Corporate Ethics – It’s About People And The Environment

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In 1833, Marcus Samuel who founded Shell Oil, as a shopkeeper, Samuel elected to expand his business to perform import and expert trading with the Far East (Shell.com, 2007). During that time, the demand for oil centered on lighting fuel and lubricants; however, in 1886, Karl Benz invented the internal combustion engine along with the first Mercedes. Thus, this new technology and further encroachment into the Far East prompted the second generation of Samuels to pursue oil producing, drilling, mining, and transporting (Shell.com, 2007). Throughout the decades, Shell Oil grew and positioned itself to develop a Liquid Natural Gas business. Later, in 2005, as a partner with Royal Dutch, Shell Transport and Trading Company reorganized and evolved in, what is known today as, Royal Dutch Shell plc (Shell.com). Currently, Royal Dutch Shell (RDS) is a worldwide group, operating in 130 countries and territories with 108,000 employees. The firm’s portfolio includes “oil, gas, and petrochemical companies with interests in bio-fuels, wind and solar power and hydrogen” (Shell.com).

RDS may have a rich and robust history and currently possesses a large footprint over the global economy; however, the oil conglomerate is riddled with questionable and proven ethical misdeeds (Bendell & Bendell, 2004). Along with doubtful political lobbying activities, the firm was inundated with numerous costly class-action law suits and several legal investigations that include the United States Justice Department and the Securities and Exchange Commission (Bendell & Bendell). Additionally, there is questionable financial reporting and accuracy issues and the board of directors have come under scrutiny relative to delivering on corporate social responsibility (Bendell & Bendell). These events and conditions have caused RDS to have a perplexing identity crisis; not knowing how and when to abandon institutionalized behaviors and cultures or if organizational transformation is in order (Bendell & Bendell).

Statement of Ethical Issue

As of 1958, Royal Dutch Shell established a foothold in Nigeria’s Ogoni lands. In doing so, RDS has desecrated the environment and demoralized the indigenous people by depriving them of the wherewithal for self-determination (Kurunganti, 2004). To protect its interest, RDS was alleged to have killed Ogoni leaders and advocacy group members obstructing their Nigerian oil operation (Kurunganti). Although, RDS claims to have changed its behavior towards a more humane level of responsibility vis-à-vis the local population; unfortunately, the destruction done to the Ogoni communities is considered permanent (Kurunganti).

Statement of Business Discipline

RDS pontificates zero tolerance for corruption, such as avoiding bribery activities and illegal payments of any kind; a practice of investigating all suspicious activities (Shell.com, 2007). The group has positioned itself as fair, honest and open in every aspect of operating activities and relationships with others. Since 1997, RDS has voluntarily reported environmental and social performance (Shell.com, 2007). Eleven crucial performance indicators are used to measure progress. Reports are transparent and are made available to a wide range of stakeholders (Shell.com). Complimenting Shell’s General Business Principles, is a Code of Ethics that applies to all executive leaders (Shell.com). An annual monitoring process is established to measure process against RDS’s Business Principles (Shell.com). Accountable affiliate executives are required to provide a formal progress and performance report to the Chief Executive Officer. This report is to confirm the leader’s alignment and conformity to standards; however, exceptions and failures must also be reported (Shell.com). To further embellish the corporate values and principles, personalized meetings with RDS’s top leaders are mandatory, particularly when objectives of the aforesaid principles are not met (Shell.com). Shell expresses the importance of steering clear of biased politics, but preserves a political climate to make their position known on any matters affecting the firm, employees, customers, or shareholders (Shell.com).

When the firm has an operating contribution to make, the organization also reserves the wherewithal to make its position known on matters affecting the community. Additionally, political donation and monetary contributions are treated identical to the firm’s policies associated with that of bribery and corruption (Shell.com, 2007). Finally, RDS is a proactive participant vis-à-vis forging ethical business behavior through active membership of, and support for: Transparency International, International Chamber of Commerce (ICC), World Business Council on Sustainable Development, Business and Industry Advisory, Committee to the OECD, International Business Leaders Forum, European employers organization, UNICE, and UN Global Compact Principles (Shell.com).

Business Decision-Making

After earning a reputation grounded in corporate corruption and mistrust and receiving waves of criticism from shareholders and the public for planning to sink the Brent Spar oilrig in the Atlantic Ocean and engaging in human rights violations in Nigeria, RDS is now pursuing a massive campaign to build a positive reputation (Anonymous, 2003). Top management has elected to improve RDS’s corporate image by making trust and integral a part of the corporation’s foundation. As such, the firm has decided to engage the critics, particularly stakeholders who are concerned to greenhouse gases; future operations and business expansion will involve forging a sustainable environment, along with care and concern for human rights; providing annually, $400 million to refurbish Nigeria’s homeland; abandon the shroud of secrecy and becoming transparent through reporting mechanisms; and communicating with the intent to reassure the public with an understanding of the drivers influencing their business (Anonymous).

