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Shell Oil’s CSR Crisis in the North Sea

GreenBiz.com: What Matters Most: Shell Oil’s CSR Crisis in the North Sea: “Shell’s actions — and Greenpeace’s reactions — had created a full-scale international incident.”: “What Greenpeace had helped Shell to realize what that its reputation was a far more valuable and perishable commodity than the Brent Spar itself”

Posted 19 Sept 04

The following is an excerpt from “What Matters Most: How a Small Group of Pioneers Is Teaching Social Responsibility to Big Business, and Why Big Business Is Listening.” The book, by Jeffrey Hollender and Stephen Fenichell, examines in detail how companies have successfully handled public-relations crises related to corporate responsibility.

For 15 years, Royal Dutch Shell’s 460-foot-tall oil storage tanker and loading platform the Brent Spar floated inconspicuously at anchor in the North Sea, 120 miles off the island of Shetland, of no particular concern to anyone outside the company. But in 1991, having outlived its useful life, the platform was decommissioned. For the next two years, an independent committee of scientific and engineering advisors retained by Shell pondered the problem of what to do with it, which came down to how best to get rid of it.

The committee’s mandate was to determine the “BPEO” (“Best Practicable Environmental Option”) for the Brent Spar, an assessment that combined a weighing of environmental hazards with the degree of danger posed to the workers, while keeping a close eye on costs. After studying the problem, the committee narrowed down the choice to two options: 1) Deep Sea Disposal (DSD) 2) On Shore Dismantling (OSD).

Both options had their pros and cons, the data presented by the committee to Shell’s senior management just about made up their minds for them. From the standpoint of protecting the wealth of Shell shareholders, there seemed to be no way to justify incurring the additional expense, danger and potential liabilities associated with On Shore Dismantling. After ruling unequivocally in favor of Deep Sea Disposal, Shell management submitted a comprehensive disposal plan to the environmental ministers of every country bordering on the North Sea for review. Not a single government agency objected.

But the environmental assessment conducted by international environmental organization Greenpeace differed dramatically from Shell’s in a number of critical ways. While Shell had accorded great weight in its analysis to the financial costs of the operation, Greenpeace’s analysis was mainly limited to an assessment of environmental costs. While the Shell team focused much of its conceptual energy on determining the degree of danger to its own workers; Greenpeace focused the preponderance of its energies on the safety and health of the marine environment.

Yet another critical dimension distinguished the two teams’ perspective time. Shell’s time-horizon was almost entirely short-term, driven primarily by considerations of immediate efficiency and initial cost. Greenpeace’s analysis, by contrast, focused largely on the more distant future, a method of inquiry that raised to the surface one important issue that Shell seems to have overlooked in its analysis. Brent Spar was the first of nearly 400 North Sea oil platforms scheduled to be decommissioned in the upcoming years. If the UK government granted Shell a permit to dispose of the Brent Spar in this fashion, what was to prevent them from granting permission for those other four hundred platforms in precisely the same fashion?

What Is “CSR Risk”?

Let’s take a break here to examine more closely some of the issues raised by this confrontation in the North Sea. What Shell had initiated by proceeding with its decision to deep-six the Brent Spar was what today — using the language that has evolved in recent years to describe these situations — we might describe as a nasty case of “CSR Risk.” This is an umbrella term that embraces the panoply of risks created by any sort of behavior likely to exert a negative impact on a company’s reputation.

It’s impossible to talk effectively about CSR risk without invoking the present day shift from the shareholder to the stakeholder model of relationships and responsibility. The term “stakeholder” generally refers to anyone directly or even indirectly affected by a company’s operations. Among a company’s stakeholders are managers and employees, business partners and suppliers, in addition to people who live in the communities in which a company bases its operations.

Not every company, nor every government, has yet bought into the validity of this concept. What asking a company to look out for its stakeholders as well as its shareholders (who are in fact stakeholders, and important ones) reflects is a really quite radical shift in the public’s expectations of a company’s responsibility to society. The paradox here is that if we acknowledge that a company’s reputation — and that of its brands — are often its most important asset, than any conduct that has a negative impact on a company’s reputation can be a direct threat to the protection of shareholder value.

The essence of the thinking underlying this aspect of corporate responsibility is that CRS risk is a real liability precisely because reputation and brand are often a company’s most valuable asset. CSR risk in this case can constitute just as much or perhaps more of a liability for Shell shareholders as the legal liability resulting from a clear-cut violation of laws or regulations. In the case of the Brent Spar, Shell had gone out of its way to insure that compliance with all relevant laws and regulation was assured. Just the same, it ended up creating a real CSR risk because it had insufficiently evaluated the breadth of the stakeholders who felt they were entitled to voice an opinion about Shell’s decision on how to decommission the Brent Spar. The prospect of suffering a blow to its reputation by coming off in the public’s eyes as an environmental despoiler was outside the parameters within which it went about making its decision. This unsettling experience of being caught in a broadening circle of responsibility, one that seems at times to almost expand by the moment in unforeseen and unpredictable ways, is an experience that company after company would encounter throughout the second half of the 1990s and into the early years of the twenty-first century.

The Stakeholders Strike Back

Throughout the month of May, Greenpeace skillfully guided its global publicity and media campaign into high gear. Its representatives had physically abandoned the platform, but their fighting spirit lingered on, in part because their images were so readily disseminated by the media. In Germany, consumers were so distressed by Greenpeace’s prediction of an impending environmental catastrophe in the North Sea that they boycotted Shell gas stations, causing sales of Shell products in Germany to plummet by a whopping 30 percent. After a Shell gasoline station in Germany was firebombed, an irritated German Chancellor Helmunt Kohl raised the controversy surrounding the Brent Star the at the June G-7 summit of the heads of the leading industrialized nations in Halifax, Canada. Shell’s actions — and Greenpeace’s reactions — had created a full-scale international incident.

On June 20th, Greenpeace followed up by staging an aerial assault on the Brent Spar, executed with all the precision of a commando raid. With video cameras running full tilt and the world’s news organizations hungry for images of confrontation, a helicopter dropped four Greenpeace activists onto the floating platform. At Shell Mex house, top management at last decided that even if the company stood a chance of ultimately prevailing on the legal and regulatory front, it was definitely losing the battle on the public relations front. The UK ministry report, combined with the negative publicity surrounding the case, has rendered DSD no longer the “BPEO” (“Best Practicable Environmental Option”) for the oil platform, not because any of the technical issues had shifted, but because the reputational risks had increased to an unacceptable level.

By evening, citing unspecified “objections by European governments,” Shell announced plans to begin towing the Brent Spar to Norway in preparation for OSD (On Shore Dismantling). In a transparent bid to conduct damage control and to regain some measure of public trust, the company openly solicited suggestions from the public as to its opinion of the most environmentally benign form of disposal. Although the entire operation would take another five years, Brent Spar ultimately ended its days on land, in the Norwegian port of Mekjarvik, recycled into a new ferry terminal.

Lessons Learned

What Greenpeace had helped Shell to realize what that its reputation was a far more valuable and perishable commodity than the Brent Spar itself. Being a Shell shareholder, of course, also entailed a certain amount of risk on Greenpeace’s part. “Working within the system” can easily be construed as a form of selling out. But Greenpeace had learned something important from its experience with Shell: it was not only possible to persuade companies to improve their behavior, but to force them to establish internal systems that make better behavior the rule rather than the exception.

http://www.greenbiz.com/news/reviews_third.cfm?NewsID=26762

royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

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