Teaching Note

Shells Global Social Responsibility Initiatives

Shells Global Social Responsibility Initiatives

Teaching Note Reference No. CSR0004-1 This teaching note was written by Abdul Samad under the direction of Muthu Kumar, Icfai Business School Case Development Centre. It is only an illustrative orchestration of this case study. It is never meant to limit the learning outcomes. Copyright 2008, Icfai Business School Case Development Centre No part of this publication may be copied, reproduced or distributed, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or medium electronic, mechanical, photocopying, recording, or otherwise without the permission of Icfai Business School Case Development Centre.

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Teaching Note

Shells Global Social Responsibility Initiatives

Prerequisite Conceptual Understanding
To understand CSR Smith N. Craig, Corporate Social Responsibility: Whether or How?, California Management Review, Vol. 45, No. 4, 2003 [Ref. No. CMR-262] To understand how consumers respond to CSR initiatives Bhattacharya C.B. and Sen Sankar, Doing Better at Doing Good: When, Why and How Consumers Respond to Corporate Social Initiatives, California Management Review, Vol. 47, No. 1, 2004 [Ref. No. CMR-295].

Synopsis of the Case Study

Shell, a British oil-trading company and Royal Dutch, a Dutch oilfield-developing company merged together in 1907 to form Royal Dutch/Shell. Thereafter, the company expanded its operations through world-wide acquisitions in Europe, Africa, North and South America. The companys world-wide operations made it accountable to people, governments and non-government organisations wherever it went. The increasing consciousness of consumers about the social responsibilities of companies made a serious impact on the profits and future of Shell. Therefore, Shell took up to various Corporate Social Responsibility (CSR) initiatives to mend its image and brand it as a socially responsible company.

Pedagogical Objectives
The case study could be used to help the students understand: Significance of CSR in any business Types of businesses in which CSR is needed most Can CSR be used as a competitive advantage for a firm and is it sustainable?

Assignment Questions
I. II. How is globalisation acting as a catalyst for the growth of consumerism? How significant is it for any business to be a responsible corporate citizen in its business practices? What constitutes a good corporate citizenship and why is it essential?

III. In 1997, the Shell Foundation, an independent charity organisation, was established with an initial endowment of $250 million. (page 5, para 1 of the case study). In another incident, the

company has invested 43 million to slice up the spar and use the parts as the foundation for a new ferry terminal in Mekjarvik, a port in Norway (page 4, para 1 of the case study). Are these costly CSR initiatives sustainable in the long run? If yes, why so? If no, what should Shell do to sustain this kind of socially committed investment?

Teaching Plan
Both the Structured Assignment and the Teaching Note follow a sequential order as presented in the Teaching Plan [Annexure (TN) -I].

Case Analysis I. How is globalisation acting as a catalyst for the growth of consumerism?

Globalisation is heatedly discussed all over the world between its advocates and opponents. Supporters highlight the gains like job creation and increasing wealth for people in many countries. But opponents doubt any gains for developing countries. There are also concerns regarding the future of these countries and also the impact on environment. Globalisation definitely has impacts on growth and income and last but not least, on consumers. It helps companies to expand their presence across the world, with an extensive range of products and services unknown earlier. They also build up a new band of consumers for their products all over the world. While these companies aid development, many a times they also muddy the waters entered into, with exploitation of labour, consumers and resources. However, consumer rights must always be protected. Some governments take up the initiative, while some have to be done by the consumers themselves as they form a very large group. The globalisation has led to the formation of consumer groups all over the world that speak out against these global companies to protect consumer and community rights. They have started playing an assertive and demanding role in the economic and social progress and also a check on environmental issues by educating and protecting themselves. They want companies to graduate beyond their product-selling motives. Consumers have started looking at and prefer the humanitarian angle of the companies than merely its products. In these days, news is spreading like wild fire across the globe, through various media. Do you agree that the proliferation of media is helping the emergence of a global consumer? In what way is it affecting the company-customer relationship? Proliferation of the media is definitely helping the emergence of global consumer. Unlike earlier, media is now responsible for making the events across the world reach the consumers. News, selectively at times, does reach consumer ears. Exploitation of any kind social, environmental, etc., by any company comes to the notice of consumers. Such wrongdoings of a company in one country is uniting the consumers and provoking boycotts in some other country. For example, something happening to the environment and the people in Nigeria due to a companys operations, is brought to the notice of the world and consumers in Europe boycott the companys products for the sake of the stakeholders in Nigeria. Along with the emergence of the global consumers the media is also responsible for the tension between the companycustomer relationships. It is making them opponents, but for a good cause. This cautions companies to tidy up their operations helping them, as well as consumers, in the whole process. Disappearing geographical boundaries and the coming of global consumer is affecting businesses world wide as consumers look for a humane way to do business, rather than at mere products and services. How far do you agree with this statement?

