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Reputational Concerns and the Emergence of Oil Sector Transparency as an International Norm

Alexandra Gillies
DOI: http://dx.doi.org/10.1111/j.1468-2478.2009.00579.x 103-126 First published online: 1 March 2010

Abstract

This study argues that the reputational concerns of several high-profile actors drove the emergence of oil sector transparency as an international norm. Thanks to successful advocacy campaigns, developing country oil sector operations began to pose increasing levels of reputational risk to Western governments, international institutions, and corporations. These actors responded to this scrutiny by facilitating the evolution of transparency into a widely cited oil sector “best practice.” However, the self-interests of these actors also altered the course of the norm's definition and institutionalization in ways which may constrain its eventual impact on industry behaviors. This study narrates the surprising and rapid spread of the transparency norm in developing country oil affairs, a process which suggests that reputational utility should be considered as a possible explanation for norm emergence.

For corporations, governments, and international organizations involved in the oil industries of developing countries, transparent business operations and revenue flows have become widely espoused as desirable and socially responsible behaviors. The emergence of this new international norm occurred quickly since its inception in 1999, and represents a surprising development in a sector previously characterized by carefully guarded opacity.

In most developing countries, the state owns the country's petroleum resources and their discovery, production, and export is dominated by national and multinational oil companies. Transparency, according to its proponents, makes it more difficult for these government and corporate actors to disserve the wider public's interests as they carry out their oil sector activities. Greater transparency would reduce corruption and mismanagement, and increased accountability would engender the more development-oriented conduct of industry affairs.

Despite these potential advantages, the rapid emergence of transparency as a norm widely cited and responded to by oil sector actors comes as a surprise. The oil industry is operated by some of the largest, richest, and most influential multinational companies in the world, and global demand for petroleum products is rising steadily to new heights. For decades, petroleum extraction from the developing world has occurred through insular, mutually advantageous relationships between the private sector and government actors, with few opportunities for domestic or international oversight. Given the leverage currently enjoyed by the entities which control oil and its production, what explains the surfacing of the oil sector transparency norm in such a seemingly inhospitable environment?

Two existing arguments for how ideas become influential norms help to explain this case of emergence, particularly during its initial phases. First, the fledgling norm benefited from its adjacency to existing, more established norms, a dynamic known as “grafting” (Price 1998:199). Second, emergence advanced thanks to the credibility and effectiveness of transparency's NGO advocates, its “norm entrepreneurs” (Finnemore and Sikkink 1998:897).

In this study, however, I propose that a third factor played a more influential role and enabled the norm to fully infiltrate industry discourse. The ascendance of oil sector transparency served the reputational agendas of several prominent international actors, specifically international oil companies (IOCs) and international financial institutions (IFIs) based in Europe and North America as well as several Western governments. For these actors, the oil industries of developing countries offer attractive opportunities for profit-making, investment returns, supplies of energy or, for the IFIs, a crucial arena in their partner-country economies. But, over the past decade, these engagements grew subject to increasing scrutiny by third-party actors and began to pose significant levels of reputational risk. In this context, certain high-profile international actors began to perceive oil sector transparency as a useful tool for the protection of their public image. In other words, the need for several key corporate, government, and IFI actors to protect their reputations motivated them to facilitate, or at least to permit, the norm's ascendance. This dynamic neutralized the norm's most likely opponents and facilitated the creation of a coalition diverse and powerful enough to carry the norm though its infancy. As a result, the norm has found what appears to be a durable position in developing country oil sector affairs.

The concept of reputation has been used by both constructivist and rational choice scholars to explain compliance with existing rules and norms. I argue that reputational concerns can also serve as a causal variable for norm emergence, particularly to motivate norm promotion behavior among high-profile actors. To demonstrate this point, oil sector transparency serves as an exploratory test case, in which I assume a process-tracing approach (George and Bennett 2005:133) to identify the potential role that reputational concerns can play in norm emergence. Drawing on a review of the relevant documents and over 50 interviews with representatives of IOCs, IFIs, Western and developing country governments, and civil society, I suggest that the reputational utility of a norm should be considered as a reason for its emergence.

In this endeavor, the distinction between norm emergence and norm compliance is essential. Norm emergence is a largely discursive affair: if a norm emerges within a given community, its constituent actors will in their communications recognize its desirability and employ it to justify their actions (Finnemore and Sikkink 1998:892). Crucially, therefore, in the discussion that follows, the designation of an actor as supporting norm emergence does not mean that their behavior in practice actually reflects the norm's tenets. Rather the focus is on how reputational agendas facilitated the growing acceptance of transparency as a valid and desirable behavior in oil sector affairs.

Along with its primary objective—the demonstration of how reputational agendas can drive norm emergence—this study provides further evidence of the intertwined nature of interest-driven and norm-driven decision making. Members of the coalition advancing transparency possessed discordant agendas and divergent levels of commitment to the norm's principles. These differences triggered battles among members which significantly impacted and eventually constrained how the norm developed. On several occasions, one can observe how the self-interests of the norm's more powerful advocates shaped the course of its definition and institutionalization.

The study begins by describing how the oil industry and the norm itself posed significant obstacles for the transparency movement, making its emergence unexpected. The following section overviews the initial stages of norm emergence which were driven by the two established explanations mentioned above: grafting onto existing norms, and effective norm entrepreneurs. Next, I discuss the idea of reputational motives and their ability to facilitate norm emergence. Periods of intense scrutiny led several key actors to support the new norm so as to reduce the reputational risk posed by their developing country oil sector operations. The narrative also includes several instances in which the material interests of these actors determined the manner in which they influenced the norm's development. The study's final section describes the factors which will inhibit the transparency norm's ability to promote meaningful behavior change including the absence of similar reputational agendas in some rising oil sector players.

An Inhospitable Terrain for Norm Emergence

The evolution of oil sector transparency into a widely cited and influential norm was far from predictable. The norm itself, the behaviors it affects, and the industry to which it applies all present obstacles to its emergence.

The norm of oil sector transparency holds that the public should enjoy greater access to information about the revenue flows and operations of the petroleum industry.1Box 1 provides a list of measures through which this may occur, the length and complexity of which indicate the technical and challenging nature of norm compliance. The exploration, production, and export of oil involves a long chain of processes which engage multiple actors, global markets, fluctuating price regimes, massive infrastructure, and huge capital investments. Industry payments tend to occur through opaque channels and result from Byzantine contract negotiations, and the information that is disclosed frequently requires financial and industry expertise to interpret. Typically, the actors involved in the sector shrouded these interactions in secrecy, with oil revenues acquiring taboo status in many developing states (Gary and Karl 2003:96).

View this table:
Box 1.

