Applied Energy Services (AES) is an American energy production company with interests in many countries across America, Europe, and Asia. Roger Sant and Dennis Bakke, Jr. founded AES in 1981 using $1million venture capital funding as Applied Services Inc. The issue of ethical dilemma dominates this company despite efforts to realize its vision of social responsibility (Paine, 2000, p.13).
By 1993, its profile had risen so high that Equities Magazine ranked it as the second fastest growing company on NASDAQ with net revenue of $519 million, net income of $71 million and a market capitalisation of $1.3 billion. AES has its values based on integrity, fairness, fun and social responsibility.
Bakke and Sant had a goal of coming up with a company that would produce clean and cheap energy, a company that is honest with production of safe energy, and one that would treat people fairly. To this end, they had to come up with ethical standards that would adhere to their goals with the belief that, if the company catered for the needs and welfare of society, its good deeds (ethics) would lead to profits.
Both Bakke and Sant had worked at the Federal Energy Administration and thus had a vast knowledge when it came to energy matters. Their ethical values were inspired by their Christian faith, and because the values they decided to apply were consistent with values of other faiths like Buddhism and Islam, all of which had the advantage of universal acceptability.
AES’ concern for the well-being of the environment and the communities it serves influenced its decisions: it has come up with corporate responsibility programs that guide it in its activities. It has a business culture that is dynamic, as well as consistent, across its operations globally.
In its pursuit to be a global power producer with plants across the five continents of the world, AES has faced a couple of challenges due to its policy of achieving organisational integrity through social responsibility. It is a firm believer in clean energy as its ethical standard for energy production as well as application of its standards evenly across the globe such as welfare of society. However, AES has found itself in a complicated situation brought about by varying standards found in the countries it invests in.
Whereas the U.S environmental standards are very high in terms of pollution limitation, the standards in the Asian countries and African countries are low, nonexistent, or generally not applied. Therefore, AES had to grapple with the ethical dilemma of sticking to its standards or on making use of the new opportunities to produce energy cheaply but with negative environmental impact.
This would mean a deviation from AES’ ethical standards on one hand, but it would offer it an opportunity to provide the community with much needed social service. AES commitment to social responsibility is driven by its desire to do good to society with the belief that it will lead to profits automatically, which is in accordance with Welch’s words, “If you want to win, when it comes to strategy, ponder less and do more” (2005, p. 166).
This has been achieved through its organisational structure that is highly decentralised having minimum bureaucracy. With such a structure, the managers on the ground have a free hand in coming up with corporate social responsibility measures that are relevant and fitting with the societal needs on the ground. In Guatemala, other than planting trees as a way of controlling carbon emissions, AES committed $1.5 million to build an elementary school for the community that lived around its shady point energy plant.
This was because the community in Guatemala needed a school more than carbon controlling. Though there was still a debate about the validity of global warming theory, AES did not want to take chances with its integrity and reputation with regard to environmental management.
Therefore, it went ahead and started a $7 million carbon dioxide offset program that would enable in the controlling of carbon emissions and arrest global warming. This was done through such programs as agro-forestry, forest preservation as well as sustainable use of natural resources.
When the company came up with an expensive idea of reforestation in Guatemala, investors in AES became worried at this non-profit project: an investment should only target profit; other things follow later. The company with the support of Sant stood steadfast in this mission, not as a public relations move, but as a commitment to its four corporate values of “fairness, integrity, fun, and social responsibility” (Welch, 2005, p.14).
This in the end earned it accolades and international recognition, which spurred its growth globally (Trent, 1998, p.15). AES had to apply strict safety conditions to its workers in India as per the laid down conditions in the U.S. In India, women would go to work in their flowing saris, which were normal for them but not ethical in an industrial setting. They would also be wearing flip-flops instead of closed shoes and industrial boots for work.
This is because, in India, the contractor was not obligated to provide such basic equipment for his/her workers though it was within the laws on safety standards for industrial work place. AES observed that, as part of its responsibility, it would not allow a lapse in its policy in terms of safety standards at the work places.
Thus, as its social responsibility to its workers, it would provide all the necessary equipment for work besides ensuring a safe working environment for its employees. This would be in conformity with its values, as well as its pursuit of organisational integrity.
In India, AES faced the problem of cultural relativism in its pursuit to conclude contracts or any form of agreements (Donaldson, 1996, p.49). The Indian culture encourages the exchange of gifts between business partners. It was expected that AES does the same while negotiating contracts with government officials, as well as local leaders.
