Shell, Nigeria and the Ogoni. A study in unsustainable ...africanphilanthropy.issuelab.org/resources/20245/20245.pdfBoard Research ‘Coda’ which has used exter-nal opinion formers

Sustainable DevelopmentSust. Dev. 9, 177–196 (2001)DOI: 10.1002/sd.172

SHELL, NIGERIA AND THEOGONI. A STUDY INUNSUSTAINABLEDEVELOPMENT: III. ANALYSISAND IMPLICATIONS OFROYAL DUTCH/SHELL GROUPSTRATEGY

David Wheeler1,*, René Rechtman2, Heike Fabig3 and Richard Boele2

1 York University, Canada2 Kingston University Business School, UK3 University of Sussex, UK

In the first two papers of this trilogy weexplored the history of the RoyalDutch/Shell group both internationallyand locally in Nigeria. We described acatastrophic failure in relations with theOgoni and the consequent fall-out withNGOs and opinion formers moreglobally. In response to these eventsShell embarked on a revision of itsbusiness principles and initiated amulti-million dollar exercise instakeholder outreach andcommunication. We also explored thelimitations of a purely instrumentalapproach to ‘stakeholder management’ inNigeria and suggested that arights-based approach might provide amore useful framework for managingrelationships and achieving reconciliation

between Shell and the Ogoni. In thisthird paper of the trilogy we exploreShell’s current approach to strategyformulation and implementation in thecontext of what this means for Shell’sability to pursue the ideal of sustainabledevelopment. We apply two models fortesting the level of integration ofbusiness strategy with sustainability andwe observe that, whilst Shell’s businessprinciples and corporate strategy nowembrace notions of market sensitivityand internal and external accountabilityto an unprecedented degree, thecompany has yet to maximizeopportunities arising from its approachto sustainability and stakeholderresponsiveness at the business unit levelin Nigeria. Copyright © 2001 John Wiley& Sons, Ltd. and ERP Environment.

Received 5 June 2001Revised 3 July 2001Accepted 21 August 2001

* Correspondence to: Professor David Wheeler, Schulich Schoolof Business, York University, 4700 Keele Street, Toronto, M3J1P3, Canada. E-mail: [email protected]

Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment.

D. WHEELER ET AL.

STRATEGIC MANAGEMENT ATSHELL: 1995–2001

We believe it is possible to discernsignificant changes in Shell’s ap-proach to strategy over the period1995–2001 and to link these changes directlyto issues of economic globalization and im-portant new drivers in the marketplace –including the need for greater responsivenessto the needs of customers and otherstakeholders.

In this context de Wit and Meyer’s textStrategy: Process, Content, Context (1998) pro-vides some helpful distinctions for consider-ing the changing nature of different di-mensions of strategic management in largecorporations such as Shell. They refer to ‘strat-egy tensions’, eight of which seem particu-larly relevant to the Shell story (see Table 1).

The tensions described by de Wit andMeyer are not choices, rather they are con-tinua along which any organization must findan appropriate and effective balance for itscurrent strategy. All organizations need logicand creativity, planning and incremental ad-justment etc. The issue is what mix, whereand when. In our view there is little doubtthat Shell’s position has changed since 1995with respect to a number of these tensionsand indeed it may be argued that the eventsof that year helped accelerate some of thosechanges. We will now examine how Shellmaps across these different dimensions ofstrategy and where in the ‘tension continuum’the organization now sits. The dimensions

group neatly into pairs and we have chosen todiscuss them that way for ease of analysis.

Strategic thinking and organizational context

If we consider the questions of logical versuscreative thinking and control versus chaos asan organizational context, there is no doubtthat for most of the 20th century Shell’s orga-nizational culture and managerial mindsetwas heavily influenced by rational or ‘scien-tific’ thinking. The company’s formative yearsspanned the close of the 19th century and theearly decades of the 20th century when themanagement theories of Henri Fayol andFrederick Winslow Taylor helped establishthe dominance of rationalist, command andcontrol approaches to management (Wheelerand Sillanpää, 1997). Moreover, as we de-scribed in the first paper of this trilogy Shellalways prided itself on its technical competen-cies and as a company has long been domi-nated by the somewhat technocentric thinkingof the engineering profession (Boele et al.,2001a).

In 2001, it is clear that the technical and therational still dominates Shell’s approach tostrategic thinking, and control is still a majorelement in Shell’s approach to performancemanagement. Shell’s Sustainable Develop-ment Management Framework (SDMF) andRoad Map are conceptually rational and ap-pear to rely heavily on controls – for examplethe symbolically important and very practicalLetters of Representation by which seniorShell officers assert their commitment to Shell

Table 1. Strategy tensions and related perspectives in strategic management (adapted from de Wit and Meyer, 1998).

Tension Strategic perspectivesDimension

Logic versus creativity Rational versus generative thinkingStrategic thinkingOrganizational leadership versusControl versus chaosOrganizational contextorganizational dynamics

Corporate level strategy Responsiveness versus synergy Portfolio versus core competenceBusiness level strategy Markets versus resources Outside-in versus inside-out

Planning versus incremental adjustmentDeliberate versus emergentStrategy formulationDiscontinuous versus continuous changeRevolution versus evolutionStrategic change

International context Globalization versus localization Global convergence versus internationaldiversity

Organizational purpose Profitability versus responsibility Shareholder value versus stakeholder values(sic)

Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment. Sust. Dev. 9, 177–196 (2001)

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business principles and business integrity(Boele et al., 2001a; Shell International, 2001a).However, it is obvious also that Shell nowrecognizes some of the limitations of rationalplanning and the attempt to maintain abso-lute control – highlighted most starkly bytheir experiences in 1995.

Shell’s public reporting, advertising andgeneral communications are now well knownfor their inclusion of alternative viewpointsand their posing of values-based dilemmas(Shell International, 1998, 1999, 2000, 2001a). Itwould seem generative dialogue with stake-holders does now play a part in Shell’s strate-gic approach. Arguably this is in line with thecompany’s well-known interest in scenariobuilding described in its Corporate StrategyBoard Research ‘Coda’ which has used exter-nal opinion formers and fora such as theWorld Business Council on Sustainable Devel-opment to help provoke internal debate andlearning (Shell International, 2001b), but post-1995 Shell’s approach represents a much moreformalized and conscious attempt to open upmyriad conversations with the corporationunder the general heading ‘Tell Shell’.

To any student of the ‘new sciences’ andchaos and complexity in organizations Shell’sdifficulties in trying to control both internalsystems and external debate with stakehold-ers in the mid-1990s would not have come asa total surprise. The more reliance placed onrationality and technical control systems, thegreater the likelihood that external factors willintervene to threaten the established equi-librium (Gleick, 1987; Levy, 1994; Stacey,1996).

In Leadership and the New Science, MegWheatley (1999) challenges conventional no-tions of leadership and organization with ref-erence to the sciences of quantum physics,self-organizing biological systems and chaostheory. Wheatley observes that the old mecha-nistic assumptions about how the world maybe analysed and controlled no longer hold.‘Reality’ in sub-atomic physics, biology andchemistry derives more from the processesand relationships that exist between differententities than in any reductionist description ofthe entities themselves. Wheatley notes thatthe history of management theory has been

dominated by mechanistic, i.e. Newtonianand Cartesian, thinking, linking planning toprediction, cause to effect, but in today’s com-plex world (as in quantum physics), describ-ing relationships, probabilities and possi-bilities is more valuable than attempting pre-dictions based on previous behaviour. Shecites Fritjof Capra’s (1996) quotation of physi-cist Henry Stapp asserting that even elemen-tary particles are ‘in essence a set ofrelationships that reach outward to otherthings’.

