Being a Leader

A STUDY OF SHELL OIL AND ITS STAKEHOLDERS IN NIGERIA PART 1 (Week 6)

A Review of Basic Issues Regarding the Background and Interests of Stakeholders of Shell Oil Company in Nigeria

Alfred E. Elayelagha 16092523

Chapter 1 Introduction The Issue of oil in Nigeria is as old as the Nigerian State, if not much older. Since the discovery of oil in commercial quantities by the then Royal Dutch Company in 1958, in present day Bayelsa State, the Nigeria geopolitic entity has been transformed into what Daniel Yergin described as the petro-State. Daniel Yergin in his epic book, The Quest: Energy, Security and the Remaking of the Modern World characterized Petro State, as one that exports oil and natural gas. The calculus of gradual descent of Nigeria into the status of a petro-state is much the interplay of the socio-economic and political actors of both pre and post-independence Nigeria. Oil became commercially viable in the 1970s in Nigeria, and the ground zero of oil production is the swampy Niger River delta and its tributaries in southern Nigeria, popularly called the SouthSouth region, in Nigerias fissiparous, chaotic and dynamic alliance geopolitics of ethnicity. In the words of Michael Watts, the Niger Delta is a region of considerable; perhaps one should say bewildering, ethno-linguistic complexity. The region consists of well over a 100 ethnic nationalities and sub-nationalities, each engaged in a fight for a share of the regions oil wealth within and amongst them on one hand; against the dominant tribes of the eastern, western and northern regions on the other hand. Michael Watts observed in Resource Curse? Govermentality, Oil and Power in the Niger Delta, Nigeria, that, the emergence of a South-South Alliance linking the hitherto excluded oil producing states (Akwa Ibom, Bayelsa, Cross River, Delta, Ondo and Rivers) of Nigerias 36 states in a bulwark against ethnic majorities (the Hausa, the Yoruba and the Ibo)at the heart of Alliance politics is the dispute between the federal state and the littoral states over offshore oil revenues. Since the transmutation of Nigeria into a petro state post-independence; Oil and Gas has become the main theatre of conflicts and engagements in Nigerian politics. Into this conundrum of ownership and control of the oil resources come the multinational oil companies: the owners of the technology that extracts and exploits the oil and gas. These transnational oil giants include: Shell Oil (Shell Petroleum Development Company-SPDC), Chevron Nigeria Limited (Chevron/Texaco), Mobil Producing Nigeria Unlimited (MPNU), Nigeria Agip Oil Company (NAOC) and Elf Petroleum Nigeria Limited. These multinationals and a handful of marginal domestic companies compose the pool of Nigerias oil and gas dominated economy.

The Shell Petroleum Development Company of Nigeria Limited (SPDC) operates Nigerias largest oil and gas venture on behalf of the government owned Nigerian National Petroleum Corporation (NNPC), and other joint venture partners.

Chapter 2 A Brief Organizational and Historical Background 2.1 Introduction This chapter aims at giving a historical overview of Shell in terms of its operations (local and global), its impact on the world stage, corporate ethics and leadership challenges it faces by virtue of its operating environment in Nigeria with regards to becoming a socially responsible partner in its engagement with host communities, stakeholders and the government. 2.2 Origins Shell Petroleum Development Company (SPDC) started as Shell DArcy and later metamorphosed into Shell BP. Its promoters were the duo of Royal Dutch/Shell Group of Companies and the then British Petroleum Group (BP) now BP on an equal basis. The company has global reach both in its investment and operations. Shell is a global oil and gas multinational organization with operations in Russia, Africa, Europe, Latin America and the Americas. The extent of Shells global impact is attested to by the fact the company is ranked at number 7 in the worlds biggest oil companies by Forbes Magazine. With the increasing pace of globalization, the role of the oil multinationals is on the rise. In the face of the increasing power of the oil giants in the global economy, coupled with heightened and acute poverty especially in the third world, countries ie resource rich political entities with weak institutional frameworks are facing agitations from other stakeholders, particularly host communities for a fairer and equitable share of the oil and gas resources. Shell in Nigeria has been active since 1937, and to this day, the company remains the dominant player in Nigerias oil and gas industry. In 1958, the company struck gold in Nigeria, by discovering oil in commercial quantity in Oloibiri Community, in Bayelsa state, a swampy sleepy community that has since been abandoned. The company is the operator of Nigerias largest oil and gas joint venture. The venture partners are the Nigerian National Petroleum Corporation (NNPC-55%), (SPDC-30%), (TEPGN-10%) and (NAOC-5%). To this day, Shell remains the only multinational corporation to set up gas distribution in Nigeria. Its operations in Nigeria far goes beyond the Niger Delta terrain, as it pipeline network (6,000); flow stations (72); oil producing fields (90), oil wells (1,000). The company also

