CASE STUDY REPORT

BUSINESS ETHICS AND CORPORATE GOVERNANCE

EIB20103

GROUP MEMBER’S NAME ID NUMBER

1. NUR SYAFIQAH BINTI ZAIDAN 62212118415
2. ASWAD BIN ZAHIRAN 62212118505
3. ANATI FARZANA BINTI MOHD 62212118266
ZAILI
4. MOHAMMAD AMIERUL BIN 62212118544
PAUZI
5. SOULTANE CHAIBOU ISSOUFOU 62212118001

GROUP: ME20

LECTURER’S NAME: AZIZAN BINTI MOHAMED ISA

DATE OF SUBMISSION: 21st MAY 2019

Table of Contents
1.0 Introduction ................................................................................................................ 3

1.1 Company’s Background ..................................................................................................... 3

1.2 Shell Logo Evolution ......................................................................................................... 4

1.3 Shell Allocation .................................................................................................................. 5

2.0 Issues/Case/Offence.................................................................................................... 7

2.1 Bribery................................................................................................................................ 7

2.2 Oil Leakage ........................................................................................................................ 8

3.0 Possible Cause of The Problem Occurred .................................................................. 9

4.0 Corrective Measures Taken by The Company ......................................................... 10

4.1 Shell to start cleaning up 2008 Nigeria oil spills.............................................................. 10

4.2 Shell to pay $48m Nigerian bribe fine ............................................................................. 11

5.0 Recommendation and Conclusion ............................................................................ 12

References ........................................................................................................................... 13

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1.0 Introduction
1.1 Company’s Background

The Royal Dutch Shell Group was created in April 1907 through the combination of two rival
companies. The Royal Dutch Petroleum Company of the Netherlands and the Shell Transport and
Trading Company Limited of the United Kingdom It was a move largely driven by the need to
compete globally with Standard Oil. The Royal Dutch Petroleum Company was a Dutch company
founded in 1890 to develop an oilfield in North Sumatra.

The Shell Transport and Trading Company was a British company, founded in 1897 by Marcus
Samuel, 1st Viscount Bearsted, and his brother, Samuel their father had owned an antique company
in London, which expanded in 1833 to import and sell seashells, after which the company "Shell"
took its name.

The Shell logo is one of the most familiar commercial symbols in the world. This logo is known as
the "pecten" after the sea shell on which its design is based. The yellow and red colours used are
thought to relate to the colours of the flag of Spain, as Shell built early service stations in California,
previously a Spanish colony. The current revision of the logo was designed by Raymond Loewy in
1971.

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1.2 Shell Logo Evolution

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 1.3 Shell Allocation

1.3.1 Africa

Shell began drilling for oil in Africa during the 1950s. Shell began production in Nigeria in 1958.
shell operates in the upstream oil sector in Algeria, Cameroon, Egypt.

1.3.2 Asia
1.3.2.1 China

The company has upstream operations in unconventional oil and gas in China. Shell has a joint
venture with PetroChina at the Changbei tight gas field in Shaanxi, which has produced natural gas
since 2008. The company has also invested in exploring for shell oil in Sichuan.

1.3.2.2 Hong Kong

Shell has been active in Hong Kong for a century, providing Retail, LPG, Commercial Fuel and
Chemicals services and products. Shell also sponsored the first Hong Kong-built aircraft, Inspiration
for its around-the-world trip.

1.3.2.3 Malaysia

Shell discovered the first oil well in Malaysia in 1910, in Miri, Sarawak. Today the oil well is a state
monument known as the Grand Old Lady. In 1914, following this discovery, Shell built Malaysia's
first oil refinery and laid a submarine pipeline in Miri.

1.3.2.4 Philippines

Royal Dutch Shell operates in the Philippines under its subsidiary, Filipinas Shell Petroleum
Corporation. Its headquarters is in Makati City and it has facilities in the Pandacan oil depot and
other key locations.

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 1.3.2.5 Singapore

Shell has a strong presence in Singapore; indeed, Singapore is the main centre for Shell's
petrochemical operations in Asia Pacific region. Shell Eastern Petroleum limited (SEPL) have their
refinery located in Singapore's Pulau Bukom island. They also operate as Shell Chemicals Seraya in
Jurong Island.

