Societal perception of foreign businesses in Nigeria.

A case study of Shell in Niger Delta


Research Paper (postgraduate), 2011
66 Pages, Grade: A

Excerpt

Introduction

The oil and gas industry is one of the largest industries in the world. International Energy Agency estimates that in the next 25 five years, an overall $3 trillion global worth of investment is likely to be made in this industry. Astonishingly, this large investment accounts for only 6% or lesser of the expected revenues during the next 25 years from this industry (McPherson and MacSearraigh 2007). The gross oil and gas sales revenue are estimated to be $1.5 trillion per year. Moreover, since the oil and gas commodities are sold multifold within a supply chain, the volume of worldwide oil and gas trade is even much bigger. Due to the large volume of oil and gas revenues, this industry is often directly linked to the economic and social wellbeing of nations. For a foreign business operating within oil and gas industry in overseas market to bolster its relationships with its stakeholders to sustain its growth and profitability, it is crucial that its activities are perceived to instigate economic and social wellbeing for the nation.

The global demand for oil and gas continues to increase due to the rising income level and population in most of the developing countries. Due to the rising demand of oil and gas commodity, the control over oil and gas resources can be a concrete source of enrichment and driver for development. However, the very reason that makes oil and gas business such a high value industry also makes it prone to controversies, bad governance, corruption and driver of conflict. Many oil and gas rich countries including Nigeria, Indonesia, Sudan, Liberia, and Bolivia among many others are salient examples of this contention. The matter of controlling these valuable natural resources and the right over the revenues generated from them is the cause of varying conflicts. It is reflected through the fact that throughout the 20th century and most of the 21st century, most of the developing nations of the world rich in oil and gas were marred by high level of political instability as well as high level of poverty and underdevelopment (Karl, 1997; Ross, 2001; Eifert et alet al. 2002). By being at the helm of affairs, foreign oil and gas companies operating in these regions are often viewed as part of the problem.

Societal Perception of Foreign Oil and Gas Companies

Corruption

It is quite common that a large number of the citizens of many of developing countries have either little or no information about the actions of their respective governments. Often the lack of transparency in government finances acquired from national resources is one the biggest contributing factors in their conflicts with the public. In the absence of disclosure of information regarding revenues received through oil and gas extraction, corruption flourishes with the revenues seemingly disappearing. For instance, in case of Angola, as many as 34 multinational companies have made payments to the government without disclosing it publically (Human Rights Watch 2004, Birdsall and Subramanian 2004). Host governments of oil and gas rich developing countries often enforce such practices through confidentiality clauses in their contractual agreements with multinational oil and gas companies. The absence of transparency and public disclosure of oil and gas proceeds fuel suspicion regarding the collaboration of governments and foreign oil and gas companies. The observable poor and rich divide in numerous developing oil and gas rich countries and the subsequent social and political unrest is allegedly linked with of activities of such foreign firms. Moreover, the negative public perception regarding oil and gas firms is further aggravated when the oil and gas resources are situated in the poorer parts of the host countries which are often deprived of the benefits acquired from oil and gas extraction.

There are instances where governments have established national oil funds in attempting to return the benefits acquired from oil and gas extraction to the host population. However, such efforts are likewise undermined due to the absence of transparency in funds allocation (Pendleton 2004). There are also instances of revenues been put aside for social projects which are not spent accordingly (Wax 2004). These problems point towards the rooted corruption in oil and gas rich nations.

Foreign oil and gas companies are also highly susceptible to negative public perception due to their several innate characteristics. Oil and gas companies operating in foreign countries require large scale of investment and sophisticated infrastructure to extract and process oil and gas. Since these resources are immovable unlike other resources such as timber or diamonds, these require considerable amount of inputs and technologies to access, control and transport them (Le Billon 1999). Due to the high amount of suck costs involved in these operations, oil and gas industry is consolidated among large monopolies or oligopolies of multinational firms. These firms work closely with host governments to put together financial, legal and technical resources for exploration, production and development of oil and gas commodities. Furthermore, the margin of profit of oil and gas commodities is very high, between $50 to $60 a barrel, which makes this industry an attractive target for exploitation and corruption (McPherson and MacSearraigh 2007).

