TEACHING NOTE

for
SHELL OIL IN NIGERIA
This case illustrates the following themes and concepts discussed in the chapters listed:
Theme/Concept Chapter
Stakeholders: primary and secondary 1

Public relations and crisis management 2
Corporate social responsibility 3
Corporate codes of ethics 6
Corporate culture and ethical climate 6
thical reasoning 6
!oing business in a di"erse world #
$o"ernment regulation of business %
$lobal en"ironmental issues 12
Community relations and responsibility 1#
This case focuses on the crisis facing &oyal !utch'Shell( the international oil company(
following the e)ecution of *igerian no"elist and en"ironmental acti"ist +en Saro,-iwa
in *o"ember( 1%%./ Saro,-iwa had been president of the 0o"ement for the Sur"i"al of
the 1goni People 201S1P3( an organi4ation representing an ethnic group in the *iger
&i"er delta/ 01S1P had demanded greater political autonomy and cultural freedom for
the 1goni people/ 5t had also charged Shell with e)tensi"e en"ironmental degradation of
the *iger &i"er delta and had demanded reparations from the oil company/ 5n 1%%.(
Saro,-iwa was con"icted by a special military court of what many obser"ers thought
were trumped,up charges that he had ordered the murder of political opponents/
6ollowing his e)ecution( many critici4ed Shell for failing to pressure *igeria7s military
regime for clemency/ 8 number of en"ironmentalists( human rights organi4ations( and
political leaders called for an international boycott of Shell7s gasoline and other products(
and some called for the company to withdraw completely from *igeria/ This case
describes this situation( closing with Shell7s dilemma o"er how to respond to a growing
chorus of criticism/
The ob9ecti"e of this case is to help students think broadly about the ethical obligations of
multinational corporations doing business abroad( especially in repressi"e or
undemocratic regimes/ Specifically( students may be challenged to consider: !id Shell
do anything unethical in *igeria: -hat( if anything( could or should it ha"e done
differently: ;ow should Shell respond to its critics now: -hat are the ethical
obligations of multinational corporations that choose to conduct business in undemocratic
nations: <nder what circumstances( if any( do multinationals ha"e an obligation to
withdraw from repressi"e regimes: 0ore generally( what standards of ethical conduct
are appropriate for multinational corporations( and how should these standards be
promulgated and enforced:
Discussion Questions
1 Di! She"" Oi" !o an#thin$ %ron$ in Ni$eria& To pose the 'uestion some%hat
!ifferent"#( %hat ar$uments !i! She"" ma)e in !efen!in$ its actions in Ni$eria& Ho%
%ou"! She""*s critics counter these ar$uments&
5n defending its actions in *igeria( Shell made three main arguments/
Shell had always obeyed the law and complied with all rele"ant regulations in *igeria/
P&1: "idence in the case supports this contention/ Shell paid all royalties and ta)es
re=uired by law( e"en though the company may ha"e belie"ed them to be e)cessi"e( and
complied with e)isting en"ironmental regulations/
C1*: *o democratic process e)isted in *igeria> so the laws themsel"es may be "iewed
as illegitimate/ *igerian laws re=uiring that all oil re"enues go to the federal go"ernment
2controlled by northern ethnic groups3( with only 1/. percent returned to the oil,
producing states 2in the southeast3( "iolated ethical standards of distributi"e 9ustice and
were demonstrably unfair/
8lthough Shell complied with *igerian en"ironmental regulations( these were much less
strict than those to which the company was sub9ect in urope and *orth 8merica> the
company had an obligation to bring all its operations up to its highest international
standard/ 0oreo"er( because of the go"ernment7s conflict of interest( *igerian
regulations were not strictly enforced/
5t would ha"e been inappropriate for Shell to become directly in"ol"ed in politics or in a
criminal proceeding/
P&1: 5t is a well,established principle in most international codes of ethics that
corporations should not seek to influence or interfere with the internal political process or
legal proceedings in countries in which they do business/ Shell7s actions were consistent
with this principle/
C1*: !espite its disclaimers( Shell was in fact deeply in"ol"ed in *igerian politics,,on
many le"els/ These in"ol"ements included:
? its commercial 9oint partnership with the *igerian *ational Petroleum
Corporation( an arm of the federal go"ernment>
? its e)tensi"e financial support of the federal go"ernment( in the form of ta)es
and royalties that supplied perhaps as much as @A percent of the federal budget>
? its e)tensi"e collaboration with the *igerian police and military apparatus in
planning and pro"iding security for Shell installations/
