ROYAL DUTCH SHELL – CASE STUDY PAPER 1

The company is a major global player in the energy sector. Indeed in the
development of the ‘global company’, the oil and gas sector by virtue of
the need to search for reserves worldwide, has probably led the way.
Shell now operates in 135 countries and therefore has a massive effect
on the economies of many of these countries.

This case study highlights two events which happened in different parts
of the world in the mid nineteen-ninety’s, involving two of the
subsidiaries of the Royal Dutch Shell Group. In the minds of some of the
stakeholder groups these events represented a trend in the management
of the company sufficiently worrying that a series of high profile
campaigns were mounted against it, the eventual effect of which was to
mark a sea-change in the way the company reported its activities, and if
we accept the reports, in how it carries out its business. In this case
study we will examine these two events to try and understand what
motivates companies to alter long held approaches to business practice,
and what strategies are employed by them to regain lost confidence.

1. The Case of SPDC in Nigeria

The Niger River Delta, a 70 000 square kilometer region on the south
western coast of Nigeria, West Africa is an important life sustaining
natural resource. It contains Africa’s largest wetland and one of the
Africa’s largest coastal mangrove forests. Nigerians has cultivated its rich
soil producing rice, sugar cane, cassava, palm oil, yams and beans to
feed families and communities for decades. It has more varieties of fresh
water fish species than anywhere in West Africa.

The Niger Delta also contains estimated proven oil reserves of 22.5 billion
barrels of the world’s best quality crude oil and an estimated 124 trillion
cubic feet of natural gas, making it the worlds 9th largest source.
ROYAL DUTCH SHELL – CASE STUDY PAPER 1

Shell (under the guise of the Shell Petroleum Development Company)

obtained an exploration license in Nigeria in late 1939, after two years of
geological surveys. The first oilfield was established in 1956 and a steady
build up of production facilities has seen production rise from 6.000
barrels of crude per day in 1958, to around 1,000,000 barrels per day,
today.

Clearly, the removal of a million barrels of oil per day requires a massive
industrial infrastructure in terms of land use for drilling, pipelines,
storage facilities, transport, chemical use, and the like ( and bear in mind
that Shell are only one of a cartel of companies involving the likes of
Mobil, Agip, and Elf)1.

Throughout the 1970’s and 1980’s there was increasing concern being
expressed by the peoples of the Niger delta that despite increasing oil
production little benefit was being given to the local people. Add to that
the environmental degradation, pollution, gas flaring and oil spillages the
whole issue of oil company activity in the region was beginning to attract
the attention of groups outside Nigeria, as well as prompting protest from
within the country. One such group, Human Rights Watch reported:
"Despite the vast wealth produced from the oil found under the Delta, the
region remains poorer than the national average; and […] the divisions
between the rich and poor are more obvious in the areas where gas flares
light up the night sky2. "

The environmental effects were felt by many tribes in the Niger Delta, but
one tribe in particular, the Ogoni People, formed a pressure group the
Movement for the survival of the Ogoni People (MOSOP), under the
leadership of Ken Sara-Wiwa. Protests against oil exploration were
invariably met with extreme force by the Nigerian government forces,

1
Today, oil sales account for more than 40 percent of GDP, 80 percent of the government's budgetary
revenue, and more than 95 percent of exports. With an average production of approximately 2 million
barrels per day, Nigeria is one of the world's largest oil producers.

2
Human Rights Watch. The price of Oil. Corporate Responsibility and Human Rights Violations in Nigeria's
Oil-producing Communities. New York, HRW, 1999, p. 6.
ROYAL DUTCH SHELL – CASE STUDY PAPER 1

leading to the deaths of many demonstrators, which in turn lead to

accusations that Shell was complicit in the killings.

In 1993 an oil pipeline leak led to an extensive oilspill over Ogoni farm
land and into water sources at Korokoro. A peaceful demonstration was
dispersed by troops firing at the demonstrators, where many were
wounded. At the same time as these protests were being made the oil
companies were complaining to the government over losses in revenue
because of the resistance of local tribes. Incidences of violence increased
in the latter part of 1993 and conflict began between the Andoni tribe
and the Ogoni tribe. The Ogoni alleged that this trouble was promoted by
Shell. Eventually, Ken Sara-Wiwa was arrested over the deaths of four
pro-government tribal leaders and was executed on November 10 1995,
despite growing international opposition. Additionally, despite assertions
by Shell that it was not in any way involved, the impression was held
may many people around the world that it had a case to answer.

