2.1Introduction This chapter will provide basic knowledge of Shell Nigeria Oil Company and its operation in Nigeria, in particular regarding its ethics, performance, social involvement, contribution to national income and its contribution to keeping the environment green.
Since the Rio Conference of 1992 the code of conduct for all extractive industries including crude oil mining companies has underlined the following principles that should be respected in doing business: i.Social and economic development of host communities
ii.Provision of basic social services iii.Regard for Human Rights iv.Good governance and civil society involvement. There have also been some initiatives by NGOs and interest groups within the extractive industries such as: i. Publish What You Pay ii.World Bank Extractive Industries Review iii.Extractive Industries biodiversity initiatives iv.Global Reporting initiatives
2.1.1How far is shell involved in these international processes? Crude oil was first discovered in commercial quantity at Olobiri community in the Ijaw heartland of the Niger Delta region of Nigeria in the year 1956. Two years later other wells were struck in Ogoni community also in the Niger Delta by Shell.
The indigenous communities of Oloibiri and Ogoni happily welcomed the Shell Petroleum Development Company to their territories over four decades ago because they believed that the company would open their area to modern development. Since 1956, the relationship between Shell and its host communities in the Niger Delta has deteriorated for various reasons: i.Shell refuses to recognize them as the landowners as it pays very little or no compensation for their land and trees destroyed as a result of oil prospecting;
The 20 percent rent and royalties that should be paid to them is instead paid to the Nigerian central government, in addition to the petroleum profit tax (PPT); ii.In the process of searching for crude oil, Shell degrades their forests destroys their ancestral homes, disturbs their shrines, deities, holy places and zones of cultural heritages. In the Niger Delta today, the business of oil mining is a major contender for land, forest and water.
This leads to displacements, social decline, and environmental degradation, loss of daily livelihood, community impoverishment, poverty, disease and death. Since the killing of Ken Saro-Wiwa (leader of the movement for the survival of Ogoni people), and eight other Ogoni activists, by Nigerian state agents after a show trial in 1995, the crisis has spread to other communities in the Nigeria.
For most people including international conflict resolution NGOs who had wanted to intervene in resolving the Niger Delta conflicts, the matter often became complex as Shell very often absolves itself from any blame by shifting everything at the doorsteps of the central government of Nigeria: iii.Shell claims that it is in a joint business venture with the Nigerian federal government (which owns over 50 percent share) and that the government should be responsible for the provision of basic social services in the Nigeria; iv.The Nigerian government for its part does not treat the oil producing indigenous communities as stakeholders in the oil business. It rather ignores them because it believes they are few, poor and weak and therefore cannot threaten Nigerian stability.
2.1.2 Development Projects There have been attempts by government and the oil companies to construct development programmes that will ameliorate the problems of the oil producing indigenous communities like the Niger Delta Development Commission (NDDC) and the Shell constituted Community Development Projects. The demands of indigenous communities towards Shell and the Nigerian Government can be summarized as follows: i.Indigenous communities want compensation paid for their land and economic trees; ii.They want to be treated as stakeholders in all development programmes as they relate to local communities;
They want prior and informed consent in project conception, planning and execution in all crude oil exploitation business; iii.They want the protection of the ecosystem and biodiversity of indigenous and local community territories; iv.They want the revenue sharing formula based on derivation revived at 50 percent to derivation, 35 percent to distributable common pool and 15 percent to the central government; v.They want Shell and the Nigerian government to adopt policies that will recognize indigenous communities as rightful owners in the crude oil business; vi.They want Shell to clean up their environment after many years of ecological devastation and comply with all international standards.
Shell environmental legacy and community relations’ efforts deserve priority attention. What is however involved is the totality of the existence of the communities and their environment, their farmland, economic development, education health, water management, spirituality and cultural heritage – which are daily being threatened.
2.2Introduction and Discussion of Theories and Models from the Literature In this section we would look at the Royal Dutch Shell Oil company operations worldwide and in particular the Nigeria operations from several different angles. We will look at how Shell Nigeria operations can impact upon the three stakeholders; The CEO of Shell, an investor and a local Shell employee. Then we would look at this wicked problem with the oil spill in the Niger delta.
Shell is a global group of energy and petroleum companies. It is headed by Chief Executive Officer Peter Voser and is located in The Hague, the Netherlands. The parent company The Royal Dutch Shell plc is incorporated in England and Wales. According to Forbes Global 2000 the Royal Dutch Shell plc is the fifth largest company in the world. The company boasts of having some of the most stringent code of ethics in the oil industry as well as some of the more environmentally friendly operations and safety records for oil and gas operations worldwide. The company is located in over ninety countries worldwide and has a total staff of around ninety three thousand employees. 2.2.1Ethics
The company emphasizes adherence to its high ethical standards it has set in its code of ethics for all Directors and Senior Financial Officers. In essence the code of ethics states the following: i. They shall all act in accordance with the highest standards of honesty, integrity and fairness and that they should expect the same from others while maintaining a good work relationship that encourages that encourages the same. ii.
They should excuse themselves from any decision making process that may cause conflict of interest by affiliation and should advise about this in writing. iii. Should not have any financial interest in any contracts awarded by any Shell company or affiliates. iv. Should not accept third party gifts that may seem to impact their decision making on any particular issue related to awarding of contracts. v. Avoid any relationship with a contractor that may compromise transacting business in a professional fair and competitive basis.