It is doubtful whether Shell is quite readyfor such post-modern analysis, but at a practi-cal level these observations do underscore theimportance of considering both the externalbusiness environment and internal resourcesand competencies in strategy formulation – thatis to say both the ‘outside-in’ and ‘inside-out’perspectives of business strategy. This pointhas been made particularly effectively by EdFreeman in the context of stakeholder theory(Freeman, 1984) and by Karl Weick (1987)with respect to the importance of ‘enactment’i.e. engagement with the external environ-ment for effective strategy-making. From apower and resources perspective much thesame point has been made by Pfeffer andSalancik (1978). However, equally importantis the consideration of internal relationshipsand capabilities, typically associated with the‘resource based view’ of strategy (Barney,1991; Grant, 1991; Hamel and Prahalad, 1993,1994). We will now consider these factors infurther detail in the context of Shell’s ap-proach to corporate and business levelstrategy.

Corporate and business level strategy

According to de Wit and Meyer, in corporateand business level strategies the tensions arebetween a responsiveness versus synergy(portfolio or ‘core competence’) approach atcorporate level and a market versus resource-based (outside-in or inside-out) approach atthe business level.

Shell has a hybrid core competency/portfo-lio approach to corporate strategy. The exis-tence of clearly distinguished business areasrequiring quite different skill sets e.g. oil


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exploration, gasoline retailing and chemicalsmanufacturing has long been a hallmark ofShell’s group strategy. In the 1970s this led tosignificant attempts (subsequently aban-doned) to diversify well beyond oil and chem-icals (de Wit and Meyer, 1998). However, thecore of Shell’s business has always been, andremains that of an integrated oil major withwell developed, fully globalized upstreamand downstream operations. And to the ex-tent that the downstream gas and power busi-ness is now shaping up as a success story, asignificant debt is owed to the leveraging ofcore competencies in the exploration and pro-duction and oil products areas.

The other two business areas in the port-folio: chemicals and ‘other’ (which now in-cludes all the new corporate ventures in re-newables, hydrogen cell technology as well asinternet and capital ventures) were not (inmid-2001) in the same league either in strate-gic or business performance terms, but it wasclear that in line with Shell’s portfolio ap-proach all five areas had well separated man-agement accountabilities and performancemetrics. The language which Philip Watts(newly appointed as the Chair of the Commit-tee of Managing Directors) used to describethe four key drivers of corporate strategy wasexplicit on this point. In a presentation tofinancial analysts on 2 August 2001, Mr Wattsdescribed these drivers as: (i) capital disci-pline, i.e. competition between businesses forcash; (ii) portfolio management, i.e. activebuying, selling and ‘swapping’ of assets; (iii)operational excellence, i.e. cost leadership,and (iv) personal accountability within a per-formance culture (Watts, 2001).

If Shell’s approach remains a hybrid at thecorporate level, at the business level we see adefinite shift from the internal to the external– largely based on the new realities of theglobal energy economy and the importance ofnew market opportunities which will unfoldin coming decades. This new external focushas profound implications for the internal ca-pabilities which need to be developed inShell.

Writing in late 1998, Arthur D. Little energyspecialist Christopher Ross described threepossible scenarios for the global energy indus-

try in 2025. The first of these scenarios wastermed ‘orchestrated supply’ where, a newgeopolity or global governance modelemerges to ‘design and enforce global stan-dards’ to protect the environment and pre-serve society. Such an outcome wouldpenalize carbon-inefficient fossil fuels such asoil and coal and require major breakthroughsin renewable energy technologies, e.g. bio-mass, solar and fermentation. The second sce-nario sketched by Ross was based on‘technology solutions’ which might becomesufficiently attractive to consumers that mar-kets will reshape and evolve to deliver asignificantly less energy intensive future. Theoutcome under this scenario would be lessrestrictive for the oil industry than the ‘or-chestrated supply’ scenario, but transporta-tion, communication and power generation inthe future would look very different to thepresent day. The third scenario was some-what bleaker, invoking a Malthusian futurewhere economic growth and market transfor-mation might be hindered by inflexibility ofconsumers, lack of technological innovationand limits to natural resources.

Predicting that no one of these scenarioswould emerge in its pristine form, Ross drewsome general conclusions on what sorts ofcapability would need to be developed byleading companies under each scenario. In allthree cases the importance of partnering and/or relationship building with key stakeholdersfeatured strongly, and, depending on the sce-nario, successful oil companies of the futurewould have to excel in technological innova-tion and deployment and the maintenance ofa flexible portfolio of opportunities. The over-riding themes were ‘rapid learning, technol-ogy deployment, innovation and globalreach’.

The new futures that Ross described andthe organizational capabilities required to suc-cessfully navigate them were well known toShell in the mid-1990s. In an interview givenin 1998, then Chair of the Committee of Man-aging Directors, Mark Moody-Stuart de-scribed the process which Shell went throughin changing its business principles and decid-ing to transform its corporate culture (Moody-Stuart et al., 1998). Mentioning Nigeria and


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the Brent Spar events more as reference pointsthan causes of fundamental change, MoodyStuart said ‘when people began to think aboutit, they recognized that there were things weneeded to clarify and put right, but alsothings we can be proud of’.

Moody-Stuart went on to relate the Shelltransformation more to customer expectationsand sustained profitability than particularreputational or external threats e.g. global cli-mate change. Most importantly he describedthe business benefits of Shell’s transformationin terms of liberating creativity, higher moti-vation and better alignment of staff: ‘I believeour transformation’s biggest contribution toour business will be the way it releases peo-ple’s creativity and speeds their response towhat the customer wants, making our every-day business truly excellent while identifyingthe new opportunities’. It seems clear fromthese sentiments that Shell’s shift in businesslevel strategy has been mostly about focusingon the external while generating the requiredinternal competencies – ‘stretch and leverage’in Hamel and Prahalad’s terms (1993) – todeal with the new and far less predictableglobal energy markets of the future.

Strategy formulation and strategic change

Consistent with the maintenance of a hybridcorporate strategy and the shift in businesslevel strategy to a greater external focus,Shell’s approach to strategy formulation andstrategic change has also evolved. In formertimes, typical of a producer-led mentality,Shell’s strategic planning process was highlyformalized, deliberate, cyclical and budget-based (de Wit and Meyer, 1998). In mid-1999 the Committee of Managing Directorsadopted a new strategic management systemwhich was designed to be iterative with thefive principal business areas and become in-creasingly ‘real time’. Business principles andcorporate values issues were considered aconsistent overlay rather than drivers of theprocess. Return on Average Capital Employed(ROACE) and increasing shareholder valueremained key performance metrics, but strat-egy making at Shell was to place increasingimportance on market factors; in essence strat-

egy at Shell shifted from being producer ledto market led (Decyk, personalcommunication).

In a company with such enormous fixedassets, strategic change is unlikely ever to berevolutionary or discontinuous, and the hi-erarchical, ‘comfortable bureaucracy’ organi-zational style associated with Shell for most ofthe 20th century may take many more yearsyet to eliminate. Anthony Sampson (1995)quoted a Shell human resource professional in1993 saying ‘We have to choose between thecontrol model of the past, and the organicmodel of the future. If you rely on control youwon’t get as much out of managers as before;but the organic model can be dangerous –unless you believe that people are naturallyvirtuous’. Despite cultural resistance to dis-continuous change, we believe that thechanges in Shell’s asset mix in the period1995–2001 (especially in chemicals), the re-moval of billions of dollars of operating costsand a significant shift to performance basedpay and rewards systems are indicative ofchange on a very significant, if not revolution-ary scale (Moody-Stuart, 2000; Watts, 2001).

Thus we conclude that Shell’s approach tostrategy formulation and strategic change arenow significantly different to pre-1995; plan-ning has been replaced by a more emergentand incremental approach to strategy formu-lation and continuous change has been signif-icantly accelerated.

International context and organizational purpose

The past and current emphases in the sixdimensions of strategy described above arefor the most part discernible and relativelyconsistent. In the twin areas of internationalbusiness diversity and organizational purposeShell’s new strategic orientation remainsambiguous.

