Royal Dutch Shell: Company’s Precedent Court Case/Judgment (2013)

Controversy

Royal Dutch Shell Company logo

1958 - Shell starts drilling for oil in Nigeria

1993 - Shell ceases drilling in Niger Delta region
1995 - Execution of MOSOP leaders resulting in local mistrust of Shell
2008 - Two of the largest and destructive oil spills in the history of the country
2013 - Precedent court judgment passed holding Shell accountable for damages
2015 - Monetary compensations agreed upon and partially paid

Due to compromised pipelines, the 2008 oil spills in the Nigeria Delta caused several hundred-thousand barrels of oil to spill triggering the worst environmental damages the country has ever seen (Shell). The spills contaminated in enough swamps and water channels to equal the size of Portugal and resulted in the largest loss of mangrove habitat (Gerken). It affected the lands and livelihoods of over 45,000 inhabitants and 35 villages (Gerken). After accepting responsibility for the spills, Royal Dutch Shell then disputed the amount that was spilled partially blaming other parties and how much compensation should be paid. In 2013, during a precedent court cases, Shell was found guilty of neglect becoming the first company held responsible in its own country for abuses committed somewhere else (Hennchen 2). During the legal process, it became evident that Shell knew since 2002 that most of the pipelines were old and hazardous needing replacement (Oil Spillage). The court ordered the company to pay compensations, totaling $84 million, and to clean up the effects of the spill. This case is considered to have international significance because of the controversy over the scope of responsibilities of multinational corporations operating in a controversial human rights setting (Hennchen 2). Lawyer Martyn Day who represented the Bodo community in the lawsuit said it was “deeply disappointing that Shell took six years to take this case seriously and to recognize the true extent of the damage these spills caused to the environment and to those who rely on it for their livelihood” (Shell).

Stakeholders
This case has a lot of different stakeholders because it not only involves the local people and communities but also encompasses stakeholders on a global scale. First, there is Shell and its’ subsidiary, SPDC (Shell Petroleum Development Company of Nigeria). They are interested in keeping any partners happy, creating economic value by realizing ROI (return on investments) for their shareholders, and company reputation (Hennchen 19). Shell’s home government, The Hague, is interested with human rights justice and holding companies accountable for violations committed in other countries (Hennchen 19). The host communities in Nigeria, such as Bodo in the Niger Delta, would have a claim as stakeholders because this case deals with their livelihoods and environmental justice. Employees have an interest in this case because it can affect their job security if the company is not performing well along with the fact that they may be concerned with working for a company with questionable human rights standards. Shell’s competitors would be attracted to this case because it could mean more or less business for themselves depending on the results. Finally, consumers would be considered stakeholders due to their demand for cheap energy but also in regards to their consumer power. How might they judge this situation? What are some of the implications those judgments can have on the company?

Individualism

The Nigeria Delta oil spill, a look at the amount of ail built up on the sand

Milton Friedman claims that in a free economy there is only one goal of business which is “to use its resources and engage in activities designed to increase its profits so long as it” does so within the law (DesJardins 54). He reasons that to do anything otherwise would be “essentially stealing from the owner or owners of the company” (Salazar 18). At first glance it seems that the Royal Dutch Shell and its’ subsidiary company, SPDC, were indeed practicing individualism during this court case. They were attempting to give the impression that the damages from the spill were not as devastating as the independent experts claim so as to minimize compensations in order to prevent that cost from cutting into profits. With the company claiming that they were not at fault but that the spills were due to sabotage, they were also attempting to lower interfering costs to their profit by trying to put the blame, and therefore the financial responsibility of clean up, to another party. However, it seems that by not taking responsibility and immediately cleaning up the spill Shell has acquired even more costs that are cutting into their profits. Comparing the initial cost of clean up to the greater costs of the litigation process, the company would truly be adhering to individualism if they proceeded to take care of the situation when it first arose. Instead they wasted company funds, robbing shareholders of their wealth, waiting until a court deem Shell responsible; ordering them to clean up environmental damages along with paying additional money to compensate the local people.

