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Corporate Ethics and Morality: Shell Oil in Nigeria

Introduction

Many large multinational corporations have often been accused of having conflicts concerning human rights and environmental issues with their operations in developing countries. Because of this they have often become targets of activists. Because of the limited resources of concerned communities of any particular country involved, larger international groups often pressure these business entities. These nongovernmental organizations bring attention to the questionable policies and procedures of the corporate parent in producing their goods for sale. There is a large amount of activism which starts campaigns and public discourses concerning the reputation of the society's economic producers. These individuals and groups often start social movements concerning the behavior of large corporations regarding the ethical and environmental issues concerning their production. When such activities are found lacking efforts are made to promote legislation to address the problem. These groups also address the corporate entity involved directly with the goal of getting the company to react and change in order to rectify inequities (Vogel 23). Giving the increasing size and power of corporations under globalization conditions, these companies are being regarded more and more as forms of private government (Macaulay 445). When activists wish to influence consumers concerning corporate practices, they must establish the company's responsibility concerning existence wrongdoings. Establishing this corporate responsibility is often not immediately evident. It is often difficult to demonstrate a direct association between corporate policy and environmental or social injustices. These policies may affect human rights in only a very indirect manner. Companies generally do not torture or incarcerate the inhabitants where they have operations. They can, however, lend support to governmental regimes that do. The issue then becomes, in essence, to what degree is there a connection between corporate policies and violations of human rights in the countries of their operations. This paper examines Shell Oil's ethical record concerning its operations in Nigeria which have been particularly criticized.

Theory

There are several theories concerning corporate moral and ethical behavior, as regards responsibility concerning social issues. One such theory is that social issues can be seen within a predictable, evolutionary context(Mahon and Waddock 19). This process starts when the issue is of no concern to anyone, but them progresses due to increased public awareness. With time expectations of some sort of action arise, which result in the implementation of new policies that eventually become the normal procedures for the company (Nasi et al. 296). Once the issue is recognized by the business enterprise, it reacts through increased organizational commitment to a particular social action. This begins with innocuous recognition and develops into concrete action after the organization familiarizes itself with the issue and searches for responses as to how to deal with it, whereby it implements operational procedural changes to the social environmental concerns involved.

Another theory concerning corporate moral and ethical standards relies upon the underpinnings that a business enterprise entails a social arrangement that necessitates legitimacy with the various communities upon which it is dependent. In order to justify the functional maintenance of the company under these precepts, businesses are, in effect, social institutions that must utilize their power in a responsible manner. When they do not do so, society has the right and obligation to revoke their rights to exist (Davis 312). Under this line of thought, a corporation can only be considered legitimate when it is judged worthy of support (Dowling and Pfeffer 122). When companies lose this legitimacy in the public eye, they suffer difficulties as a result. These can range from punitive legislation against the firm to the inability of attracting and retaining qualified employees. As a result firms strive to maintain the legitimacy of their existence.

Public constituents reflect upon the legitimacy of a business enterprise based upon that company's perceived image. These perceptions and expectations concerning an enterprise can vary over time. Thus, the legitimacy of a company can change without any distinct change in the actual operations of the enterprise. Consequently, for a corporation, how it is perceived and its image, are the important aspects that need to be managed.

Some analysts believe that if companies ignore the social expectations expected of them, they will lose control over their external dealings as it concerns internal decision-making processes. Legitimacy problems occur when the public's expectations of a corporation's behavior differ from their perceptions of that behavior (Sethi 63). Under this view, corporations must continuously try to maintain maximum discretionary control over external dealings with regards to internal decision-making by ensuring public expectations and actual corporate performance are in line. This results in the management of a company adopting strategies that have the highest possible perceived success rate at the lowest cost.

Another theory concerning the moral and ethical behavior of the company holds that management is required to take into consideration the interests of all legitimate stakeholders which would be anyone who has a claim on the enterprise (Hasnas 19). These stakeholders have been generally viewed as any individual or group that is affected by or can affect the company. These interested parties would include shareholders, employees, suppliers, customers, management, and the local community served. Under these theoretical precepts and enterprise's success is best achieved when the interests of all the stakeholders involved are addressed with policies and procedures that produce an optimum equilibrium among all concerned. This particular viewpoint is more concerned with explaining corporate behavior, rather than promoting ethical positions. From this perspective, the company functions within a complex matrix of varied interests and social relationships, based upon expectation and dependency (Wood 101). Corporate success, consequently, is a result of successful and ongoing stakeholder management in which all the various needs of stakeholders are properly identified and appropriately managed. From this theoretical perspective corporations do not respond to social issues but rather stakeholder issues (Clarkson 92). The task of management thus becomes one of identification of the various stakeholders involved and the power that they yield concerning the successful operations of the company. Managers respond to stakeholder interests as these various groups gain or lose power.