1.3.3 Europe
1.3.3.1 Ireland

Shell first started trading in Ireland in 1902.

1.3.3.2 United Kingdom

In the UK sector of the North Sea Shell employs around 4,500 staff in Scotland as well as an
additional 1,000 service contractors: however, in August 2014 it announced it was laying off 250 of
them, mainly in Aberdeen.

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2.0 Issues/Case/Offence
2.1 Bribery

In 2010, Shell was accused of bribery practice with Nigerian officials in order to gain profit. Shell
bribed Nigerian officials to make it easier for them to import goods and equipment, get lower taxes
and avoid the customs. Shell said that it paid 2 million U.S Dollars to its Nigerian Workers in its
deep water Bonga Project.

Shell actually knew that part of the money will go to Nigerian officials whom will make shell avoid
the customs process. This will give shell an obvious competitive advantage in the market. Shell
actually gained $14million profit from this bribery of the Bonga project. Shell will pay $48.1 million
dollars in order to settle probes by the U.S Justice Department and Securities and Exchange
Commission.

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 2.2 Oil Leakage

1958 - Shell starts drilling for oil in Nigeria

1993 - Shell ceases drilling in Niger Delta region

1995 - Execution of MOSOP leaders resulting in local mistrust of Shell

2008 - Two of the largest and destructive oil spills in the history of the country

2013 - Precedent court judgment passed holding Shell accountable for damages

2015 - Monetary compensations agreed upon and partially paid

Due to compromised pipelines, the 2008 oil spills in the Nigeria Delta caused several hundred-
thousand barrels of oil to spill triggering the worst environmental damages the country has ever seen
(Shell). The spills contaminated in enough swamps and water channels to equal the size of Portugal
and resulted in the largest loss of mangrove habitat (Gerken). It affected the lands and livelihoods of
over 45,000 inhabitants and 35 villages (Gerken). After accepting responsibility for the spills, Royal
Dutch Shell then disputed the amount that was spilled partially blaming other parties and how much
compensation should be paid.

In 2013, during a precedent court cases, Shell was found guilty of neglect becoming the first company
held responsible in its own country for abuses committed somewhere else (Hennchen 2). During the
legal process, it became evident that Shell knew since 2002 that most of the pipelines were old and
hazardous needing replacement (Oil Spillage). The court ordered the company to pay compensations,
totalling $84 million, and to clean up the effects of the spill.

This case is considered to have international significance because of the controversy over the scope
of responsibilities of multinational corporations operating in a controversial human right setting
(Hennchen 2). Lawyer Martyn Day who represented the Bodo community in the lawsuit said it was
“deeply disappointing that Shell took six years to take this case seriously and to recognize the true
extent of the damage these spills caused to the environment and to those who rely on it for their
livelihood” (Shell).

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3.0 Possible Cause of The Problem Occurred

The main reason that shell wanted to bribe Nigerian government was that they wanted to pay less
taxes and easier import of their needed equipment, which eventually leads to higher profit. Thus,
they only looked for profit and to reach that, they choose bribery as an unethical practice. They
shouldn’t do that because even if we don’t consider bribery as an unethical practice it was illegal and
against law in Nigeria, however we know that bribery is an unethical practice indeed.

The next thing is that bribery encourages corruption, and this action hurts the poor the most as they
have to pay for something which is free and they get into trouble for paying the amount, because
they cannot afford it. When a large company like Shell practices, in this case bribery, which is
defiantly unethical, this act will spread to the whole society and affect the society in large (Tempo,
2005).

Moreover, when you start paying bribe for the first time it leads to demand for more bribes and work
as a kind of temptation. So, it is better never start it. Aid agencies trying to provide free services for
those who need help and it is not morally accepted and expected from officials to try to make money
from those services that supposed to be free. We believe and agree that Shell did something which
is morally wrong and ethical person won’t advocate it, but there is a positive point in shells’ case.
Shell accepted that they did and unethical and wrong action and admitted their mistake, they also
agreed to pay $48m in criminal and civil fines. However, shell had to admit their mistake but still we
can consider it as a positive movement from shell and we can hope that Shell try to be an ethical
company from now onwards, stop their unethical business practices and try to gain profit while
following ethical business practices (Temp,2005).

