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Group Assignment – Project Report Case: Shell Oil in Nigeria CLASS: BUS6351 – 2010SU-25535-BUSINESS AND SOCIETY Submitted by: Group 06 Nawazuddin Mohammed Khaja Randy Janssen Olufunto Ogunnowo Ladarien Richardson James Groesbeck Abstract The purpose of this paper is to critically analyze the case “Shell Oil in Nigeria” presented in our text book “Business and Society”. Here we discuss the company’s mission statement, their crisis in Nigeria, and the resulting outcome of their actions. Further we make some recommendations for future actions that may help Shell’s alleviate their crisis in Nigeria. Table of Contents 1Abstract2 Introduction3 3Analysis of Mission Statement3 4Internal Environment Analysis4 5External Environment Analysis4 6Global Code of Conduct for MNCs5 7Nigerian Culture and SPDC’s Crisis6 8Public Relations Strategy6 9Recommendations7 Introduction Shell Petroleum Development Company of Nigeria (SPDC) was a wholly owned subsidiary of Royal Dutch/Shell who operated in Nigeria. They were the first major oil to initiate oil production in Nigeria. This led to a major joint venture with the Nigerian government and two other private firms which gave SPDC a major market share of Nigeria’s oil production and exploration industry.
However, the activities associated with the oil exploration and production of SPDC proved to clash with the Nigerian culture and led to an internal and external crisis. In this research composition, we will attempt to analyze the mission statement, the internal and external environment, the codes of conduct, the public relations strategy, and the actions of SPDC Furthermore, we look to offer recommendations for the future actions that may help SPDC revamp their international and domestic reputation regarding their activity in Nigeria.
Analysis of Mission Statement SPDC’s mission and objective as stated in the text was “to find, produce, and deliver hydrocarbons safely, responsibly, and economically for the benefit of our stakeholders. ” The mission statement states that their stakeholders will be the beneficiaries of their activities but their actions in Nigeria seem contradictory. The stakeholder who seemed to enjoy SPDC’s attention was the stockholders. SPDC produced nearly a million gallons of oil per day and this gave SPDC and its stockholders billions in revenue.
However, the mission statement also states that they will deliver hydrocarbons safely and responsibly. This text stated that SPDC’S oil ventures turned Ogoni into a virtual wasteland. Also, they were largely responsible for a major oil spill in Ogoni’s Ebubu area which led to harmful environmental and ecological effects. These are examples of SPDC’s contradictory actions against there mission statement. The mission statement was intended to benefit all shareholders but, as with several oil producing companies, there focused remained narrow to their stockholders
Internal Environment Analysis Economically and strategically, SPDC exhibits a strong internal environment. They have adequate financial resources and produce nearly half of Nigeria’s output of oil. They are strategically setting up their infrastructures to ensure and increase profits. As indicative of the text, they earned between five and thirty billion dollars revenue in their Ogoniland ventures. They are also ahead in the experience curve relative to other oil production and exploration companies. SPDC also seems insulated from legitimate competitive pressures.
The joint venture with the Nigerian government gives them a strong stake in the oil industry. SPDC is structured on a highly effective decentralized management style which gives them strategic flexibility. External Environment Analysis The external environment analysis shows that SPDC is exposed to several potential threats. The unstable political environment surrounding SPDC poses an issue for SPDC. The lack of democracy and structure within Nigeria’s government were ingredients for the volatility they experienced in Nigeria.
Governmental corruption and the brutal military-led government surrounded SPDC. Also, social unrest was another external environmental factor. The disdain for SPDC by the Ogoni and the other Delta people led to a potential unsafe environment for SPDC. This social environment was not beneficial for SPDC and instead rather costly. However, largely this social unrest was contributed the human and environmental disregard of SPDC. Global Code of Conduct for MNCs The global codes of conduct are guidelines used to define acceptable and nacceptable behavior for today’s transitional corporations (Lawrence & Weber 2008). The OECD Guidelines for Multinational Enterprises specifies guidelines for multinational corporations like Royal Dutch/Shell Group. Royal Dutch /Shell Group actions in Nigeria both adhered and disregarded particular guidelines set out for multinational companies. However, the balance shifts towards the latter because SPDC’s seemingly disregard for the environment and human rights was borderline inhumane.
SPDC adhered to one of the guidelines, contributing to economic progress, by employing nearly 5,000 people from Nigeria. Also, SPDC’s financial structure delivered 90 percent of their net revenue to the Nigerian government. Although this action was in response to their environmental negligence, SPDC became involved in the LNG project which aimed to cease flares of hazardous gases into the air. This action adhered to the OECD guidelines of upholding environmental standards. There were several cases of disregard of the OECD guidelines by SPDC.
There were several allegations against SPDC indicating that they were worsening the environments of their oil exploration areas. These allegations include turning Ogoni into a wasteland, several oil spills, and gas flaring. These actions are contradictory to the OECD guidelines indicating that companies should contribute to achieving environmental progress. The respect for the human rights of the citizens affected by their activities was another example for their disregard of the guidelines. There were allegations that SPDC thoughtlessly allowed infrastructures to operate near the civilians.
Also, Movement for the Survival of the Ogoni People (MOSOP) indicated that SPDC’s oil exploration led to acid rain, carbon monoxide exposure, and a dangerous farming environment. Nigerian Culture and SPDC’s Crisis The fact that Nigeria did not have a government representative of the people and the population consists of an extremely ethnic diversity, more than 250 ethnic groups, has proved to present tremendous cultural challenges for SPDC. Despite receiving more royalties (90% of the net revenue) than any other country in the world, most of the Nigerian population lives in poverty.
Nigeria declared independence in 1960 from Britain which makes them a relatively young country. The government, usually a military faction, has been riddled with corruption since there commencement. Since a freely elected civilian government has rarely been in power in Nigeria, the interests of all people have not been represented. Because of the governmental corruption, the money generated from oil production does not cycle back into the oil-producing communities. Therefore, most Nigerians still live in impoverished conditions.
These conditions combined with SPDC’s conflict of interest with the Nigerian people led to SPDC’s crisis. Public Relations Strategy SPDC has not done a good job in managing public relations. As being one of the very important aspects of a business, public relation strategies should focus on the company’s external relations primarily with the government, investors, customers and also the communities. In order to regain the lost public trust, SPDC should work with the government to relate to the local community needs like pure water, clean drainage, and education.
They need to pay special attention to the communities that have been affected by SPDC’s actions. A periodic disclosure of the current audits and future strategies will bring more transparency into the company’s operations and hence increase public trust. As 57% of the SPDC employees are local people, clear communication of information within the company can also improve public relation with the external stakeholders in terms of local support. Efforts towards environmental protection and conservation by proper disposal of the byproducts can build a positive image of the company.
Recommendations An action plan for SPDC would include several additions and modifications to the mission statement. We would take some of the focus off maximizing shareholders profits and apply some of that focus to the improvement of human rights and environmental relations. SPDC must be prepared for a situation like this in the future and modifying the mission statement to include the well-being of the environment and local civilians is vital for their international and domestic reputation. The additions to the modified ode of conduct would include that human safety is upheld within our activity area, the environmental standards of the hosting country is recognized and adhered to by our company, and to intervene in volatile situations that was a result (minor or major) of our activities. Our suggested Mission would be “Bring comfort to our customers and help build strong communities”. To help achieve this mission we propose to add one principle to our Code of Conduct. The following principle would be added to the list of many: “SPDC will not abuse the environment, violate law or regulation, or disrespect human rights in order to make a profit”.