Shells Operation In The Nigerian Delta Business Essay

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With the onset of global competition and the rarity of natural resources around the world, oil has been the source of power and wealth by many oil industries. From automobiles to developing new industry technologies, the demand for oil has been rising at an increasing rate since the early 1920s. But whilst the supply for oil has been deteriorating in the past decade, large oil companies such as the Shell Oil Company has been fervently pouring millions of dollars into new oil exploration in areas such as Africa; or more importantly in Nigeria. On June 20, 2010, Mobile Producing Nigeria Unlimited (MPN), an affiliate of the ExxonMobil Company battled an oil spill that they could not contain. Not their first accident, the recent reported oil spill was discharged towards the Atlantic Ocean from their Yoho production platform within the Qua Iboe oil fields (Ezigbo & Bassey, 2010). As the news and reports of this catastrophe travelled around the world, this incident became a blow to MPN's public image as well as a major setback for other oil giants such as the Shell Oil Company from further proceeding with its oil exploration in the Nigerian Delta.

In view of this crisis, the board of the Environmental Health Service Providers Association of Nigeria (EHSPAN) asked the Shell Oil Company for three specific demands. The first and most obvious demand was as the article stated to "…commence the process of remediation of all areas affected by its operations and to also ensure that the affected communities are adequately compensated" (Ezigbo & Bassey, 2010). This meant that the Shell Oil Company had to pay any or all damages associated to the oil spill ranging from fees payable for clean-up services, hospital fees for human and wildlife care and relocation fees for the nearby residence. The second demand warranted by EHSPAN was the acknowledgment of current and future accidents that it may or will cause. EHSPAN wanted the Shell Oil Company to publicly acknowledge and apologies to the people of Nigeria, and to a lesser extent to the world, the damages and troubles it has caused. The third and last demand that EHSPAN wanted from the Shell Oil Company was for it to be registered and be in compliance with the laws and regulation of the association's by-law.

With the demands set in motion by EHSPAN and the world watching, the Shell Oil Company was faced with trying to resolve the crisis through a meaningful resolution all the while trying to keep its image from being tarnished further. Management and the people at the helm of leadership went to the drawing board and began a series of drastic measures and instigated protocols in order to please all the relevant stakeholders who had an interest in the Shell Oil Company. After all, with time slowly ticking away, management became weary that the crisis would escalate to the point where it was uncontrollable. They needed to find a solution quickly.

Shell's historical background

Amongst all of the major oil companies in the world, the unique partnership between the Shell Group and the Royal Dutch is priceless. Founded on a partnership and merger between the British based Shell Transport and Trading Company and the Netherland based Royal Dutch Petroleum, both companies can trace their origins to the Far East in the 1890s (Sluyterman, 2010, p.204). Starting out as a small and simple importing and exporting company trading seashells, young Marcus Samuel inherited a large portion of his father's business. Dreaming of expanding the business and with his frequent stops to the Far East for trade, he saw the chance and opportunity to trade and supply kerosene from the newly established Russian oil rigs in Baku to the Chinese people for their cooking and lighting (Sluyterman, 2010, p.206). Knowing very well that he could easily transport the oil from the Black Sea to the Far East through the newly constructed Suez Canal, he invested on an oil tanker that could carry the kerosene to China and to the Far East. At about the same time back in the Netherlands, August Kessler was himself operating and developing an oil rig in Sumatra in the Dutch East Indies. Partnering with Henri Deterding, both men began developing transportation storages to suit and carry the newly found oil that they'd found to market. With both companies growing and expanding due to the demand for oil that was required to fuel transportation (automobiles, airplanes and ships), Samuel joined forces with Deterding (who at that time was running Royal Dutch) in order to prevent and engage in competitive price wars with Rockefeller's Standard Oil; who at that time Samuel was buying oil from Texas (Sluyterman, 2010, p.206-207). With a newly formed partnership, a relationship based on trust, the Royal Dutch Shell is today one of the oldest and largest joint ventures in today's business.

Today, the Royal Dutch Shell is listed in almost all of the major stock exchanges around the world with the Royal Dutch owning 60 percent of the share and Shell owning the remaining 40 percent (Sluyterman, 2010, p.204). Its size and market value today can be attributed to its rapid growth during the early parts of the 20th century when it expanded its oil productions and acquisitions in Romania (1906), Russia (1910), Egypt (1911), the US (1912), Venezuela (1913) and Trinidad (1914) (De Goey, 2002, p.75). Through these productions, the Royal Dutch Shell produced 580,000 barrels per day out of a world total of 5,720,000 by the turn of 1940 (De Goey, 2002, p.77). With its continued growth, the company continued to be successful. World War II and the post war-era helped the Royal Dutch Shell to build and develop tankers and refineries that had been destroyed during the war. And in the 1960s, Royal Dutch Shell in a joint venture with Exxon discovered one of the largest natural gas fields outside Groningen in the Netherlands (Howarth & Jonker, 2007, p.411). By 1970, The Royal Dutch Shell like its competitors began to diversify its business portfolio outside of oil:

Billiton (1970) - An international metals mining company acquired for $123 million.

