Corporate Ethics and Governance - Coursework Example

Corporate Ethics and Governance Part A 1 Introduction The structure and the extension of corporate activities within developing countries has beencriticized because of the active involvement of environment and the need for additional measures in order to protect the nature and the life of local communities. In this context, the role of corporate social responsibility (CSR) has been considered to be significant. In fact CSR is the main ‘vehicle’ for the promotion of environmental concerns regarding both the natural environment but also the populations of the areas where the corporate activities of a specific firm are ‘concentrated’. On the other hand, it could be stated that the size of the company is decisive regarding its behaviour towards the environment. More specifically, it has been proved that multinational enterprises tend to avoid the application of appropriate measures for the protection of environment while they often put the lives of locals in danger (severe pollution of air and water of the areas involved and so on). An indicative example of the consequences of activities of multinational firms in developing countries has been the case of Shell Dutch Group in Nigeria. The above group of firms is considered to be one of the most important internationally regarding the extraction of oil and other energy – related products (like gas and coal). The group has tried extensively in order to protect the natural environment of all areas where it operates; however the relevant schemes were proved not appropriately designed; as a result, severe damages in the environment of many areas (where the group operates) have been observed; Nigeria is a country that has suffered the most from the activities of Shell Dutch Group. 1.2 Brief description of the problem - claims of Friends of Earth In Nigeria, the corporate activity of Shell started around the decade of 1950’s. Indeed, in accordance with a relevant report published by Friends of Earth (11], ‘Since the late 1950’s, Shell has been operating in Nigeria, extracting more than US$30 billion of oil and contaminating the farmland and fisheries of the Ogoni. Many of the fish and wildlife in the area have vanished’. Today, despite the extensive measures taken (and the promises given) for the protection of environment and the lives of local people in Nigeria, no particular improvement can be observed in both the above sectors. In fact, a relevant report of Friends of Earth [1] showed that ‘polluting oil spills and fires have occurred for decades due to Shells rusting pipes seriously affecting local villages, biodiversity, and contributing towards climate change; there have been over 4,000 oil spills in the Niger Delta since 1960’ [1]. On the other hand, many promises have been given by the firm’s leaders that the corporate activities will be alternated in order to protect natural environment; however no particular sign of improvement can be observed; instead the situation is getting worse for the environment and the local communities of the area near Niger Delta (where more of the firm’s establishments are located). The reactions by many environmental organizations (including Friends of Earth the reports of which are used throughout this study) did not have the expected outcome. It seems that despite the extremely strong legal confrontation (hundreds of law suits have been filled against Shell’s activities in Nigeria) and the strong opposition of many organizations that deal with the protection of the environment, the activities of Shell in Nigeria are not going to be reduced. Moreover, the fact that the participation in this effort of the press in many countries around the world did not help towards the intervention of international community (in terms of internationally authorized bodies, like UN) in the particular issue, proves that the extension of the problem is severe and that only through the continuous opposition against the particular activities of Shell in Nigeria it is possible for the firm to reconsider its strategies in the particular country showing interest for the natural environment and the locals. 1.4 The response of the Company The pollution caused in Nigeria Delta by the corporate activities is an issue well known to Shell. In fact the company admits that ‘Spills of oil and refined products can harm the environment, contaminate soil and groundwater and put our employees and neighbouring communities at risk; some spills are the result of events that we can control, like corrosion and operational failures; others occur because of sabotage or extreme events - such as hurricanes - that are harder to control’ (Shell Dutch Group, corporate website [2]). In other words, the company does not accept accusations made against her by organizations worldwide (including Friends of Earth). It should be noticed that there is no specific response of Shell Dutch Group to the claims of Friends of Earth as described above (other similar claims are also included in many other reports published by the above organization through the years). However, the company chooses to refer to these claims ‘indirectly’ speaking for its activities, its corporate social responsibility and its initiatives regarding the particular issue. More specifically, it is noticed by the firm that ‘our Global Environmental Management Standards set out the measures for spills prevention as well as effective response should an incident occur; preventative actions include ensuring consistent compliance with our operating procedures, preventative inspection and maintenance of pipelines and storage tanks, and investment to maintain the physical integrity of our facilities’ (Shell Dutch Group, corporate website [2]). In accordance with the above explanations, the firm has taken all appropriate measures for the protection of natural environment globally; however there are events that cannot be predicted or stopped, like the sabotage (in fact about 241 oil spill incidents occurred during 2006, from which a significant percentage (approximately 69 per cent) was caused by sabotage, corporate website, [3]) which can be extensively observed in firm’s operational centres in Nigeria (at least in accordance with the firm’s claims, see corporate website, [2]). On the other hand, it is noticed that pollution from oil spills related to the firm’s activities has been reduced for the years 1997 to 2005 (see corporate website, [3]); as for the pollution caused by oil spills in Nigeria it is highlighted that the relevant events have been caused by accident while no accurate figures are given regarding the specific issue by the firm through the claim that the political instability in Nigeria prevents the close monitoring of corporate activities periodically. Towards this direction, it is noticed by the company that ‘attacks by armed militant groups on some of our major pipelines and facilities in our western operations also led to spills; as in previous years, some communities denied access to spill sites, restricting our ability to respond and clean up spills in good time’ (corporate website, [3]). In accordance with the above, pollution of water in Nigerian Delta caused by Shell’s corporate activities could be sufficiently explained taking into account the political and cultural characteristics of the specific area. More specifically, if the cases of sabotage are combined with the local’s opposition towards the firm’s activities in the area, it is made clear the Shell does not hold much of responsibility for the pollution caused in the specific area and the damages caused in the health of locals (at least these are the claims of the firm in accordance with its reports published regarding the pollution caused in Nigeria because of Shell’s corporate activities). As for the measures taken by the firm regarding the limitation of pollution in the particular area of Nigeria, these focus on the following initiatives: a) Environmental awareness & education campaigns; b) Delivery of Environmental Impact Assessment (EERs, Baselines, Impact Modeling studies); c) Application of Geographical Information System/Remote Sensing in operations; d) Sustained environmental monitoring of our operations and activities; e) Sustaining modern waste management efforts and initiatives  and so on’ (corporate website, [4]). However the above initiatives – that are currently applied – have been proved to be ineffective – if taking into account the accusations made by Friends of Earth and other organizations that promote the protection of environment globally. For this reason, it would be necessary for corporate strategies to be entirely revised in order to meet the needs of the natural environment and the local population in Nigeria. 1.5 Conclusion Through the issues presented above, it is made obvious that corporate activities of Shell in Nigeria have severe consequences on the country’s natural environment but also on the health of locals. On the other hand, despite the fact that a series of measures have been applied by the company in order to reduce pollution in the greater Niger Delta region (where most of the firm’s operational centres are sited), all these measures have been proved inadequate towards the above mentioned target. At a next level, the claims of organizations that support the protection of environment globally regarding the consequences of Shell’s corporate activities in Nigeria do not have the required response by the authorized international bodies. It seems that additional effort should be made by organizations and individuals within the international community in order for the appropriate framework to be applied regarding Shell’s activity in Nigeria. (words: 1513) Part B 2.1 Influence of ethical theories, stakeholder theory and corporate governance to the corporate activities In order to understand the policies applied by Shell throughout its activities, it is necessary to refer primarily to the general framework of corporate governance and its role on the application of specific ethical rules in all particular business initiatives. At a first level, Wooldridge et al. (2001, 17) supported that ‘the main challenge for companies in a global economy is to situate themselves in various centers of excellence and weave together different centers of excellence into a global production network’. Towards the above target, firms internationally have to administrate their activities in accordance with the rules and the principles set by the commercial market (in which they operate) always taking into consideration their aims as stated in their mission statement. The role of shareholders in the development of a particular corporate behaviour should be considered as crucial. In this context, Buck et al. (2005, 42) noticed that ‘corporate governance and governance institutions in general terms are concerned with the means by which a firms stakeholders control the decisions of senior managers; these stakeholders can include shareholders, executive directors, employees who are not executives, customers, creditors, suppliers (including banks as suppliers of credit), competitors, and the State’. In other words, corporate activities should have to be based on the interests of a wide number of persons – all of them related at a specific level with the corporation (under a different relation). It is within this environment that corporate governance should be developed. That’s why corporate governance should be expanded in all business activities and be characterized by flexibility because there is always the case of changes – either of primary or of secondary importance – that should take place within an organization. Under these terms, it is suggested by Pedersen (1999, 45) that ‘corporate governance - the mechanisms by which companies are controlled and directed - is a complex subject that consists of owner-manager relations, stakeholder relations, board structures and practices, management compensation, capital structure, company law, and other variables’. At a next level, the application of ethical rules during business operation should be evaluated