If any of these codes are broken it is the responsibility of any employee in the organization to report it without any fear of intimidation of victimization. It is clear for anyone to see that Shell has very high standards of ethics engrained in its corporate profile. In today’s’ world there is a strong emphasis on organizations and its managers being ethically strong. These follow the many scandals of large corporations during recent times and the increasing investigations from regulators and the general public at large.
Generally individual countries would have their regulations regarding code of ethics for corporations. Good companies who preach high ethical standards generally operate above the minimum requirements set by these regulations. Operating in such a manner would boost a stakeholder like an investor confidence that the company would not run afoul of the laws. “Shell’s standard for their ethics is considered an asset worth protecting at all cost.”
2.2.2Technology advancement Shell has pledged to continued enhancement of its operation by continually searching for new ways of producing energy in as safe and efficient a manner as possible. To this end they have invested in state of the art technology to enhance exploitation of reservoirs by extracting the maximum possible from wells. They have reduced the flaring of gas from wells thus minimizing the carbon dioxide emitted to the atmosphere. Their facilities are engineered to the latest industry codes in order to maximize production while at the same time reducing the rate of plant and equipment failure and by extensions accidents.
2.2.3Shell’s corporate social responsibility Shell insists on using as many employees as possible from the areas in which it operates, once the necessary skills are available. They have taken a decision to put back money into the communities by assistance with social projects both financially and by volunteering employee and technical assistance where necessary.
In 2010 they spent 13 Billion dollars on goods and services from countries with lower income and over 121 million dollars in voluntary social investments in 2010. Shell has shown tremendous social responsibility by advising that it would take care of oil spills at their location even if the spills were an act of sabotage. They stated they are determined to be transparent in their response to oil spills and have launched a website to track their response to and clean up of all oil spills at their facilities.
From a stakeholder like a local Shell employee’s standpoint this is great news as they wouldn’t think they are working for a company that’s destroying their environment but rather enhancing the community. This would also help Shell’s image in the communities from which these employees come from. Similarly an investor would also be impressed by this because it would minimize the possibility of law suits which may inhibit the company to pay dividends.
Shell Nigeria has even shown faith in local communities by letting them decide on and develop projects themselves while Shell takes care of the funding. 2.2.4Environmental responsibility Shell has insisted that they always do impact assessments by trying to identify the positive and negative impacts that can arise out of their activities. They adhere to all local environmental regulations and consult with the people in the community to work towards ways to continually improve the social and environmental performance.
The environmental impact assessment captures all relevant baseline data and goals are set and tracked throughout the life of the project. This again has a positive effect on the investor stakeholder as it shows the responsibility of Shell to take all necessary precautions before starting a project which minimizes potential operational accidents to plant and environment which bodes well for longevity and stability which would encourage an investor to even invest more in the company.
2.2.5Quality assurance Shell is committed to the highest quality standard as required by law of all countries in which it operates. This is evidenced by the phasing in of all barges to be double-hulled and achieving these seven years ahead of the European Union requirements. Similarly all their ships that transport crude are all double-hulled in an effort to minimize spills from tankers. Here again the investor would be impressed as important steps have been taken to protect the assets and the environment. All of the above measures enhance the Shell CEO as a person who is highly concerned with not just making profits, but doing so in a highly ethical and corporately social and responsible manner.
2.2.6Production capabilities Shell is responsible for two percent of the world’s oil production and 3.3 percent of natural gas production. Over the past five years they have spent over 2.1 Billion dollars on alternative energy development, carbon capture and storage. Shell is a significant player in both the upstream part of the oil and gas business as well as the downstream aspects. On the upstream side they search for oil and gas in every place around the world. On the downstream side they operate over thirty refineries around the world that convert raw crude into lube oils, gasoline, bitumen, liquefied natural gas and a host of other products that the world depends on.
2.2.7Economic contribution Shell has contributed approximately 3.5 billion in royalties and taxes paid to the Nigerian government in 2010. Shell awarded 947 million dollars worth of contracts to Nigerian companies in 2010. Ninety percent of employees employed in Nigeria are Nigerians. They contributed 59.8 million dollars to the Niger Delta development fund and 22.9 million dollars to community development projects in 2010.
2.2.8Wicked problems It is quite clear to see that the issues present in this case make this a wicked problem. Wicked problems can be defined as long complex, obscured, non linear type problems that often do not have any clear cut wrong or right solution to them. They tend to be like a virus that constantly mutating all the time, hence the suggestion by most experts that one comes up with resolutions rather than solutions to wicked problems. (Rittel and Webber) suggest that there are ten criteria for wicked problems. Even thought the criteria seem to overlap and that some scholars advocate they be trimmed to five categories, it’s a mistake people make.
1. “There is no definite formulation of a wicked problem.”One would have to go through an infinite amount of data to understand or solve a wicked problem 2.” Wicked problems have no stopping rules.”A tame problem is stopped when it is solved. Wicked problems are resolved not solved so it never stops. 3. “Solutions to wicked problems are not true-or-false, but better or worse.”Individual s differs according to their personal beliefs etc. and thus has different perceptions on solutions. 4.” There is no immediate and no ultimate test of a solution to a wicked problem.
