Royal Dutch Shell in Nigeria: Where Do Responsibilities End?

Abstract

This case study discusses the scope of responsibilities and the basis of legitimacy of multinational corporations (MNC) in a complex operating environment. In January 2013 a precedent was set when Shell was held liable in The Hague for oil pollution in the Niger Delta. The landmark ruling climaxed the ongoing dispute over the scope of Shell’s responsibilities for both the company’s positive and negative impact. Shell’s was considered a forerunner in corporate social responsibility and had even assumed public responsibilities in a context of a public responsibility void. However, the company remained a regular target of civil society activism and legal proceedings concerned with malpractice. The court case attracted international attention for its novelty and increasing media and civil society pressure required immediate action. How can Shell respond to this negative publicity to keep its license to operate? What is the scope of the company’s responsibilities in such a controversial human rights context? Students are expected to discuss these questions going beyond a simple moralistic or liability thinking. They are encouraged to take into account the complex structural processes that connect persons and institutions in very different social and geographical positions. The experiences of Shell are an excellent case in point since attention is drawn to the background conditions of globally operating companies, in which the isolation of perpetrators based on causality is not realistic. The case also reveals the particular challenges, which MNCs face in the context of increasing demands to take on public responsibilities while respecting their economic mandate.

Appendices

Appendix 1: Information About Shell

Shell General Business Principles

Our Values

Shell employees share a set of core values—honesty, integrity, and respect for people. We also firmly believe in the fundamental importance of trust, openness, teamwork and professionalism, and pride in what we do.

Sustainable Development

As part of the Business Principles, we commit to contribute to sustainable development. This requires balancing short- and long-term interests, integrating economic, environmental and social considerations into business decision making.

Responsibilities

Shell companies recognize five areas of responsibility. It is the duty of management continuously to assess the priorities and discharge these inseparable responsibilities on the basis of that assessment.

Area of responsibility	Scope of responsibility
Shareholders	Protect shareholders’ investment, and provide a long-term return competitive with those of other leading companies in the industry
Customers	Win and maintain customers by developing and providing products and services which offer value in terms of price, quality, safety, and environmental impact, which are supported by the requisite technological, environmental, and commercial expertise
Employees	Respect the human rights of our employees and to provide them with good and safe working conditions, and competitive terms and conditions of employment. To promote the development and best use of the talents of our employees; to create an inclusive work environment where every employee has an equal opportunity to develop his or her skills and talents. To encourage the involvement of employees in the planning and direction of their work; to provide them with channels to report concerns. We recognize that commercial success depends on the full commitment of all employees
Those with whom we do business	Seek mutually beneficial relationships with contractors, suppliers, and in joint ventures and to promote the application of these Shell General Business Principles or equivalent principles in such relationships. The ability to promote these principles effectively will be an important factor in the decision to enter into or remain in such relationships
Society	Conduct business as responsible corporate members of society, to comply with applicable laws and regulations, to support fundamental human rights in line with the legitimate role of business, and to give proper regard to health, safety, security, and the environment

