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Corporate Social Responsibility In Royal Dutch Shell Management Essay

The Corporate plays a vital role in economic development of the country and these corporate involves in various activities for their sustainability in the business environment. In this globalization era business organizations finds the greatest challenge in managing the stakeholder’s demands, which results in complex in the competitive market. So, here the corporate takes up social responsibility as a commitment and engage themselves in the society development. Corporate Social Responsibility (CSR) is a commitment by the business organizations in improving the society through their business activities and its contribution in community development. CSR is an effective tool which needs to be implemented in the organizations for their sustainable growth and development of societal objectives.

This report addresses the socially responsible business of two multinational organizations - high income and emerging economies group. Here, Royal Dutch Shell is chosen in high-income and Tata Steel in emerging economies group of multinational organizations. Royal Dutch Petroleum Company in Dutch, which involves in production of oil and "Shell" Transport and Trading Company in British, which involves in transportation of oil, merged their operations in 1907 and later it is named as Royal Dutch Shell. Shell is a multinational petroleum company and its headquarters locates in The Hague, Netherlands. Their business involves in production and marketing of petroleum and natural gas. They operate in more than one hundred countries with 45,000 service stations worldwide. They produce 2% of world’s oil and 3% of world’s gas. Shell is world’s largest corporation and its ranks one by Fortune 500 in 2009 (Shell, 2009). TATA Group, the largest multinational group founded in 1868 and based in Mumbai, India. Initially the trading company was established by Jamsetji Nusserwanji Tata involving in Opium business. Later, the group expanded by JRD Tata by establishment of Tata Steel, Tata chemicals, Tata Motors, Tata Industries etc. According to 2009 annual survey by Reputation Institute, Tata Group is ranked has 11th most reputable group in the global (Tata, 2009). Tata Steel pervious known as Tata Iron and Steel Company Limited (TISCO) founded in 1907. Tata steel one among top ten steel producers in the world. With their recent acquisition of Corus, Millennium steel and NatSteel, Tata steel has established its business network across the global like South East Asia, Europe and Pacific-Rim. Tata Steel has net sales revenue of USD 33 billion with employee strength of 82700 by year 2008 (Tata Steel, 2009). This report firstly briefs on companies commitments on society from stakeholder’s viewpoint with a stakeholder saliency model to identify them. Secondly on company’s approach and initiatives towards social responsibilities and finally those approaches and initiatives by companies are analyzed and compared on different viewpoints.

Stakeholder Identification

Stakeholders are a person, group, or organization who is directly or indirectly involves in an organization’s actions, policies, and behavior. Shareholders, customers, creditors, government, suppliers, employees, directors, owners, and society are the key stakeholders in a business organization. All stakeholders are not equally same; each stakeholder is entitled to different concerns. In order to analyze an organization’s social engagement from stakeholder’s perspective, it is necessary to identity the applicable stakeholder group. Several approaches and attempts are made to identify different stakeholders relevant for a company. Later Mitchell, Agle, and Wood made up with definition in identifying the stakeholder group by developing Stakeholder Salience Model, which propose the vital of stakeholder group based on its salience. They argued that the stakeholder who has high degree of salience will play the vital role in controlling the corporate behavior. They argued stakeholder salience model identifies the stakeholder group by three attributes, namely Power, Legitimacy and Urgency (1997). This concept of three attributes is used to categories seven stakeholders and one non-stakeholder. Fig.1 shows the mixture of three attributes that can distinguish the types of stakeholder and their expected patterns with respect to chosen firms.

Figure 1: Model of Stakeholder Salience

Source: Mitchell, Agle, and Wood (1997, p298)

1. Dormant 2. Discretionary 3. Demanding 4.Dominant 5. Dangerous 6.Dependent 7.Definitive 8. Non-Stakeholder

With this Stakeholder Salience Model the different types of stakeholders are identified and measure their corporate social responsibility activities of two multinational organizations (Royal Dutch Shell and Tata Group). Here, we briefly consider what organizations activities in social responsibility and the changes made to accommodate these CSR initiatives. The following fig1.2 describes on different stakeholder of shell according to stakeholder salience model.