”Any solution today will spark controversy about another possible solution the next day and so on. 5.” Every solution to a wicked problem is a "one-shot operation"; because there is no opportunity to learn by trial-and-error, every attempt counts significantly. 6.” Wicked problems do not have an enumerable (or an exhaustively describable) set of potential solutions, nor is there a well-described set of permissible operations that may be incorporated into the plan.” 7.” Every wicked problem is essentially unique.”Every wicked problem has its own set of rules. There are no set patterns. 8. “Every wicked problem can be considered to be a symptom of another [wicked] problem.” Because a wicked problem can go on and on and on, it more than likely would have had its genesis from a previous wicked problem
. 9. “The causes of a wicked problem can be explained in numerous ways. The choice of explanation determines the nature of the problem's resolution.”There are no guide lines for determining the right or wrong approach to solving wicked problems. 10.” [With wicked problems,] the planner has no right to be wrong.” Wicked problems can seem to go to infinity, and thus one should look for the right resolution that fits the right time. Because unlike a tame problem which can be classified as linear in nature and can be approach in a logical problem solving manner and come up with a correct or incorrect solution.
Most wicked problems are stakeholder dependent, usually political professional or generally social issues to which there is no right or wrong answer. This case is classified as a wicked problem because of the following issues: 1. The issue of the oil spills.
2. The question of how did the spillage occur? Was it operational or equipment failure? Was it sabotage? 3. Compensation for the people in the affected community. 4. The engagement of the services of unscrupulous companies lacking certification. 5. Whether or not the Government would mandate companies to clean up their spillages and pay adequately people who are affected. 6. Dishonest government officials who may be in bed with the oil pirates.
2.2.9Stakeholders Stakeholders can be classified as, “persons or groups with legitimate interest in procedural or substantive aspects of corporate activity. Stakeholders are identified by their interest in the corporation whether or not the corporation has any corresponding interest in them.” (Donaldson and Preston) In this case it is evident that the CEO, an investor and a local Nigerian employee are all stakeholders in Shell but albeit for their own different reasons. (Donaldson & Preston) further emphasizes that each stakeholder should be given equal attention at the same time.
This is further emphasized by the Stanford Research Institute quote, “Stakeholders are those groups without whose support the organization would cease to exist.” (SRI, 1963; quoted in Walton 1954:31). In other words the managers of corporation should encourage inputs from all stakeholders as a means to an end, i.e. the organization’s ultimate goal of continuity, profitability, growth and establishment.
To understand the principle of equal treatment to all stakeholders, consider a scenario where the community is not taken into consideration and all employees are external to the region. Obviously there will be no support for an entity operating in this environment and it would be subject to protest and sabotage from residents of the community. This would not auger well for the long term sustainability of the organization and certainly would not encourage a stakeholder like an investor to be interested in the business.
In today’s world where businesses are highly scrutinized for the way they operate both financial, sociably and environmentally, it’s of paramount importance for the CEO as a stakeholder to steward his organization to be at the cutting edge of all three facets and enhance his reputation as a leader. An investor stakeholder would be concerned about the stability and longevity of the company and would have issues with the possibility our huge law suits imposed on Shell for damage to the environment caused by oils spills.
This can affect the company’s’ ability to pay dividends. A local Shell employee may similarly have interest in Shells’ sustainability from a personal standpoint of job security as well as concerns for the ecological damages caused by spills that affect their families who depend on fishing and planting the land for survival. 2.3A review of multinational enterprises (A case study of Shell, Nigeria)
There have been increasing demands on multinational enterprises (MNEs) to provide community development programmes and assistance to their host communities, in particular, in developing countries (Amaeshi, Adi, Ogbechie & Amao, 2006) . In other words, meeting locally defined social and economic goals. This is mainly because developmental projects and other social infrastructures are lacking in most of these countries and most of the time they are not provided by the government.
For example, oil companies, particularly, those operating in developing countries are now constantly under pressure to be more open and accountable for a wide range of actions, and to report publicly on their performance in the social and environmental arenas. And because of their impact on politics, economics and society in host nations, they must be more attentive than others in demonstrating social responsibility through initiatives to reduce their negative impact. Holmes and watts, (2000).
It has been argued that multinational enterprises (MNEs) need to take account of the ‘‘social, ethical and environmental perceptions’’ of their operations and how these are likely to shape the future attitudes and actions of stakeholders. Stoner et al (1996) Following this argument, Jackson, (2004) asserts that oil companies attach greater importance to their social and environmental impact and they engage more with local communities than they used to do in the past.
Various community and environmental initiatives may be seen as a response to the threat of stakeholder sanctions. Yet the cries of unethical and immoral behaviour from host communities and nations have continued to grow louder in recent times. Amaeshi, Adi, Ogbechie & Amao, (2006). The clamour has led many multinational enterprises (MNEs) to engage in purposeful soul searching to find a deeper and more convincing approach to ethical systems (Payne et al., 1997).
Furthermore, multinational enterprises (MNEs) alleged double standard, corporate scandals, decline in economic and social development in host communities due to neglect and lack of development initiatives from host governments, has fanned the world-wide debate about the social responsibility of corporations.
According to Dunning, (1999) stakeholders increasingly are looking to the private sector for help with a myriad of complex and pressing social and economic issues. Similarly, it has been argued that it is good business to actively engage all stakeholders in the development of sustainable strategies that reflect both economic and socially responsible outcomes. Holmes and watts (2000)
This discussion is based upon the development issues associated with Shell corporate social responsibility (CSR) initiatives in Nigeria. Its special focus is to investigate the skepticism of host communities in the oil producing communities of Nigeria. In other words, the researcher will examine the rationale behind the criticism of Shell’s CSR projects, bearing in mind that, if well executed, these projects can improve the socio-economic-environment development of the region.