Joint venture to build nuclear reactors in the Gulf (1973).

Acquired coal companies in the US and Canada (1976).

Acquired the chemical ploybutylene division of Witco (1977).

(Howarth & Jonker, 2007, p.412)

With its continued acquisitions and growth throughout the late 20th century, the Royal Dutch Shell is today one of the largest energy company in the world with its market value close to $150 billion (Howarth & Jonker, 2007, p.412).

Shell's organization, ethics and corporate social responsibilities

Corporate structuring and organization has been the key in running a successful business, and without a doubt, the Royal Dutch Shell is one of those successful businesses that has lasted this long. As Sluyterman states about the company, "…it has been described as one of the world's three most international organization, the other two being the Roman Catholic Church and the United Nations" (2010, p.204). It's very likely that this success began during its original merger when Shell joined the larger Royal Dutch Petroleum for a 40 percent stake of the merged company back in 1907. But with this unique partnership, the organizational structure of this company is more complex than meets the eye.

To begin with, the entire Group entity "may be looked at in terms of the different companies which compromise Royal Dutch Shell and their links of ownership and control" (Howarth & Jonker, 2007, p.415). It sounds complicated enough for us to unravel what this may entail, but in its simplicity, the Group does not use a single holding company to oversea its affiliated companies. Instead, the Group uses what Shell calls a "governance executive responsibilities" (Howarth & Jonker, 2007, p.415) whereby the day-to day operations and management within the Group are all managed accordingly to Royal Dutch Shell's four smaller companies. Unraveling, they are the parent companies, the group holding companies, the service companies and the operating companies:

The parent company - The parent company consists of its original two main companies, the Royal Dutch Petroleum and the Shell Transport and Trading Company. These two companies own the groups holding companies in the proportions of 60 percent and 40 percent. Both companies are also listed separately in the stock exchanges with their separate board of directors.

Group holding companies - Shell Petroleum N.V. of the Netherlands and The Shell Petroleum Company Ltd of Britain both holds shares in the service companies. Shell Petroleum N.V. also owns shares of Shell Petroleum Inc. of the US - the parent of the US affiliated Shell Oil Company.

The service companies - Through varies acquisition throughout the 1990s, there were a total of 9 service companies located either in the Netherlands or Britain.

The operating companies - Approximately 200 smaller companies spread all over the world.

(Howarth & Jonker, 2007, p.417-418)

With such complexion and high sophistication within its corporate organization, we'd expect the Royal Dutch Shell to also comply with its ethics and corporate social responsibilities (CSR) with high caliber. But this is not the case. According to Environics, although "Shell has both a Code of Ethics and a statement of General Business Principles" (2001), the company insists that the Code of Ethics was specifically written only to meet the certain requirements for the Sarbanes Oxley Act as well as the listing requirements for the New York Stock Exchange (Environics, 2001). Likewise, Royal Dutch Shell makes no specification or compliance to its CSR. They've attempted to host debates with the external stakeholders about a possible CSR resolution towards the environment, but nothing solid has ever been written or initiated. They have however offered to be open, transparent and committed to their external stakeholders in regards to this matter (Canadian Democracy & Corporate Accountability Commission, 2002).

Being an effective leader

The success of any given company is attributed to the role that its mangers and leaders partake in. And the Royal Dutch Shell is for sure one of those successful companies that had its fair share of good leaders throughout its history. What makes a good leader? How do leaders interact with their followers? What traits are required to be an effective leader? - These common questions have always been an interest to scholars and practitioners of management alike and as such, many organizations have long been curious in understanding how the role of these people effect the workplace as well as how much dedication they are willing to put into an organization.

Research has shown that there are several different types of leadership traits that any one leader may possess at a given time. That is however not to say that an individual may not possesses more than one of these sets of traits. It simply means that one trait acts as the dominate skill that is preferable to the person in leadership role (Pye, 2005, p.34). So what are these leadership traits?

