Shell in Nigeria:

Corporate Social Responsibility and the Ogoni Crisis

Discussion Issue 1:
Do companies have a responsibility to do more than maximize profits and returns to
shareholders? If they do, how far does it extend? Does it include the provision of good
wages and working conditions for employees; maintenance of the highest environmental
standards; development spending in communities where they operate; concern over the
manner in which the government to which they pay tax and other revenues spends the
money; actions to ensure that their own security guards do not abuse people with whom
they come in contact and that those who object nonviolently to their activities are not
victimized by the government? Are these responsibilities greater if a company is one of a
dominant few in the country where it is operating?

Answer

The one and only social responsibility of business is to increase its profits. While this view
is less prevalent today than it was 30 years ago, many business leaders and economists still
take the view that the best way for companies to promote social development in a
particular country is simply by increasing the overall level of economic activity through
trade and investment.

In this view, the manner in which the revenue generated is administered, the
environmental standards that are tolerated, or respect for human rights in the country
generally are simply irrelevant, and regard for them may even be harmful to the company’s
main business—and also, in the long run, to the social development of the country itself. If
the same standards are applied to developing countries as to the developed world, they will
never catch up: even below-market wages and dangerous conditions of work for third-
world employees can be justified as being better than no job at all. Shareholders could
justifiably complain if directors paid attention to anything that might impact negatively on
the financial bottom line.
Increasingly, however, this attitude is changing, as companies have come under pressure
from consumers and activists worried about the effects of the globalization of the economy
on the poor people of the world, but also as company directors have themselves come to
see that wider issues of social development can affect their own operations. The new buzz
phrase is the “triple bottom line” of economic, social, and environmental outcomes. A good
corporate reputation is increasingly seen as a valuable asset in attracting customers and
recruiting employees. Good community relations promoted by properly administered
development programs can, just like good labor relations, minimize shut-downs caused by
protests about the way the company operates.

Although low wages and low environmental standards can be useful to a company in the
short term, activists and some managers and economists argue that a company will make
more money in the long term in a country marked by good governance, the rule of law, low
levels of corruption, an educated population, and the sort of stable political and economic
framework that is only achieved when a government is accountable to its own people.
Studies have found no correlation between foreign direct investment in itself and respect
for human rights in the developing world, it seems that the presence of the oil
multinationals may rather have strengthened the hold on power of successive military
regimes that violated human rights and stole the money supposed to promote
development. Companies therefore have an interest in taking positive steps to promote
social development and minimize negative environmental effects, as well as to maximize
profits.

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Discussion Issue 2:
Do companies have responsibilities in relation to abuses by government security forces in
countries where they operate? What if abuses are concentrated in a region where they
dominate the local economy? What if they have called for security force protection, for
example against protesters at their facilities? If they do have responsibilities, does it extend
to making private representations to the government? Public representations? Insisting on
screening security officers posted to their facilities to ensure that abusive individuals are
not included? Offering legal or other assistance to the victims? Taking steps to avoid or
defuse situations where similar abuses could occur in future?

Answer

International law, historically focused on relations between states, is also adapting to the
new climate. Human rights groups and others have long argued that states have an
obligation not only to respect human rights themselves but also to enforce human rights
law against private actors, including companies. The increasing power of transnational
corporations within the global economy has brought with it a corresponding awareness of
the need for an international regime that places direct responsibilities on these companies.
When the global resources of a transnational corporation are substantially larger than
those of the country where it is operating, the government of that country may not be in a
position to enforce international, or even domestic, law against the company at all;
especially when the company often receives the diplomatic support of the first world state
where it has its corporate headquarters.

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Discussion Issue 3:
Should companies withdraw from countries ruled by military dictatorships or where
serious human rights violations are systematic and widespread?

Answer

Operating in a country that has seen numerous changes in government, one that has shifted
from a military dictatorship to the current representative democracy, Shell’s 50-plus year
experience in Nigeria is a work in progress, subject to shifting political, economic and
popular currents. As is any business enterprise, in a sense it’s a commercial and social
experiment, one from which much can be learned. And it’s one that affects not only the
people of the Niger Delta, but people around the world. It’s an experience that involves
People, Planet and Profit.

The ‘modern’ story of multinationals’ involvement in both developing and developed

countries stretches far back in time, at least to that of the British East India Company. It’s
an historical current that, for better or worse, has reached its highest stage of development
in our present era. There’s much of both to be found in it.

Examining the topic in its past, as well as present, forms has and can continue to yield
insights that benefit businesspeople, policy makers and the broadest public interest. It
carries the possibility of averting potential tragedies and disasters along the way.

