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8/3/2019 Final_Paper - Shell
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MBA 691: Business Ethics
FadiRamadan 9717420Mosthapa Soulami ------- Padma Patnaik -------
Prathima Muralidhara 9588426Srikanth Sekar9541438
Shell in Nigeria
The Way Forward
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Table of Contents
INTRODUCTION .................................................................................................................................3
SYNOPSIS: ......................................................................................................................................3
PROBLEM STATEMENT: ..................................................................................................................3
ETHICAL FACTORS: .........................................................................................................................3
EXTERNAL ANALYSIS: .........................................................................................................................4
INTERNAL ANALYSIS ...........................................................................................................................6
ALTERNATE ANALYSIS: .......................................................................................................................8
RECOMMENDATION: ....................................................................................................................... 10
APPENDIXES: ................................................................................................................................... 12
Exhibit 1: ALTERNATIVE ANALYSIS ................................................................................................ 12
COMPARATIVE OPTION ANALYSIS ................................................................................................ 13
Exhibit 2: ETHICAL THEORIES: ....................................................................................................... 14
Exhibit 4: CIVIL LEARNING TOOL: .................................................................................................. 14
Exhibit 5: ...................................................................................................................................... 15
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INTRODUCTION
SYNOPSIS:
Due to the recent political unrest in Nigeria, Royal Dutch/Shell (RDS) has felt the increasing
pressure to re-evaluate their political and social role in order to mitigate the risks associated
with civil unrest. The Nigerian government has proved to be significantly corrupt, as their
constituents are unable to make their voices heard. In the long run this could result in the
continual sabotage of Shells resources, financial and environmental losses, the targeting of
RDSs employees and even the nationalization of the oil industry within Nigeria. Although RDS
has been significantly contributing to the Delta region and has been encouraging the Nigerian
to do the same, the level of corruption has been detrimental to their initiatives. Internationally,
the lack of action by the Nigerian government has resulted in negative attitudes towards RDS
Global.
PROBLEM STATEMENT:
In the wake of unstable political conditions, internal conflicts and mounting pressure on
Shell/Royal Dutch by human rights & environmental groups, what should be done in order to
maintain sustainable growth in the Delta Region of Nigeria without hindering their image
internationally?
ETHICAL FACTORS:
Although RDS is operating within an Authoritarian environment in which the government
opposes freedom of speech, democratic process and the political power is held by an arbitrary
few, as a multi-national corporation RDS has the duty to their stakeholders. The Ogoni people
have been faced with poverty, environmental devastation and health issues as a direct
externality of the expansion of the oil industry into the Niger Delta. Operations in Nigeria have
contaminated the land, water and air devastating agricultural production. Additionally,
deforestation has resulted in the loss of biodiversity within this region. Consequently, Ken Saro
Wiwa has expressed concern over the degradation of the Niger delta resulting in his execution
by the Nigerian government. RDS needs to assure that their each of their stakeholders (of the
Ogoni people) have the right to a standard of living adequate for the health and well being of
themselves and theirfamilies. 1
1Universal Declaration of Human Rights Article 25, Paragraph 1.
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EXTERNAL ANALYSIS:
Several environmental factors have been critical to RDSs socio-economic performance in
Nigeria. Most prominentlywas the military dictatorship in which peoples concerns have not
been considered, Ken Saro-Wiwa and other leaders have been executed proving a tyrannical
rule. Additionally, Nigeria is on the verge of civil unrest as the Ogoni people are demanding
political autonomy. The Delta region is facing high crime rates and unemployment; MOSOP has
become the voice of Ogoni people as increasing concern has mounted due to the lack of
development by the Government. The development allocation, 3% of oil revenues, has been
washed away by the corrupt bureaucracy. As a result of continuous neglect, the Delta has been
facing poverty and severe environmental and health issues. It can be observed that oil revenues
account for a significant portion of the country's GDP. Due to the poverty, the youth has a highsusceptibility to extremism and radical movements leading to the sabotage of oil pipelines. In
order to prevent acts of sabotage, the oil companies in Nigeria are responsible for their own
safety and are allowed to recruit private security to guard their interests.
With the mounting corruption levels and the lack of strong environmental regulations, the
industry has been considered as an ecological disaster by independent NGOs. However, there
was the international community has been able to exert pressure resulting in the regulation of
the oil industry as well as improvements of human rights. A good example was the overturning
of several death sentences against opposition leaders, liquefied natural gas standards brining
Nigeria closer to a sustainable growth phase. The international community is likely to play a
key role in the future development of Nigeria.