<nder these circumstances( the argument that Shell needed to Bstay outB of politics was
dishonest and disingenuous/ The company was already deeply BintoB the political process
in *igeria/ The issue was not whether to e)ercise political influence( but how to e)ercise
political influence/ 8rguably( Shell Bstayed outB of politics in *igeria only when it was
e)pedient to do so/
-hen Shell installations and employees were criminally attacked( the company was
completely 9ustified in asking the police for assistance/
P&1: 8ttacks on Shell installations were clearly criminal( and they resulted in in9uries to
Shell personnel and e)tensi"e losses to the company in damaged property( spilled oil( and
lost production/ 5t is normal practice in all countries to re=uest police assistance when
pri"ate property is threatened/ 8lthough Shell7s pro"ision of handguns and logistical
support to the police and payments to police personnel would be unusual in urope or
*orth 8merica( it was an e)pected and normal part of business operations in *igeria/ 5t
would ha"e been inappropriate for Shell to ha"e pro"ided its own armed security/ Shell
had a fiduciary obligation to its shareholders to protect its capital in"estments on the
ground and a moral obligation to protect the safety of its employees/
C1*: -hen Shell called on the mobile police force for assistance( the company was well
aware of the 0P67s history of "iolence against ci"ilians/ The company should ha"e
insisted that the 0P6 refrain from the indiscriminate use of "iolence against ci"ilians(
and if this pro"ed impossible( should ha"e withdrawn from the area rather than continue
to cooperate with the 0P6/ !irect payments to the police are a form of corruption and
should ne"er be condoned( e"en in societies where they are common/ 8ny in"ol"ement
with 1kuntimo7s Btask force(B with its a"owed policy of terror against ci"ilians( was
unconscionable/ Cy pro"isioning and financing the police and paramilitary units
deployed in 1goniland( Shell bears moral responsibility for the murder of innocent
ci"ilians that resulted/ Shell should not continue to operate in any region where it can
only do so through the e)ercise of terror against a ci"ilian population/ 1ther( more
effecti"e and less "iolent methods could ha"e been used to deal with "igilante attacks/
+ ,hat cou"! or shou"! She"" ha-e !one !ifferent"# in Ni$eria&
5t is possible that Shell could ha"e done nothing to pre"ent this crisis/ ;owe"er( se"eral
steps might ha"e lessened its se"erity/ Shell could ha"e:
<sed its influence with the *igerian military authorities to seek a negotiated settlement
with the 1goni/
The *igerian authorities were clearly e)tremely eager to please Shell( as the company7s
acti"ities supplied a "ery significant proportion of the federal budget/ Shell thus had
considerable le"erage o"er the regime/ 5t could ha"e used its influence( publicly or
pri"ately( to pressure the regime( for e)ample( to increase the share of oil re"enues
returned to the oil,producing states> raise en"ironmental standards> or at least to meet
with 01S1P leaders to discuss their demands/ This strategy ran the risk of BmeddlingB
in politics/ ;owe"er( by doing nothing( Shell was percei"ed as condoning a highly un9ust
distribution of resources in *igerian society,,resources for which the company itself was
a primary source/
Independently initiated their own negotiations with MOSOP.
Shell did not ha"e to wait for the go"ernment> the company could ha"e entered into
negotiations with 01S1P directly/ The company no doubt belie"ed that 01S1P7s
reparation demands,, for D1A billion,,were preposterous and that any payments of
reparations would ha"e set a dangerous precedent/ ;owe"er( the company certainly
could ha"e negotiated o"er issues such as electrification of local communities( road,
building( and pro"ision of piped water and sanitation/
)plored alternati"e approaches to dealing with "igilante "iolence.
8pparently( the only reaction to ci"il disturbances that occurred to Shell was to call in the
police and( when this failed( to work with paramilitary forces/ Eet( the police and
military had little moral authority in 1goniland( and were able to operate only through
the use of terror/ 8n ob"ious solution that Shell did not pursue was to work with 01S1P
itself to control "iolence/ 01S1P leaders had disa"owed "iolence and( unlike the
military( had great moral authority( particularly among 1goni youth/ The potential
e)isted to negotiate a deal: 01S1P7s help in controlling "iolence( in e)change for
concessions in community economic de"elopment/ Shell7s apparent inability to see
01S1P as a potential partner was a critical mistake/
Cuilt more effecti"e relations with the local communities in which it operated.