Teaching Note

Shells Global Social Responsibility Initiatives

Geographical boundaries have started disappearing, making businesses expand all over the world. Thereby, creating global consumers one who unite under the feeling that they all use the same product. They resist any harm done to their group any where in the world. This has made companies wary about their actions. They have started behaving as responsible citizens. Consumers also expect the company (whose products they use) to give back something good and help in the development of the society. The disappearing of the boundaries and emergence of consumerism is affecting the businesses in a positive way and helping the society. Much more alertness by a company can work towards its own benefit.

II.

How significant is it for any business to be a responsible corporate citizen in its business practices? What constitutes a good corporate citizenship and why is it essential?

Companies do have a negative impact along with the benefits on the society, stakeholders, environment of the locality or the planet as a whole. To reduce or compensate the negative impact of such business practices on the community and the environment, companies follow some strategies that benefit its stakeholders and become responsible corporate citizens. The fact is that the companies work in a marketplace but live in a society. That means managing risks to ensure that their decisions impart the least possible harm to society and the environment. Further, companies which are eager to pursue international opportunities, have to take a hard look at their impact on a wider world where stakeholders are diverse and distributed globally. When they are planning their global strategy, they need to look at the short-term and long-term impact of their presence in the community. As a bottom line, they must be responsible corporate citizens. Companies need to carve their global strategy with the realisation that they do not exist in a vacuum. They must think hard about how they should conduct business in the present world order, and they should look at the likely make-up of the future world order when fashioning their expansion strategy. Every firm can win with a sensitive, well-researched, globally knowledgeable plan ultimately ensuring a good corporate citizenship and a pretty good business. The impact of practices of a citizen on the community can be good or otherwise, the same hold true for corporates too. As a good citizen always behaves ethically and is praised by the society for his good behaviour, a corporate citizen also has the same feedback in store for itself based on its business practices. The corporate are responsible not just to their own employees but also to the citizens in the communities in which they are located, wherever in the world that might be. It becomes mandatory for a company to minimise its negative impact on the society. Even if it has any negative impact, the society expects the corporate to compensate the same in some or other way. For example, there are instances of multinationals establishing themselves in an underdeveloped country only to quit later, thus leaving the local citizens in lurch and a far worse situation compared to what existed before its entry. So minimising such negative impact on the society and maximising benefit is what constitutes a good corporate citizenship. After discussing the positive side about being a responsible corporate citizen there might be an arousing doubt whether the companies face any criticism against the use of CSR as a PR tool and do these initiatives hurt someone in the society? To which it can be said that, CSR initiatives by any company form a very good PR tool for the company to build up its image as a good corporate citizen in the society. These initiatives, as such, do not face any criticism from the society at large, the government and the stakeholders of the company, if it is not causing harm in any manner. But still there could be criticism from the competitors of the company as these initiatives could hurt their profits. The companies, which have not implemented any kind of CSR initiatives, can go against the company to stop them. This could be the only reason why the CSR initiatives taken up by the company is likely to gain criticism. But this criticism would be temporary. As the competitors realise the importance of CSR they too would subscribe to it.