Lack of Social Responsibility

The inflow of the multinational oil and gas companies in the countries having abundant oil and gas and their ever enhancing activities are often not corresponded with the agenda for the growth of national economy and development of local communities. There are mixed views regarding advantages and disadvantages of oil and gas industry. A significant number of oil and gas rich countries assert that their resources are bought by foreign companies very cheaply. They conceive that the foreign oil and gas companies are driving their wealth out without reciprocating them with enough benefits (Alabi and Ntukekpo, 2012; Ospanova and Ward, 2009).

The oil and gas companies carry the responsibility to convert non-renewable resources into commodities which can be utilized in order to upgrade the populace’s living standards. Oil and gas companies in their endeavour to extract these resources get entangled in some of the most difficult political and social environments on earth. These cases often include areas blemished with violence, human rights abuse and corruption. In these areas the primary government services like law enforcement and other social services are not rendered. Resultantly, in such places the oil and gas companies function without proper examination and strict check and balances resulting in alleged irresponsible activities (Gordon and Pestre, 2002).

For instance, the alleged acts of rape, torture and murder by the Indonesian national military on the local communities are one of the most discussed corporate blunders. The Indonesian national military was employed by Exxon Mobil, for assuring the security of their operations regarding extraction and liquefaction of gas. The accusations on Exxon Mobil were that it has ignored the savage and inhumane acts of the Indonesian national military in order to assure its cooperation for the security of its operations and assets. In 1998, BP (formerly British Petroleum) was similarly accused when it made cooperation with the Colombian army to provide protection for its assets in a guerrilla war zone. The Defence Systems of Colombia (DSC), which was given charge of security by the company, was alleged for its savagery. The DSC also resisted cooperating with an inquiry initiative (FESS, 2006).

Taking into account the troubles of the places where most of the oil and gas extraction takes place, many multinational companies have asserted publicly to render high set of social services in the regions in which they will be functioning. These services involve plans to fund health, farming, education, medical facilities and treatment for contagious diseases, etc (see company website of Exxon Mobil, Chevron, BP, Shell). Nevertheless, the focus on rendering services as such has not stopped further accusations of alleged corporate lapses. For example, a former executive of Mobil allegedly took a kickback of $2million in Kazakhstan in the year 2003. Similarly a businessman functioning with the company was accused of illicitly paying $78 million to Kazakh government officials (Pendleton 2004).

Background of the Niger Delta in Context of Oil and Gas Company

The brutality of Shell in Nigeria is another irresponsibility case which is discussed to a great extent. Shell is the main functioning oil and gas multinational in this country. The company has been stained with extremely bad allegations in terms of pollution and human rights violation. One of the most severe accusations was that it flared the natural gas at its operations’ areas. Experts assert that Shell has flared as much as 76% of all gas extracted in Nigeria (in US, flaring accounts for only 0.6% while in UK it accounts of 4.6% of the total extracted gas). This notorious act emitted thick fumes of black smoke, toxic chemicals, dangerous pollutants, intense heat, and a tainted odour which can be smelled from far distances, contributes in acid rain to a great degree (Clark et alet al. 1999).

Furthermore, in Nigeria, incidents of oil spills and leakages in pipelines at oil and gas extraction sites have been reported. It is reported that due to the old and worn out pipelines, there are as much as three significant oil spills in Niger Delta every month during recent years. Referring to the oil spills, in the year 1998, there was a pipeline explosion which took about 700 lives in Niger Delta. A foreign company was charged off on refusing the reasonability of the accident by contending that it was a sabotage act, which, in law of Nigeria, relieves the company from all obligations of cleaning up or offering compensation for the spills. Oil spill has been one of the most important social responsibility concerns which constantly stain the reputation of oil and gas multinational (Clark et al. 1999).

One of the most dismaying cases among these is those of alleged human right abuses. A popular example among these involves the Ken Saro-Wiwa case. Ken Saro-Wiwa was a renowned writer, social activist and a leader of opposition group named as Ogoni. He was an antagonist towards foreign oil and gas companies and the Government of Nigeria, because of their brutal and inhumane treatment of the local people. Ken Saro-Wiwa and his supporters were falsely charged and executed for the massacre allegedly done by followers of Ken SaroWiwa. It was alleged that a foreign oil and gas company manipulated the judgments. These miserable incidents include sufferings of numerous activists against foreign firms at the Nigerian government’s hands.

