Shell Corporate Governance And Corporate Social Responsibilities Challenges And Issues
British Petroleum (BP) and Royal Dutch Shell (Shell) are two major players in the oil and Gas industry. BP and Shell are competitors and market and sell their products direct to consumers via service stations setup worldwide. However when it comes to the United Kingdom (UK) market they came together and had an agency agreement drawn up. This agreement under the Shell-Mex and BP Ltd. had made them the largest player in the UK market of about forty percent of total market share (James Bamberg, 2000).
1.1 Corporate Governance and Corporate Social Responsibilities
Corporate governance is commonly refers to the set of framework, rules, systems, principles and processes used by the board of directors to ensure fairness, transparency and accountability to all stakeholders of the company they governed. Corporate governance policies act as guidelines as to how the company should be directed and controlled. Directors must ensures that they fulfil the stated goals and objectives in a manner that adds to the value of the company in both short and long term. Stakeholders in this case would include everyone that has an interest in the company these may includes governments, board of directors, staff, management, shareholders, customers, and society. The Directors must manage the company relationship with all stakeholders and reconcile conflict of interest between their duties and corporate governance as they assumes the role of a trustee for all the others (Tricker & Tricker, 2012).
Corporate social responsibility (CSR) or corporate citizenship, refers to companies taking initiative to assess and take responsibility for their impact on society and the environment (BP.COM, 2013). In recent years CSR is becoming increasingly important to the competitiveness of the company (Badenhorst-Weiss, et al., 2008). CSR is basically voluntary effort made by a company to go beyond the requirement of regulation and environmental agencies. It can bring benefits in the long-run, but cost of operation is increased in the short-run. For this reason there is a direct conflict with the duties of directors to increase share holder wealth. However on the other hand CSR promote positive social and environmental changes (Huniche & Pedersen, 2006).
1.2 Shell corporate governance and corporate social responsibilities challenges and issues.
Being in the gas and oil industry comes with a lot of risks and challenges and Shell being a large player has a fair share of issues that has a direct influences on their corporate governance and corporate social responsibilities. The case between Shell and Kiobel with reference to Shell activities in Nigeria a MINT nation (O’neill, 2014). The question here is should a company that has documented corporate Governance and Corporate Social responsibilities challenges a case of human right bought against them (Mehra & Shay, 2012). The Inherent risk in this industry as identified by (Ernst and Young, 2013). Below is a diagrammatic representation of issues and challenges facing Shell and others within the industry.
Source (Ernst and Young, 2013)
a) Shell and Earth Watch have a strategic alliance partner and has been working together for the last five years funding research as part of their global corporate social responsibilities (Earthwatch, 2013).
b) Shell Point Hope (Arctic) expedition plans do not include a cleaning up procedures and compensation for this region according to Athabasca Chepewyan First Nation (ACFN) group from Alberta Canada. However due to difficult weather and other safety issues this project is on paused, pending review but still included in the long term plan for future development (Smith, 2013).
1.3 BP corporate governance and corporate social responsibilities challenges and issues.
a) BP has a committed strategy to deal with corporate strategy and social responsibilities, this is highlighted in the Gulf of Mexico accident where the board agreed to cleaning up the spill and pay legitimate claims. BP believes that all large companies should play a part in good corporate citizenship as the environment they operates is very volatile (BP.COM, 2014). Although risk and risk assessment is high in the oil and gas industry, mitigating these risk is a corporate governance challenge and issue. BP uses very highly experience personnel in various field to overcome these challenges. Mr Carl-Henric Svanberg believes that strong corporate navigation and direction should come from the top hence BP strong corporate governance and social responsibilities steps are documented (BP.COM, 2014).
b) As leader you must liberating yourself from all conflicts of interests and hidden agendas. Leadership is mainly about accepting full responsibility for the consequences of all your decisions, and all your actions. Leadership is about putting your own personal beliefs aside to achieved the mission and goals of the company. Leaders must seen to portray a sense of calm in times of crisis and be able inspire and motivate the management teams to accomplish organisational goal, value and objectives. Bp Board Consists of mainly men and an average age of sixty one years (BP.COM, 2014), this is a corporate governance issue as board diversity is failing and filling the gap Carl-Henric Svanberg is finding it very difficult. However there is also an issue of succession planning looming at BP, Carl is doing a great job, however, who will fill his shoes (Navarro, 2011).
The Pyramid of Corporate Social Responsibility (Carrol & Buchholtz, 2014)
2.0 Shell challenges in improving performances and operational effectiveness
Shell has been operating in countries such as Nigeria for the last fifty years, their mode of operating is in partnership with the Government and other non- governmental organisation to tackle challenges in performances, effectiveness and social investment initiatives. Operations in the Nigerian Delta is considered to be the most challenging environment for Shell. The reasons for this is because of theft , sabotages and illegal refinery of crude oil. Involvements from government, communities and civil group is needed to improve performance and to make the operations more effective (Global, 2013).
(BENO??T FAUCON, 2013)
Shell operations in Point Hope Alaska has been put on hold because of storms and damage to safety equipment, performance in this region has not improve in the past year. There is high risk on operational effectiveness despite spending over five billion dollars (us) (Smith, 2013).
