dissertation (keele university)1

8/11/2019 Dissertation (Keele University)1

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Adetayo Ajayi (12019367) Page 1

TITLE PAGE

TITLE: STAKEHOLDERS INFLUENCE IN OIL INDUSTRY

DISASTER: A COMPARATIVE CASE STUDY OF

SHELL IN NIGERIA AND BP IN AMERICA.

NAME: ADETAYO OLUTOLA AJAYI (12019367)

PURPOSE: SUBMITTED IN PARTIAL FULFILMENT OF THE

AWARD OF THE DEGREE OF MSC FINANCE AND

MANAGEMENT AT THE UNIVERSITY OF KEELE,

STAFFORDSHIRE.

DATE: 1STAPRIL 2014


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ACKNOWLEDGMENTS

Firstly, glory to God the creator of heaven and earth for preserving

my life and giving me the strength, knowledge and wisdom to see

this dissertation through. My appreciation to my lovely wife (Titilola)

and my children (Lola, Tobi and Temi) for their unwavering support

and understanding throughout the duration of my programme, I love

you all.

My profound gratitude goes to my supervisor, Phil Johnson, for his

invaluable advice, keen interest, encouragement and painstaking

supervision. God will continue to bless and reward you abundantly. I

am also indebted to all my lecturers especially Phil Johnson, David

Panton, Dr. Gabriella and Dr. Akrum Helfaya because their

numerous lectures has broadened and enriched my knowledge as a

result; I was able to complete this dissertation with considerable

ease.

Lastly, I want to say a big thank you to my course mates and friends

for making my stay at the university a memorable one.


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ABSTRACT

Stakeholder management is concerned with how firms manage their

relationships with both primary and secondary stakeholders. It

requires corporations and their managers to identify and develop

effective strategies that would take care of the interests of all the

divergent groups/individuals who can affect and are affected by the

firms corporate objectives.

The aim of this dissertation is to do a comparative analysis of

stakeholder influence in oil industry disaster: a case study of Shell in

Nigeria and BP in America. The study gave an insight into the impact

the operations of both companies have on host communities, how

they both differ in their response to host communities claims and

how governments in Nigeria and America were able to effectively or

ineffectively regulate and enforce compliance in the industry.

The hypothesis of the dissertation is: there is a significant difference

in stakeholder influence in Nigerian and American oil industry

disaster. This was answered through the research questions and

various secondary data.

The research confirmed that the responses to oil industry disaster in

both countries are different. A further study may be conducted using

both primary and secondary data to see if the result will agree with

the conclusion reached here.


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TABLE OFCONTENTS

Title page------------------------------------------------------------------------------i

Dedication----------------------------------------------------------------------------ii

Acknowledgment-------------------------------------------------------------------iii

Abstract-------------------------------------------------------------------------------iv

Chapter 1--------------------------------------------------------------------------1-3

1 introduction-------------------------------------------------------------------1

1.1 Aims and Objectives------------------------------------------------------2

1.2 Outline of study-------------------------------------------------------------3

Chapter 2 (Review of literature) -------------------------------------------4-29

2 introduction ---------------------------------------------------------------4-5

2.1 Business environment-------------------------------------------------5-6

2.2 Origin & nature of stakeholder theory -----------------------------6-8

2.3 Defining a stakeholder-----------------------------------------------8-11

2.3.1 Primary stakeholders ---------------------------------------11-13

2.3.2 Secondary Stakeholders-----------------------------------14-15

2.4 Host communities ---------------------------------------------------15-16

2.5 Non-government Organisations ----------------------------------16-18

2.6 Perspectives on stakeholder approach--------------------------18-19

2.6.1 Normative perspective--------------------------------------19-21


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2.6.2 Instrumental perspective -----------------------------------21-22

2.6.3 Descriptive perspective ------------------------------------22-24

2.7 Stakeholder identification & prioritisation -------------------------24-25

2.8 Stakeholders influence & firmsresponse strategies----------25-28

2.9 Conclusion --------------------------------------------------------------------28

Chapter 3 (Methodology) --------------------------------------------------30-36

3.0 Introduction -------------------------------------------------------------------30

3.1 Research Philosophy ------------------------------------------------------31

3.2 Research approach---------------------------------------------------------31

3.3 Research strategy-----------------------------------------------------------32

3.4 Research objectives -------------------------------------------------------33

3.5 Data collection and Analysis-----------------------------------------33-34

3.6 Local communities as stakeholders-------------------------------------34

3.7 Government as stakeholders --------------------------------------------35

3.8 Summary -----------------------------------------------------------------35-36

Chapter 4-----------------------------------------------------------------------37-50

4.0 Introduction -------------------------------------------------------------------37

4.1 Research aim ----------------------------------------------------------------37

4.2 Research objectives -------------------------------------------------------38


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4.3 Hypothesis --------------------------------------------------------------------38

4.4 Research questions --------------------------------------------------------39

4.5 Shell petroleum development company (SPDC) ---------------39-40

4.6 British petroleum --------------------------------------------------------40-41

4.7 Impact of Shell & BP on host communities ----------------------41-45

4.8 The role of government------------------------------------------------45-48

4.9 Analysis -------------------------------------------------------------------48-49

4.10 Findings ----------------------------------------------------------------------50

Chapter 5 ----------------------------------------------------------------------50-60

5.1 Introduction -------------------------------------------------------------------50

5.2 Conclusion ---------------------------------------------------------------51-54

5.3 Recommendations -----------------------------------------------------54-56

References---------------------------------------------------------------------56-60


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Chapter 1

1.0 Introduction

Firms have varieties of groups or individuals that are affected by or

have an interest in the operations of the business. These

groups/individuals are called stakeholders, and they vary both in

terms of their interests in the business activities and also their power

to influence business decisions (De Wit & Meyer, 2010). The precise

role of the business in society has generated divergent opinions

between business and society dating back to the early days of the

corporate firm (Sadler, 2003, cited by De Wit & Meyer, 2010). Neo-

classical theorist like Friedman (1970) sees the firm as a bundle of

assets owned by the shareholders and that the responsibility of the

firm is to maximise profits for the benefit of owner (Friedman, 1970).

The consequence of this line of argument is that the firm focuses its

attentions and actions on satisfying the shareholders to the detriment

of groups such as society. However, the society expects much more

from the firm in addition to pursue of profit.

The reasons for these concerns shown by society about corporation

are not farfetched. Critical incidents like Bhopal, Exxon Valdez, Brent

spar, Saro-Wiwa execution and BP in Gulf of Mexico; all of which

could be placed on the doorsteps of environmental degradation

(Cherry et al., 2011) have sharpened public awareness of the impact

companies have on society. It is for this reason that there is a

realization that corporation has a social and civil responsibility not


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just to its shareholders but to all those who are affected by the

activities of the corporation because the survival of society and

business is closely entwined (Carroll, 1991). This expectation may

vary between regions and countries. For instance, in developing

countries like Nigeria, the line between societal expectations of

business developmental responsibility and government

developmental responsibility is increasingly becoming blurred (Ite,

2004).