From all the evidence, including recentstatements to the investment community(Moody-Stuart, 2000; Watts, 2001) it appearsthat Shell remains a company highly focusedon shareholder value. This is demonstrated bythe clarity of targets on cost efficiency, staffcuts and returning long-term value to share-holders through dividend policy and share


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buy-back schemes (Watts, 2001). However,Shell has also distanced itself from the notionof maximizing short-term shareholder valueand appears highly aware of the importanceof reputation and brand identification to com-petitive positioning, citing these two factorsalongside technological innovation and‘reach’ as the four key elements of ‘competi-tive edge’. The company is especially proudthat at the retail level Shell is the preferredbrand in more than 30 countries worldwidecompared with less than five countries foreach of its main competitors: Esso, bp, Mobiland Texaco/Caltex (Watts, 2001). In globalbrand surveys Shell remains the number onechoice of motorists (Shell International,2001a).

Historically, intangible assets like reputa-tion have always been important to Shell butthey were perceived to derive as much fromthe group’s technical prowess as from its abil-ity to maintain key relationships (Boele et al.,2001a). The most important relationships werethose that the group maintained with its in-vestors and various governments around theworld, many of whom were joint venturepartners. And like most companies withproud reputations Shell was always aware ofthe notion of risk management, including theneed to manage corporate reputation for rea-sons of good corporate governance and longterm commercial performance.

But post-1995 it would appear that a signif-icant shift occurred in corporate attitudes andat least a partial re-invention of corporatepurpose and values. Work commissioned byShell post-1995 demonstrated that the grouphad lost the confidence of key stakeholdergroups in those areas of oil industry reputa-tion that were considered most important byopinion leaders, i.e. environmental protection,the development of alternative energy, apply-ing technology, profitability, investment andcommunity responsibility (May et al., 1999).Moreover the conclusions of this researchwere couched explicitly in terms of threats toprofits and shareholder value: ‘A weak orpoor reputation can threaten goodwill, co-op-eration and ultimately the company’s licenseto operate. Such a threat now faces Shell. Itsreputation is mixed, with some areas of im-

portant strength. But it also has negative asso-ciations which, if left unchecked, are likely toundermine the company’s ability to operatesmoothly and efficiently – in other words, itsability to serve its stakeholders and, in partic-ular, its shareholders’ (MORI, 1997 cited inMay et al., 1999).

Shell’s revised business principles retaineda fairly conventional set of objectives for thegroup: to engage efficiently, responsibly andprofitably in the oil, gas, chemicals and otherselected businesses (principle 1), but directresponsibilities to five named stakeholdergroups were listed (principle 2) along withmore specific principles relating to questionsof economic and political engagement, in-tegrity and Health, Safety and Environmentalmanagement, the community, competitionand communications. Moreover, as we notedin the second paper of the trilogy (Boele et al.,2001b) human rights were explicitly recog-nized for the first time. Post-1995, relation-ships with opinion formers and directstakeholders, e.g. local communities and end-consumers, were given greater importance inscenario building and formal strategy making,and the sustainable development ‘Manage-ment Framework’ and ‘Road Map’ were pub-lished, thereby encapsulating the notion thatShell must in future create value for share-holders, for society, i.e. other stakeholdersand for the natural environment.

Notwithstanding these apparent changes,we have drawn attention elsewhere to thecontinuing stark differences in corporaterhetoric and behaviour in Shell Nigeria com-pared with the group level – even after fiveyears of corporate transformation (Boele et al.,2001b; Wheeler et al., manuscript submitted tothe Journal of Business Ethics), and we haveconcluded that ‘Given the size of the invest-ment Shell has made in its corporate reposi-tioning since 1995, the tolerance of repu-tational risks associated with the Nigerian op-eration can only be permitted for reasons ofsignificant institutional blockage and/or somehigher purpose/organizational imperative’(Wheeler et al., manuscript submitted tothe Journal of Business Ethics). In the contextof Shell strategy, this inconsistency canonly be explained by a strategic approach


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based on (i) international diversity rather thanglobal convergence and (ii) tolerance of ambi-guity in the values and purpose of the organi-zation. Indeed it could be asserted thatinconsistency in organizational values and pur-pose in Shell businesses across the globe is thede facto strategy – intentional or unwitting.

This raises the disturbing possibility thatdespite the increasingly strong articulation ofcorporate values from the centre, it may bethe move away from a more control-orientedapproach to strategy and a greater encourage-ment of diversity in managerial approach in-ternationally which permits perpetuation ofthe Shell–Ogoni conflict.

In the next part of this paper we apply twomodels which may be used to examine inmore detail the way in which Shell’s generalstrategic approach maps onto principles ofsustainable development and stakeholder re-sponsiveness. One model (Sustainable Enter-prise Academy, 2001) addresses primarilystrategy formulation and the other (Wheeler etal., 2000) addresses strategic implementation.

MAPPING SUSTAINABLEDEVELOPMENT ANDSTAKEHOLDER RESPONSIVENESSONTO STRATEGY FORMULATIONAT SHELL

Johnson and Scholes (1999) define three mainelements of strategic management: (i) strategicanalysis, (ii) strategic choice, and (iii) strategicimplementation. Strategic analysis includesconsideration of the business environment,expectations and the purpose of the firm, andresources, competencies and capabilities.Strategic choice involves consideration of thebases of choice, the options, and evaluationand selection of strategic direction. Finally,strategic implementation involves organisa-tional design, resource allocation and themanagement of change. The three elementsshould be in dynamic equilibrium for strategymaking to be effective. The model also infersthat without implementation, strategy formu-lation (analysis and choice in Johnson andScholes terms) is entirely irrelevant. It is in the

implementation that the true impact of strat-egy emerges.

One powerful model which has emergedrecently which attempts to integrate sustain-able development and stakeholder respon-siveness with most components of strategicanalysis and strategic choice (as defined byJohnson and Scholes) is that of the SustainableEnterprise Academy (2001). The model wasdeveloped by ten leading academics and com-mentators specifically for senior executivelearning purposes based on original work byStuart Hart of the University of North Caro-lina. It has been successfully employed in anumber of business leader environments as ameans of analysing strategic options that con-tribute both to sustainability and to share-holder value. The model addresses allelements of the strategic analysis and choicein the Johnson–Scholes model except perhapsfor the question of corporate purpose, towhich we shall return in part three of thepaper when we discuss strategic implementa-tion. The model is depicted in Figure 1.

If we explore the Hart/SEA model from theperspective of Shell International, a rather

Figure 1. The Sustainable Enterprise Academy (SEA)strategic framework for sustainable shareholder value(SEA, 2001). Reproduced by permission of York Univer-

sity, Canada.


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positive picture emerges. In terms of strategyformulation (analysis and choice), Shell Inter-national is making significant progress in alldimensions: internal and external, immediateand future focused.

Like most large companies, Shell has beenespecially active in the bottom left quadrant,driving out environmental inefficiencies e.g.gas flaring, and risks, e.g. contaminated land,through implementing new policies and sys-tems, e.g. group-wide implementation ofISO14001 (Shell International, 2001). Eco-effi-ciency has long been recognized as a win–win environmentally and economically andhistorically this is where corporations, includ-ing Shell, have been most active in addingsustainable shareholder value (Hart, 1995,1997; Esty and Porter, 1998).

Unlike some of its competitors, Shell hassought to actively leverage its competencies inoil and gas exploration and oil products inorder to more fully exploit the future poten-tial represented by business opportunities inthe top left quadrant of the model. Helped bythe lower costs and lower environmental im-pacts of gas-fired power generation, Shell’sdownstream gas and power business hasthrived – showing 59% second-quarter earn-ings growth in 2001 (Watts, 2001). Moreover,backed by new technologies in liquid naturalgas exploitation, storage and distribution, thisaspect of Shell’s business is a significant leapahead of more carbon intensive oil- and coal-based power systems, both economically andenvironmentally.

