Royal Dutch Shell Company’s Corporate Governance and Ethics

Introduction

According to Thomsen (29), the concept of corporate values has attracted the attention of scholars and analysts in the recent past. Different people use varying terms to describe this phenomenon. The terms used include, among others, corporate social responsibility, business ethics, environmental sustainability, and customer value. The concept is also described as a form of stakeholder value and corporate citizenship. Consequently, corporate value and business ethics play a vital role in the operations of Dutch Shell.

Considering the extent of Dutch Shell’s business undertakings, it is apparent that corporate governance, especially concerning company ethics, is a very significant aspect of this company. The current study is conducted against this background. To this end, the author analyses Dutch Shell’s ethics and the influence of corporate governance on the company’s business operations.

Dutch Shell: Company Background

Shell, Dutch Shell, or Royal Dutch Shell Plc is one of the leading companies in the world. It deals with petroleum and petroleum-based products. According to MarketLine (3), the company engages in the exploration and production of gas and oil. It is also involved in the marketing and transportation of natural gas and electricity. The company also markets and ships oil products and other chemicals around the world. It is one of the organizations in the world that has interests in the generation of renewable energy from solar, wind, and hydrogen.

Royal Dutch Shell has its headquarters in The Hague, Netherlands. It has extensive operations in different parts of the world. It covers more than 70 countries. It has an employee base of approximately 87000 individuals (MarketLine 3). The major products of Dutch Shell include gas power. The products are divided into compressed natural gas (CNG), liquefied petroleum gas (LPG), electricity, renewable energy, and liquefied natural gas (LNG). The oil products manufactured and distributed by this company include low sulfur diesel, gasoline, light heating oil, and lead replacement fuel. Others include marine lubricants, aviation fuel, and bitumen products. Chemical merchandise includes alpha-olefins, detergent alcohols, and aromatics. Shell is also involved in the distribution of solvents, glycols, ethylene oxide, propylene oxide and derivatives, and styrene monomer. The five are part of the company’s portfolio for chemical products. Associated company services include gas stations, supply and distribution outlets, and automotive technical support.

Corporate Governance and Corporate Ethics

According to Talamo (228), corporate governance is a relatively new term. It is commonly used in academic and public discourses. However, despite this recent nature, the issues addressed in this concept have been around for quite a long time. Recently, many people have raised queries with regards to the effectiveness of corporate governance. Challenges affecting corporate accountability, such as accounting scandals surrounding major global companies and ethical considerations, have increased the relevance of the concept in academic discussions (Talamo 229).

Several terms are used to define corporate governance. It is important to note that most of the definitions focus on the various aspects of this concept. However, many people agree that corporate governance refers to the control, supervision, and management of companies. In other words, it is used to describe the process of reviewing managerial conduct in different organizations (Talamo 230). In light of this, it is apparent that corporate governance is composed of a broad range of policies. It also includes the various practices of executive managers, stakeholders, and boards of directors. It analyses how these parties manage themselves in the process of meeting their obligations towards investors, shareholders, and other stakeholders.

Corporate or business ethics refers to a form of applied ethical practices. It aims at inculcating responsible practices in business organizations (Rossouw 43). Ethics is a very broad term that is applied variously in different parts of the world. Other terms, such as integrity and responsible business conduct, denote the same concept (Clark 14).

Rossouw (6) identifies two ways through which corporate ethics is linked to governance. One dimension associates corporate governance with ethical values and assumptions. Such values and assumptions underpin specific corporate governance practices and codes of conduct. The element is also referred to as the ethics of governance. The second dimension relates to how corporations are required or expected to manage their ethical performance. The concept is also referred to as governance of ethics (Rossouw 6).

Ethics of governance for specific companies like Dutch Shell are not presented explicitly. In most instances, the underlying ethical orientation or values relate to given corporate governance regimes (Appelbaum, Vigneault, Walker, and Shapiro 526). For example, the concept may be reviewed from the perspective of the second-order analysis of directives and principles of corporate conduct and control. Almost all business organizations exhibit codes of ethical conduct. The principles, directives, and regulations associated with corporate governance present the ultimate view of organization obligations and responsibilities towards the community. The elements also highlight the ethical values associated with a given business entity.