Shell Oil and Nigeria

Shell oil began its involvement with oil production in Nigeria when the first commercially viable oilfield was discovered in that nation back in 1956. Since that time the company has steadily increased its operations and investments within the nation. The corporation's interests in Nigeria are through an affiliated company, the Shell Petroleum Development Company of Nigeria (SPDC), which is a joint venture between Shell, Elf, and Agip, and the Nigerian National Petroleum Corporation (NNPC), which is wholly-owned by the Government of Nigeria. The employee base of SPDC consists of approximately 5000 workers of which 95% are Nigerian. 66% of the company's employees originate from the Niger Delta region. Nigeria's political history dating from the 1960s onward has generally been characterized by various military coups and regimes (Frynas 457).

Democratic elections were finally held in 1993 and despite a popularly elected victory by Chief Moshood Abiola, the election results were annulled and power was seized on November 17, 1993 by General Sani Abacha. The governing regime put in place was widely accused of corruption and human rights abuses. The international outcry was especially vehement upon the execution of the writer activist Ken Saro-Wiwa, who was involved in the organization of anti-oil and anti-government movements by the Ogoni people of the Niger Delta region. The rule of General Abacha ended in 1998 upon his death and he was replaced by Major Gen. Abubakar who assured the population of democratic elections. These elections were held in 1999 and Olusegun Obasanjo, a former political prisoner was elected president. Despite this record of evident political instability within the country, the relationships of the various governments had with the oil companies that were operating in the nation remained stable. In fact, some analysts view this relationship as the only stability that existed in Nigeria during this time period (Khan 12).

Except for the governmental authorities in power, local communities benefited little from the all the revenues being generated from the country's natural resource riches. The Ogoni, a small ethnic minority of approximately a half a million people concentrated along the Niger Delta, had long attempted to alter the unfair distribution of oil revenues that existed and maintained that Sell Oil was actually causing severe damage to the environment where they lived.

This was of particular concern to Shell as much of its exploration and production was in this area at this time. OIl was initially discovered in the Niger Delta in 1958 and during its peak production, Shell Oil had 96 oil wells operating in seven different oil fields until it finally withdrew from the region in 1993.

The indigenous inhabitants of this area began to organize and in 1990 formed a movement which issued a Bill of Rights asking for autonomy in its own affairs. There were especially concerned about the oil reserves in this area which had been effectively exploited for the benefit of Shell and the government, rather than for the indigenous population. Instead of seeing and benefiting from this wealth by an increased standard of living, the production of oil resulted in severe environmental degradation and pollution within their communities. In November of 1992 activist organizations within the region demanded direct royalty or rent payments from the oil companies, as well as compensation for the environmental damage caused by their operations. After several mass demonstrations and violent attacks on Shell employees, it became evident to the company that continued operations within this area had become detrimental to the firm's reputation among its customer base and the general public. The corporation made a decision in 1993 to withdraw its operations from the area.

The Ogoni people under the tutelage of Ken Saro-Wiwa, a renowned playwright, environmental activist, and former government employee, continued to put pressure on Shell who they claimed was responsible for the environmental devastation that was left behind after the company's withdrawal. They successfully managed to bring worldwide attention to this issue. Shell's historical collusion with the government were of particular concern after the execution of Ken Saro-Wiwa and eight other activists by the Nigerian authorities in 1995. The government also intensified in rights abuses against the Ogoni ethnic minority (Human Rights Watch Ch. 8). Because of these actions Shell Oil was widely criticized in spite of efforts on the part of the chairman of the company for an appeal of clemency towards Mr. Saro-Wiwa. Public opinion viewed the company's efforts as insufficient and lacking. Even though unfavorable press coverage concerning Shell's operations in Nigeria had been going on for some time due to the demonstrations of the Ogoni people, the nine executions of the environmental activists brought heightened reviews of Shell's policies and procedures within Nigeria.