Perhaps more interestingly from a sustain-ability perspective, Shell’s investments andstrategic partnerships in hydrogen and fuelcell technologies, wind and solar power repre-sent clear strategic choices with respect tolonger-term energy solutions. We should notethat the investments in these technologies arerelatively small compared with the overallscale of Shell’s current capital investmentplans. According to Shell’s Securities and Ex-change Commission filing in 2001 (Shell Inter-national, 2001d), a total of 98% of the group’scapital expenditure in 2000 was devoted tothe four main business areas. This included$3801 million for exploration and production,

$1258 million for oil products, $726 million forchemical and $288 million for downstreamgas and power compared with just $136 mil-lion for ‘other’ corporate areas, which includealternatives and renewables.

The shift from eco-efficiency to innovation(bottom left to top left in Figure 1) resonatesclosely with the neo-Schumpeterian thinkingof Hart and Milstein (1999)on the need for‘creative destruction’ of old inefficient indus-tries and their replacement with entirely newalternatives, so it is relevant that Shell di-vested its coal business in July 2000, that thecompany is aiming for 50 gigawatts of in-stalled wind energy capacity and that it ispredicting profitability in its solar business by2004 (Shell International, 2001b). Through itsjoint venture with Siemens, Shell is aiming tobe the first- or second-ranked provider insolar energy solutions in Europe and the US.In support of these nascent businesses, thecompany intends investing a further $0.5 to $1billion between 2001 and 2005 (Shell Interna-tional, 2001b).

Shell’s investments and partnerships in re-newable and alternative energy technologiesalso allow the group to start exploring the topright quadrant – strategic business opportuni-ties linked to entirely new, unserved markets– for example independent, off grid energyoptions for rural communities both in thedeveloped and the developing world. Shell isaiming for up to 10% of its solar business tobe serving rural markets by 2004 (Shell Inter-national, 2001b). This provides some evidencethat Shell is thinking seriously about suchmarkets and reacting to the compelling evi-dence that demographic and environmentaltrends will necessitate that power is providedsustainably to the world’s rural poor in com-ing decades if climate change catastrophe is tobe averted (Shell International, 2001a).

A more complex picture emerges both topright and bottom right of Figure 1 when weconsider Shell’s exploration of win–win busi-ness opportunities from an external perspec-tive. At one level, Shell’s positioning withrespect to brand loyalty in Latin America,Asia Pacific and Africa (Watts, 2001) mayserve the company extremely well for new


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strategic opportunities, e.g. in retail andcommunity energy solutions in the develop-ing world. Global consumer attitudes toShell have also become quite favourable inrecent years (Boele et al., 2001a). Moreover,through partnerships with actors such asSiemens (solar) and Ballard Power Systemsand Westcoast Energy (hydrogen fuel celltechnology), Shell has demonstrated its abil-ity to engage business partners and otherstakeholders in pursuing renewable and al-ternative energy technology solutions. Be-tween 6 July and 4 August 2001, of tenmajor corporate announcements, six dealtwith financial performance and business suc-cesses, e.g. in exploration, but no less thanfour dealt with new strategic partnerships inrenewable and alternative energy (Shell In-ternational, 2001b), so it would appear thatShell has become the business partner ofchoice for a range of stakeholders in newenergy market development.

Yet, there remains a troubling factor forShell which is that in the minds of manyinfluential opinion formers, particularlythose in the development, environmentaland human rights movements, Shell still hassomething to prove. For many in this group,Shell’s corporate performance has not beenrewarded by reputational rehabilitation(Arnold, 2000). There is, as yet, no evidencethat Shell can fully match bp in the area ofcommunity development, and it is not fanci-ful to surmise that this disconnect is linkeddirectly to the events of 1995 and thereforeto conclude that only when Shell can putthe issue of Nigeria completely to rest willtheir capabilities for stakeholder relationshipbuilding be fully appreciated. This is ex-tremely important from a reputational andlicence to operate perspective (bottom rightquadrant of the model) because if bp contin-ues to win control of sensitive resourcessuch as Alaska due to its superior reputa-tion on community development (Wheeler etal., manuscript submitted to the Journal ofBusiness Ethics) then Shell will be at a com-petitive disadvantage and its investors willsuffer.

MAPPING SUSTAINABLEDEVELOPMENT ANDSTAKEHOLDER RESPONSIVENESSONTO STRATEGICIMPLEMENTATION AT SHELL

In 1984 Walter Kiechel wrote an article inFortune magazine describing a study in whichit was found that only ten per cent of formu-lated strategies were actually implemented bythe businesses which produced them. Appar-ently Tom Peters’ response was that this fig-ure was ‘wildly inflated’ (Mintzberg et al.,1998). Notwithstanding Shell’s good showingin the Hart/SEA model with respect to inte-gration of sustainability and stakeholder is-sues in strategy formulation (analysis andchoice) it is therefore now important to exam-ine how Shell converts this to implementationboth at the corporate and business unit levels.

In a deductive theoretical and empiricalstudy based on ten North American compa-nies Wheeler et al. (2000) combined the classi-fication of ten strategic management schoolsdeveloped by Mintzberg et al. with the John-son–Scholes model (Figure 1) and concludedthat, whichever school (or combination) ofstrategic management approaches was ap-plied by companies, concepts of sustainabledevelopment may be concluded to be mani-fested in strategic implementation where thefollowing hold.

� Concepts of sustainability, e.g. environ-mental quality and social justice, featurealongside economic factors in companymission and values statements. This res-onates with the importance of purpose,vision and leadership in the effective for-mulation and implementation of strategywhich is common to every strategy school.

� Companies have systems for linking theirfuture competitive advantage and eco-nomic success with the environmental andsocial values of their customers and otherstakeholders. This resonates with the cen-trality of market economics to both ‘pre-scriptive’ (i.e. analytical and planningbased), and ‘descriptive’ (i.e. responsiveand learning-based) approaches to strategyas classified by Mintzberg et al. (1998).


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� Companies have systems for detecting, as-similating and responding to economic, en-vironmental and social pressures and otherimportant cultural influences. This res-onates with conventional strategic analysistools, e.g. SWOT, PEST and five forces, inthe prescriptive schools as well as thestakeholder sensitive systems contained inmore descriptive approaches.

� Companies develop systems, structuresand routines in business units and divi-sions which reflect the importance of envi-ronmental and social, as well as economic,criteria to the corporation, e.g. in investorrelations, human resources, sales and mar-keting and supply chain managementpractices. Potentially married to financialcontrol and quality management pro-grams, this resonates with important ele-ments of the descriptive schools, e.g.resource allocation and control, as well aswith the stakeholder-embracing assump-tions of several of the more descriptiveschools.

� Companies develop measurement systemsand management information/communica-tion systems that reflect the importance ofsocial and environmental, as well as eco-nomic, issues and other intangible assets,e.g. knowledge, loyalty and trust. This res-onates with the ‘balanced scorecard’ andother components of the control of perfor-mance in prescriptive strategies and withthe need for effective learning and iterativecommunication in some of the more de-scriptive strategies.

Wheeler et al. (2000) used these ‘macro indica-tors’ for integration together with generalobservations by European consultancy Sus-tainAbility (Beloe, 1999) and empirical obser-vations of ten North American companies toderive a framework for assessing the level ofintegration of principles of sustainability andstakeholder responsiveness with businessstrategy. The framework embraces the unify-ing frame for organizational learning ofCrossan and co-authors (1997), i.e. intuiting,interpreting, integrating, institutionalizing,and it attempts to contrast manifestations ofintegration in four different stages of progres-

sion towards full integration (stages based onthe work of Hart, 1997). The framework isdepicted in Table 2.

We will now explore Shell’s position onstrategy implementation and compare it withthe model proposed above both from both acorporate and a business unit perspectivewith particular reference to Shell Nigeria. Letus take each of the main characteristics inturn.

Corporate purpose and mission

There is little doubt that at the corporate levelShell scores well on this characteristic, explic-itly institutionalizing the group’s responsibili-ties to sustainable development and tostakeholders other than shareholders in itsbusiness principles. Although it remains to beseen whether Sir Mark Moody-Stuart’s succes-sor Philip Watts is as active as his predecessoron questions of sustainability and responsibil-ities to stakeholders, it would be hard toimagine the organization’s leadership ever re-nouncing the business principles.