Rossouw (7) asserts that ethical codes of conduct are made explicit in corporate governance regimes. The codes deal specifically with the requirements and expectations of corporate governance regimes. The aim is to ensure that such organizations operate ethically and responsibly. As such, governance standards entail such matters as rules of conduct, codes of ethics, as well as training of staff and boards of directors on ethical operations. It also involves auditing and reporting with regards to ethics and performance (Rossouw 7).

Royal Dutch Shell Code of Ethics

Like numerous other multinational corporations, Royal Dutch Shell maintains a highly regulated code of conduct. The principles govern the ethical behavior of the company. The organization’s code of conduct brings on board both individual and corporate ethics. The ultimate objective of such undertakings is to establish and sustain an ethical culture within the organization.

The company’s standards of ethical business behavior are provided for in the Shell General Business Principles (SGBP) and code of conduct. The principles govern the affairs of Shell Company and its affiliates. On the other hand, the code of conduct describes the form of behavior the company expects from the various employees in different parts of the world. Also, it addresses what the community and other stakeholders should expect from the organization. In light of this, it is apparent that Dutch Shell considers both ethics of governance and governance of ethics as significant aspects of its operations in the global market.

Rossouw (7) provides a working definition of the concept of business ethics. The scholar refers to it as the accepted principles of right and wrong. It is these standards that govern the conduct and behavior of business organizations and individuals (Rossouw 7). An ethical strategy, on the other hand, refers to a course of action that lies within the acceptable limits of considerate operations. Such activities adhere to the accepted principles (Rossouw 8). As a result, a company should exhibit various qualities indicating aspects of ethical behavior in its operations.

It is important to point out that business codes of conduct are different from personal ethics. It is noted that the latter implies generally accepted principles of wrong and right. Such standards are limited to individual conduct. Personal ethics are derived from different sources. They include schools, churches, homes, and other societal institutions. Similarly, business ethics are sourced from specific frameworks. Personal codes of conduct are closely related to business ethics. The reason is that human agents are involved in both forms of ethics.

The values underlying Shell General Business Principles and Code of Conduct are universal and obvious. They include, among others, integrity, honesty, as well as respect for other people (“Shell Code of Conduct: How to Live by the Shell General Business Principles” par. 2). The conduct of employees is judged on how they ‘live’ the values of the organization. The workers are also assessed about the extent to which they meet the objectives and principles of the code.

Dutch Shell has several responsibilities towards stakeholders. To this end, the company identifies five major areas of concern. The areas include the responsibility to shareholders and to the community within which the company is operating. Also, the organization recognizes its duty to employees and to those it conducts business with (“Shell Code of Conduct: How to Live by the Shell General Business Principles” par. 33). With regards to principles, a specific set of rules govern the overall operations of Dutch Shell and its subsidiaries. The main principles the organization focuses on include economics, local communities, and compliance. Others include business integrity, political activities, and competition. Furthermore, the company pays attention to the health, safety, and security of the environment and stakeholders (“Shell Code of Conduct: How to Live by the Shell General Business Principles” par. 2).

Dutch Shell’s code of conduct indicates the company’s struggles with the conflict of interest. The company’s principles of operations highlight the responsibilities and obligations of the organization. According to Rossouw (9), business ethics is a complicated and problematic field. The concept addresses several concerns affecting the operations of the firm. Such issues range from environmental and impression management to fair labor practices. Others are accurate accounting and reporting. Business ethics also define the duties of stakeholders involved in the firm.

Clark (24) summarises codes of conduct as a set of policies that form the core of the firm’s ethics program. Codes of ethics determine the values and aspirations of the organization. They define the external and internal worth of the business entity. The standards help Royal Dutch to provide consistent services in its various global subsidiaries.

Ethical decision-making processes are spelled out in the code of conduct. They provide the employees with the information needed to operate under the company’s core values (De-George 52). The other function of the code involves providing concrete statements concerning the company’s business conduct (De-George 53).

As already indicated, the organization has an articulate Statement of General Business Principles and Code of Ethics. Despite this, there are no compliance officers in charge of these processes. The creation of administrative positions to deal with these issues may help in the implementation of corporate ethical policies. In the document mentioned above, the company highlights its successes in the field. For example, it is made clear that the organization meets the provisions of the Sarbanes Oxley Act. It also operates within the standards required to list in the New York Stock Exchange. Such requirements include avoiding conflicts of interest. However, as a company, Dutch Shell is yet to commit itself to corporate social responsibility. The observation is one of the company’s weak points.

