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Royal Dutch Shell and the Rule of Law

Screen Shot 2013-08-14 at 19.29.19Shell was one of the first companies to introduce business principles in 1976 and if you work for Shell it is an absolute requirement that you comply with our Code of Conduct no matter whether the local law would permit, or even encourage, operating to lower standards. The Code of Conduct covers all aspects of our operations from health, safety, security, environment and human rights to fighting corrupt practices, complying with international sanctions and antitrust laws and data privacy requirements. But its basis can be summarized in the three universal values which underpin it and which everyone in Shell is expected to live by – honesty, integrity and respect for people.

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By Peter Rees

Peter J. Rees QC is the Legal Director, and a member of the Executive Committee, of Royal Dutch Shell plc.

What do you understand the Rule of Law to mean?

As a lawyer I would expect it to mean exactly what it says. Namely, that the law should be what rules. It should rule over political interest, personal interest and financial interest. If the rule of law is alive and well it should be law, and nothing else, that defines the rights and obligations are of those that are subject to it.

I remember when I was a young lawyer, one of the first trials I went to, the judge opened with the following remarks “This is not a court of morals, nor is it a court of justice; it is a court of law”

It struck me at the time, and has throughout my career, that ideas of what is morally right or wrong, and what constitutes justice, are very subjective issues, but you can’t bring subjectivity into the law. It is what it is.

Without rule of law we have anarchy, where individual rights cannot be upheld or enforced unless you happen to be the largest, or the strongest, or have the most lethal weapon. The rule of law is what protects the weak and controls the strong.

But, I would say that it has to be remembered that the rule of law cuts both ways. The law is the law; as I have already said, it is what it is – and in many ways that is the whole point of it. And that needs to be remembered by those who seek to use the law to further a campaign, or an individual view of what is right and wrong, or what they think is justice or is not justice but who don’t get the result they hoped for. They need to accept the rule of law and accept its outcome just as much as they would expect others to be bound by the outcome if favourable to their campaign.

Is the Rule of Law important to Shell?

Yes, it is very important. In fact I would go so far as to say that it is vital to us.

The rule of law enables us to know the parameters within which we can operate. It gives us certainty as to what we can do and what we can’t do and, just as importantly, what others can and can’t do to us.

We like to work, whenever we can, in predictable, stable and solid frameworks and those tend to be where the rule of law is both established and upheld. Although, as we all know, much of the world’s oil and gas seems to be in areas where the rule of law is not viewed as particularly strong nearly half of Shell’s total investment last year (we invested around $30 billion, so I am talking about  just under $15 billion) was invested in OECD countries like Canada, Australia and the United States. So you can see that, where we can, we would rather operate where the rule of law is strongest.

Of course, the figures I have just given also show that we have significant investments in areas where the rule of law is not strong and there we try and ensure we operate in accordance with the highest possible principles and standards even if others don’t, and even if others are not required to do so.

If the Rule of Law is not strong in countries where Shell operates, how do you approach your operations there?

We have to operate to the highest possible principles and standards.

Shell was one of the first companies to introduce business principles in 1976 and if you work for Shell it is an absolute requirement that you comply with our Code of Conduct no matter whether the local law would permit, or even encourage, operating to lower standards. The Code of Conduct covers all aspects of our operations from health, safety, security, environment and human rights to fighting corrupt practices, complying with international sanctions and antitrust laws and data privacy requirements. But its basis can be summarized in the three universal values which underpin it and which everyone in Shell is expected to live by – honesty, integrity and respect for people.

With those values in mind we look to promote the global rule of law and the local.

Globally, we work, actively, to improve the understanding of and application of the rule of law in many ways. In the broad international landscape we are an active member of the Voluntary Principles on Security and Human Rights, we supported the work of the Institute for Human Rights and Business and participated in the UN Global Compact Netherlands publication.

We also believe, however, that local capacity building is the real key to ensuring the presence of, and compliance with, the rule of law in a particular country or region. Seeking to export cases to other jurisdictions, which are perceived to be plaintiff friendly, does not solve the problem, can turn out to be extremely expensive and wasteful of time for those seeking to bring claims and doesn’t solve the real problem of proper application of rule of law in the country in question.

