Business ethics: Shell

IntroductionWe chose to analyze the company Shell Global (Multinational), which had operations running all over the globe and even now, with the financial drawbacks, is still growing. Shell Global started business back in 1833 and has gone through a lot of hardships but also many golden periods, of which many will be mentioned in this report as some of them concern ethical issues. In 1958 Nigeria became one of the largest oil producers for the Shell Group, where Shell has been accused of many human rights violations especially in the Niger Delta area.

Their corporate and ethical image was heavily damaged and they soon realized they needed to regain the confidence of society to remain successful compared to their (more ethical) competitors. In this period, Shell produced their first Corporate Social Responsibility reports (1998) and started paying actual attention to human rights and of course which of them they violated. Asking questions such as: What can we do to change? The CSR report included parts about their business principles and how Shell’s statement of General Business Principles is going to be implemented.

Though a ‘clean up’ has started in Ogoni, an area in Nigeria, the problem remains because, it takes up to 30 years for the nature of that place to fully recover of the damage, according to the UN reports. What happens in this area is that the people do not have access to clean drinking water, now the communities drink water which includes Carcinogens (a substance, radionuclide, or radiation that is directly involved in causing cancer). Even so, oil spillage is the biggest problem for Shell Global in Nigeria since they are the largest and most well-known company in the country and there for getting all the blame. Shell Global consists of energy and petrochemical companies, and has over 93.000 employees spread over 90 different countries. This makes Shell one of the biggest companies in their line of business, but challenges remain.

Their hardest challenge is to give energy a ‘new future’ and keep innovating in order to sustain their competitive advantage. When we look at Shell from a global perspective concerning operations, what choices must Shell make? Orrather, what choices can Shell make? Is Shell really to blame for all that happened in Nigeria?

Nobody is perfect, same goes for companies and their ethical codes, rather the lacking of or ignorance of some, but we have to keep in mind that everyone can change. In this report we start with describing four different ethical issues revolving about Shell Global, Nigeria. Starting with the Human Rights, representing the fundamental rights that people have due to the fact that they are human beings. Backed by the Labour Laws, which contains information about the ethical thoughts and contemporary issues related to the Labour Law and their relevant stakeholders and of course their corporate social responsibility. Thirdly, the environment.

Here we discuss how the natural environment can be considered as a stakeholder in correlation with Shell working together with non-governmental organizations. Part of this section are also Sustainability and Climate Change. And finally, Anti-corruption, answering the question if Shell Global is corrupt or not. Following we will compare Shell Global to three other multinationals also established in Nigeria, this section is called Benchmarking. At the end of the report a recommendation will be formulated for Shell Global concerning the Ethical dilemmas previously discussed.

Short History

Almost 200 years ago, Marcus Samuel a London antique dealer began importing seas shells from the Far East to supply a fashion for exotic decor. His enterprise laid the foundation for a thriving import-export business later run by his sons, Marcus Junior and Sam. At this time oil was largely used in lightning and lubricants and the industry was based in Baku, Russia, with its large reserves of high quality oil and strategic natural harbour.

With the arrival of the internal combustion engine in 1186 a surge in demand for transport fuel sharply raised. Building on their shipping expertise, the Samuel brothers commissioned a fleet of steamers to carry oil in bulk. They revolutionized oil transport with the maiden voyage of their first tanker to transit the Suez Canal. The brothers’ company was named the Shell Transport and Trading Company in 1897, with a mussel shell as its logo.

Shell Transport’s activities in the East, combined with a search for new sources of oil to reduce dependence on Russia, brought it into contact with a company called, Royal Dutch Petroleum. The two companies joined forces in 1903 to protect themselves against the dominance of Standard Oil. They fully merged into the Royal Dutch Shell Group in 1907.