Based on the content of a paper preparedfor the World Business Council on SustainableDevelopment (Watts and Holme, 1999) and aspeech made in 2000 (Watts, 2000), the atti-tude of the new Chairman appears enlight-ened and positive. At the business unit level itwould be unthinkable for Shell Nigeria topublicly distance itself from group businessprinciples.

Corporate objectives

Reinforcing the purpose and mission de-scribed above, and echoing the businessprinciples, the Shell Report 2001 (ShellInternational, 2001) describes group objectivesas ‘to engage efficiently, responsibly and prof-itably in the oil, gas, chemicals and otherselected businesses and participate in the re-search and development of other sourcesof energy. Shell companies are committedto contribute to sustainable development’.Notwithstanding this description, two ofShell’s clearest business objectives are to in-crease shareholder value and achieve a stan-dard Return on Average Capital Employed


186



187

Tab

le2.

Fram

ewor

kfo

rcl

assi

fyin

gth

ed

egre

eto

whi

chsu

stai

nabi

lity

prin

cipl

esar

eem

brac

edw

ithi

nbu

sine

ssst

rate

gyim

plem

enta

tion

(Whe

eler

etal

.,20

00).

Cha

ract

eris

tic

No

dev

elop

men

tE

mer

ging

dev

elop

men

tE

stab

lishe

dd

evel

opm

ent

Inst

itut

iona

lized

dev

elop

men

t

Inte

rnal

dis

cuss

ion

ofA

ctiv

ew

ritt

enan

dve

rbal

Publ

icd

ecla

rati

onof

posi

tion

Cor

pora

tepu

rpos

ean

dN

ow

ritt

enor

verb

alin

mis

sion

,sp

eech

esby

issu

es,

som

ein

tern

alpo

siti

ons

dis

cern

edon

advo

cacy

ofsu

stai

nabi

lity

bym

issi

onle

ader

ship

polic

ies

emer

gele

ader

ship

and

othe

rssu

stai

nabi

lity

issu

es

Eco

nom

ic,

soci

alan

dE

cono

mic

and

com

mer

cial

Eco

nom

ic,

soci

alan

dC

orpo

rate

obje

ctiv

esSo

me

envi

ronm

enta

lan

den

viro

nmen

tal

obje

ctiv

esso

cial

obje

ctiv

eses

tabl

ishe

den

viro

nmen

tal

obje

ctiv

esin

only

mea

sure

dan

dpe

rfor

man

ceM

ISan

dre

port

edex

tens

ivel

ytr

acke

d&

ince

ntiv

ized

aspa

rtof

holis

tic

perf

orm

ance

Dis

cont

inuo

usan

dra

pid

Cor

pora

teca

pabi

lity

for

Neg

ligib

le;

nore

acti

onto

Incr

emen

tal;

gent

leL

ever

age

and

stre

tch

ofch

ange

and

the

capa

bilit

ies

poss

ible

for

entr

yre

adju

stm

ent

tono

vel

chan

ges

inm

arke

tch

ange

into

nove

lm

arke

tsa

cond

itio

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tono

vel

mar

kets

core

com

pete

nce

mar

kets

dev

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men

tof

nove

lm

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ts

Neg

ligib

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mis

take

sE

arly

intu

itio

nan

dC

orpo

rate

capa

bilit

yfo

rSh

ared

und

erst

and

ing

for

3d

imen

sion

sof

sust

aina

bilit

yin

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reta

tion

ofpa

rtof

form

alan

din

form

alle

arni

ngfo

rre

peat

ed,

oppo

rtun

itie

ssu

stai

nabi

lity

prin

cipl

es,

sust

aina

bilit

yis

sues

mis

sed

rout

ines

wit

hke

ysu

stai

nabi

lity

soci

alsy

stem

sin

tera

ctw

ell

and

adju

stac

ross

3th

roug

hex

peri

ence

,st

akeh

old

ers,

dia

gnos

tic

syst

ems,

rule

san

dpr

oced

ures

met

apho

rs,

map

san

dd

imen

sion

sof

sust

aina

bilit

yfo

rw

ide

grou

psof

inpl

ace

but

subj

ect

tod

ialo

gue

wit

hlim

ited

poss

ible

re-i

nven

tion

stak

ehol

der

snu

mbe

rsof

(mos

tly

inte

rnal

)st

akeh

old

ers

Serv

ice

and

valu

efo

rSu

stai

nabi

lity

issu

esan

Ope

rati

onal

orie

ntat

ion

Env

iron

men

tal

and

soci

alE

nvir

onm

enta

lan

dso

cial

inte

gral

part

ofpo

siti

vem

oney

tran

sact

ions

only

;to

war

ds

cust

omer

s,pe

rfor

man

ceof

com

pany

perf

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ance

ofco

mpa

nyan

din

vest

ors,

busi

ness

noin

clus

ion

ofw

ider

dis

cour

sean

din

tera

ctio

nsan

dpr

oduc

tsex

plor

edpr

oduc

tsro

utin

ely

shar

edin

tern

ally

;ex

tern

alpa

rtne

rsan

dot

her

key

and

dis

cuss

edw

ith

wit

hcu

stom

ers

and

othe

rke

yet

hica

lis

sues

inst

akeh

old

ers

cust

omer

san

dot

her

key

stak

ehol

der

sm

essa

ges

hear

dbu

tno

tre

lati

onsh

ipal

way

sem

brac

edst

akeh

old

ers

Em

ploy

ees’

valu

esan

det

hics

Beg

ins

toin

clud

etr

aini

ngE

xclu

des

wid

eris

sues

Invo

lvem

ent

inO

pera

tion

alor

ient

atio

nen

viro

nmen

tal,

soci

al&

toem

ploy

ees

embr

aced

and

cont

ribu

teto

beyo

ndth

eem

ploy

men

tan

daw

aren

ess-

rais

ing

onet

hica

lis

sues

atw

ork

ad

evel

opm

ent

offi

rm’s

cult

ure

cont

ract

envi

ronm

enta

lan

dro

utin

epa

rtof

empl

oym

ent

soci

al/e

thic

alis

sues

and

ince

ntiv

ized

EM

Slin

ked

toso

cial

and

Env

iron

men

tal

man

agem

ent

Ope

rati

onal

orie

ntat

ion

Bas

icen

viro

nmen

tal

Leg

alco

mpl

ianc

esy

stem

inpl

ace

(pos

sibl

yco

ntro

lsin

plac

e,en

ergy

econ

omic

syst

ems

wit

hin

and

toth

ena

tura

lbe

yond

the

firm

,en

viro

nmen

tce

rtif

ied

,po

ssib

lyin

tegr

ated

and

was

tem

anag

emen

tet

cw

ith

safe

tyan

dqu

alit

y)en

viro

nmen

tal

impa

cts

mea

sure

dan

dre

port

edre

alti

me

D. WHEELER ET AL.

(ROACE) of 14% at an assumed crude oil priceof $14 per barrel. Since 1992, Shell’s dividendgrowth has outstripped inflation and in 2000,there was a 5.3% increase in dividend to in-vestors in Royal Dutch and a 4.3% increase forinvestors in Shell Transport and Trading (ShellInternational, 2001b).

In 2000, the Shell Report (Shell International,2000) also described ‘strategy’ in each of thefive main core businesses: exploration andproduction, oil products, chemicals, down-stream gas and power and renewables. Strictlyspeaking these strategies would be better de-fined as business objectives, which if takentogether would add up to a respectable set ofcorporate objectives. For example, the strategyfor exploration and production was to ‘Empha-sise short-term profitability whilst maximizinglong-term value through cost leadership, in-vestment discipline and production growth.Implement strategy by means of selective in-vestments and active portfolio management.Take advantage of the Group’s relationships,reputation, technology, skills and practices tosupport Group companies as the preferredpartner of both resource holders and othercompanies in the industry’’. This set of objec-tives might have served this part of the busi-ness at any point in time over the last 100 years.

