Corporate Governance Case Study

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Balancing stakeholder needs
Curriculum Topics
• Internal stakeholders
• External stakeholders
• Shareholders
• Stakeholder conflict
challenge – to help meet the needs of the present and future
Introduction
generations, while creating as little negative impact as possible to
A stakeholder is anyone who has an interest in what a business
the environment.
does or an influence upon the business. Large organisations have
many different stakeholder groups. Some are internal to the
Shell aims to provide energy in responsible ways and serve all its
business, like employees. Others are external as they are outside
stakeholders, customers and investors, effectively. Two key aims
of the business, like government. It is important to identify and
of the Shell Group are:
balance the needs and expectations of these groups, and to act
1. to engage efficiently, responsibly and profitably in oil, gas,
responsibly in view of all of them in order to avoid conflict and
ensure the business is as prosperous as possible and keeps its
chemicals and other businesses
2. to participate in the search for and development of other
sources of energy to meet evolving customer needs and the
‘licence to operate’.
world’s growing demand for energy.
Balancing the needs of all stakeholders is particularly important for
large energy companies like Shell, one of the world’s largest and
The case study examines how stakeholders influence the
most profitable multinational companies. It is an Anglo-Dutch
achievement of these aims and how Shell seeks to meet the
company with headquarters in the Netherlands. Shell provides
needs of all of its stakeholders and balance the social, economic
2.5% of the world’s oil and 3% of its natural gas. Oil and gas are
and environmental impacts of its work.
non-renewable resources, but remain essential for powering the
world’s needs and their demand is continuously increasing.
Internal stakeholders
Shell sells enough petrol and diesel a day to fuel 16 million cars
Internal stakeholders are seen by the wider community as
and enough liquefied natural gas to provide electricity for 34
reflecting Shell and how it works. Shell’s main internal
million homes around the world. However, energy use is increasing
stakeholders are its shareholders, employees and suppliers. Large
due to a growing world population and higher standards of living.
businesses like Shell, Sainsbury’s, Virgin, and M&S are owned
This means more demand not only for oil and gas but also for
by shareholders. Shareholders play a crucial part in the life of the
other energy sources. Shell is therefore faced with an enormous
business.
Stakeholder: Individual or group with an
interest in the decisions made by an
organisation.
Multinational: A company or
corporation operating in more than two
countries.
Non-renewable resources: Resources
that are in fixed or limited supply.
GLOSSARY
SHELL STUDY
Shareholders: Person owning or
holding a share or shares of stock in a
company.
EDITION
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Shell | Balancing stakeholder needs
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They provide a sizeable part of the capital required to set up and
Suppliers are also internal stakeholders who are Shell’s partners in
run the business. They take a reward from a share of the profits in
the chain of production – for example in bringing petrol from the oil
the form of a dividend. This varies according to how many shares
well to the petrol pump. Shell has a number of core values that
they own. The shareholders choose a Board of Directors to
are central to everything it does.
represent them and provide a direction to the company. This is
set out in a long-term plan which is called a strategy.
Shell’s reputation depends on making sure that its business
actions reflect these core values. Shell works with contractors and
The
business
strategy
Board of
Directors
Shareholders
who create
choose
The business strategy
other partners in the supply chain who also demonstrate these
values. If they do not, Shell will not use them.
External stakeholders –
customers and communities
External stakeholders are not part of the business but have a keen
The directors are responsible for the implementation of the
interest in what it does and influence Shell’s decision-making. Shell
strategy. Each year the directors must produce a report for
is committed to satisfying the needs of its external stakeholders.
shareholders. This report is presented each year at an Annual
General Meeting of shareholders.
