email: [email protected] warren staples

15. Sustainability and Social Issues in Management

Competitive Session

How and why engage community in the Australian mining industry? Combining

institutional and stakeholder perspectives

Xueli Huang

School of Management, RMIT University, Melbourne, Australia

Email: [email protected]

Warren Staples

School of Management, RMIT University, Melbourne, Australia

Email: [email protected]

.

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15. Sustainability and Social Issues in Management

Competitive Session

How and why engage community in the Australian mining industry? Combining

institutional and stakeholder perspectives

ABSTRACT

Community engagement has become a crucial part of mining operation in the global mining industry.

This paper examines the approaches and motivations of community engagement by an Australian

mining company. Data were collected from multiple sources, including interviews with three

managers responsible for the company’s community engagement, seven community leaders, and a

field visit to its mine site. It is found that 1) community engagement strategy has been developed after

carefully analysing stakeholder expectations and internal context; 2) several distinctive approaches, such as partnering with government and NGOs, leveraging its power with contractors, and based on

organisation’s resources, have been adopted; and 3) pressure from stakeholders and institutions are

the key forces influencing its community engagement strategy, approaches and initiatives.

Key words: Community partnership, corporate social responsibility, sustainability, stakeholder

management

Community engagement has become an essential part of operations in the global mining industry.

Several factors have contributed to this, including globalisation (Marquis & Battilana, 2009),

increasing scrutiny of government, international institutions and non-government-organisations

(NGOs) on corporate social responsibility (CSR) (Gifford & Kestler, 2008), and the recent social

movement (Eweje, 2006). CSR has now become a “social license to operate” (SLO) (Owen & Kemp,

2013) in the mining industry because of the nature of mines operating near or within distinct

geographic communities. Moreover, mining has a reputation as a “dirty business” (Gifford, Kestler, &

Anand, 2010) and has substantial impact on the environment and society due to the nature of its

operations, such as mining, minerals processing, use of land and water, and traffic hazards caused by

often a long distance transportation from mine sites to ports.

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This paper examines the community engagement by a mining company in Australia. It aims to

address the following research questions: (1) what community engagement strategy has been

undertaken by the mining company? (2) how does the company conduct its community engagement

activities and programs? and (3) why does the company engage communities in their business

operations?

Such a research is warranted for several reasons. Firstly, community engagement in the Australian

mining industry has a long history as mining has potential impacts on the local communities in many

ways, economically, environmentally and socially, and has been well advanced globally over the past

two decades (Minerals Council of Australia, 2005). Secondly, Australia has a long-mining history and

has relied heavily on its mining industry for economic prosperity and employment (Drysdale &

Findley, 2008). Thirdly, community engagement has become an important part of establishing and

maintaining legitimacy, frequently called a social license to operate (SLO) (Owen & Kemp, 2013).

REVIEWING LITERATURE ON COMMUNITY ENGAGEMENT

Much research has been devoted to corporate community engagement, particularly in the extractive

industries (Eweje, 2006; Kemp, Owen, & van de Graaff, 2012; Muthuri, Chapple, & Moon, 2009).

The extant literature on community engagement can be broadly divided into three major areas:

motivations (Eweje, 2006), community engagement strategy and implementation (Idemudia, 2009),

and consequences (Liu, Eng, & Ko, 2013).

Stakeholder and institutional theories

Several theories have been used in the extant literature to explain the motivations of community

engagement by firms. Stakeholder management (Liu, et al., 2013) and institutional theory (Bice, 2011)

are two widely-used theories. Stakeholder is defined as “any group or individual who can affect or is

affected by the achievement of the organization’s objectives” (Freeman, 1984). Instrumental and

normative approaches are two dominant ways that firms use to manage their stakeholder relationships

(Donaldson & Preston, 1995) from economic and ethical perspectives (Garriga & Melé, 2004).

Mitchell, Agle and Wood (1997) identified urgency, power, and legitimacy as factors that determine

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how much attention management gives to various stakeholders. Power is an important factor that

influences how firms manage its relationship with a specific type of stakeholders. The degree of

power between a firms and its stakeholder can be explained by resources dependence theory (Frooman,

1999), and the position of the firm and stakeholder s in key relevant social networks (Rowley, 1997).

Therefore, understanding the resource dependence between the firm and community and their

positions in the social or political network can be very important to the identification of a firm’s

motive and approach to community engagement.

Considerable research on community engagement, or more broadly CSR, in extractive industries has

also used institutional theory (Bice, 2011; Eweje, 2006) to explain why firms engage communities.