using as a basis the need of specific corporate initiatives and their relation with the aims of the corporation (as described in its mission statement). Most commonly ethical rules applied on a particular organization are characterized as corporate social responsibility referring to the responsibility of the firm towards the social and the natural environment of the area where its operational activities are taking place. Because of the importance of corporate social responsibility for the evaluation of a role of a firm to the protection of natural environment (which most usually is affected by the corporate activities) a series of explanations have been given to this term (corporate social responsibility) trying to identify the main parts of corporate activity that are supportive for the protection of environment. We could refer primarily to a definition given by the European Parliament; in accordance with this definition the corporate social responsibility could be described as ‘the voluntary integration of environmental and social considerations into business operations, over and above legal requirements and contractual obligations’ (European Parliament, 2007). The above definition refers to the responsibilities of each organization not only towards the environment but also towards the society. In accordance with the study of Harrison et al. (2007, 78) ‘CSR is not a static concept—it is a moving, evolving target; there is no solid definition of CSR; however, it is not a replacement for the governmental role and responsibility in meeting challenges of sustainable development’. The extensive reference to the corporate social responsibility as a framework of major importance for corporations worldwide can be explained because of the importance of this framework for the protection of natural and social environment from corporate activities worldwide. In accordance with a report published by AME (2005) corporate social responsibility is ‘a companys obligation to be accountable to all of its stakeholders in all its activities, to try and achieve sustainable development: economically, socially and environmentally’ (AME, 2005). The above description explains the relation of corporate social responsibility with the stakeholder theory and the use of the latter in order to evaluate business activities both in the short and the long term. In this context, it is made clear that the application of stakeholder theory when designing and applying a particular CSR scheme is considered as necessary particularly when corporate activities are extended worldwide (that is in multinational enterprises); in this case stakeholder theory could help to improve the rules including in the firm’s CSR statement in order to meet the social and environmental demands of the areas in which a specific firm operates. In order to understand the interaction of stakeholder theory with CSR framework, we should describe briefly the main characteristics of this theory (at least in its common form). The characteristics of the particular theory are many and it is for this reason that a series of potential definitions have been formulated regarding the specific theory. Describing stakeholder theory Zsolnai (2006, 37) mentions that ‘business should be sustainable, pro-social, and future respecting contributing to the conservation and restoration of the natural world, to the development of human capabilities and to the enhancement of the freedom of future generations’. In accordance with a definition given by Freeman et al. (2004, 364) ‘stakeholder theory begins with the assumption that values are necessarily and explicitly a part of doing business; it asks managers to articulate the shared sense of the value they create, and what brings its core stakeholders together; it also pushes managers to be clear about how they want to do business, specifically what kinds of relationships they want and need to create with their stakeholders to deliver on their purpose’. In accordance with both the above description of stakeholder theory is an essential part of corporate planning. In fact, in firms around the world stakeholder theory should be applied when designing the CSR statement of any firm and the scheme produced should be applied using appropriate corporate governance techniques. In this context, stakeholder theory, CSR and corporate governance have a common aim within any organization around the world: the protection of interests of the public and of the natural environment during all corporate activities within the international market. 2.2 Description of corporate social responsibility applied in the particular company In the case of Shell the relation of ethics with business activities is close. More specifically, the company has taken a series of measures in order to protect the natural environment. These measures include the ‘remediation of 253 out of 317 previously existing oil spill sites from which only 179 sites were accessible to the firm in 2006; these were restored’ (corporate website, [3]). As already explained above because of the strong opposition of the locals to the activities of the particular firm, there is no access to specific areas across the country (referring to the areas that have been polluted by oil spills). In accordance with a series of data revealed by the firm, a significant number of oil spill sites (approximately 1,338 by the 1,516 totally identified by the firm) have been cleaned until the end of 2006 (see corporate website, [3]). Moreover, it is noticed that the firm applies all the regulatory standards related with the specific corporate activities trying to compensate appropriately the people living in areas where pollution has been caused because of the corporate activities. The firm’s business principles were first written in 1976 and were revised recently, in 2005, in order to meet the needs of business operations in Nigeria. The above principles are included in the ‘Shell General Business Principles (SGBP)’ (see corporate website [12]), a textbook that contains all fundamental corporate rules and