Figure1.2: Stakeholder Salience Model - Shell

Shell associate with general business principle, as business principle shell contributes to sustainable development. Their business principle is to protect the shareholders investment and give them the long-term returns compared with others leading firms in the industry. So, shareholders are identified as definitive stakeholder of shell. Here, dormant stakeholders are the host government, as shell establishment in a country with support of government. For example Shell in Nigeria worked closely with government to help realize the Nigeria’s energy potential and support for society development. With help of Nigerian government shell expanded their business and energy sector in Nigeria. Non-Government organizations are found to be dangerous stakeholder, who has the power and urgency. Shell had a negative impact in 1995 after it’s announced to sink the Brent Spar in the Atlantic Ocean, NGO’s like Greenpeace and media started campaign against shell with support of local people and government for environmental disputes. These initiatives by Greenpeace made many people in Europe countries to boycott shell products and they were successful in influence. Employees are identified as discretionary stakeholder of the organization by encourages them in social performance. Institutions are dependent stakeholder, shell as a leading corporation in the global involves in decision making policies of institution which impacts on society. Local communities are found to be demanding stakeholder, where they need urgency in the environmental issues. For example shell operates in Schoonebeek has stopped their operation in 1996, where it not made any economic sense in extraction of oil, the plant was closed consulting with local community and framework with new project in 2003 after the approval of local communities.

Tata Steel’s Stakeholder Saliency Model

Figure1.3: Stakeholder Salience Model – Tata Steel

The above Fig1.3 shows the stakeholder salience model of Tata steel, which is used to identify the different stakeholders of Tata Steel. Shareholders are the distinctive stakeholders who actively take part in all important meeting on social investments and business ethics. They have the power in decision making on corporate governance which will benefit both the company and society. Employees are identified as discretionary stakeholders; where the employee are encourage to take part in community initiatives through employee involvement planning and volunteering programme like disaster relief. Government is found has dominant stakeholder, who has power and legitimate. Tata steel had joined hands with government by taking part in collaborative initiatives on public policy development. They work together on environmental impacts. Local community are identified has demanding stakeholders, where Tata steel had taken number measures on social responsibility. They are mainly focused on sustainable livelihood, health, education, empowering youth and environment. Even feedback on business performance and impacts are taken from local communities. So, the company can come with new initiatives and development for community.

Stakeholder differences between Shell and Tata Steel

According to Stakeholder Salience Model, the stakeholder groups are classified into three categories namely Latent Stakeholders or Low salient classes (dormant, discretionary & demanding), Expectant Stakeholder or Moderately salient classes (dominant, dangerous, dependant) and Highly Salient Stakeholder (definitive) (Friedman, 2006, p94).

It is observed from stakeholder salience model of Shell and Tata steel, Shell is forced by expectant stakeholders like Greenpeace in social responsibility. Most of the social responsibilities of Shell are found in places where they bad experience and negative impacts by the society. This show their business motto and against their business principle. Whereas Tata steel are more focused on social responsible of local communities. The company helps the community in their day to day activities and joined collaboration with government in new initiatives and society development. Here, the latent stakeholder (Financial Community) reviews their business performance and ethical behavior on society. Tata steel is more focused on Latent stakeholder compared with other stakeholders.

Shell Societal Approach and Initiatives:

Shell’s mission is to achieve its social responsibility to stakeholders and provide them with high quality product and service. Shell stands with General Business Principle, which contributes to their sustainable development. The company finds the major responsibilities has to protect the shareholders investment, provide a quality product and safety environment to customer, provide a safe and good working condition to their employee, valuable relationship with suppliers and partners, and finally secure environment to the society (Shell, 2009). The following are the systematic approach of Shell in social responsibility,

Impact assessments

Social performance plans and reviews

Social performance professionals

Local employment

Social investment

Impact Assessment

Impact assessments are done at initial stage of new project; the assessment done on environment, social and health impact and consult with local communities. Where the environmental and social impacts are identified and measures are taken according to reduce the negative impact to the local community.

Social Performance Plans and Review

The chemical facilities and refineries of shell have major impacts on community, so they have social performance plans and review. These plans have information on impact assessment, surveys of local community and communication of local stakeholders. On working with local stakeholder, the plan will be executed to reduce the disputes on society and improve the benefits. These plans are reviewed every four years by shell and information is shared on key social impacts across their operations.

Social Performance Professionals

Social performance management unit is support the people in risk, where shell had the concept of buying and hiring locally. The company used local supplier and contractors, and hired local employee to create benefits and trust. This made more employment in the local communities and provides more opportunities to local people and businesses. Even government gets benefited by these responsibilities.

Social Investment

Society and local communities are benefited by Shell’s social investment programmes. They support the community by number of social responsible initiatives like education, health, community development, environmental issues and infrastructure development. They also join with NGO like ‘Living Earth Foundation’ for community development.