Shell changed its logo to the Scallop shell, or pectin, which is still used this day. By the end of the 1920s Shell was the world’s leading oil company, producing 11% of the world’s crude and owing 10% of its tanker tonnage. The 1930s were difficult, the group’s assets in Mexico were seized and it was forced to concede generous terms of the Venezuelan government when it nationalized its oils fields. After WOII, as peace brought a boom in car use, Shell expanded into Africa and South America. Shipping became larger and better powered. In 1947 Shell drilled the first commercially viable offshore oil well in the Gulf of Mexico. In 1955 Shell had a little over 300 wells, and three years later they began production in Nigeria.

Shells code of conduct

As a company-wide document, the Code of Conduct does not provide detailed guidance about compliance with every local legal requirement in all of the many different countries in which we operate. As a Shell employee, you are responsible for compliance with the local laws and regulations in force which apply to your work from time to time, as well as with the Code.

As the code of conduct of Shell consists out of 80 pages, we took a few principles which are relevant to our sub questions concerning: Human rights, labour law, environment and anti-corruption.

Human rightsConducting our activities in a manner that respects human rights as set out in the UN Universal Declaration of Human Rights and the core conventions of the International Labour Organization supports our licence to operate.

Shell’s approach to respecting human rights consists of several core elements, including adherence to corporate policies, compliance with applicable laws and regulations, regular dialogue and engagement with our stakeholders and contributing, directly or indirectly, to the general wellbeing of the communities within which we work. Our commitments in this area are supported by the Shell General Business Principles, this Code of Conduct and relevant Group policies in such diverse areas as: Social Performance

Human Resources, including Diversityand InclusivenessContracting and Procurement

We seek business partners and suppliers that observe standards similar to ours. All employees must understand the human rights issues where they work and follow Shell’s commitments, standards and policies on this topic.

page 9 of Shells’ English code of conduct 2010

Labour lawTo respect the human rights of our employees and to provide them with good and safe working conditions, and competitive terms and conditions of employment. To promote the development and best use of the talents of our employees; to create an inclusive work environment where every employee has an equal opportunity to develop his or her skills and talents. To encourage the involvement of employees in the planning and direction of their work; to provide them with channels to report concerns. We recognize that commercial success depends on the full commitment of all employees.

page 33 of Shells’ English code of conduct 2010

EnvironmentSustainable development for Shell means helping to meet the world’s growing energy needs in ways that are economically, environmentally and socially responsible. Shell’s commitment to sustainable development requires us to balance our short- and long-term interests; and integrate economic, health,safety, security, environmental and social considerations into business decisions.

page 6 of Shells’ English code of conduct 2010

Anti corruptionWe comply with all applicable laws and regulations of the countries in which we operate. Shell does not tolerate bribery, insider dealing, market abuse, fraud or money laundering. Facilitation payments are bribes and must not be paid. You must also avoid any real or potential conflict of interest (or the appearance of a conflict) and never offer or accept inappropriate gifts or hospitality. Remember, even unsubstantiated claims of corruption can damage reputations and business.

page 11 of Shells’ English code of conduct 2010

Violation of the provisions of the Code of Conduct, or of any laws or regulations governing our operations may have severe consequences for the individuals concerned and also for Shell. A failure to follow the Code that involves a criminal act could result in prosecution after referral to the appropriate authorities. Employees who violate the Code or any laws or regulations may also be subject to internal disciplinary action, including termination of employment

(http://wwwstatic.shell.com/static/aboutshell/downloads/who_we_are/code_of_conduct/code_of_conduct_english_2010.pdf) (sww.shell.com/ethicsandcompliance/areas/index.html)(sww.shell.com/finance/controllers/Controls_Governance_Assurance/anti_fraud/Anti_Fraud_Website.html) (sww.shell.com/ethicsandcompliance/report_concerns/global_helpline.html)

