PART ONE – INTEGRATING CASE 1
Royal Dutch Shell in Nigeria: Operating in a Fragile State
Synopsis
This case begins when Benjamin Aaron, a conflict resolution and public policy consultant, is receives a request from one of his important clients, a potential new member to the board of Royal Dutch Shell, to provide advice on how to address the problems that Royal Dutch Shell faced in Nigeria.
The case walks through the corporate stigma faced by Shell, which, despite efforts to the contrary, was identified as the “winner of the villain of the Nigerian environment Public Eye Aware” at the 2005 World Economic Forum. The case goes on to review the turbulent political history in Nigeria, and then describe the steps that Shell has taken to establish socially responsible business practices in Nigeria. The case focuses in on the oil-rich Niger Delta region, and describes how violence and corruption has led to social unrest in the region.
Despite Shell’s significant foreign direct investment in Nigeria, the social benefits to the local people have been largely unrealized. Instead, oil prices are growing higher and local communities are in uproar. Shell’s challenge is to help improve its image and maintain its long-term economic viability in Nigeria.
Teaching Objectives
The case is intended to introduce students to the kind of complex issues that a major multinational corporation (MNC) may encounter when operating and doing business in a developing country that is politically, economically, and socially unstable.
The issues and topics up for discussion include political risk, economic risk, ethical dilemmas, human rights, corporate social responsibility, environmental management, sustainable development, stakeholder management, public policy, legal rights and the rule of law, foreign direct investment, property rights, conflict management and negotiations, to name a few.
Case Discussion Questions
Shell has been in Nigeria for more than 60 years. What has made Shell’s operations in Nigeria more at risk and simultaneously more valuable?
What political risks does Shell face in Nigeria?
Does Shell have the option to pull out of Nigeria?
How do the roles of the government and the MNCs differ?
What underlying assumptions, observations and recommendations should Benjamin Aaron include in his brief?
Analysis
Shell has been in Nigeria for more than 60 years. What has made Shell’s operations in Nigeria more at risk and simultaneously more valuable?
The fact that Shell has such a large investment in Nigeria is beneficial because the world’s demand for oil has been increasing. This automatically puts Shell in a potentially valuable position, as they stand to reap extraordinary profits by providing the majority supply from this region, to meet this demand. It also places Shell at greater risk because the stakes involved in extracting their product in this region are higher.
The issue of transparency has also product a risk-benefit situation in that there are greater pressures to disclose financial and operational details to the public. The benefit of transparency is that it can improve public image and trust from its stakeholders. On the down side, they open themselves up to greater scrutiny as to how they are operating their business.
The labor force is yet another component that adds both benefit and risk. Shell employs a substantial portion of the population – nearly 10,000 employees, the majority of which are Nigerian. As such, Shell has a significant impact on the local economy. The risk is that, the local labor organization (unions) can dramatically affect the ability to operate seamlessly.
Finally, powerful NGOs have emerged as of late, some of which have the propensity to impact Shell positively – but others quite negatively by way of political influence and good/bad publicity.
What political risks does Shell face in Nigeria?
Shell faces a host of political issues in Nigeria, ranging in scope and complexity. They must deal with the national government, regional and local governments, local people and tribes, and powerful NGOs.
As we saw in the case, not only are there challenges in facing these groups individually, but there are additional challenges due to the inter-connection of these groups. For example, the national government was receiving profits from Shell; however, those profit gains were not adequately being realized in the local communities in the Niger Delta regions, suggesting corruption within and/or between the governmental entities.
Each of the groups have differing agendas, increasing the volatility of this region. Further complicating their operation in Nigeria, there are overarching inadequacies in terms of corruption, bribery, and an overall weak legal system.
Does Shell have the option to pull out of Nigeria?
It would be quite difficult for Shell to pull out of Nigeria at this point, for a variety of reasons:
The steep investment Shell has made in Nigeria creates a strong tie and motivation to remain in the region
The opportunities for profit in the oil and gas markets are simply too valuable to walk away from
There is a fiduciary responsibility to the stakeholders, which would arguably be violated if Shell were to pull out, as the economic and social effects could be devastating to the region
Nigeria would not likely be better off, nor would the problems of corruption and social unrest be solved, by a Shell retreat and alternative oil & gas player’s takeover of the region. Nigeria would still be facing the same problems.
How do the roles of the government and MNCs differ?
It should be clear that the role of government and the role of MNCs are distinctly different.
One way to define the differences in their roles is to determine and analyze who and what they are responsible for. The multinational corporation has responsibility to the shareholders, whereas the government has a responsibility to the people within their jurisdiction.
The MNC is thus, motivated by the return of profit to the shareholder. It does this by maximizing profits, but in a manner that is socially responsible. Why is the social responsibility of any importance? There are various motivational theories, as is explored in this text, but using the motivation factor of satisfying shareholders, the answer (and assumption) is that shareholders expect companies to act in a socially responsible manner. To apply this to the current case, then, Shell should take steps to assure environmental and social viability in the Nigerian region.
The government, being responsible for its people, will behave in a manner that is largely dependent upon its agenda for the country/locality over which it governs. In this example, the Nigerian government provided opportunity for foreign direct investment by Shell, and thus, this investment should have been used by the government to better its people and country. Unfortunately, it has not been used in this manner. The government’s role should also include responsibility for the safety of its people and natural resources – something else that has not been done.
Unfortunately, the government has not fulfilled its role, but Shell and other MNCs should not, and often times cannot, assume these responsibilities on their behalf.
What underlying assumptions, observations and recommendations should Benjamin Aaron include in his brief?
It is appropriate to assume that Shell has made great efforts to try to improve the situation in Nigeria, but to little or no avail. Conversely, it is also safe to assume that Shell has been somewhat successful in their ability to survive and thrive in an unstable and inhospitable environment. After all, they have been doing business there for 60 years.
