Corporate social responsibility: Shell Oil-Nigeria case study

Shell Corporate Social Responsibility

Abstract

Corporate Social Responsibility, CSR has become an important element in the business strategy of a growing number of companies worldwide. A large number of initiatives have been developed that aim to support companies in developing, implementing, and communicating about CSR, Shell Oil-Nigeria stands out (Arvidsson, 1996).

Corporate scandals are becoming the order of the day, thus giving reasons for the escalation of social and ethical commitment of society, putting pressure on companies to be transparent about their CSR. CSR is today the basic tool most multinational corporation initiates for development in third world countries globally. The Royal Dutch/Shell group of companies, the parent company for Shell Oil-Nigeria commenced drilling oil in Nigeria in 1958.

The company is not only drilling crude oil for shipment overseas but also refining some in Nigeria. Nigeria’s crude oil ranks high in quality and is a huge supply, thus climbed Shell Oil-Nigeria to the top in 1994 as the company that made more money than any company globally. However, the company fell short of its corporate social responsibility by 1996 by getting involved with unethical practices (Arvidsson, 1996).

This paper discusses how shell abused the environment and the human right of the Nigerian people and manipulated local government for profit. According to Draft, CSR is an extension of the idea of managerial ethics and refers to management’s obligation to make choices and take action so that the organization contributes to the welfare and interest for all stakeholders and the community in which it operates is no exception (Draft, 2011).

Introduction According to Draft, many companies are embracing the notion of share value, which refers to organizational policies and practices that enhance the economic success of a company and advance the economic social condition of the host communities (Draft, 2011). The paper draws its empirical material from the CSR reports and information posted on the website of Chevron, as it relates to Shell-Nigeria. Shell Oil Nigeria its parent company as known in the United States, Chevron Oil Company explores for and extract crude oil in Nigeria, the Niger Delta region.

The Dutch oil company, Shell is a global group of energy and petrochemical companies with headquarters in The Hague, the Netherlands, operates in more than 140 countries and territories worldwide. The parent company of Chevron is Royal Dutch Shell plc that is incorporated in England, and Wales. The United States headquartered in Houston, Texas.

These oil products are transported and shipped in terms of millions to billions or barrels, to various oil terminals and refined into various product grades, distributed to be sold to various consumers (Mosley, 2000). This paper discusses the corporate social responsibility of Shell Oil-Nigeria, as this relates to the Royal Dutch Shell’s organizational structure, internal environment, organizational culture, and its competitive advantage. Organizational structure

The organizational structural is the framework around which the company is organized, the underpinnings that keep the coalition functioning. According to information retrieved from Chevron’s website, “at the beginning of 2000, the Royal Dutch/Shell Group of Companies (Shell) was emerging from one of the most ambitious and far-reaching organizational restructurings of its 93-year history. The restructuring had involved the shift from a geographically-based to a primarily business sector-based structure, the elimination of over 1,000 corporate positions, the sale of much of its London headquarters, and the redesign of its systems of coordination and control.

The restructuring had been precipitated by the realization that Shell would need to change the way it did business if it was to retain its position as the world’s largest energy and chemicals company and offer an adequate return to shareholders in an increasingly turbulent industry environment. From an ownership and legal perspective, the Royal Dutch/shell group of companies comprised of four types of companies (shell.com, 2012).”

The four types of companies all operates in a pyramid hierarchy style of leadership. The decision comes from above.

1) “The parent companies.

Royal Dutch Petroleum Company N.V. of the Netherlands and the Shell Transport and Trading Company plc of the UK owned the shares of the group holding companies (from which they received dividends) in the proportions 60 % and 40%. Each company had its shares separately listed on the stock exchanges of Europe and the US, and each had a separate Board of Directors.

2) The group holding companies.

Shell Petroleum N.V. of the Netherlands and The Shell Petroleum Company Ltd of the UK held shares in both the service companies and the operating companies of the Group. In addition, Shell Petroleum N.V. also owned the shares of Shell Petroleum Inc. of the US – the parent of the US operating company, Shell Oil Company.

3).The service companies.

