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Shell suffering from organizational dementia

Printed below is an article by Tony Allwright, a retired Irish Shell EP manager. It is published on his blog. It was brought to our attention by a Shell insider who shares the views expressed and believes the article deserves wider publication.

Organizational Dementia

By Tony Allwright

We are all familiar with elderly people sometimes being a bit forgetful.  This is no surprise, for just as the body gets weak over time, so can the brain.

What is surprising, however, is that organizations can likewise become forgetful and this can be very costly.  The memory of an organization is held in two ways: in its paper and electronic records and in the minds of its employees, however the latter are also relied upon to access the former.

ShellLast week, Irish TV showed a programme about Shell’s travails, over many years, to bring gas ashore from an offshore field called Corrib, to treat it and to sell it to the Irish grid, supplying 60% of the nation’s industry and consumer demand.

Shell is spending nearly €2 billion developing Corrib.  With full planning permission and legal backing for every piece of work completed, this technologically complex project entails

bullet drilling several 3,000-metre wells in 350 metres of water depth,

bullet laying an 83 km subsea pipeline to shore

bullet plus a 9 km section onshore,

bullet and building a gas treatment terminal to clean the gas ready for consumption.

Shell's schematic of Corrib development

Ireland, with no indigenous energy resources other than a little hydro power, a puff of methane and some filthy peat, is situated at the very end of a huge 7,000 km long gas network stretching across Europe.  It begins in faraway Siberia within the de-facto empire that is Russia, notorious for cutting off exports in unpredictable hissy fits.  Considering this extreme vulnerability to disruption of energy supply to Ireland, you would think the strategic value of Corrib is obvious.

Yet for over five years, Shell has been fighting a rearguard action against a small number of local residents who maintain that Corrib represents a threat to their lives because the inland gas pipeline or the gas plant might – based on no scientific evidence – explode, and to the offshore pipeline for perceived damage to fish stocks.  The locals have been skilful in mobilising professional international objectors (to Shell, to oil and gas, to capitalism, to colonialism, to racism, to whatever) who periodically descend to join protests and gain media airtime.  Somewhat menacingly, they are also supported by Sinn Fein and other ex-paramilitary groups, which have had the effect of chilling the vast majority of local people who in fact strongly support the project.  Five local protestors were jailed in 2005 (for contempt of court), another last year (for assault) and several more jail sentences are pending, but this has been no deterrent to the protestors.

It’s a kind of asymmetric warfare, where a small gang of insurgents is successfully engaging the vast might of multinational Shell and the Irish State itself, and causing huge time and cost overruns.  Police overtime alone is costing €5m per year.

How ever did Shell get itself into this mess?  Through organizational dementia, that’s how.

Enterprise, an independent UK oil company, discovered Corrib in 1996, the first commercial discovery since 1973, after the exploration industry had spent over €2 billion in otherwise fruitless offshore exploration.  It launched the development project at the turn of the millennium, but had little experience in mounting such a difficult endeavour (offshore, deep water, bad weather, new country).  So it was with some relief, as far as Corrib was concerned, when Shell bought Enterprise in 2002 for £3½ billion in cash.  A project such as Corrib was right up Shell’s street.

The seeds of trouble had been sewn when Enterprise, in its naïveté, had made a basic mistake when it embarked upon Corrib.  But Shell had no excuse to make the same and more.

Nigeria

I worked for Shell in Nigeria, for a total of seven years in two different postings, the second as a senior manager, until just before the PR disaster that erupted in 1995 with execution of Ken Saro Wiwa.  I can state categorically that Shell as a corporation – both its Nigerian arm and its twin head offices in The Hague and London – never entertained any kind of conspiracy whatsoever to engineer the harassment, imprisonment or execution of Mr Saro Wiwa and his eight colleagues.  As the record shows, they were convicted and executed for murdering four Nigerian chiefs, not for anything connected to or demanded by Shell.  The Nigerian judicial process may have been flawed, but Shell had not hand or part in it.

It is of course true that over the years Shell, the country’s biggest company, made lots of mistakes which occasionally resulted in accidentals oil spills, injuries and even deaths.  But accidents they were, fully investigated and promptly rectified (and compensated) to the extent possible.  In the early days of attacks from enraged locals, Shell would sometimes call the Nigerian police for protection.  However when it became clear that this might result in disproportionate violence by the police (and/or army) it discontinued the practice, and merely closed down operations instead, at great cost in forgone oil.  On not a single occasion did Shell call in Nigeria’s security apparatus with the intention (much less instruction) of having demonstrators attacked.

Nevertheless, protestors – with a legitimate complaint that almost none of the vast tax money from Shell’s production (some 90% went in tax) was used to improve the lot of the local people – chose to vent their anger at Shell (safe) rather than the true culprits, the State and Federal Governments (deadly).

From this simple scenario, the PR disaster unfolded that engulfed Shell around the world, with the gross calumnies that Shell was causing wanton pollution and death in pursuit of profits, culminating in the execution of Mr Saro Wiwa and his colleagues.

On the day they were killed, I was a guest at a long-service dinner in the Hague hosted by Shell’s then Chairman, Cor Herkströter.  I vividly remember the extreme emotion of this otherwise expressionless Dutchman, and the deathly silence that befell the room, as he announced the horror that had happened a few hours earlier.  The earlier gaiety of the evening did not return.