Customers
Without customers a business would not exist. One of Shell’s
Another important internal stakeholder group are employees. Shell
major objectives therefore is:
employs over 100,000 people worldwide. These include senior
‘To win and maintain customers by developing and providing
international managers specialising in finance, marketing, sales,
products and services which offer value in terms of price, quality,
oil and gas exploration and other aspects of the business. Other
safety and environmental impact, which are supported by
employees include geologists, market researchers, site engineers,
technological, environmental and commercial expertise.’
oil platform workers, office administrators, business analysts and
many more.
e
s t o m r s • Lo
r
Internal stakeholders
Shareholders
Suppliers
Cu
A priority at Shell is to respect people. It seeks to provide its staff
me
e r e s t g ro u p s
in terms of reputation and the livelihood of other employees.
for
In t
keep Shell as a leader in the energy field. Mistakes can be costly
s • O pi ni o n
•
commitment to health and safety and excellence is vital in order to
lc
u n i tie
s
how Shell operates. The employees’ standard of work and
ca
As stakeholders, employees are influenced by Shell but also affect
m
om
Employees
with good and safe working conditions, and competitive terms of
External Stakeholders
employment. This has a positive influence on employees as it
keeps them safe and motivated.
Achieving this objective is challenging. Customers want value for
money which involves providing the highest quality fuels at
Honesty
competitive prices. Research drives this process.
Integrity
Core values
Respect for people
GLOSSARY
Dividend: A share of the company’s
profit paid to shareholders.
Strategy: Long-term business plan of
an organisation.
Market research
Product research
To find out what
customers want
To find out the best ways to produce
and provide the best products
Values: What a company stands for.
Biofuel: Fuels produced from biomass,
which means recently living organisms,
usually plants.
EDITION
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Safety and environmental impact are key ingredients of the
research and development process. Increasingly customers,
concerned about pollution and environmental damage, require
cleaner, more efficient fuels such as biofuel.
External stakeholders – Interest groups
Shell needs to work with a range of interest groups. These are
decision makers and opinion formers. People and organisations in
positions of influence make decisions and form opinions that can
There is global interest in liquid biofuels for transport as people
travel more. Biofuels also offer the potential to slow the rate of
growth in the world’s CO2 emissions. Shell responds to present
changes in customer views and seeks to anticipate future
customer expectations. It aims to help customers use less energy
and emit less CO2.
Shell products include fuels and lubricants for all forms of
transport such as, cars, ships, aeroplanes and trains. Shell has a
set of global environmental standards/expectations for all of its
companies. Topics include: managing greenhouse gases, energy
efficiency, control of waste and the impact on water.
affect Shell. These include academics, government, media, nongovernmental organisations (NGOs) business leaders and the
financial community. They interact with Shell in different ways:
• governments – Shell has operations in many countries across
all regions of the globe. To gain approval to operate in these
countries it has shown the host governments that it is
operating in the right way. This includes creating jobs, paying
taxes and providing important energy supplies. Shell is also
working with governments to promote the need for more
effective regulation on CO2 emissions.
• the business community – Shell supplies to and buys from
hundreds of other businesses.
Local communities
Shell’s oil and gas operations aim to create economic and social
development while minimising negative impacts. It seeks to invest
in lasting benefits for the community.
• other oil companies – Shell works in partnership on projects
with many other oil companies. These include both
competitors such as BP and Exxon, and partners such as
government owned oil companies in the countries in which it
operates. Partnership activities have included building new oil
Investment in the
community e.g. set a
good example of
business practice
Development of
local facilities e.g. health
& education
example, Shell was considering drilling in 2008 for gas in British
Columbia’s Sacred Headwaters (the source of three important
Benefits to the
community
Use local
contractors
or gas supply lines and new refineries.
• NGOs are important bodies that influence decision-making. For
rivers). These rivers provided a source of wild salmon and other
Create jobs
for local people
natural resources. A number of organisations were set up to
protect the Headwaters including ‘Friends of Wild Salmon’. Shell
listened to their concerns and postponed further drilling work.
• the media – it is essential for competitive companies like Shell
Local communities living close to oil refineries have raised
concerns over their safety. Shell seeks to overcome these fears by
earning the trust of people by taking all the necessary safety
measures. This includes operating the plant safely and making
people aware of plans and emergency procedures. Shell, in its
commitment to improve the wellbeing of local communities, has
created local partnerships. It has provided health facilities and
supported the development of local schools and universities.
to continue to operate in ways that receive positive press
coverage from newspapers, television and magazines. This
reinforces its position in the market and can help to attract
new customers through a positive reputation.