1. Source adapted from Royal Dutch Shell (2012)

Principles

Principle	Content
Economic	Long-term profitability is essential to achieving our business goals and to our continued growth. It is a measure both of efficiency and of the value that customers place on Shell products and services. It supplies the necessary corporate resources for the continuing investment that is required to develop and produce future energy supplies to meet customer needs. Without profits and a strong financial foundation, it would not be possible to fulfill our responsibilities. Criteria for investment and divestment decisions include sustainable development considerations (economic, social, and environmental) and an appraisal of the risks of the investment
Competition	Shell companies support free enterprise. We seek to compete fairly and ethically and within the framework of applicable competition laws; we will not prevent others from competing freely with us
Business integrity	Shell companies insist on honesty, integrity, and fairness in all aspects of our business and expect the same in our relationships with all those with whom we do business. The direct or indirect offer, payment, soliciting, or acceptance of bribes in any form is unacceptable. Facilitation payments are also bribes and must not be made. Employees must avoid conflicts of interest between their private activities and their part in the conduct of company business. Employees must also declare to their employing company potential conflicts of interest. All business transactions on behalf of a Shell company must be reflected accurately and fairly in the accounts of the company in accordance with established procedures and are subject to audit and disclosure
Political activities	a. Of companies: Shell companies act in a socially responsible manner within the laws of the countries in which we operate in pursuit of our legitimate commercial objectives. Shell companies do not make payments to political parties, organizations, or their representatives. Shell companies do not take part in party politics. However, when dealing with governments, Shell companies have the right and the responsibility to make our position known on any matters, which affect us, our employees, our customers, our shareholders, or local communities in a manner, which is in accordance with our values and the Business Principles
	b. Of employees: Where individuals wish to engage in activities in the community, including standing for election to public office, they will be given the opportunity to do so where this is appropriate in the light of local circumstances
Health, safety, security, and the environment	Shell companies have a systematic approach to health, safety, security, and environmental management in order to achieve continuous performance improvement. To this end, Shell companies manage these matters as critical business activities, set standards and targets for improvement, and measure, appraise and report performance externally. We continually look for ways to reduce the environmental impact of our operations, products and services
Local communities	Shell companies aim to be good neighbors by continuously improving the ways in which we contribute directly or indirectly to the general wellbeing of the communities within which we work. We manage the social impacts of our business activities carefully and work with others to enhance the benefits to local communities, and to mitigate any negative impacts from our activities. In addition, Shell companies take a constructive interest in societal matters, directly or indirectly related to our business
Communication and engagement	Shell companies recognize that regular dialog and engagement with our stakeholders is essential. We are committed to reporting of our performance by providing full relevant information to legitimately interested parties, subject to any overriding considerations of business confidentiality. In our interactions with employees, business partners, and local communities, we seek to listen and respond to them honestly and responsibly
Compliance	We comply with all applicable laws and regulations of the countries in which we operate

1. Source adapted from Royal Dutch Shell (2012)

Shell’s Control Framework

Note: “Foundations” comprise the objectives, principles, and rules that underpin and establish boundaries for Shell’s activities. “Organization” sets out how the various legal entities relate to each other and how their business activities are organized and managed. “Processes” refer to the more material processes, including how authority is delegated, how strategy, planning, and appraisal are used to improve performance, how compliance is managed and how assurance is provided. All control activities relate to one or more of these components (Source Shell 2010a).

Overview of Shell’s Sustainable Development and Governance Structure

Source Shell Sustainability Report (2009)

Appendix 2: Information About Nigeria

Dimensions of the resource curse: Nigeria in comparison with other African countries

	Economic performance	Governance	Conflicts	Environment	Total
Nigeria	▲ ▲ ▲	▲ ▲ ▲	▲ ▲ ▲	▲ ▲ ▲	12
Angola	▲ ▲	▲ ▲ ▲	▲ ▲	▲ ▲	9
Sudan	▲	▲ ▲	▲ ▲	▲	6
Equatorial Guinea	▲	▲ ▲ ▲	▲	▲ ▲	7
Congo B.	▲ ▲ ▲	▲ ▲ ▲	▲ ▲	▲ ▲	10
Gabon	▲ ▲	▲ ▲ ▲	▲ ▲	▲	8
Chad	▲ ▲	▲ ▲	▲ ▲	▲	7
Cameroon	▲	▲ ▲	▲ ▲	▲	6
Mauritania	▲	▲	▲	▲ ▲	5
DRC	▲	▲	▲	▲	4
Ivory Coast	▲	▲ ▲	▲	▲	5
South Africa	▲	▲	▲	▲	4

1. ▲ ▲ ▲ = Oil has major role in problems or negative results in the domain
2. ▲ ▲ = Oil has an intermediate role in the problems or mediocre results in the domain
3. ▲ = Lack of a major negative role of oil in the given domain
4. NB Where oil does not play a major negative role, other extraction activities (mineral resources) can still be implicated in the “resource curse.” Here we consider only the role of oil
5. Source Magrin and Van Vliet (2009, p. 119).