Brent Spar

This PR disaster coincided with the other one in the North Sea when Shell announced it planned to sink an obsolete cylindrical floating platform, the Brent Spar, in the Atlantic Ocean.  Environmentalists and other angry people concluded that Brent Spar was a toxic, oil-laded monstrosity whose disposal in the North Sea (sic) would cause untold damage to marine life.  Clever media campaigns and distortions by Greenpeace and others captured the world’s TV screens and imagination.  Growing its own international legs, amplified by the Nigeria accusations, the story caused enormous damage to the Shell brand, eventually forcing a U-turn.  Yet the accusations were totally untrue, and even Greenpeace eventually acknowledged that the planned dumping posed no hazard to the environment.  Brent Spar had been meticulously cleansed of all oil and other pollutants, and was planned to be sunk in the Atlantic far beyond territorial waters and at 2,500 metres, a depth so enormous that virtually no marine life existed anyway.

In the end, Shell ran a public competition which resulted in disposal by slicing up the Spar to make a quay for a roll-on-roll-off ferry in Norway.  Due to the complete openness of this approach, there were no further demos.

The common lesson from both these catastrophes was that it is insufficient to be right – whether factually right, scientifically right, technologically right, environmentally right, logically right, legally right, morally right.  In fact “rightness” might as well have no meaning unless and until it is successfully communicated to the people who need, or want, to know about it.

bullet Shell worked hard to improve the lot of Nigerians (certainly during all the twenty year span during which I worked there).

bullet Shell came up with an elegant, environmentally-friendly and cost-effective solution for safely disposing of Brent Spar.

bullet Yet a great many people didn’t know any of this, didn’t believe it when/if they were told, and in the resulting knowledge-vacuum drew precisely the opposite, most malign conclusions.

bullet If you fail to convince people, especially the neighbours among whom you are working, of your bona-fides, they can cause all kinds of grief to your enterprise.

A further difficult lesson was that, for multinational giants like Shell, the world had – perfectly reasonably – moved on from “Trust me” to “Show me”.

Within Shell, this message was drummed relentlessly into everyone throughout the second half of the 1990s, especially among managers (such as I was) and other senior employees.  Every effort was made to put the new philosophy into practice. Never again would Shell propose big projects without clearing the way first with the locals.

Just one example was the accolades Shell won from all bodies of all persuasions for their sensitive development in 2001 of Malampaya gas field in very deep waters offshore Philippines, a $4½ billion project even more demanding than Corrib in almost every respect.  One such was the International Chamber of Commerce and the United Nations Environment Program naming Malampaya, at a World Summit on Sustainable Development in Johannesburg in 2002, as one of its “Ten Best Examples of Sustainable Development Partnerships in Action”.

Yet ignoring this philosophy has been the root of the problem with Corrib.

I believe that Enterprise started the rot by ignoring and not respecting the locals.  But for the above reasons, Shell had no excuse, when Shell bought their way in, for forgetting the horror stories of Brent Spar and Nigeria.  Shell simply didn’t bother to get the locals on board at a very early stage and to secure their support.

Why did the corporate memory apparently hit the Delete button?  It’s a good question.  It is doubtless associated with the large numbers of senior people who left the company (with juicy packages) at the beginning of the millennium as part of corporate restructuring, and took their expertise and experience with them.

For that elementary, inexcusable mistake made in Corrib, Shell shareholders are paying a ridiculous premium in terms of Corrib’s hugely increased cost and delayed revenue, not to mention badly damaged international credentials.

Rugby

There is an interesting parallel in recent Irish rugby, no less.

In 1872 Dublin built the world’s first international rugby venue in Lansdowne Road on which a stadium for 49,000 in due course emerged.  Largely for reasons of comfort and safety, the IRFU (Irish Rugby Football Union) launched a project in 2004 to tear it down and replace it with a much larger, modern stadium.

A landmark deal was reached, for the duration of the construction, to play big rugby and soccer matches at the huge, 88,000 person Gaelic Games stadium across the river.  (This stadium was heretofore closed to non-Irish games ever since police militaries, protected by the British Army, invaded the pitch during a match in 1920 and mowed down fourteen people including a team captain.  This was in retaliation for the earlier killing of fourteen British Agents by the IRA.)

Croke Park, the fourth largest stadium in Europe, has been filled to capacity for nearly every rugby and soccer match played there since 2007.

But, like Corrib, the Lansdowne Road redevelopment quickly ran into massive resistance from local residents who didn’t want the extra crowds, the loss of their views, the noise, the floodlights etc etc.  A compromise was eventually reached which entailed reducing the seating capacity to 50,000 and also the size of the pitch.

This compromise has ensured that the new stadium will be a €365 million white elephant, not to mention the delays and overruns entailed.  Thanks to Croke Park, we now know that, due to the downsizing, every single match will create at least 35,000 enraged and frustrated fans unable to get tickets.  How long will such anger be sustainable before something gives? Will they one day storm the bastions of the IRFU like some latter-day sans-culottes? Who knows.

Alternatively, the new stadium will stand empty while matches are switched to Croke Park.  Conversely, moreover, the less popular Gaelic games, which often fail to fill Croke Park, will be unable to use Lansdowne Road because the pitch is too small.

As I said, a white elephant.  And all because the IRFU failed – like Shell – to consult the local residents early enough, to respect their views, to explain the project, to cut lucrative deals with them, to do whatever was necessary to secure their support.

(It is said that the GAA – which had skilfully expanded Croke Park over many years – is a game for amateurs run by professionals, whereas rugby is a game for professionals run by the amateurs of the IRFU.)

By contrast, the management of rugby in the province of Munster also needed to upgrade and expand its Thomond Park stadium in Limerick, from 12,500 to 26,500.  But Munster Rugby first went to all the neighbours and flattered them to the high heavens. It then bought out a pile of nearby houses at inflated prices. Only when everyone was onboard and happy, did they give the go-ahead to build the new Thomond Park, the first step of which was to demolish all those houses to make room for a big enough stadium. It was delivered on time and within its paltry €40m budget.

The new Thomond Park Stadium

Shell should get over its organizational dementia and learn (ie re-learn) from Munster Rugby. So should the IRFU.

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