Institutions are the “rules of the game in the society”, and consist of formal rules (constitutions, laws,

property rights), informal constraints (sanctions, taboos, customs, traditions, codes of conduct), and

characteristics of enforcing these constraints (North, 1991, 1992). Therefore, institutions “structure

incentives in exchange, whether political, social, or economic” (North, 1992, p. 477).

Institutional theory is very useful in explaining why companies engage communities. Although

traditional institutional theory (Friedland & Alford, 1991) has emphasized the importance of context,

such as law and regulations, culture, value, and norms, the neo-institutional researchers (i.e.,

DiMaggio & Powell, 1983) have concentrated on the fundamental issue of why organisations in an

organisational field structure and behave similarly. The concern over acquiring legitimacy drives

companies operating in the similar external institutional environment to adopt similar organisational

structure and practices to conform to regulatory requirements, social acceptance and to gain

creditability, thus making organisations in an organisational field isomorphic with each other. Three

mechanisms have been identified to drive the outcome of similar organisational behaviours: coercive,

mimetic, and normative (DiMaggio & Powell, 1983). Bice (2013) draws upon key new institutional

theory concepts to offer pertinent insights into the formulation of community engagement policies and

practices at a local level to understand community activities in the Australian mining sector.

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Community engagement: strategy and implementation

Another major stream of community engagement studies has focused on community engagement

strategy and its implementation. Borrowed from the leadership studies, Bowen, Newenham-Kahindi

and Herremans (2010) have suggested that community engagement strategies can be broadly grouped

into three categories: transactional, transitional and transformational. These three types of strategies

represent a continuum of community engagement ranging from ‘giving back’, ‘building bridge’ to

‘changing society’.

Regarding the implementation of community engagement strategies in the mining industry, empirical

studies have been quite fragmented and concentrated on several issues, including programs or focus

(Eweje, 2006), governance (Idemudia, 2009), and internal management (Kemp & Owen, 2013; Owen

& Kemp, 2014). For example, Eweje (2006) found that a variety of community engagement initiatives

has been undertaken by MNCs in Nigeria and South Africa, such as education, social welfare,

infrastructure and small business development. In Australia, community leaders describe these foci as

the “flavours” of mining companies’ engagement (Huang & Staples, 2014). Sustainable community

development has recently become a key theme in community engagement studies (Muthuri, Moon, &

Idemudia, 2012; Owen & Kemp, 2012). Idemudia (2009) examined the governance of community

engagement programs in the Nigeria oil industry by MNCs and found that two governance models

have been used: in-house community investment model and corporate-community foundation model.

He also found that the latter was better perceived by the local community as it not only involves

community and NGOs in decision-making, but also facilitates information sharing and communication.

Several studies have recently investigated the internal mechanisms for implementing community

engagement programs (Kemp & Owen, 2013; Owen & Kemp, 2014). Kemp and Owen (Kemp &

Owen, 2013; Owen & Kemp, 2014) reported that community engagement has not been regarded as

part of core functions in many mining companies in terms of its roles, relationships with other

departments in the company, its influence and inclusion in decision-making, and professional status

recognition. The researchers further suggest that four internal dimensions (external engagement,

structural inclusion, access to resources, and internal influence) can be used to understand the social

performance of organisations in the mining industry.

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Despite considerable community engagement research has been undertaken over the past two decades,

a recent call for more “case-based studies” (Bowen, et al., 2010, p.312) was made after an extensive

literature review on community engagement due to the complex nature of community engagement

such as divergent community definitions, various antecedents, and different strategies used.

BACKGROUND INFORMATION OF THE COMPANY

The company under analysis is a joint venture (JV) between a large Chinese steel company (a state-

owned enterprise (SOE)) and an Australian junior mining company for exploration, construction and

production of iron ore in the Midwest area of Western Australia. The JV was set up in 2006 on a 50-

50 basis, and has been primarily managed by an Australian team. Many Chinese firms in the

Australian mining industry rely on the Australian team to manage their business, particularly where

the operations are large and complex (Huang & Austin, 2011). The project was originally budgeted for

about AU$1.8 billion in 2006 with the planned annual production capability of 16 million tonnes of

concentrated iron ore for 30 years. By the end of 2013, the project costed about AU$2.7 billion,

including the costs of constructing 145 km water pipeline, 180 km high voltage powerline, and 80 km

of rail infrastructure connecting the mine site to the regional rail network, then to the regional port for

shipment. These ‘linear infrastructures’ have geographically involved five shires (one hosting, three

transient, and one terminal shires) and required the JV to negotiate with seven aboriginal groups for

accessing their land for building infrastructure and mining operations.

