The oil and gas general counsel role and shared value transformation in Sub-Saharan Africa

Nelia Daniel Dias

Baker Hughes, Luanda

nelia.daniel.dias@sapo.pt

Introduction

In mid-2015 a local business leader said: ‘You would like to invite a foreign company for lunch. But that doesn’t necessarily mean that they will stay for dinner’.The local content strategy in Oil and Gas is critical in Sub-Saharan Africa (SSA). Globally its importance seems not to be receiving the same attention. This article is focused on private companies in Angola and SSA region[1],[2] and assesses the links between global business corporate strategy and local content (LC) strategy, requirements and localisation in SSA.

The old concept of joint venture (JV) has become obsolete. There is space for new JVs or other models incorporated with the share value-added concept.

New procedures emerged to create and maintain a new partnership emphasising the legal role in the business strategy in a specific case. Is it correct to call LC in current markets or does that designation induce interpretation errors? This query is relevant when considering if LC is an aim of the government, or whether in SSA it should be perceived instead as a common goal, along with companies that decide to approach these markets, for different reasons.

The wider context

This article does not provide a single solution for the main question. But will scrutinise how alternative strategy methods should be considered. Also, it will highlight complications upon which the top management attention should be focused.

Wider context means to recognise what is now perceived as a JV successful business strategy that general counsel will be measured on, according to some Oil and Gas service providers in Angola[3] and SSA. Overall, a successful strategy implies that companies are taking the right business decisions, making their profit, developing local communities where they operate (including suppliers and workforce) with integrity, compliantly and in a sustainable way.

Currently, some authors consider that using JVs as a strategy is not a prevalent approach. There are studies and articles that include the causes that lead JVs to fail. See NANI & TETTEH (2015, p. 63). Others have an opposite understanding, for example LEROI & LEUNG (2017). Vantages and advantages are acknowledged (BAH & FUQIANG, 2011, p. 644-645).

 ‘Why’, ‘how’, ‘where’ and the global business strategy

Creating and maintaining an SSA-successful global corporate strategy implies the need to respond to questions like‘why’, ‘how’, ‘where’ and assess and mitigate risks and understand the full value of what this entails. This is where a CAGE analysis calls for the adaptation strategy in countries like the SSA region including cultural, historical, political, regional and local. The awareness of the ‘nation institutional context’,[4] as reiterated by KHAMA, PALEPU & SINHA (2005, p. 1), is critical.

In 2023, the close relationship between the economy and politics is not stationary either, and the benefits of the two need to be constantly evaluated.

The integrated market and non-market strategies

It is essential to perform an integrated market strategy where the five market forces as designed by PORTER (2008, p. 2-10) come to play in the Oil and Gas industry.

In addition, businesses need to assess the non-markets approach or the famous ‘four Is’ mentioned by BARON (BACH, 2010), which are the main issues that will affect company profitability: the interests that drive the other key players, including the public opinion; the impact on Non-Governmental Organisations (NGOs) including environmental groups, workers and unions; the institutions (eg, regulators and local government) and their part in the deal, as well as the relevant business people, decision makers, including advisors, influencers, ambassadors and consumers; and, finally, the crucial information to know that will impact the market to a company’s favour.

The corporate diplomacy

Politics has re-gained some leverage in economics worldwide. Chief Executive Officers (CEOs) need to be more cognisant and exercise corporate diplomacy. They should consider sharing general counsel and legal teams’ clear ideas to impact the business surroundings including negotiations, coalition building and public relations, as WATKINS (2013) remembers.

The ADDING Value Scorecard, CAGE and the AAA strategies triangle

SSA is an auspicious market that can capitalise on fast growth opportunity and market share. This circumstance will touch each of the six components of cross-border profits acknowledged by GHEMAWAT (2007, p. 4-32) in the ADDING Value Scorecard regarding ‘how’ to go global.[5] CAGE (GHEMAWAT, 2007, p. 25) is a tool that must be considered to ‘adapt business models tuned to advance markets to compete effectively in emerging markets will require massive efforts’. Using the AAA strategies triangle to answer the ‘why’ query above, in SSA, ‘inquiry’ is if the adaptation strategy that intends to help foreign investors to adjust the differences across the country’s borders is sufficient. ‘Determination’ is to utilise the differences that remoteness creates from global strategy to create a new ‘localisation story’ in SSA. The positives are the aggregation strategies that allow grouping the companies by region and the arbitrage that suggests seeing these variances as factual opportunities (eg, a cost reduction with local workforce opportunity).

Scenario planning

Since markets and relationships change, it is advisable to anticipate using scenario planning tools to assess potential vicissitudes to accommodate a new oil and gas international and local market environment.

JVs and local partnerships as a risk

JVs and local partnerships have been identified as a risk from both the reputational and political side. When going to SSA, besides those risks, there might be others to consider like repatriation of funds, foreign exchange exposure, enforceability of agreements, legal authorisations and permits to operate, among others.

The transformation of the GC role

The GC role is increasing in terms of relevance to the business strategy. EVANS (2016), LINDHOLM (2016) and NYSE Governance Survey Report (NYSE Report) (2016) show that ‘Nighty-Seven percent of the respondents expect GC to be part of the executive management team by the year of 2020’. These are ambitious figures for Angola and SSA, where the traditional CEO style is dependent on the ‘African leadership’ (BOLDEN & KIRK). But, the fact is that in SSA we observed the gradual increased status of the GC and legal teams exercised by some more collaborative and soft skill-oriented CEOs.