operates Nigerias two major oil terminals at Bonny Island and Forcados, located in Rivers and Delta states respectively. 2.3 Shell Oil and Business Ethics Given the widespread reach of the companys operations in Nigerias Niger Delta region, the nature of the ecosystem and the social economic cum environmental impact of oil and gas operations, Shell faces a lot of challenges in terms of its stated mission of becoming an ethical and socially responsible corporate entity. According to Sue Newell, business ethics is concerned with exploring the moral principles by which can evaluate business organizations in relation to their impact on people and the environment. The impact of companies on peoples and environment is now of increased significance to the livelihood of citizens, when viewed against the background of transnational corporations. In terms of size, capitalization and influence, Shell Oil has played significant roles in Nigeria. However, the question of responsible ethical behavior becomes even more critical in the light of the fact that oil revenues account for well over 90% of Nigerian state budgets. The centrality and criticality of ethical conducts by oil transnationals like Shell Oil Nigeria becomes imperative when juxtaposed against the evidence that oil and gas has become the focus of political struggles in Nigeria. Shell Oil (SPDC) wealth and influence on the corridors of power is immense and considerable. The companys stated core values are honesty, integrity and respect for people. These core values form the basis of Shells general business principle. Beyond business principles, Shell Oil Nigeria ethical conduct as it relates to the Niger delta environment has not be generally satisfactory. Alleged neglect of the environment by Shell Oil Nigeria has become an issue of concern to a majority of stakeholders. One stakeholder succinctly captures the scenario; In the quest for development, activities in the oil industry have greatly impaired the ecosystem by undermining its viability. Oil exploration, refining and storage have carried with them a lot of environmental problems especially in the Niger Delta region. Furthermore, Oil spillage, for instance causes the destruction of aquatic life, eutrophication of water bodies, destruction of vegetation and other forms of ecological damage. Gas flaring, gas emissions and fumes is hazardous to human and animal health. Clearly, there is the need for Shell to energize and drive its core value/general business principles concept, with a view to reaching an understanding with other stakeholders, in ways and means that make making to them.

Further, the huge resources available to Shell Oil play a significant part in Nigerian politics. That money is the mothers breast milk of politics as stated by former American president, Ronald Reagan remains truer in the third world, where poverty and underdevelopment remains endemic and widespread. The consequences of private oil money fuelling political machines are better imagined than described. Unethical practices by multinational, as in the case of Enron Corporation, Parmalat etc are still fresh in our minds. Another case, involving oil multinational was the Halliburton scandal that rocked Nigeria politics some few years ago.

2.4 Shell Oil and Corporate Social Responsibility A socially compliant organization is one that has met its social obligations to its stakeholders. Shell Oil has demonstrated that the company is an evolving and responsible social citizen. The company has slowly but surely been impacting on the lives and economy of Nigerians in particular and its host communities in general. Shell oil is involved community developments projects across the entire Niger Delta region. It also involved in women and youth empowerment schemes. It is also involved in promoting and driving processes that support small scale businesses, agriculture, education and healthcare and capacity building. To this date, Shell Oil has contributed about $60 million to the Niger Delta Development Commission (NDDC), an agency created by a law of Nigerias national assembly to accelerate the infrastructural and socio-economic development of the long neglected Niger Delta region. Most of Shells initiatives are done in collaboration with faith and community based organizations, government agencies, companies, local and international NGOs and the United Nations Development Agency (UNDP). However, an area in which Shell has been found negligent is the area of environmental pollution and degradation, due oil spills and leakages and decaying infrastructure. A typical example is Ogoni land, in Rivers State. Conflicts and the radicalization of youths and other stakeholders in the Niger Delta between Shell/other oil companies in Nigeria is largely fuelled by pollution, long years of neglect and the the oppressive legal framework that governs oil exploration and production. These obnoxious and apartheid era decrees were promulgated by successive and oppressive military governments in collusion and collaboration with multinational oil interests, and the dominant tribes in Nigeria, to the detriment of the inhabitants of the oil bearing communities of the Niger Delta.

Some of these oppressive legislations include 1. 2. 3. 4. Oil Pipeline Act of 1965 The Petroleum Decree of 1969 The Off-Shore Revenue Decree of 1971 The Land Use Act of 1978, amongst others.

The continued agitation and struggle by inhabitants of the region for a greater share of the oil resources has led to calls for fiscal federalism in Nigeria, as against the present era of military era fiscal centralism. The continued struggle on by the oil bearing communities is a dark shadow on Shells social responsibility spectrum in Nigeria.

