Case Study: Ethical Management at Shell Oil

1 Case Study on Shell Oil Introduction In the contemporary business world, business enterprises can hardly undertake their activities without putting into consideration what their internal and external implications are to the environment. Business ethics has become integral to business activity, with organisations now going an extra mile in employing business ethics managers to advise the organisation accordingly on the matter (Shaw, Barry & Sansbury 2009). The Shell Oil Company, one of the biggest multinationals in the world, has suffered immensely over the years following its poor practise in upholding and managing ethical concerns surrounding its activities. This paper will critically exploit on the company’s poor ethical practices and analyse some of the measures it has employed in an attempt to address the situation.

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2 Elements of Ethics Management Available at Shell Confidential reporting system The company introduced a special programme, the Tell Shell programme, which particularly aimed at receiving views from the general public concerning their evaluation of the company’s performance on ethics management. In soliciting for the views of critics, Shell was expressing readiness to tackle some of the thorny issues which had haunted its performance for years. The company even summarises the reports it collects from the Tell Shell programme into its social report, further expressing the seriousness with which it is ready to tackle ethical concerns.

Integration of ethical advice avenues Initially, Shell had relied more on traditional ways of making decisions basing on scientific facts and justification. However, worsening business performance resulting from its negligence and dismissal of environmentalists’ concerns and other sceptics had implored the management to open up to more advice. The company’s leadership discovered the fact that they had to listen a lot and make decisions as well concerning issues that were being raised. The change of tact saw the company drop its hitherto ethical policy of ‘trust me’, and adopt a ‘show me’ approach, where managers would seek advice from qualified individuals and sources about how to handle ethical concerns.

Retraining workers on ethical practices Shell saw the need to have its workers get informed about the need to understand and uphold ethical practices in their performances. The substantial remedial action followed the poor image that the company suffered again after its initial restructuring programmes were watered down by the reserve overstating scandal. In the programme, Shell lined up about 3,000 of its

3 engineers and technicians to undertake a retraining course that would boost their compliance.

The company’s management team, which was to spearhead the adoption of these new practices, also benefited from the retraining in order to enable them lead a programme that they were well conversant about. It had dawned to the company’s leadership that employing ethical standards and practices was unlikely to transform performance if at all the workers and their managers had little training on the subject matter (Crane & Matten 2007).

Written company code of ethics and standard After it had become apparent that the public image of the company was not pleasing at all, the management of Shell Oil moved with speed to revise and update the General Business Principles. These principles actually compelled managers to be more aware of their issues bordering on ethics. Part of the new principles committed the managers to give reports on efforts they were putting into consideration so as to enable them achieve the targeted results. In other words, the written codes offered guidance to the managers, leading them in making decisions that would be good for the company and the surrounding environments as well (Velasquez 1992).

Shell’s Culture and its Significance to Business Ethics The overall organisational culture of the oil marketer is very instrumental in determining the success of the company’s business ethics. This is because the organisation’s culture shapes the behaviour, and informs the reasoning as well of all staff, including the management (Carley & Christie 2000). Through Shell’s culture, a paradigm shift has been established in the organisation which literally controls or directs the manner in which people in the organisation operate. Thus, by changing the culture to accommodate ethical practices and standards, a new ideological shift will have been developed. Workers will be able to learn new approaches to

4 conducting business while adhering to good ethics (Gladwin, Kennelly & Krause 1995). The company’s mission, vision, and value statements will be able to reflect this new culture, thereby constantly acting as a reminder to the all the employees that they had an obligation to make in exercising and upholding moral and ethical practices.

The company’s culture also includes its control systems. These systems play a significant role in monitoring closely the activities and practices going on in the organisation. As such, tools like rule books which often are handed to almost all employees for constant reading and familiarisation inform the employees on how to conduct their lives while acting for the company.

If such control tools, therefore, have nothing to do with the aspect of business ethics, it is difficult for Shell to realise its corporate dream of integrating acceptable ethical standards and practices to its activities (Hawken 1993).