8lthough Shell ga"e significant amounts of money to support local economic
de"elopment,,on the order of D2A million a year in the *iger delta,,the case indicates that
the company decided unilaterally how to spend these funds( and most local residents did
not percei"e much benefit/ The company should ha"e organi4ed community councils to
ad"ise the company on how to deploy its economic assistance budget/ 8fter the
emergence of 01S1P( that organi4ation could ha"e been gi"en a formal role in such an
ad"isory process/ The community would ha"e de"eloped a greater appreciation for
Shell7s efforts( and the company would ha"e recei"ed a better information about
community concerns and grie"ances/
0aintained higher en"ironmental and safety standards in its *igerian operations.
0eeting the standards set by *igeria7s weak and poorly enforced regulations was not
enough/ Shell should ha"e,,and easily could ha"e,,brought its *igerian operations up to
the standards it maintained in the de"eloped world/ This was especially important in a
situation( such as the *iger delta( where its operations encroached on a "ery densely
populated area/
;ired local people in its operations( at all le"els.
!iscrimination against the 1goni in employment 2for e)ample( by hiring them for the
dirtiest and most dangerous 9obs3 fueled the 1gonis7 perception of in9ustice and deepened
enmity against the company/ Shell should ha"e had programs in place to affirmati"ely
hire( train( and promote residents of the communities where their operations were located/
<sed its local influence to ha"e sought to restrain( rather than encourage( police "iolence.
6inally( Shell should ha"e instituted strict controls concerning cooperation with police/
Shell should not ha"e supplied the police or military with firearms( other e=uipment( or
money/ 5t should ha"e insisted on restraint and refused to cooperate with the police or
military in any situation in which terror was used/
. ,hat interna" or e/terna" factors contri0ute! to the emer$ence of this crisis for
She""&
Se"eral internal and e)ternal factors may ha"e contributed to the emergence of this crisis/
These include:
!ecentrali4ation.
&oyal !utch'Shell ran a "ery decentrali4ed operation/ 5n many respects( this benefited
the company( which was able =uickly and fle)ibly to take ad"antage of local
opportunities as they emerged/ Cut decentrali4ation also implied weaker controls o"er
subsidiaries/ 5n this case( it is possible that corporate directors in Fondon or The ;ague(
if they had had better information about the use of terror to protect Shell operations(
would ha"e inter"ened earlier/ ;owe"er( the case also contains clues 2e/g/( -iwa7s
con"ersations with 8nderson3 that corporate head=uarters may ha"e known about and
fully condoned its *igerian subsidiary7s actions/
Farge fi)ed capital in"estment.
&oyal !utch'Shell had an enormous capital in"estment literally Bon the ground(B in the
form of drilling rigs( pipelines( flowlines( terminals( and the like/ 5t also had a large
human capital in"estment( in the form of its 1%AA or so *igerian employees/ 8lmost all
of this capital e=uipment( and many of the company7s employees( would not or could not
lea"e the country in the e"ent of the company7s withdrawal/ This created a huge
incenti"e for Shell to stay in *igeria> it would ha"e been "ery difficult and e)pensi"e for
Shell to Bwalk awayB from the problem/
Strategic importance of *igeria to the parent firm.
*igeria was "ery important to the parent firm as one of the company7s primary sources of
high grade Bsweet crude(B the ma9or ingredient of gasoline/
6undamental in9ustice at the core of *igerian society.
*igerian ci"il society was predicated on a fundamental in9ustice: e)propriation of the oil
wealth of the *iger delta for the enrichment of the ;ausa,6ulani dominated military elite
and their allies/ 8rguably( Shell was in no way responsible for this situation( which had
resulted from a long and tangled legacy of colonialism and ci"il war/ ;owe"er( its
commercial partnership with the **PC made the company seem complicit in this
in9ustice/
8tmosphere of corruption.
Corruption was per"asi"e in *igerian society/ 5n this conte)t( many actions that would
be "iewed as morally reprehensible elsewhere 2e/g/( payments to the police3 came to be
seen as normal/
Fack of counter"ailing pressures.
5n *igeria7s undemocratic society( there were few groups,,until the emergence of
01S1P,,pushing Shell for greater accountability( for e)ample( on en"ironmental issues/
<ntil recently( *igeria has attracted little attention in the international community/
Fack of a written code of conduct.