In view of the symbiotic relationship that exist between business and

society, the notion of stakeholder approach was developed to draw

the attention of corporation and its managers to the importance of

taking into consideration the interests of those groups who can affect

or are affected by the achievement of their corporate objectives in

decision-making process (Freeman, 1984). Building on the works of

earlier scholars, Freeman (1984) proposed the stakeholder theory as

a strategic management approach to enable corporations and their

managers to understand and manage the changes affecting both the

market and nonmarket environments in order to achieve their

corporate objectives. A detailed discussion of the stakeholder

approach is presented in chapter two. In the next section, the aims

and objectives of this dissertation is explained.


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Aim and Objectives

This dissertation aims to examine stakeholders influence in oil

industry disasters: A comparative case study of shell in Nigeria and

BP in America. In view of the above aim, the study was guided by the

following objectives:

1. To establish to what extent is response in oil industry

disasters in Nigeria different from America.

2. To establish the effectiveness of Nigerian and American

governments in regulating and enforcing compliance in the

oil industry.

3. To establish to what extent is stakeholders influence

effective in Nigerian and American oil industries.

Outline of Study

In a nutshell, chapter one covers the introductory aspect of the study,

where the general framework of the entire dissertation is laid out.

Chapter two presents a comprehensive review of relevant literature

as well as past works on stakeholder management to provide a

theoretical backing for the study and enhance understanding of the

concept.

Chapter three explains the research methodology employed in the

dissertation while chapter four provides the analysis of the data and

findings. Lastly, chapter five contains the conclusions drawn in the


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research, based on the research findings and recommendations are

made.


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Chapter 2

Introduction

There have been considerable discussions about the purpose

business organisations should serve in the society. These

discussions are not only limited to academics in the field of strategic

management but also amongst theorist in the field of economics,

political science, sociology, ethics and philosophy. Research into the

linkage between business and society has a long history. For

instance, since the industrial revolution, and the rise of the modern

corporations, the role and impact of corporations on the functioning

of the society has attracted concerns and debate among

shareholders, labour unions, community representatives,

environmentalists, the media, politicians, governments and other

stakeholders. All take a certain position on the issue but there is no

consensus on whose interest the firm is meant to protect (De Wit &

Meyer, 2010 pp 603-611).

The social context in which business operates is very complex and

the expectation from managers today is that businesses are required

to seek profitability while taking societal concern into account. This

will no doubt require trade-offs and may entail firm to align its

decision making process with standard ethical demands while

continuously seeking to balance societys needs and the firms

interest (Idemudia, 2007). The stakeholder theory attempts to

capture and address the changes that business-society relationship

has taken over the years. Hence, Freeman (1984) advised managers


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to revise their conceptual maps and use the stakeholder framework

to help interpret external events and manage the demands of all the

firms stakeholders (Preble, 2005). There have been preponderance

of conceptual, theoretical, and empirical articles and books published

since Freeman (1984) underscored the importance of taking a

stakeholder-centric approach to strategic management by firms

(Prebles, 2005).

This chapter attempts to examine the arguments for stakeholder

approach by drawing on relevant articles and books in the extant

literature on stakeholder management to provide a well-grounded

theoretical footing for this dissertation. This review begins with the

examination of the firms business environment which comprises

market and non-market business environments, highlighting the

relationship between them and the implications for businesses. This

is followed by a section on the origin of stakeholder theory and then

the plethora of definitions of who constitute a stakeholder. The next

section discusses how stakeholders can be systematically identified;

then a discussion on primary and secondary stakeholders with

particular emphasis on secondary stakeholders such as

communities, government and non-governmental organisations

(NGOs). The study proceeds with the discussion of the perspectives

of stakeholder approach in the succeeding section. This is followed

by an explanation of stakeholder prioritization and salience by firms.

Lastly, the chapter is summarized and concluded.


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Business Environment

The business environment is composed of market and nonmarket

environments (Baron, 1995). Both components must be integrated to

ensure that the firm achieves its objective of growth and profitability

because, firms compete in their nonmarket environment just as they

do in their market environment. Hence it important for firms to align

both their market and nonmarket strategies. The market environment

is made up of the structure of the market while the nonmarket

environment consists of interests from outside the firms industry

(Baron, 1995). These two are intertwined and very important to the

survival of the firm (Baron, 1998).

For any firm to succeed, its strategies should be shaped by these two

components of the market. In the case of shell in Nigeria for instance,

the demands of the local communities which are issues generated in

the nonmarket environment when not handled carefully do result in

lower production output, a component of the market environment.

This is because there are several occasions when shell facilities

were vandalised by aggrieved youths from host communities and

foreign oil workers were kidnapped. As observed by Baron, (1995)

both market and nonmarket strategies serve the objectives of

maximising profit and sustaining competitive advantage. For

instance, nonmarket strategies can unlock market opportunities just

as market strategies (Baron, 1998).


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Although the saliency of particular nonmarket issue changes,

nevertheless, they are still important for a firms performance.

Usually, firms deal with nonmarket issues on the basis of their

potential impact on its performance (Baron, 2003 cited by Waritimi,

2012). Nonmarket issues also shape the market environment; for

example, the United Nations Environment Programme (UNEP) report

on long term environmental damages in Nigeria as a result of the oil

exploration and production activities of Shell Petroleum Development

Company (SPDC) and most recently the BP oil spillage in Florida

have increased environmental pressure on firms by demanding for

liability for damages, and more stringent regulation, as a response to

direct public pressure. This is evident in the staggering amount

awarded against BP for the damages caused by the spillage in one

of its facilities off the coast of Mexico in America.

The history of stakeholder Theory

The origin of stakeholder concept can be traced back to the

pioneering work of academics at the Stanford Research Institute

(SRI) in the 1960s when the word stakeholders was first used.

Although controversial at that time (Stoney and Winstanley, 2001),

the term was chosen to call into question corporations sole

emphasis on shareholders (Freeman, 1984 cited by Preble, 2005)

and suggested that management should be responsible to all

stakeholders without whose support the organisation would not

survive. The SRI argued that managers needed to understand the

interests and concerns of other groups (shareholders, employees,


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customers, suppliers, lenders and society) in order to develop the

objectives that they would support (Freeman and McVea, 2005). The

SRI defined stakeholders as the groups without whose support the

organisation would cease to exist (Freeman, 1984, cited by Preble,

2005).

Although the concept of the stakeholder first surfaced in

management literature in the 1960s, the stakeholder approach

however, remains mostly scattered and peripheral to management

scholarship until the mid-1980s (Min-Dong and Lee, 2011). But, in

1984, Freeman integrated a number of ideas from corporate

planning, systems theory, corporate social responsibility and

organisational theory and moulded the stakeholder concept into a

framework for strategic management. In Freemans view, the existing

theories were grossly inadequate to deal with the dynamic and

uncertain external operating business environment of the 1980s.

