Enterprise & Society

Conceptual Framework

CSR is regarded as a relatively recent phenomenon, and as such is rarely analyzed historically in the business management and ethics literatures. CSR is regarded as something that is imposed on business by society, for example, in social contract, legitimacy-based models, or as a benign and inclusive redefinition of corporate objectives, as in the stakeholder model, that can be readily accommodated into economic theory derived models of strategy making.²⁷ CSR has not [End Page 829] been generally been viewed as a means of corporations exercising social control.²⁸ This essay offers such a standpoint as a new perspective on CSR.

Greenwood provides a useful taxonomy of the moral treatment of stakeholders in terms of stakeholder agency, the number and breadth of stakeholder groups in whose interest the company acts, and stakeholder engagement,²⁹ defined as the number of processes of communication, dialog, and consultation. As she suggests, it is only cases where both agency and engagement are high that have exercised the CSR literature. Although these variables are to some extent useful for the purpose of testing historical evidence, they do not directly address the issue of managerial motivation, which when faced with significant external threats should be strongly influenced by control concerns. The social capital literature suggests that the purpose of inclusion or exclusion from networks of business activity is social control, particularly through observance of norms.³⁰ As Coleman argues, social capital develops through social engineering, which replaces earlier forms of control, based on primordial ties, with material-based status incentives.³¹ The implication of this view is that CSR, through increasing social provision in a postcolonial setting, using housing schemes, employment and benefit packages, and access to education, provides corporate management with mechanisms to enforce norms and create stakeholder engagement. Viewing CSR in this light allows us to create a taxonomy of control as a series of options available to corporate management. These are set out in figure 1.

As figure 1 shows, control may be exercised through three options, each corresponding to the political, market-based, and social elements in the literature discussed above. Political control is exercised through diplomatic and covert channels. The second is market-based control, in which management creates investor confidence through pronouncements about CSR activities in annual reports and other public domain communications. The third element is social control, which allows corporate management to create social capital through specific CSR programs. Each element of control therefore implies a different mechanism of communication with a different range of stakeholders (corresponding to stakeholder engagement and [End Page 830] agency in Greenwood's framework).³² The model predicts significant differences between communications on the same subject depending on the recipient stakeholder group. These are tested empirically against the evidence below.

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Figure 1.

Control strategies and stakeholder management in multinational firms facing asset expropriation threats.

British Expansion in Iran and the AIOC

Writing in 1951, Caroe described "oil from Asia" as "one of the great facts, commercial and strategic, on which the story of the British Commonwealth rested."³³

The majority of the British share of "oil from Asia" originated in Iran (table 1) as a result of William Knox D'Arcy's 1908 discovery of oil in the country's western Bakhtiari Massif.³⁴ In 1901, an exclusive concession had been granted to D'Arcy for sixty years for the oil exploration throughout Iran, covering 500,000 square miles of territory.³⁵ This laid the base for dominance by AIOC, the company D'Arcy founded, which set up its headquarters in Khurramshahr, almost 1,000 km from Tehran, and established a refinery nearby in Abadan, for oil exports via the Persian Gulf. Thanks to the concession, [End Page 831] AIOC "reigned supreme"³⁶ in Iran, the only major oil company to enjoy dominance independently rather than as part of a combination (table 1). AIOC was and remained the only one of the "seven sisters"³⁷ to be wholly British owned.³⁸

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Table 1.

The oil of South-western Asia

The concession had the features that Parra identified as essential to oil exploration and production agreements in developing countries.³⁹ AIOC secured an exclusive right, in a specific area for a limited period, which gave it title to the oil reserves and the ability to dispose of them without restriction. It was to bear the risks of extraction. In return for these rights, it was to make defined payments to the Iranian government: in this case royalties and taxation. The government was a party to the contract and hence could not alter its terms by legal intervention. The result, Parra comments, was to give the concessionaire "a high degree of legal security" with "no way that his concession could be legally modified without his consent."⁴⁰ Parra finds that the size and longevity of the concessions in force in the Middle East and elsewhere in 1950 were "extraordinary," and indeed "grotesque"⁴¹: [End Page 832] in Iran, they lay at the root of the grievance that ended in the 1951 nationalization.

