Accountability in Shell Company - Research Paper Example

Accountability in Shell of the Table of Contents Introduction 3 Discussion of issues 3 CSR 3 Sustainability 4 Codes developed by OECD 4 Model analysis 5 Background of the company 5 Shell’s accountability analysis 7 CSR 7 Sustainability 7 OECD codes followed 8 Governance model 8 CSR and accountability models 9 Rhineland model 9 Anglo-Saxon model 9 Nordic model 10 Suitability of model in Shell 10 References 11 Introduction Every company, irrespective of its size, is part of the society. It uses resources available from the society and environment and converts the same into consumable goods and services. So, firms remain accountable to the society for their activities. It is important for companies to inform the society regarding utilization of resources and its way of contributing towards profits. Accountability is a key corporate governance policy. Companies are required to issue accountability reports to different interest groups such as, shareholders, suppliers, the government, employees and the consumers at large. Shareholders are interested in knowing a firm’s financial position and whether it is able to earn adequate revenue so that their returns are maximized. Shareholders provide a business with capital, which is invested in valuable assets and are utilized in different ways. If a company does not utilise the capital effectively, it would fail in generating profits as well as in providing returns to shareholders. Similarly, suppliers are also interested in knowing whether a company is able to utilize the materials supplied by them and whether they are financially sound to make payments on time. Employees do not receive their salaries and wages on time if a company fails in generating adequate revenue. Also, they are affected if the firm pursues acquisition and merger related activities as this may lead to their shifting or loss of job. A firm also remains accountable to the society and the government in respect of its environmental policies and payment of taxes (Royal Dutch Shell Plc, 2013). Discussion of issues This research paper primarily includes discussing four main accountability issues that are seen to exist in different companies. These have been briefly discussed as follows. CSR Globalization has induced complexity into the world of commerce. Companies are indulging in bureaucratic and unethical activities in order to sustain global completion and make profits. Corporate Social Responsibilities or CSR activities help in maintaining fair business practices and makes a company accountable in respect of its activities. Hence, firms are required to prepare CSR reports at definite periodic intervals. Such CSR reports are considered to be important in promoting business integrity, establishing proper regulatory framework and mapping efficiency of business authorities and senior management. For lawyers and accountants, CSR is largely a technical term involving only the accountability of a firm in respect of financial statements. CSR, however, is a broad term comprising several aspects such as, firm’s responsibility towards the society, environment, government and the common mass (Frynas, 2005). Sustainability It is important for organizations to function in a highly sustainable manner so as to minimize negative impact upon the environment, reduce wastage of resources and enhance organizational efficiency. Sustainable practices help an organization to increase their competitiveness, market share and enhance shareholder value. The growing concern for the environment has triggered development of numerous green and eco-friendly products. Consumers prefer buying those products that have been manufactured without causing harm to the environment, bio-degradable or recyclable and also energy efficient (Boele, Fabig & Wheeler, 2001). Codes developed by OECD The primary codes or principle developed by Organization for Economic Co-operation and Development are related to the following aspects: A) Ensuring that an effective corporate governance framework exists in organizations, B) The interests and rights of shareholders are adequately met, C) All shareholders of a company are treated equally, D) Identifying stakeholder roles in corporate governance, E) Existence of disclosure and transparency in reports and corporate functions, F) The responsibilities that require to be undertaken by the board. OECD codes and principles aim at establishing a suitable framework for facilitating transparency in financial records. These principles are developed in cooperation with the World Bank and other international institutions. The principles are modified from time to time in order to meet changing and complex needs of the global economy. The OECD principles have acted as an international benchmark for investors, policy makers, legislative and regulatory authorities (Livesey & Kearins, 2002). Model analysis Rhineland Model This model aims at striking a balance between society, environment and free-market forces. It is considered as a management approach, which emphasizes that economic growth should be based upon concepts of cooperation, social justice, consensus and meeting the interests of various shareholders. The concept also gives special importance to sustainable development. Anglo-Saxon Model The Anglo-Saxon Model was developed based upon the idea of conflict and competition. It had originated from the British political, legal and economic systems. The system emphasizes upon development of a political climate whereby winners take away everything. The model encourages development of a capitalist form of economy. It identifies the market as a battleground where firms fight amongst each other to attain higher profits. It completely discards the policy of cooperation. The Nordic Model This model stresses upon shared political and economic goals. It is believed as per this model that growth can only be achieved if needs of all interest groups are made cohesive. The model promotes equality and security for all members of society (Bebbington, Larrinaga & Moneva, 2008). Background of the company Royal Dutch Shell Plc is a multinational oil and gas company. It is an Anglo-Dutch company with its headquarters established in Netherlands. The company was incorporated in the