Shell’s CSR initiatives are achieved through Social Investment Programmes across the global. They have Shell Livewire, which helps and encourage the young crowd to start their own business. This programme is conducted in 24 countries across the global and in this programme the young entrepreneurs are awarded for the best business approach. Shell centenary scholarship programmes helps the students in providing scholarship to postgraduate studies and those students are send to UK for their studies. Along with government and NGO’s, shell helps society in road safety measures by their Global Road Safety Partnership programme. Shell has HIV/AIDS programme to prevent their employee and their dependents from the diseases. They participate with other organization and government to fight against HIV/AIDS. Shell Foundation is a self-governing charitable trust started in 2000 with contribution of $250 million from the company. Shell Foundation is mainly focused on community welfare and environment impacts. To save the livelihood of the local community in oil and gas field, shell had Resettlement Action Plan in china. Shell Petroleum Development Company in Nigeria has spent $4.5 million for community development (Shell, 2009).

Tata Steel Societal Approach and Initiatives:

Tata Steel approach towards sustainability is considering the triple bottom line – economic, environmental and social performance in business activities. They believe the sustainable development is depends on ‘improving the quality of life of its employees and communities it serves’ (Tata Steel, 2009). The following are social responsible activities of Tata Steel,

Stimulating of Economic growth

Environment

Healthcare Initiatives

Education & Culture

Empowering of women

Stimulating of Economic Growth

Society had indirect economic impact on community infrastructure development. The company announced Rs.1 billion for implement social responsibility programmes in tribal communities of Jharkhand, Chhattisgarh and Orissa. The involves in infrastructure development projects like municipal service to one million people in Jamshedpur Township by providing basic necessity like electricity, water, road and transport facilities. They engage in infrastructure development in building schools and colleges, sports facilities like international stadium. By these initiatives by company will increase the economic growth of the society.

Environment

Tata Steel targeting towards reduction of Co2 emission and provide safety environment to the society. The company committed with healthy and safety working environment by implement Environment Management System. Tata Steel Rural Development Society encourages the local community in planting saplings and safeguards the forest. Nearly 250 hectares of wasteland had been reclaimed by planting saplings in 2008. Several measures are taken to control the water pollution and provide safe drinking water after proper treatment. Number of wells and tube wells are constructed for local community. They have separate environment cell to monitor the environmental and pollution control activities.

Healthcare

Tata steel implemented number of healthcare initiatives to its employees and the society. The company employees are benefited by free medical facilities even after their retirement. The company operates more than 46 free mobile clinics in Jamshedpur and runs Life Line Express medical clinic to the remote places in Jharkhand and Orissa. They organise free blood donate camp, eye camp and provide free medical equipments and beds to hospitals. They conduct a HIV/AIDS awareness programmes to the employees, suppliers and local community.

Education & Culture

The company runs six schools and one college in Jamshedpur. In Thailand through ‘Grow Smart with Tata Steel’ programme underprivileged children in remote places are provided with learning facilities. In Singapore the company offers scholarship to poor and disabled children. Tata steel constructed a Tribal Culture Centre to enrich culture heritage among the local community.

What is the level of engagement does companies maintained in these initiatives? Whether these approaches and initiatives by companies benefited society?

Shell has invested nearly $148 million in society development during the year 2008 (Shell, 2009). Shell in Nigeria has made great difference in people live and work by contributing to social responsibility initiatives like health, safety, and education (Idowu and Filho, 2009, p402). But shell image got damaged in Ogoni, where shell has failed to deliver the benefits and rights, like employment, education and clean environment to the Ogoni (Boele, 2001). Ogoni’s voice, ‘we would be better off today if Shell had never come and taken one drop of oil’ (Boele, 2001).

Shell pointed that it is the Nigerian government who has failed to deliver the right to Ogoni people (Boele, 2001). Shell has been charged for its human rights abuses in Nigeria and they agreed to pay $15.5 million to settle the lawsuits against the executions of protesters, polluting air and water in Nigeria (BCC News, 2009). Though shell spends million dollars in community development resurrecting their public image is a big challenge. For Tata Steel, CSR is not new they are involved in society activities from the established of the company. Tata Steel Ltd was awarded with Golden Peacock Global Award for CSR, ‘in improving the quality of life of their employees, local communities and the society’ (Business Standard, 2009). According to survey conducted by The Nielsen, global consultancy firm, Tata steel is identified has most admired company by stakeholders for their society development initiatives (The Economic Times, 2009).

They participate in international partnership like UN Global compact, where they encourage other organization to learn their initiatives and to create positive impacts for local communities (Tata Steel, 2008). The company continuously engaged in various CSR activities for society welfare and community development, this shows their significant growth in those initiatives.

Classification and Analysis of CSR Activities

In this section CSR activities of Shell and Tata Steel are classified and analyzed using Ponte et al typology. Here, CSR activity matrix by location and type are viewed from business perspective.