Hence he urged corporations and their managers to revise their

conceptual maps and use the stakeholder framework to help

navigate the increasingly turbulent external operating environment

and balance the interests of the different groups who are affected by

or affects the operations of the firm. The stakeholder approach thus

grew out of the failure of traditional strategy frameworks to equip

managers with how to deal with the rapid changes in their business

environment, particularly the nonmarket environment (Freeman and

McVea, 2005, cited by Waritimi, 2012). This framework embeds firms

in much broader social relationships than the dominant shareholder-


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oriented conception of the firm. As characterised by Freeman (1984),

the stakeholder approach is about groups and individuals who can

affect the organisation, and is about managerial behaviour taken in

response to those groups and individuals (Freeman, 1984, p.48,

cited by cited by Min-Dong and Lee, 2011). Thus, the crux of

stakeholder approach is balancing the interests of different

stakeholders and managing the influences embedded in the

relationship between stakeholders and the focal firm (Min-Dong and

Lee, 2011).

Who is a Stakeholder?

Since Freeman (1984) published his landmark book, strategic

management: a stakeholder approach, the concept of stakeholders

has become embedded in management scholarship but yet there is

no agreement on what Freeman (1994) calls the principle of who or

what really counts, that is, who are the stakeholders of a firm

(Mitchell et al., 1997). There are various definitions of stakeholders in

literature but Freeman (1984) definition of a stakeholder as any

group or individual who can affect or is affected by the achievement

of organisations objectives is perhaps the broadest and most cited.

This definition is particularly important in highlighting a two-way

relationship between the firm and its stakeholders. Stakeholders can

affect whether or not a firm achieves its corporate objectives. So,

stakeholders should be managed instrumentally if profits are to be

maximized. On the other hand, if firm decisions affect the well-being

of stakeholders then managers have normative obligation to


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stakeholders that is moral in nature (Berman et al., cited by Preble,

2005). While the above definition is extremely useful, it may also be

problematic because it may not narrow the field down sufficiently for

many organisations to be able to decide whom a stakeholder might

be (Preble, 2005).

Clarkson (1995) defines stakeholders as persons or groups that

have, or claim, ownership rights, or interests in a corporation and its

activities, be they past, present, or future. Clarkson identified

stakeholders as those that are connected to the firm through explicit

contract (investors and employees), others have implicit contracts

(customers), and the rest have neither explicit nor implicit contracts,

and are so described as non-contractual. The last category of

stakeholders according to Clarkson (1991), may not be aware of their

relationship to the focal firm until some significant occurs; for

example, environmental damage as was seen in Florida where

hundreds of firms and individuals who ab initio may not be aware of

their relationship with BP got compensation for loss of business

(Clarkson, 1994, cited by Mitchell et al., 1997).

In contrast, there are numbers of narrow definitions of stakeholders

in literature that attempt to specify the pragmatic reality that

managers simply cannot attend to all actual or potential claims, and

that proposed a variety of priorities for managerial attention. The

narrow views of stakeholders are hinged on the practical reality of

limited resources (Jawahar and McLaughlin, 2001). Clarkson (1994)

offers one of the narrower definitions of stakeholders as voluntary or


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involuntary risk bearers: voluntary stakeholders bear some form of

risk as a result of having invested some form of capital, human or

financial, something of value in a firm. Involuntary stakeholders are

placed at risk as a result of firms activities. In Clarksons (1994)

opinion, there is no stake without the element of risk (Clarkson, 1994,

cited by Mitchell et al., 1997). A stake is used in this sense to denote

something that can be lost. Clarkson narrowed stakeholders to those

with legitimate claims, regardless of their power to influence the firm

or the legitimacy of their relationship to the firm by the use of risk to

denote stake (Mitchell et al., 1997).

From the stand point of Clarksons (1994) narrow definition, there are

certain individuals and groups (stockholders, employees, and

customers) that should be given priority by the firm because they

bear some form of risk and have a legitimate, direct interest in, or

claim on, the operations of the firm. But from the broad definition of

stakeholders as given by Freeman (1984), however, stakeholders

include not only these groups, but other groups as well.

Consequently, the broad definition of stakeholder encompasses

individuals and groups in both the market and nonmarket

environments, but the narrow definition focuses mostly on individuals

and groups in a firms market environment. The BP in America case

reveals that account needs to be taken of both groups; in certain

instances, the latter will trump the former: consider the decision of BP

not to award dividend payments to shareholders in the aftermath of


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the Florida oil disaster. Perhaps the lesson learnt here, as rightly

pointed out by Balmer (2010) is that while the mind of the corporation

should focus on shareholders, its heart should be mindful of

stakeholders (Balmer, 2010).

It should be noted however that there is no consensus among

researchers about the importance of stakeholders, and stakeholder

theory. For instance, Williamson (1993) argued that agency problems

are aggravated when managers act on behalf of non-shareholders

also Sternberg (1997) suggests that stakeholder theory is

intrinsically incompatible with all legitimate business objectives and

undermines basic property rights and corporate responsiveness.

Nevertheless, Stakeholder theory provides important insights into the

ways in which Corporations and their managers interact with NGOs,

governments, communities and other actors (Doh & Guay, 2006).

In this study, an attempt is made to find out how stakeholders

influence is reflected in Nigerian and American oil industry disasters;

how effective stakeholder influence strategies are in both countries

and to show whether Shell and BP response to oil industry disasters

differently in both countries. In view of the above objective,

Freemans (1984) definition of a stakeholder as any group or

individual who can affect or is affected by the achievement of

organisations objective is adopted because, the activities of the

case study companies affect the local communities and local

communities in turn can prevent them from achieving their corporate

objectives as observed in Nigeria where Shells operations were


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disrupted on several occasions by local communities. This research

will proceed in the next section with the discussion of stakeholder

identification in a firms market and nonmarket environments.

Stakeholders Identification

A key issue in stakeholder management is stakeholder identification,

that is, who are the organisations relevant stakeholders? Although

there are various classification schemes suggested in the literature,

for example, Whysall (2000) (internal, marketplace, external); Hitt, et

al., (2001) (Capital market, product market, organisational); Clarkson,

(1995) (primary, public and secondary stakeholders), the researcher

will use Barons (2003) typology (market/primary and

nonmarket/secondary stakeholder) which will be discussed in the

next subsection. This typology is chosen because it has the dual

advantage of being both straightforward and comprehensive. Primary

stakeholders are those whose continuing participation is required if

an organisation is to survive, for example, shareholders, employees,

customers and suppliers. While secondary stakeholders are those

who influence or affect, or are influenced or affected by the

corporation, but are not engaged in direct transactions with it

(Clarkson, 1995, cited by Preble, 2005).

Primary Stakeholders

Primary stakeholders are also known as market stakeholders

because they engage in economic activities with the organisation in

its bid to provide goods and services to society (Lawrence and


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Weber, 2011, cited by Waritimi, 2012). Figure 1 below shows the

market stakeholders of a typical business organisation.