Throughout the first half of the twentieth century, AIOC was heavily implicated in the political economy of the Middle East, and in particular, Iran, and was also viewed as an important British national asset. In 1914, the British government took a 51 percent stake in AIOC to acquire control over a company working in the oil fields of Iran.⁴² Writing of the firm in 1959, Winston Churchill praised the historic role of "this great enterprise," contributing to "national prosperity in peace and our safety in war."⁴³ Churchill's comment reflected increasing British dependence on oil in the two world wars and the reorientation of the peacetime economy away from coal. More so than coal, the oil industry has been associated with government intervention due to its importance in providing intermediate inputs to the modern economy.⁴⁴

The company was also Iran's main source of income: Iran was the site of the world's largest refinery, was the second largest exporter of crude petroleum, and possessed the third largest oil reserves that were mainly managed by the British government and British private citizens.⁴⁵ The Times reported that the company considered its activities "to be vital to Persia's well being as to its own."⁴⁶ But during the 1930s, the Shah of Iran, Reza Pahlavi, became increasingly dissatisfied with the terms of the 1901 concession and threatened AIOC with outright cancellation. In 1933, the Majlis (Iranian parliament) ratified a new concession, which extended the life of the original D'Arcy agreement by thirty-two years. The key features of the 1933 agreement between Iran and the AIOC were an increase in the royalty paid to Iran⁴⁷ comprising a fixed sum of 4s per ton, a guaranteed 20 percent of worldwide profits above a fixed level and a minimum annual payment of £750,000.⁴⁸ At the same time it was agreed that Iranianisation should be implemented. [End Page 833]

Iranianisation

After 1941, following the collapse of Reza Shah's regime, nationalism and democracy became increasingly important features of the Iranian political landscape, and "the issue of oil . . . was the central theme of . . . popular political and economic nationalism."⁴⁹ As a consequence, an important part of the political process between AIOC and Iranian representatives was the Iranianisation agreed under the General Plan of 1936. Negotiations on the detailed aspects of Iranianisation were ongoing. A new phase opened on October 22, 1947, when the Majlis passed the Single Article law, a revision of the 1933 concession's Article 16, to increase investments in welfare benefits, such as health, housing, education, and implementation of Iranianisation through the substitution of foreigners. The longer-term aim was that all posts in Iran except very top management ones should be held by Iranians.⁵⁰

From 1947 onward, the AIOC was engaged in talks with successive Iranian governments to renegotiate the oil drilling rights formerly granted in the 1933 concession. In July 1949, an AIOC representative and the Iranian Minister of Finance signed the Supplemental Oil Agreement (SOA), subject to the approval of the Majlis, but it was never ratified. Those opposed to the company included the Communists (Tudeh) who focused on the AIOC economic treatment of Iranian employees,⁵¹ and the secular nationalists (National Front Party), later led by Musaddiq, who favored a fairer share of oil resources for the Iranian people.⁵² These groupings became increasingly effective in mobilizing Iranian opinion against the AIOC and in favor of greater Iranian control over the oil industry.⁵³

Disputes over the division of oil revenues were compounded by regional political instability,⁵⁴ making compromise less likely. Failed negotiations and political tremors were therefore the precursors to the May 1, 1951 bill approving nationalization of the company's holdings.⁵⁵ The promulgation of the "Nine Point Law" by Musaddiq's [End Page 834] National Front government represented the culmination of a rising tide of nationalism that overwhelmed the AIOC's efforts to negotiate a new concession.⁵⁶ The preceding four years had witnessed a series of failed proposals and a succession of Iranian governments and institutional changes, reflecting the increasing influence of political organizations opposed to the AIOC.

On March 20, 1951, the AIOC imposed immediate reductions in wages, travel, and accommodation allowances on the grounds that rents and prices had fallen. As a result, by April 1, 45,000 employees were on strike, martial law had been imposed, and in a highly charged atmosphere, three Europeans (AIOC employees) were lynched as the strike spread to other sectors.⁵⁷ Although this was perhaps to be expected, the timing of the company's wage cuts remains nonetheless interesting. They came within five days of the approval of Musaddiq's bill for nationalization in the Majlis and only two weeks after the assassination of the Prime Minister Razmara, who had lost support because of his promotion of the Supplemental Agreement, perceived in Iran as "capitulation to the AIOC."⁵⁸ Within a week of the end of the strike on April 25, Musaddiq pushed through his nationalization bill.

The nationalization had dramatic and enduring consequences. President Harry S. Truman and U.S. diplomats became increasingly exasperated by British attitudes as the nationalization crisis unfolded. For example, Secretary of State Dean Acheson and others had for some time been annoyed by Sir William Fraser, the AIOC's chairman (1941-1956) because of "his parochial arguments about commercial feasibility, and by the apparent failure of the British government to control company policy".⁵⁹ AIOC had its assets and some of its rights restored following the successful 1953 CIA-backed coup, restoring the Shah without the previous constitutional limitations on his power.⁶⁰ For the Iranian people, this meant living under the Shah's dictatorship and the continued exploitation of oil resources by overseas companies. At the same time, secular nationalists were weakened, paving the way for the Islamic-led revolution of 1979, which has based its political power on distrusting western influences and motives. Although there were other complexities at work in the [End Page 835] longer run, the events of the late 1940s and early 1950s have become important contextual factors for subsequent Middle-Eastern politics. It is therefore important to review the empirical evidence on the AIOC's strategy in the period following the 1933 concession up to and including the more intense period of negotiation after the end of the Second World War.

