Shell Oil - Nigeria

Executive Summary The case of Shell Oil in Nigeria can be broken down into an analysis of the company’s mission statement, adherence to environmental regulations, public relations, and multinational company regulations. This analysis has led our group to a series of recommendations for Shell to help prevent any similar situations in the future. After analyzing Shell’s mission statement, our group found that Shell was focusing on the stockholders of the company and not the many stakeholders.

Shell underestimated the power of its stakeholders and found itself in a mess because of it. Shell’s impact on its environment was negative. In addition to gas flares and oil spills, Shell management of the cultural issues regarding the Ogoni people created a hostile living situation for the citizens. By employing the Mobile Police and flaring 75% of its natural gas, Shell failed to meet both human rights guidelines and environmental guidelines as set by the major global codes of conduct. Shell ineffectively managed its public relation strategy, creating a negative image of the company and it’s involvement in the situation with Nigeria. Creating a public affairs management team and publicly disclosing its strategy in dealing with the community, government and environment would have prevented the situation in Nigeria. Our group recommends that Shell revise its mission statement to include the stakeholders. We also recommend that Shell create an international affairs management team and publicly disclose all audits, its triple bottom line, and environmental strategies. Shell also needs to communicate more effectively with international governments to help them understand the needs of the company.

I. Introduction The Shell Petroleum Development Company of Nigeria (Shell Nigeria) was the operating partner of a joint venture with the Nigerian government and two other private firms. Shell Nigeria was a leader in the oil production of this mineral rich region during the early 1990s. During this time, Shell found itself in the middle of political, social and environmental issues that it was not fully prepared to deal with. Many of the issues surrounded the presence and activities of oil corporations making Shell a target for civil disturbances.

The conflicts between a corrupt government and a poverty stricken culture fueled attacks on Shell’s operations as well as public disapproval of its actions (or lack thereof) during this crisis. Shell faced much criticism as it struggled to balance other stakeholders’ interests with its own economic and financial interests. We will discuss the internal and external factors driving these issues and the resulting crisis. We will also propose a revision to their mission statement and suggest a strategy for regaining Shell’s public image and reputation. II. Mission Analyses

Shell’s mission statement[1] was clearly contrary to their actual business practice. A critical issue was that Shell only focused on stockholders rather than all the stakeholders, or those directly or indirectly affected by Shell’s actions. Shell also had unstated mission objectives, which included community development efforts, abiding by local political and environmental laws, a non-intervention policy in governmental affairs, and protecting their investments. Many items in the unstated mission statement were not achieved. The mission statement only included Royal Dutch/Shell (employees, stockholders, etc.), the Nigerian Government, and Shell’s consumers.

It failed to include the tribes in Nigeria, in particular the Ogoni. It did not clearly state Shell’s position in reference to the tribes. Shell additionally did not abide by its unstated mission objectives. They did not adhere to the environmental laws that were in place because the Nigerian government did not actively enforce them. The company intervened in governmental affairs by working with the Nigerian military against the Ogonis. To combat the shortcomings of their failed mission statement, Shell needs to expand it to include protecting both the environment and human rights. The new mission statement[2] addresses these weak points. III. Environmental Impacts

Of all the players in the Nigerian oil market, land-based petroleum operations were dominated by Shell. To this extent, Shell was in the unique position to have the greatest impact in terms of environmental preservation… or destruction. Unfortunately Shell fell far short of quiescing the indigenous population’s outrage as oil spills and gas flaring continued to be environmental hazards. Despite Shell’s adherence to local laws and actions to clean oil spills, albeit limited, public perception continued to wane as a result of the continued environmental damage. Nigeria, however, was not entirely blameless.

Political instability created a less-then optimal environment for foreign companies to do business. Civil war, which forced Shell to abandon operations for some time, sparked a number of environmental disasters. Population sprawl resulted in undesirable proximity between the oil producer’s infrastructure and local population centers. Nigerian environmental regulations were insufficient to prevent environmental damage from MNCs. Enforcement of these regulations was problematic due to indifference from Nigerian authorities. These factors contributed toward unfavorable international perception towards Shell. IV. Global Codes of Conduct

Major codes of conduct include the UN Global Compact, OECD Guidelines for Multinational Enterprises, the Global Sullivan Principles, and the Caux Principals.[3] These codes of conduct define acceptable and unacceptable behaviors for international companies in areas such as labor, human rights, and environmental protection. Shell Nigeria met some of the standards defined by these codes, but neglected to meet others.

Shell indirectly impacted the human rights of the community. When Shell sent the Mobile Police unit to deal with local disturbances, the company indirectly created a dangerous environment for the community which caused civilian deaths. Hiring a violent group like the Mobile Police is a violation of human rights. During the early 1990’s, Shell Nigeria was in the practice of flaring 75% of their natural gas.