Source: Market Stakeholders (Waritimi 2012)

Each of the above market stakeholders invest in the firm either

directly or indirectly and have various claims or expectations on the

firm. These stakes help to define what type of power a stakeholder

possess and what kind of response would be appropriate for the firm

to consider relative to each stakeholder. In the case of Shell

petroleum Development Company (SPDC) for example, the Nigerian

government is a part stockholder and in return receive capital gains

and dividends, Creditors lend financial resources to the firm and

receive interests. Employees contribute their human resources to

the firm and get paid wages/salaries in return. Suppliers receive

Employees

Business

Distributors

Suppliers

Customers

Stockholders

Creditors


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payment for inputs provided. Distributors, Wholesalers and retailers

engage in various market transaction with the firm as they link the

firm with the final consumer who have economic power vested in

their purchasing decisions and their ability to file product liability

lawsuits when a product fails or endangers or injures its users

(Lawrence and Weber, 2011, cited by Waritimi, 2012).

As observed previously, the market environment of business

organisations has undergone tremendous changes during the 1980s

when firms began experiencing increased levels of changes in their

external operating environment (Preble, 2005). Corporations began

responding to a more dynamic and uncertain external environment

(often characterized as turbulent) by setting up formal environmental

scanning systems (Preble, 1978). These systems were designed to

act as early warning systems that would detect changes, events,

and emerging issues early on in their development so that

organisations could prepare effective and timely response (Preble,

2005). Most of the changes detected by these systems were

precisely those that underpinned Freemans (1984) call for managers

to revise their conceptual maps and use the stakeholder framework

to help interpret external events. The good news is that most of these

changes have followed well-understood patterns that the

management of most firms are accustomed to handling on a daily

basis (Freeman, 1984). Firms have developed and deployed time

tested strategies for managing their relationships with market


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stakeholders, and are thus able to deal with these sets of

stakeholders (Preble, 2005).

Moreover, the relationship of corporations and their market

stakeholders such as shareholders, employees, suppliers,

customers, and other creditors are governed by institutional and

social rules (Lawrence and Weber, 2011, cited by Waritimi, 2012). It

is therefore no coincidence that firms do have more control when

addressing challenges within the market environment than they do

when interacting with the nonmarket environment. This explains why

there are very few industrial actions in the oil industry as a result of

disagreement with employees or litigations between the boards and

the shareholders regarding profit sharing. In all of this, the researcher

aligns with Lawrence and Weber (2010) submission that

understanding and managing changes in their nonmarket/external

environment, and their relationships with nonmarket stakeholders is a

bit more challenging for firms and their managers, particularly in the

absence of specific rules and norms. However, it is a common

knowledge amongst most successful organisations as observed by

Baron (2003) that if they do not manage their nonmarket environment

it will manage them (Waritimi, 2012).


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Secondary Stakeholders

Nonmarket stakeholders are those who influence or affect, or are

influenced or affected by, the corporation, but are not engaged in

direct transactions with it and are not essential for its survival

(Clarkson, 1995). Clarkson (1995) referred to this group of

stakeholder as secondary stakeholders. They include community,

various levels of government, non-governmental organisations, the

media, special interest groups, and the general public. Authors like

Freeman (1984) have categorised government as primary

stakeholders because there are instances where governments

engages directly in business activities, for example, the Nigerian

government entered into a joint venture partnership with Shell

(SPDC) for crude oil exploration in Nigeria. This has led some

commentators to argue that there has been little or no effort by the

Nigerian government directed at making Shells stakeholders

initiative more reflective of local concerns and priorities from the

negative impact of oil exploration on the host communities. Figure 2

below shows the nonmarket stakeholder relationship with firm.


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Source: Nonmarket Stakeholders (Waritimi, 2012)

This research work pays particular attention to nonmarket

stakeholders such as communities, government, non-governmental

organisations and their relationships with the firm. Perhaps the most

dramatic evidence of the impact of nonmarket stakeholders on

corporate strategies is provided by Shells experience in Nigeria in

the 1990s for its alleged involvement in the Ogoni execution. In

stakeholder literature, it appears that there is little empirical works on

comparative case study of how oil firms in Nigeria and America

manage their relationships with their host communities. This study is

propelled by this perceived gap in knowledge and it seeks to bridge

it. In the next section, an attempt will be made to discuss host

communities and NGOs and why it is important for corporations to

pay attentions to their needs in order to achieve corporate objectives.

Communities

Business

Media

General

Public

Special

interest

groups

NGO

Government


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Local Communities as Stakeholders in the oil industry

In relation to the Nigerian oil industry, communities are categorised

into three main groups: (1) producing communities (or host

communities) in which onshore oil and gas exploration and

production take place, (2) transit communities, whose territories

pipelines pass through, and (3) terminal communities, these are

coastal communities where oil facilities are sometimes located

because oil exploration take place offshore (Agim, 1997). However,

there are communities that are not host, transit or terminal

communities, but because they are close to oil facilities, and are

affected by oil operations, claim a stake in the oil companies. This

explains why those businesses/communities hundreds of kilometres

away from the BP oil explosion in Florida claimed compensations

form BP. From the point of view of Mitchell et al., (1997) theoretical

framework, host communities can be said to originally possess the

attribute of legitimacy (Waritimi, 2012).

Host communities

Community has generally been defined by most scholars in relation

to three factors: geography, interaction, and identity (Hillery, 1955;

Lee and Newby, 1983, cited by Waritimi, 2012). Communities

characterised by geography are groups of people inhabiting the


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same geographic region whether they have any interaction between

them or not. Those identified mainly by regular interactions represent

a set of social relationships, which may not necessarily be based on

geography. But those who share a sense of belonging because of

common beliefs, values, or experiences are classified as community

of identity. However, people that make up communities characterized

by identity do not necessarily have to reside in the same physical

location (Dunham et al., 2006, cited by Waritimi, 2012).

From the perspective of stakeholder theory, corporations must

consider the effects of their operations on those groups such as

communities who are affected by the pursuit of their corporate

objective. As will be seen later, this was a crucial issue for Shell in

Nigeria.

Non-governmental organisations

The rising influence of non-governmental organisations (NGOs) is

probably one of the most significant developments in international

affairs over the past twenty years (Doho and Guay, 2006). Although

NGOs are not a recent phenomenon because, they have existed in

various forms for centuries (Lewis, 2007) however, they rose to

prominence as significant players in world affairs in the 1980s and

1990s (Lewis, 2007). In the past, the society was perceived as

comprising two sectors; business and government. Hence, issues

concerning social welfare and environmental protection were

assumed to be taken care of by both business and government.


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However, the failure of government and business to adequately

address social and environmental issues has induced organisations

that are neither government nor business to act as a balancing force

that protects the generality of the society against the excesses of

both government and business (Reece, 2001).