Elements of Oil Sector Transparency

Disclosure of the following types of information represents some of the suggested components of oil sector transparency. The adoption of even a majority of these practices has not occurred in any developing country, demonstrating the sizable gap between rhetoric and practice.
Revenue flows
Payments made by oil companies to governments including taxes, royalties, bonuses, in-kind contributions, and philanthropic/community development activities
Revenue flows between government agencies, including national oil companies, tax collection entities, and the treasury
Amount and terms of oil-backed loans
Revenue management
Investment strategies, windfall accounts, and other measures to deal with oil revenues separate from the regular budgetary process
Oil savings fund inflows, outflows, and rules for when and how the fund can be accessed
Revenue expenditure
Ex ante determination of oil revenue spending via a transparent budgetary process
Budgetary information on ex post annual spending and medium term financial plans
Subnational revenue allocation formulas, amounts, and usages
Open and credible procurement procedures for government contracting
Industry operations
Oil block bid round criteria and results
Contracts between companies and governments including production sharing agreement and joint venture terms
Production and reserve data
Industry cost assumptions and calculations
The operating structure of national oil companies and systems for their oversight
The industry's legal framework and regulatory mechanisms
Annual audits of oil companies and oil accounts, conducted by independent entities to international accounting standards

In addition to its technical complexity, oil sector transparency lacks direct and visible links with the human costs of corruption and bad governance. The low human development indices which characterize many oil-producing states suggest that petroleum revenues are not translating into development gains. However, demonstrating this intuitive connection proves difficult. Non-disclosure of the financial and procedural information listed in Box 1 does not immediately trigger human suffering. This disconnect distinguishes oil sector transparency from the kind of norms which scholars identify as most likely to emerge. Keck and Sikkink (1998) argue that norms related to preventing bodily harm and protecting personal liberties are most likely to achieve prescriptive status. Others, such as Price, indicate that emergence may be more likely if the norm is easy to grasp, or related to issues of protecting vulnerable groups (Price 2003:590–595). Calls to disclose contract provisions and budgetary figures would seem to lack the resonating power of more gripping, human causes such as freeing political prisoners, demobilizing child soldiers, or treating HIV/AIDS.

The promotion of oil sector transparency also faces great political obstacles. Transparency is advocated as a vehicle for making governments more accountable to their people. The political systems that generally characterize oil-producing, developing countries should pose significant obstacles to such changes. Oil-producing countries exhibit traits indicative of “rentier states,” a term developed to capture the political symptoms of the resource curse. The economies of rentier states are dominated by externally generated revenue inflows which are controlled centrally and distributed to the public (Beblawi 1987; Yates 1996). They present inhospitable environments for reform in several ways. Power and resources are highly centralized in the state which widens the chasm between government and society, severely handicapping domestic accountability (Karl 1997:62; Soares de Oliveira 2007:36). Oil decreases the government's incentive to tax its citizenry or to foster other sectors of the economy (Auty 2001:32), and is tied to increases in predatory governance, political spending and corruption—all enemies of transparency (Auty and Gelb 2001; Ross 2001). Lastly, rentier states produce powerful “parasitic sectors” vested in the opaquely managed status quo (Auty 2004:4). These traits should increase the political costs associated with this new norm.

Moreover, during the period of the transparency norm's emergence, roughly 1999–2006, these “rentier” governments were enjoying increasing leverage thanks to the soaring demand for oil and the associated boost in revenue inflows (see Figure 1). Higher prices also gave rise to new sites of oil production, including many in the developing world, as oil companies could afford to take exploration risks, invest in infrastructure projects such as pipelines, and refine lower quality crude. This new profitability calculus, when combined with American-led efforts to diversify away from Middle Eastern oil, has led to the debut of many countries as sizable oil exporters. These include Azerbaijan, Chad, Equatorial Guinea, Kazakhstan, and Sudan, and a number of others are eagerly optimistic about their prospects (Ghana, Mauritania, São Tomé and Príncipe, and Uganda to name a few). Deepwater discoveries have also led to drastically increased production levels for several established producers, such as Brazil and Angola.

Assuming no dramatic changes in government energy policies, the world's energy needs will rise by as much as 50% by 2030 (Wolf 2007). Moreover, the current trend of nationalization has severely limited the oil resources available for exploitation by private companies. These factors increase competition for energy resources, creating two obstacles for transparency reform. First, IOCs (both private and state-owned) must compete to gain access to a limited number of production sites. As they set about wooing producer governments, a “race to the bottom” can ensue in which companies soften their governance, environmental and other standards so as to sharpen their competitive edge. Second, competition and high revenue inflows strengthen the hand of producer governments. The usual levers applied to induce reform—aid conditionality, debt relief, trade preferences—hold less sway in wealthy oil exporting states, further increasing the unlikelihood of transparency's progress.

Transparency's Entrance into the Oil Sector Discourse

The constructivist approach to international relations helps to explain the emergence and spread of oil sector transparency, as it does other international norms. Its authors contend that states adopt the identities and behaviors associated with the community to which they belong. Norms, defined by Katzenstein (1996:5) as “collective expectations for the proper behavior of actors with a given identity,” are a primary mechanism by which communities demarcate and shape member behavior. For community members, norms are used to distinguish appropriate from inappropriate behavior, and also help to organize and simplify reality for the purpose of effective interrelations (March and Olsen 1998; Shannon 2000). Ruggie (2004) described how norms can acquire authority within communities even if they are not enshrined in any formal law, and impact both state and nonstate actor behaviors.

Norm emergence involves the introduction and establishment of a certain behavior as desirable within a given community. This is, as previously mentioned, a separate endeavor from norm compliance which depends on the norm's actual behavioral impact. Finnemore and Sikkink (1998:897) outlined a norm's life cycle in several stages. In the first, called framing, “norm entrepreneurs” call attention to an issue or create an issue via new language. Framing is generally followed by institutionalization when some sort of international framework evolves to structure the norm's advancement. This process clarifies what constitutes compliance and violation and, in some cases, creates methods for monitoring and enforcement. Such concretization is crucial, as amorphous and non-standardized norms are more easily violated (for illustrations, see Shannon 2000). In the final stage, norm emergence blends with norm compliance: at a certain tipping point, a sufficient proportion of actors adopt the norm resulting in an acceleration of its spread within the community—a norm cascade—after which processes of habitualization ensue.

Two factors drawn from the literature on norm emergence help to explain the progress of oil sector transparency through the initial “framing” stage. First, the norm “grafted” onto two pre-existing, wider movements: the prioritization of good governance by the international donor community, and the demand for greater corporate and government transparency. Second, oil sector transparency benefited from having as its principal “norm entrepreneurs” several savvy, assertive and well-connected international NGOs.

Western donor organizations, including the major IFIs, have increasingly subscribed to a belief in the causal link between good governance and economic development. This dispensation emerged in the 1990s, following the weak results of structural adjustment programs, the post-Cold War emphasis on democratization, and a shift in the predominant thinking on the causes of underdevelopment (for examples of this perspective, see Van de Walle, Ball, and Ramachandran 2003). The new focus on governance both legitimized and institutionalized the practice of international actors judging and influencing domestic governance practices in developing countries (Hyden 1999:193; Harrison 2005:242).

This dynamic can be observed in the rise of oil sector transparency: the story of norm emergence occurred almost entirely in reference to oil-producers in the developing world. African and Central Asian countries, many with fledgling energy industries, lay at the center of its evolution rather than more formidable sites of production like Saudi Arabia, Mexico, or Russia. Following the pattern normalized through donor governance programs, American and European countries and multilateral donor agencies assume the role of “rule-makers” by establishing what constitutes good governance. They then promote these norms in developing countries, often not applying them to themselves or to other more powerful states. While still able to choose their respective responses, developing countries typically are cast as “rule-takers,” reflecting imbalances in global power (Hurrell 2005).

One of the behaviors commonly advanced by the “good governance” platform is transparency, a norm on the rise both within and outside of the international development discourse. Florini's (2007:5) definition of transparency emphasizes the proposed linkage between the provision of information and accountability: “the degree to which information is available to outsiders that enables them to have informed voice in decisions and/or to assess the decisions made by insiders.” In the 1990s and early 2000s, the exposure of government and corporate corruption (in both developing and developed country contexts) prompted calls for greater transparency. Evidence of a growing emphasis on transparency includes the proliferation of freedom of information laws (now in 70 countries), increasing investor demand for corporate account disclosures (spurred on by the Asian financial crisis and US corporate scandals), the prominence of Transparency International, and mounting pressure for multilateral organizations to end their opaque styles of operation (on the last, see Blanton 2007). Donor good governance programs latched onto transparency as a valuable tool for combating corruption, advancing accountability, and improving public financial management.

