Changing Business Environment

IntroductionThis paper is an assignment for the subject module Principles of Corporate Communications (ABCR 2103) of Bachelor of Business Management Offered by the Faculty of Business Management in Villa Collage, Maldives. For the purpose of the discussion of this assignment I have taken Royal Dutch Shell PLC, a multinational company registered in Netherland. This project is consisting of main three parts, an over view of the company, which gives detailed background of the company and history of the company, how it was formed and main areas of business interest and also the management of the business and organizational structure of the business.

Second part is consisting of the major setbacks and challenges faced to the company by the home and abroad, internal and external. Which includes challenges mainly faced by the Human Rights Action Groups, and extend of these challenges and the following consequences. In the final part I looked at how company reacted the challenges faced and how the company adapted its corporate communication strategies through restructuring and reviewing process to eliminate the negative impacts of those challenges and the same time giving details of the adaptation process I looked at the efficiency of those processes and resulting effects to the reputation of the company and stake holder confidence.

Overview of the companyRoyal Dutch Shell Plc is a public limited company founded in Hague, Netherlands and registered office in London, UK. This business was formed in 1833 as a retailer to sell sea shells by Marcus Samuel and later began import export. Then in 1892 the first oil tanker was commissioned and in 1897 the company was incorporated as “Shell Transport and Trading Company”. At same period Royal Dutch company was also formed and began business.

These two companies were merged in 1907 as 60: 40 ratio holding for Royal Dutch and Shell Transport and Trading respectively and founded Royal Dutch Shell PLC, commonly known as Shell. (Wikipedia). Shell is the largest company with £149.2 billion market capitalization at the end of 2011.

(Ranking) According to the 4th Quarter Results of 2011, Shell has more than 90,000 employees, which generated just over $ 470 billion revenue securing profit of over $31 billion. (Wikipedia) Shell is a vertically integrated company which has operations in all the stages of petroleum and gas related businesses, namely oil exploration, drilling, refining, transportation and distribution.

Shell has operations in over 90 countries, and 40,000 outlets worldwide. The expansion of company was supported by the fast growing automobile industry and oil-fuelled ships. (Grant, 2002) During 1970s shell like other companies began to diversify to other areas of business other than primary gas and oil by acquiring other companies such as Billiton (1970) metal mining company, US and Canadian coal companies (1976 – 7) and Witco Chemical’s polybutylene division in 1977.

(Grant, 2002) Early 2000 shell moved into renewable energy business however this is short lived and in 2003 Shell started disposing these businesses. In 2006 Shell sold its entire solar power generation business and in 2008 it withdrew from most ambitious London Array wind farm project. (Times, May 2008) But still shell holds a half of Raizen, joint venture with Cosan, to produce ethanol.

The organizational structure of the Shell has changed during the past few decades. It has been described as the among the three most international organizations. The group of companies is divided into four types, parent companies, the group holding companies, the service companies and operating companies. The managerial responsibilities of group is carried out by the Committee of Managing Directors (CMD) which is the top management team. That is five managing directors, three from Royal Dutch and Chairman and Vice Chairman of Shell.

The Peter Voser is the CEO of the company and Jorma Ollila is the Chairman. This is totally different organizational structure than other competing giants such as Exxon and Total, those companies are having CEO’s with autocratic powers. (Grant, 2002) This makes Shell more difficult to restructure the organization. However due to unsatisfactory financial performance and increased pressure from the share holders over the rate of return of Shell during 1990s forced CMD to take more drastic measures which puts more emphasis on short term return than the long term development of the company.

Changing business environmentEven though shell is one of the largest multinational company of its kind, it faced strong and risky challenges during the past few decades. These challenges are not only from the other competitors but also from the governments and other national and international organizations advocating for different right and responsibilities. Here I will look at some of such events Shell faced in past few decades.

* April 1995 Shell decided to sink its aged oil storage buoy named Brent Spar in the Atlantic. However as a surprise for the executives and policy makers on April the same year, environmental activists from Green Peace and occupied the buoy for consecutive three weeks. Green peace advocated that the sinking of the old Brent Spar buoy will be the major environmental disaster which destroys the surrounding eco system. The following media coverage lead public stands against the Shell and consumer boycott especially in Germany which lead to the huge decline in the retail sales at the outlets.

Due to this public stance, government officials from respective countries asked Shell to postpone sinking of the buoy. On 20th June Shell abandoned its initial plan and announced it will consider alternative methods to deal with the Brent Spar. * In 2004 Shell was fined by £17 million by the Financial Services Authority , following the overstatement of its oil reserves. Due to this turmoil chairman of the group Philip Watts resigned. And in 2007 law suit against the Shell was concluded and resulted a payment of $450 million to stake holders. * On January 15th of 1999 Shell super tanker in Argentina collided with another tanker. This resulting huge oil spill polluted the lake with its drinkable water.