Utilitarianism

88,200 gallons of oil spilt in the Gulf of Mexico,
a man holds a pool of the black oil

“Utilitarianism is an ethical tradition that directs us to make decisions based on the overall consequences of our acts” (DesJardins 24). One usually hears the sayings of “maximizing the overall good” or the “stakeholder approach”. A truly stakeholder-responsive approach demands the acceptance of multiple stakeholders and requires the company to develop a tolerance for ambiguity together with the sensitivities and capabilities needed to inspire trust with diverse and competing interests (Hummels 304). Royal Dutch Shell was not following utilitarianism in regards to this case due to the fact that they were more concerned with the shareholders and making profit instead of the many different stakeholders that were involved. By waiting several years before addressing the situation it seems the company was ignoring “inconvenient stakeholders in the hope they will eventually lose their influence” in the litigation proceedings (Hummels 303). Shell, “failed to establish genuine dialogue with the community” and therefore cannot “facilitate genuine engagement and development” (Hummels 309). An accurately utilitarian attitude would be to “clean up all oil spills – whether or not due to sabotage” to maximize the overall good to the majority of stakeholders (Hummels 307). Keep in mind that “oil exploitation without sufficient regard for environment and local customs may well be beneficial for the economic growth of Nigeria as a whole but it has done little or nothing to improve the quality of life for the local communities who live” in the affected areas (Hummels 313).

Kantianism
Kantianism ethical rule of thumb is to “always act in ways that respect and honor individuals and their choices. Don’t lie, cheat, manipulate, or harm others to get your way. This ethical theory is concerned with the moral permissibility of the action (rational) and the moral worth in the motivation of the action (helping others because it is the right thing to do) (Salazar 20). By trying to manipulate the information about the effect of the spills and claiming 4,100 barrels were lost instead of the actual estimate of 500,000 barrels, Royal Dutch Shell is clearly not following the Kantianism theory of ethics. The company would rather cloud the actual issue with monetary compensation and by manipulating the facts preventing the individuals from making their own rational decisions. The company continued to show an anti-Kantianism point of view by not releasing the reports detailing the lack of structural integrity of the pipelines. By lying to the people of the Niger Delta, Shell and SPDC caused them excessive harm. Additionally, the court ordered the cleanup and compensations; since Shell did not volunteer these actions themselves it represents no “moral worth in the motivation of the action”. The company did not help the people of Nigeria because it was the right thing to do; they did it because they were court ordered to.

Shell's oil spill off Nigeria's coast

Virtue Theory

Virtue theory values “character traits that promote wellness or flourishing of individuals within a society” (Salazar 22). It encourages people to “act so as to embody a variety of virtuous character traits and so as to avoid vicious character traits” (Salazar 22). “Virtue ethics reminds us to look to the actual practices we find in the business world and ask what types of people are being created by these practices” (DesJardins 43). In regards to this case, Royal Dutch Shell nor its’ subsidiary SPDC showed any characteristics of the virtue theory of ethics. Nothing in their actions promoted flourishing of the individuals. If some of the virtues such as wisdom, insight, compassion, or teamwork were displayed then this entire litigation process would most likely have been avoided. Shell would have seen the wisdom and have the insight to take care of the situation promptly when the information about the compromised pipelines became apparent. Compassion would have compelled the company to compensate the local communities without any dispute in respects with the actual effect of the spills or who was considered responsible. Teamwork between the company, government, and locals would have made this entire situation more manageable.