Leadership and sensemaking - As it literally states, this type of leadership trait is making decisions based on the surrounding 'senses'. The leadership trait is continuously changed and adaptive according to the context and situation that the leader is in. In its simplicity, it is a complex adaptive system (Chen & Bliese, 2002, p.552).

Charismatic leadership - As Bass states, this "leadership is typically viewed as a process of social influence" (1985, p.30). Leaders with this trait use the social context of their surroundings as their tool to make decisions and to accomplish goals.

Transactional leadership - Leaders with this trait view their relationship with their followers as an exchange process (Hoyt & Blascovich, 2003, p.679). A system of reward and punishment are applied to the followers depending on the positive or negative impact they make to the organization.

Transformational leadership - Leaders with this trait reinforces positive stimuli by taking an interest in the followers. Leaders will use intellectual stimulation, idealized influence, individualized consideration and inspirational motivation (Bass & Avolio, 1993, p.52) in order to help the followers achieve goals for the organization.

Gender and leadership - There's no real evidence showing that gender contributes to leadership skills. However, theory suggests that "the contributions of men and women were largely founded on the assumptions that leadership and its effectiveness are universal" (Ayman, 1993, p.140).

Amongst the people in Royal Dutch Shell, there's no doubt that the most successful leaders will possess one of these traits. And as we'll see, good and effective leadership skills will be tested when the leaders are faced with adversity.

The stakeholder's perspective - A brief overview

Three primary stakeholders are involved in the current crisis - the company CEO, the company investor and a Nigerian employee to the company. While on the surface they may not seem to play any major roles in running the Shell Oil Company, except maybe the CEO, all three however actively contribute to the overall success of the company in their unique ways. Here's a take on how each stakeholder views the company's outcome:


As the patriarch and the 'true leader' of the company, the CEO has the greatest stake in the company. On the one hand, he has the interest and welfare of his employees. He doesn't want to downsize and put his employees out of work, labeling him as a bad and inefficient leader. Likewise, he wants to protect and listen to his employees in order to make their life and contribution to the organization a better experience. But on the other hand, he has the interest of the investors, the true owners of the company. Every plan, decisions and commitment that he makes must reflect on the values and visions the investors has for company. Disagreement with the investors and the board of directors may mean a termination of his job, which may follow the termination of the CEOs closet allies. Just as the ripples in a pond gets larger and larger from the center, this 'rippling effect' may also be seen if the CEO does not comply with the investors demands.

Then there are the CEOs personal morals and ethical beliefs he has for the company. Being an oil company, he may desire to run the company as environmentally friendly as possible. This may mean cutting back and complying with federal emissions codes, seeking out environmentally friendly ventures and even donating large sums of money to charities and causes. Likewise, there are personal gains that the CEO has for the company. Compensation packages and stock options rendered to him are all based on the performance of his company's stock value. If he is to retire comfortably or get a salary increase, the performance of the stock is what will motivate him to take a greater interest in the company.

The Investor

For any investor pouring thousands and even millions of dollars into a company, the return of his or her investment is what dominates his or her stake in the company. To them, it is more of a transactional agreement whereby a good, solid and successful company will return the investors money back with a profit. It's very simple and clear cut. But that there are other stakes involved as well. For example, investors like to be seen as mentors, philanthropist and an overall great leader. Likewise, some investors like to contribute to society as a means of 'paying back' and thanking society for the opportunities that the investor was able to experience. As such, the investor in our oil company may have personal feelings towards the environment and may want to use the oil company in a humanistic approach as a means of making society a better place to live in. By investing, the investor can use his powers to direct the oil company into seeking more environmentally friendlier ventures.

A Nigerian Employee

Needless to say, he is the blue collar worker within the company hierarchy. And unlike the remaining two stakeholders, his stakes are much simpler and less lavish. For example, the single most important stake that he has for the company is that his job provides him with a steady income. After all, a steady income allows him to feed his family, provide shelter, buy presents and help treat his sick family members. In all, this is his primary stake in the company. Other less important stake that he may have towards the company is one of the environmental impacts it may have on his native country. Depending on the education level and how much he is aware of the damages the company is making towards the environment, this stake may be important or not. Same can be said true about the company's compliance towards Nigerian labor laws. Our Nigerian employee's stake in the company is dependent on how well the company treats its employees and for him; this knowledge will make an impact on his position with the company.

All the three stakeholders have a primary interest the firms overall welfare and success. Some have lavish stakes, whilst others have a simpler and more humble stake. While stakeholders at all levels will have a different say and interest in the company, one thing seems to unite them all. That is, when the company is faced with a crisis, all three stakeholders will work collectively and in uniform in order to protect their various interests (Donaldson & Preston, 1995, p.87).