The events in Nigeria occurred concomitant to other company decisions that produced public criticism such as its decision to dump a no longer needed oil storage buoy into the deep sea. There was growing public discontent with Shell policies that were resulting in consumer boycotts throughout Europe especially in Great Britain and Germany. Shell was clearly affected by these events and was seeking some sort of solution due to the deteriorating reputation the firm was experiencing among its consumer and customer base. Shell was very slow to respond to growing dissatisfaction on the part of the public and it was beginning to affect revenue generation. The company's initial strategic response to growing criticism of its Nigerian operations was deliberate silence, hoping that public outrage and consumer pressure would simply dissipate over time. Records of meetings between Shell executives and the Nigerian High Commissioner show that the company was fearful that any rebuttal of accusations made against the firm would actually aid company critics by increasing media coverage of the issue. However, it soon became evident to senior management that the strategy was not working and the company reacted with damage control tactics that resulted in full-page advertisements in various major newspapers, as well as press releases in order to try to turn public opinion back in its favor. Senior management of both British and German Shell concerns held press conferences to try to emphasize how Shell had positively contributed to Nigerian economic well-being and was no way involved in the execution of the Ogoni environmental activists. These efforts on the part of Shell to try to sway public opinion, however, found themselves to be unsuccessful. Shell's attempts to focus the public's view concerning its operations to a strictly business aspect as concerned Nigeria were unsuccessful in convincing the public of a lack of culpability. Consumers and critics of the company were unswayed by the corporation's attempts to convince the public that it was not in any way responsible for the political situation that existed in Nigeria. The previous historical relations the company had with the Niger Delta where the Ogoni people live had clearly tarnished the reputation of the firm and provided critics with fodder for their attacks. Activist groups, such as Greenpeace and Amnesty International, campaigned to promote an immoral war against the company. These groups and others claimed that Shell should be held responsible for the environmental damage and rights violations that were rampant in Nigeria.

Nigeria is the world's sixth largest oil producer with proven reserves in excess of 35 billion barrels of oil. Oil production is critical to the domestic economy and accounts for 90% of all export revenues. Much of the oil production in Nigeria centered in the Niger Delta in a relatively small area located in the southeast portion of the country. This area represents one of the world's largest wetlands and is the biggest such area on the African continent. It is in essence an enormous floodplain encompassing 20,000 square kilometers.

Large multinational corporations, such as Shell oil, have moral obligations as regards the communities in which they operate which would include the protection of the environment. These ethical obligations necessitate refraining from polluting the environment around which there operations exist. Regardless of the theoretical perspective undertaken, Shell Oil in its operations in Nigeria had an obligation to cooperate with the government and the communities in which they operated to establish environmental protections and regulations. At a very minimum the company needed to operate in a fashion that would not result in unwarranted harm, as failure to do so violates the basic universal human rights of man (Bowie 67). This principle of necessitating a company not to produce harm morally obliges it define the methods to prevent the occurrence of harm. As a consequence, businesses need to be obliged for environmental cleanups as the pollution was caused by their operations in the first place. Corporations like Shell Oil have an ethical responsibility to be active participants as regards social concerns. Instead of being part of the problem, they must become part of the solution. Companies like Shell Oil must develop a conscience on all levels of human rights and environmental concerns. As exemplified by Shell Oil with its procedures in Nigeria, corporations cannot isolate themselves and wait to be told what to do concerning societal issues.

With regard to the situation that exists in the Niger Delta of Nigeria, the inhabitants of this area believe that Shell Oil is morally and ethically obligated to have done, and to do more for their communities in terms of their well-being, as well as for the environment. Despite the region's overwhelming contribution to the revenues of the entire country, they experience the worst environmental degradation in the nation.

The Ogoni people have accused Shell Oil of complete environmental mismanagement as regards the natural landscape of their area. Despite having resources, expertise, and knowledge to avert environmental crisis, Shell Oil turned a blind eye to what was happening in this region. Societies and communities are demanding in an increasing fashion that their corporate constituents maintain their operations with the moral and ethical vision concerning urgent problems that involve the very survival of the human race.

Businesses like Shell Oil must work with local communities and governments to find appropriate solutions. They themselves must promote appropriate environmental practices and procedures rather than isolating themselves and waiting to be told what to do (Hoffman 169).

It is evident from the historical practices of the Nigerian government that their concern was only to maximize their portion of the revenues that they could get from the oil firm of Shell. Knowing that this was their only concern Shell Oil blatantly operated with complete disregard for the environment. This resulted in a public outcry not only among community groups within Nigeria, but also from other country activist groups and international environmental organizations. Shell Oil's operations over the decades within the Niger Delta have produced an enormous ecological damage to the environment, as well as the human inhabitants of the area.