Due to this accident Shell was criticized heavily about its environment and safety measures. * In 1996 human rights activist groups suspected Shell for alleged human rights violations in Nigeria. Those groups accused Shell for aiding and abetting of hanging of Ken Saro-Wiwa and eight other leaders of human rights activist group. However Shell denied all the allegations but agreed to pay over $15.5 million in 2009 following a lawsuit against Shell and head of its Nigerian operation Brian Anderson. (Wikipedia) Handling of communications in Shell

Shell acted upon the past events and handled most of the public reactions following major criticisms against the company. Shell’s review and dialogue processes that started in 1996 have later been continued and strengthened by establishing better mechanisms to facilitate communication between the company and the external world (Tangen, 2003). Following a Saro Wiwa and Brent Spa incident Shell started consultative process and review of business strategies. these two incidents had a great impact on the scope of these restructuring and new policies. These reviews was conducted to understand the public expectations and reputation of the company.

Despite the great effort from the company, public criticized Shell projects started in 1995 in Columbia and Peru and this lead to withdrawal of Shell from both these projects in 1998. Shell published its famous report “Profits and Principles – does there have to be a choice?” in 1998 outlining the companies policy towards integrating social responsibility into its overall business strategy. Again in 1999 Shell published its second report “People, planet and profits – an act of commoitment”.

In this report Shell emphasized more on sustainable development, and Human rights. In his personal introduction, the new Chairman of the Committee of Managing Directors, Mark Moody-Stuart, emphatically reaffirmed the new visions: ‘We have to show…that our activities…create wealth that can benefit society as a whole…and work to ensure that our actions meet the needs of the present without compromising the ability of future generations to meet their own needs.

Far from being a drag on our performance, such a commitment helps us understand the world better and improves our chances of success…Our businesses can best thrive by enthusiastically embracing this agenda…(We) are totally committed to a business strategy that generates profits while contributing to the well-being of the planet and its people. We see no alternative’. (Tangen, 2003)

Due to the accusations of human rights violations Company formed a twelve member Social Accountability Committee in 1997. The committee was responsible to review the policies and conduct of Shell companies on the grounds of human rights and social responsibility. In light of these reviews committee published human rights guide for Shell managers “Business and Human rights. A Management Primer”.

This guide gives balanced introduction to the human rights issues affecting its businesses; however it does not give guidance how to handle human right issues in the normal business. This guidance paper is actually aimed at giving guidance for the managers how to handle accusations of company’s non-compliance of human rights issues in different jurisdictions at the same time giving some degree of leeway to the corresponding managers of the operating companies

. Shell claims that it does not collaborate with companies that fail to meet their standards on environment, human rights or child labour. According to the company more than 95 contracts were cancelled during 1997 because contractors did not meet the company’s standards. (Tangen, 2003). This clearly gives the impression for the stake holders that company is strengthening its compliance with the grievances of the human rights actions groups and this has some degree of positive influence towards the reputation of the company.

According to the Royal Dutch Shell – Sustainability Integration Case Study, Shell will consult with international and local stakeholders before making investment decisions and has also committed to provide full and relevant information to legitimately interested parties on its activities and Shell produce country or project specific environmental and social performance reports to enhance local stakeholder engagement.

Stakeholder engagement is critical and Social Performance Management unit in the corporate centre provides expertise and support to projects and facilities in this area. In 2006, Shell selected Microsoft to provide Software powered unified communications to more than 100,000 users worldwide. Shell started a pilot project in 2007 comprising 800 users of Microsoft Office Communications Server 2007.

This project is aimed to increase efficiency and increase collaboration between the partners with reducing cost and business travels. (Systems, 2007). John Krebber, the Dutch Shell Group’s IT architect stated relating to this programe “ our primary aim in deploying Office Communications Server 2007 is to give greater flexibility to our key employees and add value to what they do through a better working environment”.

ConclusionRoyal Dutch Shell Plc is one of the largest companies in its kind in the world in terms of its revenue and return for shareholders which were founded in 1907. The company was originated by the merger of two separate companies Royal Dutch and Shell Trading and Transport giving splitting stakes of 60:40 respectively. Shell has more than 90,000 employees and annual revenue reaching $470 billion at the end of 2011.

Company was controlled by the Committee of Managing Directors consisting of 5 members, three from Royal Dutch and two from Shell Trading and Transport and they do not have autocratic powers unlike other oil majors which make it vulnerable and difficult to restructure. However events in 1990s make company to take drastic measures and restructure due to financial constraints.

When company decided to sink its old Brent Spar buoy in 1995, Green Peace took occupied it for 3 week and lead to boycott following media reports. At the same time human rights groups accused Shell for human rights violations in Nigeria in 1996, facing a lawsuit resulting Shell agreed to pay $15.5 million compensation even though denying the allegations. The investor confidence over the Sell drastically reduced due to the oil spill in Argentina in 1999 and overstatement of oil reserves in 2004 and fine by the Financial Services Authority.

Due to the events in 1990s company’s restructure program was launched and different papers were published aimed at gaining investor confidence over the company. Some of those papers are “Profits and Principles – does there have to be a choice?” (1998), “People, planet and profits – an act of commoitment” (1999) and Social Accountability Committee was formed in 1997 which published guidelines for managers relating handling of human rights issues named “Business and Human rights. A Management Primer”. In 2007 Shell contracted Microsoft to deliver Microsoft Office Communications Server 2007 aimed to reduce cost and enhance efficiency.

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