Ethical Issues, Dilemmas, and Conflicts of Interest in Royal Dutch Shell

According to Appelbaum et al. (529), members of the public continue to raise concerns over the operation of various companies around the world. A critical review of economic history reveals that this issue has persisted for a long time. For instance, reports are indicating the existence of legislation prohibiting market manipulation in medieval times. The presence of these rules and regulations attest to the fact that corporate governance and ethics is not a new issue.

Multinationals like Royal Dutch Shell are very influential in the world market. Such organizations have accumulated a lot of power and wealth. Their operations determine the development of ethics in society. In the recent past, Dutch Shell has been accused of engaging in unethical business practices. One of the most prominent scandals revolving around the operations of this company is the Shell-Nigeria incident in the 1990s (Connors 50).

In the Nigeria incident, the organization was criticized for its unbridled environmental destruction and degradation in Ogoniland (Connors 50). As a result of the company’s operations in the region, farmlands, air, and water were contaminated. As a result, instances of respiratory complications and other health conditions increased. Also, acid rains became frequent in the region. The quality of life in the region was negatively affected. The company appeared intent on making profits at the expense of the community.

In addition to environmental degradation, Shell was accused of facilitating political injustices in the region. For example, it was alleged that the company was supporting the dictatorial government oppressing the Ogoni people (Connors 50). The company also facilitated the execution of activists, such as Ken Saro Wiwa. The latter was executed in 1995 by the Nigerian military regime for protesting against environmental degradation caused by Shell Oil operations in Ogoniland.

More recently, Dutch Shell has been charged with the offense of violating numerous anti-corruption laws (MarketLine 26). The company is accused of contravening the US Foreign Corrupt Practices Act (FCPA). It has also violated the provisions made by the Department of Justice and the Securities and Exchange Commission (SEC). The breaches are concerning Shell’s usage of Panalpina freight forwarding firm.

Panalpina, a Swiss shipping and logistics company, was under investigation for making irregular payments in Nigeria, Saudi Arabia, and Kazakhstan. The practices were contrary to FCPA. The violations took place in 2007 (MarketLine 26). As a result, Dutch Shell agreed to comply with SECs ‘cease and desist’ orders. The decrees were made following violations of record-keeping and FCPA policies in another case related to Panalpina.

Another unethical behavior exhibited by Dutch Shell in the recent past includes the oil spills witnessed in Nigeria. The company is dealing with legal proceedings in the country as a result of these occurrences (MarketLine 26). In late 2008, two separate oil spills occurred in Ogoniland, Bodo District. In both instances, Dutch Shell failed to respond on time resulting in massive environmental damage. Oil leaked into nearby creeks and rivers, where massive destruction of habitat was witnessed.

Evaluation of Dutch Shell’s Ethics concerning Actual Ethical Performance

The company has a well documented and elaborate code of conduct. It also has the General Business Guidance Principles. Despite this, it continues to engage in unethical practices. The persistence of such activities affects the financial performance of the company. For instance, negative publicity tarnishes the entity’s brand image. Large sums of money are also used to settle legal matters, affecting the profitability of the company. Investor confidence is also eroded.

A critical assessment of Dutch Shell operations reveals that the company is not working towards the realization of the stated principles and ethical objectives. On the contrary, the multinational appears to focus more on profits than on social and environmental welfare. The company’s guiding code of conduct is subdivided into core values and business principles (“Shell General Business Principles” par. 2). The document defines the company’s economic, competition, business integrity, and political activities. It also addresses issues to do with the well-being of the community and the environment (“Shell General Business Principles” par. 2).

In light of these values and principles, it is clear that Dutch Shell has either failed to adhere to the code of conduct or neglected the document altogether. The incidents reported in Nigeria, for instance, indicate a violation of all the principles spelled out in the document. Where the principles are applied, Shell exhibits selfish interests in the long run.

The distinction between internal and external corporate governance is not made clear in Dutch Shell. Managers and executives should understand and adopt the various governance perspectives in the attainment of the company’s ethical objectives. Lack of this distinction may be one of the reasons why Dutch Shell has performed dismally on this front.

