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Description
There has been a growing interest in the extractive industries in the potential for partnerships between companies, government agencies and civil-society organisations to provide social or development benefits, while also using these partnerships to develop more trusting relationships between the partners.
Using evidence from the partnerships established under the Natural Resources Cluster (NRC) of the World Bank's Business Partners for Development programme, this article focuses on the question of whether partnership governance structures can create or enhance trust.
The evidence from the NRC is that, while successful partnerships can provide benefits such as stable relationships between the partners, an improved ability to resolve disputes and a willingness to explore more partnerships, all of the NRC partnerships retained comprehensive monitoring and oversight mechanisms and were underpinned by formal or informal sanctions in the event of partnership failure.
The article concludes that, while trust offers the potential to reduce the transaction costs associated with partnerships, this does not mean that a perfectly trusting relationship is a desirable goal for partnerships. Distrust should be seen as an normal part of partnership formation and governance and, even in situations where there is trust between the partners, this trust needs to be underpinned by robust monitoring and, where necessary, sanctioning processes.
* Partnerships
* Extractive industries
* Trust
* Governance
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THERE HAS BEEN A GROWING INTEREST IN THE EXTRACTIVE INDUSTRIES IN the potential for partnerships between the companies themselves, government agencies and civil-society organisations to provide social or development benefits. Partnerships offer the potential for the more effective delivery of community development, while also offering broader benefits such as the potential for strengthening companies' 'social licence to operate' or enhancing their reputation with key stakeholders. Despite the potential advantages, such partnerships are frequently established in a context of mutual distrust, or at least wariness, between the protagonists. For example, for many NGOs, retaining independence remains a critical issue and a potential stumbling block to partnering with private corporations and government authorities. Consequently, processes of trust building remain a particularly important aspect of the partnering process, both at the partnership negotiation stage and subsequently through partnership implementation. Trusting relations may also allow the transaction costs (e.g. monitoring) associated with the operation of partnerships to be reduced. Yet, despite the frequent references to terms such as 'trust', 'trustworthiness' and 'trust building' in the literature on partnerships, there has been relatively little analysis of whether and how partnerships actually contribute to the development of trusting relationships between the partners. This paper focuses on one aspect of this discussion: namely, whether partnership governance structures can create or enhance trust.
The paper is divided into four parts. The first is a brief overview of the literature on partnerships, governance and trust. This literature is used to derive a series of indicators (or measures) of trust between the participants in a partnership. The second part of the paper provides an overview of the Natural Resources Cluster (NRC) of the World Bank's Business Partners for Development (BPD) programme, which is perhaps the most important study of tri-sector partnerships (i.e. partnerships involving companies, government authorities and civil-society organisations) in the extractive sector. The NRC involved ten case studies and, in the third part, these case studies are analysed against the indicators of trust. Finally, the fourth part of the paper assesses whether the case studies allow conclusions to be drawn about the relationship between partnership effectiveness, partnership governance and trust.
Key concepts: partnerships, governance and trust
Partnerships in the extractive industries
Given the increasing expectations that mining, oil and gas companies will provide public goods, the criticisms of the quality and sustainability of certain community development programmes, and the rising awareness at the boardroom level of the high transaction costs associated with social investment, corporations are beginning to investigate whether and how they can manage social issues more efficiently and effectively. One approach has been to look to develop partnerships with government and civil society. The partnership approach involves the 'pooling' of resources, competencies, capacity and expertise, thereby achieving outcomes that add value to what each party could achieve by acting alone (Warner and Sullivan 2004: 15-17). A partnership approach builds on the idea that each sector in society has core competencies and resources that, if appropriately arranged, are complementary to one another. In the context of managing social issues, these competencies and resources include (Warner and Sullivan 2004: 15-16):
* (Government authorities.) Strategic co-ordination through local Development Plans; new decentralised powers (to regional and local governments); budgets for public services; a role as broker or capacity builder
* (Oil, gas and mining companies.) Employment provision; procurement/supply chain management; local infrastructure; capital equipment; technical skills; logistics management; a performance-led work ethic; best international practices; capacity for advocacy
* (Civil-society organisations.) Local knowledge; capacity to mobilise community participation; tools and methods to ensure relevance to local need; independent monitoring
Bringing these unique yet complementary resources together into a partnership can provide a range of business benefits such as new channels of communication with local communities which increase the opportunities to prevent local disputes and manage social risk, a more durable local 'social licence to operate', and a new management tool to help close the gap between the expectations of regulators and investors and the social performance of operations on the ground (Warner and Sullivan 2004: 17).
Gulati (1998) has identified five key issues for the study of alliances--of which partnerships can be considered one form--based on the sequence of events in alliances, namely: (i) the formation of alliances; (2) the choice of governing structure; (3) the dynamic evolution of alliances; (4) the performance of alliances; and (5) the performance consequences for firms entering alliances. The focus of this article is on the second and third of these: namely, partnership governance and whether governance can contribute to trust. It is pertinent to note that partnership governance is just one of the factors that influence the effectiveness of partnerships. For example, there is a significant literature on alliance formation which emphasises the importance of the partners chosen and the initial trust-building and negotiation processes in ensuring the effectiveness of partnerships (see, for example, Gulati 1998; Porter and Fuller 1986; Faulkner and de Rond 2000; for a broad overview of the literature on partnerships, see Selsky and Parker 2005).
Governance and agency theory
There is the potential for conflict when members of a social group find that they are interdependent to the extent that the efforts of individual actors to achieve their goals interfere with or thwart the efforts of others to pursue their own ends (Young 1997: 3). 'Governance' consequently emerges as a basis for co-operation in situations where welfare can be enhanced through the co-ordination of the activities of individual members of the group. At the most general level, governance refers to the establishment and operation of social institutions, i.e. the sets of rules, decision-making procedures and programmatic activities that serve to define social practices and guide the interactions of those participating in these practices (Young 1997: 4).
Governance can also be analysed through agency theory, which is concerned with the ability of principals to ensure that their agents are fulfilling the objectives of the principals (i.e. limiting the agent's self-serving behaviour) (see further Faulkner and de Rond 2000: 12-13). Agency theory assumes that human behaviour is self-interested and subject to bounded rationality, that organisations contain a degree of potential conflict between the goals of their owners and their employees, and that there are asymmetries of information between principals and their agents (Faulkner and de Rond 2000: 7). The consequence has been that much of the literature on agency theory has focused on determining the most efficient form of contract between principals and agents.
Agency theory would regard partnerships as potentially problematic. The practical implication of agency theory is that the partners to a co-operative venture would be advised to make clear to each other the basis on which each will share the returns from effective co-operation and to put in place the systems for the information to be shared between them. This requires that partners need to clearly define the objectives, scope, degrees of freedom and the constraints of the partnership (Harrigan and Newman 1990: 423). Harrigan and Newman (1990) argue that this should reduce suspicion between the partners, providing a basis for mutual trust to develop through their working relationship and, over time, reducing the need for monitoring mechanisms.
Trust
Numerous studies have reported dramatically high failure rates for partnerships, and several practitioners have sought to understand the reasons why (e.g. see Kanter 1989; Bleeke and Ernst 1991). High levels of trust and commitment have been frequently identified as the attitudinal and behavioural characteristics most strongly associated with alliance/partnership success (Faulkner and de Rond 2000: 28; Gulati 1998: 306; Tallman and Shenkar 1994: 107). Interestingly, however, the literature on strategic alliances and transaction cost analysis has paid little attention to the role of trust in ensuring the effectiveness of partnerships or alliances. It appears to be an underpinning assumption of much of this literature that alliances will continue... |
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