The mine is located 80 km away from the nearest town (the hosting shire) in the region and 200km

from the port. The main operational mode is fly-in and-fly-out. However, a proportion of employees

are drive-in-drive out from local shires. Figure 1 outlines the mine location, its linear infrastructure,

and the regional city and local shires involved in the project.

(Insert Fig 1 about here)

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RESEARCH METHODS

A case study approach was adopted in this research as it focuses on the “why” and “how” questions

for real-life events and where the researchers have little control over it, making it appropriate in such a

research setting (Yin, 2003). Reliability and validity are often the major concerns in case study and

thus need to be addressed (Gibbert & Ruigrok, 2010). Two approaches were used to ensure internal

validity of this case study. First, multiple sources of evidence, as suggested by Yin (2003), were

adopted for this study to achieve triangulation. These sources of evidence include: 1) interviews with

three managers who are responsible for community engagement in the JV’s headquarters followed by

a number of phone calls and emails for further clarifications, 2) one field trip to the JV mine site to

conduct interviews with seven senior local government officials and community leaders across two

shires where the JV is operating, and collect physical artefacts of community engagement, and 3)

analysing the websites of the company, its annual reports, and sustainability reports. Second, we have

sent the case study findings back to one of the managers interviewed for validating.

The reliability of this case study has been assured through carefully designed data collection and

analysis. A case study protocol was developed based on the research objectives and outcomes of

literature review. Built on the research questions developed, the interviews were semi-structured and

ranged from 50 minutes to two hours. All interviews were digitally recorded and then sent to an

Australian professional service provider for transcribing. A list of codes was first developed based on

the outcomes of literature review and the JV’s annual and sustainability reports. Moreover, we have

also followed the suggestions by Yin (2003) to create a database for this JV by placing all documents

into a shared driver where both authors could access and code.

All the information collected was integrated using the qualitative data analytical techniques proposed

by Miles and Huberman (1994), particularly theme identification, and time-order display such as event

listing and activity record.

The external validity was sought through discussing the findings with managers working in other firms

and community group leaders. As part of the requirements from the funding body, three research

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seminars were held in Melbourne, Perth and Sydney in June-July 2014 with over 200 participants.

Feedback was sought from these participants during the seminar. No substantially different views on

our findings were expressed during these three seminars.

FINDINGS AND DISCUSSION

Community engagement strategy and approach

Strategy: The community engagement strategy was developed after the JV conducted its external

social impact assessment of the mining operations and internal analyses. The JV first talked to the

local governments about the community aspirations and held meeting with general community in the

local town halls at the start of its mining project. It also recognised that it would take a lengthy time to

move into cash generation (production) mode given the complex nature and large scope of its major

project. Two principles were used to develop its community engagement strategy as the JV explicitly

expressed it in its sustainability report:

“[C]ommunity expenditure needs to be carefully managed. To this end, the two driving principles of our community program are ‘targeted’ and ‘cost-effective’. We target our community investment into areas which are likely to deliver the most sustainable benefit” (Sustainability Report, 2012 p. 19)

Approaches: The JV has focused its community engagement activities on three strategic areas:

“regional health, education, and youth development” (Sustainability Report, 2012 p. 19) based on the

outcome of its initial assessment of community needs. Our interviews with the Community Relations

Manager (CRM) also confirmed this as he said: “We focused on the three main ones: health,

education, and youth”.

Besides developing its strategic foci, the JV has also established its key approaches or “mechanisms”

to community engagement as stated in its sustainability report.

“We target our community investment into areas which are likely to deliver the most sustainable benefit and we employ a number of mechanisms to ensure cost effectiveness, such as leveraging off other organizations in the area, targeting activities which are likely to also have spin-off benefits for the company and involving the community in delivering the benefits, thereby ensuring ongoing ownership.” ” (Sustainability Report, 2012 p. 19)

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These three mechanisms can be classified as 1) partnership with other NGOs and business

organisations, 2) business case, that is benefits to business from their CSR activities (Carroll &

Shabana, 2010), and 3) direct partnership with community groups.

Programs and activities. The JV has undertaken a variety of community activities and programs

over the past seven years to implement its community engagement strategy. Table 1 summarises the

major community programs and activities, and their delivery mechanisms.

(Insert Table 1 about there)

To understand why the JV undertakes such community engagement strategy and initiatives, and use

such approaches, we need to examine its motivation.

