Stakeholder Management: Shell in Gbarain & Ekpetaima Regions - Case Study Example

Stakeholder Management: Shell in Gbarain & Ekpetaima Regions (Nigeria) Student’s Name: Name of Institution: Instructor’s Name: Course Code: Date of Submission: Abstract Shell began its operations in the Gbarain and Ekpetiama regions in 1967 when it discovered an oilfield on its swampland. The company has since then discovered more oilfields. As result, its activities and operations have increased. These activities have had more social and economic impacts on the communities in these regions. For instance, the indigenous communities are said to have reported that Nigeria’s Federal Government has always used the Land Use Act of 1978 to force them out of their lands so as to contain the increased operations of Shell. Unfortunately, these local communities are not normally consulted before such evictions, neither do they get meaningful compensation. Moreover, the activities of the company have depleted the natural resources, e.g. land and water sources, on which the communities depended for their agriculture and fishing, part of their primary economic activities (Ereba et al 2010). This paper attributes this situation to poor stakeholder management and seeks to look at how the company could have done better. Introduction The contemporary corporation thus emphasizes the concept of social responsibility, which refers to voluntary consideration of- besides economic objectives- social goals, which provide a basis for the legitimization of a corporation’s activities and actions (Mintzberg, 1999; Boatright, 2004). The social goals are based on the recognition of the fact that business activities and actions are of interest to- and also impact on- various people and groups. In other words, corporations are not only responsible to their owners, but also to the other people, e.g. employees, public interest groups such as environmental organizations, journalists, strategic business partners, public watchdog/monitoring bodies, etc. Businesses/corporations operate amidst a complex network of influences and interests, some of which may be in conflict. It is therefore important for corporations to have the ability and capacity to not only assess and evaluate such stakeholder factors, but also align them with the corporate goals and objectives (Recklies, 2001; Boatright, 2004). Stakeholder Theory & Shell in the Gbarain and Ekpetiama Regions Stakeholder management goes beyond daily business. Infact, it essentially concerns itself with long-term decision making. Having this knowledge- and before any stakeholders management strategies can be recommended or adopted- requires the company to identify who the stakeholders are. According to Recklies (2001), identifying stakeholders should focus on not only the formal organizational structure, but also beyond. Where ‘beyond’ here refers to the other informal and indirect relationships as well. Thus, Recklies (2001) proposes a stakeholder identification model that involves the visualization of stakeholders’ environment as expressed in both the inner and outer spheres/circles. The inner circles is where the key stakeholders, with the highest influence are found. In relation to Shell’s operations in the Gbarain and Ekpetiama regions, three major groups of stakeholders can be identified here: the local communities the company, the government. But there are also the overall Nigerian population, environmental interest groups, etc. Figure 1 below illustrates a overall picture of potential stakeholders and their influence on a corporation. Source: Recklies (2001) As the figure shows, stakeholders are classified based on each corporation’s individual situation. In other words, the classification and identification of stakeholders is not independent of context, i.e. the circumstances that are unique to a specific business (Donald & Lee, 1995; Scholes, 1999; Jensen, 2002). As Recklies (2001), puts it, analysis of stakeholders owes its effectiveness and success to the evaluation of specific problems that face organizations and businesses. And in justifying this stance, Recklies (2001) goes further to agree that individuals and groups are likely to behave differently under different circumstances. To show this, Shell only seems to pay ‘real’ attention to the local communities when these communities have conspicuously resisted a project, e.g. through demonstrations. Otherwise, the company mostly ignores the local people (Dadiowei, 2003; Ereba et al 2010). This stakeholder identification exercise also considers their (stakeholder’s) possible impacts on corporate decisions. These impacts refer the stakeholders’ capacity and ability to induce, persuade or coerce others into undertaking certain actions. These powers can be exerted through direct authority, exerting a position that is dominant in the market at a certain point in time, lobbying, etc. Recklies (2001) provides a basic outline of the possible sources of stakeholder powers. Internal stakeholders may gain their powers from: the hierarchy (i.e. formal power, e.g. managers); having control over strategic resources; possession of key information, knowledge and skills; having control of the environment; being involved in the implementation of strategy, etc. Shell has, for instance, exercised its power over the local communities by holding important information. Reports have showed that the Company has failed to comply by the directives of Environmental Impact Assessment. The United Nations Environmental Programme (UNEP) (Abaza et al, 2004), companies are supposed to involve the public in their decisions by availing important information and an opportunity for comment and reaction on the information. According to the Centre for Social and Corporate Responsibility (CSCR) (cited in Ereba et al, 2010), the company did not allow ‘true’ public scrutiny before beginning the drilling of two new wells in Gbaraintoru. Ereba et al (2010) further cites representatives of the local communities who expressed concern that the EIA report was not sent to Yenegoa, the State capital of Bayelsa, or the headquarters of the local government in Okolobiri as required by law. Also, the communities reported to the CSCR that the EIA report availed did not reflect accurately