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Discussion Issue 4:
Is it permissible for companies to take advantage of the absence of or failure to enforce
local laws on pay and conditions, the environment, compensation, and the like? Or should
companies follow best international practice in their operations, whatever local laws may
be, so that the standards they follow are the same all over the world?

Answer

A nation prone to violent, politically and economically related conflict, with a government
viewed as ineffectual if not corrupt in the extreme, as well as one prone to the use of
military force to quell domestic dissent and unrest, the mere fact that Shell does business in
Nigeria with the government as its partner is enough to condemn it.

According to Suchman (1995: 578), the pragmatic legitimacy of an organization is

determined by its most proximate public. Legitimacy is obtained when an organization
takes the proximate public’s standard of performance as its own. Applied to the Nigerian
context, the most important societal preoccupations are socio-economic in nature and
businesses respond accordingly. Hence, there has been greater corporate engagement in
more publicizable aspects of CSR such as social philanthropy and community development
projects which bring greater returns for corporate reputation and legitimacy, than in less
publicizable aspects of CSR such as human rights, environment and ethical behavior.
Nonetheless, there is a high degree of awareness in the oil industry that human and
environmental rights are part of CSR.

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Discussion Issue 5:
If a government states that it has the right to set its own priorities and that, in its case,
rapid industrial development is more important than environmental protection, should
outsiders respect that view? Does the type of government make a difference? If it is a
democracy, should the interests of citizens affected by environmental damage outweigh
those of the people benefiting from development, or vice versa?

Answer

Guarini and Nidasio (2003) explored how governments should shape policymaking,
performance measurement and reporting in order to facilitate interaction with responsible
business practices. He concludes that the voluntary CSR practices of private firms are not
and cannot be an effective substitute for good governance. Government also play a
mandating role by defining minimum standards for business performance. Ward et al.
(2007) pointed out that government could encourage the CSR agenda by supporting the
debate over transnational legal risk management, compliance and enforcement issues. For
example, the South African government recently intervened as a third party in favour of the
claimants against a company, reinforcing the message that grossly exploitative investors
are not welcome in the new South Africa.

Ward et al. (2007) further points out that in addition, government can drive mandatory
requirements through voluntary CSR practices, for instance by requiring corporations to
comply with child labour standards within their procurement contracts with suppliers. For
example, the Thai Ministry of Labour and Social Welfare set up an Office on Labour
Standards Development to address lack of enforcement on labour issues and to promote
compliance with voluntary labour standards, because of the pressures that their producers
were increasingly facing through supply chain demands.

Government can also play a facilitating, partnering or endorsing role, by helping to raise
expectations about business behaviour in stakeholder groups including employees,
consumers, investors and NGOs (Fox et al., 2002; Ward et al., 2007).

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This can help tilt the market so that socially and environmentally responsible products are
more attractive to consumers. For example, The Philippines government has decreed by
presidential decree that the first week in July should be “CSR week”; while Taiwan
established the annual Green Business Award scheme in 1992 as a way of rewarding best,
environmentally performing companies (Fox et al., 2002). Whereas it is a business
initiative to achieve ‘winwin’ goals for all stakeholders, it is argued that government should
help to ensure the compatibility of CSR policies with other public policies. This distinction
is important because it underlines that it is the role of government to design and deliver
public policy, to which business may contribute through CSR initiatives (Ibid.).

Rowe (2005) further observed that the business case approach to CSR tends to view the
public sector as independent, and not subject to other external factors, such as structural
conditions that may affect government’s ability to assist in the emergence and sustenance
of an enabling environment for CSR. Rowe argues that business and government have to
get past the idea that the business-case is all that it is necessary to worry about, i.e. that if
one can persuade business that it is in their commercial interest to be more responsible
then this will be a sufficient incentive for better business practices.

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Discussion Issue 6:
Should there be an international legal regime governing the rights and responsibilities of
transnational corporations? What should it include? Who should monitor and enforce
compliance?

Answer

Yes, although these initiatives have yet to place legally binding responsibilities on
transnational corporations in relation to issues of social responsibility, it seems that it will
be only a matter of time before they do so— though resistance can be expected from the
business sector. In the meantime, at least some companies are finding it to be in their
interests to take their own initiatives to address these questions. While environmental and
human rights activists have given a guarded welcome to these efforts, they note that
statements of intent are not worth the paper they are written on without strategies to
ensure their implementation, and without independent auditing of environmental and
human rights performance. No oil company, including Shell, has yet allowed such an audit.

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Sources:
MNC and relationships with Nigeria PPT Slides for Shell oil in Nigeria case:

http://www.slideshare.net/kran2796/shell-oil-in-nigeria-case-study

Shell in Nigeria: Oil, Gas, Development & Corporate Social Responsibility

http://www.triplepundit.com/2011/07/shell-nigeria-csr-corporate-social-responsibility/