Organizational Reasons for Corporate Social Responsibility

Many critics have argued that corporate social responsibility is nothing more than a way for companies to 'pretend' they care about something other than bottom line profit (Pieczka, 1996; L’Etang and Pieczka, 2006).. Corporate executives are often preoccupied with profit maximization. Executives and managers have come up with various techniques for achieving this primary objective of their businesses. Consequently many business concepts that were although practiced earlier, have now emerged as vital success factors and important elements of corporate strategy. Corporate social responsibility is one such concept that has become very popular over the years. The concept of corporate social responsibility encapsulates various domains of business ethics and sets an agenda for organizations beyond the economic gains which gives due concern for the environment and communities in which they operate. Business ethics is the moral thinking and analysis by decision makers in organizations for their motives and consequences of their actions (Snell, 2009).

In today’s business environment, where there is growing concern for environment and for moral obligations of businesses towards their employees and communities, corporate social responsibility has not just remained a practice that businesses adopt to pretend that they care for something other than profit maximization, but it has indeed become closely aligned with the primary objective of profit maximization itself. Thus it has become important for corporation to act in a socially responsible manner in order to sustain their profitability.

Due to these underlying reasons and factors, any foreign oil and gas firm operating in developing countries such as Nigeria is likely to face an enormous challenge in form of corporate social responsibility and the resulting societal perception regarding their operations in the country. This societal perception can turn out to be crucial for their long-term success in the country. Therefore, it is imperative for any reputable multinational oil and gas firm to evaluate how its activities are perceived by the society from which it generates its revenues. This forms the central premise of this study in that is assesses the societal perception of Shell in Niger Delta, Nigeria.

Research Objectives

The objective of this research is to evaluate the social perception of Shell in Nigeria. The aforementioned literature review indicates the importance of corporate social responsibility for a firm operating in a foreign country and its subsequent social perception. The literature further highlights the how a firm can further its ultimate objective of profit maximization in long term by establishing a positive social perception through corporate social responsibility. Finally, the literature review presents a set of studies which have pointed towards the resulting negative environmental and social impact of oil and gas firms in Niger Delta. The current study moves on towards assessing the social perception of a Multinational Oil and Gas firm operating in Nigeria in terms of its corporate social responsibility in order to identify how it is perceived generally by insiders (by its employees) and outsiders (by the wider society). This study provide insights into how stakeholders other than the affected communities view the operations of multinational oil and gas firms in their country in terms of CSR including the local people working as its employees. It will help understand whether the grievances of the affected communities in Niger Delta are widely shared by the larger society and up to what extent.

Furthermore, this study will also provide useful information to the multinational oil and gas firms pertaining to its social image in terms of corporate social responsibility through the viewpoint of its employees and general population. It can help them in evaluation and redesigning their corporate social responsibility and public relations strategy.

Research Questions

- What is the overall social perception of Multinational Oil and Gas firm operating in the Niger Delta?
- To what extent, do the social perceptions employees working for oil and gas multination with regards to its corporate social responsibility match with those of the general population?

Literature Review

Like most litigious terms, there is no consensus upon the definition of the term corporate social responsibility. CSR is a complex phenomenon as it encapsulates several meanings, each deferring from the other based on its author and the school of thought to which the writer or researcher belongs. Dahlsrud (2008) conducted a detailed case study in which he analyzed 37 different definitions of CSR to emphasize its uncertainty and the difficulty involved in its impartial framing (Dahlsrud, 2008). This can be illustrated by the two definitions proposed by the World Business Council for Sustainable Development (WBCSD) for instance. In 1998, WBCSD defined CSR as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of its workforce and their families as well as the local community and the society at large” (WBCSD, 1998, p. 3). Later on, WBCSD defined it as “the commitment of business to contribute to sustainable economic development, working with employees, their family, the local community, and society to improve their quality of life”. Generally, the letter definition is perceived to be more expansive. However, the letter drifts away from the elementary compulsion of ethical behaviour and focuses upon the fundamental obligation of corporations to contribute towards the economic wellbeing (See also Idemudia, 2008; Jenkins, 2005).

According to Blowfield & Frynas (2005) CSR is widely acknowledged by government, society and corporations as “a bridge connecting arenas of business and development” (p. 499). According to these authors, CSR is indeed an umbrella term encapsulating “a variety of theories and practices all of which recognizes that companies have a responsibility for their impact on society and the natural environment, sometimes beyond legal compliance,” therefore, “business needs to manage its relationship with the wider society whether for reasons of commercial viability or to add value to society” (p. 503).