Specifically, the researcher will examine the skepticism that trails shell’s CSR initiatives and community development projects. The fundamental question is: are the host communities benefiting from the CSR initiatives/projects when at the same time their region is alleged to be environmentally devastated as a direct result of oil exploitation and exploration? 2.3.1Study background
In Nigeria today, the most critical issue that affects the oil and gas industry is the Niger Delta (oil-producing region) question, which requires stability in the oil and gas sector. There has been enormous pressure on both the Nigerian government and the Shell to double their efforts and develop the region that contributes more than 80 per cent of Nigeria foreign earnings. Widespread community demands for relevant, direct and sustained benefits from oil/gas and mineral wealth are a relatively recent phenomenon.
So frequently neither government institutions nor companies or communities themselves have been properly equipped to respond to them Oloniyi Opanuga (1986) in developing countries, multinational enterprises (MNEs) are expected to provide some social services and welfare programmes in addition to their normal economic activities. Considerable attention has been asked to be devoted to community development programmes. For example, Shell provides education, scholarships, and builds roads in Nigeria’’.
Similarly, Walton (1954) argues that oil companies have initiated, funded and implemented significant community development schemes. He further asserts that ‘‘global spending by oil, gas and mining companies on community development programmes in 2001 was over US$500 million’’ (p. 581).
In economic terms, these are not the functions of businesses, but in less developed countries (LDCs) these roles, or rather duties, are expected from multinational enterprises (MNEs). Indeed, there have been times when local people in oil-producing regions have turned against multinational enterprises (MNEs) precisely because they feel, as Mitte, the president of Movement for the Survival of the Ogoni People – one of the communities in the Niger Delta put it: ‘’they were not getting enough social and economic infrastructures/assistance from the multinational enterprises (MNEs) that operate in their communities’’.
Regrettably, the lack of visible and positive impact of CSR initiatives in oil-producing communities has been questioned. Evidence suggests that there is a gap between the Shell’s stated CSR objectives and the actual results on the ground. What follows is the criticism of the community development initiatives of the companies because the host communities believe that Shell’s CSR initiatives are not addressing both the social and environmental problems they are intended to resolve.
This assertion is somewhat similar to the argument of Blowfield and Frynas (2005) who suggest that numerous claims have been made about the contribution CSR can make to poverty alleviation and other development goals. They further argue that ‘‘contributors to this issue have reached the conclusion that current CSR approaches do not warrant such claims’’ (p. 499). Shell’s CSR initiatives in the Nigeria have many aspects which include employment issues, environmental issues and local community issues. The region wants employment for their youths; reduction in environmental damage of their farmlands which directly affects their livelihood; and economic and social development of the entire region.
A good example is the Ogoni case in Nigeria. Royal/Dutch Shell began operations in Ogoniland in 1958 in a joint venture with the Nigerian government. Shell is Nigeria’s largest oil producer and generates more than ten per cent of Shell’s total exploration and production profits. $30 billion worth of oil has been taken from Ogoniland so far (Banfield, 1998). However, due to a world-wide campaign against Shell by the Ogoni people, in 1995 the World Council of Churches sent observers to the region who found ‘‘no piped water supplies, no good roads, no electricity, no telephones and no proper health care facilities’’.
Trends such as these raise serious questions about the behaviour of multinational enterprises (MNEs) and have ‘‘contributed to mounting pressures on business to demonstrate its social accountability, especially those multinationals which operate in politically and environmentally sensitive regions of the world, or which have supply chains that extend into those regions’’ (World Business Council for Sustainable Development, 1998). It is pertinent to state here that there has not been much improvement to this date. It should also be noted that the instability and lack of law and order in the Niger Delta is mainly due to the lack of basic infrastructures.
This directly contributes largely to sabotage and kidnapping of oil and oil-related companies’ personnel and presently a major problem in the region. Concern about this development has led to calls from the international community that Shell should do more to improve the living standard of the host communities in the Nigeria. The environmental crises in Ogoniland are indicative of the problems experienced by other host communities in the Niger Delta. The argument is: multinational enterprises (MNEs) have a moral responsibility to protect the physical environment and society in which they carry out their operations.
It is observed that when corporations violate this ‘‘responsibility’’ and behave in an unacceptable ethical manner there is tendency for the host community to protest or demonstrate against them. This is consistent with the definition of an unethical situation defined by Amaeshi, Adi, Ogbechie & Amao, (2006) as:
A situation wherein the actions of a multinational enterprise are commonly perceived to have had a detrimental impact on the host community [and other stakeholders], arousing powerful emotions which express themselves variously through such things as strikes, demonstrations, press campaigns, legal actions, financial sanctions and sabotage.
It is similar to Adi, Ogbechie & Amao’s definition in the sense that the actions of large multinational companies involved was called unethical and there were widespread press campaigns, sabotage and legal actions as a direct result of the companies’ behaviour. The host communities in this case have alleged that the Shell had failed in their obligation to provide necessary infrastructures, safe environment to live and minimize the environmental impact of their operations which directly affect their livelihood. The continued interest of corporations in community and development initiatives has also contributed to the World Business Council for Sustainable Development (WBCSD) definition of social/community involvement (issues) as:
A broad range of activities, including community assistance programs; supportingeducational needs; fostering a shared vision of a corporation’s role in the community; ensuring community health and safety; sponsorship; enabling employees to do voluntarywork in the community; philanthropic giving. The World Bank also acknowledged the importance of corporate social involvement/ investment issues when it stated in its 1995 annual report that: Evidence that human capital development is critical for overall economic and social development is not new. What is new is that the awareness of its importance has gone beyond the confines of academic scholars and social reformers and has entered into thinking of mainstream decision-makers Karake-Shalhoub, (1999).
