A study of Shell Oil and its Stakeholders in Nigeria

Part 1 (Week 6)

 

 

 

 

A Review of the Related Literature and the Major Issues Regarding the Background and

Interests of Stakeholders of Shell Oil Company in Nigeria

 

 

 

 

Rola Khoury

H00035365

 

 

Chapter 1

Introduction

Studying leadership in the context of wicked problems is one of the best ways to understand the real implications of its aspects and the interrelationship of all the elements. Understanding the case study of an oil company in a socially challenging country, while inflicting more social complexity, as well as the perception of the community of this company bringing in other negative results such as pollution, poverty and strife, is very intriguing and helps us bring together all the concepts in a single space for further exploration and learning.

During this paper, we will provide a brief background about Shell, including its global and local operations in Nigeria, its history, as well as the ethical and social responsibility aspects of the company. We will also describe the context of the issue, from an economic, political and social perspective. A literature review of leadership theories will be provided describing the related concepts to pinpoint the issues in this crisis, and the methods that can be used to bring the different viewpoints together. We will examine the different stakeholders and present some conclusions and recommendations to help guide a resolution for this wicked problem.

 

 

 

Chapter 2

A Brief Background Review of Shell

In this chapter, we will briefly describe the organizational structure of Shell, their history, their business, extent of globalization as well as their ethical and social responsibility endeavors.

Organizational Background and Structure

Formed in 1907 by the merger of Royal Dutch Petroleum Company (1890) and Shell Transport and Trading Company plc (1897), Royal Dutch Shell plc is a giant in the oil and gas industry. It is headquartered in The Hague, Netherlands, with incorporation in the United Kingdom and Wales (Shell Global, n.d.c). It is ranked first in the Global 500 list for 2012, with a revenue of approximately USD 485 billion, and profits of approximately USD 30 billion (CNN Money, 2012). In 2013, Shell revenue was estimated to amount around 84% of the Netherlands’s GDP (around USD 556 billion).

Shell’s centralized management style is fairly a recent approach considering the age of the company. It only centralized its operations in the early twenty first century. According to Shell Global (n.d.d) the company involves the services of around 87,000 employees and operates in more than 70 countries. The current CEO is Ben van Beurden, who was appointed on January 1, 2014 as a successor to Peter Voser, who was CEO as of 2009. Voser was appointed after the 2008 global economic plunge and managed to bring the sales up by USD 90 billion in 2010 (Independent Chemical Information Services, 2011). Currently, the leadership team consists of the Board of Directors (Chair: Jorma Ollila, non-executive) and the executive management team (CEO: Ben van Beurden).The members of the leadership team are Finnish, Dutch, British, Swiss and American nationals (Shell Global, n.d.b).

Historical Background and Globalization

The history of the companies before merger is traced back to 1833, when the Samuel family was selling antiques and shells. During 1886, the demand for the oil industry was triggered with the first spark that led to the introduction of the internal combustion engine. Seeking lands that provided the fuel for the innovation taking place in Europe, Royal Dutch Petroleum Company was introduced to cultivate the oil and Shell Transport and Trading Company was formed to carry the oil where the demand is being generated. Their merger in 1907, formed what we know today as Royal Dutch Shell plc. By the mere fact that oil is scarce where the demand was, a need for global presence emerged, and a globalized presence was required to run the business effectively and profitably. The company became the industry’s leader after World War II, and advanced rapidly on the research aspect between the 1960s and 1980s. During this period, the global expansion occurred through acquisition, followed by the 1986 crisis in the oil industry (Shell Global, n.d.c).

The group survived all the ups and downs, through strong leadership and advanced operational management and technology, but its reputation with respect to business ethics and social responsibility are at question especially in Nigeria. Even though the region has thrived economically since the start of the operations in 1956, the community and the environment were affected negatively in several aspects, as well as an increased level in corruption due to the amount of money being pumped into the country and not distributed fairly among the population (Aprioku, I.M.,1999).