Since the 1970s, NGOs have grown significantly in number, power,

and influence. Their force has been felt in a range of major public

policy debates, and NGO activism has been responsible for major

changes in corporate behaviour and governance (The Economist,

2003 cited by Doh and Guay, 2006). NGOs are now regarded as a

counterweight to business and global capitalism (Naim, 2000). Doh

and Teegen (2003) buttressed the above when they concluded that

the emergence of NGOs that seek to promote what they perceive to

be more ethical and socially responsible business practices is

beginning to generate substantial changes in corporate

management, strategy and governance (Doh and Teegan, 2003). An

example of the influencing power of this category of civil society

groups is the case of Greenpeace, an environmental NGO and Shell,

on the sinking of the Brent Spar in 1995. Also, there were massive

campaigns by civil society organisations against Shell for its alleged

involvement in the Ogoni execution in 1995 (Tuodolo, 2009), the

intensity of these campaigns often disrupted business activities,

embarrassed and damaged business reputations. The lesson learnt

from this is that seemingly innocent stakeholders sometimes turn out

to be powerful opponents or partners. Hence from a managerial point


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of view it is expedient to consider the interests of all components of

the stakeholders.

It is therefore not surprising that corporation such as Shell provides

and maintains basic amenities for host communities in conjunction

with local NGOs. For instance in Nigeria, Shell claims to have

constructed over thirty community water projects, twenty-five rural

health centres and have agricultural support schemes for local

farmers in conjunction with various local NGOs (Eweje, 2006).

Within the framework of Mitchell et al. (1997) stakeholder

identification and salience, communities and NGOs can be classified

as latent stakeholders. These type of stakeholders have little

salience to the firm because they possess only one of the qualifying

attributes (power, legitimacy and urgency). For instance, NGOs

(dormant stakeholders) have power while communities (discretionary

stakeholders) possess legitimacy. However, should one of these

stakeholder groups gain access to another attribute their salience

would increase significantly (Preble, 2005). A comprehensive

analysis of stakeholder identification and salience is done in later

sections. In the meantime, the next section attempts to shed light on

the ways in which stakeholder theory is used.

Government as a Stakeholder in the oil industry

Jones (1995) rightly observed that government policy often affects

firm/stakeholder relationships. For instance, it is the policy of

government or its agencies to ensure that the negative impact of oil


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exploration on host communities is remedied through necessary

legislations and government interventions. This is evident in the 2010

BP oil spill off the Gulf of Mexico where the justice department in

America imposed a record fine of $4.5bn on BP for misconduct and

negligence (The Guardian, 15/11/12). Within the framework of

Mitchell et al., (1997), the US government is considered a

stakeholder having salience because it possesses power, legitimacy

and urgency in relation to BP.

In contrast, the Nigerian government through the NNPC has a large

share in the joint venture arrangement with Shell for oil exploration.

This dual role of Nigerian government as a part-owner of the joint

venture and a regulator of the oil industry have led to failure on the

part of government to impose commensurate penalties and fines on

Shell for the negative impact of its operations in the host

communities.

Perspectives of the stakeholder approach

The stakeholder theory has been presented and used in a number of

ways that are quite distinct and involve very different methodologies,

types of evidence, and criteria of appraisal (Donaldson and Preston,

1995). For example, the theory has been used, either explicitly or

implicitly, for descriptive purposes; Brenner and Cochram (1991,

cited by Donaldson and Preston, 1995) also offered a stakeholder

theory of the firm for two purposes: to describe how organisations

operate and to help predict organizational behaviour. The three


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justifications of stakeholder approach as identified by Donaldson and

Preston (1995) are critical to this analysis and are employed in this

research. Each of these perspectives is discussed in the following

sub-sections. This will go a long way in shedding light on how the

case study companies employed the stakeholder approach i.e.

whether it is used mainly for instrumental purpose or not. The

relevance of the stakeholder approach as rightly observed by

Freeman (1984) is dependent not only on its theoretical robustness,

but on its practicality (Donaldson and Preston, 1995).

Normative Perspective

The normative perspective justifies stakeholder theory on moral or

philosophical grounds. It views all stakeholders as having intrinsic

value (Freeman, 1994), as such, each stakeholder group merit

consideration for its own sake and not merely because of its ability to

further the interest of other group (Donaldson and Preston, 1995).

The stakeholder theory is a bi-directional understanding of the

stakeholder relationship because stakeholders affect the firms and

are also affected by the firms actions (Frooman, 1999). Therefore,

organisations have obligation to look after the well-being of its

stakeholders (Breman et al., 1999) although, this may not be the

most profitable path as noted by Breman et al. (1999) but it is the

best path(Donaldson, 1995).


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On their part, Evan and Freeman (1988) argued that the stakeholder

theory should be conceptualised along essentially Kantian lines.

The implication of this is that, each stakeholder group has a right to

be treated as an end in itself, and not as a means to some end, and

therefore must participate in the determining the future direction of

the firm in which (it has) a stake. The normative stakeholder

approach emphasises the importance of investing in the relationships

with those who have a stake in the firm. In the opinion of Frederick

(2006) the challenges for the stakeholder view of the firms is bridging

the gap between corporate and stakeholder values (Frederick, 2006

cited by Waritimi, 2012).

There is a consensus amongst believers of the normative

perspective that moral principles should drive stakeholder relations

and firms should view constituents that are affected by their

operations as people with dreams and aspirations, and behave in

ways that do not prevent these constituents from achieving their own

goals (Freeman and Evans, 2005). The above aptly capture the

situation in the Niger Delta region where oil spillages and gas flaring,

consequences of Shells activitieshas almost wiped out the livelihood

of the host communities.

Hence, the normative perspective of stakeholder management is

particularly relevant to this study because oil operations pose a threat

to the environment at every stage of the production chain and the

people of Niger Delta depend predominantly on their environment for

their sustenance since they are mostly fishermen and farmers. As a


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result, their livelihoods are hampered by oil exploration. Therefore, in

order not to prevent the communities from achieving their goals

(survival), Shells stakeholder management should be driven by

moral principles as theorized by Clarkson (1995) and the interests of

communities should be incorporated in its corporate strategy.

Instrumental perspective

The instrumental view is used to identify the connections, or lack of

connections between stakeholder management and the achievement

of traditional corporate objectives of profitability, stability and growth

(Donaldson and Preston, 1995). It views stakeholders as important

because addressing their needs is also good for business (Jones &

Wicks, 1999). Unlike the normative perspective, the instrumental

perspective is more unidirectional because it looks primarily to

benefit the firm. Stakeholders concerns only entre a firms decision

making process if they have strategic benefits (Frooman, 1999).

Instrumental stakeholder theorists argue that managing stakeholders

strategically can lead to the attainment of organisational objectives,

namely market-place success (Jones & Wicks, 1999).

Interestingly, many positive relationships between multiple

stakeholder attention and various measures of performance have

been found (Berman et al., 1999; Jawahar et al., 2001; Jones &

Wicks, 1999) which suggests strategic validity to effective

stakeholder management. For instance, in a study carried out by

Harvard University, it was found that companies that explicitly put


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their shareholders first did less well for their shareholders than those

that balanced the interests of all their stakeholders (Caulkin and

Black, 1994, cited by Prebles, 2005). Moreover, when Donaldson

and Preston (1995) reviewed a large number of instrumental studies

of corporate social responsibility (all of which made reference to

stakeholder perspectives and used conventional statistical

methodologies), they concluded that all of these studies generated

implications that adherence to stakeholder principles and practices

tended to achieve conventional corporate performance objectives as

well or better than rival approaches (Preble, 2005).