Oil spills due to rupture and vandalism between 2006 and 2010

Appendix 3: Methodology

Case Selection

The company RDS is especially suitable for this research due to its distinctive company characteristics, its operational setting, and high-quality access to data. Shell is a front-running company in the area of CSR and has moved into the political sphere through its engagement in achieving public goals at the global and local level. Yet, the company is facing continuing allegations of corporate malpractice. Furthermore, the inherent social and environmental risks related to operations of the core business poses serious questions in relation to the sustainability of its very core operations and the legitimacy of its involvement in the support or supplement of public services related to its non-core operations. While, the company’s experiences in the Ogoni and Brent Spar cases are often seen to have catalyzed international thinking about CSR, its current challenges with regard to its new political role and associated public responsibility strategies also make an important case in point for theory and praxis. The case of Shell is an extreme case which can “offer lessons for all organizations as they face an increasingly turbulent world” (Eisenhardt 1989, p. 573). Moreover, the company’s complex operating environment, Nigeria, is an insightful research site for examining the increasing interest in theory and praxis in the quasi-governmental role of private enterprises which moves away from the assumption in much of the CSR literature that the “rules of the game” are set through effective government policy and regulation. This context also sheds light on the global interconnectedness of the oil industry and thus makes in interesting case in point with regard to the concept of enlarged responsibilities (Young 2006). Here, responsibility is essentially shared among various actors contributing to the structures of social and environmental injustice in the Niger Delta.

Data Sources

The author applied a case study methodology with the primary goal of describing Shell’s unique approach to CSR and associated challenges with regard to the company’s scope of responsibility and basis for legitimacy in a complex operating environment. The sources of evidence used in this case study come from primary and secondary sources. They are based on multiple data collection methods such as in-depth interviews and archival sources. The triangulation made possible by this process allowed for a stronger substantiation of constructs and propositions (Eisenhardt 1989, p. 538) and thus increases the reliability of data (Barratt et al. 2011). Moreover, since the overall methodology employed ensured that relevant stakeholders of corporate and civil society Nigeria were taken into account, the concerns from all parties became evident.

Documentary Analysis

The author undertook extensive documentary analysis, searching annual reports, press releases, newspaper articles, secret documents (Wikileaks, leaked company reports), and other memoranda and documentary information. Press releases from the company are a device to communicate key messages; especially during a period of crisis where there is a need for managers to provide real-time information to key stakeholders. Together with the company’s reports, they formed the basis for the company’s voice for the narrative of this story. These documents were searched several times. Initially the author took field notes to construct the case story, which formed the foundation to interview questions. The author used subsequent searches to validate interviews as well as antecedent material from secondary sources.

Interviews

In 2011, the author undertook a two-week field visit to Abuja (Nigeria) and a one day visit to Shell’s head office in Den Haag. The aim of the visits was to find out details on how civil society organizations perceive and confront Shell’s actions, and on how the company reacts to this pressure and evaluates its role in this complex operating environment. Prior to the interviews an advance e-Mail was sent to selected respondents outlining the important issues of the study. Questions were semi-structured. Interviews lasted between 60 and 180 min.

In total, there were 21 in-depth interviews. Nineteen were tape-recorded and subsequently analyzed. The research visit to Nigeria formed an important basis for the data collection. During this time, 16 face-to-face interviews were conducted. From July to October 2013 the author conducted a second round of interviews via Skype with NGOs cooperating with Shell in the implementation of the company’s approach to CSR (GMoU) (Initiative for Community Development, NIDPRODEV, and the Environmental Health and Safety Network), a senior expert of the Africa Center for Corporate Responsibility and a senior specialist in the field of anti-corruption of Global Witness UK.

Respondents were mainly high profile individuals, including present and former directors of NGOs, renowned academics, corporate governance consultants, community relations officer, as well as senior officials of RDS and SPDC. Notably these are key stakeholders in the Nigerian extractive industry. Certain degrees of overall representation were achieved with participants drawn from different backgrounds and functions, so as to harness a mix of different perspectives (see Table 1 for an overview). Given their positions, this research benefited from their insider views on the research topic. While interviews with Shell’s senior officials and CSR experts guided the investigation, the interviewees’ statements were eventually not included in this manuscript due to reasons of confidentiality. All participants were promised confidentiality to encourage uninhibited responses. Therefore, only the name of the organization is mentioned in the case study.

Table 1 Overview of interviews

The author has well-established contacts to civil society members in Nigeria and is in close contact with key SPDC and RDS employees in Abuja, Den Haag, and London. This helped to alleviate some of the challenges relating to access to data and respondents. The snow-balling technique, as well as third party informants such as academic and civil society colleagues also proved very helpful to gain access to these high-caliber respondent(s) until data saturation was reached.