Chapter 3 Literature Review Introduction In this chapter, we shall be reviewing literature related to our subject matter. To this end, I shall be covering issues relating to leadership, sense making, globalization, and stakeholder theories. 3.1 Leadership Many theories of leadership have been proposed on what is leadership and the role it plays in social and organizational settings. Although the literature is wide ranging, this subsection will focus on sense-making, transactional leadership, transformational leadership, charismatic leadership, and theories on gender and leadership). Pondy (1978) observed that most definitions of leadership define it as a form of social influence but so are most things that involve more than one person (e.g. social facilitation effects, group discussion making). In the social context of humanity, leadership and followership cannot be embraced in a vacuum. Leadership as a form of social influence is hard to to distinguish from other influences in relationships between people and organizations. In a way, how do make sense of leadership continuum in a field of multiple players and interests will emerge in the form of social influence. The case in point involving Shell Nigeria and its stakeholders, spans leadership as a form of social influence in defining reality. This position is supported by Berger and Luckman: ..there will always be a social-structural base for competition between rival definitions of reality. However, analysis of sense making and leadership in the context of social actors has also attracted academics and scholars. Pondy (1978) and Weick (1993) have observed that sense making as an element of leadership is more inclusive in the social context of differing groups organized around common and different needs. Weick has identified sense making as making something sensible. For Weick the dynamic nature of the environment provides the basis for understanding and interpreting the integrative value of leadership. Kierkegaard posits that the integration of sense making by social actors is vindicated in the truism that: life is lived forward but understood backwards. The social and legal milieu of stakeholders also calls for a different focus of leadership. In a world of contending stakeholders, in an environment of weak institutional framework, aimed at enforcing contractual obligations and understanding, transactional leadership comes to the rescue. A transactional leadership model hinges performance and rewards on the provision of direct exchange. (Soss, Fording and Schram 2011). This is evidenced in signing of Global memorandum of understanding between parties in disputes aimed at ensuring performance by

either party to a contract. Available evidence in the Nigeria oil space suggests a high degree of transactional engagements aimed at resolutions of contentious issues between oil companies and stakeholders, particularly host communities that bear the ugly brunt of oil exploration. Different leadership styles as developed by (Bass, 1985; Avolio et al., 1999) also highlighted other dimensions of leadership. Transformational Leadership as opposed to transactional leadership calls upon the commitment of the followers beyond the standard demands on behalf of the group or organization. Transformational leadership incorporates the collective values of the organization and leads to empowerment and significantly contributes to the satisfaction of stakeholders. Goleman (1998) argues that different situations call for different leadership styles. The concept of the charismatic leadership is hinged on the personal charm of the leader or some arcane qualities he possesses. It is highly transitory and often leads to a personality cult. They emerge mostly in times of crisis. There is supporting evidence the claim that charismatic leaders emerge in times of turbulence and crisis (Weber 1947; Bass 1985; Bryman 1992). A classic example is the case of Ken Saro Wiwa, who emerged during the Ogoni versus Shell crisis in Nigeria in the early 1990s. 3.3 Sensemaking Making meaning and Sensemaking sounds synonymous. Weick (1995) says sense making is what it is, making something sensible. This could either in the retrospective sense or in the sense of looking ahead or the futurity. For Schultz (1967), the analysis of meaningful lived experience summarizes the concept. Sensemaking involves identity, plausibility and focus of the emerging reality in the ongoing social environment. Sensemaking has come to challenge the assumptions inherent in leadership. Leadership is now regarded as a situation of sense making in action.(Ann Pye, 2005). 3.3 Globalization Literature on globalization is numerous and varied. And given the rise of the information age, it is assuming many dimensions. For Claude Ake, a Marxist oriented scholar, globalization is the march of capital in search of profits anywhere in the world. For others, globalization is the breaking down of barriers to international trade and commerce. For capitalist theorists, globalization is seen as the opening of investment flows across international boundaries. Theodore Levitt (1983) viewed as the Globalization of Markets). With the rise of modern communications systems, and the emergent rise of a unipolar world, the phenomenon of globalization as a theory of development is seen as the driving force behind the integration of markets, trade, finance and communications. 3.4 Stakeholder Theory

Every organization or social setting, has players,-stakeholders-that influence or are influenced by the organization or setting. Stakeholder theory is both descriptive and managerial (Thomas Donaldson (1995). As a descriptive model, it describes what the corporation or social formation is. While as a managerial model it also recommends attitudes, structures and practices. Stakeholders in the sense of those (having a stake or potential stake) in an entity is opposed to the concept of shareholder theory. The support of the different stakeholders in the oil and gas industry is necessary to the success of the players. This position is supported by (Daunno, 1992; Gilliam et al 2002; Beineck, 2005)to achieve effectiveness, the satisfaction of the stakeholders and their support or opposition must be taken into account. However, opponents of the stakeholder theory, believes that, businesses exist only for the benefit of the owners (shareholders), and that managers are agents of the shareholders, need not incorporate the interests of non-shareholders. (Milton Friedman).