Shell was apparently operating without an e)plicit code of ethics or code of conduct/
1 ,hat shou"! She"" !o no%&
Shell has a number of options/ These can be arrayed on a grid( from ma)imum
disengagement to ma)imum engagement/ 5n addition to the specific steps discussed in
the response to =uestion 223( abo"e( broad strategic options a"ailable to Shell range from
ma)imum disengagement to ma)imum engagement/ 2*ote: not all options listed below
are mutually e)clusi"e/3 These may be summari4ed 2from most disengaged to most
engaged3:
-ithdrawal : withdraw from *igeria> sell assets to *igerian go"ernment or to another
multinational oil company for the best possible price> transfer out those *igerian
employees willing to relocate
P&1: a"oids in"ol"ement with a corrupt regime> a"oids further en"ironmental
contamination> a"oids possible international boycott or criticism> a"oids danger to staff
from ci"il disturbances

C1*: loss of re"enue from *igerian operations 21@G of company7s profit worldwide3>
possible loss on sale of capital assets( depending on the sale price to another firm>
en"ironmental and employment policies of replacement firm or firms might be worse
than Shell7s> loss of 9obs for *igerian employees unable to relocate> loss of opportunity
for constructi"e engagement in *igeria

Partial withdrawal : withdraw 2or remain withdrawn3 from those regions in *igeria
where ci"il disturbances are most threatening> continue operations in other regions
P&1: achie"es some of the benefits of 213 without complete loss of re"enue and possible
losses on sale of assets
C1*: has many of the same negati"e effects of 213( although proportionately reduced
Public relations campaign : mount a public relations campaign in response to calls for an
international boycott of Shell products
P&1: may decrease ad"erse impact of international criticism or boycott on sales> may
decrease the likelihood of shareholder criticism>
C1*: no ob"ious disad"antages( although may be percei"ed by some as hypocritical or
disingenuous
&emedy en"ironmental damage : attempt to remedy en"ironmental damage or to pro"ide
compensation to those in9ured by en"ironmental spills or accidents
P&1: blunts international criticism> impro"es relations with 1goni people and reduces
the likelihood of ci"il "iolence should Shell recommence operations in 1goniland
regime>
C1*: possibly e)pensi"e> re=uires admission of responsibility
&eopen operations : attempt to recommence operations in 1goniland
P&1: recaptures lost re"enue> e)pands employment opportunities for *igerians>
pro"ides opportunity for constructi"e engagement in 1goniland
C1*: continued in"ol"ement with corrupt regime> threat of international criticism and
boycott> further en"ironmental contamination likely
)pand operations: in *igeria( e/g/( through completion of the li=uefied natural gas
pro9ect or construction of new oil fields and refining facilities
P&1: ad"antages of 2.3( plus recaptures some flared gas( reducing en"ironmental
damage
C1*: same as 2.3

Teachin$ Tip
Students may be asked to select one or more or these
options and draft a memo to top e)ecuti"es defending
their recommendations/
2 E-a"uate She""*s actions in Ni$eria in reference to an e/istin$ co!e of con!uct for
mu"tinationa" or$ani3ations Do #ou 0e"ie-e that She"" %as in comp"iance %ith the
co!e #ou ha-e se"ecte!& If not( ho% not& Do #ou 0e"ie-e the co!e #ou ha-e se"ecte!
is appropriate an! a!e'uate&
Students should prepare by reading one or more codes of conduct for international
business( or essays defining standards for ethical conduct in international business/
There are many ways to approach this assignment( depending on the code selected/ To
gi"e one e)ample( drawing on !onaldson7s model/ 5n his book( The thics of
5nternational Cusiness( !onaldson argues based on social contract theory that
multinational corporations ha"e certain duties with respect to the rights of others/ These
rights are:
$roup one:
1/ freedom of physical mo"ement
2/ ownership of property
3/ freedom from torture
@/ fair trial
$roup two:
./ nondiscriminatory treatment
6/ physical security
#/ freedom of speech and association
H/ minimal education
%/ political participation
1A/ subsistence
5n the case of group one rights( the 0*C has only the duty to a"oid depri"ing others of
these rights> in the case of group two rights( the 0*C has the additional duty to help
protect others from depri"ation of these rights/
Shell7s actions can be analy4ed through the framework of such guidelines/ 6or e)ample(
did Shell ade=uately protect its employees( customers( and community residents from
depri"ation of their rights to physical security and to political participation: 1ne of the