Data Analysis

In a first step, an overall chronology of events dating from Shell’s formalization of its CSR program in the mid 1990s was developed. This chronology visualized “who did what, when” and thus gave a first overall picture of the stakeholders involved and the evolution of Shell’s CSR agenda (particularly the drivers and trigger events). In a second step, the author used the computer program ATLAS to explore the data for evidence related to the effectiveness of Shell’s CSR program, the political role of the company, and associated challenges. Here, categories that emerged in extant theory served as a deductive framework. Scherer and Palazzo’s (2011) literature review depicts five dimensions, a political approach to CSR has to deal with: (1) from national to global governance; (2) from hard law to soft law; (3) from liability to social connectedness; (4) from cognitive and pragmatic legitimacy to moral legitimacy; and (5) from liberal democracy to deliberative democracy (Scherer and Palazzo 2011). The authors’ politicized concept of CSR is based on moral legitimacy, which is “socially and argumentatively constructed by means of considering reasons to justify certain actions, practices, or institutions and is thus present in discourses between the corporation and its relevant publics” (Scherer and Palazzo 2011, p. 916). As a new way for companies of keeping their licenses to operate they have to take into account criteria for input and output legitimacy (Mena and Palazzo 2012, p. 539). For the scope of responsibility, political CSR takes a prospective perspective based on the actor’s structural connectedness to an issue and depending on the actor’s power, interest, privilege, and ability for collective action (Young 2006).

Using a method similar to that of other qualitative studies (e.g., Jarzabkowski 2008), the author then checked the reliability of the coding framework using a coanalyst. A doctoral student was trained in the coding framework (Miles and Huberman 1994) and rechecked those categorizations. Interrater agreement was 98 %, and we resolved remaining discrepancies via discussion and reaching consensus. The coding was then applied to the data again to revise, refine, and collapse categories to the point that maximizes mutual exclusivity.

Appendix 4: Teaching Guidance

Suggested Questions and Brief Answers

• 1. Do a stakeholder analysis. The key question for students is to think about how Shell should react to increasing allegations over the company’s practices. The company is operating in a very complex environment with many actors having a stake in the status quo. Which stakeholders should Shell address to keep its license to operate and why? In which way are the different stakeholders related to the problems in the Niger Delta? What is their stake?

I recommend using the stakeholder analysis tool to acquire in a first step a reasonable overview of the interests and responsibilities of all parties involved. In a second step students could be asked to assess each stakeholder’s importance in terms of legitimacy, power, and urgency. While Shell identifies as its key business stakeholders employees, clients/customers, business partners, and society at large, I recommend including more actors that have a mediated connection to the social and environmental issues in the Niger Delta. Thinking about which actors affect or are affected by the company’s operations helps students to grasp the complexity of making decisions when a company is faced with a dilemma between its economic and political role. Table 2 below provides some suggestions for guiding the discussion:

Table 2 Overview of Shell’s stakeholders and their interests

• 2. Shell’s politicized role: going beyond pure economic responsibilities? What role does Shell play? Does Shell have even assumed a state-like role in the Nigeria?

These questions take note of the growing literature on the political role of companies which refers to activities aimed at filling in for government absence (Valente and Crane 2010, p. 55) and is closely related to concepts such as “political CSR” (Palazzo and Scherer 2006; Scherer and Palazzo 2007, 2008, 2011) or “extended corporate citizenship” (Matten and Crane 2005). Here, MNCs are considered quasi-public actors. These scholars acknowledge that many MNCs have started to engage in activities that have traditionally been regarded as actual government activities (Margolis and Walsh 2003; Matten and Crane 2005; Scherer and Palazzo 2008) at both, the global level where neither nation-states nor international institutions alone are able to regulate the global economy or provide global public goods (Kaul et al. 2003) or in countries where the state system fails (Matten and Crane 2005; Valente and Crane 2009, 2010). This engagement in public responsibilities has led to a blurring of the private and public sphere. The enlarged conceptualization of CSR stands in contrast with mainstream theorizing which is mainly confined to the economic theory of the firm (Garriga and Melé 2004; Margolis and Walsh 2003; Scherer and Palazzo 2007) and broadly agrees on business occasionally “doing” political activities. Thus, the political nature of the firm—in the sense of actually “being” a political actor in itself—is highly contested. This economic view of CSR is based on four premises:

• (1) The nation-state has the containment power to regulate business activities, to provide public goods, and to compensate or avoid externalities (Sundaram and Inkpen 2004, pp. 354–355);

• (2) Corporations have to focus on profit maximization and managers on their fiduciary responsibilities to shareholders (Friedman 1970; Sundaram and Inkpen 2004);

• (3) Societal responsibilities can only be assumed if they are instrumental for the long-term value of the firm (Friedman 1970; Jensen 2002; McWilliams and Siegel 2001; Sundaram and Inkpen 2004); and

• (4) A strict separation of private and public domains (Friedman 1962; Jensen 2002).

The aim of this task is to understand how the company is positioned not only as an economic but also as a political actor. Also, students should become aware that the driving force of political CSR is the global expansion of corporations and the consequent erosion of (primarily national) institutions and processes of governance. Eventually, students will be able to appreciate that Shell’s engagement in global governance, self-regulation policies, and public responsibilities in Nigeria has offset the strict division of labor between private business and nation state governance on which the dominant economic paradigm and many conceptions of CSR are built. For the Shell, this implies a conflict between the company’s economic objectives and responsibilities (i.e., making profit for its shareholders) and its political role and responsibilities (i.e., providing social services to poor host communities). This exercise can lead to an interesting discussion, in which many students involved in the management of organizations might disagree with the politicized role of corporations.

• 3. What is the scope of Shell’s responsibility for the social and environmental conditions in the Niger Delta?

The teaching case focuses on the moment when Shell’s scope of responsibility is put in the spotlight for the company’s legal liabilities for oil pollution. A dominating form of attributing responsibility derives from the legal context in which fault for harm is established based on causality, retrospective argumentation, absolution of others, and static background conditions. Yet today, attributing direct guilt for globally operating MNCs is more difficult. Particularly in the globalized political economy of oil, problems cannot be reduced to a specific actor(s), cause(s), or geographical location(s). Thus, the scope of responsibilities is not clear-cut. Also, Shell has assumed public responsibilities that go beyond traditional CSR programs and faces unforeseen challenges to navigate a new set of political responsibilities. Thus, the questions are: What is the scope of Shell’s responsibilities in such a complex operating environment? Does Shell have a political responsibility? If so, what does this entail? Is it making things too easy when blaming and shaming Shell alone in a context of a local and global public responsibility void and the global interconnectedness of the oil industry?

Young (2006) took note of these challenges and presented an alternative understanding of responsibility—a political responsibility—based on structural interconnectedness. “Political” connotes according to Young to activities broader than a government’s, namely those “in which people organize collectively to regulate or transform some aspect of their shared social conditions, along with the communicative activities in which they try to persuade one another to join such collective action or decide what direction they wish to take it” (Young 2004, p. 377). It also relates to responsibilities beyond the corporations direct social and environmental externalities (Young 2006). Thus, “all agents who contribute by their actions to the structural processes that produce injustice have responsibilities to work and remedy these injustices” (Young 2006, pp. 102–103). To analyze what this enlarged or political responsibility might entail, students could discuss the following based on Young’s (2006, p. 116) social connectedness model:

Not Isolating Perpetrators

The case study makes clear that social and environmental justice in the Niger Delta results from the participation of millions of people. Shell is operating in an extremely complex environment characterized by organized crime and violence around the issue of oil bunkering and a public responsibility deficit. Thus, isolating Shell for its environmental damage does not absolve those sabotaging pipelines, or an irresponsive government not establishing the rule of law or delivering socio-economic services among others.

Judging Background Conditions

Accepted norms and institutional practices that constitute the background conditions for social and environmental injustice in the Niger Delta are morally not acceptable. Rather than considering the process that brought the harm as a break-away from normal and that punishment or compensation will restore normality, students should question the background conditions that set normality. For example, Shell has an economic responsibility to its shareholders to be a profitable company and stay within the rules of the game. Thus, the managers devote more attention to keeping operational costs low and increase shareholder value than to minimizing the negative externalities of the company’s core operations (oil spills due to poor maintenance of the pipelines, not paying compensation for oils spills caused by sabotage as required by Nigerian law). Shell is also expected to provide employment to local host communities and protect its pipelines from sabotage. Yet, the company’s spending on security to government forces and community groups is alleged to fuel human rights abuses.