With regards to the competition, oil companies require heavy investment in terms of capital
cost, economies of scale, distribution channels, technology, regulation, geopolitical factors etc.,
thus, the competition is mainly between large firms such as RDS, Exxon, BP, Chevron, Agip and
Elf. The possibility of new entrants in this region was fairly low due to Nigerias government
allocating contracts to the oil companies. The rivalry between existing competitors was high
due to the established operational efficiencies in the Niger Delta. With the development of
renewable sources of energy still in infancy, the prospects of substitutes are low. This provides
an advantage over new entrants in the market, if any. In addition, due to the high volume of
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demand for oil and the ever increasing energy prices, individual consumers have minimal
bargaining power.
Although Nigeria is plagued by several socio-political issues, it is a strategically important
location. The significant political risk is intertwined with the long term profitability of the oil
industry in the region.
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INTERNAL ANALYSIS
RDS is one of the fastest growing and most profitable companies within its industry. Operating
in 130 countries with revenues reaching $103 billion in 1991, RDS has become the largest oilcompany in the world. RDS seems to be in the defensive mode at a time when environmental
laws are being consolidated (Exhibit 4).Its partial compliance to Nigerias environmental laws
is an indication that it is somewhere between defensive and compliance mode. RDSs
operations in the Delta are causing environmental degradation in the form of pollution due to
gas flaring and oil spills. Although RDS has been contributing to community development
through NGOs and other organisations to build schools and hospitals, these initiatives have not
been emphasised in a proper way.
The corruptpolitical system has not allowed the 3% of governments contribution to reach the
Delta, causing further frustration. Per RDS management, the Nigerian Government did not
always contribute to its periodic cash calls for various infrastructure projects and had often
postponed the payments to the joint ventures budget. As of 1995, the government owed SPDC
about $300 million in arrears. RDS has found itself in the midst of this controversy and due to
their massive operations in the Delta. Due to RDSs size, the Ogoni community have expected
RDS to intervene insuring the development of the Delta. Due to the political structure, RDS spolicy has been one of non-involvement in the political arena; yet the poor public relations of
RDS have resulted in a blow to its global image.
The arrest and subsequent execution of Saro-Wiwa raised numerous questions with regards to
the efforts put by RDS to stop the execution. RDS attributed its non-involvement to its core
principles of non-intervention in politics but pledged to continue to support the development
of the Niger Delta.
Based on Altmans Z score, RDS is on solid financial grounds (Exhibit 5). The debt to equity
ratio of 1:8 signifies that the firm has a substantial equity position and does not rely on debt
financing, giving them the ability to navigate through hard times. Furthermore, RDS has the
biggest operating share in the region of OGONI by owning 96 over 100 wells. As new
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opportunities are hard to come by in the industry, RDS must maintain its position in the
current markets and reinforce its relationships with the stakeholders to ensure long-term
sustainability. RDS approached many NGOs to assist them proactively to solve the crisis in the
Delta region. These actions mark a firm beginning to finding solutions keeping in perspective,
RDS decade long expertise on the regions mentality and community reactions.
In response to the environmental issues, SPDC increased its funding for community
development to $22 million in 1995. Additionally, $100 million a year was invested on a series
of projects to upgrade infrastructure and comply with the existing environmental laws. There
were also firm plans of putting in place a Liquefied Natural Gas Plant to reduce the harmful
effects on environment. However, the local community has not helped, 69.4% of oil spills were
acts of sabotage. Due to instances of sabotage, SPDC felt the need to hire private security to
protect its assets in Nigeria. By the year 1995, RDS felt helpless in correcting the situation in
Nigeria and squarely blamed the Government for the failures.
RDS has the necessary resources to play a major role in development of the region; however,
due to rampant corruption, a government which does not tolerate political interference,
increasing poverty and RDSs internal problems such as poor Public Relations, and the nature
of their business, RDS must step up its actions to protect its operations and their image
internationally.
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ALTERNATE ANALYSIS:
Alternative 1: STATUS QUO
Continue with the current strategy, not interfere in the local politics of Nigeria and let the
government handle community concerns. ProtectRDSs equipment and employees in the Niger
Delta through privately hired security.
Alternative 2: IMPROVE PUBLIC IMAGE & DIRECT DEVELOPMENT THROUGH
SUBSIDIARY.
Issue a sympathetic statement with regards to the Saro-Wiva incident. Involve the stakeholders
in long term development and regulatory standards. Create a Reconstruction and Development
subsidiary to develop the delta.
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Alternative 3: BUILD A COALITION TO ADDRESS CSR
Initiate a coalition of oil companies operating to form a collective stand with regards to the
Wiva incident and how to address the environmental and community development issues in
the Niger Delta.
Alternative 4: TERMINATE OPERATIONS IN THE NIGER DELTA
End RDSs involvement in the Delta, clean up RDSs potion of the environmental mess.