Mechanisms of Corporate Control: Evidence

In this section, the conceptual framework developed above is tested against empirical evidence and used to readdress debates in the literature. To introduce this section, evidence from the prior literature is reviewed, revealing the extent to which the extent and success of Iranianisation remains an unresolved issue. Three aspects of the policy are then considered with reference to new empirical evidence. First, political and diplomatic negotiations are viewed primarily with reference to private correspondence of Fraser and other senior AIOC executives, and the Gidel memorandum.⁶¹ Second, we consider managerial actions taken to reassure investors and markets through public pronouncements, analyzing previously neglected annual report disclosures. Third, we analyze AIOC's employment strategy with reference to social responsibility and social control, linked to policy pronouncements through various media and the private views of company officials and through textual analysis of the reports made by Fraser as AIOC Chairman in 1950 and 1951. Consistent with this conceptual framework, we review evidence of managerial attitudes, contrasting the public and private views of AIOC senior executives.

Extent and Success of the Iranianisation Program: Evidence from the Literature

Certain areas of the literature dealing with the AIOC stress its achievements with regard to CSR. Prior to the Article 16 negotiations, the AIOC's Iranianisation strategy was acknowledged to be low risk, underpinning long-term engagement when compared to that of other firms that did business with Iran on a more arm's length basis.⁶² After 1945, the company recognized the housing problems in Abadan⁶³ [End Page 836] and embarked upon an emergency accommodation program. An International Labour Office (ILO) observer commented in 1950 that one could not fail to be impressed by the vast number of modern houses and amenities that the company provided in such a short space of time, despite exceptionally unfavorable circumstances.⁶⁴ In response to Article 16, AIOC increased housing investment in Abadan between 1934 and 1940.⁶⁵ Hospital and healthcare spending attracted similarly favorable comment.⁶⁶ The AIOC also invested in education, for example, endowing Tehran University, supporting technical institutes and schools, providing extensive educational and training schemes.⁶⁷ The company's staff manager in Iran, speaking in 1947 suggested that "there is more joy in Iran over the appointment of one Iranian chemist/engineer/accountant/doctor/labour officer than there is over the appointment of 100 Iranian artisans or 1000 Iranian cooks."⁶⁸ Even so, clearly, for many better educated Iranians, the incentives the AIOC employment package offered were insufficient to entice them away from more congenial vocations in Tehran.⁶⁹

However, there is also considerable evidence that the AIOC treated most of its Iranian employees badly. An Israeli AIOC employee wrote that sixty thousand skilled and unskilled workers had no living quarters.⁷⁰ Citing Manucher Farmanfarmiain, director of Iran's petroleum institute from 1949, Kinzer offers similar evidence of low wages (50 cents a day) and slum conditions in Abadan for Iranians.⁷¹ Antipathy toward the AIOC grew gradually because the company's Iranian workers did not share the benefits of improved wages and the luxurious European style housing that British staff enjoyed.⁷² The company presented its British employees as superior to the Iranians right from the start.⁷³ Even were it true that higher ranking Iranians were paid the same as their British equivalents, their views were not necessarily respected. Mostafa Fateh, Northcroft's⁷⁴ assistant in [End Page 837] Tehran, provided the AIOC board with an eloquent and detailed advisory memorandum on how to engage constructively with Iranian national aspirations. The British diplomatic response was dismissive, stating that Fateh "was not to be trusted."⁷⁵ British staff in Tehran were of the opinion that without them, "no one would be able to run the central heating in the AIOC's offices."⁷⁶ The Israeli correspondent, referred to above, paraphrased the typical response to suggestions that Iranians be treated differently: "We English have had hundreds of years of experience on how to treat the Natives".⁷⁷ The company regarded itself as "British,"⁷⁸ exclusive and superior to the locals who were not permitted to rise through the hierarchy.⁷⁹ AIOC's Iranian doctors, for instance, lacked the opportunity to benefit from the experience of British doctors whose duty was principally treating the British staff. Iranian doctors therefore preferred to work in other parts of the country even for less reward.⁸⁰ In Elm's view, it was hardly surprising that the company's labor force became heavily involved in the nationalization movement.⁸¹

Summarizing these points, it is clear that the AIOC had begun to make earnest commitments to CSR under the Iranianisation program after 1945. However, the scale of the task and the extent of the progress left many on the Iranian side disillusioned, thereby fueling nationalist demands. What is unclear is how the changes were motivated, for example, whether AIOC executives were genuinely committed to social improvement out of a sense of moral obligation, or whether the CSR agenda was determined by a more calculating business agenda. To shed light on these questions, empirical evidence in each of the three areas identified above will be reviewed.