Benjamin Aaron’s observations and recommendations should address the challenges that are growing more complex for Shell in Nigeria, especially in its joint venture operation, SPDC. Despite their efforts to do the right thing, Shell is still facing significant public image problems, and they are the convenient scapegoat for all that is wrong in Nigeria.
From a corporate perspective, Aaron should propose that Shell take an integrated and long-term approach to mitigate risk and restore credibility. The recommendations should address Shell’s long-term strategy in Nigeria, a defined corporate social responsibility agenda that is transparent to all, and a plan of action to work more strategically and effectively with the stakeholders in the region – the governments and NGOs alike.
Lessons
This case depicts many of the complex issues involved for multinational companies when doing business in developing countries
This case raises the situation of multinationals evaluating whether to remain in a country, or to pull out
The case also explores the issue and importance in an organization defining its core values, tied to social responsibility
PART ONE – INTEGRATING CASE 2
Organizational and National Cultures in a Polish – U.S. Joint Venture
Synopsis
This case focuses on the experiences of a U.S. company with their Polish joint venture. It depicts succinctly some of the major challenges facing U.S. companies as they operate in a former communist country. Specifically, the case shows how U.S. cultural values clash with the Polish’s values and focus on how expatriates can manage this situation. The interesting aspect of the case is that the Polish workers are generally very interested in U.S. management styles – however, they clash on some issues.
Case Purpose and Objectives
This case provides a good understanding of the challenges facing companies operating in former communist societies. This strengthens the knowledge base as students deal with yet another former communist country.
The case also shows workers in such societies generally distrust each other. This is the result of decades of the effects of a system where promotion and success is dependent on your connections rather than performance.
The case also generally depicts the situation faced by multinationals as they try to motivate their workers. Western-based styles don’t always work well.
The case raises important issues regarding cultural differences. It is written clearly enough for students to readily see the differences between U.S. and Polish culture and how they affect the work environment.
The case also provides the opportunities for students to think about what to do in such situations.
Possible Discussion Questions
What are some important cultural differences between the Polish and the U.S?
Using the Hofstede's and 7d cultural dimension models, explain some of the cultural differences noted in the case.
What are some institutional explanations forhow the Polish workers are reacting to U.S.management style?
How can thejoint venture take advantage of the initial enthusiasm of the Polish managers to build a stronger organization?
What cultural adaptations would you suggest to the U.S. expatriates managers regarding their management styles?
Analysis
What are some important cultural differences between the Poles and the U.S?
This is a fairly simple question – but makes students think about culture and sources of cultural differences. Differences include:
Teamwork vs. individualism – Poles tend to be more individualistic than Americans because of the communist system, making every worker think for his/her own benefit.
Merit, age, and seniority – Poles respect older people, and they believe that young people cannot have the knowledge and experience to manage.
Trust – Poles don’t trust as easily as Americans.
Informality – Poles are more used to formal communication skills – Americans tend to be more informal and direct in their communications.
Poles expect to be hired immediately as managers. They do not see the importance of experience in the basic business functions of the people reporting to them, whereas Americans believe you need to “earn your spurs” first.
Poles want a clearer distinction between work and family. They see the necessary hard work as an intrusion on their family life.
Polish managers are more likely to use criticisms and negative feedback rather than seeing the value of positive feedback.
Using the Hofstede's and 7d cultural dimension model, explain some of the cultural differences noted in the case.
This question can be answered in several ways. First, students can make possible inferences by looking at Hofstede’s major cultural dimensions and explain the cultural differences. However, students can also research Poland actual scores on cultural dimensions – Hofstede latest publications provide the following:
Power distance: Poland: 68; U.S.: 40 Uncertainty avoidance: Poland: 93; U.S.: 46 Individualism: Poland: 60; U.S.: 91 Masculinity: Poland: 64; U.S.: 62 Long-term orientation Poland: 32; U.S.: 29
The major first major difference is that the Poland is clearly a higher power distance society. This explains the fact that promotions/evaluations are based on trustworthiness. As the text documents, this can also explain the general dislike for work and acceptance of inequality. This can also help the general distrust.
The second major difference is that Poland is a very high uncertainty avoidance country. This explains why seniority and age is a valued component in Polish. For instance, seniority is a typical criterion for promotion as it reduces uncertainty.
With regards to the 7d model, the following scores are provided for each dimension:
Universalism: Poland: 37; U.S.: N/A Individualism: Poland: 87; U.S.: 77 Neutral: Poland: 96; U.S.: 54 Specific: Poland: 90; U.S.: 77 Achievement: Poland: 39: U.S.: 97 Past orientation Poland: 27; U.S.: 14 Future orientation Poland: N/A; U.S: 21 Internal control Poland: 100; U.S: 66
The first major difference for the 7d model is for the neutral dimension. The high Polish scores provide some explanation for the Pole’s level of formality – in more neutral cultures, people are expected to act more under control and not to reveal thoughts or feelings. This translates into a higher level of formality.
A second critical difference is for the achievement dimension. The lower Polish scores provide an explanation for the preference for seniority (i.e., it is more of an ascription society where status is based on background rather than performance). This also provides an explanation for the Pole’s general preference for titles.
A third critical difference is on internal control. With a score of 100, Poland shows a strong drive to try to control their environment, whereas Americans have more tolerance for volatility, and more of a “take it as it comes” attitude.
What are some institutional explanations forhow the Polish workers are reacting to USmanagement style?
The major explanation here is some of the institutional effects of the communism system and how it affects workers
For instance, as the text suggests, Poles are used to a communist system where success is dependent on personal connections and affiliation with the party rather than performance – thus this explains their desire to be hired as managers without the appropriate qualifications