In contrast with this quite traditional set ofobjectives oil products was in ‘new Shell’ modespeaking about continuing to focus ‘first andforemost – on the millions of Shell customersaround the world’. During a period of majortransition, the chemicals business understand-ably placed a strong emphasis on customervalue, technology, efficiency and people devel-opment. Downstream gas and power had anasset-based set of objectives focused on com-mercializing technologies and satisfying en-ergy needs (without qualification), and therenewables business objectives were mostlyabout technology development and the estab-lishment of market leadership.

In 2001, these objectives were reinforced bythe overall group strategy drivers describedearlier i.e. capital discipline, portfolio manage-ment, operational excellence (i.e. cost leader-ship) and personal accountability (Watts, 2001).Clearly Shell’s objectives remain heavilyweighted in the economic and commercial

realm but in certain areas there is an indicationof a more market-based, stakeholder and envi-ronmentally oriented approach emerging. Wemight therefore categorize Shell’s position inthe framework depicted in Table 2 at betweenthe ‘emerging’ and ‘established’ stage of devel-opment.

Corporate capability for change and thedevelopment of novel markets

We described the nature of corporate organiza-tional change in Shell in the first section of thispaper. As an organization with a well estab-lished culture and a very significant set ofinvestments in upstream and downstream hy-drocarbon businesses, it is unsurprising thatprogress towards development of new marketsand products appears incrementally slow incomparison to the more traditional businesses.It is also clear that progress is dependent onconventional economics. As Chief Executive ofthe renewables business Karen de Segundosaid in the Shell Report (2000), ‘While it’simportant to provide sustainable and renew-able energy sources where they are neededmost, we must strive to establish a profit-mak-ing business or else we cannot continue togrow’. Nevertheless, the fact that Shell willdevote between $500 million and $1 billion inthe period 2001–2005 to the renewables andalternatives business and that oil products isexploring with others the future of ‘sustainablemobility’ does demonstrate some incremen-tally developing capacity in this area, and thefact that Shell plays down its ROACE andearnings expectations in the new business areasof alternative and renewable energy technol-ogy is both realistic and encouraging (Watts,2001). In terms of our framework, we judgeShell to be at least at the ‘emerging’ level forcorporate capabilities for re-invention and ar-guably very well placed with respect to becom-ing established in this respect in due course.

Corporate capability for learning forsustainability

We discussed Shell’s attitude to external stim-uli in the first part of the paper. Learning forsustainability at corporate and indeed business


188


area level was undoubtedly assisted by theevents of 1995 and the ensuing re-examinationof Shell’s relations with stakeholders and soci-ety in general. Philip Watts made this veryclear while still in his former role. In a speechto Templeton College Watts explicitly ac-knowledged the twin impacts of Brent Sparand Nigeria on Shell’s need to learn fromexperience (Watts, 2000). Shell has produced a‘primer’ on sustainability for its managers andinvested significantly in outreach to stake-holders through numerous publications, websites and advertising (Shell International,2000b).

Moreover, the group shows every sign ofhaving recognized the need for change at acognitive level through the development ofcorporate management frameworks and mod-els based on principles of sustainable devel-opment. We have also seen how Shell’stransformation was driven by external marketand economic factors as well as by issues ofreputation and stakeholder approbation.Clearly a significant number of senior Shellpeople were involved in the reformulation ofthe business principles. The level of comfortfelt by Shell’s leadership with sustainable de-velopment as a concept is reinforced by theliberal use of sustainable developmentrhetoric – even in presentations to financialanalysts (Shell International, 2001b).

The degree to which sustainability learninghas penetrated the core business areas andindeed all the business units Shell operatesthrough around the world needs further test-ing. Shell maintains a quite formal process ofchecking the compliance of country opera-tions on issues such as Health, Safety and theEnvironment and business integrity requiringsigned statements by country chairmen, CEOsor CFOs to demonstrated commitment to poli-cies associated with sustainability. It is un-clear whether this process, whilst verifiablebecause it creates a paper trail, contributessignificantly to deeper learning but at leastbusiness unit leaders are left in no doubt as tothe importance the group places on compli-ance. We would need more data before as-signing Shell to either the ‘emerging’ or‘established’ category in the strategy imple-mentation framework.

Operational orientation towards customers,investors, business partners and other keystakeholders

We described above Shell’s commitment tomaximizing shareholder value over the longterm. It may be assumed that this policy iswell understood at operational level. It is lessclear from public sources the degree to whichShell business areas and business unitsaround the world have operationalized stake-holder responsiveness. Shell’s public reputa-tion around the world continues to improve(Boele et al., 2001a), so clearly something ishappening which is positive. According theShell Report (Shell International, 2000) be-tween 73 and 94% of operating companiesacross the five core businesses had proceduresfor identifying and engaging with stakehold-ers but only 35–50% were measuring the ef-fectiveness of engagement. Between 26 and44% had procedures to use the results ofstakeholder engagement processes.

There is good evidence of good practice instakeholder engagement and community de-velopment in certain areas, e.g. Peru, thePhilippines, Canada and Northern Europe(Jones, 1998; Shell International, 1998, 1999,2000, 2001a; May et al., 1999). Over the period1995–2000, Shell’s ‘social investments’ aver-aged just over 1% of pre-tax profits (ShellInternational, 2001a).

Where Shell maintains a sizeable retail pres-ence it is not surprising that active attention ispaid to brand protection and customer sensi-tivities. In contrast there is direct and ongoingevidence of community-related problems inNigeria – a country where retail activities aredwarfed by exploration and production prior-ities (Boele et al., 2001a). Nevertheless of $139million invested by Shell in society in 2000,32% was devoted to communities in Africaand the Middle East, the majority of thatspent in Nigeria (Shell Nigeria, 2001).

A comprehensive appraisal of stakeholderorientation at operational level is not cur-rently available. This would require system-atic gathering and publication of the results ofthe processes described above and moreformal and in-depth surveys of direct cus-tomers, shareholders, suppliers, contractors,


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D. WHEELER ET AL.

franchisees, NGOs and other key groups in arange of business units – including Shell Nige-ria1 – in addition to the sort of more globalopinion survey work and process checkingwhich has occurred to date (Shell International,1998, 1999, 2000, 2001a).

At a business unit level in Nigeria, there issome evidence that Shell has tried to reach outto local stakeholders, albeit clumsily and witha frequently negative response (Boele et al.,2001a,b; Imomah, 2001; Wheeler et al.,manuscript submitted to the Journal of BusinessEthics). However, it would be somewhat sur-prising if Shell Nigeria attached as much im-portance to interests of these stakeholders asthose of its principal investors, i.e. the RoyalDutch/Shell group and the Nigerian Govern-ment. Shell produces just under half of Nige-ria’s daily crude oil output of 2 million barrels(Shell Nigeria, 2001). Nigeria, in turn, producesa significant proportion of the group’s basicresources of oil and gas. This equated to 10.5%of Shell’s crude oil production in 2000 (ShellInternational, 2001d). This situation is not set tochange. In his August 2001 presentation tofinancial analysts, Philip Watts described thedevelopment of LNG in Nigeria since 1999 inglowing terms, and included a significantdeepwater oil find near the Bonga offshorefield in Nigeria as one of the highlights of hissummary of a ‘vintage quarter’ for discoveries(Watts, 2001). Even before the Bonga discovery,LNG production in Nigeria was predicted torise to at least 5.8 million tonnes per annumwith supply contracts already in place with anumber of European customers (Shell Interna-tional, 2001d).

Clearly the priorities and mind-set of explo-ration and production and the needs ofinvestors must dominate Shell Nigeria’sorientation towards stakeholders, and withsuch a high degree of Royal Dutch/Shell in-vestor confidence so dependent on the Nige-

rian operation we must assume that any mapof stakeholder influence drawn up by ShellNigeria would have corporate investors, thegroup and the Nigerian Government pre-eminent and community and environmentalinterests somewhat secondary and instrumen-tal to the former (Wheeler et al., manuscriptsubmitted to the Journal of Business Ethics).However, it is clear that in its communicationswith all stakeholder groups, including in-vestors, concepts of sustainability and sustain-able development feature explicitly in thediscourse between the company, its opera-tional units and its various constituencies.