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RECOMMENDATION:
IMPROVE PUBLIC IMAGE & DIRECT DEVELOPMENT THROUGH SUBSIDIARY.
The recommendation chosen satisfies the most number of stakeholders. Analyzing the situation
through some ethical theories (Exhibit 3), we see that being in a business like oil extraction,
RDS needs to choose a path that allows the company to continue profitably doing business
while minimizing negative externalities.
This recommendation presents an opportunity to diversify RDSs business, become more
responsible and increase long term growth opportunities. It definitely does not make financial
sense for RDS to remove themselves within this industry. It would be essential for RDS to
remain ahead of the curve with regards to industry standards within the Niger Delta region as
the regulations would eventually catch up to global best practices. By addressing
environmental issues related to gas flaring, oil spills and liquefied natural gas projects RDS
would have made significant improvements to their current practices.
The corrupt climate in Nigeria as well as the inability for the government to insure that aid
effectively reaches the Delta, poses both a threat and an opportunity for RDS. By starting a
subsidiary Shell Reconstruction and Development, RDS can insure that their CSR budget directly
reaches the involved stakeholders. The subsidiary would initially invest the $25 million (while
RDS should step up CSR to $50 million, 45 to subsidiary 5 though NGOs.) This investment
would be used for reconstruction of the basic things such as water and sewage systems,
electricity, roads; and then move on to housing, schools and hospitals. This would allow RDS to
insure the development of the Delta while creating a long term track record for the subsidiary.
The direct development of the subsidiary would solve RDSs public image as RDS would be seen
as a development firm rather than purely an oil producer.
The main reason for the formation of MOSOP was the underdevelopment of the delta, unfair
treatment of the delta by the military government (which failed to direct the 3% of oil revenues
to the people of Niger Delta). By tackling grass root level issues, actually building the town and
providing basic amenities to the people of the Niger Delta, RDS will not only be addressing the
present cause of all the unrest, but also be taking forward the vision of people like Ken Saro-
Wiva. Shells trust winning endeavour will undoubtedly ensure a long and profitable
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relationship with Nigeria. In the long term, the subsidiary should solicit government contracts
for reconstruction and development. By doing so, RDS would be able to grow their new
business profitably and take this business international in the coming years.
An important factor of RDSs declining reputation globally, is its improper handling of theirpublic image. Many ofRDSs efforts and contributions towards community development have
not been projected appropriately to the international community. RDS should immediately
come up with a proactive approach to these problems, so that it can separate its actions from
those of the Nigerian government, to avoid being projected as an accomplice in the military
governments actions.
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APPENDIXES:
Exhibit 1:ALTERNATIVE ANALYSISPlease note: We have included these in the paper for your reading
convenience; however we consider them to be part of our appendix.
Alternative 1:
Alternative 2:
Alternative 3:
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Alternative 4:
COMPARATIVE OPTION ANALYSIS
Looking at the Comparative option analysis grid, the recommendation for RDS would be to
implement the best alternative, which would be IMPROVE PUBLIC IMAGE & DIRECT
DEVELOPMENT THROUGH SUBSIDIARY.
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Exhibit 2:ETHICAL THEORIES:
ETHICAL THEORIES:
UTILITARIANISM
Shell should implement actions that create the greatest good to the largestnumber. Shell will have to stop its oil extracting business altogether, as this will result in the
greatest good to the environment and the affected people of the Niger Delta. However, this will
mean a great hit to Nigerias economy, meaning even lesser financial aid to the poverty ridden
people of Niger Delta.
LIBERTARIANISM Shell should implement actions that do not impose on personal liberty.
People in the Niger Delta have the liberty of a clean and pollution free environment; however
they also have the liberty for a good living with no scarcity of basic needs of a human being.
Shell cannot impose on the liberty of the Nigerian government in its political actions.
KANTS THEORY Make decisions as if they were being established as Universal law. This
would again mean that Shell should shut down all operations that cause damage to the
environment, and the people who live in that community.
RAWLS THEORY Shell should implement actions that are to the greatest benefit of the least
advantaged. The least advantaged here would be the people of the Niger Delta, and the
environment that is getting damaged. This would mean that Shell should stop operations that
are causing the damage. However, the other aspect is the economy of Nigeria, which is
extremely dependent on oil, which would result in further deterioration if the oil business is
shut down.
Exhibit 4: CIVIL LEARNING TOOL:
`
RBCs Current Position RBCs Position in Future
after the proposed
Reccomendation
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Exhibit 5: ALTMAN`S Z SCORE INTERPRETATION OF SHELL`S FINANCIAL
SITUATION
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