The following sample essay on Royal Dutch Shell Stakeholders discusses it in detail, offering basic facts and pros and cons associated with it. To read the essay’s introduction, body and conclusion, scroll down.
A stakeholder is any individual or group which has a stake in a company. They therefore include the employees, suppliers, creditors, customers, shareholders and local communities that are affected by the actions of the business. I will be investigating whether Shell is able to fulfil all the needs of it stakeholders, by using secondary data collected from the company website and newspaper articles, in order to evaluate whether Shell has adopted either the stakeholder concept or the shareholder concept, and from this I will evaluate whether there are any conflicts between the stakeholders of Shell.
If a business adopts the shareholders concept, this means that the main and sole objective of the business is to maximise the value of the company, so in practice the management tries to make the shareholders as much profit as possible. Therefore any decisions that the management makes is in the interests of the stakeholders, which means that the business avoids conflicting objectives. The advantages of this are that, in the short term, the business may be able to improve its short term profitability, as they do not make any philanthropic donations, or spend money trying to satisfy any stakeholders.
The stakeholder concept has more objectives than just making the shareholders as much profit as possible, although this still remains one of the goals of the business, and the business attempts to fulfil the needs of all groups and individuals who are connected to the business. More and more businesses are adopting this concept, because it can improve a business’ reputation, and therefore give it a competitive advantage and can also attract socially responsible investors. However, problems can arise when the views of one stakeholder clash with the views of another.
Royal Dutch Shell (or Shell) is a multinational group of energy and petrochemical companies, which has bases in over 130 countries and more than 108,000 employees. It describes itself as a company that operates in “environmentally and socially responsible ways, safely and profitably”, however its competitive advantage is in its innovative methods of exploration and production of chemicals, as its reputation is still being built, due to a lot of controversy that has surrounded Shell for decades.
Shell wants to be seen as a socially responsible business that takes into account all the needs of its stakeholders, for example by looking for alternative sources of energy to replace finite resources, such as petrol. It is one of the biggest private sector organisations in the world, and in terms of operating profit, in 2006 it was the third most profitable company according to newspaper report, after making just over $26 million dollars after taxation. It 5 Year Financial Summary also shows that its income before taxation has increased every year from 2002 to 2006, and in fact has increased by over 155% in the past five years.
This shows that investors are happy, because they are being rewarded for their investment by gaining a substantial profit, which has grown largely due to rocketing oil and fuel prices. Shell’s record profits were largely due to record oil prices, especially in petrol, where the price topped a dollar barrel. Furthermore, the growth of production in Nigeria has helped to increase profits of the largest European oil company. In fact Shell was one of the only major oil companies to turn a profit in the 2nd quarter of 2007 (April to June), after a fall in profits was expected due to a 2% decrease in production.
Furthermore, earnings per share have increased by over 168% in the past 5 years, which shows that the value of their investment is improving continuously. However, the controversy surrounding Shell often leads to a fall in share prices, for example when Shell overstated its oil reserves by 20%, which caused investor anger, and a lot of selling of shares, which decreased the companies market value by $15 billion. A record profit is good news for employees, as if the company is growing, and then there is more money to explore for oil and gas, which means that their jobs are more secure.
An example is Shell’s i? 350 million investment programme for investments in Scotland, which it says will safeguard 300 jobs and create 100 new contractor jobs. Furthermore, Shell tried to address it social Royal Dutch Shell’s website says it recognises that employees are also a valuable stakeholder in the company and that their opinions are of the utmost importance, so it has a very democratic style in that it tries to listen to all employees and discuss are held before decisions are made, as they believe that that this management style is the best fit for their company.
Shell published a document in 2000 called “People and Principles”, in which it emphasised how its beliefs in being a socially responsible company, which attracted a lot of graduates into the company. However, since then Shell has gained a lot of bad publicity, especially as they are often in trouble over employee safety, such as their operations in the North Sea of the coast of Scotland, where “lapses in safety procedures” have caused a variety of complaints to be made.
Concerns have been raised by unions about the decrease in key personnel since Shell announced the sale of the instillations, which could leave staff unable to manage in the case of an emergency. Another example is the danger faced by their workers in Nigeria, due to pipeline explosions and the kidnap of oil workers in the Delta region. Fears have grown among employees and this in turn affects Shell’s share prices, which is bad news for investors as well.
Despite the fact that Shell claims to get their resources in the most environmentally responsible way, they are often at loggerheads with another stakeholders, the environmentalists, because although Shell has more than one objective, the environmentalists only have one, to protect the environment, and Shell continues to be heavily criticised for it’s environmental record. An example of this is in late July this year; Shell announced that they were to begin drilling for oil in the arctic, off the shore off Alaska, America.
Environmentalists believe that the impact of drilling on the wildlife (such as bowhead whales) would be catastrophic; however Shell (and its shareholders) opposed this. Furthermore, Russia has threatened to revoke Shell’s license for the development of oil and gas skills, due to what they believe to be Shell’s inability to address the safety concerns surrounding their Sakhalin project. Added to this, the Argentine government ordered Shell to shut down one of its refineries in Buenos Aires, as they discovered that the site didn’t have the correct environmental permits and had failed to conduct the necessary impact studies.
Action was taken after government inspections uncovered soil pollution and the Argentine government also accused Shell of illegally taking water from a local estuary. On all occasions, Royal Dutch Shell has fiercely defended itself, however the frequency of the allegations has damaged the reputation Shell has tried to build, as an ethically responsible company, and further disillusioned environmentalists about how socially responsible Shell is.
Overall, I believe that for such a competitive industry such as energy and chemicals, and with such a large company such as Shell, it is inevitable that there will be some clashes between stakeholders (such as the environmentalists and the stakeholders), because they all have different aims. I also believe that is impossible for Shell to fulfil all the needs of its stakeholders, because clashes between stakeholders means Shell often has to side with one or a group of stakeholders, which at the moment seems to be the shareholders.
I believe Shell must do more to prove that it is a socially responsible company, in order to satisfy the needs of more of its stakeholders, for example doing more to address safety concerns and increasing the investment in local communities in the countries where it explores for oil and gas, and increasing the amount of money it puts into making its process as environmentally friendly as possible.
Although, initially this would cost some money, the shareholders would eventually see a return in the longer term, because the benefits of building a reputation as a socially responsible company would attract a lot of new customers. Furthermore, it would attract the best graduates to the company, and would mean fewer disputes with local communities and governments, which would not only save money but also benefit Shell’s reputation.