Empirical Evidence: Political and Diplomatic Negotiations

In general terms, Fraser's private view appeared to be evenly measured toward the main parameters of the negotiations. On the one hand, he thought that any attempt to revise Article 16 too much in favor of the company would fail and would "produce acrimonious discussions [End Page 838] on the question of equality of treatment [of] Iranian and non-Iranian employees."⁸² On the other, Fraser also feared loss of profits if Iranian claims were satisfied.⁸³ In areas where control of assets was less of an issue, Fraser was apparently more willing to compromise. For example, he claimed that the "programme in the housing and amenity sphere was not a concessional obligation. We [the company] undertook it willingly and with pride as an industrialist's contribution to the oil industry of Iran."⁸⁴

A very important element of the Iranian government's negotiating position following the promulgation of Article 16 was steadily reducing non-Iranian employees. Ali Zarrinkafsh, the Iranian Imperial Delegate to the AIOC (1933-1939), stated that it would be necessary to document the extent of such reductions.⁸⁵ Zarrinkafsh advised Jacks, AIOC's pre-war Iran Director, to be cognizant of public opinion and reveal the full effect of the terms, in order to minimize subsequent public criticism.⁸⁶ After 1945, Iranian demands became more urgent and more specific. Reports showed a reduction of 150 in overseas employees the first year, 200 the second and 50 more in each subsequent year.⁸⁷ H. E. Golshayan, the Minister of Finance, made it clear that the Iranian government sought transparency in the ratio of Iranian to non-Iranian staff.⁸⁸ Iranians resented their confinement at lower levels of the company and frequently complained, sometimes in violent terms, that individual Iranians who had worked with the British had met with discourteous and unjust treatment.⁸⁹ As part of the negotiations, the Iranian government commissioned an investigative memorandum, drafted by Gilbert Gidel, a French law professor, to respond to specific points the AIOC raised and to advise on revising the 1933 agreement.⁹⁰ The fifty-page memorandum included the suggestion that AIOC had not improved the working conditions of Iranians, who were consequently stuck in unskilled jobs.⁹¹

As political instability intensified in 1950, Razmara advised Northcroft that "certain changes [increased Iranianisation] in the Supplemental Agreement would be necessary if it were to be ratified [End Page 839] by the Majlis."⁹² He was extremely concerned and distressed about the current situation because of the large numbers of unemployed persons in Tehran. He had studied the General Plan and his view was that "by the end of the ten years, all posts in Iran, except very top management ones, should be held by Persians."⁹³ Meanwhile, his expectation was to receive "at least fifty-five millions sterling to put his projects in hand in such a manner as to insure full employment and stable contentment throughout the country."⁹⁴ Razmara believed that once the Supplemental Agreement was ratified, he would implement his program within six months, and the country would solidly be behind the government.⁹⁵

Changes in staffing ratios, including reductions of British staff, were a matter of serious concern to the AIOC management. Jameson mentioned in his report on a 1938 visit to Tehran that "Iranianisation is so important to the company that everything possible should be done to make the policy fully effective."⁹⁶ Previously, in private correspondence to Fraser, Jacks had argued with reference to non-Iranian staff that "the company would agree to no interpretation of annual and progressive reduction."⁹⁷ In similar vein, in the later, postwar negotiations, Northcroft resisted implementation of the General Plan as proposed by Razmara, arguing that if Britain had to base their "activities on Persian manpower to the degree which he [Razmara] envisaged, we [Britain] should be driven out of business."⁹⁸ This evidence reveals important differences between publicly declared policies and the private views of AIOC executives.

As negotiations over Iranianisation became an increasingly important aspect of diplomatic bargaining after 1945, other private correspondence shows that the AIOC had no intention of conceding this point.⁹⁹ Gass, its negotiator, aimed for agreement with the Iranian government on all the other provisions of the General Plan, leaving the crucial question of annual and progressive reductions of foreigner staff until last. However, the Iranian government insisted on taking this clause first, making settlement of the other clauses conditional on [End Page 840] agreement to its proposals.¹⁰⁰ From the AIOC point of view, Clause 16 (iii) of the Concession was already too specific about annual and progressive reduction to allow room for maneuver.¹⁰¹

As a result, the AIOC sought to postpone Article 16 to avoid any obligations that agreement would entail. Northcroft, chief AIOC representative in Tehran, in a strictly confidential correspondence to Rice on October 19, 1950, explicitly revealed the methods adopted by the company for rewording the General Plan, saying:

I have devised a form of words which (in a suitable legally worded version) might be used in substitution of the existing preamble of the General Plan, to be read in conjunction with the remainder, as a definition of its spirit.¹⁰²