Descriptive Perspective

This theory is used to describe, and sometimes to explain, specific

corporate characteristics and behaviours, and analyse what

managers actually do and what groups are taken into account

(Donaldson and Preston, 1995). For example, stakeholder theory has

been used to describe: (a) The nature of the firm (Brenner and

Cochran, 1991), (b) The way managers think about managing

(Brenner and Molander, 1977), (c) How board members think about

the interests of corporate constituencies (Wang and Dewhirst, 1992)

and (d) How some corporations are actually managed (Clarkson,

1991). The descriptive stakeholder theory describes the firm as a

centre of many converging and diverging interests (Freeman, 1984).

It shows how stakeholder impact on the firms decision-making.

Brenner and Cochran (1991) submit that organisational behaviour is


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contingent upon the influence of the stakeholders over the firm

Brenner and Cochran (1991).

Stakeholder prioritisation and salience

The importance of considering the interests of all stakeholder groups

in relation to the firm has been established in strategic management

literature. It is also recognized that managers and organisations have

limits on their time, cognitive information processing capabilities, and

resources (Preble, 2005). Thus, it is crucial for firms to sort out which

stakeholder groups deserve managerial attention at different points in

time. In order to facilitate this process, Mitchell et al., (1997)

advanced a theory of stakeholder identification and salience (the

degree to which managers give priority to competing stakeholder

claims) based on the extent to which managers perceived

stakeholders to possess power, legitimacy, and/ or urgent claims

(Preble, 2005). By adopting Freemans (1984) broad definition of a

stakeholder so that no potential or actual stakeholder is excluded,

Mitchell et al., (1997) proposed that stakeholders can be identified by

their possession of one, two or three of the following attributes: (1)

the stakeholder power to influence the firm; (2) the legitimacy of the

stakeholders relationship with the firm; (3) the urgency of the

stakeholders claim on the firm.

Based on the possession of aforementioned attributes (power,

legitimacy and urgency), Mitchell et al., (1997) developed seven

stakeholder types: dormant, discretionary, demanding (latent


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Chapter three

Research Methodology

Introduction

It is essential to consider the issue of paradigms, matters of ontology

and epistemology when undertaking a research. A lack of

consideration of these parameters might seriously affect the quality

of research outcome because they describe perceptions, beliefs and

the nature of reality, which may influence the way in which the

research is undertaken. Easterby-Smith et al (2002) rightly observed

that there are different worldviews and philosophies that influence a

researcher priorities and decisions regarding the research. The

same view was echoed by James and Vinnicombe (2002) when they

concluded that we all have inherent preferences that are likely to

shape our research designs. Hence, it is expedient that a researcher

is clear about the paradigm issues that guide the research approach,

as reflected in the methodologies applied because this will help place

the research into broader context (Easterby-Smith et al., 2008).

This chapter explains the methodology employed in the research. It

identifies the dissertations epistemology, philosophical perspective

and also gives an overview of the research approach adopted. The

position taken in this study is clarified and how the research strategy

employed was derived from the philosophical position taken was

discussed. A discussion of the case study approach adopted is then

presented. This is followed by a brief description of the case study


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companies. In light of the research aim and objectives, it was

pertinent to incorporate the roles of communities and government as

stakeholders in the industry. Then, the chapter concludes with a brief

summary.

Research philosophy

The topic of this study; stakeholders influence in oil industry

disasters: a comparative case study of shell in Nigeria and BP in

America exists externally and is not related to the researcher;

therefore it was measured through objective methods rather than

being inferred subjectively through reflection, sensation or intuition

(Easterby-Smith et al., 2002). Hence, a positivist approach is

adopted in this study. This research approach is based on knowledge

gained from verification of observable experience as against intuition.

It ensures that there is a distance between the subjective biases of

the researcher and the objective reality being studies (Cohen, D. &

Crabtree, B., 2006, cited by Easterby-Smith et al., 2008). Positivist

approaches to research are based on research methodologies

mostly used in science where data are derived from experiment and

observation (Saunders et al., 2007). The social interpretivist

approach, described by Hatch and Cunliffe (2006) as anti-positivist

aims to study and reflect on the inner feelings of participants, is not

being utilized in this study, because no interview was conducted as a

result, this research is going to use exclusively secondary data

(Easterby-Smith et al., 2008).


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Research approach

It is imperative to classify the research approach in terms of whether

it is inductive or deductive. Saunders et al., (2003) made a distinction

between these two types of research approaches. First, the

deductive approach also known as testing a theory is where the

researcher develops a theory or hypotheses and designs a research

strategy to test the formulated theory. Marshall (1997) defined

deduction as the technique by which knowledge develops in more

mature fields of enquiry. It involves a sort of logical leap. Going a

stage further than the theory, data is then collected to test it

(Marshall, 1997:17, cited by Saunders et al., 2003). Second, the

inductive approach- known as building a theory is however, where

the researcher starts with collecting data in an attempt to develop a

theory (Saunders et al., 2007).

Due to the nature of the research, this study adopted a deductive

approach. This approach represents the most common view of the

relationship between theory and research; results derived from this

approach are developed through logical reasoning (Bryman and Bell,

2007). The data findings would be compared against existing

literature to ascertain if they agree with what had already been

published regarding stakeholders influence strategies in oil industry

disaster (Bryman and Bell, 2007).


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Research Strategy

In this dissertation, a case study strategy has been adopted because

of the research problem under investigation and the exploratory

nature of the research. Yin (1984) defines a case study research as

an empirical enquiry that investigates a contemporary phenomenon

within its real-life context; when the boundaries between

phenomenon and context are not clearly evident; and in which

multiple sources of evidence are used (Yin, 1984, p.23). Robert K.

Yin (1984) and other well-known case study researchers suggested

that the kinds of questions that are best addressed by case study

research are how and why questions(Yin, 1984). Since the crux

of this research was to investigate how the context and institutional

setup of host communities has influence on Shell and BP

stakeholders strategies and response to oil industry disasters, a

case study approach became appropriate in this research. This is

so because it allows for an in-depth analysis and understanding of

stakeholder management practices in the case study companies. By

presenting the contextual setup in both Nigeria and America, it

became not too intricate to perform a comparative study of how Shell

respond to oil industry disaster in Nigeria and how BP respond to

same in America (Yin, 1984).

It is worth noting however that, the case study approach has not

been generally accepted as reliable and objective research strategy.

Critics of this method argue that the study of a small number of cases

is not sufficient to establish reliability or generalisation of findings.


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Perhaps the greatest criticisms aimed at this approach as observed

by Yin (1984) relate to its lack of rigor (Yin, 1984). However,

Yin,(2009) effectively tackled these prejudices against case study

approach when he assertively reaffirms that case study as a

research, is situated squarely, as a methodology, well within the

parameters of modern qualitative social science (Daughtery, 2009).