The company behaved unethically by not responding on time to the oil leaks in Nigeria. Besides, Dutch Shell appears to ignore the hazardous nature of its operations. The responsibility of the company towards the local communities is neglected in such cases. There are no reasonable or rational explanations for such actions. The activities negatively affect the operations of the company in the region. The ties between Dutch Shell and residents are strained in the process.

Several factors influence the establishment of an ethical culture and compliance with legal provisions among business firms. The Sarbanes Oxley (SOX) Act, which was enacted in 2002, provides a legal motive and framework for ethical behavior in business organizations. Dutch Shell’s code of ethics and general business principles are subject to SOX.

According to De-George (28), structural compliance components include corporate codes of ethics and conduct. They are adequate regulatory measures about the operation of executives and managers in business organizations. SOX requires managers to embrace ethical standards in efforts to mitigate the potential negative impacts of business operations (“Shell Code of Conduct: How to Live by the Shell General Business Principles” par. 29). It is a fact that Dutch Shell has performed below par as far as corporate ethics and codes of conduct are concerned. However, the firm appears to pay attention to ethics in its business operations.

Ethical Issues in International Business concerning Dutch Shell’s Practices

The organization is regarded as a disappointment concerning ethical conduct among multinationals. Some of the failures can be attributed to prevailing conditions in the international business arena. According to De-George (8), most of the ethical dilemmas and issues reported in contemporary business organizations are deep-rooted. For instance, some of them result from the local political systems, laws, culture, and economic development. The factors vary from one country to the other.

The aforementioned variations lead to what is regarded as ethical practice in one society being considered as unethical in another (Clark 44). The most common issues in the international business platform include corruption, violation of human rights, unregulated employment practices, and weak environmental regulations. Others include the moral obligations of multinational corporations (De-George, 13).

The ethical performance of Dutch Shell in Nigeria can be explained from different perspectives. For instance, the 1990s were characterized by crackdowns on civilians by the dictatorial government on behalf of Dutch Shell. Such activities can be regarded as ‘pretentious’ ethical conducts. It is possible the government had its reasons justifying the oppression of the locals. However, the assistance sought by Shell was used by the regime as an excuse to engage in blatant about human rights. However, there is no rational explanation for such incidents as the oil spills. The company simply failed to meet its moral obligations. Dutch Shell appears unable or unwilling to safeguard the safety and wellbeing of the community and the environment.

Recommendations and Conclusion

Ethical considerations among organizations are affected by the varying nature of cultural, organizational, and social realities. Dutch Shell’s code of conduct and general business strategy indicates an understanding of these factors concerning international business ethical issues. The major problem in Dutch Shell is the application and implementation of these principles.

Dutch Shell can take several measures to ensure that it addresses the issue of governance as far as its global operations are concerned. One of them is the creation of the position of ethics officer in the company. Besides, the company can come up with a committee to promote and enforce ethical policies in the firm. The agents will be charged with the responsibility of ensuring that employees adhere to ethical behavior in the company. Currently, business and corporate ethics in Dutch Shell do not fall under the auspices of any individual or organ in the organization.

The managers and executives need to understand the relative and absolute nature of ethics, together with the associated individual and collective implications. The problem of deviating from corporate ethical standards persists in the company. To this end, the managers and employees are not committed to these standards.

Codes of conduct are considered to be essential guides for managers and employees. As such, additional recommendations can enhance the company’s adherence to business ethics. A formal statement of expected standards, written general policies, and a cohesive and strong ethical culture will go a long way in enhancing the performance of this company.

As a multinational, Dutch Shell holds a lot of political and economic powers. It determines economic activities in different parts of the world. Power is usually accompanied by responsibilities. Dutch Shell appears to disregard these duties. There is a need to address the situation to improve the public image of the firm.

Works Cited

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Connors, Libby. “Environmental Racism: Australia, Shell & Nigeria.” Social Alternatives 16.2 (1997): 50-52. Print.

De-George, Richard. Competing with Integrity in International Business, Oxford: Oxford University Press, 1993. Print.

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Rossouw, Deon. “The Ethics of Corporate Governance: Global Convergence or Divergence.” International Journal of Law and Management 51.1 (2009): 43-51. Print.

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