Shell recognized the gas flares as an environmental hazard and was in the process of developing plans to pipe the gas to liquefaction facilities. Nevertheless, Shell was not meeting environmental standards as set by the global codes of conduct. Although Shell Nigeria was meeting the labor standards set by the United Nations Global Compact, the company was not meeting the human rights or the environmental standards. Shell may have avoided many of the criticisms of the community and possibly saved the company money if it had abided by the codes of conduct more closely. V. Nigerian Culture and Shell’s Crisis

The Ogoni people relied on fishing and farming before the oil industry dominated the region. Their culture and way of life was threatened as the economy became increasingly dependent on oil. The population grew and the Nigerian treasury filled as a large percentage of oil revenues went to the central government. In most industrialized countries, as a population grows, a government pours resources into the community’s infrastructure to build, for example, schools, roads, and medical facilities. The Nigerian government, however, was corrupt and made little or no effort to help relieve the stresses of a growing population and its environment.

The local Ogoni lived in overcrowded conditions and lacked modern sanitization methods as well as clean drinking water. Any attempts by the government to improve these conditions were inadequate. Instead, government officials became rich while the Ogoni, in contrast, lived with poverty and disease. This inequity between the rich and poor deepened in the early 1990s. Domestic unrest escalated resulting in civil disturbances and violence. Shell found itself caught between Ogoni activists and the government.

Their operation sites became a target for extreme activists who blamed the oil companies for much of their plight and environmental pollution. This became a crisis for Shell affecting their operations, their employees, and their image. Although they tried to remain uninvolved, their lack of action led to worldwide disapproval and negative publicity. VI. Public Relations

Public Relation has become one of important aspects of the society the businesses deal in. It fundamentally means the active management of a company’s external relations, especially its relations with stakeholders such as government and regulatory agencies, customers, investors, and communities. Shell Nigeria has despairingly failed in managing public relations with its stakeholders which led to the crisis.

The strategies that we will work with Shell Nigeria in managing public relations and help regain its lost goodwill are External Force Strategy and Internal Force Strategy. To initiate and execute these strategies it needs to create specialized department to manage public affairs. The External Force Strategy deals with loss of public trust. Shell Nigeria should take steps in order to regain the trust of local people especially the Ogonis.

It did make a rather insignificant effort by taking a step towards community development on a small scale, not making an impact on the Ogonis; it was criticized for its effort. It should, along with the local government, take a leap forward and relate to the needs of the population. Provision of basic necessities like pure water, clean drainage system and desirable accommodation would, till a great extent, win the trust of local people. Another area where Shell Nigeria should work on is the disclosure of information to its stakeholders. It should come up with quarterly audit reports, booklets disclosing its future strategies.

The Internal Force Strategy deals with communication within organization. Clear and concise communication helps create a better image of the company not only on the minds of the employees but all the stakeholders. Since 57% of Shell Nigeria’s employees were local people, communicating information within the organization will definitely help to spread the word to the whole region without much effort creating transparency for its stakeholders.

This strategy also deals in growing focus on the interplay between the organization and its environment. Shell Nigeria ought to adhere to the environmental standards, follow the internationally accepted principles of protecting the environment like disposing the by product of oil production in a particular way that prevents it from polluting the atmosphere. The bottom line is organizations today must adopt public relation management to survive in the society. Following the guidelines of public affairs management an organization will not only be appreciated among the population and in the society but it will also be able to help protect the environment. VII. Recommendations

We have developed a variety of recommendations for Shell Oil in order to handle the issue at hand, as well as prevent events like the one in Nigeria from happening again. First, it is crucial for Shell to issue a public statement of intention as well as expand their mission statement so that it includes protecting the environment as well as human rights. Next, Shell needs to develop an international affairs management team, which handles crisis situations and constructs social and environmental reports for the public.

If Shell promotes disclosure and auditing, they will gain and maintain the trust of the public; Triple Bottom Line will be successful for Shell. It is also necessary for Shell to have more proactive cleanup efforts as well as emphasize on community development and environmental protection.

Talking to the Nigerian government about the company’s concerns and using economic push may be an idea. If Nigeria does not listen then Shell will have to go to governments in other countries where they operate to garner support. The main thing is that Shell needs to construct a plan to prevent occurrences like this one from happening again. WORKS CITED

Lawrence, Anne T., and James Weber. Business and Society: Stakeholders, Ethics, Public Policy. 12th ed. New York: McGraw-Hill/Irwin, 2008. ----------------------- [1] “To find, produce, and deliver hydrocarbons safely, responsibly, and economically for the benefit of our stakeholders” - Anne T. Lawrence and James Weber, Business and Society: Stakeholders, Ethics, Public Policy. 12th ed. (New York: McGraw-Hill/Irwin, 2008), 521. [2] To find, produce, and deliver hydrocarbons safely, responsibly, and economically for the benefit of all stakeholders while setting a high stand of environmental stewardship and human rights. [3] Anne T. Lawrence and James Weber, Business and Society: Stakeholders, Ethics, Public Policy. 12th ed. (New York: McGraw-Hill/Irwin, 2008), 153-4.