UK. Shell was created through the merger of Shell Transporting and Trading with Royal Dutch Petroleum. It is one of the largest companies of the world in terms of revenue. The company is included amongst the ten largest oil and gas companies of the world. The company is vertically integrated and has remained active in almost all areas of oil and gas production. The activities of the company include exploration, production, refining, distribution and marketing of oil. The company is also engaged in the production of petrochemical products and power generation. Shell is also involved in the production of renewable sources of energy, which mainly comprise bio-fuels and wind power generation (Morhardt, 2010). Shell operates in more than 90 countries of the world and has employee strength of almost 92000. The employee strength of the company has considerably declined from 2009 (Morhardt, 2010). Shell is considered to be a valuable company across the globe. The company was successful in making 470 billion US dollars, in terms of revenue, in last two years. Majority of the company’s revenue was contributed by its downstream segment, which includes oil production and refining and that of petrochemicals. A large portion of the company’s revenue comes from the European region. This region accounts for almost 40% of the company’s net worldwide revenues. The company produces 3.1 million barrels of oil each day and operates with 44000 service stations across countries. Shell’s business activities are of significant importance to the economic trends of Europe and UK. Some of the prime oil extraction sites and refineries of the company are located in Nigeria, South Africa, Ghana, Malaysia, Singapore, Philippines, Ireland, North America, Australia and New Zealand. Shell is a major competitor for the oil companies located in the Middle East such as, Qatar Petroleum (Frynas, 2003). Traditionally, Shell’s operations worldwide were heavily decentralized in context of company’s downstream operations, which are spread across a number of nations. The upstream operations of the company are largely centralized, where the technical and financial operations were controlled in the main office in Hague. Majority of the revenue comes from the company’s downstream operations, which includes manufacturing, distribution and the marketing activities of oil and petroleum products. It also includes refining, supply and shipping of crude oil. The upstream activities of the company have two important divisions. Upstream international manages Shell’s business outside the Americas. The upstream American activity includes managing the business in North and South America. Apart from investing in oil exploration, refining and other related activities, Shell also invests heavily upon technology and innovation. Advanced technology is highly important for the company in order to improve operations and maintain efficiency and sustainability. Environmental conservation and safety are specially taken care of by the company through its technical solutions (Frynas, 2003). Shell’s accountability analysis CSR Shell is driven by three core important values, in terms of CSR, which are its operating responsibilities, responsibilities for the future and working collectively. The company recognises that it is important to provide business stakeholders with timely and correct information regarding its activities. The company follows the concept of shared benefits. Shell believes in contributing towards economic development of the nations, where it operates, thereby concentrating upon creating job opportunities and growth of local business suppliers. The operations of Shell aim at minimizing impact upon the environment. The company continues to develop advanced technologies for attaining sustainable performance for the future. The company works with many international institutions for facilitating development of trade and commerce in respect of oil and gas. It is also a part of various organizations engaged in environment conservation and anti-corruption. Shell has been drawn into a number of controversies in respect of its corporate social practices. The company was alleged to violate a number of human rights. Shell has been accused of treating employees inhumanely and neglecting their basic needs. The company has also exhibited a slow response towards gas flaring and oil spills. Majority of the CSR related cases of Shell have arisen from Nigeria (Akpan, 2006). Sustainability Shell gives adequate important importance to the concept of sustainable development. It ensures efficiency in usage of resources and promotes minimization of wastage. The company also has taken considerable efforts towards developing renewable sources of energy. The innovative technologies of the company help to manage environmental challenges better. Shell engages itself in production of natural gas, bio-fuels and other renewable sources of energy. The company has recognized that renewable sources of energy are important for the future. Shell also actively conducts carbon capture and storage. The company has also taken considerable efforts towards recycling water and implementation of water purification plants. The goal of Shell, in terms of sustainability, is to provide clean energy as far as possible. In order to enhance sustainable abilities, the company works closely with its partners, government and the community. In the recent years, Shell had invested hugely in developing its wind power sector. The company has been increasing the number of wind turbines. At present, majority of the firm’s wind power projects are located in North America and Europe. The company has also taken great efforts towards increasing production of liquefied natural gas (LPG), which is known to be the cleanest burning fossil fuel. However, Shell lacks in developing suitable measures for health and safety issues. The company’s response towards oil spills have been criticized by many (Shamir, 2004). OECD codes followed OECD codes emphasize on the aspect that stakeholder needs and especially the responsibilities toward shareholders must be fulfilled. Shell follows the policy of being transparent in its operations. It consistently tries to enhance shareholder wealth. The efficient management of financial resources of the company