Community engagement motivations

Institutional drivers. How were these community engagement strategies and initiatives developed?

Institutional theory and stakeholder theory are very powerful for explaining them. From an

institutional perspective, drivers for community engagement have come from international, national,

industry, and society levels.

At the international level, the Global Reporting Initiative (GRI) has been widely used in the Australian

mining industry. GRI has also issued a Mining and Metals sector disclosure in addition to its proposed

general reporting practice (Global Reporting Initiative, 2013). The JV has incorporate sustainability in

its annual report and published a sustainability report annually.

At the national and state levels, community engagement is part of the regulations for the Australian

mining industry. For example, the WA Government has required mining companies to negotiate with

the tradition landowners where mining is to be operated to reach a Native Title Agreement before the

exploration licence is issued. The community engagement process needs to be followed as required by

the Victorian Government for a mining operation (Department of Environment and Primary Industries,

n.d).

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At the industry level, the national mining industry association, the Mineral Council of Australia

(MCA), has issued its Enduring Value - The Australian Minerals Industry Framework for Sustainable

Development (Minerals Council of Australia, 2005) and explicitly states the industry vision is “A

valued Australian minerals industry achieving outstanding environmental, social and economic

performance”.

At the society and community levels, corporate community engagement has become a normal

expectation in the mining industry. As the Community Relations Manager states:

“There's a perception out there, especially in the Australian public, …as soon as a mining company comes to town they have a big…wish list which grows and grows. That expectation's Australia-wide.”

These institutional pressures or expectation at different levels have driven Australian mining

companies to consider community engagement as an indispensable part of operational functions,

although such a business function may not yet be regarded as being “core” to them (Kemp & Owen,

2013). Some community engagement practices can be explained by these institutional pressures. For

example, engaging with indigenous communities, including employment and training, was part of

effort the company’s attempt to reach the Native Title Agreements with the traditional landowners as

the Senior Indigenous Affairs Advisor (SIAA) commented on this:

“Out of that [seven native titles] once again the word gets out there that [the company] are doing some good things with the community and it makes our job easier when we go to try and get approval for - but that's not necessarily the reason we're doing it because we want to be a good neighbour” (SIAA).

From the analyses above, the multiple-facet institutional pressure has established that community

engagement is necessary for mining companies in Australia. This has become a norm and provided a

framework for mining managers to develop community engagement strategy and initiatives. However,

the scope of community engagement and the level of the company’s contribution to a specific

community can vary within the framework. Such a variation in the scope and contribution level of

community engagement can be explained with stakeholder management theory.

Stakeholder management. Although the institutional pressure mentioned above has influenced the

company to consider community engagement as necessary for their operations, stakeholder

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management seems to dictate what community engagement programs should be developed and how

they can be effective and efficient.

Regarding the scope of community groups to be engaged, the linear infrastructure and its operations

have outlined what geographic community groups the company needs to engage. Recognising its

linear infrastructure involves five shires and their potential competition for funding and support, for

example, the company has often developed community initiatives that can serve the region, rather than

individual shire. This has been stressed by the Community Relations Manager:

“We have a lot of linear infrastructure that goes through these communities. So we have a railway line, a power line, and a water pipeline which goes through a fair bit of freehold land and obviously through these communities and through the shires. So to have their support - because it's freehold land and things like that they've got to give us their support and their approval to build some of this infrastructure through there. So hence you've got to work with them from that point of view. You've got to keep work - make the community happy and want us to be there. It is an expectation that happens within the communities. By doing what we're doing and getting it out there, I think it makes our licence to operate and get these approvals through a lot easier.”(CRM)

Other examples of these regionally focused initiatives include the mobile dental clinic, sponsorship to

the Royal Flying Doctor Service of Australia, and the community farm and innovation park. Having

community support and gaining their approval and legitimacy is the major reason for such community

engagement.

Gaining government support and approval is another motivation for the mining company to engage

local communities. Government is a powerful stakeholder for business. Although governments at the

federal, state, and local levels have not exerted direct pressure for the company to engage communities,

except in the case of Native Title Agreement, community engagement activities can help the company

get government approval due to the democratic nature of the governments, which are elected by

general public. This democratic relationship between government and community has been well

recognised by the company’s Community Relations Manager, as he expressed

“When the government sees that [community engagement activities], that we were doing some of those things, that makes some of our process easier with dealing with government because we can stand up and show some of these things that we're doing working with the communities. Because at the end of the day those are the

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communities - those people in the community are the electors and they're the ones that are going to go back and complain to the government.” (CRM)

Such a drive to build relationships with local government was reflected by the company’s substantial

contribution to offer scholarships to a senior high school at a local shire. The shire government has a

vision to build the shire into an education hub and already has one technical college and high school

located in the shire. The company’s contribution to the scholarship has been highly valued by the

local government as one senior official commented on this:

“They [The company] focus on education, which for [us] we were more than happy because education is a strong wish of ours to make that better and to give more opportunity to the rural students. So they have been absolutely fabulous with regard to scholarships and apprenticeships, training opportunities and to be quite honest we couldn’t ask for better.