John Elkington came up with a term Triple bottom line in the mid of 90’s. The term was described as agenda to focus on the environmental and social values alongside with the economic values. The three bottom lines are namely; economic, social and environmental bottom line. They are also denoted today as 3Ps, profit, planet and people. The usage of this term is often seen within the analysis of any company’s success regarding these three areas (Elkington 2004). The history and the concept of corporate social responsibility have been talked about properly in the literature. (Dahlsrud, 2008; Doane, 2005; Korhonen, (2003) Andriof and McIntosh (2001) views Corporate Social Responsibility as neither philanthropy nor part of business morality. It can be rather conceived as a vision that business executives have besides earning money. It does influence on a company’s every little move will impact in both areas of a company; inside and outside.

Within the last few years many complex and global matters have come into existence than ever in the past. Global warming, environment pollution, inadequate labour practices have a great influence upon the company’s future up to a disastrous level. This agenda is being partially discussed by the external factors to the company, for instance media coverage on the role of firm in influencing society and environment. In present day social activists also provide a stage to gather people’s views on grave issues. Functions of multinational companies in the foreign economies and globalization have also given rise to the corporate accountability.

Importance of Social Perception in MNCs Operations Corporate Social Responsibility

The work done by Niccolo Machiavelli brought up a great change In terms of the collective history of politics and is believed to be the inception of study of politics as a science. Machiavelli, through his book The Prince, made prior contribution to the scientific revolution because he saw power and sovereignty with a scientific perspective, completely concentrating on the goal regardless of religion, ethics and morals. Machiavelli contends that the Prince’s manner of governing differs greatly from the method which the medieval Christian virtues demand them to do so (Pollock 1935). Sir Frederick Pollock remarks that in the work done by Machiavelli, we find "for the first time since Aristotle, the pure passionless curiosity of the man of science- we find the separation of Ethics and Politics…Machiavelli takes no account of morality" (Pollock 1935, p 43). According to Machiavelli, a ruler can prosper if he ignores morality and considers safety and expansion as his basic aims. He refuses to regard morality which starkly counters with the traditional church teachings. The Prince is considered to be a scientific account of the plans and techniques utilized by the princes to hold power and its implementation, in order to pursue a larger aim. The Prince is entailed to a leadership which posses timeless applications and is specifically appropriate to understand today’s corporate social responsibility.

Machiavelli maintains in his book about a prince moving into a new state that:

”For however strong you may be in respect of your army, it is essential that in entering a new Province you should have the good will of its inhabitants. Hence it happened that Louis XII of France, speedily gaining possession of Milan, as speedily lost it; For the very people who had opened the gates to the French King, when they found themselves deceived in their expectations and hopes of future benefits, could not put up with the insolence of their new ruler.'

'I conclude, therefore, that when a prince has the goodwill of the people he must not worry about conspiracies; but when the people are hostile and regard him with hatred he must go in fear of everything and everyone. Well-organized states and wise princes have always taken great pains not to make the nobles despair, and to satisfy the people and keep them content; this is one of the most important tasks a prince must undertake”.

The application of the principles given by Machiavelli in today’s modern corporations is sensible and valid. Today a Prince’s empire can be compared with large corporation, having its barons as CEOs and directors, its courtiers and ambassadors as managers, its loyalists and discordant components as employees, its associates and enemies as partners in business and competitors. It is apparent that the application of the principles offered by Machiavelli to the business world is profound.

In the prior passage Machiavelli has shown the significance of goodwill of a community or area for a prince who intends to enter a new state to retain his authorities and powers over it. He explains, by exemplifying Louis XII of France, that having the goodwill of the people of a province is necessary for the king’s survival. Without taking the inhabitants’ aspiration and values in to consideration, the primary aim of survival and retaining the power cannot to be sustained for long. Likewise the executives of the corporations are deeply concerned about the affirmation of their firms’ survival. With time, they have prepared various tools and agendas to cope up with different kinds of barriers hindering in achieving this basic objective. One such agenda is corporate social responsibility. In a way, CSR is aimed for enabling viable growth of businesses by returning some of the benefits earned by them back to the environment and local communities. Since the stakeholders as well as the consumers are endorsing the notion of corporate social responsibility, pursuing it actively has become trendy among the companies. The awareness regarding the sustainability issue among the stakeholders has increased; consequently the companies are facing stringent demands from the various stakeholders in carrying corporate social responsibility. The subject of corporate social responsibility is becoming an agenda of increasing significance for any firm. Theoretically this issue has been developed for over two decades. Throughout the last decade the firms have commenced to show evidence of CSR in their strategic planning and social reporting by the stakeholders.