During the early 1990s, there were nine service companies located either in London or The Hague. They were: –Shell Internationale Petroleum Maatschappij B.V. – Shell Internationale Chemie Maatschappij B.V. – Shell International Petroleum Company Limited – Shell International Chemical Company Limited – Billiton International Metals B.V. – Shell International Marine Limited – Shell Internationale Research Maatschappij B.V. – Shell International Gas Limited – Shell Coal International Limited The service companies provided advice and services to the operating companies but were not responsible for operations.

4) The operating companies (or “opcos”) comprised more than 200 companies in over 100 countries (the 1993 annual report listed 244 companies in which Shell held 50 percent or more ownership).

They varied in size from Shell Oil Company, one of the largest petroleum companies in the US in its own right, to small marketing companies such as Shell Bahamas and Shell Cambodia. Almost all of the operating companies operated within a single country. Some had activities within a single sector (exploration and production (E&P), refining, marketing, coal, or gas); others (such as Shell UK, Shell Canada, etc).

Managerial control of the Group was vested in the Committee of Managing Directors (CMD), which forms the Group’s top management team. The Committee comprised five Managing Directors. These were the three-member Management Board of Royal Dutch Petroleum and the Chairman and Vice Chairman of Shell Transport and Trading. The chairmanship of CMD rotated between the President of Royal Dutch Petroleum and the Managing Director of Shell Transport and Trading, (shell.com, 2012).

Environmental Issues

Is it possible for Oil companies extracting crude oil to operate without a divesting effect on the environment? The answer is no. Yes this is very possible. Even the oil companies that have experienced spills among other blamed it on human error. In the case of Nigeria, the destruction of the environment is enormous, going on without check and responsibility. The Nigerian government that should be holding Shell to account is the one protecting Shell. Shell Oil-Nigeria, operates in the Niger Delta, and the ecological destruction comes in the form poorly situated pipelines causing oil spills, gas flaring, among others.

Other problems are waste disposals of chemicals in landfills, causing depleting ozone gases. The countless number of oil spills in the Niger Delta is outrageously high. According to an independent record of the spills as reported that” Shell-oil Nigeria spilled about two million gallons of crude oil on 27 separate incidents in ten years, between 1982 and 1992. This amounted to about 40% of Chevron total global oil spills. The report noted that Shell uses blamed the oil spills on sabotage as a tactic so as not to take the blame for the spills, especially for the ones in Nigeria.

The same report noted that about 11% of spills between 1976 and 1990 can be attributed to sabotage. Shell-Oil Nigeria experiences significant amount of gas flaring to the tune of about 76% of natural gas pumped up with crude oil and allowed to burn off as compared to 0.6% in the United States.

Because this gas flaring is allowed to burn out instead of figuring out ways to put it out, to emit an estimated 34 million tons of carbon dioxide and about 12 million tons of methane in the environment, thus counting Nigeria as one of the world’s largest contributor to global warming. Global warming is not the only consequence of the gas flaring; it is causing ecological disaster such as death of plant and wildlife, pollution of the air and water that have residence suffering from hearing and respiratory problems” (shell.com, 2012). Social and Political Issues

According to Draft, companies are using a wide variety of mechanisms to support and reinforce their ethics initiatives on a global scale. One of the most useful mechanisms for building global ethics is the social audit, which measures, and reports the ethical, social, and environmental impact of a company’s operations (Draft, 2011). The ecological disaster shall has cause in the Niger Delta region, has paralyzed the region, and brought the inhabitants to the brinks of war with their own national government.

The tremendous dissatisfaction of the people in the region with Shell Oil-Nigeria presence has made them to result into sabotage actions, such as blocking supply route and holding Shell Oil-Nigeria hostage and requesting for reparations. This action by the people in the region are based on few factors, such as shall deliberate refusal to take any action toward corporate social responsibility, thus leading to the development of a poor relationship between Shell and the people of the region. The communities in the region are not a direct beneficiary of the proceed of the oil revenue. The region lacks farm to market roads, schools, and other basic infrastructures that serve as a catalyst for development.

The Nigerian government, including both military and civilian government of the past up to current has failed the people of the Niger Delta. The people have not gotten their share of the Nigerian pie. Basically the people in the region problem are so dare to that they are considering it as a human right violation. Their attempt to call authorities attention to the problem by a peaceful protest, only made their situation worse. Some parts of the region have taken up arms against Shell and their government blocking access to the region. The government response only worsen the situation, consequently, human rights violation have played major role in these conflicts.