Justified Ethics Evaluation

To view the situation from the point of view of Royal Dutch Shell, it was considerate that they claimed responsibility for the spills. That consideration is, in fact, null because the company fought tooth and nail trying to dispute the amount of damages and partially blaming the spill on other parties. Since Shell announced that they were claiming responsibility there should not have been a court case to begin with. Claiming the responsibility indicates accepting all the tasks and duties of clean up and compensation. The spill and therefore the environmental damages came from the company’s pipeline and should be their obligation to clean up no matter how much oil was spilled or who might have been at fault. Since the government was a majority holder of SPDC, they should be held partially liable as well. Perhaps both Shell and the Nigerian government could have followed a recommendation from the United Nations of setting up a fund to begin a cleanup and a restoration project (Gerken). At first, the compensation seems unreasonable because the individuals would only get $3,300 each. Comparing that amount to the average annual income of $450, it does cover their income loss over the last 7 years but does absolutely nothing to compensate for emotional distress. Overall, this entire situation could have been avoided with the right security measures and an immediate response to the spill instead of waiting to see if outside parties took notice. In order to resolve this issue in the most positive light possible, Shell needs to be seen complying with court mandates by immediately paying the individuals and communities involved. After restoring the pipelines, the cleanup process needs to be started with progress reports being published every month showing significant improvement of conditions. Most importantly, Shell needs to commit to making sure this situation will not happen again by adjusting their policies and procedures in regards to immediate response to future oil spills.

Conclusion

Shell oil barrels

As this case reveals, Shell and all “businesses do not operate in a vacuum: they operate within a social context to which they can ill-afford to be insensitive” (Aaron). The people of the Niger Delta would like to believe that Royal Dutch Shell learned this lesson in regards to their homeland. However, to date Shell is still being criticized over its inadequate clean-up, “a practice which did not meet local regulatory requirements, SPDC’s own procedures, or international best practices” (Hennchen 2). Amnesty International released a report in November of 2015 rejecting claims made by Shell that it has cleaned up the heavily polluted areas in the Niger Delta region stating the company is “shirking responsibility for the cleanup mandated” by the courts and for “essentially ignoring the entire problem” (Oil’s)(Abutu). Justice will only be fully achieved when Shell properly cleans up the pollution so the people affected can begin to rebuild their livelihoods (Oil Spillage).

References

Aaron, Kiikpoyek. “New Corporate Social Responsibility Models for Oil Companies in Nigeria’s Delta Region: What Challenges For Sustainability?.” Progress In Development Studies 12.4 (2012): 259-273. Business Source Premier. Web. 16 Oct. 2015.

Abutu, Alex. “Amnesty rebuffs shell’s claim on Niger Delta clean up.” Daily Trust, The (Nigeria) 3 Nov. 2015, News. NewsBank. Web. 18 Nov. 2015

DesJardins, Joseph R. An Introduction to Business Ethics. 5th ed. New York: McGraw-Hill Higher Education, 2009. Print.

Gerken, James. "Shell Niger Delta Oil Spill: Company To Negotiate Compensation And Cleanup With Nigerians." The Huffington Post. TheHuffingtonPost.com, 9 Sept. 2013. Web. 10 Oct. 2015.

Hennchen, Esther.  “Royal Dutch Shell in Nigeria: Where Do Responsibilities End?”  Journal of Business Ethics 129.1 (2015): 1-25.  Business Source Premier.  Web.  12 Oct. 2015.

Hummels, Harry.  “Organizing Ethics: A Stakeholder Debate.”  Journal of Business Ethics 17.13(1998): 1403-1419.  Business Source Premier.  Web.  16 Oct. 2015.

"Oil’s Devastating Legacy in Nigeria." The New York Times. The New York Times, 14 Aug. 2014. Web. 16 Nov. 2015.

“Oil Spillage: Shell to pay Bodo community Pound 55m compensation.” PM News (Nigeria) 7 Jan 2015, News. NewsBank. Web. 18 Nov. 2015.

“Royal Dutch Shell plc.”  International Directory of Company Histories.  Ed. Jay P. Pederson.  Vol. 108.  Detroit: St. James Press, 2010.  Business Insights: Essentials.  Web. 10 Oct. 2015

Salazar, Heather. The Business Ethics Case Manual: The Authoritative Step-by-Step Guide to Understanding and Improving the Ethics of Any Business. Print

"Shell Agrees $84m Deal over Niger Delta Oil Spill - BBC News." BBC News. BBC.com, 7 Jan. 2015. Web. 12 Oct. 2015.