Operational orientation to employees

The Shell Report (Shell International, 2000)carried relatively little information from the1999 Shell People Survey – the staff attitudesurvey which captured employee opinions inmore than 100 countries. Thus it was not clearwhether the survey instrument touched onquestions that would have provided deep in-sight on Shell’s operational orientation to em-ployees from a sustainability perspective. Onestatistic provided was that 55% of aggregatedemployees agreed that they knew how theycould contribute to Shell’s core purpose of‘helping to build a better world’.

The following year, the Shell Report 2001provided some details of the second ShellPeople Survey conducted in October 2000(Shell International, 2001a). The survey in-cluded more than 90000 employees and wasconducted in no fewer than 37 languages. Itemerged in the second attitude survey that 80%of staff were proud to be part of Shell (+5%on the previous survey), but that 37% found itdifficult to balance work and personal life.These statistics provide indirect evidence of agenerally positive culture, but with some stressbeing felt because of the transition to a higherlevel of accountability for performance.

We know that cost leadership and portfoliomanagement has translated into group costsavings of $4 billion (so far) and a reduction intotal employee numbers of 20000. Chemicalsalone has seen the number of businesses de-cline from 21 to 11 between 1998 and 2001and employees from 21000 to 9000 (Shell

1 The 862 respondents to the Tell Shell initiative in 1999/2000(Shell International, 2000) did not represent an especially repre-sentative or numerically robust sample. But it is interesting tonote that the two most frequently mentioned issues by respon-dents were renewables and Nigeria, again further reinforcingthe salience of these issues to activists and those stakeholderswilling to engage directly with Shell and indeed the importanceof Shell doing more formalized stakeholder relationship assess-ments in Nigeria itself.


190


International, 2001b). Simultaneously ROACEfor the chemical business improved from 7.2%to 14.8%. A number of the comments fromemployees in recent Shell Reports have re-flected the pain of this transition.

More data from the People Surveys wouldbe needed to generate a fuller understandingof the role of employees in Shell’s implemen-tation of sustainability strategy. The fact thatShell intends to repeat the surveys on a regu-lar basis may provide future opportunities toexplore this. Analysis would need to be per-formed on a business unit and country bycountry basis to test the variability in re-sponse rates to key questions of attitudes tosustainability across cultures and businesstypes.

Meanwhile, we may conclude that in termsof overall strategy implementation, employeesare in some cases seen as a cost and in otherstheir values and professional contribution areperceived to be central to the development ofa new performance culture at Shell (Watts,2001).

Operational orientation to the naturalenvironment

Given that Shell has an underlying commit-ment to develop and exploit more hydrocar-bon resources, Shell has ambitious targets onthe environment, including the exceeding ofKyoto-based targets on global warming andoperationalizing and certifying environmentaland safety management systems (Shell Inter-national, 2001a). The likely future ‘cost’ ofcarbon is now formally included in capitalexpenditure planning at a group level andenvironmental liabilities are well understoodand measured, standing at approximately $3billion (Shell International, 2001d).

The group is committed to a significantreduction of gas flaring as a contribution to-ward reducing the group’s global warmingpotential, aiming to phase out all flaring by2008. As a result GWP, total carbon dioxideemissions and total VOCs and methane emis-sions are all projected to fall significantly(Shell International, 2000). There is a moremixed picture in terms of projected releases ofnitrogen and sulphur oxides and oil dis-

charged with effluents. However, total oilspills are projected to reduce from 4.2 thou-sand tonnes in 1999 to 2.9 thousand tonnes in2003. By any comparison, at corporate levelShell has a competent record given the indus-try it is in and the environmental impacts ofits production processes and indeed those ofits products during use.

At the business unit level, the record ismixed. In Nigeria, Shell has been heavily crit-icized for its performance on the environmentand accepts that standards need to rise (Boeleet al., 2001a,b).

SOME OBSERVATIONS ON SHELL,STRATEGIC MANAGEMENT,SUSTAINABILITY ANDSTAKEHOLDER RESPONSIVENESS

Johnson and Scholes (1999) describe strategyas ‘the direction and scope of an organizationover the long term which achieves advantagefor the organization through its configurationof resources within a changing environment,to meet the needs of markets and to fulfilstakeholder expectations’.

From our analysis in it is clear that Shell’sapproach to strategic management is in fluxbut that today it is certainly attempting tobetter meet the needs of markets and theexpectations of stakeholders than was the caseformerly. From a sustainability perspectivethe group has refined its corporate missionand purpose to better reflect responsibilitiesto stakeholders, human rights and the naturalenvironment, and it has invested significantlyin processes of communication and learning,which should help Shell prepare for the com-plexities of less predictable energy supply andchemicals markets of the future.

As we saw in the first part of this paper thegroup has

� loosened up a little on its reliance on logicand control, although these remain thedominant organizational paradigms in thegroup,

� retained and perhaps made more explicit aresponsive/portfolio approach to corporatestrategy whilst shifting significantly from a


191

D. WHEELER ET AL.

resource-based (inside-out) to a market-based (outside-in) strategic orientation forits business areas;

� enhanced its incremental, iterative ap-proach to strategy formulation whilst accel-erating its evolutionary approach to cor-porate change, achieving quite significantalterations in performance expectations andincentives and

� encouraged global diversity in approachwith the result that tolerance of ambiguityin values and stakeholder orientation mayhave increased rather than decreased.

In the second part of the paper we exploredShell’s approach to strategy formulation (anal-ysis and choice) in the context of sustainabilityand stakeholder responsiveness and concludedthat Shell is relatively well placed in all fourdimensions: current, future, internal and exter-nal. However, like most oil and gas companies,the bulk of Shell’s strategic momentum re-mains in their hydrocarbon business – espe-cially at a time when the chemicals business isexperiencing competitive pressures and therenewable and alternative energy businessesare not yet viable in their own right. We alsonoted the enduring reputational handicap Shellfaces compared with bp in the area of commu-nity development and how this might compro-mise sustainable shareholder value.

In our analysis of strategy implementation inthe third part of the paper we noted that Shellscored generally well on corporate parametersbut that data were lacking on a number ofcriteria for business units, including Shell Nige-ria. We noted that for business units such asNigeria that are dominated by an explorationand production imperative, local stakeholderswere unlikely to be accorded quite the sameimportance as corporate investors. Neverthe-less we observed that in many respects, apply-ing the framework depicted in Table 2, Shell’scorporate stage of development was at least‘emerging’ and in some cases potentially ‘es-tablished’. We believe the corporate missionand purpose is now ‘institutionalized’ withrespect to sustainability. More data would berequired on the operations of the group inorder to assess the operational orientation ofShell to sustainability. It is entirely possible that

the business areas and business units varyquite widely between the ‘emerging’ and the‘institutionalized’ in terms of how they areimplementing an integrated business and sus-tainability strategy.

The notion that corporations should strive tobalance economic prosperity with commit-ments to social justice and the maintenance ofenvironmental quality now and into the futureis a compelling one (Elkington, 1998), but thereare few, if any companies which would claimto have a clear idea of what sustainability willlook like for them in the long term, and as aresult there are relatively few companies whichhave devoted significant management time indeveloping formal missions, policies, frame-works, strategies and objectives that embraceconcepts as complex and ambiguous as sustain-able development. In this respect Shell hasadopted a leadership role and should receivefull credit for that. We see no reason to questionthe intent or the integrity of this process.

Nevertheless, based on the analysis de-scribed in this paper we would assert thatShell’s overall strategy remains essentially thatof a commercial, investor-driven entity seekingto maximize efficiency and profitability in itscore business and in a portfolio of ancillaryareas over the long term. The strategy appearssignificantly smarter and more focused on theexternal environment than it did five years ago,but particularly in exploration and production,business objectives are still framed in some-what traditional terms. As we saw in thesecond paper of the trilogy (Boele et al., 2001b)stakeholder responsiveness – especially inNigeria – is still addressed primarily from amanagerialist and instrumental perspectiverather than one which seeks to fundamentallyre-orientate the purpose of the company.

