Multinational Companies and Their Social Responsibilities (Α Case Study of Shell, Nigeria)

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