Illustration – an example of the pipelines laid above ground in Nigeria.

ROYAL DUTCH SHELL – CASE STUDY PAPER 1

2. The Case of Brent Spar

When oil exploration in the North Sea began in the 1960’s, few were
overly concerned about how the oil rigs used in this exploration would be
disposed of. But as time went on and around 400 rigs became employed
in the area, disposal emerged as an issue and the proposal by Shell that
it was to dump a storage platform, The Brent Spar, in the deep Atlantic,
was seen by environmental groups, especially Greenpeace, as a
dangerous precedent. Greenpeace also believed that the rig contained
‘toxic radioactive sludge’.

Greenpeace mobilized a number of campaigns to raise awareness among

the public and commissioned surveys to test support for their action.
Indeed a poll carried out by opinion Leader Research for Greenpeace
reported that 74% of the British public, who were aware of the Brent
Spar controversy, supported the action of Greenpeace in its campaign
against dumping.

The Consequences Shell

The result was that in the UK and Germany people began picketing Shell
petrol stations and mounting anti-Shell campaigns. Although the
internet was nowhere nearly as well developed as now, and many fewer
people had access, information was circulated and backed up by posters,
leaflets and advertisments in mainstream newspapers.

As a measure of the seriousness with which even mainstream

organizations took these events, the Pensions Investments Research
Consultants (PIRC), in a report to clients in March 1996, stated:

“International criticism of the Nigerian government came to a head

with the hanging of Ken Sara-Wiwa and eight others in Nigeria on
November 10 1995 at the start of the Commonwealth Summit in
Auckland. Nelson Mandela led calls for oil sanctions to be imposed
against Nigeria. Shell's position came under increasing
condemnation with its decision, announced on November 15, to go
ahead with a major new liquefied natural gas project in Nigeria.
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The allegations against Shell have developed into boycott calls by

Friends of the Earth, Greenpeace and others. Shell petrol stations
have been picketed by Greenpeace and Friends of the Earth activists
and a large amount of press coverage, much of it adverse for the
company, has been generated. Coming so soon after the Brent Spar
episode, which also saw Shell at the centre of a major environmental
campaign, the situation represents a further threat to Shell's public
reputation.

Shareholders have already demonstrated a degree of unease over

these problems. The TSB Environmental Investor fund was reported
to have sold its Shell holdings over the Nigerian environmental
situation. We have been informed that other church, charity and
pension fund investors have met with the company to raise these
issues3. ”

Shell’s Response

Despite the denials by Shell of its involvement in the Sara-Wiwa affair,

and the subsequent findings that the Brent Spar was not carrying toxic
waste, the company was clearly under pressure to respond to the
concerns being expressed by many stakeholder groups, including its
shareholders.

It soon thereafter employed the consultancy SustainAbility to review its

policies on reporting, and it was not long before the company was
rebranded with the slogan ‘People, Planet, Profits’, echoing the ‘Triple
Bottom Line’ philosophy of the consultancy’s founder, John Elkington4.
It may be argued that this push to been seen as environmentally and
socially responsible was a catalyst for BP, traditionally seen as the
market leader in the UK in environmental matters in the oil and gas
sector, to become involved in a little re-branding of its own when it
launched its ‘ Beyond Petroleum’ campaign.

3
http://www.pirc.co.uk/shellmar.htm#s1
4
The Annual Report which in 1993 contained only about 3 pages on CSR issues, by 1998 was disclosing 9
pages; not a massive amount in absolute terms, but a 300% increase in its own terms, even before the
publication of the separate environmental report.
ROYAL DUTCH SHELL – CASE STUDY PAPER 1

Questions –

What are the issues arising from Shell’s activities in the Niger Delta, and from Brent Spar?

What is the role of firms and governments in addressing human rights? How does the
Nigerian government measure up? How doe Shell look?

What seems to be Shell’s attitude to Corporate Responsibility?

How can a company with a history of so much controversy improve its reputation?

Who cares? How does it show?

Has Shell committed any other misdeeds e.g. mis-stating reserves?

Postscript
In 2004 Shell mistated its reserves and was forced to pay out more than £200m in fines
and compensation to settle the scandal.