By “grafting” onto the general transparency movement, oil sector transparency advocates acquired language, legitimacy, and allies.2 The actors engaged in this grafting were several international NGOs, the earliest proponents of oil sector transparency. Their activities in this case correspond with the literature on transnational civil society and its facilitation of early-stage norm emergence. Price (2003:580) defined transnational civil society as “self-organized advocacy groups that undertake voluntary collective action across state borders in pursuit of what they deem the wider public interest.” Across a wide range of normative concerns, these groups have demonstrated success in conceptualizing problems into causes, getting them on the international agenda, persuading actors to adapt their discursive positions, and eventually influencing policy and behaviors (Keck and Sikkink 1998:25).

For oil sector transparency, the lead entrepreneur was Global Witness, a London-based group founded in 1995 to “break the links between the exploitation of natural resources, and conflict and corruption” (Global Witness official, September 11, 2007). In its campaign on conflict diamonds in Angola, Global Witness uncovered the Angolan government's reliance on oil export revenues to fund its war efforts (personal interview with NGO official, August 21, 2007). Bolstered by the success of the conflict diamonds campaign and the resulting Kimberley process (personal interview with Global Witness 2007; Shaxson 2007:210), Global Witness shifted its focus to oil and published its landmark 1999 report: Crude Awakening: The Role of Oil and Banking Industries in Angola's Conflict.

As with most such reports, Crude Awakening makes rigorous demands of its targets, in this case IOCs, foreign banks, and the Angolan government. Transparency dominates these recommendations, prioritizing for the first time the responsibility of both government and private sector actors to publish information about oil sector revenue flows and operations. The following statement from the report cuts to the core of the Global Witness (1999:13) position: If a company decides to conduct business in a country such as Angola, where there is little or no transparency or accountability of government, then it is vital that the company concerned adopts a level of transparency far in excess of that which it would be required to adopt in western democracies….Full transparency means that companies must clarify their exact relationship with government. This means that all payments must be published and made available in an easily understandable format to the Angola population.

While the report provoked a furious response from the Angolan government (Shaxson 2007:213), it laid some groundwork for alliances which would eventually help the norm to advance. Crude Awakenings, as well as a Human Rights Watch (2001) report on Angolan oil, aligned itself with the ongoing IMF effort to push fiscal transparency in Angola. Also, neither report called for corporations to divest from Angola nor threatened them with consumer boycotts. Instead, they urged Western businesses to live up to their stated ethical commitments by disclosing financial information.

The new norm made other noteworthy appearances in 1998–2000. In 1999, Human Rights Watch issued a report on Nigeria, The Price of Oil: Corporate Responsibility and Human Rights Violations in Nigeria's Oil Producing Communities, which linked the oil industry with violations of political, social, and economic rights. This report further indicated a shift by NGOs toward seeing the oil industry operations as directly related to the wider issues of democracy, conflict, and social justice which characterize their mandates. This shift benefited from the thinking of Nigerian activists, especially Ken Saro-Wiwa who for years had publicly decried the oil industry as complicit in human rights violations and environmental devastation. As explained by a Human Rights Watch researcher, they increasingly began to see human rights as inseparable from how the government uses its oil revenues (personal interview, September 10, 2007).

Meanwhile, NGOs invoked revenue transparency in their campaigning around two major pipeline construction projects. In 1998, a consortium of Western oil companies led by ExxonMobil sought World Bank involvement in the construction of a pipeline from land-locked oil fields in Chad to the Cameroonian port of Kribi (Box 2). For the companies, the Bank's involvement offset the reputational risk posed by investing in a conflict-prone, undemocratic country through a project drawing high levels of NGO attention (Guyer 2002:112). The Bank came on board and designed a plan for how Chad should manage its forthcoming oil wealth. In addition to protections of the environment and local communities, the resulting legislation required transparent and development-focused revenue expenditures monitored by oversight bodies which included civil society, legislative, and international members. Once oil began to flow, however, the project proved vulnerable to political manipulation by the newly empowered Chadian government, and failed to meet the Bank's lofty expectations. Spending and oversight requirements were not met, but the project did usher in a new standard for both international intervention in oil-related fiscal affairs and revenue expenditure transparency (Pegg 2005:10; World Bank, 2007).

View this table:
Box 2.

Key Moments in the Transparency Norm's Emergence

January 1999Human Rights Watch publishes The Price of Oil report on Nigeria; Chad passes its Oil Revenue Management Law under World Bank pressure
November 1999Turkey, Georgia, and Azerbaijan sign the initial agreement on the construction of the BTC pipeline
December 1999Global Witness publishes Crude Awakening report on Angola
June 2000World Bank President Wolfensohn agrees to review the Bank's extractive industry practices in response to civil society pressure
February 2001BP releases amount of a signature bonus it paid the Angolan government The Angolan government responds with threats to expel BP from the country
July 2001Extractive Industry Review (EIR) of World Bank Group oil, gas, and mining activities is initiated; The WBG's own evaluation offices launch a parallel inquiry
June 2002George Soros and Global Witness found Publish What You Pay (PWYP) with more than 30 NGO members
September 2002Tony Blair announces EITI at the World Summit for Sustainable Development in Johannesburg
June 2003The G8 issues its “Fighting Corruption and Improving Transparency” declaration which prioritizes extractive industry transparency; Azerbaijan is the first country to sign on to EITI
June 2003In its first year, PWYP membership swells to 120 NGOs
November 2003Nigeria is the second country to commit to EITI
December 2003The World Bank endorses EITI
March 2004European Parliament approves an amendment to the “Transparency Obligations Directive” that calls for EU member states to promote disclosure of payments to governments by extractive companies listed on European stock exchanges
June 2004The United States endorses EITI at the G8 Summit at Sea Island
September 2004The World Bank Group announces its final Managers Response to the EIR which includes new transparency standards for the oil, gas, and mineral sector
March 2005More than 70 international investment institutions issue a statement in support of EITI and other efforts to boost EI transparency standards in developing countries
June 2005IMF publishes its comprehensive Guide on Resource Revenue Transparency
January 2006The Chadian government amends the revenue management law, causing the World Bank to suspend funding to the country. Although relations were briefly restored, the government repaid its loans and terminated its oil revenue management relations with the Bank in September 2008
June 2006The Open Society Institute creates the independent NGO, Revenue Watch Institute
August 2007PWYP membership reaches 305 NGO members in 56 countries
September 2007Norway commits to implementing EITI, the first developed country to do so
October 2007EITI announces that current member countries will have to complete a “validation process” in 2010 in order to retain their EITI status
November 2007The European Parliament calls for a new international accounting standard requiring oil, gas, and mining companies to report payments to governments on a country-by-country basis
April 2008The World Bank announces EITI++ which will promote transparency across “the entire breadth of the resource chain” (rather than just revenue inflows)
May, July 2008Extractive Industries Transparency Disclosure (EITD) Act, requiring companies to disclose payments made to host country governments to the Securities and Exchange Commission, was introduced in the US House and Senate respectively

In another case of pipeline advocacy, NGOs attracted attention to the 1999 signing of an intergovernmental agreement by Turkey, Georgia, and Azerbaijan on the construction of the Baku–Tbilisi–Ceyhan (BTC) pipeline. Transparency featured prominently in the significant civil society activity that followed. Crucially, NGO advocacy around the BTC pipeline targeted not only its IFI investors, but the countries which contribute funds to these institutions, particularly the United Kingdom. These bilateral and IFI actors were under pressure to help guard against the negative ramifications of pipeline construction and the resulting revenue inflows. To assuage these concerns, the Azerbaijani government established the State Oil Fund of the Azerbaijan Republic in 1999 and Kazakhstan followed suit in 2000 with the National Fund for the Republic of Kazakhstan. The governments claimed these mechanisms would ensure the transparent management of funds.