Teaching Note

Shells Global Social Responsibility Initiatives

The other eye opener for Shell was the public outcry against the execution of Ken Saro-Wiwa and other Nigerian activists. (page 4, para 2 of the case study). What does this statement mean for (rather should have meant for) Shell? Do you endorse Shell distancing itself from that incident? The shift in the companys policy was due to two major incidents that affected the communities in which it operated. The company faced criticism from Greenpeace for its plans to sink the Brent Spar oilrig in the Atlantic Ocean. The rig was used as a loading buoy and storage tank for crude oil for 15 years. Greenpeace activist boarded the structure in 1995 to protest against its sinking, claiming that it contained toxic chemicals and oil, and people across Europe boycotted Shells products. Another major incident was the public outcry against the execution of Ken Saro-Wiwa (Ken) and other Nigerian activists. Shell operated in the region for 50 years, without any development of the region. Moreover, its operations were responsible for the worst environmental destructions of the fertile land in the region, oil spills that killed fish, destroyed crops and polluted water with serious consequences for people residing nearby. When communities protested against this, under the leadership of Ken and others, the Nigerian government launched an aggressive crack down of the protest and hanged Ken and his colleagues. Shell did not intervene in the matter, when it could prevent the execution. This was followed by an increased public outcry. These two major protests against the company were responsible for the companys changed policy. According to my opinion, Shell should not have distanced itself from the incidents. Ken was protesting against the government policies that allowed companies like Shell to cause damage to environment and public health. Shell could have influenced the decisions of the Nigerian government to stop the execution of the activists. On the contrary it did not intervene in the matter, as it thought that it might face restrictions from the government in its operations. But it could not anticipate the large scale outcry that would result from this negative decision. The company was not operating illegally (affecting the government rules) but immorally (that was affecting the public and environment) neither it was contributing to the development of the region. And this was considered as immoral by the public at large and later the company did realise its mistake. Shells annual report reads To conduct business as responsible corporate members of society, to observe the laws of the countries in which we operate, to express support for fundamental human rights in line with the legitimate role of business and to give proper regard to health, safety and the environment consistent with a commitment to contribute to sustainable development. (page 3, para 4 of the case study). Why is the company putting a premium on societal responsibility? What do you understand by sustainable development? Shell faced protests from the community in the oil rig case and the execution of activists. Subsequently its products were boycotted by the consumers all across Europe. The company faced huge losses due to this and realised that the society is increasingly becoming conscious of the acts of the company and this could seriously impact its profits. Issues like environment, diversity, human rights and community are now becoming hard to ignore for business organisations. If managed well, these issues can be a source of advantage. So Shell opted to change its image as a socially responsible company. Shell was one of the first companies to realise the importance of CSR and documented the above business principle in the annual report. Shell outlined a plan for sustainable development which set mandatory minimum standards and targets to be followed by the company. It also developed a framework that would shift the companys direct involvement in community assistance to self-development schemes and involvement from the community. Shell improved its understanding the community issues through engaging itself in regular dialogue on difficult issues with stakeholders through meetings and workshops. Shell offered sponsorship, services, advice and training in critical issues. Through such initiatives of sustainable development Shell aimed to develop both the community and itself.