Shells code of ethics

The Statement of General Business Principles of the Royal Dutch Shell plc has been adopted by all Shell companies and, amongst other things, provides that all persons must avoid conflicts of interest between their private financial activities and their part in the conduct of company business. This Code is specifically intended to meet the requirements of Section 406 of the Sarbanes Oxley Act and the listing requirements of the New York Stock by providing for a number of implementing requirements in the area of disclosure controls and the avoidance of conflicts of interest by the category of job holders and persons referred to below. This Code is applicable to the following job holders and persons: the Executive Directors of Royal Dutch Shell;

the Chief Financial Officer;the Executive Vice President – Controller;the Executive Vice President – Treasury and Corporate Finance; the Chief Internal Auditor;the Executive Vice President – Taxation;the Executive Vice President – Investor Relations;the Executive Vice President – Strategy & Planning;the Executive Vice President – Finance Trading;the Executive Vice President – Finance Operations;the Executive Vice Presidents – Finance of Upstream International, Upstream Americas, Downstream and Projects & Technology; any person or job holder designated by the Chief Financial Officer (a register of such designated persons will be maintained by the Company Secretary).  All of the above are hereinafter referred to as “COE Addressees”. Key Requirements

Each COE Addressee shall:a. act in accordance with the highest standards of honesty, integrity and fairness and expect the same in their relationships with others while maintaining a work and business climate fostering such standards; and b. adhere to the SGBP, any applicable code of conduct on dealing in securities and any provisions for the avoidance of conflicts of interest stipulated in applicable terms and conditions of employment; and c. excuse himself from making any decision about an issue at hand in which a conflict of interests arises or could arise and in such event, disclose in writing the relevant facts and explain the circumstances that create or could create the conflicts of interest to:

(a) the chairman of the Audit Committee in the case of: (i) the Executive Directors of Royal Dutch Shell, (ii) the Chief Financial Officer, (iii) the Chief Internal Auditor and (iv) the Executive Vice President Controller, and (b) to the Executive Vice President

Controller, in the case of any other COE Addressee; and d. avoid having any financial interest in works of or contracts awarded by a Shell company or a company associated with a Shell company, or in supplies effected or services rendered to or by such a company and where this is unavoidable or immediate family members have such a financial interest, such interest shall be disclosed in writing in the same manner as set out in c. above; and e. not seek or accept from third parties to his own advantage any favour in whatsoever form or howsoever described in connection with the business of any Shell company or his duties (except for the acceptance of such things as gifts of nominal value and working lunches, dinners and entertainment of reasonable value, frequency and duration, appropriate under the circumstances, and subject always to the standards of a. above);

and f. not hold positions or jobs or engage in outside businesses or other interests that adversely impact the performance of duties owed to any Shell company or the interests of the same; and g. avoid any relationship with a contractor or supplier that could compromise the ability to transact business on a professional, impartial and competitive basis or influence decisions to be made by any Shell company; and h. consistent with the scope of his job responsibilities, ensure full, fair, accurate, timely, and understandable disclosure in regulatory filings and in other public communications made by Royal Dutch Shell. Reporting

Each COE Addressee shall report any breach thereof in writing to: (a) the chairman of the Audit Committee in the case of: (i) the Executive Directors of Royal Dutch Shell, (ii) the Chief Financial Officer, (iii) the Chief Internal Auditor and (iv) the Executive Vice President-Controller, and (b) the Executive Vice President Controller in the case of any other COE Addressee. No person reporting in good faith a suspected breach of conflicts of interest should be concerned about retaliation by Shell companies. Any job holder or person involved in retaliation will be subject to the sanctions referred to below. Accountability

Each COE Addressee is held accountable for the full compliance with this Code with respect to any issues within his control.  Sanctions for a breach of this Code shall be determined by: (i) the Board of Directors of Royal Dutch Shell where it concerns the Executive Directors of Royal Dutch Shell or the Chief Financial Officer; and (ii) the Audit Committee where it concerns any other COE Addressee.  Sanctions may include serious disciplinary action, removal from office and dismissal as well as other remedies, all to the extent permitted by law and as appropriate under the circumstances.