ethics. Apart from these rules, the company has introduced a series of environmental challenges that should be faced through appropriate business initiatives in the near future: ‘regulatory standards, Compliance, Conducting integrated Environmental Impact Assessments (EIAs) & Environmental Evaluation Reports(EERs), Oil pollution and Compensation Payment management, Waste management, Gas flarinng, Rehabilitation of past impacted areas and sites, Improving environmental performance, External certification of our assets, activities and operations’ (corporate website, [13]. On the other hand, as it has been already mentioned above, a significant number of oil spills in Nigeria has been caused by sabotage (see Figure 1 below) and in this context the application of any CSR scheme should not be considered as appropriate in order to stop the specific phenomenon. Additional measures should be required (including possible military protection of the relevant areas by the local government) in order to ensure the limitation of sabotage in the firm’s establishments in Nigeria. However, such a measure should be appropriately designed and applied in order to avoid the risk of violating the rights of local population. Figure 1 – Shell – Total number of oil spills in Nigeria (source: corporate website, [3]) (words 1484) Part C Effectiveness of current regulation related with corporate social responsibility and business ethics The regulation of corporate social responsibility applied currently worldwide should be considered as not appropriate if taking into account the extension and the nature of business activities around the world. Because of the lack of the appropriate regulatory framework for corporate social responsibility, many phenomena of environmental pollution and social turbulences can be observed internationally. The first attempt to regulate the corporate activities worldwide (referring to business ethics) have been made in Stockholm (through the Stockholm Declaration) in 1972. The above effort was followed by another initiative that took place in Rio (Rio Declaration) in 1992 during the’ Second Major UN Conference on environment and development’ (Mondaq, 2001, [9]). In fact Rio Declaration of 1992 has been of significant importance regarding the protection of environment from human activities. In accordance with the Principle 22 of Rio Declaration of 1992 “Indigenous people and their communities, and other local communities have a vital role in environmental management and development because of their knowledge and traditional practices. States should recognise and duly support their identity, culture and interest and enable their effective participation in the achievement of sustainable development” (Mondaq, 2001, [9]). In accordance with the above principle, firms that operate within the international market should respect the populations of the countries in which they operate while the protection of natural environment should be the priority of CSR frameworks of all firms around the world. The rights of locals and the balance of the environment should be the basis for the design of any corporate plan internationally. Appropriate mechanisms should be also created in order to ensure the protection of the above values in the long term (temporary or partially protection of these values should not be accepted by the international community). The use of stakeholder theory when designing the CSR statement of firms and the application of appropriate corporate governance techniques are not sufficient for the effective protection of individuals and environment from corporate activities worldwide. (words 338) References AME (2005) Corporate Social Responsibility: An overview, [Online], available at http://www.ameinfo.com/61308.html Buck, T., Shahrim, A. (2005) The Translation of Corporate Governance Changes across National Cultures: The Case of Germany. Journal of International Business Studies, 36(1): 42-69 European Parliament (2007) Corporate Social Responsibility, [Online], available at http://www.europarl.europa.eu/news/expert/infopress_page/048-4041-071-03-11-908-20070309IPR03999-12-03-2007-2007-false/default_en.htm Freeman, E., Wicks, A., Parmar, B. (2004) Stakeholder Theory and ‘The Corporate Objective Revisited’ Organization Science, 15(3): 364-369 Harrison, M., Coussens, C. (2007) Global Environmental Health in the 21st Century: From Governmental Regulation to Corporate Social Responsibility: Workshop Summary. Washington: The National Academies Press Pedersen, T., Thomsen, S. (1999) Business Systems and Corporate Governance. International Studies of Management & Organization, 29(2): 43-54 Wooldridge, A., Micklethwait, J. (2001). The Globalization Backlash. Foreign Policy, September 2001, 16 Zsolnai, L. (2006) Extended stakeholder theory. Society and Business Review, 1(1): 37-44 Websites referring to the pollution caused in Nigeria by Shell http://www.foe.co.uk/campaigns/corporates/case_studies/shell/index.html [1] http://www.shell.com/home/content/envirosoc-en/environment/spills/what_is_the_issue/what_is_the_issue_spills_000407.html [2] http://www.shell.com/home/content/nigeria/news_and_library/publications/2007/environmental_performance/report2006_environmental_performance_oil_spills.html [3] http://www.shell.com/home/content2/nigeria/society_environment/sust_dev/env.html [4] http://www.groundwork.org.za/Pamphlets/Shell.asp [5] http://www.essentialaction.org/shell/issues.html [6] http://query.nytimes.com/gst/fullpage.html?res=9C05E2D81139F930A25751C0A960958260 [7] http://www.guardian.co.uk/business/2004/jan/21/voluntarysector.society [8] Mondaq (2001) Nigeria: Corporate Social Responsibility, [Online], available at http://www.mondaq.com/article.asp?articleid=10724 [9] http://www.guardian.co.uk/business/2007/jan/31/oilandpetrol.energy [10] http://www.foe.co.uk/resource/reports/behind_shine.pdf [11] http://www.shell.com/home/content/nigeria/about_shell/how_we_work/principles/business_principles.html [12] http://www.shell.com/home/content2/nigeria/society_environment/sust_dev/env.html [13] Read More