He went further to clear-up these misconceptions when he submitted

that the case study approach is often preferred by researchers

because it enhances depth of analysis and pays attention to context

(Yin, 2009).

Research Objective

This research is an investigation into stakeholders influence in oil

industry disasters: A comparative case study of Shell in Nigeria and

BP in America. To achieve this, the research attempts to answer the

following questions: (a) How effective is stakeholders influence in

Nigerian and American oil industry? (b) How is stakeholders

influence strategies reflected in Nigerian and American oil industry

disasters? (c) How or why is response to oil industry disasters in

Nigeria different from America in the context of stakeholder

influence?

Data Collection and Analysis

In this study, no primary data was collected by the researcher;

hence, secondary data was used exclusively. Secondary analysis as

defined by Hinds et al.(1997) involves the use of existing data,


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collected for the purpose of a prior study, in order to pursue a

research interest which is distinct from that of the original work; this

may be a new research question or an alternative perspective on the

original question. Data collected from earlier works, academic

journals, documentary evidence from newspapers, Shell and BP

newsletters, annual reports and documentations from NGOs served

as useful sources of information for the analysis undertaken in this

study. As noted by Yin (2003), various types of documentary

evidence can be invaluable in terms of corroborating and

strengthening/enlarging other sources. For example, content analysis

of various online newspapers in terms of how the American

government severely penalized BP for the recent oil spill off the Gulf

of Mexico gave the researcher an insight into the role of American

government as a stakeholder in the oil industry(Hinds et al., 1997).

Data analysis was done by critically evaluating all the information

gathered and comparing findings from the research with theory. This

helped to see whether stakeholder strategies in both countries

concur with theory and the differences or similarities between

stakeholders influence strategies in Nigerian and American oil

industry.

Summary

This chapter has discussed the research methodology underpinning

this study. It outlined the epistemology, philosophical position and

method of research of the study. The researcher took a positivist


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philosophical position, and employed a deductive method of

research, which entailed development of hypotheses and designing a

research strategy to test the formulated theory. No primary data were

used in this study. A case study approach was employed to focus the

study and enhance our understanding of stakeholder management

practices, particularly in the context of the Nigerian and American oil

and gas industry. This approach allowed the researcher to focus on

two case study companies (Shell and BP) and other relevant

stakeholders (Government and community). The chapter provided a

brief background on the case study companies and discussed the

research methods employed in detail. The next chapter discusses

the data analysis and findings of the study.


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Research Questions

1. In what ways do the activities of Shell and BP affect the

stakeholders in the host communities?

2. How effective are governments in Nigeria and America able

to regulate and enforce compliance in the oil industry?

3. How is stakeholders influence reflected in Nigerian and

American oil industry?

Shell Petroleum Development Company (SPDC)

Shell Petroleum and Development Company (SPDC) is a subsidiary

of Royal Dutch Shell plc. Royal Dutch Shell plc. Is the largest energy

company in the world, producing around 3.1 million barrels of oil per

day; it is also the second largest company in the world in terms of

revenue (Fortune, 2010). The company began exploration for oil in

Nigeria in 1937, in August 1979, the Nigerian government

appropriated BPs share equity in the Shell-BP joint venture (Khan,

1996).

Royal Dutch Shell also has three other subsidiary oil and gas

production companies in Nigeria; Shell Nigeria Exploration and

producing company (SNEPCO), Shell Nigerian Gas (SNG) and Shell

Nigeria oil products (SNOP), and an interest in the Nigerian liquefied

natural gas limited (NLNG). Almost 14 percent of Royal Dutch Shells

production, the highest production volume outside the USA, comes

from Nigeria. Its subsidiary, SPDC is the largest oil and Gas

Company in Nigeria, accounting for 40 percent of the countrys oil


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production; it produces over a million barrels of oil per day. Shell is

the technical operator of the NNPC/Shell/ Total/Agip

(55%,35%,10%,5%) joint venture. Hence, the government of Nigeria

is both a direct stockholder and a stakeholder in the Nigerian oil

industry (Idemudia, and Ite, 2006). Shells operations are mostly in

shallow waters and onshore (on land) in the Niger Delta Region, and

are spread over a distance of 31,000 square kilometres. The

companys facilities include a network of more than 6,000 kilometres

of flow lines and pipelines, 90 oil fields, 1,000 producing wells, 72

flow-stations, 10 gas plants, and two major oil export terminals at

Bonny in Rivers State and Forcados in Bayelsa state (SPDC, 2010).

Shells oil and gas operations are scattered over six of the nine oil

producing states in the Niger Delta. The company has over 1000

stakeholder communities, consisting of host, transit and impacted

communities (SPDC, 2010).

British Petroleum

British Petroleum is a multinational oil and gas company with

registered headquarters in London. It became one of the largest oil

companies in the world through its merger with the AMOCO

Corporation in the U.S. in 1998. BP operates in all areas of the oil

and gas industry, including exploration and production, refining and

marketing, petrochemicals, power generation and trading. It also has

renewable energy activities in biofuels and wind power. BP operates

in over 80 countries as at the end of 2012, with production capacity

of around 3.3 million barrels of oil per day.


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BPs origin dates back to 1909 when the Anglo-Persian oil company

was formed to take over and finance an oil field concession granted

to an English investor, William Knox DArcy by the Iranian

government. In 1935, it became the Anglo-Iranian company and in

1954 British Petroleum. The company expanded beyond the Middle

East to Alaska in 1959 and it became the first company to strike oil in

the North Sea. Its largest division is BP America, which is the second

largest producer of oil and gas in the United States.

BPs operation in the U.S. makes up of nearly one-third of its

worldwide business interests. Its major subsidiaries in the U.S.

includes: BP America Inc., BP exploration and production Inc., BP

Corporation North America Inc., BP products North America Inc., BP

America Production Company and BP Energy Company

(Encyclopaedia Britannica).

The company has been involved in several major environmental and

safety incidents, including the 2005 Texas City refinery explosion

which caused the death of 15 workers and resulted in a record

setting fine, the largest oil spill in Alaskas North Slope which resulted

in civil penalty of $25 million. The most recent being the 2010 deep

water horizon oil spill, where an estimated 4.9 million barrels of crude

oil were released into the Gulf of Mexico. The company subsequently

paid billions of dollars in damages to individuals and businesses

affected by the spill. In 2012, BP agreed to pay more than $4.5 billion

in fines and penalties to the U.S. government and plead guilty to 14

criminal charges (The Guardian, 15/11/12).