The argument goes further that multinational enterprises (MNEs) have role in global development not only through capital investment, but more importantly, by investing in human capital and providing local people with the tools to drive their own economic development. Karake-Shalhoub, (1999)
Socially responsible practice in business has generated debates that are central to management practice and decision-making. For example, some scholars have argued that managers should conduct business purely in the interests of the shareholders, and that applying the organization’s resources to the social good undermines the market mechanism, jeopardizes organizational survival and places management in the role of non-elected policy-makers (Carson, 1993; Friedman, 1970).
Others, in contrast, argue that business has a responsibility, indeed an obligation, to help in solving problems of public concern (Monsen, 1974; Quinn and Jones, 1995). Davis (1973) and Velasque (1996) support this view, suggesting that it is a matter of enlightened self-interest for organizations to be socially responsible, since ethical behaviour is more profitable and more rational than unethical behaviour, and crucial for organizational effectiveness. Against this background, social responsibility has been argued to involve two major participants: business and society.
According to Onuoha (1991) social responsibility has three major facets: legal (complying with the law); setting and abiding by moral and ethical standards; and philanthropic giving. Simply defined, social responsibility is the obligation of both business and society to take proper legal, moral-ethical and philanthropic actions that will protect and improve the welfare of both society and business as a whole, all of which must be accomplished within the economic structures and capabilities of parties involved. However, ambiguity remains because the social responsibility of business is whatever society decides that it is.
In his work, Onuoha asserts that in recent years: Society has been exceptionally ambivalent; Communities at different times and in different places establish different constraints within which business is expected to fulfill this purpose
2.3.2Shells’ CSR initiatives in Nigeria In Nigeria, Shell operations have been dogged by ‘‘local unrest and criticism from the communities within the oil-producing areas, and drawn increasing condemnation from abroad’’. Charges of unethical behaviour include: ‘‘Total neglect of the oil-producing areas in Nigeria) and lack of educational facilities such as classrooms, teachers, and scholarships which will enhance the literacy development of the indigenes of the communities’’.
Over the years, the oil exploration and producing companies have borne the brunt of ‘‘endless communal agitation, as the host communities have looked up to them for support and assistance in the provision of social and economic infrastructure and employment’’ (The Nigerian Petroleum News, 1998). The people of the oil producing communities ‘‘who now live in a polluted environment, have received precious little in return for living with the oil companies and dispute both the quantity and quality of community assistance’’.
Mitee also points out that: ‘‘People have grown to realize that the oil companies are taking from their communities and are not putting anything back. The poorest parts of Nigeria are where these oil companies are, and this has heightened conflict’’. The case study of Shell and the Ogoni by Hummels (1998) reveals that host communities have continued to agitate for more and more support from the oil companies. In addition, the level of the demands and the methods adopted to achieve these has changed, with violence appearing to be the key weapon. Recourse to violence has resulted in a lot of damage to property, and casualties on both sides.
In some instances, it has resulted in the withdrawal of operations by oil companies from some locations, while planned seismic and drilling activities have been abandoned in others. In the past, the oil companies’ approach was to help or appease the communities whenever the need arose. More recently, however, they have established a more proactive and thoughtful approach to community assistance. This has resulted in the ‘‘emergence of a fully developed community relations department in each of the companies, solely set up to anticipate and plan the needs of the communities’’ (The Nigerian Petroleum News, 1998), who understand better their own real needs and future aspirations.
During interviews with senior manager of Shell in Nigeria, it was confirmed that community relations departments were created solely to meet local needs and situational politics. The argument here supports the theoretical position of Nasi et al. (1997) who argue that corporations tend to listen to the demand of powerful stakeholder groups. In this case, the Shell listened carefully to the demands of host communities and changed their approach towards them. The issue of community development, for example, has compelled Shell in Nigeria to speak about its community initiatives when once it believes that ‘‘silence is golden’’ Onuoha (1991).
A SPDC of Nigeria executive stated that not many Nigerians were aware that ‘‘since the mid-1950s, SPDC has assisted more than 1,500 host communities in its areas of operation through an ever-widening range of services covering education, agriculture, health and water supply’’. Educational initiatives include the provision of teachers paid directly by the companies and the building of classrooms. There are also situations where companies pay ‘‘special rates to teachers’’ to encourage them to go and teach in rural areas where the governments are inactive. This is because teachers refuse to teach in some rural areas due to the remote nature of such villages as stated by both Shell and other oil in Nigeria.
To show their commitment to the communities where they operate, policies for educational developments are incorporated into the companies’ credos. For example, Shell Oil Company wrote in Article 7 of their Statement of General Business Principles:
The most important contribution that companies can make to the social and materialprogress of the countries in which we operate is in performing their basic activities aseffectively as possible. In addition Shell companies take constructive interest in societalmatters which may not be directly related to the business. . . . For example throughcommunity, educational or donations programmes . . .(The Royal Dutch/Shell Group of Companies, 1997)
The host communities also demand social welfare projects from Shell. In many developing countries, national and local governments have taken a more ‘‘hands-off approach’’ to regulating business due to such things as changing policies, the globalization of commerce and shrinking resources. Against this background, companies are relying less on government for guidance, and instead they are pursuing their own policies with regard to such matters as environmental performance, working conditions and ethical marketing practices.