(http://www.shell.com/home/content/aboutshell/who_we_are/our_values/code_of_ethics/) Shell bad practice

Contempt case for Shell over gasBy Richard BlackEnvironment Correspondent, BBC News website

The oil multinational Shell is facing contempt of court proceedings in Nigeria over gas flaring. Last month, a court ordered the company to stop flaring gas from oil wells in the country, which accounts for much of Africa’s greenhouse gas emissions. Shell has not halted the practice, so campaign groups have initiated proceedings for contempt of court, which can result in imprisonment. Shell has appealed against the initial judgment and denies it is in contempt. Waste of resources

In November, the Nigerian Federal Court, sitting in Benin City, ruled on a case brought by environmental and social groups on behalf of the Iwherekan community of Delta State. They argued that flaring creates significant local pollution and health problems, and is inherently wasteful of a resource which could bring income to local communities. International environmental groups also argue it is a significant source of greenhouse gas emissions, with flaring in Nigeria perhaps the biggest source of emissions in Africa.

The Benin court ruled that gas flaring amounts to “…a gross violation of [the plaintiffs’] fundamental right to human life and dignity…”, and that Shell and the Nigerian National Petroleum Corporation had broken national law by failing to carry out an environmental impact assessment. By failing to stop flaring, as ordered by the court, campaigners now argue Shell is in contempt, and have initiated proceedings in the Federal Court. “Since judgment was passed, Shell has not halted her illegal activities,” said Nnimmo Bassey, of the Nigerian group Environmental Rights Action. “We see a multinational corporation that has no respect for the rule of law, but who at every turn loves to characterize local people as vandals and saboteurs.”

Earlier this month, an attack with explosives on an oil pipeline forced Shell to suspend extraction at two of its wells and delay shipments. The background to this and other incidents is the view held by some Nigerian communities that they do not benefit from oil wealth, with profit going to the multinationals. “It’s astonishing that Shell has not complied with this court order preventing it from continuing gross violations of human rights,” added Peter Roderick of the international organization Climate Justice, which has been involved with the action. “Its behavior seriously undermines respect for the rule of law that its operations rely on.” Appeals pending

In London, a Shell spokeswoman said that the company did not believe itself in contempt. “The Benin High Court went ahead with its decision despite the fact that Shell Nigeria’s preliminary appeal on jurisdiction was still outstanding,” she told the BBC News website. “In addition, the company has made a further appeal because it believes that the court did not adopt the correct procedure. “Our appeals will be held by the Nigerian Court of Appeal; until then, our understanding is that we are not in contempt of court for continuing to flare gas.”

The company says it flares the gas rather than processing it because there is no local market and no facilities which could liquefy it for export, though such facilities are now under development. Shell and the Nigerian government have both committed to phase out flaring in Nigeria by 2008. In 2004 the World Bank said that companies operating in Nigeria, which include Shell, ExxonMobil and Chevron, flare 75% of the gas that they produce (http://news.bbc.co.uk/2/hi/science/nature/4556662.stm)

This is an example of a bad practice because Shell is endangering theenvironment and the people who lived in that area. While the judge order them to stop flaring gas and they didn’t stop.

Shell best practice

Shell Foundationfuelling changeMore than three billion people, or almost half the world’s population, cook in their homes using traditional fires and stoves that use fuels such as wood, dung and crop waste. They spend much of their time indoors breathing in lethal fumes which, according to the World Health Organization, claim the lives of 1.5 million people a year, or one person every 20 seconds. Women and children make up the majority of these deaths due to their increased exposure in the home.

The Shell Foundation and the US-based environmental non-profit organization Envirofit International hope to change that bleak picture. They’ve set up a partnership that has the potential to significantly reduce the number of global deaths caused by this form of ‘indoor air pollution’.

The Foundation, which was established by oil company Shell in 2000 as an independent charity, is providing Envirofit – which specializes in green engineering – with $25million (£12.1m) of investment and organizational support to form a programme that should see 10 million clean-burning stoves sold in India, Latin America and Africa over the next five years. Envirofit, working with Colorado State University’s Engines and Energy Conversion Laboratory, will design, develop, market and distribute the ‘clean-cook’ stoves, which emit significantly fewer toxic emissions and use less fuel.