Teaching Note

Shells Global Social Responsibility Initiatives

The case study also notes, In keeping with its policy of sustainable development, Shell began investing in various community development programmes across the globe. (page 5, para 1 of the case study). What initiatives did Shell adopt to change its corporate image? As a consumer, how would you examine these initiatives? Do you think they are enough? If yes, how? If no, what else do you suggest? Shell started adopting various initiatives to change its image from bad to a good corporate citizen; important among them are: Set a mandatory group health, safety and environment policy Set standards to cover environment management, emissions, effluents and soil and groundwater contamination Formed Shell foundation and invested in various community development programmes to keep up with its policy of sustainable development Ran projects like biodiversity which assess the impact of oil and gas operations across the globe and find measures to minimise the impact, Embarq project to develop transportation, Breathe Easy to develop non-polluting and fuel efficient cooking methods In Nigeria it partnered with Africare a welfare organisation and contributed $3.4 million to prevent the spread of malaria in Niger Delta and an additional $15 million to develop agriculture, healthcare and business enterprises In Vietnam it partially funded the Cantho project aimed at educating villagers about the benefits of environmental resource management and make optimum use of available resources that subsequently help reduce poverty In India it collaborated with Appropriate Rural Technologies Institute and Development Alternatives to develop a low-cost and energy efficient alternative to the traditional Chullah which used biomass for fuel It undertook various land conservation projects in Canada in collaboration with Nature Conservancy of Canada Shell Renewables, a Shell subsidiary invested $500 million in research and development of alternative and renewable sources of energy.

These initiatives have helped it rebuild its image. Consumers all over the world and in Europe have acknowledged their consent by accepting Shells products again. The company is also going strong after these initiatives. So as a consumer, I am of the opinion that these kinds of initiatives would suffice the purpose of the company to a great extent. Students may suggest some more, or better, initiatives to rejuvenate the companys image.

III. In 1997, the Shell Foundation, an independent charity organisation, was established with an initial endowment of $250 million (page 5, para 1 of the case study). In another incident, the company has invested 43 million to slice up the Spar and use the parts as the foundation for a new ferry terminal in Mekjarvik, a port in Norway (page 4, para 1 of the case study). Are these costly CSR initiatives sustainable in the long run? If yes, why so? If no, what should Shell do to sustain this kind of socially committed investment?
CSR initiatives and even the goodwill coming out of them as such are not sustainable for long-term periods. Companies need to keep changing with the arising circumstances. To keep up the goodwill the

Teaching Note

Shells Global Social Responsibility Initiatives

company has to take up more CSR initiatives. For example, in Niger Delta, Shell took up the project of eradicating malaria. After the successful completion of the project the company needs to concentrate on other issues such as eradiction of poverty, conservation of the environment or providing education, health care in the area, etc. The demands of the society keep changing with time and the company has to go along with the flow to deal with the current issues of the society. The CSR initiative is also not considered a one time effort or investment, which can sustain for the lifetime of the company. It needs regular participation of the company. Goodwill earned by the company today will erode after a few years and therefore the company needs to regularly invest its resources in these efforts to keep that goodwill going among the consumers. If you were a manager to approve these cost commitments, how would you weigh this investment in terms of tangible benefits to the company? Would these commitments allow the company to gain competitive advantage in the long run? CSR initiatives do clearly eke out an advantage to the implementing company, but it cannot become a competitive advantage. Though there is a possibility of such a thing only to some extent, it can if a company, like Shell, remains the only one to be doing so. But sooner or later other companies will follow suit and this will no more be a competitive advantage for the company. So it can be said that CSR initiatives cannot be a competitive advantage for any company. Even if it is, then it will be very short lived. But it is definitely an added advantage for the company. Today consumers, investors, governments and even employees have become mindful of good corporate behaviour, or lack thereof. In this new business environment, a companys reputation has become one of its most valuable assets and CSR, a nice weapon to gain reputation. Positive CSR experiences build confidence and goodwill with stakeholders. Many organisations have used CSR efforts as strategic branding approaches in achieving a win-win outcome. Should some companies work for CSR more than others? Does the type of industry and company size play any role in corporate citizenship? If so, which type of companies and what form of CSR? The type of industry in which a firm operates does have a great influence on it. And it makes it obligatory for the company to follow CSR practices. Virtually every company develops guidelines for its staff on how to behave when confronted with a host of dilemma such as conflict of interests, gifts, theft, insider trading, pay-offs and bribery. But codes are now being executed to establish rules of good behaviour in relation to a host of other issues. Oil and natural gas, mining, forestry, chemical, textile, leather and paper industries, for example, focus, though not exclusively, on rules of behaviour for environmental management, health and safety standards. Labour provisions are particularly common in the garment, footwear, rug and sports goods sectors, where dismal working conditions, low wages and child labour have been well documented. It is important for the companies to follow the corporate codes suitable to its industry type. The next issue raises doubts about the influence of the companys size on corporate citizenship. It is, however, advisable to any company to follow the ethics of business irrespective of its size. But looking at the instances, we find that it becomes more and more necessary to follow the corporate citizenship practices as the companys size increases. A small company can also influence and have an impact on the society, but at a negligible level when compared to big business conglomerates. As the company grows bigger, its impact on society too becomes stronger for the society to recognise. Increased size and influence of the corporation leads to greater scrutiny from public authorities, the media, citizens and civil society organisations and demands for greater business accountability on how they make and spend their money. Business and society have a dynamic and interdependent relationship. Hence the need for the companies to be aware of its impact on society and the environment, as well as of the long-term tangible and intangible benefits of corporate citizenship. So the companies need to be inclined towards developing strong, healthy, safe, sustainable and better communities. Should the companies focus on profit or goodwill or both? Are these two mutually exclusive? Or can the pursuit of one lead to the other? 7