This approach can be problematic. The secretary of the chief’s council of the oil-producing village of Bonny in the Niger Delta accused Shell of: Apartheid in its residential areas where all the state of the art welfare facilities including good water, constant electricity, good roads, super markets, schools with high-tech equipment, swimming pools and other facilities were in existence while the people of Bonny, the host community suffer absolute squalor and neglect (The Nigerian Guardian, 1999).
This is one example of a charge of double standard brought against multinationals in developing countries. The host communities believe they should have the same facilities that are on offer to the companies’ workers since the bulk of profits of the multinational enterprises (MNEs) come from their land. As one observer pointed out:
Communities in the Delta area in particular, where most of the exploration and production activities take place, feel generally ill-treated in the entire process of oil prospecting and production and consider themselves as being at the end of only the adverse effects of these activities.
They believe that they have not received an equitable share of the tremendous oil revenues which are being derived from their land and territories, especially in the light of disruptive consequences on their health and sources of livelihood. Nor have they been recognized as the inhabitants of oil-producing areas who should benefit from the natural resource that abounds in their ancestral lands Onuoha (1997).
According to Nnadozie, due to inadequate social amenities and infrastructure and the loss of farmland, bearing in mind that farming is their way of life, the Bonny community’s demands from the Shell include ‘‘payment of N500 million (naira) to fishermen and farmers for the disruption of their livelihood; and provision of potable water and electricity to every home on the island’’.
The demands of host communities are numerous, and Shell is desperately trying to provide them whenever possible. This is because some host communities in Nigeria, have barred Shell from operating in their communities until their demands are met. There have been circumstances whereby Shell kept operating in some host communities and the youths of the community went and kidnapped the companies’ workers, leading in some cases led to loss of lives.
It is frequently the case that Shell is blamed for inactivity by government. A beyond petroleum (BP) engineer who visited an oil town in Nigeria in 1990 remarked: ‘‘I have explored for oil in Venezuela, I have explored for oil in Kuwait, I have neverseen an oil-rich town as completely impoverished as Oloibiri’’(GREENPEACE Report,n.d.).
The Nigerian government is supposed to direct 3 per cent of its oil revenue to develop communities where the oil is produced. However, as a community leader states: Little, if any, of that money has reached those in need of it. Even Shell has admitted as much but maintains that it is beyond the scope of its business activities. The Ogoni see it differently. They see Shell as a multinational, supported by the federal government of Nigeria, which was influential enough to persuade the government to increase the oil revenue royalty from 1.5 per cent to 3 per cent in 1982, but unwilling to ensure that the money is made of effective use.
The host communities argue that the wealth being generated should also be used for community development. Wealth creation is central to the economic role of business but society determines the extent to which this wealth can be enjoyed and the value systems which surround enterprises. This view is summarized by the comments of two of the most successful entrepreneurs of their day: There is but one right mode of using enormous fortunes – namely, that the possessors from time to time during their own lives should so administer these as to promote the permanent good of the communities from which they were gathered . . . Business only contributes fully to a society if it is efficient, profitable and socially responsible (Cannon, 1992).
A manager in Shell interviewed further suggests that multinational enterprises (MNEs) in Less Developing Country (LDCs) find themselves in paradoxical situations because: For quite a long time people in Less Developing Country (LDCs) have seen multinational enterprises (MNEs) to be very large, very powerful and very important because of their economic contribution to countries. That they are too bad and too big and unaccountable and people tend to lump all companies together in that sort of umbrella.
Now at the same time though, very often in developing countries, governments are either incapable because they are too poor or unwillingly, because they are too corrupt, to solve a lot of problems which are inherent within the social fabric of that country and then these same people who accuse companies of having all this power then almost torturously turn round and say the only people who can actually fix this are those very same companies that we so dislike.
On the issue of electrification of the communities, Shell is accused of neglecting the areas where they work by only ‘‘providing electricity to their installations. The communities do not benefit from the same developments that the companies undertake for their installations and workers’’. This accusation could equally be directed at government departments responsible for rural development. Due to the complexity of working in LDCs and the spotlight that comes with it, the MNEs, under intense public scrutiny, are now expected, even required, to carry out the duty of developing the rural areas where they work.
Companies are often accused of ‘‘damaging roads due to the impact of their operations and their locations sometimes denied the producing areas from setting up market stalls where their farm produce would be bought’’. These practices, the host communities argue, deny them access to good roads and market place to sell their crops. Hence, the MNEs have to provide the necessary infrastructure and services. An oil company executive argued that companies are ‘‘providing these services because they want their host communities to benefit from the success of their operations from their communities and lands’.
This view was generally shared by all the senior managers interviewed. The host communities, on the other hand, still argue that the companies ‘‘do not do what they say they did’’. For example, a community leader asserted that ‘‘most of these developments are only reflected on their books, not on the ground and even then it is not based on the priorities set by the communities but what suits their public relation image of the company’’. He cited a situation when he was a chairman of a development committee in 1994 and Shell offered to buy them some hospital equipment.
The committee gave Shell a list of what it wanted because at the time they thought the ‘‘list was a significant thing to our community centre which we built’’. They were disappointed when the company sent them different items from those on the list. The items were rejected and returned to the company. He went on to add that ‘‘to them what we requested is not important.
What is important is what suits their image and that is what they want to do’’. Such reports call into question the level of MNE commitment to CSR. Some scholars such as Hummels have argued that MNE social investments amount to little more than good public relations (PR). On the other hand, the companies assert that ‘‘corporate social investments are not a public relation thing but serious and solid investments in the host communities and for the host communities’’.