the possible social and health risks that such drillings would bring to the community. External stakeholders can gain power from: controlling strategic resources, e.g. being a sole supplier; involvement in the implementation of key strategies; having internal links, etc. Shell’s biggest ally has been the government. Through legislations such as the Land Use Act of 1978, the government has favored the interests of Shell, using its powers to drive people out of their lands to open up more land for Shell’s activities and further explorations. It is also important to understand the ‘extent’ to which a stakeholder or group of stakeholders will go to use such power and the inherent influence. This depends on the interest of the stakeholder(s) and what such interest means to him/her/them. This power/interest matrix does not only concern itself with how interested the stakeholders are in influencing the corporation’s decisions, but also whether the stakeholders own the power and means to exert such influence. Of these three key stakeholder groups, the local communities are the most vulnerable. Although they have more to lose, the local communities have the least power or even the means to exert such power to champion their interests. As it were, Shell and the government officials, two of the most powerful stakeholders, have combined forces against the weaker force that is the local communities (Sridhar, 2001; Abaza et al, 2004; Brown, 2006; Ereba et al, 2010). Stakeholder Management The evaluation and the resultant understanding of these factors helps the corporation to know how to deal with and handle certain stakeholders or groups. It can also provide information by which the corporation can anticipate support or resistance, and what to do and how to do it, including the groups to include in the process of decision making. Figure 2 below is basic model for the classification of stakeholders. Source: Recklies (2001) These groups of stakeholders are managed differently. Stakeholders who fall within section A do not have much interest in the corporate plans, neither do they own the power and means to exert any such interests. This group may include the Nigerian communities who live away from the Niger Delta and whose only interest relates to the fact that oil drilling in a National economic activity. Besides keeping this group informed (to a certain limit), a corporation does not need to invest much time and effort on it (Recklies, 2001; Pritchard, 2006). Section B have high interest but limited means to exert it. Still, this group may be valuable allies in making important decisions. As such, the corporation should always inform them on issues that interest them (Recklies, 2001). In this case, this is where the local communities belong. Section C stakeholders generally include interest groups, e.g. legislative bodies and institutional investors. Although they seem more passive than interested in the corporate actions, these stakeholders may significantly influence corporate decisions. The corporation should therefore analyze all potential intentions of this group and how they have reacted in other related cases. Equally, corporations should involve them in relation to their specific interests (Donaldson & Lee, 1995; Reed, 1999; Recklies, 2001). This group includes journalists, environmental interest bodies. Section D have both the interest and power exert it. This group is therefore the most important one (Recklies, 2001). This group includes the company and government officials. While Shell recognizes all the potential stakeholders, it does not exercise inclusivity. The local communities have been the most vulnerable. In other words, having recognized the power or influences of government officials over local community officials, the company has been reported to overlook the plight of the local people, e.g.by simply bribing these government officials the company can have its way (WAC Global Services, 2003; Stakeholder Democracy Network; 2010). As the example of withholding information above shows, the inclusion of local community representatives is not sufficient unless they are truly incorporated into important decision making processes. As it were, the company has used top government official to influence the response of local communities (Brown 2006). This is ‘repositioning’ by unethical means (Marcoux, 2000; Bowie, 2004). Repositioning involves ensuring a certain group is in a position than favors the corporate organizations, e.g. influencing the stand of key stakeholders by involving them in the initial planning stages (i.e. through representatives) so as to find solutions that meet the interests and needs of all parties (Post et al, 2002). This case exposes both the advantages and disadvantages on the stakeholder management. The main advantage is that is helps to resolve conflicts early enough so that once a project commences, there is little room for conflict. However, stakeholder management essentially seems political. In other words, far from the expectations that it may ensure inclusivity of all potential stakeholders, it seems to emphasize on a corporation getting its way. In other words, it thrives on getting majority of stakeholders to say yes. This opens room for corruption in an attempt to get influential stakeholders to cross over to the corporation’s side. The less powerful or influential stakeholders are then likely to be ignored even if their interests are legit. This becomes the key disadvantage of stakeholder management (Boatright, 2006). Conclusion What this paper implies is that most organizations proclaim to practice stakeholder management. Infact, they actually seem to do it just as Shell does by having local community representatives in its committees. However, the reality, again as seen here, may be far from the truth. In other words, there has to be true will to include stakeholder management for it to be authentic and effective. Organizations therefore should ensure that stakeholders’ management is part of their culture, instilled in every part of the hierarchy. Otherwise, it may all be a lie aimed at hoodwinking government legislations and interest groups. Bibliography Abaza, H, Bisset, R & Sadler, B 2004. 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