Shell has committed to a formal managerial decision-making strategy. To that end, the organization has adopted a team “Option Management” program to facilitate the identification of strategic options and their associate opportunities and potential consequences (Shoemaker & van der Heijden, 1992). The components of option management involves: option generation, to assess present business opinions to surface new ideas; estimating the consequences, to determine business implications relative to financials, competition, and consequences of strategic alternatives; selecting options, using quantitative programs to make appropriate decisions, while applying option theory to prevent costly commitments and poor decisions; option management, which is viewed as an asset requiring paramount attention and via game theory, to predict opponent and public reaction (Shoemaker & van der Heijden). Further, Shell is keenly aware that uncovering concealed leadership agendas and remaining apolitical are but two added elements for success (Shoemaker & van der Heijden).

Currently, Shell wishes to project an image of caring. Thus, to Shell, caring centers on listening, learning, and compassion when facing the complex global economy and environment (Livesey & Kearins, 2002). Hence, as posited by Porter (1995), Livesey and Kearins noted that “because numbers alone can never be sufficiently detailed, their purpose is not to provide a basis for decision-making about the operations of a company. Rather, it is to install an ethic: ‘Numbers create and can be compared with norms, which are among the gentlest, and yet most pervasive forms of power in modern democracies’. Researchers suggest that although, constructive and sustainable values promote organizational improvements, the balancing forces come from the involvement, visibility, and enforcement of government regulations, informal regulations, and advocacy stakeholders (Livesey & Kearins).

International Regulations

Since global business expansion often can and do have an adverse impact on the physical environment, societal and economical features of life, such as, health, equity, and public well-being the enactment of environmental regulations and laws became inevitable and indisputable (Eweje, 2006). After the President of the International Court of Justice postulated that international laws are pointless if there are no methodologies or machineries to impose recommended laws, the President of Nigeria collected African leaders and resources to establish a remedy to environmental mortification (Eweje). In 1999, Nigeria struggled to adopt and enforce environment laws; putting the country far behind the United States, who in 1969, applied the Environmental Impact Assessment (EIA) (Eweje). The EIA was an offspring of the National Environmental Policy Act (NEPA) which mandates that organizations who engage in activities having the potential to impact the environment must publish an Environmental Impact Statement (EIS) (Eweje). Although, not until 1985, did the European Council of Ministers (EU) legislate a requirement for firms to produce a EIA; while in the United Kingdom, a mandatory EIA did not take hold until 1988 (Eweje). With the aforementioned EIA and EIS timelines and mandates, Nigeria’s adoption of similar laws was slow coming (Eweje). To further complicate the legal challenge, developing countries, similar to Nigeria, attempted to define and describe EIAs under the philosophy of NEPAs which are typically aligned with western provisions (Eweje).

Dating back to the 1930s, there have been and still are numerous petroleum related environmental acts; however, not until 1988, did the Nigerian government become forceful (Eweje, 2006). The Federal Military Government enacted the Federal Environmental Protection Authority (FEPA) Decree to ensure the effective control over potential and existing environmental crisis (Eweje). In 1991, the FEPA established the National Environmental Protection Regulations requiring the abandonment of pollution from all waste generating companies. Still, once again the Federal Military Government flexed its muscles by enforcing the EIA decree of 1992; which entailed assessing potential environmental impact prior to all developments or expansions (Eweje). Today, section 1 of the EIA is aligned with the guiding principles established by the General Council of United Nations Environmental Program (Eweje).

Disparate Legal Systems and Practices

Conditions in Nigeria are such that it may be fair to assert that the Nigerian Military is brought and pay for by the oil companies, Shell and Chevron, to protect the oil company’s infrastructures and investments. With a concentration of 27 million indigenous people in an area consisting of 27,000 square miles, there exist two separate and distinct worlds (Ghazvinian, 2007). The unfortunate and disparate Nigerian circumstances articulated by Ghazvinian reveal that “While successive military regimes have used oil proceeds to buy mansions in Mayfair or build castles in the sand in the faraway capital of Abuja, many [Nigerians] in the Delta live as their ancestors would have done hundreds, even thousands of years ago”. Additionally, the oil companies and the Nigerian military offered the indigenous people a Memorandum of Understanding (MoU) that would supposedly guaranteed fair compensation and infrastructure for the Nigerian home land. Sadly, the MoU is not worth the paper it is printed on (Ghazvinian). With the presence of RDS, the Nigerian political and social setting is likening to the former Union of South Africa apartheid system.

Review of the Facts

In the Niger Delta, 1,500 communities are host to the presence of RDS and subjected to thousands of miles of oil pipeline that transverse and crisscross their living space (Ghazvinian, 2007). The flared oil residue produces hot pollutants into the atmosphere; while razor wires surround the communities and armed guards protect the oil infrastructure (Ghazvinian). RDS has consistently damaged the Nigerian natural environment and both exploited and prevented self-determination of its indigenous people (Kurunganti, 2004). Shell caused public outrage when the company elected to sink the Brent Spar oil rig in the Atlantic Ocean (Anonymous, 2003). The fallout relative to Shell’s unethical conduct was so pervasive that the firm’s shareholders began to boycott the organization (Anonymous).