Teaching Note

Shells Global Social Responsibility Initiatives

Every company has its focus on profits. But when CSR helps the company in gaining the good will of consumers it is worth taking the risk to focus on CSR initiatives that help the community and the company simultaneously. Though it is not essential for any company to invest its resources into CSR, the company gains added advantage over its competitors. The CSR initiatives and the profits of the company are not exclusive entities but are interlinked. The companys CSR efforts lead to the improvement of the companys image in the society. This image would help gain the faith of the public as a good corporate. The public would then prefer this companys products to other firms, which are not into CSR. And thereby, an increased demand of the companys products in the society, and hence increased profit margins. So it can finally be said that the pursuit of CSR will lead to increased profits for the company.

Final Thoughts
From the discussion and analysis of the case study, it is evident that companies need to take up CSR initiatives to build up their image as a socially responsible company. Companies through these initiatives show that they are compensating the losses that are occurring to the nature and society due to their operations. It is also evident that such initiatives will earn consumer goodwill for the company and also boost up its profits.

Teaching Note

Shells Global Social Responsibility Initiatives

Annexure (TN)-I Teaching Plan

Prerequisite Conceptual Understanding

To understand CSR Smith N. Craig, Corporate Social Responsibility: Whether or How?, California Management Review, 2003, Vol. 45, No. 4 [Ref. No. CMR-262] To understand how consumers respond to CSR initiatives Bhattacharya C.B. and Sen Sankar, Doing Better at Doing Good: When, Why and How Consumers Respond to Corporate Social initiatives, California Management Review, 2004, Vol. 47, No. 1 [Ref. No. CMR 295]. The Big Picture: Expected Learning Objectives CSRs importance for a company Can CSR be a source of competitive advantage?

Detail Teaching Plan Flow

Sl. No. 1. Analysis Section Expected Learning Objectives Forward Linkage Ideal Duration (mins) 30

Consumerism as a Force Globalisation, growing consumerism Social responsibility to Check MNCs and shifting balance towards of a business. consumers Effects of global media and emergence of global consumer on customer-company relationships Social responsibility no more a soft thing. CSR and Shell Significance of CSR for a business organisation Mishaps at Shell Change in Shells principles and damage control measures. Efficiency of Shells measures Cost of goodwill measures Can CSR be a competitive advantage? Should all companies stick to CSR? Can there be few exceptions? CSR just another strategy or a necessity? Shells CSR initiatives.

2.

30

3.

Sustainability of CSR

45

Prepared by the author