And

I enclose for your consideration a form of words which it seems to us does not alter the sense of the text as signed, and which we believe would when translated into Persian produce a text free from any possible misunderstanding.¹⁰³

At the same time, Rice asked Northcroft to convey the company's attitudes and views without giving "the impression of unwillingness to cooperate or closing the door to further discussion of points which fall outside the limitations which [they] have stressed to the point of redundance."¹⁰⁴ Rice stated that they needed to bridge the gap between its present form of words and our position under the new General Plan (from which, I repeat, we cannot in any way depart).¹⁰⁵

Gass suggested that Article 16 should be amended and the words "of the salary and conditions of service applicable to applicants' occupation and grading" should be deleted to avoid discussions on salary scales.¹⁰⁶ In similar vein, Gass and other AIOC representatives tried to persuade the Iranian representatives to accept the impracticability of projecting employment trends against uncertain forecasts of the future trend of consumption of oil products. They also suggested that to do so would be contrary to their interpretation of the concession.¹⁰⁷ [End Page 841] Dr. Idelson, on behalf of the AIOC representative, preferred to adopt a ratio of non-Iranian employees and total staff, exclusive of unskilled staff, and then diminish this in some steadily declining percentage.¹⁰⁸ His rationale was:

If this latter basis was adopted what ultimate percentage would you regard as reasonably safe, taking into account the safeguards with which the percentages are hedged round? Reverting again to the former basis, you will notice that I have reduced the percentage to 8% and had in mind that it would be safe to go to 5% as an ultimate limit. In other words I kept 3% in hand for negotiation or for a stage subsequent to the next 10 years. I realize of course that percentages to-day are below 10% but I look upon that result as being covered by the undertaking in my plan to accelerate the rate of progress if no indeterminable factors operate to our disadvantage.¹⁰⁹

This evidence suggests the General Plan was not intended to reduce the number of British staff or to follow Iranian requests for rising yearly reductions.

Fraser's main problem with Article 16 was the Iranian demand for specific targets to shift staff numbers and control in favor of the Iranians.¹¹⁰ His correspondence reflected his irritation and his unwillingness to accept this point:

. . . if any such percentages were acceptable they would clearly have to be applicable to the number of non-Persian staff at the beginning of each period in question, and not throughout the periods to the number of non-Persian staff originally serving. Furthermore, the higher one got in the graded employees the more difficult would it be to find efficient substitutes and if the principle even (of finding substitutes became) more acceptable, (then) common sense would call for a reduction in annual percentages after some initial rise as a result of putting individuals through a course of training—which might or might not produce efficient men not merely failed B.A.'s.¹¹¹

Fraser was plainly concerned by the provision for progressive reduction of non-Iranian employees only for the period under question and not throughout a long period of time.

Fraser was unprepared to engage Iranian employees in skilled and first class jobs, even if they were well educated and trained. Lacking [End Page 842] confidence in Iranian approaches to education, he used technical justifications to exclude them. He argued that AIOC:

should at any time be prepared to engage only a very few Iranians in the company's service. Courses of training, examinations passed, academic distinctions, are all very well, but they are not ends in themselves and are of use only so far as they produce a properly equipped man. That is one of the things which I [Fraser] fear have yet to be learned by some of the nations who attach an excessive importance to education.¹¹²

Among Fraser's tactical excuses for not engaging the Iranians was his view that book learning or manual training would not help the Iranians develop a sense of duty and responsibility.¹¹³ At the same time, the company genuinely required a high degree of proficiency and skill in the workforce.¹¹⁴ In this situation, managers argued that if the company had an obligation to train the Iranians, then the Iranian government needed to educate potential workers to a level which would enable them to absorb subsequent training by the company. In tandem, AIOC was reluctant to invest in staff training.¹¹⁵ Although a technical problem, careful diplomacy was nonetheless required. Northcroft was aware of the importance of training to the Iranians and suggested that, in view of allegations made in the Majlis against the company's training policy, offering to spend a little more under the heading of training might be "a very useful weapon in our armory."¹¹⁶ Elkington, the general manager in Persia, pointed out:

Our plan of education has got to start very high up the tree, and our friends in Persian circles must be taught that the company has not reached its present stage of development on any grounds which I term purely theoretical, such as those of nationality, but of the practical efficiency of the individuals forming every cog in a great machine, and not least the spindles at the centre of each cog-wheel.¹¹⁷ [End Page 843]

Above all, training Iranian staff as part of the Iranianisation process presented a threat to AIOC control and was resisted for that reason. Jacks declared that the company would never agree to other than British administration and the Iranian government should never expect this.¹¹⁸ Similarly, the AIOC resisted reductions in the numbers of British staff. Gass initially argued that the company should stick to the previous formula that reduced the proportion of foreigners to total skilled workers. After a careful survey of the expected training schemes outcomes AIOC management were satisfied they could reduce their nongraded or artisan categories to a definite figure in line with what had been offered at the earlier talks.¹¹⁹