Shell

CSR Initiatives

CSR Awards

Disengaged/Engaged CSR Profile

Proximate/Distant CSR Profile

The Emirates Businesswomen Award

Disengaged

Encourage Businesswomen in strategic development of UAE

Distant

Social Reporting Awards

Engaged

Corporate communications campaign

Distant

Health Safety & Environment Contractor Award

Engaged

Encourage supplier and contractor for safety operation

Proximate

Worldaware Award for

Sustainable Development

Disengaged

Socially, economically and environmentally development in a community.

Proximate

Lawrie Group Award for Social Progress

Disengaged

Free Education facilities

Proximate

Awards from Malaysia Society for Occupational Safety and Health (MSOSH)

Engaged

Occupational Safety for their employee.

Proximate

Engaged

Practice of Code of Business Conduct for their employee, suppliers and contractors.

Proximate

Disengaged

Philanthropic activities through Shell Foundation.

Distant

The above table shows shell CSR initiatives in a form of engaged – proximate, an indication of strategic initiatives which meets the company benefits. Disengaged – distant indicates the philanthropic initiatives by the company. The following shows Tata Steel CSR initiatives,

Tata Steel

CSR Initiatives

CSR Awards

Disengaged/Engaged CSR Profile

Proximate/Distant CSR Profile

National Energy Conservation Award

Engaged

Reduced Energy Consumption

Proximate

Global Business Coalition Award

Disengaged

HIV/AIDS education and awareness programme.

Proximate

Greentech Safety Award

Engaged

Safety Management in Metal and Mining Operation

Proximate

Singapore Health Award

Engaged

Helping Employee to lead healthy and vibrant lives.

Proximate

5th Asia Water Management Excellence Award

Disengaged

Helping the water management industry

Distant

Federation of Indian Chamber of Commerce and Industry's (FICCI) Award

Disengaged

Philanthropic activities through Tata Steel Rural Development Society

Proximate

Golden Peacock Award for CSR and Excellence in Corporate Governance

Disengaged

For improving quality life of employee and their families

Proximate

Excellence in Manufacture Award for Tata Steel, Thailand

Engaged

Environment and safety management in their operation

Proximate

Engaged

Supplier Guiding Principles

Distant

Dr Jamshed J Irani Award for Excellence in Education

Disengaged

Providing quality education in schools of Jamshedpur.

Proximate

Compare to shell, Tata steel engaged more in philanthropic activities for social welfare and development.

Impacts on Business Approach

Lantos argues that CSR has three components ‘ethical, altruistic and strategic’ which every organization must practice (Crowther, 2005). ‘When a government fails, the managers have to be prepared to take up the slack’ to do good for society and business. Shell follows their business commitment in General Business Principle and code of conduct. Though Shell fails in Ogoni, it has taken significant measures to re-orientate their business principle to encourage more accountable and dynamic set of relationships with stakeholder and by doing this, it can recapture the position in Ogoni (Boele, 2001). Shell engaged in several philanthropic activities in Nigeria through Shell Foundation. From Ponte et al typology analysis it shows majority of shell CSR investments are Engaged-Proximate initiatives. Most of the Shell CSR initiatives are found in Nigeria and Ogoni, where they reputation was damaged. This clearly indicates shell’s business motto. Shell spends only tiny amount from their profit towards community development, whereas they earns around $ 400 billion from oil production in Nigeria (BBC News, 2004). Even Tata steel has undergone some social challenge; for example Tata Steel was protested by people in sathankulam, Tamil Nadu. They decided to acquire 1000 acres of land in sathankulam for their ilmenite mining operation, which will may result in relocate thousands of local farmers and cause huge damage to environment. In spite of these many threats, Tata Steel had signed the MOU with Tamil Nadu government in 2007, which is still in dispute (Sanhati, 2007). However, compare to shell, Tata steel engaged more in philanthropic activities for community development. Tata Steel partnership with UN Global Compact has increased their publicity and reputation. Tata Steel encourages other organization to learn their activities in society development. All these CSR initiatives by the company have increased their business and brand image.

Conclusion

The report has focused on stakeholder identification of Shell and Tata Steel and their CSR approaches and initiatives. From the analysis is found both Shell and Tata steel are contributed more to the society welfare. However, shell’s role in the environmental and social impacts in Ogoni cannot easily carry away. Shell spoiled its brand image in issues like Brent Spar, environment pollution, oil spilling, discharge of production waste, and gas flare in Africa. All these activities made the world to look at shell’s business behavior towards society. Though shell’s CSR approach and initiatives sounds best across the global, but they have failed to fulfill real thirst of Ogoni community. This reveals that shell is more focused on business rather than society. All those CSR initiatives by shell are assumed as their business promotion and profit motive. When we look at Tata Steel, the company has fulfilled all the stakeholders through their corporate governance and sustainability development. They are more focused on community welfare and development. Even though Tata Steel is emerging company compare to shell, shell has learn a lot from them to fulfill all its stakeholders.


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