Forward-Looking

Shell’s liability for oil pollution was established in two cases (UK and The Hague court ruling in 2011 and 2012, respectively). While retrospective condemnation is important to prevent impunity, forward-looking action must be undertaken to stop ongoing harm. Here students can identify weak points in the institutional system that allow or encourage harm such as corruption. Even if Shell is punished or would even be forced to pull out, but the system of incentives and organizational priorities is not reformed, then it is likely that the oil company that replaces Shell simply adopts the same (mal)practices.

Shared Responsibility

Shell’s operations extend beyond nation-state boundaries and include globally dispersed persons as the stakeholder analysis revealed. All those actors have a mediated connection to the structural injustices in the Niger Delta and are thus responsible in a partial way. For example, consumers demanding cheap energy access reinforce the status quo as the company is under pressure to reduce operational costs. Also, governance structures imply a shared responsibility. While from a legal perspective Shell Headquarters could not be held liable for the failures of SPDC (they are considered legally separate entities), SPDC is closely connected to its headquarters in The Hague within the overall corporate governance structure. For example, the NGO Friends of the Earth Netherlands (Milieudefensie) submitted in May 2013 an appeal to The Hague court, as it is clear for them that Shell’s headquarter shares responsibility for the massive environmental damage in Nigeria. Also, the Nigerian government holds a controlling stake and power over SPDC’s operations being its major shareholder (the government-owned NNPC holds 55 % of SPDC).

Collective Action

Since many actors contribute by their actions in particular institutional contexts to the processes that produce unjust outcomes, these structural processes can be altered only if many actors in diverse social positions work together to intervene in these processes. Students can appreciate that Shell has already engaged in partnerships at different levels—in local CSR initiatives such as the GMoU and in global governance initiatives. In 1998, Shell shifted from a unilateral to a partnering approach to provide socio-economic services to host communities in a more effective way. Yet, the case study reveals that collective action needs to be improved substantially.

• 4. Does Shell have a higher degree responsibility than other actors due to the company’s privileged position, power, interest, and collective ability? Should Shell turn into a human welfare organization or adopt a quasi-governmental role? Or should the company create only value for its shareholders?

Students should discuss the degree of Shell’s responsibility using Young’s (2006) parameters for reasoning: power, interest, privilege, and collective ability. Given Shell’s position within the structural processes, the scope of Shell’s responsibilities can range from a strong (direct) responsibility (e.g., the case of oil spills) to a shared political responsibility based on structural connectedness. The latter implicates a turn from the economic, utility-driven, and output-oriented view on CSR to a political, communication-driven, and input oriented concept of organizational responsibility. Thus, Shell could even be held responsible for things they themselves have not done. Since the company faced already in the 1990s worldwide condemnation for shirking its (political) responsibilities to speak out against the execution of the “Ogoni Nine,” Shell should re-evaluate its current scope of responsibilities with special care. Yet, students should not expect corporations to turn into human welfare organizations or replace a government agency. They should do what they are best at: providing life-conducive goods and services and creating value for a multiplicity of stakeholders. Based on the stakeholder analysis, students can also infer responsibilities of other actors, which are socially connected to the structural injustices occurring in the Niger Delta.

• 5. What are the conditions for corporate legitimacy? The key question of the case is how should Shell adapt its CSR agenda to these increasing demands to take on public responsibilities and allegations of corporate malpractice.

Students will probably propose two opposing options: (1) leave the country or go offshore or (2) to continue business as usual given the company’s much-praised CSR agenda. Yet, from a financial point of view both options are not viable since Nigeria is a cornerstone of Shell’s business and doing nothing would affect the company’s reputation and by extension its profits. Also, from an ethical point of view, Shell has certain (political) responsibilities to stay and proactively engage in CSR, which can be discussed depending on the ethical theories and concepts covered in the course.

While Shell has already engaged in activities that are regarded as traditional government responsibilities to provide public services to poor host communities, the company is facing continuous allegations of malpractice. This growing positive and negative impact challenges the company’s legitimacy and consequently its license to operate for two reasons. First, the company (involuntarily) assumes a political role with associated public responsibilities that go beyond traditional philanthropy or CSR programs. Second, the company has no democratic mandate for its engagement, and there is no regulatory influence over powerful corporations such as Shell at the local and the global level. The question is: what should Shell do, when, and how to keep its license to operate? How could Shell employ sustainability-related activities and practices to meet its public legitimacy requirements?