Fraser's public statements that "all efforts to reach a friendly settlement [have] proved abortive" were less than accurate.¹²⁰ From the above account it is also easy to see why it was in the AIOC's interest to conclude "that no further negotiations with the present Iranian Government could produce any result, and that the negotiations, previously suspended, were to be considered broken off."¹²¹ Fraser made no public mention of the crucial point: that his insistence on full control of the company and its operations by incumbent British staff was the greatest obstacle to a solution. His overriding concern was with the question of control, a point on which no compromise could be countenanced. This evidence shows that, in private, Fraser's chief concern about the Iranianisation process was the redistribution of power implicit in the projected changes in staff composition. At the same time, AIOC declined to let Iranians hold technical jobs for fear that they might learn to operate the oil industry themselves.

Reassuring Investors and Markets Through Public Pronouncements

The issue of control dominated the private views of Fraser and his advisers. By contrast, public pronouncements suggest a more inclusive approach to the Iranian workforce. Public documents, such as the Annual Report to Shareholders, are an important mechanism for securing confidence in company management, and Fraser used this medium to reassure investors. Writing in 1949, he commented that 2038 houses and 79 ancillary buildings, such as canteens, schools, medical clinics, shops, clubs, and so on, were completed during the [End Page 844] year at a cost of nearly £6 million. He also pointed out that now 2000 students had embarked on various categories of training schemes, including eighty-four in Britain.¹²² Addressing the differential wage issue, Fraser commented "it is noteworthy that Iranians received the same pay as British staff in similar posts".¹²³ These contrasting propositions can be examined with reference to the comparative earnings data shown in table 2. As table 2 shows, the remuneration of the AIOC's Iranian employees did increase substantially after 1945. However, evidence from noncompany sources suggests a different picture. According to a contemporary source, Iranian representation was in decline. The number of non-Iranian staff had risen by 1945 to over four thousand out of a total of forty-two thousand, a ratio of 10 percent compared to 7 percent in 1938. Meanwhile, non-Iranian salaried employees had risen from 1,744 to 2,478 between 1939 and 1945, whereas the number of Iranian salaried employees had fallen from 1,496 to 1,479. Additionally, in the artisan grade, the figures were 979 and 1,552 for the non-Iranians, and 6,516 and 6,254 for the Iranians.¹²⁴ So although Iranian employees, if the company's official history is believed, were better paid than they had been, their relative position in numerical terms had deteriorated. Inequality within the Iranian workforce also had increased, and while lending credence to Fraser's claim of parity on a grade-by-grade basis, it is also suggestive that the cases he cites were in a minority.

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Table 2.

Comparative earnings

In 1951, following the nationalization, Fraser's Chairman's statement in the Annual Report and Accounts for 1950 disclosed more information than previously about the improvement in amenities and working conditions for Iranian employees. He stressed that the AIOC "serves as a major national asset and fruitful source of revenue and employment," which "carried out a vast expansion of the social [End Page 845] services for its tens of thousands of employees in Iran."¹²⁵ He emphasized that the "the Company's policy has always been to encourage the spirit of amity and partnership between members of the British and Iranian staff" and signaled that the company's strategy was to provide housing, leave and pension benefits, medical care and hospitalization, club life, and amenities to all employees irrespective of nationality.¹²⁶ Furthermore, he highlighted in his 1951 statement, more forcefully than in the past, his willingness to maintain good relationships with the Iranians and show them that the company did not discriminate between the British and Iranian employees: "I [Fraser] wish to pay tribute to the many Iranians, some occupying very senior posts, who have given long, loyal and devoted service to the company and, I feel, also, their country."¹²⁷ Here Fraser equated national and corporate interests. It is noteworthy that no similar information had been disclosed in the previous year's Report about the treatment and payment of Iranians, or justifications of the company's existence and operations in Iran.

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Table 3.

Key word counts in AIOC Annual Reports

To examine further how Fraser's public attitude was modified by nationalization, we conducted a content analysis of the 1949 and 1950 Annual Reports, published in 1950 and 1951, respectively, before and after nationalization. Table 3 shows the incidence of a number of significant terms in AIOC's annual reports pre- and postnationalization, with the aim of investigating how far their vocabulary was adapted as a response to circumstances. [End Page 846] contrasts counts of keywords for the two annual reports, which makes it possible to document Fraser's use of different groups of words and vocabulary that are particularly relevant to understanding AIOC's self-presentation. Fraser's chief concern was maintaining the confidence of his shareholders. He increased references to the company's achievements in 1951. The word "company/company's" was mentioned ninety-five times after nationalization (1951) compared with ten times in 1950, which evidences Fraser's concern with the presentation of the company and its interests to shareholders.