interesting intellectual pu44les not really answerable within !onaldson7s framework is: to
what e)tent is indirect support by a 0*C for "iolation of rights 2for e)ample( Shell7s ta)
support of the federal go"ernment( which in turn depri"ed some of its citi4ens of the right
to a fair trial3 a "iolation of international business ethics:
4 In #our opinion( is it possi0"e to !e-e"op a uni-ersa" set of ethica" stan!ar!s for
0usiness 5ethica" uni-ersa"ism6( or !o cu"tura" !ifferences ma)e uni-ersa" stan!ar!s
impractica"( if not impossi0"e 5ethica" re"ati-ism6& Do #ou 0e"ie-e that She""*s
0eha-ior %as 7ustifia0"e on the $roun!s that it %as consistent %ith "oca" 5Ni$erian6
ethica" stan!ar!s&
Iuestion 2.3 assumes that it is possible and( indeed( beneficial( to codify a set of
uni"ersal ethical standards for business/ The <nited *ations( as well as a number of
pri"ate organi4ations 2e/g/( the Cau) &oundtable3( and leading scholars of business ethics
2e/g/( Thomas !onaldson and &ichard !e$eorge3 ha"e attempted to draft such codes of
conduct for international business( as described in the response to Iuestion 2.3/
;owe"er( an alternati"e "iew( ethica" re"ati-ism( maintains that cultural and
socioeconomic differences among nations makes it difficult( if not impossible( to create a
uni"ersal set of ethical standards/ 8ccordingly( it is appropriate to ad9ust beha"ior to
make it consistent with local ethical standards/
6or e)ample( in !onaldson7s framework( discussed abo"e( corporations are assumed to
ha"e a global obligation to help protect others from depri"ation of their rights to free
speech and association and political representation/ 8pplied to *igeria( this argument
might mean that Shell had an obligation to inter"ene to help secure Saro,-iwa7s release
from prison/ 8n ethical relati"ist( on the other hand( might argue that these principles do
not apply uni"ersally/ 5n *igeria( the rights to free speech( free association( and political
representation were not constitutionally protected and( in fact( were routinely denied by
the military go"ernment/ <nder these circumstances( an ethical relati"ist might argue
that Shell had no special obligation to inter"ene to secure Saro,-iwa7s release> and( in
fact( to do so would "iolate locally accepted standards and 9eopardi4e Shell7s continuing
relationship with the *igerian authorities/
Teachin$ Tip
6or a recent discussion of the application of the theory of
ethical relati"ism to business practices abroad( see:
Jeffrey &/ Cohen( Faurie -/ Palnt( and !a"id J/ Sharp(
BCultural and Social Constraints on 5nternational Codes of
thics: Fessons from 8ccounting(B Journal of Business
Ethics 11: 6H# , #AA( 1%%2/
Epi"o$ue
1n 0ay 1A( 1%%6( Shell *igeria7s managing director Crian 8nderson announced the
company7s intention to resume oil operations in 1goniland if it could reach agreement
with 1goni leaders/ The company agreed immediately to clean up all oil spills in the
region( whether caused by company negligence or sabotage/ 5t also promised to resume
community de"elopment pro9ects abandoned when it withdrew from the region in 1%%3/
8nderson said that the proposal was made Bin the spirit of cooperation/ 8ll we need to
start the process is the assurance of all 1goni communities that our staff can work safely
in 1goniland/B
1
The company also pressed ahead with its plans to build a li=uefied
natural gas pro9ect( despite cancellation of -orld Cank funding/ 5n a separate inter"iew(
&oyal !utch'Shell President Cor ;erkstroter said: B-e want a constructi"e solution/
Fea"ing *igeria doesn7t get you that/ 5t is much more constructi"e to stay there and do
the right things( such as reconciliation/B
2
5n *igeria( human rights abuses in 1goniland continued and( in some respects(
intensified/ 0ost sur"i"ing leaders of 01S1P fled the country( and many 1goni were
li"ing as refugees in neighboring countries/
5n *o"ember 1%%6( Saro,-iwa7s family filed suit against Shell in </S/ federal court in
*ew Eork( charging the company with wrongful death and human rights "iolations/ The
plaintiffs claimed that Shell had held meetings with the military regime Bto discuss
1
BShell -ants to $o Cack to 1goniland( Kows &econciliation(B !eutshce Press,8gentur( 0ay 1A( 1%%6/
2
BShell Searches 5ts Soul !uring Troubled Times(B The 6inancial Times( 0ay 1A( 1%%6/
strategies concerning the unlawful e)ecution of Saro,-iwa/B The lawsuit was
unresol"ed( as of 2AA1/
5n response to international criticism( Shell took se"eral actions to reform its practicesL
and its reputation/ These efforts are described in the following case( MThe Transformation
of Shell/N
8u"time!ia 9ersion A-ai"a0"e
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