Shell started its exploration and exploitation of Nigeria’s landscape in 1937. It was up until 1956, that Shell was able to successfully extract and transport oil off Nigeria’s shores in 1958 under Shell Petroleum Development Company of Nigeria (SPDC), and its operations are still ongoing until date. It constitutes the largest financial income to the economy, in all forms of payments, whether taxes, shares, contribution to local industries, wages, etc. The contribution sums up to USD 42 billion between 2008 and 2012 (Shell Nigeria, n.d.).

Shell Ethics and Social Responsibility

Shell General Business Principles (Shell Global, n.d.e) and Code of Ethics (Shell Global, n.d.a) emphasize the importance of the company’s reputation and the effect each employee has on keeping that image through their daily routines, behaviors and actions. The core values should be adopted in the employee’s everyday life. Respect for people, the community  and the environment are core to assessing the performance of employees, and are measured as part of the company’s scorecard (Shell Global, n.d.f).

According to Petkus and Woodruff (1992, cited in Mohr, l., Webb, D.J., and Harris, K.E., 2001), Corporate Social Responsibility should target avoiding harm and doing good. As per Shell’s strategy, environmental and social responsibility is the core of their goals and activities to achieving those targets. They allocate part of the budget to ensure long-term sustainable development of the areas they are operating in. In Nigeria, Shell ensured that education and health are at the top of its agenda. Also, they manage to employ up to 90% of their employees from locals and ensure that all their consumables and goods are purchased from local businesses. According to Shell Global (n.d.f), the company has invested around USD 149 million on voluntary social aid, and USD 14 billion on local goods and services from countries which they are operating in. Shell has also assumed responsibility of resolving any damage to the environment due to spills in any location around the world.

Chapter 3

Context of the Problem

In this chapter we will describe the different aspects and root-causes that led to the crisis after the spill in 2010. There is no doubt that the oil industry’s operations in Nigeria laid a really harmful burden on the shoulders of the communities inhabiting the land. Shell, in particular, had two major issues, which affected its reputation and changed the perspective of people towards this company (Hennchen, 2010): the Ongoni incident (media’s presentation of the living conditions of the people) and the Saro-Wiwa case (the leader of a peaceful demonstration and 8 of his followers were executed by the government).

Among the thousands of incidents of spills, we will be discussing one incident which occurred in 2010, which raised a public awareness campaign by Ezigbo and Bassey (2010). Nigerian officials sought adequate compensation to the communities which were harmed by the incident. Amnesty International and Friends of the Earth International defended the case severely accusing SPDC to breach the internationally set responsible business rules. Also, these institutions has accused SPDC to diverge the attention to irrelevant issues instead of taking care of the spill as promised (Amnesty International, n.d.). They have confirmed that more than 50% of the spills are caused by human or operational errors (improper maintenance, building cheaper infrastructure above the ground, when they should be burying the pipelines underground to reduce the theft attempts and environmental sabotaging factors, etc.).

This spill is one of a series of yearly spills, which go unacknowledged by any stakeholder; thus the responsibility and accountability to clean the results up goes unactioned. According to the United Nation Environment Programme (2011, cited in Oil Spill Intelligence Report, 2011), severe pollution problems has occurred due to the spills. During the 60 years of oil production, oil theft, and conflicts between different parties who are seeking material gain, and those who are trying to protect their habitat, the environment and community alone paid the price. An ecological disaster and urgent health risks occurred, without any action to prevent or remediate these issues as of yet. The only response Shell is giving through media is that the bulk of the spills occurs due to theft and aggression towards the personnel of Shell who are trying to do their jobs (Oil Spill Intelligence Report, 2012).

