Called to account

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What are the responsibilities of Shell to society at large? There is a simple answer – and it’s wrong.

Shell did, of course, win the vote at its AGM by an overwhelming majority. But the issues raised by PIRC – the consultancy which represents a number of, mostly left-inclined, institutional shareholders – are not only issues in their own right. They raise basic questions about corporate governance. How broad are the obligations of companies to society, and what and who should define them?

Does Shell have a responsibility to care for the environment, or to advance human rights? Shell is a company which is seriously concerned for its reputation. The problems it has encountered over its attempts to dispose of an oil rig, and in Nigeria, have been traumatic. It has demonstrated forcefully that its environmental policies and its behaviour in the countries where it operates affect its reputation; and that, in turn, its reputation affects its commercial success. This seems to make the definition of responsibility an easy one. Shell should care about the environment, and human rights, because that is the best way for the company to go on making money.

Now some of its critics, and some representatives of the company itself, have sheltered behind the fig leaf. Good business is profitable business. But it is only a fig leaf. The maxim that honesty is the best policy is not an ethical maxim, and the person who thinks that is not an honest man. What do we think Shell should do when the company’s reputation is not at stake? Is it acceptable for it to dump oil in the sea if no one will find out that it was Shell who did it? Or can the company ignore human rights in countries where the regime is so oppressive that details of abuse will never emerge? Ethical behaviour is not so easy.

And if the only constraint on behaviour is concern for external reputation, then so-called ethics passes into the hands of public relations consultants. There are respectable arguments for saying that Shell had found the environmentally most appropriate way of disposing of its oil rigs when it planned to dump them in the sea. And its Nigerian activities are of substantial benefit to ordinary Nigerians. But if Shell’s only concern is its reputation, it has no need, no responsibility to evaluate these questions; no need to think seriously about the gains and losses from its activities for the environment, or human rights. It should simply go along with every piece of popular clamour, however ill-informed that clamour may be.

The right answer is more simple, if more difficult, to implement. The right answer is that Shell has responsibilities that extend beyond those it has to its shareholders. Shell – and any other major company – is obliged to consider the environment and respect human rights, and that obligation is there whether or not that consideration and that respect increases earnings per share.

Now that does not mean that Shell is, or should be, a philanthropic organisation. Shell does not exist to protect the environment, or to advance human rights. These are the tasks of Friends of the Earth and Amnesty. Shell is an oil company and the primary purpose of an oil company is to fill our petrol tanks, fuel our aeroplanes, and replenish our central heating. The primary purpose, but not the only one. A good oil company can also be expected to earn good returns for its shareholders, meet the expectations of its employees – and consider the environment and respect human rights.

Now that statement is hard to implement because it involves balances and tradeoffs. Just as it is wrong to say that profit must always come ahead of human rights, so it is also wrong to say that human rights must always come ahead of profit. That way, Shell would turn into a political campaign or a charity, and we would need to establish another company to fill our petrol tanks. With only brief success; because the same argument would change its objectives into political or charitable ones. Major organisations do not have simple objectives, and the job of managers is to make balances and tradeoffs among objectives.

So where does this leave the PIRC resolutions? Suffering from much the same confusion that characterises the law, what people think, and what they say about corporate objectives. PIRC is right to emphasise that Shell has wider responsibilities than its bottom line.

But the only forum to which corporate managers are accountable (and that rather feebly, as the result showed) is the annual general meeting of shareholders. PIRC must then argue that its demand for attention to issues of human rights and the environment is made in PIRC’s role as representative of the interests of shareholders – which it is difficult to demonstrate. Or those who criticise Shell represent themselves as shareholders in order to promote wider interests. They perpetuate the farce of the notorious British Gas AGM, attended by Cedric the Pig. Most of the attendees, purportedly there as shareholders, were there to advance political and consumer concerns – of an entirely proper kind – which they could not express in any other forum.

Now PIRC also wants to see environmental interests represented by an environmental director on the board. That raises fundamental issues about the function of a company board. Is its purpose to represent all the legitimate interest groups potentially concerned with what Shell does? These interests would need to be represented by an employee director, a bondholder director, a customer director, and an Inland Revenue director whose job it was to ensure that the company paid the proper amount of tax. You only need to describe such an institution to understand why it would not work.

A corporate board is not a parliament, and could not be effective if it was. Its members must be there, not as representatives of individual stakeholder groups, but as people who balance all these interests. PIRC is right to remind boards of the range of these responsibilities but wrong to believe that the responsibilities are discharged by any form of representative democracy.

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