A pressure group is a group of people with specific aims and
interests which tries to influence major decision makers like
businesses and governments and raise public awareness about
issues. Shell talks regularly with major pressure groups such as
WWF and Greenpeace about key issues such as how best to
dispose of old oil rigs to minimise damage to the environment. It
deals directly with specific pressure groups that are campaigning
on local issues such as the unique ecosystem of the Louisiana
coast in the USA.
Interest groups: An organised
collection of people who seek to
influence political decisions.
Non-governmental organisations
(NGOs): Legally constituted, non-profit
making groups organised on a local,
national or international level, created by
persons with no participation in or
representation of any government.
Pressure group: An organisation
formed by people with a common
interest who get together to further that
interest.
GLOSSARY
SHELL STUDY
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Shell has committed over two million dollars on research and
was previously used
restoration of Breton Sound in Louisiana what will monitor the
for other purposes
actual changes that occur in this area while the wetland is being
such as timber, or
restored.
agriculture, Shell
Economic impact
• Shareholders
looks to see if the
Shell is dedicated to protecting human rights and helping
longer term social or
communities. The search for oil and gas can take energy
environmental
companies to places with poor human rights records. It treats
impacts do not
each case separately using decision-making methods set out by
outweigh the financial
the Danish Institute for Human Rights. If Shell chooses not to
return on that activity.
Social impact
• Employees
• Communities
Environmental
impact
• The planet
operate in these areas, this opens the door for less principled
Conclusion
can be seen to be part of the problem. Shell will only operate in
countries where it is able to follow its business principles. These
It is not easy to balance the needs of stakeholders. In order to
principles set out what Shell stands for and define its behaviour
best achieve this balance Shell recognises five areas of
and are published on its website.
responsibility to: shareholders, customers, employees, suppliers
and society.
Shareholders and resolving conflicts
Ongoing communication with all of these groups is essential. In
The start of the case study focussed on the importance of
this way it is possible to take account of everyone’s needs and
shareholders. Shell’s main shareholders consist of large
expectations in making decisions for today and the future.
institutional stockholders, employees and the general public. Shell
believes that it has a key responsibility to protect shareholders’
Shell has resolved and minimised conflicts between its activities
investment, and provide a long-term return competitive with those
and its stakeholders through its clear strategies and commitment
of other leading companies in the industry. Shell, as one of the
to corporate values. By setting minimum thresholds for decision
world’s major companies has consistently made healthy profits.
making, it is able to balance its impact in economic, social and
These profits have then been used productively to reward
environmental terms. This ensures that no decision will affect one
shareholders in the form of dividends and to plough back into
stakeholder group more than others.
developing new research, new products, new forms of energy for
the future and better ways of managing fuel reserves.
1. Using a diagram, illustrate the main internal and
Shell believes that it will continue to exist and grow if it can
external stakeholders in Shell. Set these out in a chart
balance the needs of stakeholder groups.
that can be displayed on the classroom wall.
2. Choose two groups of stakeholders and then describe
whether:
ways in which Shell meets the needs of these two
groups.
1. the economic impact of the activity is likely to yield a good
return for shareholders
2. the social impact will be suitable for employees and
communities
3. the long-term effect of its activity will harm the environment.
3. Why does Shell find out about the views of Interest
groups and pressure groups? How can this
information help Shell to make better decisions?
QUESTIONS
Shell employs three criteria in making such decisions. It assesses
4. Evaluate if it is possible for a business to meet the
needs of shareholders, customers, employees,
To avoid conflict, Shell sets minimum levels that must be met for
suppliers and society at the same time. How can a
all three areas before making a major decision or investment in
balance of interests be achieved?
any one. For example, when planning new activity on land that
GLOSSARY
Business principles: Standards set
by companies that guide how they
behave.
EDITION
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Shell | Balancing stakeholder needs
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competitors to exploit workers in these countries. If it stays then it

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