Within the theoretical perspectives previously discussed, a corporation as regards to a particular social issue will proceed through predictable phases, starting with the issues identification, proceeding to a knowledge gathering phase, and subsequently culminating into some sort of commitment and action. Shell Oil has demonstrated this theoretical framework in reaction to what has occurred with its Nigerian operations. Initially, Shell's attitude towards the developments in Nigeria were simple statements recognizing that there are problems concerning environmental impacts with their oil exploration and production operations in the country and that the company is committed to working with the communities involved in order to reduce and minimize any detrimental affects resulting from production. The primary actions by the firm were in essence media releases concerning possible anti-pollution projects and pollution control, in order to offer possible solutions to existing environmental problems. As time progressed Shell clearly began to demonstrate greater commitment to the issues at hand, and the tone of the company's pronouncements began to change significantly. By 1997 Shell was declaring itself a green company committed entirely to environmental programs that address environmental issues which were at the forefront of future company strategy. The policies and procedures of Shell concerning the environment had changed to be consistent with the demands of the communities and governments where they operated. As predicted by theory, there was a continuous growth in commitment on the part of the company over time. This included the institution of increased environmental initiatives. Though this theoretical underpinning seems to have demonstrated clearly, as concerns Shell's activities over the long term, other stakeholder interests will certainly come into play.

One of the other theoretical considerations discussed dealt with management activities being a function of the existence of gaps in legitimacy for company. Under this paradigm management adopts strategies based entirely upon the technique that has the greatest perceived success at the lowest expense. This theoretical framework can be explanatory as to why the management of a firm moves into action, but does not provide any guidance as to which strategy is the most appropriate in any particular point in time. As for Shell, for example, the Nigerian operations clearly demanded a significant shift in the attitude of management concerning the local communities' and government's environmental concerns. Because of these attitudes, Shell is necessitated to respond with action. The local host country's constituents together with international supporters demanded policies that would reduce pollution and environmental damage. Because of the appearance of these public actions, Shell was demonstrating a growing gap of legitimacy that needed to be addressed. Its customer base was beginning to change its perceptions, as well as his expectations concerning Shell's business practices. This resulted in a legitimacy gap which caused an alteration of the firm's policies and procedures.

The final theory concerning the explanation of corporate modification of moral and ethical conduct deals with the power of the various stakeholders as regards a firm's operation. As these various stakeholder groups gain or lose power, the corporate activities of a particular firm such as Shell oil will change focus. The actions of Shell Oil in reaction to the developments in Nigeria, also gives support to these theoretical precepts. It is evident by Shell Oil's activities that it is extremely sensitive to its major stakeholder's attitudes. This is particularly evidenced by the companies massive immediate campaigns concerning the environment since 1997 aimed at not only the public at large, but also host country communities and governments such as Nigeria to ensure these constituents that the new Shell Oil via policies will reduce previous environmental impacts and eliminate future pollution. All this can be seen as a result of management's view concerning influential stakeholders, such as the Ogoni, in the presently Democratic Nigerian government. Shell Oil responded to the pressure of influential and powerful stakeholder groups. If a particular interest and stakeholder group can maintain pressure on an organization such as Shell Oil, all other things remaining constant, management will respond appropriately to such efforts, unless mitigating and more powerful groups arise. This is clearly demonstrated in Nigeria where for decades Shell had little concern regarding human rights or environmental damage.

Conclusion

This paper attempted to examine how the ethical and moral policies and procedures are developed by a corporation by specifically examining the operations of Shell Oil in Nigeria. The evidence clearly demonstrates that the local communities regarded Shell's operations in Nigeria as ethically unacceptable because of the lack of protection of the environment and the resulting degradation of their own well-being. Shell Oil is a participant and partner to every national Society in which it operates. As such it has a moral obligation to maintain the physical integrity of the environment where it has production facilities from any degradation because of their operation. Shell oil has the right and obligation to aid local governments and communities in establishing policies, procedures, and regulations that will help protect the environment due to the resources, knowledge, and expertise available to the company. Companies like Shell from the onset must self regulate, especially when standards within countries of operation are not as stringent as international norms. As the world community is becoming more and more intertwined, globalized firms such as Shell have a moral and ethical obligation to ensure a clean environment for future generations of the human race. Previous historical policies as demonstrated by Shell Oil in the Niger Delta need to be eliminated once and for all. Shell Oil and other firms like it can no longer operate simply based upon profitability with no regard to the local community and their basic human rights concerning a safe and secure environment. Progress has been made in this endeavor, but is far from being fully accomplished.

Many of the existing regulations and laws concerning environmental and social issues in less developed countries are lacking. As a result, it is up to the corporate community itself to implement adequate standards, so as not to later be accused by indigenous communities of immoral and unethical policies and procedures. As a result, current initiatives by Shell Oil and similar firms in studies and projects in order to maintain production, but at the same time reduce negative environmental impacts, must continue. It is in the best interest of not only the company and a local community to prevent pollution, the long-term benefits for both will be greater when pollution does not exist.

The clear lesson to be learned from Shell Oil's operational experience in Nigeria is that the company must continue to implement ethical and moral standards within the business paradigm by integrating environmental issues, and social forecasting into its corporate strategic planning process. This process has begun at Shell Oil and must continue.

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