Chapter 4 Stakeholders at Shell Introduction The chapter identifies the key stakeholders as stated in the module objective. These are the CEO of Shell Nigeria, a local Shell staff member or Employee and a Shell Investor. 4.1 The CEO Shell Nigeria like any other organization has an organization structure that reflects its leadership style. Presently in Shell Nigeria is structured into Eastern and Western Operations, with a Board and Country Chair. The current Managing Director is a Nigeria, and he also doubles as Vice President Production Sub Sahara Africa of Shells operations. The CEOs interest is majorly ensuring increased value for shareholders, and directing and leading the company on the growth and expansion path in terms of increased crude oil production. He also manages the Shell business interface with other stakeholders both within and without the petroleum industry. Hundreds of oil spills has occurred over years in Shells area operation in Nigeria, and given the contentions surrounding stories and incidents of oil spills, the problem could be regarded as a wicked problem. As identified in the course materials wicked problems are problems without apparent linear solutions. Furthermore, as opposed to tame problems, i.e problems with traditional linear solutions, oil spills problems or challenges revolve on an evolving set of interlocking issues and constraints. They involve numerous stakeholders and therefore require a social process at resolving them. In the case of the CEO, his interpretation of the reality of the situation arising from an oil spill is from our experience, a case of sabotage/oil theft by natives and gangs. Efforts at compensation and environmental remediation more often than not will require pressure from the government and other international organizations. Compensations arising from oil spills often take years, due to data gathering and verification, official and Shell bureaucracy, corruption and sometimes domestic politics. 4.2 SHELL EMPLOYEE The average Shell employees major concern id job security and satisfaction, growth prospects on the job and economic well-being of his/her family on retirement. His / Her assessment of an oil spill situation may be at variance with other stakeholders, as the motivations that color behavior differs with each employee. 4.3 SHELL INVESTOR For the typical investor, maximizing return on investment is of prime interests. While an investor may be motivated by either short term or long term returns, the occasion of an

oil spill be viewed as one of occasions of negative publicity for the company. An investor with significant control may be able influence policy direction in relation to the issues identified.

Chapter 5 Conclusions and Recommendations We shall be drawing conclusions and recommendations on the topic under review. 5.1 Conclusions The study of Shell Nigeria and its stakeholders in the light of globalization, wicked problems and the dynamic nature of the forces impacting the environment in terms of the identified stakeholders: the CEO, LOCAL SHELL EMPLOYEE and SHELL INVESTOR in a period of oil spill has been an exercise at minimizing conflicts amongst stakeholders. Different stakeholders see the problems associated with oil spills from an individual self interest perspective, perhaps to the detriment of others. 5.2 Recommendations In the light of the above, we recommend the following: 1. A multilateral stakeholder approach to solving problems of oil spills 2. A social process of stakeholder interests articulation 3. Convergence of an environmentally/people friendly model to Shell business operations. 4. Empowerment of communities along the oil belt. 5. Constant negotiations and renegotiations of existing oil and investment laws.

References Business: The Ultimate Resource (2008, 2ed ed), A& C Black Publishers. Brooks, I. (2009) Organisational behaviour: individuals, groups and organisation. 4th ed. Harlow, UK: Pearson. Conklin, E. J. & Weil, W. (1997) Wicked problems: naming the pain in organizations. Available from http://www.leanconstruction.dk/media/17537/Wicked_Problems__Naming_the_Pain_in_Organi zations_.pdf Grint, K. (2000) Introduction. In: The arts of leadership, Oxford: Oxford University Press, pp.129. Available from: http://fds.oup.com/www.oup.co.uk/pdf/0-19-829445-X.pdf Jackson, B. & Parry, K. (2008) A very short, fairly interesting and reasonably cheap book about studying leadership. London: Sage Pye, A. (2005). Leadership and organizing: sensemaking in action, Leadership, 1 (1), pp.3149. Available from: http://lea.sagepub.com.ezproxy.liv.ac.uk/content/1/1/31.full.pdf+html Smircich, L. & Morgan, G. (1982) Leadership: the management of meaning, The Journal of Applied Behavioral Science, 18 (3), pp.257-273, Sage Journals [Online]. Available from http://jab.sagepub.com.ezproxy.liv.ac.uk/cgi/reprint/18/3/NP-b Shell at a glance (2012), available from: http://www.shell.com.ng/home/nga/aboutshell/at_a_glance University of Liverpool/Laureate Online Education (2010). Lecture notes from Being a Leader Module Seminar 4 [Online]. Available from: University of Liverpool/Laureate Online Education VLE (Accessed: 20 January 2011).