This report examines various unethical practices of Shell. Firstly, it investigates upon the historical
background of Shell. Moreover, we have related Shell’s immoral issues to the ethical theories. Along
with these principles we also suggest some recommendations which could be reasonably essential
for Shell to operate in a better and efficient manner.

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4.0 Corrective Measures Taken by The Company
4.1 Shell to start cleaning up 2008 Nigeria oil spills

i. Royal Dutch Shell agreed in 2015 on a 55 million-pound ($68.62 million) settlement with
the Bodo community after accepting liability for two pipeline leaks due to corrosion that
contaminated their land.

ii. But progress to clean up the spill has been slow after Shell said members of the community
had denied it access in August 2015 when work was set to begin. A community representative said
they were unhappy with the contractor Shell picked.

iii. After months of wrangling, the parties have reached agreement and clean-up work is set to
start in April, said the chairman of the Bodo Mediation Initiative (BMI), a program started in 2013
by the Dutch ambassador to Nigeria.

iv. The BMI is mediating between Shell's Nigeria subsidiary Shell Petroleum Development
Company of Nigeria (SPDC) and the Bodo community. It also includes representatives from the
United Nations Environmental Programme, the local government, the Dutch embassy and several
non-governmental organizations.

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 4.2 Shell to pay $48m Nigerian bribe fine

i. The US Department of Justice hit the London-listed oil super-major with the penalty, after
Panalpina, which was employed by Shell, agreed to plead guilty to taking bribes on behalf of its
clients.

ii. Panalpina, a major Swiss freight and logistics company, must pay $82m in fines after
admitting to paying bribes to customs officials in at least seven countries including Nigeria, Brazil
and Russia between 2002 and 2007.

iii. Four of Panalpina's other clients in addition to Shell were also fined, including Transocean,
Tidewater, Pride International and Noble Corp. Four of Panalpina’s, which was employed by Shell
also get fined, agreed to plead guilty to taking bribes on behalf of its clients

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5.0 Recommendation and Conclusion

Firstly, if Shell wants to get back its reputation after the Nigeria bribery incident, they have to change
their vision, not the written vision statement, in fact they have to change their insight toward the
business they are doing and try to change their practices in a way that help and satisfy people instead
of hurting them. They should keep in mind that business is not about gaining profit from whatever
way, rather it is about gaining profit from providing services in a way that satisfies customers and if
they act ethically eventually, they will gain enough profit as they have satisfied people behind their
back who support the company.

Shell should be considered guilty in this case and be fined for their unethical business practice.
Furthermore, Nigerian government should be accountable and responsible for their action as well.
The amount of fine that usually determined by courts should be either used for research purposes or
as financial aid to help people around the globe. If they do so, Shell will force to do something that
they escaped from and try to improve their instruments and facilities by doing research and
development instead of trying to gain profit without thinking about safety and effects of their action
on stakeholders.

Stricter rules and regulations regarding the bribery issue and control of governments over their
companies can lead to termination of bribery in long term. If Shell maintains a strict no bribe policy,
in long term bribe takers won’t ask for it anymore. Then even if they fail in their business, they won’t
blame themselves for paying bribes and they will know that there was something wrong with their
facilities and services.

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References

1. The Unethical Business Practices of Shell Commerce Essay. (n.d.). Retrieved from
https://www.ukessays.com/essays/commerce/the-unethical-business-practices-of-shell-
commerce-essay.php

2. Unknown. (1970, January 01). Royal Dutch Shell: Company's Precedent Court
Case/Judgment (2013). Retrieved from http://businessethicscases.blogspot.com/2015/11/a-
shell-in-court-2013-royal-dutch-shell.html

3. Sahrudayaartz Follow. (2017, May 07). Shell Unethical Practices. Retrieved from
https://www.slideshare.net/sahrudayaartz/shell-unethical-issues

4. Hood, S. (2018, October 20). The Unethical Business Practices Of Shell Commerce Essay
Example For Students. Retrieved from https://artscolumbia.org/essays/the-unethical-
business-practices-of-shell-commerce-essay-2873-59190/#32_Facts

5. Shell spills 88,200 gallons of oil into Gulf of Mexico. (2016, May 20). Retrieved from
https://news.mongabay.com/2016/05/shell-spills-90000-gallons-crude-oil-gulf-mexico/

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