Operations performance is zero and effectiveness has been call into question and deferred into the future.
Oil and Gas activities present a challenge when doing upstream business with other partner the fact is that revenue reorganisation is hard to ascertained, and operational efficiency can be over lift or under lift i.e. taken more or less resources than the agreement required (Alan Page , 2013).
2.1 BP challenges in improving performances and operational effectiveness
Due to increased projected demand for oil and gas in the future BP has to go new places to explore new reserves. Exploration tie up large amount of resources and the return is not guarantee hence the challenge in improving performance and operational effectiveness becomes difficult (Bob Dudley, 2013). BP Board in order to improve operational effectiveness and performance use site visits and site briefings to fully understands the business. Non- Executive must visits as least one site per year to enable them to be effective in their post (BP, 2013). Risk management plays an important roll in the management of BP global operations, these risk creates challenges in operations and performance. BP ten point plan on risk management, helps delivered performance on geopolitical issues around the globe (BP, 2013). Deepwater Horizon oil spill is still creating challenges for BP, however in recent in recent months BP has won bids to continue to exploration (Toor, 2014).
According to Tony Howard, BP group CEO, BP Operations Management Systems (OMS) purposes is to further reduce operational risk on sites and to improve the quality of their operations. By having documented process they are able to identify challenges that affect performances and challenges that affect operations , hence it’s a continuous improvement process (BP.COM, 2014).
3.0 Shell challenges of recruiting and retaining a skilled work force
Shell uses a variety of methods for recruiting personnel’s, these includes, students and graduate direct from top universities, internships and recruitment days. The process is very straight forward, you find a job online via their current vacancies or via shell talent community and apply for it. You check your application status online, next step is interview and then assessment (shell.ca.com, 2014). The culture of inclusive gives employees a greater sense of involvement and they are motivated to achieved their own goal at the same time achieving shell objectives of retaining staff. The mixture of different capabilities and background gives individuals a more rounded career path with experience drawn from others around them. There is also an opportunity for personnel to apply for different roles in different area of shell activates in order to further their career and hence prolong retention (shell.ca.com, 2014).
Shell employees are employed on a system called PAR( Potential At Recruitment) and is given on the job training with training buddies to help them grow and understand the culture with a one year “on -board” programme which helps with retention (LUENGUTHAI, 2013).
3.1 BP challenges of recruiting and retaining a skilled work force
(Binou, 2014) BP Recruitment Process
BP recruitment process are you first log onto BP career site and make an application in your field, the next stage is numerical and verbal test, then a telephone interview, technical interview , assessment centre and then offer. The other process for applicant is via their graduate and internship programme. BP currently has a documented competition to select candidates to solve a real life issue as a recruitment drive (BP.COM, 2013). The real challenge as these programme are time consuming and valuable employees may be lost in the process. BP offer their employees access to Life Benefits program, depending on your post these added benefit is available in order to retain employees (BP.COM, 2014).
Bp share ownership plan is a great way to acquire shares and hence retain employees, these plans run over three to five years and has a take up rate of about ninety one percent (BP.COM, 2014). Other incentives is the discretionary plan to aligned individual performance with group performance. Deferred annual bonus plan and stock option are all used to tie senior managers in the company.
4.0 BP Network Level Strategies and Competitiveness
The demand for global energy resources will increased in the future and BP forecasted that the percentage growth by year 2035 will be about forty one percent (BP.COM, 2013). Due to potential growth in this industry there are intense competition from players. Companies are looking for more ways to grow and reduce cost as this industry is very capital intensive. According to (Ernst & Young, 2013) many players is looking of ways to get into other market and hence strategic Alliances and Merger and Acquisition are on the rise. Companies with large cash balance and reserves are increasing their research to explore and acquire more proven reserved so as to have a competitive advantage over their competitors. Potter in his theory on competitiveness has evaluated and categorised competitive into the below matrix . BP is clearly pursuing a focused differentiation strategy in the way they handle the latest oil
spill and according to the Ansoff matrix BP is pursuing a variety of growth strategies.
(askwillonline, 2010) (docstoc, 2013) Potter Competitive Strategies
4.1 BP Mergers and Acquisition History
In order to get a stake in the us market BP and Amoco merged and became the largest oil and gas producer in the market and hence Amoco service stations was rebranded BPAmoco (BP.COM, 2014).
In 2011 BP has done a Strategic Alliance (SA)with Rosneft of Russia, to explore the south Kara Sea, this (SA) will allow BP to explore the region having a stake of 33.33 % of the (SA) and 9.5 % of Rosneft. The balance of the (SA) 66.66% will be controlled by Rosneft , they in turn will acquire a 5% stake of BP . This (SA) exclusive period of two years of ten years period (Rosneft, 2011). In 2013, however Rosneft has acquire back the (SA) from BP (THK BP) , as a result BP will received 12.5 billion dollars in cash and an 19.75% stake in the Russian oil company (Guy Chazan, 2013). The down side to this deal was that BP could not pursue other (SA) in the region and lost out to competitors. With the conclusion of this THK BP deal, BP is now open to explore other Joint Ventures or Strategic Alliance in this region (Guy Chazan, 2013).