Fair legislation, an independent judiciary and a legal system which provides access to justice are vital for the rule of law to hold sway anywhere in the world, and that is where we feel the focus should be in attempts to further the rule of law internationally.

To take just a couple of examples of what we do both globally and locally; for a number of years, when it was in its early stages, Shell provided significant financial support to CEELI, the Central and Eastern European Law Initiative which was established to help create laws and train lawyers and judges in Eastern European countries as they emerged from communist rule, but more recently has been involved in similar work in other countries such as training members of the Afghan Supreme Court and over 140 judges from Iraq on human rights and judicial integrity.

Equally we sponsor the annual university moot competition on freedom of expression and media law which is run by Oxford University as part of its programme on comparative media law and policy. This event attracts teams of young law students from Eastern Europe, Africa, the Indian Sub-Continent and South East Asia to argue cases built around support for freedom of expression and the rule of law.

Are there areas where compliance with the law causes issues for Shell?

The obvious answer to that should be that compliance with the law should never be an issue for Shell, but in the world in which we operate the answer is, actually, far from obvious.

As I have already made clear, our starting point is to comply with the law wherever we operate, but that is only the starting point, and if the rule of law in a particular place would allow operating to standards that are below those to which we would ordinarily operate, we do not lower our standards simply because we could, legally. Indeed, there are many areas around the world where we actively seek improved and enhanced legislation and regulation in order to ensure activities in our industry are carried out safely and to the highest practicable standards.

An example is hydraulic fracturing to access shale gas and oil. There is much emotion and controversy about hydraulic fracturing, but very little regulation about how it should be carried out. In consequence compliance with the law is not a problem for Shell, but more worryingly, nor is it a problem for other, less experienced and, possibly less safe operators.

What is needed in this area, is not a ban on hydraulic fracturing, but sensible regulation so that compliance with the law means that access to these resources can be achieved safely for all concerned.

More problematic for many corporations ,is not the simple issue of compliance with the law, but compliance with which law. We are increasingly facing situations where laws are inconsistent, or overlap, or, most worryingly, mean that to comply with the law in one country we have to break the law in another country.

Inconsistency can be dealt with by going to the highest standard, even if you don’t have to go there in all the countries in which you operate – but that is what Shell does anyway.

Overlapping is more of a problem, because of double or triple or even quadruple jeopardy. With the multiplicity of extraterritorial legislation these days, you find yourself accountable to a whole raft of government agencies, from a variety of different countries, in respect of the same legal obligation. None of them seem to trust the other to police that obligation and each is queuing up to fine you for the same offence.

Of course the simple answer to the problem of double-or-more jeopardy, is don’t break the law in the first place, but what if you are forced to comply with the law of one country and, in order to do so, you have to break the law of another country? Where does compliance with the rule of law leave you then?

This isn’t hypothetical, I promise you.

The US recently passed legislation requiring companies in the oil and gas business to publish how much they pay foreign governments for the right to extract oil and gas. In some countries, like China, that information is, according to their law, a state secret and disclosing it is a criminal offence. However, the US regulations permitted no exceptions and said you must comply with US law even if it means breaking Chinese law.

Fortunately, the rule of law is alive and well in the US, and judicial review of such regulation is permitted. When the US courts looked at this legislation they said that not to have an exemption in circumstances such as this made the rule “arbitrary and capricious” and they vacated the rule. There were some who did not like the decision, but as I said earlier, the rule of law cuts both ways.

By way of contrast, the European Union has issued a Directive on reporting payments to foreign governments with exactly the same requirements as the US legislation. Indeed, they made it clear they wanted it to be the same. But, there is a big gap in the rule of law in Europe; there is no judicial review possible of the Directive and so this “arbitrary and capricious” rule will now apply to European companies but not to American companies and will force us to break the law in China (and other places too). It seems that EU Institutions can issue Directives unfettered by any independent judicial review and force companies to break the law in other sovereign states.

Sorry, this has been a rather long answer to your original question as to whether there are areas where compliance with the law causes issues for Shell. The answer is yes – and at the moment that is in Europe!

Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

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