Scientists at a private US firm, Berkeley Air Monitoring Group, will carry out detailed evaluation of the stoves once they are put into the field. And all parties have pledged to develop the programme with a keen eye on the real, rather than perceived, needs of their future customers.

Shell Foundation initially got involved with the indoor air pollution issue in 2002, running nine pilots as part of its ‘Breathing Space’ initiative in seven countries with various bodies, many of whom will be involved in the new push. One of the partners, Harish Hande, managing director of Selco India, an Indian social venture enterprise, says the programme is ‘a breath of fresh air’ because it’s based on trying to provide something of real value to its target group, rather than handing a product down to them.

The fact that the stoves will be sold – at prices ranging from $20–$150 (£10–£75) – is important. The partners believe the commercial, rather than aid-driven, model will provide a more sustainable way of tackling indoor air pollution – because it relies on market mechanisms to guide product development and drive consumer demand, instead of aid agencies donating or subsidizing the sale of stoves.

The Foundation hopes that by treating people as customers rather than aid recipients, the stoves will be seen by householders as high-quality, aspirational products. ‘The only way we’re going to make a significant long-term impact and achieve the scale needed is to get private sector thinking involved,’ argues Shell Foundation director Kurt Hoffman.

It’s early days yet, but if the model proves to be as effective as Hoffman and his partners hope, then the return in human terms could be significant. (http://www.ethicalperformance.com/bestpractice/casestudy/73) This is an example of Shell best practice because Shell investing money into research on how to reduce indoor pollution. This will help save many lives. Shell’s Ethical Dilemma’s

Human rightsHuman rights represent the fundamental rights that people have, pure due to the fact that they are human beings. Human rights are thus conceived as universal and count for everyone equally, these rights may exist as natural rights or legal rights, in both national and international law. Also they were not created by any government or any other legal group, and they are not able to cancel these rights out either.

All this because human rights are supported by treaties and international conventions ( for instance the UN Global Declaration of Human Rights in 1948), these include political, economic, and cultural rights, as well rights for life, liberty, freedom, right of association, religion, belief, free speech, education, information, nationality, movement, and equality before law.

No country is obliged to promulgate these rights; however they function as a model of concern for people and form the basis of many modern national constitutions, as well as a measurement tool for government’s treatment towards its people. In the twentieth century a worldwide agreement has been developed, this agreement refers to the jurisdiction institutions of nations versus the international moral code.

It determines that some particular kinds of treatment and benefits are mandatory for all humans just because they ‘are’ human. John Locke (1632-1704) a Scottish philosopher claimed that human rights are essential moral aspects and entitlements to life, liberty, and property.

He is best known for his expression of human rights from the Virginia Declaration of Rights in 1776. He stated that: “All men are by nature equally free and independent and have certain inherent rights, of which, when they enter a state of society, they cannot, by any compact, deprive of divest their posterity.” (http://www.sfu.ca/~aheard/intro.html)

(http://www.businessdictionary.com/definition/human-rights.html) The Universal Declaration of Human Rights All quoted from www.un.org

Whereas recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world, Whereas disregard and contempt for human rights have resulted in barbarous acts which have outraged the conscience of mankind, and the advent of a world in which human beings shall enjoy freedom of speech and belief and freedom from fear and want has been proclaimed as the highest aspiration of the common people, Whereas it is essential, if man is not to be compelled to have recourse, as a last resort, to rebellion against tyranny and oppression, that human rights should be protected by the rule of law, Whereas it is essential to promote the development of friendly relations between nations.