The most notorious human right violation committed by the Nigerian government was the execution of one of the activist of the region, Ken Saro-Wiwa and eight other men in November 1995. Saro-Wiwa’s only crime he committed was his involvement in a peaceful demonstration protesting the unethical practices of She-oil Nigeria in the Ogoni. Shell pressured the government, thus leading to his arrest and execution (Hammer, 1996).

The Organizational Culture

Organizations operating on a global basis often face particularly tough ethical challenges because of the various cultural and market factors they deal with and Shell oil is no exception. Draft noted that even though organizational cultural may vary widely, there are specifics components that characterize a global culture (Draft, 2010). Shell’s culture of machismo (a well chosen word) and not wanting to change things is not peculiar to Britain and the USA.

It happens in Ireland too. Qualified people brought in to do Quality Control and Safety Review not realizing that they were hired as a fig leaf (shell.com, 2012). Concerning third world countries, the organizational cultural is practiced differently. It is assumed that these companies are playing by the rules as dictated by the authorities in these countries. These multinational companies’ organizational culture in the third world is subject internal political maneuverings of the host countries.

Shell’s Competitive Advantage Draft noted, competitive advantage sets the organization apart from others and provides it with distinctive edge for meeting customer or client needs in the marketplace (Draft, 2011). Training and innovation has been responsible for shell competitive edge. According to news and media releases, shell for the third consecutive year was named the number one global lubricants supplier – selling more lubricants in 2008 than any other supplier in the world. Shell has a history of lubricants innovation stretching back more than 70 years (shell.com, 2012).

  • “In the 1960s Shell was the first to launch multi-grade engine oil for use in all vehicles in all seasons
  • In the 1970s Shell pioneered the use of detergents in vehicle oils to help keep engines clean
  • In the 1990s, Shell was first to market with a ‘low SAPS’ engine oil, with lower levels of Sulphated Ash, Phosphorous and Sulphur. Using low SAPS oils can help to reduce diesel exhaust emissions, by protecting after-treatment devices
  • In the 2000s, Shell Lubricants in the US introduced the first aftermarket motor oil specifically designed for the special needs of hybrid vehicles - Pennzoil Platinum® Full Synthetic for Hybrid Vehicles” (Shell.com)

Conclusion

According to Draft, studies have provided varying results but generally have found that there is a positive relationship between ethical and social responsibility behavior and financial result (Draft, 2011). These studies provide indicators very successful firms have turned out to be the best corporate citizens, in that they have good reputations and for what they do for their stakeholders, and most especially, the community in which they operates. CSR is the contribution that a company makes to society as a whole to become sustainable, and extends to both social and environmental responsibility as well as financially viability. In the case of shell-Oil Nigeria this is the opposite, the communities in which Shell operate in Nigeria are the most neglected, and the politicians that authorized the operation are the most satisfied, all of whom have foreign bank accounts.

The recommended changes in the way in which Shell-Oil Nigeria takes care of its CSR is no give it directly to Non-Governmental Organizations NGOs, who have development plans for their areas, instead of giving it directly to the politicians. NGOs are developmental organizations formed purposely for bringing to their communities mush needed development. Shell will need to create a department especially, responsible for the implementation and follow-up, to ensure spills are clean up, monetary compensation for losses (i.e., land, resources, income) are given to the proper individuals, groups or communities. Shell-Oil Nigeria must respect the views of the people in the communities in which it operates; this will curtail the arm struggle, and bring peace between all stakeholders.

References

  • Arvidsson S., (1996). Journal of Business Ethics, Online research in Philosophy, Communication of corporate social responsibility: A study of the views of management teams in large companies. Entries: 504,043, New the week: 494 (Retrieved 10/2012)
  • Daft R. L. (2011) Organization Theory and Design., Cengage Learning, South-Western, Vanderbilt University, 11th edition
  • Hammer, J. (1996). Harper’s Magazine Foundation, “Nigeria Crude: a changed man and an oil- fouled landscape. (execution of ken Saro-Wiwa)” Web Journal Retrieved 10/19.2012
  • Mosley, Alisa L. “ A Quantitative Approach to Management: Management in Today’s Organizations.” Journal of Management Studies, 2000.