Through reports and advocacy campaigns, key NGOs credibly and visibly promoted the idea that oil revenue inflows and outflows should be publicly disclosed. In addition to the conceptualization and agenda-setting activities described above, another demonstration of their dexterity was the speed with which the coalition promoting the norm gained new members.

In 2001, leaders of Global Witness contacted George Soros, the billionaire financier and head of the foundation/NGO the Open Society Institute. Together they decided to mount a major campaign “to insist that oil, gas, and mining companies must publish net taxes, fees, royalties, and other payments as a condition for being listed on international stock exchanges and financial markets” (Publish What You Pay—PWYP, 2002). As its primary vehicle, they created an NGO alliance called PWYP in 2002. The 30 original members of the coalition—created with the explicit aim to advance extractive industry transparency—included well-established NGOs whose mandates center on dissimilar issues such as human rights, children, and the environment. Spurred by the persistent human suffering in resource-rich countries, these organizations also began calling for financial transparency from oil companies, a cause with ancillary links to their normal areas of focus. This represents an important counter-point to Carpenter's argument that successful norm emergence depends in part on its “institutional fit” with the existing agendas of leading NGOs (Carpenter 2007a, b).

Alongside its effort to mobilize international NGOs, PWYP, and its member organizations prioritized another vital trajectory of alliance building—the involvement of local civil society groups in resource-rich developing countries. International and domestic civil societies are mutually legitimating, and can apply an effective combination of internal and external pressure on non-compliant governments (Risse and Sikkink 1999:5). PWYP and its European and American members provide capacity building, access to information and cross-country networking support, and help to protect local activists from repressive governments. Conversely, local civil society legitimizes the campaign as “locally owned,” provides on-the-ground information, and tests the norm's practical applicability. Developing country NGOs now constitute the majority of PWYP's membership, which had rocketed to 305 organizations in 56 countries by August 2007.

Another crucial early ally was the UK government. The unique commitment shown by the United Kingdom both pre-dated and exceeded the actions taken by the other governments. This support stemmed from several sources. International NGOs enjoy unusual levels of prominence and access to government in the United Kingdom. Discussions on transparency began in 2001 between the NGO community and officials from the Department for International Development (DFID) and the Office of the Prime Minister. Oil sector transparency resonated with UK policymakers, and found support both within the political leadership and the civil service. Prime Minister Tony Blair, Secretary of the Exchequer Gordon Brown, and high-level DFID officials found that transparency served their need for actionable strategies to address governance challenges in the developing world and, specifically, in Africa. Moreover, transparency helped to counter the rising popular criticism of British investment in projects such as the BTC pipeline, a leading generator of correspondence during the period in question (personal email, former DFID official, February 20, 2008). The growing budget of DFID, the eventual institutional nexus of these efforts, provided resources to back pro-transparency activities, and several prominent civil servants became dedicated insider transparency advocates.

Reputation Management and Norm Promotion

Despite their large number and sophisticated tactics, civil society proponents could not push transparency into the mainstream oil industry acting alone. The recruitment of other actors, particularly IOCs and IFIs, proved crucial. Reputational concerns during periods of scrutiny brought these new actors to the table.

Reputations are defined as the impression others hold about an actor's preferences and abilities (Tomz 2007a:10). Existing research finds that concerns about reputation can motivate norm compliance. Finnemore and Sikkink (1998:906) argued that states will embrace norms if they are “insecure about their international status or reputation.” In their work on human rights compliance, Risse, Ropp, and Sikkink (1999) showed how reputation-driven behavior change can initially be instrumental, to access foreign investment, aid, or diplomatic power, but also contains important elements of socialization, particularly if norms are constitutive of a community valued by the state in question.

Scholars outside of the constructivist school also argue that reputation can motivate norm compliance. Guzman (2002) held that reputation explains compliance with international law, a point echoed in the work of Downs and Jones (2002) (see Burgstaller 2007, for a summary of this body of scholarship). Tomz's (2007a) work on sovereign debt repayment provided one of the more prominent rationalist arguments for reputation's ability to discourage rule breaking, while Simmons (2000) showed how reputation (particularly within geographic regions) motivates compliance with IMF Article IV commitments.

This study moves beyond compliance to ask, can reputational motives drive norm emergence? Oil sector transparency provides an exploratory case for testing this proposition. In several instances, it appears that key international actors back the emergence and institutionalization of the norm so as to provide a new mechanism by which to bolster their reputations. Norms are powerful mechanisms of “productive power” (Barnett and Duvall 2005) which actors wield to influence behaviors and define who is right and who is wrong. A new norm can thus be a valuable tool for improving your own image and that of others.

There is no foolproof method for proving that reputational concerns drove actors to support transparency's emergence. A number of oil company executives and IFI officials I interviewed explicitly stated that their support for transparency stemmed from their institution's reputational interests. Alongside these statements, the most convincing evidence available is that certain IOCs and IFIs, particularly those with high-profile public images, came under intense scrutiny for their developing country oil sector operations, and then abandoned their aversion and complacency toward transparency: scrutiny increased, reputations were threatened, and norm promotion ensued.

There exist different conceptions of why actors care about their reputations enough to protect them. Most rationalists argue that the prospect of future or multiple relations with other actors leads a state to care about their reputation (Tomz 2007a). Constructivists assume a broader conception based on identity construction and social status, in which reputations reflect the identities which states hold or aspire to hold (see Simmons 1998 and Lebovic and Voeten 2006 for more on this distinction). As noted by Lebovic and Voeten (2006:869), in empirical cases, the rational and constructivist dynamics would produce similar behaviors, making material and identity-based motives “difficult to disentangle.”

This difficulty extends to the case of oil sector transparency. International organizations, companies and states work to protect and improve their reputations for a range of motives, including perceived material and social pressures. Most of the literature on reputational issues deals with states, and finds their reputational agendas derive from diverse forces, from domestic political situations (Keohane 2003), including audience cost issues (Fearon 1994; Keohane 2003; Tomz 2007b; Weeks 2008), to varying international aspirations (Ramos and Falstrom 2004). Companies face different audiences including consumers, boards, shareholders, prospective and current employees, and government (such as regulatory, legal, and tax authorities). IFIs engage with their own boards, their “client” countries, the governments which provide their budgets, and, indirectly, the taxpayers of those governments as well. These multiple audiences create complex reputational dynamics. For instance, a company could perceive that bad press scares off consumers, attracts legal investigations, lowers employee morale, and threatens shareholder confidence.

An insight into the causal mechanism driving reputational concerns can be found in studying which companies and IFIs elected to speak favorably about transparency and facilitate its emergence. As scrutiny of developing country oil industries increased, not all actors were targeted equally. This suggests that certain actors are more susceptible to attacks on their public images. Bartley and Child (2007) explored how positive business traits (that is, favorable public image, openness, strong performance) can ironically make corporations more likely targets of activism as they are more vulnerable to “shaming.” The oil companies which backed transparency were large, public corporations (for example, Shell, ExxonMobil, British Petroleum [BP]) with brands ubiquitous throughout Europe and America. An NGO activist confirmed a similar dynamic for IFIs, saying that they target the World Bank because it is the most open and accessible of the IFIs (personal interview, September 14, 2007). For prominent actors, the impressions that constitute their reputation are wider and deeper than those of their less accessible peers; therefore, one could arge, their reputations require more diligent upkeep.