On the surface, Fraser was also concerned for his Iranian employees. He referred to "Iran/Iranian" 124 times in 1951 (11 times in 1950). But British employees had the status of "staff," while Iranians were described merely as "employees." For example, the 1949 Annual Report included the following comments by Fraser: " . . . tens of thousands of employees in Iran," "strikes occurred among our Iranian employees" and " . . . three members of our British staff were killed."¹²⁸ Here, the difference between the treatment of British and Iranians highlights and provides an effective link between nationality and discrimination. It was rare for the Iranians to be referred to as "staff" because they typically did not appear in staff records.¹²⁹ Fraser's official position was to support Iranianisation, but the subtleties of his language, even in an official Annual Report, suggest that he and his close advisors had their attitudes colored by anti-Iranian discrimination.

Even though the delayed 1951 report was a carefully worded document, it is clear from this analysis that Iranian and British employees were regarded as different. Undertones of colonial attitudes in these public documents show up all the more strongly the underlying resistance to Iranian involvement in the management of the company revealed by Fraser's private correspondence. Social responsibility disclosures, meanwhile, on subjects such as health and housing, were easy to make where imprecisely quantified.

Social Control and Employment Strategy

There is considerable evidence from private correspondence that the AIOC senior management were motivated to carry out CSR initiatives to achieve social control, rather than by philanthropy. The dominant mechanism was segregation, hierarchical and spatial. Establishing and maintaining a hierarchy of staff grades according to technical [End Page 847] ability, and controlling access to technical education, allowed AIOC management to preserve traditional attitudes to their staff. Hierarchical relations and the requirement for housing in close proximity to oil fields and production facilities also created the opportunity for social control. AIOC divided its labor force into three classes. The First Class comprised British workers of whatever grade; the Second Class included the technical and salaried office workers with the few Iranians who had their education in Britain; the Third Class included the artisans, skilled and unskilled labor, who were exclusively Iranians. These class divisions also applied to housing, access to health care, and other aspects of the community.¹³⁰

Hierarchy meant that the AIOC could consolidate social control while fulfilling its obligations under the renegotiated concession after 1933. Acknowledging imbalances between rural and urban areas created by oil operations,¹³¹ AIOC senior management exploited opportunities to remodel cities in its own interests. The spatial organization of the oil towns, Masjid-i-Sulaiman and Abadan, was intended to satisfy the housing needs of a segregated European management. After 1933, the company continued to provide houses and amenities only to British staff and Iranians married to British.¹³² The company was keen on providing these employees with luxurious facilities for the sake of "British Prestige," which reinforced superiority and excluded the locals.¹³³ These accommodations included fully-furnished houses with air conditioning, 'water closet' and a pantry.¹³⁴ For instance, Elkington suggested that the manager's house must have four bedrooms in order to accommodate passers through.¹³⁵ Writing to a family relative, Jameson commented about the amenability of life in Iran, referring to his luxurious housing, drinks, and concert events and the comparable lack of expense.¹³⁶

The segregation of housing and social facilities laid down relations of unequal power, thus reinforcing hierarchies of superiority and exclusion.¹³⁷ Jameson stressed the company's policy was not to provide the Iranians a high standard of living and therefore decided to build them accommodation in another sector.¹³⁸ Meanwhile, [End Page 848] Elkington suggested that it was preferable to have the Iranian employees in the Bawarda area of Abadan: Dr. Jamieson asked to separate the British staff from the Iranians because "he did not consider Bawarda [as] an ideal position for a European residential area."¹³⁹ J. M. Wilson, the British architect in Iran, disclosed the result of his housing investigations and affirmed that the disparity in housing presented a real barrier between Iranian and British employees serving in the company, where the standard of living left much to be desired.¹⁴⁰

Iranians were forced to live and work in a built environment in many ways alien to them, thus felt like outsiders in their own country because of the way in which their landscape was constructed. Elkington admitted that the company organized and conducted its operations without much thought to Iranian ideals and customs, and based everything on its own usage and standpoint.¹⁴¹ Iranian negotiators from Masjid-i-Sulaiman and Abadan continuously but ineffectually challenged the AOIC's plans and construction programs.¹⁴² H. E. Hajir, the Minister of Finance, drew comparisons with housing and other developments in Arabia suggested that AIOC managers were laggards, referring to the essential need that the company make some gesture outside the concession to satisfy the Iranians' hopes and inspirations.¹⁴³ Clerical staff and the higher artisan grades could get a room in a reasonable time, but a skilled worker on the lowest grade might have to wait for thirty years. The third class employees were scattered through the fields and resented living in company houses for unskilled Iranian workers.¹⁴⁴