Profit Maximization and CSR

Executives of some of the corporations are dissenting from the persistent trend of social responsibility. They contend that a company’s responsibility towards society or community is not more than returning highest possible profits and benefits to the stakeholders (Beardsley el at. 2007). They argue that the overarching ideology of profit maximization is the driving factor behind multinationals oil and gas business. This “business case” forms an ideological framework which contends that business corporations should be “free to act solely on the basis of profitability without regard to national or local consequences” (Korten, 1996, p. 131). Likewise, Ashton-Jones (1998) asserts that “profit maximization is the only basis upon which a company can run, so that any expenditure beyond what is required to get out the oil is resisted” (p. 130).

This kind of ideology causes market failures that prompts third party (which includes government) to intervene in order to retain the balance with the help of rules and regulations as well as taxes. Bator (1958) asserts that market failure refers to a situation where either production or consumption of a commodity or service becomes deficient. This means that the returns or the benefits that a market brings to a group of individuals or firms which are conducting a specific activity (production or consumption of resources or service) are drawn from the returns to society as whole. A free and competitive market supervises and directs the activities of self interest considering each economic agent in order to increase the wealth of the whole society. In 1776 Adam Smith said that “… while he intends only his own gain…he is …led by an invisible hand to promote an end which was no part of his intention …” However, when corporations and other economic agents fail to disperse the benefits of an economic transaction evenly, market failure occurs resulting in economic downfall and social deterioration. It implies that a certain transaction is causing negative externalities which results in a market failure. Zilberman (1999) explains externality as a spill-over of an economic transaction which affects an entity not directly involved in the transaction. For instance, a manufacturer polluting the environment by throws industrial waste in a river. The economic transaction performed by the manufacturer does not take into account the costs incurred due to health hazards caused to the society’s inhabitants who consume the river’s water and the damaged cause to the area’s ecosystem. Hence the cost of production doesn’t include the real marginal social costs. If any economical agent such as a firm gets involved in any substantial externalities, third party may intervene which can affect the agent’s survival.

Therefore, businesses have two major strategic concerns in focusing on the social obligations. Firstly, the social forces can impact negatively on a corporation’s strategies and can even damage the credibility and goodwill of a business involved creating environmental troubles and bringing hazards to the society. Secondly, the business entities which are already carrying out social activities can take advantages through these trends by producing innovative products and rendering new services which fill the gap in the market for unfulfilled social requirements and new public preferences. (Beardsley el at. 2007) This will maximize their profitability and affirm their long-term survival. In a nutshell, it can be concluded that the long term survival and profitability of the economical agents, who intend to exploit the natural resources is inevitable without due consideration for economic, social and environmental wellbeing.

According to Frynas (2005), business organizations engaging in social investments can gain “competitive advantage” over rivals with less social engagement in ways that reduce cost and increase their market share (p. 584). In conflict prone areas involving resource extraction such as the Niger Delta, it is directed at extinguishing agitation tendencies.

To some scholars and beneficiaries CSR relevance is not in doubt. Oil companies generally employ social investments to appease host communities to garner cooperation. This appeasement usually leads to a reduction in business-community conflicts and the disruption of business operations, thus enabling the firms to maintain or increase their corporate performance in terms of output, revenues and profit. Further, Frynas (2005) argues that this profit motive in CSR is in line with stakeholder theory, which states that companies “will listen primarily to those stakeholders who pose the greatest threat to their operations” (p. 589). Consequently, CSR helps business organization to secure their “social license to operate” in the society (Hohnen & Potts, 2007, p. 11).

[...]

Excerpt out of 66 pages

Details

Title
Societal perception of foreign businesses in Nigeria.
Subtitle
A case study of Shell in Niger Delta
College
University of Newcastle
Grade
A
Author
Year
2011
Pages
66
Catalog Number
V267045
ISBN (eBook)
9783656588542
ISBN (Book)
9783656589235
File size
975 KB
Language
English
Tags
societal, nigeria, shell, niger, delta
Quote paper
Kalekye Ndungu (Author), 2011, Societal perception of foreign businesses in Nigeria., Munich, GRIN Verlag, https://www.grin.com/document/267045

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