Shell is aware of and entrusted to enforce and conform to international regulations such as Environmental Impact Assessment (EIA), the National Environmental Policy Act (NEPA), and the Environmental Impact Statement (EIS) (Eweje, 2006). Shell is also aware of the1988, mandatory European Council of Ministers (EU) legislation requiring firms to produce an EIA (Eweje). Additionally, in 1988, the Nigerian government became aware of the need to enforce the stated laws and regulations (Eweje). Further, The Federal Military Government leveled the Federal Environmental Protection Authority (FEPA) Decree to manage environmental crisis (Eweje). By 1991, the FEPA established the National Environmental Protection Regulations requiring the abandonment of pollution from all waste generating companies; and in 1992; Shell was keenly aware of section 1 of the EIA that aligns the guiding principles enacted by the General Council of United Nations Environmental Program (Eweje).

Critical Decision-making Process Relative to the Issues

Possessing a corporate plan and process for making effective and ethical business is paramount for supporting and demonstrating corporate social responsibility; exhibiting regulatory compliance; and displaying ethical behavior. Therefore, when making a decision that has moral implications, Shell’s leaders can access tools to assist them with decision-making procedures to foster favorable outcomes. Hence, when engaging in either a moral challenge or situation, decision-makers need noteworthy information (Geva, 2000). After collecting required data and information, Shell’s leaders should analyze and synthesize the information to determine actionable alternatives (Geva). As their leaders explore alternatives, they should apply practical judgment and deductive reasoning (Geva). Since the decisional options may stem from act-centered theories; such as utilitarianism, deontology, and justice ethical theories, decision-makers can conclude whether their decisions support a natural effect on society or on the nature of the agent making the decision (Geva). Consequently, during the initial decision-making phase, the application of agency theory may be considered inappropriate (Geva).

If RDS’s decision-makers cannot ascertain a conclusion that supports the three aforementioned theories within the principle-based evaluation, than virtue-based solution should to play a pivotal function in the decision-making process (Geva, 2000). In the virtue-based ethical decision-making phase, the idea is to circumvent the needs of agents making the decision and instead, focus on the individual making the decision. Thus, the agents should be motivated to behave morally; the agents have to apply moral imagination and creativity to facilitate the reframing of an ethical challenge; and distinguish between the internal and external relationships vis-à-vis organizations and the general community (Geva). Such practices tend to lead effectively to addressing regulatory and statutory requirements.

RDS’s next step to effective and ethical behavior centers on a contract-based decision-making philosophy. Hence, the fundamental premise behind social contract theory is that individuals may generate and acquire ethically obligatory responsibilities as a result of their permission or concurrence, and can escape ethical requirements by simply refusing them (Geva, 2000). To determine the legitimacy of social norms applying to a particular firm or group, the element of consent has two components: behavioral and attitudinal (Geva). As such, the norm is well grounded if community members support and compliance with the norm. Further, the norm must be operationalize by individuals within the community (Geva). Once an acceptable norm is reached, Shell’s decision-makers have a clearly defined roadmap to take ethical action.

Personal Decision Evaluation versus the Organization

The critical thinking model presented by Kubasek, Brennan, and Browne (2003), offers a workable eight point strategy to effectively think through a challenge or opportunity. Identifying the facts is the initial step for effective decision-making. Comparing the facts with the issues is also relevant; particularly when customers and regulators are involved. Next, RDS’s leaders must take into consideration, as to what are the reasons driving a business conclusion (e.g., making quarterly earning call EPS guidance) and is the rule of law favorable based on decision options. In a business decision, if a legal argument contains ambiguity, decision-makers should question their ethics relative to a court’s reasoning. The final components of the critical thinking and decision-making model recommend that Shell’s leaders evaluate any legal statues and comparisons (such as, international regulations and common law) and after a thorough assessment, ensure that there is no noteworthy information omitted.

Final Decision and Leadership Implications

The value in this report is grounded in several basic ethical requirements and considerations. Essentially, leaders have a moral obligation to assess their business strategies in a manner that encompasses a winning, viable, and conducive arrangement for the environment, socioeconomic expectations and requirements, human rights requirements, and a drive to enhance the well-being of all humankind. Corporations’ understanding and conforming to national and international laws and regulations are paramount to either raising or maintaining a healthy global economy and favorable stakeholder relationships. Leaders should avail themselves with knowledge and applications of international and federal statues and common law to ensure ethical compliance; protection and advice from robust legal and risk management teams, contain within an organization or partnering externally with a firm. Owning up to and remediation of prior unethical behavior is in the best interest of an organization; doing so, demonstrates corporate social responsibility, environmental care and compliance, and may very well enhance competitive positioning.

Summary

Royal Dutch Shell caused unprecedented damage to the international environment and associated communities and its inhabitants. The firm has acutely been made award of its unethical pillaging; from shareholders, advocacy groups, and communities who naturally inhabit RDS’s footprint of operation. Therefore, the organization’s only recourse, for redemption, is to realistically and forthrightly apply its Option Management program and business discipline associated with the firm’s vision, mission, and desired cultural values.

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