The non-renewable nature of oil and mining operations and high degree of dependency of the host communities on such operations has brought to the fore the issue of small business training schemes. Whenever employees are made redundant, companies are accused of not preparing workers for skills in other industries. This led to the introduction of small business training schemes in the host communities and has become an intense ethical issue when dealing with the producing communities. This study confirms that oil companies in Nigeria such as Shell have numerous small business training initiatives, however, like other projects, the communities still feel the projects are to improve the corporate image abroad.
For example, Shell has a Women’s Programme in the Niger Delta. The programme provides training for women of all ages (particularly teenage mothers and adolescents who left school early) focusing on soap and pomade making, sewing, hairdressing and catering. Other small business initiatives by the company include micro-credit and business development.
Due to lack of access to finance, which is a key inhibitor to business development and self employment in the rural parts of Nigeria, including most of the host communities, micro-credit and business development programmes have been established within the development portfolio. The aim is to help revive the economy of the host areas by promoting self-help enterprise development. As Omuku and Pepple aptly put it, a key objective is ‘‘to build up local capacity to operate and manage micro-credit schemes’’.
2.4HISTORY OF SHELL AS A MULTINATIONAL OIL COMPANY The Royal Dutch/Shell Group is unique among the world’s oil majors. It was formed from the 1907 merger of the assets and operations of the Netherlands-based Royal Dutch Petroleum Company and the British-based Shell Transport and Trading Company.
It is the world’s biggest and oldest joint venture. Both parent companies trace their origins to the Far East in the 1890s. Marcus Samuel inherited a half share in his father’s seashell trading business. His business visits to the Far East made him aware of the potential for supplying kerosene from the newly developing Russian oilfields around Baku to the large markets in China and the Far East for oil suitable for lighting and cooking. Seeing the opportunity for exporting kerosene from the Black Sea coast through the recently opened Suez Canal to the Far East, Samuel invested in a new tanker, the Murex.
In 1892, the Murex delivered 4,000 tons of Russian kerosene to Bangkok and Singapore. In 1897, Samuel formed the Shell Transport and Trading Company, with a pectin shell as I s trademark, to take over his growing oil business. At the same time, August Kessler was leading a Dutch company to develop an oilfield in Sumatra in the Dutch East Indies. In 1896 Henri Deterding joined Kessler and the two began building storage and transportation facilities and a distribution network in order to bring their oil to market. The expansion of both companies was supported by the growing demand for oil resulting from the introduction of the automobile and oil-fuelled ships.
In 1901 Shell began purchasing Texas crude, and soon both companies were engaged in fierce competition with John D. Rockefeller’s Standard Oil. Faced with the might of Standard Oil, Samuel and Deterding (who had succeeded Kessler as chairman of Royal Dutch) began cooperating, and in 1907 the business interests of the two companies were combined into a single group, with Royal Dutch owning a 60 percent share and Shell a 40 percent share (a ratio that has remained constant to this day).
The group grew rapidly, expanding East Indies production and acquiring producing interests in Romania (1906), Russia (1910), Egypt (1911), the US (1912), Venezuela (1913), and Trinidad (1914). In 1929 Shell entered the chemicals business, and in 1933 Shell’s interests in the US were consolidated into the Shell Union Oil Corporation. By 1938, Shell crude oil production stood at almost 580,000 barrels per day out of a world total of 5,720,000.
The post-war period began with rebuilding the war-devastated refineries and tanker fleet, and continued with the development of new oilfields in Venezuela, Iraq, the Sahara, Canada, Colombia, Nigeria, Gabon, Brunei, and Oman. In 1959, a joint Shell/Exxon venture discovered one of the world’s largest natural gas fields at Groningen in the Netherlands. This was followed by several gas finds in the southern North Sea; and then between 1971 and 1976 Shell made a series of major North Sea oil and gas finds.
During the 1970s, Shell, like the other majors, began diversifying outside of petroleum: • In 1970 it acquired Billiton, an international metals mining company, for $123 million. • In 1973 it formed a joint venture with Gulf to build nuclear reactors. • In 1976–7 it acquired US and Canadian coal companies.
• In 1977 it acquired Witco Chemical’s polybutylene division. By the beginning of the 1980s, Shell had built global metals and coal businesses and established several smaller ventures including forestry in Chile and New Zealand, flower growing in the Netherlands, and biotechnology in Europe and the US. The 1980s saw a reversal of Shell’s diversification strategy, with several divestments of “non-core businesses” and a concentration on oil and gas – especially upstream.
One of Shell’s major thrusts was to increase its presence within the US. After acquiring Belridge Oil of California, it made its biggest investment of the period when it acquired the minority interests in its US subsidiary Shell Oil for $5.4 billion. Shell’s uniqueness stems from its structure as a joint venture and from its internationality – it has been described as one of the world’s three most international organizations, the other two being the Roman Catholic Church and the United Nations. However, its organizational structure is more complex than either of the other two organizations.
The structure of the Group may be looked at in terms of the different companies which comprise Royal Dutch/Shell and their links of ownership and control, which Shell refers to as governance responsibilities. The Group’s structure may also be viewed from a management perspective – how is Royal Dutch/Shell actually managed? The day-to-day management activities of the Group, which Shell refers to as executive responsibilities, are complex, and the structure through which the Group is actually managed does not correspond very closely to the formal structure. The Formal Structure
From an ownership and legal perspective, the Royal Dutch/Shell Group of Companies comprised four types of company: * 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 percent and 40 percent. Each company had its shares separately listed on the stock exchanges of Europe and the US, and each had a separate Board of Directors.