CONCLUSIONS AND IMPLICATIONS

Two primary motivations for the company to engage its community are institutional pressure and

stakeholder management. Institutional pressure from international, national, state, and community,

has made the community engagement an indispensable function in the Australian mining industry.

A variety of community engagement programs and activities have been undertaken by the company

based on its analyses of stakeholders and internal resources and capability. The legitimacy and power

of the key stakeholders, coupled with the company’s context (operations, resources, and locations),

have influenced its community engagement strategy and approach. Providing additional health

services and education have been the dominant programs and activities undertaken by the company

due to the demand and expectation of local communities and governments.

The community engagement approaches adopted by the company tend to be partnership with other

commercial, public and not-for-profit organisations. The other main approaches are leveraging its

contract power with contracting partners, and based on its resources and strengths. These approaches

have made the company’s community engagement programs sustainable. To do so, understanding the

local and organisational contexts has been crucial.

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Two implications can be suggested based on the conclusions. Firstly, community engagement is

context-specific. Understanding local context becomes critical to the development of sustainable and

innovative community engagement strategy, approach, programs and activities. It is also important for

organisations to analyse its internal resources and strengths, and participate in business and social

networks. All these are fundamental for organisations to develop its effective community engagement

strategy, leverage its resources with other business organisations and NGOs for community

engagement, and thus deliver real benefits to their communities in a sustainable way.

For a start-up mining company without cash flow, partnering with other organisations could prove a

very effective way to deliver benefits to its communities. The real challenge for partnership is how to

leverage its resources and strengths, negotiate with potential partners, and even take a leading position.

Given the social benefit derived from community engagement programs, this can require a different

set of leadership and negotiation skills with potential partners, such as governments, NGOs, special

community groups, and business organisations. These skills have not historically been core to mining

companies.

LIMITATIONS AND DIRECTIONS FOR FUTURE RESEARCH

Two major limitations exist in this paper. First, this paper only examined the community engagement

strategy and motivations in one Australian mining company. Thus, the findings could be specific to

the company examined, and may not represent the community engagement in the mining industry in

terms of motivations, practices, and approaches adopted. A large sample size can generate a more

comprehensive picture about the community engagement in the Australian mining industry. The

second limitation, which is relevant to the first one, is that this paper only investigated the community

engagement in the Australian mining industry. Thus, the findings of the paper may not be generalised

to firms in other industries. Future research could focus on a comparative study between the mining

and other industries in Australia. The nature of industry can have much impact on the community

engagement programs undertaken by business organisations. An industry comparative study can

enhance our understanding about how industry influences community engagement programs.

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Figure 1. The mine location, its linear infrastructure, and local city and shires involved

in the project

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16

Table 1 The community engagement programs and activities undertaken by the JV

Practices/Activities Partnership with other NGOs and/or

commercial organisations

Based on the company’s resources Partnership with community

Regional Health

RFDS Donating to RFDS, together with government

funding and other business organisation

Mobile Dental Clinic As a main sponsor, and working with RFDS,

and two more private enterprises providing

services to the mining industry, and three local

governments.

Regional General

Practitioner (GP) Flights

Providing 26 free return flights to Perth a

year on its charter flight service.

Community health

fund

Contribute to the Community health fund

Education Providing 13 apprenticeships, eight tertiary

scholarships, and eight traineeships to the

local community. Total costs so far were

over $450,000

Youth development Donation to Parkerville Children and Youth

Care – a regional NGO - for providing

preventive services for children and youth in

the region.

Community Farm Donate free farmland to local

community groups as an

alternative fundraising means

Entrepreneurship

development – Innovation

Park

Donate free farmland and provide initial up-

front fund with contractors, and work with

local NGO to employ indigenous people and

develop their business skills.

Targeted employment Leveraging its procurement power for

encouraging contractors to employ indigenous

people (36)

Directly employ 16 indigenous people in

the company.

of 17 ANZAM 2014

email: [email protected] warren staples

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