The existing organisational structures at Shell make up part and parcel of the company’s culture. The manner in which issues are reported in the organisation, the command hierarchies depicting who is answerable to what, as well as the general workflow within and out of the company continuously follow the same channel on a daily basis. There is need for this practise to be specially structured, for purposes of incorporating business ethics into the organization, in such a way that it would consider its integration. Literally, the organizational structure acts as the framework upon which the company operates. If a new system has to be integrated, the framework has to be restructured as well to make it viable (Windsor 2006).

The numerous stories and myths told about Shell to its workers and the external communities convey the company’s thinking and practise in as far as its practices are concerned.

If these stories lack any mention to what the company thinks or plans about business ethics, it is equally difficult for the workers to think about the same. Stories and myths about a company

5 portray the kind of corporate culture that is followed. The company’s dark past on business ethics is likely going to affect the manner in which it approaches the whole issue of business ethics (Garriga & Mele 2004). For instance, when Shell introduced its initial programmes on ethics in 2004, it all ran smoothly until at some point when the company engaged in the overstating of their oil and gas reserves. These grim past will be foretold for years to come and it will overly affect its approach to integrating business ethics.

The organization’s symbols, including its official logo and designs are literally engraved in people’s minds in as far as their past experiences with the company are concerned. In the Niger delta region, for instance, when people see the Shell logo they associate it with environmental degradation. The symbol, to them, is a sign of the unethical practices that the company has patronised for the many decades it has dealt in oil business from the region. It reminds them of the murder of activist Ken Sarowiwa and his accomplices who had stood against the atrocities of the company in the region. Such an incoherent past, therefore, is likely to affect negatively the company’s efforts of integrating business ethics to its operations (Donaldson & Preston 1995).

The overall rituals and routines that have been part and parcel of Shell Oil Company are also more likely to affect its aim of introducing ethical practices within its operations. For instance, the manner in which Shell announces and its annual performance report, together with the way it does the presentations has become habitual. Equally, meetings for the top management of the firm are done in a way that follows a particular trend and system that has been with the company for long. Thus, since the past has had a poor performance on business ethics, it is highly likely that these trends, by default, would still dog its new resolve to integrate acceptable ethical practices and standards.

6 It is, therefore, very prudent that Shell changes its culture completely if at all it intends to achieve success in introducing ethics to its operations. A change of culture would imply that its old systems are overhauled, while overall company rules are changed. It would also imply that a new paradigm is introduced, and which will transform the general thinking of the company (Matten & Crane 2005). Even the decision making process will change, through the granting of power to particular office holders to decide on what is good for the company. A total culture change will see such company symbols as its logos and signs changed so as to signify a new beginning and a discontinuation from the past. Even communities which have had worse experiences with the company, such as the Niger delta residents, will be at difficulties to relate the new company with its gloomy past.

The Shell’s Turnaround Approach It is worth noting that although Shell has realised the damage extent occasioned by its poor ethical practise, its turnaround attempts have been inadequate. The incident in which the company overstated its oil and gas reserves is a clear proof that there is much needed to be done in order to make the plans a reality. Firstly, Shell did not implement a wholesome ethics programme. The company only rushed to change the aspects where the effects of its operations were physically visible to the general public directly. Its internal operations, however, continue without integrating ethical changes whatsoever.

Additionally, Shell has not thought about an overall overhaul of its corporate culture. The organisational culture forms the foundation upon which such initiatives as business ethics can be anchored (Dunphy, Griffiths & Benn 2003). However, little has been done to support this. The company structures still remain the same way they were at the time when the company patronised unethical practices. This implies that general workflow at the company remains intact.

7 Even when new workers are hired in the firm, it will be easier for them to relate with the company’s past than try to associate with its intended new practise on business ethics. The training programmes targeting business ethics as well as the reporting mechanism that provides the public with the chance to air their views all appear to be cosmetic measures.