It is a very complex situation which includes a big number of stakeholders with conflicting interests and very few are interested in a solution. As per Donaldson and Preston (1995), the “stakeholder model” includes eight categories of stakeholders which are all present in this case. The government has shares in SPDC, so any extra profit that they make is a profit for the government and any taxes or fines that they inflict, they will be losing money as well. The corruption in the government caused the people to hold grudges on the obvious supplier of the money which are the oil companies, for the unfair distribution of wealth. The oil companies are stuck between making profit, pleasing the government (which is a shareholder), and the community (as part of the social responsibility and to reduce sabotage). Shell is delivering the social and educational responsibilities that are supposed to be delivered by the Nigerian government. The span of this programme can only reach a small percentage of the population and thus considered as unfair. The corruption and the unfairness facilitated the emergence of a new generation which holds a grudge against the political situation; in an attempt to get even and make their own money illegally, criminal groups emerged and started sabotaging the pipelines to steal the oil. Of course, this is partly Shell’s fault because they saved money by building the pipelines above the ground (Africa Confidential, 2011).

Another major concern which was observed is the fact that the board of directors and the executive management of Shell Global, who set the strategy and make the ultimate decisions, are not diverse enough to encompass the different viewpoints and concerns of the countries where they operate. None of the major players from Africa in general or Nigeria in particular are part of these committees or board (Shell Global, n.d.b).

 

Chapter 4

Literature Review

There are several theories described in the literature that can help us analyze this issue and describe the different ways to deal with problems as successful leaders; this chapter will briefly present a comprehensive view of the good leadership practices that can be applied to this problem. As per Beinecke (2009), leadership skills are mostly emphasized and needed when facing a “wicked problem”. As a definition, this type of problems are tough and unique issues in a constantly changing environment, where the solutions are aimed at creating a shared meaning, resolving conflict and bringing different viewpoints of different stakeholders, with diverging interests, to a common understanding, rather than finding a simple solution through normal linear methods (like cause-effect or action-reaction). To operate in such complex environments, several aspects of leadership have to adopted by leaders, including:

1. Stakeholder identification and management (Donaldson and Preston, 1995) is very important because they directly affect the degree of complexity of the wicked problems. Even though stakeholders are not all part of the decision making process, however, all stakeholders need to be in mind when drafting any solution. At the end of the day, a wicked problem is resolved when stakeholders agree on the solution and not when a magic solution emerges (Conklin and Weil, 1997).
2. Comprehending, analyzing and building on diversity at the individual levels, especially when dealing with different personality types and learning styles (Stephens, 2009).
3. Constant learning by understanding one’s own learning style (Kolb and Kolb, 2005) and the learning style of others to ensure that the sense-making process will be effective when applied (Pye, 2005).
4. Adapting to different types of leadership, master the art of decision making and the use of sense making when facing adversity (Pye, 2005). When facing adversity, a leader must be able to pinpoint stakeholders and their conflicting interests, then find a way to create an ethical and socially responsible version of the truth which appeals and benefits everyone; i.e. provide stakeholders with context, meaning and reasoning that helps in proactively resolving any conflict (Margolis and Stoltz, 2010).
5. Turning obstacles into opportunities (Margolis and Stoltz, 2010).
6. Ability to create a shared meaning or vision, as well as personally commit and help others to see the positive beneficial side of the truth (Smircich and Morgan, 1982) and the ability to form diverse teams and groups that can help in building the meaning.
7. Ability to critically reflect on any situation, question any assumption and break down any problem to solvable smaller problems, which are preferably delegated to teams to resolve (Cunliffe, 2004).
8. Creating a consistent personal brand with emphasis on honesty, trust and social empathy (Morgan, 2011).
9. Ability to initiate motivation and understand that people can contribute more when they are held responsible to visions that they have participated in creating. This will invoke responsibility, accountability and better performance (Brooks, 2009).

In the case of oil spills in Nigeria, the leader needs to agree with all stakeholders on the issues and create a shared meaning of the solutions, and get everyone to agree on the solution before the implementation. The blame game needs to stop and the oil company as well as the government need to start treating the community and the people as valuable stakeholders. Applying Pye’s concepts of sense-making, we can understand the different perspectives, and bring them to a shared version of understanding the situation, which helps in devising a roadmap towards an agreed solution.