has helped to expand its operation across the globe. The company identifies the key needs of stakeholders and accordingly prepares its financial reports. The company has formed a special committee for maintaining stakeholder relations. In the recent times, the company was involved in numerous cases in respect of infringement of human rights. Following this, the company had suffered a loss of goodwill. Shell perceived that unless proper measures are taken to strengthen governance policies, it may lose potential investors. As a result, the company implemented strict rules of accountability across its different production units (Vogel, 2006). Governance model The governance model of Shell is largely similar to the Rhineland and Nordic concepts. The company suitably tries to manage the interests of different stakeholders so that benefits can equally be shared. It is believed by the company that prosperity does not only mean earning profits. It is important to provide the society with valuable contributions so as to sustain in future. Shell also promotes employee engagement in many of its activities. Overall, the company has suitable policies for managing its operation worldwide. The company has, however, faced numerous issues relating to business operation in Nigeria. This is largely due to management negligence. The administrators of the company have been trying to implement policies in order to be able to manage these issues better (Burchell & Cook, 2006). CSR and accountability models Rhineland model As discussed earlier, this model is largely based upon achieving a balance between goals of the organization and that of the society as a whole. The policies of most institutions are formulated based on the interaction of different market forces. It is important for a company to assign its resources in such a manner that adequate revenue can be generated. The government must intervene into the activities of corporate firms in order to suitably analyse their performance and prevent malpractices. Intervention of the state also helps in protecting the rights of different interest groups. Companies must focus upon developing the society wherein it operates. This is important because without existence of a well-functioning society, the operations of a firm will have no significance (Heslin & Ochoa 2008). Anglo-Saxon model This model supports free capitalism and is opposed by most organizations and societies. The model discourages development of coalitions. It also emphasizes upon minimum government intervention into matters of business and the economy. The models also states that regulations and tariffs on investment must be shunned. It is assumed that forces of the market are sufficient for allocation of resources. The intervention of state in this matter is not required. The model also suggests that wealth and revenue depends upon competitive abilities of an organization. This theory neglects the concepts of sustainability (Idemudia, 2007). Nordic model The Nordic model is developed on the ideology that society and its different factors share similar goals. Economic development entails various advantages such as, employment opportunities, infrastructural and educational growth and development of innovative technologies. This model is known as one of the crucial welfare models. Unlike other models, Nordic gives adequate importance to the concept of equality. Companies must treat all its interest groups with equal opportunities, recognizing the aspect that team effort plays a crucial role in achieving success (Sharp, 2006). Suitability of model in Shell Based on the above discussion, it can be stated that the Rhineland model suits Shell’s organizational activities the most. The company is seen to develop strategies, keeping in mind the different responsibilities towards various interest groups. In terms of market economy, the company strategically distributes its resources so that maximization of resources utilization can be achieved. This also leads to increasing shareholders wealth. The company maintains its financial statements with adequate disclosure relating to profits so that investors can conveniently take decisions. The company also encourages employees to participate and contribute towards different management decisions. The Anglo-Saxon model states that companies are run by shareholders, but the Rhineland model emphasises that companies are run by the stakeholders. Shell’s organizational policies are designed not only to meet shareholder needs, but also objectives of the firm’s business partners, suppliers, employees, government and consumers (Castello & Lozano, 2009). References Akpan, W. (2006). Between responsibility and rhetoric: some consequences of CSR practice in Nigerias oil province. Development Southern Africa, 23(2), 223-240. Bebbington, J., Larrinaga, C. & Moneva, J. M. (2008). Corporate social reporting and reputation risk management. Accounting, Auditing & Accountability Journal, 21(3), 337-361. Boele, R., Fabig, H. & Wheeler, D. (2001). Shell, Nigeria and the Ogoni. A study in unsustainable development: II. Corporate social responsibility and ‘stakeholder management’versus a rights‐based approach to sustainable development. Sustainable Development, 9(3), 121-135. Burchell, J. & Cook, J. (2006). Confronting the “corporate citizen”: Shaping the discourse of corporate social responsibility. International Journal of Sociology and Social Policy, 26(3/4), 121-137. Castello, I. & Lozano, J. (2009). From risk management to citizenship corporate social responsibility: analysis of strategic drivers of change. Corporate Governance, 9(4), 373-385. Frynas, J. G. (2003). Royal Dutch/Shell. New Political Economy, 8(2), 275-285. Frynas, J. G. (2005). The false developmental promise of corporate social responsibility: Evidence from multinational oil companies. International affairs, 81(3), 581-598. Heslin, P. A. & Ochoa, J. D. (2008). Understanding and developing strategic corporate social responsibility. Organizational Dynamics, 37(2), 125-144. Idemudia, U. (2007). Community perceptions and expectations: reinventing the wheels of corporate social responsibility practices in the Nigerian oil industry. Business and Society Review, 112(3), 369-405. Livesey, S. 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