Heightened Scrutiny and Pro-Transparency Responses

Several factors increased the scrutiny of developing country oil sector operations: heightened NGO activism; the acceptance and high profile of the “resource curse” argument; corporate social responsibility (CSR), and oil company scandals in particular; and, an unprecedented inquiry into the World Bank Group's extractive industry operations. As the increase in NGO activities is detailed above, I explain here the remaining three.

The resource curse literature links commodity price booms with deleterious long-term economic and political effects in producer countries, particularly in those countries with weak state institutions (Sachs and Warner 1995; Karl 1997; Ross 1999; Auty 2001; Collier and Hoeffler 2005). This body of research has acquired significant legitimacy in policy circles thereby heightening concern for the developmental and security prospects of oil-producing countries. More recently, this area of research has shifted toward arguing that accountable public sector institutions and expedient policymaking can protect countries from the resource curse (Katz, Bartsch, Malothra, and Cuc 2004; Collier 2007; Humphreys, Sachs, and Stiglitz 2007). Driven by these two conclusions—the danger of oil price booms and the preventative power of good institutions—the international donor community and civil society are assuming a more urgent approach toward oil wealth in the developing world. Particularly for advocacy groups, this line of thought justifies linking oil sector operations with poverty, corruption, and conflict. Such arguments worry industry actors—principally corporations and investors—including IFIs, as they are increasingly portrayed as implicated in these problems.

Another development also heightened the scrutiny of IOC behavior. Driven by the growth of multinational corporate activity following the Cold War, CSR “moved rapidly into the mainstream of daily business discourse” (Jones, Pollitt, and Bek 2007:49). It now exerts strong behavioral pressure in the private sector, particularly on companies whose profitability relies on Western consumers. Within the burgeoning CSR movement, anti-corruption and transparency received early attention. Bribery is now illegal and punishable thanks to the more aggressive application of the US Foreign Corrupt Practices Act, the entry into force of a similar OECD code in 1999, and other country legislation. And, as mentioned earlier, the pro-transparency movement pressured Western companies to open up to their shareholders and the public.

The CSR spotlight has shone intensely on IOCs and their activities in developing countries (Ottoway 2001; Pegg 2003). Two glaring instances demonstrate these changing industry conditions; both were in Africa where disparities between oil wealth and local poverty are most striking. In 1995, the venally corrupt Sani Abacha regime ordered the execution of respected Nigerian activist Ken Saro-Wiwa and eight of his colleagues. Blame for the murders, other misdeeds by Nigerian security forces and a legacy of environmental degradation in the oil-rich Niger Delta fell partially at the doorstep of Royal Dutch Shell. Saro-Wiwa himself made the connection: “Shell is always there in the background even it if denies all participation. I believe, and not without reason, that the company's ready cash is always at play, goading officials to illegal, covert, and overt actions” (as quoted in Okonta and Douglas 2003:128). Journalists and international NGOs took up the cause, forcing Shell to mount a massive public relations campaign in response.

Meanwhile, a landmark investigation began in 1994 that would crack open the opaque, profitable, and intensely corrupt tripartite of the French government, the state-owned oil company Elf, and several African governments. The case uncovered webs of corruption through which oil profits and public money crisscrossed between France and Africa (largely Gabon and Congo-Brazzaville, but also Angola), funding political and personal agendas on both continents (see Shaxson 2007, for a full account). The investigation wrapped up in 2003 with high-level convictions of French and Elf officials, helping to advance a more privatized and less incestuous way of doing oil business in France. TotalFina (now Total), which subsumed Elf in 2000, has since worked to reinvent its image.

These and other high-profile cases created a public perception within the West of the oil industry as avaricious and exploitative. They also made it abundantly clear that misdeeds in faraway locations could damage a company's reputation at home. As a result, IOC risk mitigation and behavioral change have ensued. This point should not be overstated to say that oil-driven corruption, environmental damage and human rights violations no longer take place. Much of the change has been superficial as image-conscious companies “employ a sophisticated array of damage-control experts, scenario planners, lobbyists, and spin doctors to present the image of a caring, thoughtful, and socially responsible company to the outside world” (Okonta and Douglas 2003:44). The continued frequency of investigations against Western oil companies demonstrates both the ongoing violations of espoused CSR principles but also their continued meaning and enforcement.3

Saddled with CSR obligations and blame for resource curse effects, IOCs sought tools for reducing the reputational risks posed by their developing country operations. Engaging with the transparency movement suited their reputational agendas for several reasons. First, casting themselves as norm promoters boosted their images in high-risk environments at a relatively low cost—the disclosures required of them did not generally harm their business interests, and those that might were avoided by citing contract confidentiality. Second, greater transparency in some countries shielded IOCs from accusations of exploiting their government partners by revealing how industry relations actually worked (personal interview, US oil company executive in Nigeria, February 8, 2008). Third, because the norm was new and in need of allies, the IOCs could shape its evolution (as detailed in the next section), asserting their interests along the way.

Leading scholars of corporate citizenship observe, at the early stage of an ethical issue's life cycle, “visionary companies unilaterally take action” to attract goodwill (Jones et al. 2007:6). BP played this role with respect to oil sector transparency, and Shell also served as an early supporter. As with the involvement of the UK government, the higher profile enjoyed by the norm's British NGO advocates help to explain why these particular companies stepped forward (Soares de Oliveira 2007:276). In an early boon for the transparency movement, BP stated in 2001 that it would annually disclose financial information on its business in Angola including production data and payments made to the Angolan government and national oil company, Sonangol. As an initial step in this direction, it noted the amount of a 1999 signature bonus. “With disclosure of this data, BP set a new standard of fiscal transparency for oil companies in Angola” (Human Rights Watch, 2001). Incensed, the Angolan government promptly issued a letter via Sonangol, with copies sent to the other IOCs, threatening to terminate contracts with any company that makes such disclosures (Shaxson 2007:216).

Despite such responses, Western IOC rhetoric remains widely supportive of transparency, and the norm features prominently in all of their corporate citizenship materials. To describe them as norm allies would be overstating the case, as actual behavior change has yet to be observed in any systematic way. And commitment to the cause also varies across companies. BP, Statoil (the Norwegian national oil company), and Shell appear to have taken the most concrete steps toward facilitating norm emergence by cooperating with producer country disclosure demands and participating actively in relevant international forum and institutions. Their American and French counterparts appear more reluctant, but nonetheless show ample willingness to use transparency in their self-descriptions. Yet even this minimal support represents a break from the past when IOCs regularly ignored NGO criticism.

Escalating scrutiny also motivated the embrace of oil sector transparency by IFIs. International organizations, particularly high-profile institutions like the World Bank and IMF, play vital roles in validating and spreading norms. Barnett and Finnemore (1999:713) described them as “conveyor belts for the transmission of norms….Officials in IOs often insist that part of their mission is to spread, inculcate, and enforce global values and norms.” This norm in particular, with its highly fiscal character and focus on developing countries, falls smack in the middle of IFI territory. Their support, therefore, was vital to its survival.

The alliance building around oil sector transparency described above overlapped with events at World Bank related to its investment and provision of technical assistance in the extractive industries (that is, oil, gas, and mining). Bank President Wolfenson agreed in 2000 to conduct a participatory review of the World Bank activities in extractive industry sectors. This formed part of his effort to create a more open and “softer” Bank with less adversarial NGO relations (interview with Bank economist, September 26, 2007). Activists argued that extractive industry projects contradicted the Bank's development mandate in three ways: they failed to protect or benefit the local communities affected, inflicted environmental damage, and, funded corrupt and undemocratic governments. Bolstered by resource curse evidence, they called on the Bank to cease its extractive industry activities as they ran counter to its wider development and poverty reduction goals.