The overall concerns and interests of the stakeholders have also not been taken into consideration effectively as it should be. The risk of failing to consider this will result in such interest groups being treated unequally (Blowfield & Murray, 2011). In other words, because Greenpeace has the ability to put Shell’s image on the international platform for all bad reasons, the company is so cautious to act in a manner that pleases this group. On the contrary, because the local communities residing in the Niger delta have a comparatively lesser ability, Shell seems to have little worry about their plight.

In addition to the initiatives that have already been undertaken by Shell in ensuring the company adopts ethical practices, there are a number of additions which should be considered by the management. Firstly, there is need to formulate a new strategic vision that will give special mention to business ethics. This will be significant in changing the old culture of the company and introducing fresh ideas that would sustain change (Blowfield & Murray 2011).

The top management’s commitment in ethical practices must also be displayed. It is impossible for the company to transform its culture if the top executive remains non committal.

It is only after the top management express their willingness and desire to change through action that the rest of the employees will follow suit and act accordingly (Carvalho 2001).

Another important aspect to consider is modification of the organisation so as to be able to sustain the anticipated change. In other words, the current systems together with the policies in use need to be overhauled. This will also involve change of the procedures and rules that are

8 currently in use at the company. In doing so, the company’s training models and structure will give business ethics a chance. The newly acquired workers will thus be aligned as per the demands and expectations of the new values. The desired behaviour among employees should be nurtured and supported such that the effect of the change can be long term (Carvalho 2001).

Conclusion Business enterprises have to consider ethical practices and standards if they target to achieve better performance. As businesses pursue their target of optimising profits and efficiency, they also have to consider all shareholders who, in one way or the other, are affected by its operations. If morality and general business practice lacks in the operations of a business organisation, it might not realise its dream of actualising profits. Companies can incorporate business ethics in their operations by coming up with business codes and principles to govern their operations. Additionally, constant retraining of workers and the managers on ethical practices and standards should be undertaken, as well as availing systems through which all the shareholders, including the employees and general public, can communicate back to the organisation expressing their concerns on ethics. It is difficult for any organisation to realise good ethics and standards in its practices if it does not incorporate wholesome changes to its systems of operation.

9 List of References Blowfield, M & Murray, A 2011, Corporate responsibility, (2nd ed), Oxford University Press: Oxford.

Campbell, T & Mollica, D 2009, Introduction, In T. Campbell & D. Mollica (Eds), Sustainability Ashgate: Farnham, Surrey.

Carley, M & Christie, I 2000, Managing sustainable development, Earthscan: London Carvalho, G 2001, ‘Sustainable development: Is it achievable within the existing international political economy context?’ Sustainable Development, Vol. 9, no. 3, pp. 61-73.

Corporate and Social Responsibility, Lecture Slides Crane, A & Matten, D 2007, Business ethics, (2nd ed.), Oxford University Press: Oxford.

Donaldson, T & Preston, L 1995, ‘The stakeholder theory of the corporation: Concepts, evidence, and implications’, Academy of Management Review, Vol. 20, no. 1, pp. 65-91.

Dunphy, D, Griffiths, A. & Benn, S 2003, Organizational change for corporate sustainability, Routledge: London.

Garriga, E & Mele, D 2004, ‘Corporate social responsibility theories: Mapping the territory’, Journal of Business Ethics, Vol. 53, no. 1/2, pp. 51-71.

Gladwin, TN, Kennelly, JJ & Krause, TS 1995, ‘Shifting paradigms for sustainable development: Implications for management theory and research’, Academy of Management Review, Vol. 20, no. 4, pp. 874-907.

Hawken, P 1993, The ecology of commerce, HarperCollins: New York Matten, D & Crane, A 2005, ‘Corporate citizenship: Toward an extended theoretical conceptualization’, Academy of Management Review, Vol. 30, no. 1, pp. 166-179.

10 Shaw, W, Barry, V & Sansbury, G 2009, Moral issues in business: First Asia-Pacific edition, Cengage: Australia Velasquez, M 1992, Business ethics: Concepts and cases, Prentice Hall: Englewood Cliffs, NJ Windsor, D 2006, ‘Corporate social responsibility: Three key approaches’, Journal of Management Studies, Vol. 43, no. 1, pp. 93-114.