The Royal Dutch/Shell group has becomemore market focused and more ‘logically incre-mental’ in terms of its strategy formulation, butparadoxically this allows more diversity andflexibility in the interpretation and implemen-tation of strategy and indeed corporate valuesin the business units internationally. This doesnot necessarily auger well for consistency ofapplication of principles of sustainability inthose same business units.


192


CONCLUSIONS AND IMPLICATIONSFOR OGONI

This trilogy of papers has attempted to takethe microcosm of experience of Shell and theOgoni in Nigeria and to use that as a lensthrough which to view Shell’s evolving man-agement style and strategic approach. Therecan be few cases which have been the subjectof such intense external debate and internalreflection with respect to sustainable develop-ment as the case of Shell, Nigeria and theOgoni, but we hope that throughout the tril-ogy we have been able to generate a level ofinsight into Shell’s managerial and strategicorientation which has not hitherto beenavailable.

What have we learned through this analysiswhich may be of use to the protagonists andto others faced by similar conflicts in thefuture?

First, there is little doubt that today Shellwould probably not repeat some of the mis-takes it made in Nigeria in the early 1990s(Watts, 2000). However as we described in thesecond paper of the trilogy (Boele et al.,2001b), the dangers for Shell operating jointventures with unreliable and potentially cor-rupt partners are ever present, and particu-larly where there is a history that is difficultto erase, it may be many years before newforms of organization and partnership mayemerge to supersede these dangerous liaisons.This is most evidently the case today in theNiger Delta and more specifically in Ogoni.Shell has an enormous organizational barrierto cross if it is to establish a position ofsufficient trust with the local community thatwill allow novel possibilities to emerge(Wheeler et al., manuscript submitted to theJournal of Business Ethics).

And yet this does remain the test case. IfShell cannot learn or innovate its way aroundthe Ogoni issue then its corporate commit-ments to sustainability, human rights and en-vironmental responsibility will always besubject to query. It is not an issue that is evergoing to become invisible given the amount ofenduring interest it provokes in academic andactivist circles. Paradoxically if Shell can

demonstrate that it has developed the capabil-ities of stakeholder inclusion and conflict res-olution in Ogoni then it can probably do itanywhere – a skill which will be a source ofimmense reputational benefit and even com-petitive advantage to the group in the future.

Second, we have no doubt that with a vi-sion of what is possible and with a willing-ness on the part of Shell and others to enterinto an unpredictable and uncertain future,reconciliation with the Ogoni is possible.Given managerial and strategic developmentsin Shell since 1995 there is no corporate policythat would prevent a just settlement with theOgoni and thereby create the conditions fordeveloping a new and more equitable future,and there certainly remains a need on the partof the Ogoni for such a settlement. It allcomes down to the ability of Shell in Nigeriato innovate and take risks at the local levelthat have not been possible to date and thewillingness of the Ogoni to suspend judge-ment while this happens. There may be a rolefor mediation and third-party intervention bylocal government representatives, local NGOs,international agencies and others, but themain challenge lies with Shell Nigeria, i.e. theShell Petroleum Development Corporation, toexhibit the vision and the local capabilitiesthat Shell business principles should, intheory, require of all of its operational unitsaround the world.

The barriers to progress in Nigeria remainthe investor-driven, exploration and produc-tion imperative, and paradoxically Shell’s newcorporate approach to strategy making, whichimplies greater diversity of managerial ap-proaches and (potentially) greater tolerance ofambiguity in interpretation and application ofcorporate values and principles. Despite thereputational risk of worsening conflict inOgoni in 2001 (Wheeler et al., manuscript sub-mitted to the Journal of Business Ethics), thereseemed no prospect of Shell International is-suing an edict for more conciliatory be-haviours and corporate communications fromShell Nigeria.

We may never discover precisely whatdrove the transformation of Shell’s businessprinciples and subsequent strategic manage-ment style. There is no doubt that old


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paradigm assumptions about shareholdervalue and commercial imperatives (usuallytempered by conventional ‘license to operate’thinking) have given way to a more sophisti-cated style at the corporate level. It is tempt-ing to speculate that the events of 1995 andthe ensuing reputational damage were suffi-ciently shocking to the Shell system that theycreated the essential conditions for radicalchange but the reality was probably moreprosaic. A range of general business factorswithin the oil and gas industry, reinforced bypoor financial results for Shell in the mid– late1990s and a deteriorating competitive positionrelative to its main rival BP Amoco (now bp)must have been front of mind for many seniorplayers within Shell keen to see the companyre-invent itself. Regardless of the reputationalshocks Shell received in 1995 it was doubtlessreasonably obvious both internally and exter-nally that by the middle years of the decadethat Shell was beginning to lose the plot inbusiness terms.

As of August 2001, with continuing poorrelations between Shell Nigeria and the Ogoniand ongoing use of divisive rhetoric by ShellNigeria on its web site and via press state-ments (Shell Nigeria, 2001; Wheeler et al.,manuscript submitted to the Journal of Busi-ness Ethics), it was not clear how or when abreakthrough might occur between the pro-tagonists. There is no doubt that within thegroup there are the skills and managerial ca-pabilities to develop effective processes ofstakeholder outreach, transparency and en-gagement in Nigeria. For example, audits andreports on relationships with stakeholderscould be performed and reported relativelyquickly using group capabilities. Managementin Nigeria could employ more conciliatorylanguage in its approach to the Ogoni ques-tion and even take some bold measures in itsapproach to human rights and communitydevelopment in order to help overcome thecurrent level of antipathy toward the com-pany in Ogoni. We argued in the secondpaper in the trilogy that Shell might need tosignificantly supersede their instrumental andmanagerial approach to overcome the barrierswhich now exist between them and the Ogoni(Boele et al., 2001b). A conciliatory contribu-

tion by Shell Nigeria managing director Ronvan den Berg to the The Human Rights Viola-tions Investigation Commission (‘OputaPanel’) in Port Harcourt in July 2001 demon-strates what might be possible (van den Berg,2001).

In our view, the new strategic orientation ofShell described in this paper does create mostof the conditions for Shell Nigeria to take boldsteps and leverage group capabilities toachieve reconciliation with the Ogoni, butparadoxically, as we have seen, Shell’s newstrategic approach does not mandate businessunits to perform in a particular way – regard-less of the potential risk to corporate reputa-tion. Thus the question remains whether ShellNigeria has the internal capability and the willto play a full part in Shell’s corporate journeytowards a more sustainable approach to de-velopment, and, if so, whether the Ogoni willpermit them to do it.

ACKNOWLEDGEMENTS

The authors wish to acknowledge the support of theCentre for Stakeholding and Sustainable Enterprise atKingston University Business School and the Erivan KHaub Program in Business and Sustainability in provid-ing funding for the research and presentation of earlierversions of this paper. This trilogy is dedicated to thememory of Ken Saro-Wiwa and to all those individualsof good will in Ogoni and Shell, (including reviewers ofdrafts of this paper) who are committed to working fora just settlement of the conflict.

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BIOGRAPHY

Professor David Wheeler is Chair and Direc-tor of the Erivan K Haub Program in Businessand Sustainability, Schulich School of Busi-ness, York University, 4700 Keele Street,Toronto, M3J 1P3, Canada.Tel.: +1 416 736 5809Fax: +1 416 736 5195E-mail: [email protected]

René Rechtman and Richard Boele are In-dustrial Fellows at the Centre for Stakehold-ing and Sustainable Enterprise, KingstonBusiness School, Kingston University, UK.

Heike Fabig is at the Graduate ResearchCentre for the Comparative Study of Culture,Development and Environment, University ofSussex, UK.


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Shell, Nigeria and the Ogoni. A study in unsustainable ...africanphilanthropy.issuelab.org/resources/20245/20245.pdfBoard Research ‘Coda’ which has used exter-nal opinion formers