Transparency itself did not appear much in this discourse nor in the terms of reference for the subsequent review exercise, the independent Extractive Industries Review (EIR) which began in 2001. Simultaneous to the EIR, the World Bank Group conducted an internal review by its own evaluation units so as to, according to one Bank official, “be sure there was something more substantial and coherent done to accompany the stakeholder effort, something that looked at past projects in a coherent way” (personal interview, August 13, 2007). Like other recent review efforts, the EIR was by all accounts a drawn-out, contentious, and exhausting affair. Though its impact fell well short of civil society's expectations, it does mark a shift in how IFIs involve themselves in the extractive industries, both as investors and providers of technical assistance. Formerly, the Bank perceived extractive industry projects as ways to increase supplies of foreign exchange and capital which, from a macroeconomist perspective, developing countries sorely needed. The EIR led them to focus more on whether the project revenues actually advanced developmental aims (personal interview with another senior Bank official, August 20, 2007). In this new dispensation, with a skeptical civil society keeping watch, the Bank had to devise actionable steps toward tackling the three challenges mentioned above. Local community and environmental issues were thorny, but governance proved the hardest to address.

Within the EIR, the issue of “sequencing” lay at the heart of the extractive industry governance challenge. Put simply, it takes a lot longer to build accountable and effective governance systems than it does to build a pipeline or dig a new mine. Given that the Bank believes good governance protects against the resource curse (World Bank 2004:2), how can it support extractive industry projects before the necessary governance elements are in place? The sequencing debate was the most contentious part of the EIR process, and is also charged with the Chad–Cameroon pipeline project's failings (Pegg 2005:10). Both the EIR and the internal review argue in their final reports in favor of sequencing: “experience suggests that governance issues take a long time to address, and working to establish good governance in parallel with, or after, supporting increased investment in EI, is a high-risk strategy in countries with poor governance” (World Bank Group 2005:11). This recommendation provoked exhaustive debates and, at the end of it all, the Bank's leadership failed to take up this more progressive stance, stating that it would need to support EI work in some weak governance environments after weighing, case by case, the risks and benefits of such involvement (World Bank 2004:3).

After rejecting the EIR recommendations on sequencing, the Bank and its partner organizations needed to put forward an alternative strategy for how they would attend to governance risks in extractive industry projects. Like CSR for the oil corporations, the EIR ushered in a new era of scrutiny in which the Bank could not neglect this task without triggering outcry and negative press.4 Transparency, rising in prominence elsewhere, fit its needs. The promotion of transparency is the single most concrete governance strategy agreed to by the Bank in its EIR response: Transparency of revenue payments from EI to governments is an important step toward the greater accountability and informed debate that are essential for better governance. The WBG will be proactive in encouraging transparency of EI revenues in its client countries. In addition to ensuring that revenue inflows are transparently accounted for and disclosed, it is critical to ensure that they are appropriately used (Ibid:4).

This statement was issued in 2004. Prior to this point, there were instances of IFIs pushing transparency (as the IMF did in Angola) but not explicitly in relation to extractive industries. Since the EIR, however, such efforts have grown rapidly, including within IFI oil and gas divisions which had hitherto not dealt with governance issues. Their staffs now devote significant time to the norm's advancement through the provision of technical assistance and the promotion of transparency policy mechanisms. Crucial to realizing this shift was the increasing prioritization of transparency by members of the Bank's Board of Directors, who began to require transparency measures be built into any extractive industry project they approved. Other IFIs have followed suit, as evidenced by the 2005 IMF “Guide on Resource Revenue Fiscal Transparency” which advocates an extensive standard of disclosure, and endorsement of EI transparency initiatives by the Asian and African Development Banks and the European Bank of Reconstruction and Development.

Oil sector transparency offers several important benefits for the IFIs. Promoting transparency gave the World Bank a tangible strategy for addressing extractive industry governance concerns. It can be applied flexibly so as to avoid confrontations with client governments, and offers a valuable entry point for engaging such states which often do not rely on their loans or grants. Moreover, the World Bank would soon position itself as the primary provider of transparency technical assistance, creating work, attracting funds, and increasing its relevance in these country environments. Transparency also aligns with the Bank and IMF's current approaches to fiscal management (for example, the IMF's Reports on the Observance of Standards and Codes) and produces the very kind of economic data that IFIs like to use in all their projects and publications. These benefits led to more pro-transparency activity, but also to attitude shifts. In the words of one long-time oil and gas official at the Bank, “Transparency sounded like a really soft issue to begin with, but it's playing a big role and changing the way things work” (personal interview, August 28, 2007).

Battles Over the Onus of Disclosure

Oil sector transparency's advocates have impacted the course of norm definition and institutionalization through the pursuit of their distinct self-interests. The relative power of the IOCs, IFIs, and Western governments within the coalition of norm supporters led their preferences to win out, as manifested in the dominant institution which emerged to advance the norm.5 Oil sector transparency therefore provides an illustration of how normative and material rationales overlap in reputation-driven norm promotion. A number of scholars note that interest-driven, rationalist logics apply to identity and normative issues as well as material ones (Katzenstein 1996; Risse et al. 1999; Wendt 1999; Cortell and Davis 2000; Herrmann and Shannon 2001; Copeland 2006). For instance, Herrmann and Shannon (2001:625) observed that “[a]ction may be affected by many considerations including both moral concerns emanating from established prescriptive norms and material desires for wealth and strategic advantage.”

As norm conceptualization and alliance building progressed, two approaches to oil sector transparency began to diverge. The disagreement arose regarding revenue inflows, the issue at the center of the transparency movement. Revenue inflow disclosures reveal how much money is paid by oil companies to the governments of oil-producing states. There are two clear parties to this transaction—oil companies and host governments—and a battle ensued over two fundamental questions: Who carries the onus of disclosure? And, should disclosure be voluntary?

The PWYP coalition and its member NGOs primarily targeted North American and European IOCs and their home governments. They called for full corporate disclosure of payments made to developing country governments, and that such disclosure be made mandatory by home country legislation (personal interview with PWYP representative, September 11, 2007). This was the cause around which the PWYP coalition emerged, and has remained a dominant focus of transnational civil society activities on oil sector transparency.

As illustrated by the Angola episode, this approach garnered some early corporate cooperation from BP and Shell. But as oil prices shot up in 2003–2005 and competition heightened, these allies began to shy away (personal interviews with NGO leader, August 21, 2007; and World Bank official, August 13, 2007). BP and Shell retreated to the line taken all along by ExxonMobil, Total, and others: transparency is a commendable aim but it must respect contract confidentiality, be country not company driven, and apply equally to all companies active in a given country. As summarized in a statement by a major industry coalition, the International Association of Oil and Gas Producers: transparency should allow for protection of proprietary information and be within the laws of host countries as well as contractual obligations….The sovereign right of host governments to limit or prohibit disclosure of financial information is recognized, as is the obligation by companies to comply with any such restrictions. Gaining the consent of host countries to greater disclosure of financial information is a process we support….A consistent approach to disclosure is necessary to avoid a situation where some, but not all, companies in a particular country might suffer an unfair competitive disadvantage (OGP, n.d.).

International oil companies supported the transparency agenda because of the reputational risks that accompany work in poor governance environments. However, rising oil prices led material interests—specifically the need to secure contracts and maintain good relations with host governments—to trump reputational concerns. Non-Western companies, especially the cash-flush Chinese, were not pushing transparency and other good governance measures on host governments. Due to these industry dynamics, PWYP and its push for mandatory revenue disclosures began to constitute a threat to Western IOC commercial interests as it might endanger working relations with producer nations. Correspondingly, efforts to make disclosures mandatory through legislation faced increasing resistance from home countries governments, particularly the United States.