* 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. * The service companies. During the early 1990s, there were nine service companies located either in London or The Hague. They were: 1.Shell Internationale Petroleum Maatschappij B.V.
2. Shell Internationale Chemie Maatschappij B.V. 3.Shell International Petroleum Company Limited 4.Shell International Chemical Company Limited 5.Billiton International Metals B.V.
6.Shell International Marine Limited 7.Shell Internationale Research Maatschappij B.V. 8.Shell International Gas Limited 9.Shell Coal International Limited The service companies provided advice and services to the operating companies but were not responsible for operations. * 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, and Norske Shell) operated across multiple sectors. Coordination and Control
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.
Thus, in 1993, Cor Herkstroter (President of Royal Dutch) took over from J. S. Jennings (Managing Director of Shell Transport and Trading) as Chairman of CMD, and Jennings became Vice Chairman of CMD. Because executive power was vested in a committee rather than a single chief executive, Shell lacked the strong individual leadership that characterized other majors (e.g., Lee Raymond at Exxon and John Browne at BP).
The CMD provided the primary linkage between the formal (or governance) structure and the management (or executive) structure of the Group. The CMD also linked together the two parent companies and the group holding companies. The combination of diffused executive power at the top together with operating authority and financial responsibility dispersed through nearly 250 operating companies meant that, compared with every other oil major,
Shell was highly decentralized. However, the technical and economic realities of the oil business limited the autonomy of each operating company – interdependence resulted from linkages between upstream and downstream, between refining and chemicals, and from common financial and technological needs. It was the job of the service companies to provide the necessary coordination. During the early 1960s, Shell created, with the help of McKinsey & Company, a matrix structure within its service companies to manage its operating companies.
This structure was viewed as a critical ingredient of Shell’s ability to reconcile the independence of its operating companies with effective coordination of business, regional, and functional commonalties. This matrix organization continued into the 1990s. The three dimensions of this matrix were represented by the principal executives of the service companies, who were designated “coordinators.” Thus, the senior management team at the beginning of 1995 included the following: Committee of Managing Directors
* Chairman * Vice Chairman * Three other Managing Directors
Principal executives of the service companies 1.Regional coordinators: * Europe * Western Hemisphere and Africa * Middle East, Francophone Africa, and South Asia * East and Australasia 2.Sector coordinators: * E&P Coordinator– Chemicals Coordinator * Coal/Natural Gas Coordinator * Metals Coordinator * President – Shell International Trading * Marine Coordinator * Supply and Marketing Coordinator 3.Functional coordinators: * Director of Finance
* Group Treasurer * Group Planning Coordinator * Manufacturing Coordinator * Group HR and Organization Coordinator * Legal Coordinator * Group Public Affairs Coordinator * Group Research Coordinator * Director of the Hague Office * Director of the London Office The Shell Group is the world’s second largest multinational oil company after Exxon, and as such one of the world’s largest industrial enterprises. It comprises a complex network of more than 1000 companies and as many as 2000 joint ventures at any one time, operating in over 135 countries.
The creation of the Royal Dutch/Shell Group was the result of a 60:40 alliance made in 1907 between the Royal Dutch Petroleum Company and the ‘Shell’ Transport and Trading Company, plc in UK. These two parent companies directly or indirectly own the shares in the ‘Shell’ Group Holding Companies; they appoint Directors to the Boards and receive revenues in the form of dividends. Under a decentralised organisational structure, the Shell Group has enabled the individual Operating Companies to develop strong national identities and considerable capacity to define operating decisions.
It is thus commonly heard that Shell is not one company but many. Cohesion and the formation of a group culture takes place through the continuous rotation of senior executives as well as through the creation of working committees incorporating personnel from several operating and service companies.
Shell literature explains that to achieve the use of common principles by Group operating companies, the company exercises tight controls on national subsidiaries through economic mechanisms and annual appraisals, as well as through involvement in the appointment of managing directors and board members. It can be argued that the structural characteristics of Shell make the company particularly vulnerable to an emerging social agenda for several reasons.
The bulk of Shell’s upstream activities take place in countries known for human rights abuses, corruption and civil violence. Hence, it is inevitable for Shell, with its current upstream structure, to become involved and communicate with some of the world’s worst political regimes. At the same time, Shell’s downstream structure leaves the company exposed in some of the oil product markets where public sentiments have had a considerable effect on sales. Currently Shell has activities in 135 countries, including Nigeria, Angola, Congo, Namibia, Pakistan, Peru, Colombia, Venezuela, China, Azerbaijan and Syria.
Figure 2.1 shows the geographical distribution of Shell’s upstream activities in terms of crude-oil production. As the figure illustrates, countries that are problematic in a social context, e.g. Oman and Nigeria represent considerable shares of Shell’s oil production. At the same time, crude oil production is Shell’s main source of income, constituting more than 75% of the company’s revenues in 2000, Hence, although Shell’s upstream activities leave the company highly exposed in areas with human right abuses, scaling down in these areas is not a tempting option, as they represent major economic revenues for the company.
Figure 2.1: Oil Production 2000, geographical distribution
2.4.1BRIEF SUMMARY OF SHELL SHELL COMPANY was known as Royal Dutch Company * In November 1938 shell D’Arcy granted exploration license to prospect for oil throughout Nigeria. * In January 1956-first successful