BP Ventures, is an arm of BP and has invested in over thirty companies worldwide in various alternative energy sectors, these included solar, biofuels water and a technology drilling company XACT Acoustic Telemetry Network Emphasizes Safety. However other specific companies are not available as multiple negotiations are still in progress (Sarah McBride; Bob Burgdorfer, 2013). This is a clear indication of BP interest/ diversification into alternative energy using global trends. This interest is currently small, compare to their main business in oil and gas sector.
In 2011 BP has signed a production sharing agreements via BP Angola for the operation of blocks 19, 24 and block 10 which was acquire in 2011 from Devon Energy Assets and non-operating interests in blocks 20 and 25. However BP stake of 40% in block 26, has given them access to five new offshore blocks in the Kwanza and Benguela basins .This acquisitions is thought to mirror Brazil’s hydrocarbon-rich pre-salt basin (Arnold, 2012). Bob Dudley is modelling this acquisition and interest on that of Brazil, however in 2013 BP was selling off its 60% share to HRT oil and gas (BP.COM, 2014) .
BP has acquire a 30 percent stake in twenty three Reliance exploration block in India. This region has seen over two hundred and fifty percent increase in merger and acquisition the first quarter of 2011. This acquisition is part of a 50:50 joint venture with Reliance to market and sell natural gas in the Indian market (thehindubusinessline, 2011). From Asia continent to South America , BP has acquire interest in Brail oil industry in 2011, as results then show commercial variable production. However, in 2013 after poor results and performance BP had to write off cost incurred in Brazil. This is clear example of how reserves can be difficult to find and identify (BP.COM, 2014).
5.0 Creating a high performance Culture at BP
(Bowman, 2011) Diagram showing Culture and Strategy process
BP’s Group Chairman Carl-Henric Svanberg said in his annual 2013 statement that staff is the driving force of BP success and that having a strong Board with diversity helps in this challenging environment. Strategy was monitored very closely to enable BP to progress and pursue their grounded principles of clear priorities, quality portfolio and distinctive capabilities (BP.COM, 2013). MR Svanberg, style of leadership comes from his diverse role in various companies such as Sony Ericsson, Assa Abloy and AB Volvo. These well-known brands had place high reliance on quality, structure and technology to become market leaders in their own field. This is the reason why BP board and non executives is made up of personnel from different industries with bring a wide range of experience and know-how.
5.1 BP Culture and Strategy
(shackleton-jones, 2012) Diagram Explaining the importance of culture
Having strong leadership and good strategy is not enough to keep a successful company ahead of their competitors alone. Culture plays a major role in the effectiveness of these strategy. On paper BP has a great strategy coupled with Mr Svanberg leadership and diverse board compilation. This current management team and structure brings a wide variety of experience and operational knowhow to the table. All of this was the results of the Deepwater Horizon accident in 2010. However , the major issue here is has BP culture of high risk management changed?. If we can look at a brief history of BP high risk culture that is embedded in this organisation.
Deepwater Horizon, a series of cost avoidance and time has been found by the joint task force of investigators (Force, 2011). In 2005, explosion at Texas refinery, Occupational Safety and Health Administration (OSHA) found safety infraction. In 2006, there was a spill in Prudhoe Bay Alaska, BP pleaded guilty to negligent. Based on (shackleton-jones, 2012) culture do eat strategy for breakfast. Change is persuasive and not all change is strategic (Wit & Meyer, 2004). The fact is Savanberg is trying to change the very things that made BP very successful. Mr Svanberg needs to use the change management tool to freeze the high risk culture and change to high performance then un-freeze. This process must be monitored closely and resistance points eliminated or transfer in order to embedded this new culture.
5.2 Management and Leadership abilities that Carl-Henric Svanberg needs.
BP is a very successful organisation , however this organisation has a culture of high risk management style. Mr Savanberg although have a wealth of experience will to enforce the following management and leadership abilities in order to make BP a simpler and more efficient organisation (Lewin, 1939).
(Shaw, 2012) Diagram Showing Critical Thinking Process
Critical thinking is a must have skill that is needed to efficiently and effectively lead any organisation. BP is operating in very unstable and untested environment and hence Mr Savanberg will need to quickly gather ,analysed data to make important decisions.
(Endress, 2013) Diagram showing essential management and leadership communication skill
Communication skills plays a vital part to all management and leaders in an organisation, this is the only way to get your strategy across to both shareholders and stakeholders. A great leader is a good communicator and Mr Savanberg needs to appeal to both top management and operational staff that BP culture is changing and all staff is needed to facilitate this change process. This will enable BP to be more efficient in their operations, this message is convey in his statement (BP, 2013).
c)Project management skills
(Englund, 2011) Shills needed for Project Management (PM)
BP is a very large multi-national organisation and hence has multiple operations around the world at any given time, with this in view PM skills is very important for Mr Savanberg as he need to make effective management about different exploration which may affect the whole company i.e. winding down operations in Brazil to investing in India. PM tools such as dashboard is essential to convey real time information for decision making
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