As described above, DFID and other parts of the UK government strongly supported oil sector transparency. They also recognized the difficult terrain facing the ambitious PWYP approach, finding it unlikely to succeed. In 2002, civil servants within DFID worked to devise an alternative approach, a concrete mechanism for advancing transparency that would be acceptable to host countries, NGOs, donors, and IOCs. Prime Minister Blair announced the resulting compromise at the September 2002 Johannesburg World Summit for Sustainable Development: the Extractive Industries Transparency Initiative (EITI).

Extractive Industries Transparency Initiative would become the primary institutional vehicle for the promotion of oil sector transparency as an international norm. Its basic premise was as follows: “EITI supports improved governance in resource-rich countries through the verification and full publication of company payments and government revenues from oil, gas, and mining.…EITI is a coalition of governments, companies, civil society groups, investors, and international organizations.…Implementation itself, however, is the responsibility of individual countries [emphasis added]” (EITI 2004). In contrast to the PWYP agenda, EITI placed the onus of disclosure squarely on the host government, and favored voluntary compliance over any kind of international enforcement.

The EITI grew in strength and prominence, thanks to its UK/DFID backing and “middle-way” appeal. Host country governments became the focus of oil sector transparency activity rather than the more company-oriented PWYP agenda. In a piece on the nonproliferation norm, Rebecca Johnson notices “[i]n what can look like a good cop-bad cop routine, the grassroots and public movement campaigns target their messages and raise expectations; the resulting demands and pressure make the political decision makers insecure, which encourages them to turn to the incrementalists for ‘reasonable’ solutions and reassurance” (as quoted in Price 2003:586). This dynamic can be observed here as well. All the major Western oil companies quickly signed up as EITI “supporters,” a status which requires little action on their part yet provides an attractive label which they use widely.

Western governments and IFIs also leapt aboard, demonstrated by its frequent mention in G8 speeches and IFI publications. In 2004, the EITI Multi-Donor Trust Fund was created. In the wake of the EIR, the World Bank became an EITI advocate and agreed to manage the Fund as well as lead the provision of technical assistance to countries interested in implementing the initiative. DFID was the Fund's initial sponsor; Germany, the Netherlands, and Norway joined in 2005, France in 2006, Australia, Belgium, and Canada in 2007, and Spain in 2008. The United States has remained more ambivalent but did publicly endorse EITI at the 2004 G8 meetings. Interviewees suggested that American IOCs saw EITI as a more favorable direction for the oil sector transparency's evolution, as opposed to PWYP, and lobbied for the US government to support it. For governments, IFIs, and IOCs, EITI provided a low-cost way for them to back transparency and improve their reputations, without threatening their commercial and political interests.

The Extractive Industries Transparency Initiative has modest aims, a fact not unrelated to the large number and enthusiasm of its supporters. Compliance hinges on two components: revenue receipt disclosure and the creation of a multi-stakeholder body to oversee implementation. Oil production involves a long and complex series of stages: bidding rounds to allocate exploration and production rights, contracts to regulate how companies and governments divide revenues, the marketing and sale of the oil on international markets, government decisions regarding revenue management, and the eventual expenditure of these revenues. EITI seeks disclosure at a single link in this chain: the transfer of funds from oil companies to host governments. What's more, EITI lacks specification about how these disclosures should be made. Governments can publish data as aggregate figures, or disaggregated by company and/or by payment type. For instance, fully disaggregated disclosure would list the amount of each signature bonus, royalty, tax, and in-kind payment received by a government from each and every company in a given fiscal year. The same information aggregated could be provided in a single global figure.

The second component—the multi-stakeholder committee to monitor EITI implementation—proves more politically challenging in some country contexts. It requires and therefore legitimizes civil society involvement in monitoring government fiscal affairs. In countries where civil society represents a threat or irritant to government, the EITI process acquires meaning beyond the issue of transparency. As observed in other cases (Thomson as quoted in Price 2003:594), “[t]he processes themselves, and not simply the resultant norm, are socially consequential in that they construct particular kinds of state-citizen relations.” In Azerbaijan, for instance, the unprecedented interaction between government and civil society through EITI is perhaps more groundbreaking than the actual financial disclosures (interview with former EITI official, August 22, 2007).

The Extractive Industries Transparency Initiative's voluntary nature and low compliance standards facilitate its “big tent” approach. Country implementation during its first 5 years depended on the will of governments, and varied from negligible (for example, Equatorial Guinea) to exceeding the suggested criteria (for example, Nigeria). While these uncritical standards drew the ire of NGO activists, they likely helped the norm's emergence by permitting a higher number of countries to participate, thereby introducing the transparency discourse more widely. Similarly, EITI retained donor and corporate support when, with higher oil prices, they could have walked away. These two points are related: for image-conscious actors like the IOCs and IFIs, the countries with the worst governance environments pose the greatest reputational risks. A number of such countries were EITI “participants,” but not implementers. In these settings, EITI provided a handle of respectability which Western IOCs, governments, and IFIs could hold onto.

The greatest dilemma facing EITI is how to be meaningful while retaining as many country participants as possible. Lax compliance standards risk diluting the norm's meaning, yet enforcement might alienate international allies or participant countries. This dilemma reflects a risk common to international norms which is that they become “a façade behind which business and corruption go on as usual” (personal interview, World Bank lead official for EITI, August 9, 2007). In 2007, EITI appointed an International Advisory Group which recommended that the initiative grow some teeth: a “validation process” will measure country implementation against a common standard, and EITI status will be revoked for inadequate progress (EITI 2006). Validation will provoke controversy. Most NGOs have lobbied for its strict application, while some local groups among others fear that, in the most difficult country environments, its enforcement will result in the loss of the only tool available to influence oil sector governance (personal interviews with oil sector expert, September 9, 2007; and a leading activist from such a country, September 18, 2007).

Whether EITI can walk the line between requiring meaningful compliance and retaining members remains to be seen. Despite these challenges, the country-driven EITI approach seems likely to continue dominating the norm's institutional advancement. In April 2008, the World Bank introduced EITI++ which will promote transparency at all stages of extractive industry revenue flows—a significant expansion in scope, but one that still rests wholly on developing country implementation.

Obstacles to the Norm's Spread and Impact

The idea of oil sector transparency has advanced through EITI as well as other avenues, finding a prominent place in industry discourse. At the international level, EITI boasts an array of donors, a new secretariat, and its first developed country member, Norway. The early institutionalization of EITI benefited from the credible and substantive implementation processes by two key producers in each of the focus regions, Azerbaijan and Nigeria, which helped to define the meaning of compliance. Other producer countries have followed suit with the creation of multi-stakeholder committees, civil society networks, and, in fewer cases, legislation related to oil sector transparency.

International NGOs continue working to ensure that the norm does not recede to signify only the modest level of transparency advocated by EITI. They push for transparency of bidding rounds, contracts, and expenditures, as well as other oil-related governance improvements. Civil society coalitions continue to expand, including in the United States where influential American think tanks have published reports and held events on how oil sector transparency relates to US security interests (CSIS 2004; WWIC 2007). In 2006, the Open Society Institute founded an NGO devoted solely to resource revenue issues, and the resulting Revenue Watch Institute has been influential in its early activities which include oil revenue transparency work in Iraq. Transnational civil society has issued a number of reports that “constructively critique” EITI (Save the Children and Global Witness 2005; Publish What You Pay and Revenue Watch Institute 2006), and they continue to push for home country legislation. PWYP pressure was instrumental to the 2008 introduction of the Extractive Industries Transparency Disclosure Act in the US House and Senate, and a call from the European Parliament for a new international accounting standard that incorporates payment disclosures. Critical reports on oil companies and host governments continue as well, with transparency remaining a core recommendation.