Others still consider legal teams as the ‘supporting functions’ in SSA. It will depend firstly on the leadership style (hard or soft) and secondly on the way the CEO sees the GC, for example as an advisor or strategic partner (BAGLEY & ROELLIG, 2016, p. 6).

Most opinions show that the[6] GC role in corporate strategy is evolving[7] to business advisor, as EVANS (2016) argues since ‘Historically “legal” may have been thought of as a technical function limited to a transaction execution or legal compliance’. This includes day-to-day strict legal issues and advice, claims management, disputes and litigation.

From that point it progressed to risk management and now to corporate strategy. LINDHOLM (2016) studied the European GC challenges. He highlighted the global economic stress (51.9 per cent) and the issues with expansion into new territories (35.7 per cent).

SAKO (2016) said: ‘The role has been changing and this is a slow change over decades accelerated by the financial crisis. They are expected to be much more than mere legal advisors but also to be closer to the CEO’. 

Other reasons for this modification is the ‘importance of the rapidly changing legal and regulatory environment to a company’s ability to define and achieve strategic objectives and importance of M&A and financing activities to many company’s objectives’ (EVANS, 2016). GROYSBERG & CONNOLLY (2015) state that ‘operating in a global marketplace, and regulation and legislation’ are two serious issues CEOs face. 

Companies that operate in emerging markets said that overlapping and potentially inconsistent regulatory regimes can obscure a company’s regulatory obligations (EVANS, 2016).
As SAKO (2016) references ‘ many more companies are getting international making more difficult to enter emerging markets. Lastly the expectation of the CEO and the Board of Directors for the General Counsels is to contribute to strategic decisions that goes beyond legal advice’. The same tendency is confirmed by Novak Druce Centre (2011, p. 8) ‘general counsel tread a fine line between being lawyers and business executives’ or LATAILLE & KILBY (2008). So, in business strategy the GC has a role to create and capture value, as referred by BAGLEY & ROELLIG (2016).

Legal and compliance

The promotion of ethical corporate behaviour and compliance assurance with laws, isolated or shared with the compliance team, are critical foundations of corporate business strategy. Risk management comprises GCs establishing a level of risk that the business considers tolerable through risk analysis and scenario planning. However, this double role of business partner and compliance gatekeeper brings an inner struggle to the GC, which is emphasised by BEN WHEINEMAN JR, raised by DUBEY & KRIPALANI (2013, p. 6-7) and reinforced by the 2016 NYSE Survey. 

The legal department is the one that handles legal issues according to CEOs that use the hierarchical approach to the GC. This can be due to their own personality, cultural background, leadership style and the situation. These CEOs consider that legal may lose sight of its essence and focus. Sometimes GCs can be disciplined or receive low performance feedback because of this. However, since not everything is in the law, reducing the in-house counsel to a mere legal advisor potentially reduces the chances of using their extra capacity in providing innovative solutions that really add value to the business. 

SSA countries’ institutional voids and Fukuyama’s classification

In SSA, broadly speaking, these are considered ‘weak’ states, using the perspective put forward by FUKUYAMA (2006), with noteworthy bureaucracy, lack of institutions and regulators and enforcement of formal rules seen as having institutional voids. FUKUYAMA (2006, p. 6 and 21-22) remarks that ‘It is common to characterize regimes in Sub-Saharan Africa as neopatrimonial- that is, with political power used to service a clientelist network of supporters of the country’s leaders (JOSEPH 1987; FATTON 1992). In some cases, as with Mobutu Seke Seke in Zaire, neopatrimonial regimes result in what EVANS (1989) has characterized as “predatory behavior”’. The Joint Study (2009) also pointed out challenges in SSA including poor decision making, corruption and rent seeking and inadequate policy and legal frameworks.

Going beyond profit: the added shared value 

The shared vision of a joint project is required in these local partnerships as PORTER & KRAMER (2011, p. 6) remark: ‘The concept of shared value can be defined as policies and operating practices than enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates’. 

The attractive factors for Angola and SSA are: spotting the above frameworks; adding volume or growth; growing market share; and attractiveness based on economies of scale and cost decrease, due to a local skilled workforce. Nevertheless, in order to work, added share value needs to be concrete and short-term. Realistically data and literature like VERNON (WELLS & GLEASON, 1995, p. 47) argue that ‘most countries would strongly prefer local ownership to foreign ownership, regardless of the industry but specially the visible sectors. Foreigner are acceptable only if the benefits overwhelmingly outweigh the economic and political costs’. 

The ‘legal literacy’ 

There is a need to assess if there is an express legal requirement to incorporate a JV. PORTER, quoted by BAGLEY & ROELLIG (2016), alleges that ‘Law affects each of the five forces that Michael Porter identified as being determinants of the attractiveness of an industry’ referring to the ‘legal literacy’ concept. Law affects every activity in the value chain. 

Local content strategy 

When seeking out literature about this topic that links GC to the SSA ‘localisation’ business strategy, we were not able to find any detailed studies. ACQUAAH (2009), ADNAN & AL (2012) and BADGER & MULLIGAN (1995) quoted by NANI & TETTEH (2015, p. 65) believe that the determining factor that dictates the durability, sustainability and consequent success of any local partnership is ‘the benefit their participants in growth, portfolio enhancement and cost control’, not the fact that a JV is mandated by law. Governments need to be included in the equation. Meaning a more well-informed and self-governing in-house counsel means fewer errors and reduced costs to the company. 

Notes