Depending on the theories discussed in the course, students can evaluate Shell’s options using Mena and Palazzo’s (2012) conceptualization of input and output legitimacy as a basis for a legitimate transfer of regulatory power from traditional democratic nation-state processes to private regulatory schemes. Input legitimacy is determined by (1) stakeholder inclusion; (2) procedural fairness; (3) consensual orientation; and (4) transparency (Mena and Palazzo 2012, p. 538). Output legitimacy refers to the capacity of regulatory regimes to effectively take a regulatory role by ensuring (1) coverage; (2) efficacy; and (3) rule enforcement and monitoring (Mena and Palazzo 2012, p. 539). The case study makes clear that Shell’s current approach to CSR in Nigeria (GMoU) suffers from both input and output legitimacy. In the course of the discussion, students should develop a concern about the precarious legitimacy of globally active corporations in general and in developing countries with a public responsibility deficit in particular. Also, students can go a step further and discuss the basis of legitimacy of companies belonging to the so-called controversial industry sector. Students should ask themselves if it is possible for an organization to be sustainable when its core operations inherently entail persistent environmental and social issues? How can these organizations employ their CSR-related practices and policies better to meet their public legitimacy requirements?

When addressing these questions students should realize that there remains considerable controversy as to the answers. Business can provide an important contribution to public sector resource deficits and inefficiencies. Yet, companies can face a whole host of problems if their strategies backfire and unsustainable outcomes can be (are) a reality where sustainability concepts are co-opted and formalized in a CSR agenda, but not implemented in praxis.

Teaching the Case

Courses

The interdisciplinary character, innovative stance, and the global context of the case is especially interesting for students studying subjects such as the global context of management, the role of business in society, business ethics, business challenges in complex environments such as developing countries. It can be used in undergraduate classes, though due to its complexity, it is especially recommended for graduate, Master’s, and MBA students.

Contribution of the Case

The case is a vehicle for discussion and insight on the crucial role of learning and adaption over time for two reasons. In the first place, Shell’s experiences demonstrate that many companies still hold an apolitical self-perception, but engage at the same time in activities that have been regarded as actual government activities. Yet, this strategic adoption of public responsibilities to maintain their social license to operate implies unforeseen challenges with regard to the company’s legitimacy and the scope of responsibility. In a complex operating environment such as Nigeria it requires continuous efforts from part of the company to identify key stakeholder’s interests and to go beyond current one-size-fits-all best practices. Even though Shell is considered a forerunner in CSR, the case points to problems of sustainability with regard to the application of “double standards” and the sometimes bad consequences of much-praised practices. Thus this provides input for students that allow them to think through the scope of feasible and sustainable action if they happen to find themselves confronted with such practices. In this sense, this case thus also challenges in a way the “bright side” bias of the far more numerous “best-practice” cases in the area of CSR and sustainability.

Case Objectives

• Analyze and understand the economic and political role of MNCs like Shell in a context of a public responsibility void at the local and global level.

• Become aware of the challenges for the scope of corporate responsibilities and the basis for corporate legitimacy that a politicized role entails.

• Familiarize students with Young’s social connectedness model.

• Find out and reason on the scope of corporate responsibilities and legitimacy beyond a narrow liability model.

Teaching Plan/Timing

Depending on how comprehensively the instructor wishes to discuss the case, and how extensive and lengthy is the discussion or role play, this case can run from a single 90-min session to two such sessions. To discuss the main questions, the instructor can divide the discussion into two groups so that one group can focus on one dimension—corporate responsibility and legitimacy. As an alternative the instructor can set up an interchange between different case actors in form of a role play to foster greater empathy with the case protagonists and increase class attentiveness. Depending on the class size, roles can be assigned to individual or groups of students during class or prior to the session. We recommend splitting the class into different roles such as the company Shell, civil society, the Nigerian government, etc. discussing all dimensions with regard to their respective role. In a later exercise these different perspectives can be contrasted with each other. Apart from the information in the case study, the instructor should provide stimulating inputs and questions (see below) for each group discussion and students could search for updated facts and figures in real time.