Institutional advances have also occurred outside the EITI framework. These include oil revenue legislation and the monitoring bodies in Chad (institutional innovations despite their poor implementation record) and the passage of a far-reaching revenue management law in São Tomé and Príncipe.6 In 2005, the Western financial investment community came onboard with a pro-transparency statement signed by 70 industry leaders. Transparency remains a prominent issue in the BTC pipeline operations (IFC 2007). Moreover, several countries including Nigeria, Angola, and Libya have conducted their first open oil block bidding rounds, reflecting the rise of a new international best practice. In addition to these signs, the ubiquity of transparency in statements related to developing country oil issues indicates its full integration into the relevant discourse.

Despite this progress in norm emergence, doubts are expressed about the eventual impact of oil sector transparency. Will it actually increase the public benefit derived from oil? While the norm has been broadly embraced, such reservations seem prevalent. A leading NGO activist told me, “I worry that civil society is getting over-focused on transparency. I think some over-estimate its ability to bring about accountability” (personal interview, August 21, 2007); another commented, “It's like a bathtub with five holes in it and you're making one of them slightly smaller” (personal interview, September 11, 2007); and, a senior IFI official remarked, “Let's not be naïve about [EITI's] impact. It's a nice initiative, but one should not exaggerate its importance as a policy tool” (personal interview, September 11, 2007). Convincingly, some argue that transparency only matters as part of a larger governance reform effort; it alone cannot reverse negative rentier state tendencies. It is difficult to envision today's oil sector transparency movement triggering such a wider reform effort; even modest EITI has struggled to change behaviors in more than a handful of countries and failed to secure commitments from some initially interested parties (for example, Angola, Bolivia, Trinidad, and Tobago). But in fairness, transparency remains a young norm whose eventual impact will unfold in the years to come.

The two greatest challenges facing the spread of norm compliance both relate to the reputational concerns credited with driving the emergence process. First, the usefulness of the new norm varies widely across industry actors. Oil sector transparency rose to prominence only within “the West,” an amorphous community which shares certain norms. Western NGOs leveraged their ability to attract publicity in the North American and European countries that fund IFI budgets and buy IOC products. Moreover, good governance and transparency became priorities within the Western-dominated donor community.

Despite soliloquies from its advocates, the norm of oil sector transparency has held little sway over “non-Western” actors in the oil sector such as Chinese and Russian national oil companies. To access natural resources, non-Western companies and China in particular are offering developing country governments’ massive loans, infrastructure investments, arms deals, and other perks (Pan 2007). They also leave governance issues such as transparency outside the negotiating room in order to gain a competitive advantage, but also because they lack interest in shedding light on their own business practices.7 Non-Western actors in the oil sector lack the kind of reputational pressures that led the oil sector transparency movement to gain steam. They face no scrutiny equivalent to that which motivated Western IOC appeasement with the transparency movement.8 Constructivists argue that shared norms have the power to impact the behavior of community members. Following this logic, one could conclude that non-Western oil companies do not participate in the oil sector transparency movement because they are not members of the community from which it emerged.

The norm's meaning varied within the West as well. As mentioned earlier, companies and IFIs with high public profiles and an existing degree of transparency appeared the most vulnerable to scrutiny around their developing country oil sector operations. It was the largest oil companies which adopted transparency rhetoric; they all are publicly owned, have ubiquitous consumer brands (from selling gasoline, not producing oil), and highly flouted CSR profiles. In contrast, the behavior of less prominent Western companies suggests a freedom from reputational concerns. In a telling example of these differences, the Canadian company Talisman Energy (which does not sell product to consumers) kept operating in Sudan for years after most Western companies left, seemingly unmoved by the widespread criticism. When it finally caved in, India's national oil company bought the business (BBC 2003).

For Western-based companies with high public profiles, transparency was grasped as a tool to mitigate reputational risk—when asked what they were doing to help poor countries avoid the resource curse, these actors could hold up the newly minted norm to diffuse criticism and defend their oil sector involvement. For industry actors with different audience profiles, norm promotion was a less essential behavior.

The second risk is the following: Reputational concerns brought to the table several international actors whose self-interests do not favor the assertive application of the new norm. Periods of heightened scrutiny led key actors to visibly promote transparency and facilitate its institutionalization. However, the nature of their support also reflected their other self-interests. For instance, IOC involvement in the transparency movement sought to shift the onus of disclosure from themselves to producer countries. For the World Bank, the relatively toothless EITI served their interest in maintaining congenial working relations with developing country host governments. While IOC and IFI support helped to instigate norm emergence, their interests may thwart the spread and enforcement of norm compliance. The case of oil sector transparency, therefore, provides a useful illustration of how reputational concerns can drive norm emergence, resulting in a new idea gaining traction in an inhospitable terrain. However, whether these motives can lead a norm to evolve into a meaningful catalyst for behavior change remains to be seen.

Footnotes

  • Author's notes: The author would like to thank Devon Curtis, Sefton Darby, Mette Eilstrup Sangiovanni, Johanna Jonsdottir, Ricardo Soares de Oliveira, Geraldo Zahran, and the anonymous referees for providing extremely helpful comments. An earlier version of this paper was presented at the World Bank PhD Workshop, held at the Annual Bank Conference for Development Economics in Cape Town in May 2008.

  • 1 Many of the events described in this study actually relate to a wider range of extractive industries: oil, gas, and mining. I have chosen to focus on the oil industry in particular, as it has its own peculiarities and a distinct cast of actors, but much of what is described here can apply to gas and mining operations as well.

  • 2 While oil sector transparency grafts onto the wider transparency movement, I hold that it represents its own distinctive norm. It emerges from and applies to a discrete, delineated community. Moreover, its emergence has prompted its own set of advocates, institutions, and rules. As such, I argue, the norm's relationship with the wider transparency movement is better described as grafting than as diffusion.

  • 3 Recent examples include charges against Total's CEO for bribery in Iran (New York Times, 2007), allegations of bribes paid by Chevron and Shell to corrupt Nigerian officials (Financial Times, 2007).

  • 4 In general, the World Bank is a highly image-conscious actor. Vetting for reputational risk is built into the approval process for all projects and policies. This caution stems from its reliance on member-country donations, the need to attain approval from its Board for all major activities, and the prioritization of maintaining good working relations with its client states.

  • 5 Another illustration is the lack of progress in promoting transparency in oil company security arrangements, another cause promoted by some NGOs. This agenda posed greater legal risks for the oil companies, and lacked relevance for the IFIs with economic rather than security-oriented mandates.

  • 6 Working with a Columbia University advisory team, the São Tomé government conducted an extensive consultative process to gauge public opinion on how prospective oil revenues should be spent. The legislation passed in 2004 requires revenue transparency at the inflow, management, and expenditure stages, setting a new standard for such disclosure (Bell, Faria, Humphreys, Rosenblum, and Sandbu 2004). Implementation is off to a rocky start due to two controversial bidding rounds for acreage controlled jointly by São Tomé and Nigeria, but the law has yet to be truly tested as oil revenues have not begun flowing at the level originally hoped.

  • 7 Even though Asian companies still control only a small share of oil production, this non-participation in transparency has a disproportionately wide impact. The “China factor” is used by Western corporations to defend their own halting implementation of transparency principles as a necessary part of remaining competitive.

  • 8 This situation could change with time. Growing Chinese interest listing Chinese state-owned companies on international stock exchanges, public opinion dynamics, and some anti-Chinese sentiments in developing countries (see recent events in the Niger Delta and in Zambia) may change how such actors approach Western-derived norms.

References

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