The different models of leadership theory can be studied to help resolve this wicked problem. Transformation leadership is needed in this case to help absorb the animosity and hostility of the community in Nigeria, through story-telling and charismatic leadership. This can be used also to affect the Nigerian staff to be ambassadors of the company and help spread a better understanding of the social reform that Shell is trying to implement in the country. Transactional leadership can be very helpful internally to support the transformational actions. Also, it can be used to reward the adherence to the safety measure and to reduce human errors (Jackson and Parry, 2007).

Chapter 5

Stakeholders Involved

In order to understand the wicked problem, this chapter will focus on identifying the major stakeholders and understanding their sense-making of the issue. There are several stakeholders that can be identified for this particular issue, including the eight categories identified by Donaldson and Preston (2005). We will tackle three of the major key players in this crisis are the CEO of Shell, a local Nigerian Shell employee, and a Shell investor.

Shell CEO

The Shell CEO can make sense of the situation by implementing the resilient questioning (Cunliffe, 2004). He needs to include all major stakeholders including the community and the social and environmental entities, and try to understand how all of the stakeholders need to addressed, rather than just focusing on benefiting the shareholders and the Nigerian government. The social programs he is conducting in the region are viewed negatively, and all attempts to rectify the situation are faced with aggression. Thus, the community does not have a shared meaning of the situation as the CEO. The reason is that, he is starting his communication in other threads with media as not being responsible for the situation and blaming the community for the damage. This directly places him in a negative position, and the rest of his actions will not be accepted or welcomed.

He can keep taking this defensive stand and have short term wins with current active oil extraction and transportation, until the situation turns into a crisis, or he can start taking responsibility of what is happening, and start using the money that the company is paying ruthlessly to the wrong segment of the Nigerian population, to actually change the infrastructure and rectify the damage that has been already done. He needs to stop viewing the community as the source of trouble, and understand that they need their livelihood back. They are actually happy to have oil companies in Nigeria, if it is done through a fair process that distributes wealth evenly through all segments of the population.

Local Nigerian Employee

A local Nigerian employee, coming from a community where poverty is widespread, would prefer his salary and benefits for himself and his family, rather than being on the other side. However, a conflict inside is very easily triggered if a crisis occurs or if a revolution of some sort spreads in the country, especially that his family and friends might be affected by the spills occurring frequently. He will be in danger of kidnap or murder and he might need to take sides. He does understand that Shell is contributing greatly to the community, and might be able to be a good-will ambassador in his community if given the right motivation and empowerment.

Shell Investor

A shareholder or an investor in Shell would be very concerned about the long-term sustainability of the company, especially with recent studies confirming that corporate social responsibility does affect the profitability of companies (Mohr, l., Webb, D.J., and Harris, K.E., 2001). The invisible hand of the consumer will catch the company by the neck at one point, and let the competitors win over the market share. Investors will make sense of the situation in two ways: either they will reduce their investment or take an active part in pushing Shell to rectify the situation, claim responsibility and invest more in cleaning the waste and in socially beneficial activities, instead of paying off the money in lawsuits and courts, to the wrong people, while turning in a vicious cycle and feeding corruption in the country.

 

Chapter 6

Conclusion

Leadership is best manifested when dealing with wicked problems. Studying the case of Shell facing the Nigerian community regarding the spills due to operational damage and theft, brings leadership concepts and theories to conceptual practice, and helps us learn to interrelate the topics in one stream to help deduce a solution. The first steps in devising a comprehensive solution for this crisis was to study the background of Shell, understand the different views and perceptions of its endeavors in Nigerian Delta, identify the major stakeholders and visualize their sense-making of the issues faced. The leader’s role will be to create a shared vision, taking into account all the stakeholders and their interests. This shared vision will then be input to the sense-making process of the other stakeholders; if communicated effectively, while maintain a self-brand of trust and empathy towards the community, it will impact their reflexes and actions in a positive manner and help resolve the conflict of interest between them. The CEO will need to set the direction of the rest of the story

 

 

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