In the U.S, this would amount to bribery, which in essence is not morally right within the Indian setting. Giving a bribe or a present to get into a form of partnership was not unethical but as a show of goodwill. Welch (2005) says, “Nothing will get you a new job faster than terrific performance in your old one” (p. 271). Therefore, AES had to live with this fact as long as it wanted to do business in India though it would hurt its organisational integrity.
When it comes to environmental standards to be applied in its coal plant project in India, AES should use lower standards at least to take care of people who are far important in relation to the environment. It would make more sense to protect the people on matters that affect their immediate day-to-day lives than protecting an environmental issue that is still subject to debate. The standard PC’s are cheap pennywise because they require less technology and expertise to implement and maintain over a long period.
Therefore, their use will enable AES to make its profits and at the same time spare enough funds to invest in projects that will uplift the community over a long period. Such projects when implemented are sustainable in such a way that only the foundation is crucial, as the community will proceed to propel itself onwards without much more input from AES (Nash, 1981, p.85).
The investment in India was one of AES long-term projects that would be so lucrative in the end. India was a new market that was just opening to the world and with numerous opportunities for investment, especially in the energy sector. The Ib Valley Thermal station was to be based in the Eastern Part of India In the state of Orissa. The energy available then in the state of Orissa was 727Mw against a consumption need of 1272Mw, which would be projected to about 6000Mw by the year 2000.
The state had a coal deposit of 26% of all the coal found in India, with the Lakhanpur mines set aside for the project with 726million tonnes of coal deposit. The minefield was merely 12 kilometres away from where the plant was to be erected. The viability of the project was not in question because all factors favoured the setting up of the project. The state of Orissa had a population of about 31.5 million people with a literacy level of just 48%, which was also an average for the whole country.
At the same time, 45% of the people of Orissa could not afford the minimum nutritional needs for themselves and their families due to income constrains. The infant mortality rate was high at 80 children per 1000 born, and the life expectancy at 58 years old.
There was a big problem in terms of sanitation, pollution and other social needs, which are core human values. In his trip to India to sign the MOU, Bakke noted the disparities between the USA and India in such terms that he realised that they were spending a lot of money on environment protection.
This was a narrow sense of view in that people in other places were dying because of lack of basic human needs such as clean water, basic nutrition, and sanitation. Therefore, Bakke and Sant decided to decentralise decision making on how the company would meet its social responsibility by empowering the management team on the ground to come up with efforts that are relevant to the situations on the ground. These should be consistent as possible with the company’s values of social responsibility (Dubink, 2004, p.35).
I would answer yes to Roger Niall’s question of whether there exist cases when terminating a project for the sake of social responsibility is the only option. When a project is not up to standards with the requirements of social responsibility, it should be cancelled because the ramifications of such a project taking off and then failing in the end due to social responsibility issues can be very harsh to the existence of the company.
A good example is the disaster that happened at the Union Carbide in Bhopal, India. The disaster happened due to negligence on the part of management and the workers at the factory who disregarded warnings of the impending disaster and its effects to the community around. There were no safety measures in place, and to make it worse, the plant was located in a highly populated area.
This was a pure disregard for the well-being of the population around it in case of a disaster happening to call for a nuclear plant situation as it was witnessed in Japan. In the end, it led to over 8000 direct deaths, as well as an environmental disaster that has its ramifications up to date. Though it happened back in 1984, the company itself, as well as its executives, have had to face legal challenges, which have led to convictions and huge penalties for the company, its former board members, and its executives.
Therefore, social responsibility is simply meant to secure the interests of the people and largely the image of the company. Very few people would want to associate with a company that is on the negative side of the expected social responsibility. Therefore, many companies build their brand names in a society by going a long way to conform to the expectations of society.
On the other hand, when a company’s name is soiled in one way or the other, the company may be forced to rebrand to resell itself as a very new entity for its own survival. AES’ policy of social responsibility is a very strong foundation for it to drive its goals for it will always endear it to the market it wishes to do business in, as the people constitute the market and thus worth taking care.
Reference List
Donaldson, T. (1996). World View. Harvard Business Review, 1(1), 48-62.
Dubink, W. (2004). Implications of corporate social responsibility. Business Ethics Quarterly, 14(1), pp. 23-46.
Nash, L. (1981). Ethics without the Sermon. Harvard Business Review, 1(1), 78-90.
Paine, L. (2000). AES Global Values. Harvard Business School, 1(1), 1-21.
Trent, M. (1998). Environment sustainability. Journal of forestry research, 7(1), 12-15.
Welch, J. (2005). Winning. London: Routledge.