obligations). State laws dictate how municipal insolvency will be handled (and just because a state takes over doesn't mean that it will provide funds to bail out a city). What we are going to do, by the way, when states go bankrupt, I have no idea.  Under the law, state's are not permitted to declare bankruptcy. Once the federal courts, however, invoke national bankruptcy laws, these trump anything states might want to require.

Why are cities going broke?  They have long-standing liabilities (especially pension obligations) that haven't been adequately funded for a long time.  Some municipalities in Illinois, for example, are using as much as 15% of their annual tax revenue to cover long-standing pension liabilities. That means they are going to have make horrendous cuts in service levels.  Why haven't they put aside enough money each year so that they could have avoided this situation?  The accounting methods they use (which continue to pretend that they will earn almost 8% annual interest on their investments) are utterly unrealistic.  The gap continues to grow each year.  Some states have just turned a blind eye and kicked the can down the road by permitting municipalities (and state governments) to push this indebtedness off into the future.

Some municipalities are looking for creative ways to raise  new money like selling or leasing municipal assets (e.g. parking lots, zoos and other facilities).  While this may offer temporary relief, it won't fill the gap in the long term.  Why don't these communities raise the taxes they need to pay their bills?  Because no politician wants to vote for higher taxes in a down economy (or any time, really).  And, if given a chance to vote, citizens will rarely choose to raise their taxes, especially when unemployment is high and job security is low.

So, what's the answer?   I suggest it's NOT declaring bankruptcy.  Once the court takes over, the judge will just liquidate assets and cut back everything and anything.  The court is not empowered to raise taxes. It might liquidate outstanding bonds at a few cents on the dollar, but I wouldn't want to be that community going forward when it has no credibility left in the bond market. And, while the court might not be able to reduce past pension obligations (because they are protected by state law), it can certainly refuse to offer future pension benefits to new public employees.  Of course, whether police, firemen, teachers or others would ever want to work in such a place in the future is not clear. And, slashing expenditures in this way can create a death spiral.  Massive cutbacks in services reduce property values almost immediately.  A loss in property value reduces property tax revenue going forward. And, the downward spiral continues.  So, cities that think they can easily handle insolvency by declaring bankruptcy better think again.

What's the alternative?  In some states, like Massachusetts, the governor can step in and appoint a receiver to take over the management of the city.  While this doesn't solve the underlying problems, it does put someone in charge who isn't worried about getting re-elected or satisfying various constituencies. Of course, from a resident's perspective, who wants some non-accountable bureaucrat making decisions about what services and expenditures will be cut and which will be saved?  It would be better if local leaders organized an ad hoc municipal management task force and asked this group to make a last ditch effort (once the red flags about forthcoming insolvency have been raised) to come up with a cut-back plan that citizens can get behind.  The four key ingredients are:  a professional mediator to help identify the relevant stakeholders and manage the problem-solving conversation in a non-partisan way way; a joint fact-finding process that gives a large stakeholder panel access to a range of technical advisors; a transparent and accountable process that invites citizens, employers and public agencies to follow what's happening on-line every step of the way; and a binding referendum on a negotiated package that will give political legitimacy to whatever informed agreement is reached.   Mediation of this sort should be paid for by the municipality. It will cost a lot less than the legal fees involved in litigating a case into  bankruptcy court.  If such a group fails to reach agreement within a reasonable time, all the usual legal maneuvering will then begin.

The "ugly truth" I learned from my participation in this panel, is that bankruptcy is the worst possible solution to municipal insolvency. On the other hand, the threat that the court will declare a city bankrupt may serve to motivate the search for a negotiated solution. Cities and towns in financial trouble need to take action before they go over the precipice. Very few elected officials will address forthcoming insolvency problems in a useful way unless they are pushed by the electorate to do that.  Most residents and business owners will, right up until the end, lobby for what they think will help them, rather than for what will be in the community's long-term best interests.  So, it will take concerted leadership by non-elected interests to initiate the mediation of impending municipal bankruptcy.  Get with it citizens, you know what you have to do.