Even so, because they could build on their own terms, AIOC executives pushed ahead enthusiastically with initiatives on housing. Indeed they were often disappointed with their own lack of progress. Jameson was ". . . . disappointed with the progress in the artisan lines," and offered to "see what can be done to accelerate building."¹⁴⁵ Elkington, the general manager of AIOC in Iran, was aware of the slow progress and inadequacy of housing the company offered. He [End Page 849] suggested that the housing schemes ought be expanded if the social conditions of employees were to be ameliorated.¹⁴⁶ In correspondence to AIOC representatives in Britain, Elkington pointed out that the disparity of treatment afforded to its Iranian employees was more evident in housing and that it was necessary that management take early steps to correct the position or alternatively grant some form of compensation.¹⁴⁷

Similar disparities and segregation applied in the provision of health care. British hospital wards had their own bathrooms and water closets and all equipments were segregated, so that no devices from the British wards could be used for other patients; the company preferred to isolate its British staff from the Iranians.¹⁴⁸ For Iranian staff, the total number of AIOC hospital beds was 590 for a population of 180,000, implying lack of entitlement for many. There was a "staff" hospital for the Europeans and clerks and a Native hospital for the other "employees,"¹⁴⁹ with neither maternity hospitals nor midwives in smaller areas for Iranian women. British wards had only four beds while wards for Iranians had twenty-two beds on average.¹⁵⁰ A private comment by Idelson during the post-1947 negotiations is revealing:

The obligations of the company to reduce its non-Iranian staff do not extend to the replacement of its medical and administrative staff. I still adhere to that view but regard it necessary not to express it in the general plan so as to avoid at this stage a controversy with the government.¹⁵¹

In other words, as this review of evidence has revealed, the company's real objective was not only to maintain social control through very gradual Iranianisation, but also to resist challenges to control in the wider negotiations. An unfortunate side effect of the company addressing CSR as an adjunct of its wider control agenda was that social segregation accentuated Iranian political demands as the nationalization crisis intensified. One Iranian official described Abadan in May 1951: "20,000 workers were living in holes in the ground and even [the] 10,000 for whom the company had provided [End Page 850] houses, lived surrounded by open gutters in which sewage and drinking water mingled."¹⁵²

Conclusion

The above discussion has examined the managerial strategy of AIOC in three areas. It has shown through an investigation of political and diplomatic private correspondence that although the company was ready to make concessions on noncontroversial aspects of Iranianisation, it was determined not to compromise on demands that threatened the control of the incumbent British management. By making concessions on certain aspects of Iranianisation such as housing, the company could nonetheless use such initiatives to create the impression of progress in negotiations and create confidence among investors. Even in public documents however, traditional colonial attitudes were still revealed, in spite of the company's attempts to show that it was responding positively through the medium of the Chairman's statement. Meanwhile, although the company met with certain requirements of Iranianisation, for example, housing and health care, such developments were subject to control through spatial zoning and reinforcement of hierarchy. The company accordingly maintained and developed a readily available workforce with skills commensurate with specialized activities but which would not give the Iranians the capacity to run the industry independently of the British management. Segregation by skill grade fueled nationalist demands for control of the industry while reducing the Iranian capacity to manage the assets postnationalization. As the evidence suggests, there are interesting contrasts in the attitude of senior management, reflecting the context and mode of communication. If it is assumed that the private views of Fraser and other AIOC officials correspond more closely to the truth and that public pronouncements were intended to serve some purpose of benefiting the negotiating stance or underpinning stock market confidence, then the above evidence provides some useful insights into the utility of CSR for senior executives. If this is the policy of the AIOC in the events leading up to nationalization in May 1951, it was one that was insufficient to prevent the crisis that followed and the loss of the large majority of the firm's overseas assets. Even so, it contributed to a [End Page 851] strong position in the confrontation with the Musaddiq government that followed. The Iranians lacked the capacity to manage the industry and the embargo was made all the more effective as a result. Of course, many other factors were important in sparking the crisis and influenced its resolution. On the basis of the evidence presented here, AIOC's CSR policy appeared to weaken Musaddiq's position, although the actual strength of the negotiating positions is a matter for further research.

The theoretical framework developed in this paper might also assist research more generally, providing a mechanism for scholars to assess the bargaining power of corporate stakeholder groups during times of crisis and identifying key negotiating channels and tools. As such it allows business history to complement the wider related agendas of political and diplomatic history and development studies. Specifically, the results of this study have wider implications for an understanding of the use of CSR reporting as a corporate strategy to enhance negotiating and bargaining positions. There is scope for further investigation of such deployment by companies looking to reinforce their position, in self-defense and to strengthen their arguments in the face of criticism and possible threat. Such investigation is enhanced and deepened by an examination of corporate financial reporting, careful to place such reports in the political and economic context within which they were produced and published. [End Page 852]