Whereas the peoples of the United Nations have in the Charter reaffirmed their faith in fundamental human rights, in the dignity and worth of the human person and in the equal rights of men and women and have determined to promote social progress and better standards of life in larger freedom, Whereas Member States have pledged themselves to achieve, in co-operation with the United Nations, the promotion of universal respect for and observance of human rights and fundamental freedoms, Whereas a common understanding of these rights and freedoms is of the greatest importance for the full realization of this pledge, Now, Therefore

THE GENERAL ASSEMBLY proclaims THIS UNIVERSAL DECLARATION OF HUMAN RIGHTS as a common standard of achievement for all peoples and all nations, to the end that every individual and every organ of society, keeping this Declaration constantly in mind, shall strive by teaching and education to promote respect for these rights and freedoms and by progressive measures, national and international, to secure their universal and effective recognition and observance, both among the peoples of Member States themselves and among the peoples of territories under their jurisdiction.

All Human Rights Articles including this definition can be found on: (http://www.un.org/en/documents/udhr/index.shtml) Shell and Human Rights

Nigeria, Shell Global was accused under the law of human rights violations against the people of Ogoni and the company’s image and reputation was badly damaged. This lead to Shell being charged with complicity especially for the execution of Ken Saro-Wiwa and eight other members of the Ogoni tribe, who began to demonstrate against Shell’s activities and where the founders of the Survival of the Ogoni people. It seemed that Shell had been working together with the Nigerian military and police force, supporting them with funds to ensure suppression of any demonstrations and protests of activists in Nigeria.

In 2009 they agreed to a settlement of $15.5 million. (http://ccrjustice.org/ourcases/current-cases/wiwa-v.-royal-dutch-petroleum) The importance of public reputations regarding businesses increased in the mid 90’s, because of the tragic incident in Nigeria as well as other issues Shell Global was accused of in this time period. Damage on Shell’s image as well as the boycotting of customers have caused massive profit collapses and made Shell formulate a new strategy approach to regain the confidence of society as an ethical company.

This is something some companies loose out of sight, when blinded with profits and rising number one tends to forget ‘how’ you obtain these as long as you obtain them, ethical or not. In 1998 Shell Global published a report in which the commitment to corporate social responsibility was presented and was called “Profits and Principles- Does there have to be a choice?”. This report was one of the first Corporate Social Responsibility (CSR) reports published by a large multinational company. Shell learned the hard way that in order for companies to ensure long-term success they must adopt a stakeholder value approach.

“A firm’s stakeholders include those who effect or are affected by the firm’s goals” (As stated by Edward Freeman in: 1984 cited Werther and Charter, 2006, p. 3).

A firm’s purpose in not only to maximize their profits to in turn satisfy their stakeholders, but also a business exists to satisfy all stakeholders’ needs and therefore needs to be aware of the external environment and meet the societal expectations set by these stakeholders. All these Stakeholders belong to different kinds of groups, and purchase different kinds of interest and each of them invests efforts as well as trust in the corporation.

This corporation’s task is to balance the differences in interest among the stakeholders since they are not only groups who can help a business stimulating growth (and more), but also able to hurt one (the image and therefore profits etc.). If the wellbeing of all stakeholders is not carefully taken into account, the firm’s reputation, in this case Shell Global, might easily be damaged. Nowadays, scandals and negative events regarding one or more stakeholder group’s spread like wildfire, because of the social media, think about the Newspaper, Television, and of course the Internet.

The “Profits and Principles” CSR report was a first attempt of Shell to address different stakeholders and to be aware of their distinguished interests. Furthermore it informs about their business principles and how their Statement of General Business principles is put into practise. Also it includes issues and dilemma’s the Shell is facing on global scale, an example of one of these dilemma’s is for instance Human Rights. They could also include renewable resources and operating in politically sensitive regions.

Principles listed in the Shell CSR report also contains a section about their responsibility towards society and what they view as their responsibilities to be (or become) a good corporate citizen. For instance “Observing the laws of the countries in which they operate, to express support for fundamental human rights in line with the legitimate role of business and to give proper regard to health, safety and the environment”.

This report also states that Shell is engaged in social investments and charitable giving, which lifts a positive