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Impact of Shell and BP on host communities

The operations of Shell and BP have inevitably had associated costs

and benefits for the host communities. However, the balance of these

costs and benefits is likely to inform community perceptions of the

companies stakeholders management strategy. In a study

conducted by Idemudia (2007) in the Niger Delta area, he found that

83 percent of the respondents believed that the cost of oil production

for host communities is more than the benefit host communities have

derived from oil production. This is because the people of the Niger

Delta are predominantly engaged in farming and fishing for their

livelihood sustenance. So the destructive impact of oil companies,

which is most noticeable in the natural resources extraction

industries (OConnor, 1995; Bryant and Bailey 2000) in which the oil

and gas companies are key actors have disastrous impact on the

people of the region. Oil exploration activities such as seismic

operations, drilling of oil wells, pipeline construction, transportation of

equipment, access road construction, transportation of crude oil,

disposal of drilling waste, among others, lead to some form of

environmental degradation (see IYC 1998; ERA, 1998, 2000, 2004;

HRW, 1999; NDHERO 2001). Studies have shown that areas that

are constantly exposed to repeated or consistent oil spill or leaks, like

the Niger Delta, frequently exhibit long -term environmental problems

because oil spill causes permanent damage to the ecosystem

(Waritimi, 2012).


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Moreover, available records show that millions of barrels of oil had

been spilled on the Niger Delta environment (land and water) by

different oil companies between 1960 and 2005 (Obi, 2000; Oronto,

2003 cited Tuodolo, 2007), whose devastating impact on the

environment is extreme. The cause is mostly attributable to old

pipelines whose life span had expired, oil well leakages, blow outs,

and spills from ships and tankers, and sabotage. However, the

impact of such environmental degradation result in low farm produce,

loss of livelihood (fishing and faming), diseases, limitation of

economic activities, food shortage, polluted waters, etc. (Tuodolo,

2007). Balmer (2010) correctly sum up the situation when he posits

that The Niger Delta spillage is an environmental catastrophe of,

arguably, biblical proportions and the facts speaks for themselves:

over the last half century Nigeria has experienced the equivalent of

one Exxon Valdez oil spill per year in Niger Delta (Balmer, 2010,

p.101). Moreover, a joint study carried out by international and

Nigerian environmental experts in 2006 revealed that the Niger Delta

is one of the worlds most severely petroleum-impacted ecosystems

(Nigerian conservation Foundation; WWF UK; International Union for

Conservation of Nature; Commission on environment, 2006 cited by

Hennchen, 2011).

On the other side of the Atlantic, BP has been involved in several

major environmental and safety incidents, among which were the

2005 Texas City refinery explosion which caused the death of 15

workers and resulted in a record setting fine; Britains largest oil spill,


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the wreck of Torrey Canyon; and the 2006 Prudhoe Bay oil spill, the

largest oil spill in Alaskas North Slope which resulted in civil penalty

of $25 million (the largest per-barrel penalty at that time for oil spill).

The most recent being the 2010 deep water horizon oil spill, where

an estimated 4.9 million barrels of crude oil were released into the

Gulf of Mexico (Cherry et al., 2011). On April 20th, 2010 the offshore

oil drilling rig Deepwater Horizon operated by BP in the Gulf of

Mexico exploded and sank. As a result, crude oil began gushing into

the ocean (Lin-Hi and Blumberg, 2011). After several failed attempts,

BP finally succeeded in shutting down the well in August, four

months after the explosion. It was estimated that about 4.9 million

barrels of crude oil were released into the Gulf of Mexico (The

Guardian, 5/11/12). The enormity of the disaster was rightly captured

in a report by National Research Council where it submitted that the

US governments efforts to put a price on the damage from the April

2010 disaster failed to capture the full extent of the environmental

and economic losses in Gulf waters and coaster areas, fisheries,

marine lives, and the deep sea caused by BPs runaway well.It was

also noted in the report that 20 million people in the US alone lived

and worked around the Gulf before the April 2010 disaster and the

Gulf accounted for about a quarter of the countrys sea food catch

(The Guardian, 5/11/12). Although the long-term environmental

impacts cannot be fully determined, but it is certain that the oil spill

caused one of the worst environmental disasters in US history (Lin-Hi

and Blumberg, 2011).


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For BP, the oil spill threatened its very existence as observed by (Lin-

Hi and Blumberg, 2011) because of the financial burden it suffered

from. For instance, in mid-June 2011, BP agreed to establish an

independent fund of $20bn to take care of compensation claims

arising from damaged natural resources as well as state and local

response cost (Lin-Hi and Blumberg, 2011). This is in addition to

$25bn spent on clean-up and restoration costs; $4.5bn owe to

government in fine and $7.8bn that had already been paid in

compensation claims- a figure which is uncapped and growing (The

Guardian, 11/07/12). In light of this financial burden and the

prevailing risks, BP temporarily lost about 50 percent of its value after

the disaster (Lin-Hi and Blumberg, 2011).

In addition to the direct financial consequences, the oil spill disaster

has caused several negative side effects that are likely to affect BPs

long-term success. In particular, several damages to the companys

image as well as the publics loss of confidence in the oil drilling

industry are both likely impacts of the disaster. Moreover, the BP

case is likely to affect the entire oil industry since new or stricter

regulations are to be expected in the industry (Phillips, 2010).

The Role of Government

The reason for selecting government as a key stakeholder in the oil

industry is not farfetched. Not only does it grant the official licences

required by the oil companies, it also regulates their activities and

ensures compliance with the laws that govern the industry. Jones


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(1995) correctly observed that government policy often affects firm-

stakeholder relationships. This view was buttressed by Idemudia &

Ite (2006) when they concluded that the laws that govern the oil

industry in Nigeria have in many ways served to aggravate the

relationship between the oil companies and communities that are

affected by their operations (Idemudia & ite, 2006). In America, the

role of government is evident in the BP oil spillage saga where the

American government instituted a legal action against BP over the

damage caused by the Gulf of Mexico oil spill (BBC News, 16th Dec.

2010). The oil giant later agreed to pay $4.5 billion in settlement of

criminal charges brought against it by the government (The

Guardian, 15/11/2012). This is in addition to an estimated $7.8 billion

that had already been paid for property, economic and medical

damages to some 100,000 individuals and businesses that were

affected directly or indirectly by the spillage (Cherry & Sneirson,

2011). In the words of the U.S. Attorney General Eric Holder who

announced the deal I hope that this sends a clear message to those

who would engage in this kind of reckless and wanton conduct that

there will be a significant penalty to pay and that individuals in

companies who are engaged in these kinds of activities will

themselves be held responsible(The Guardian, 15/11/2012).

In contrast, the Nigerian government is a major shareholder in the oil

industry by its acquisition of majority shares in the oil sector through

its agency, the Nigerian National Petroleum Corporation (NNPC). By

this acquisition, the NNPC has 55 percent controlling shares in Shell


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act, 1969 & land use act CAP 202, 1990 as amended). By this laws

and the backing of the government, the oil companies do whatever

they desire with impunity. Collectively, the oil companies record

hundreds of different forms of pollution annually in their operations

(spillages from pipelines, oil well heads, flow stations or oil vessels;

irresponsible waste disposal etc.) and in the process destroy

farmlands, forest, streams, creeks, rivers, biodiversity and the

livelihood of local communities (Okonta and Douglas, 2003). For

example, between 1995 and 2005, SPDC alone recorded 2,972 oil

spill incidents resulting in spillage of three hundred and eighty two

thousand seven hundred and eighty-eight barrels of oil (Human Right

Watch, 2006).

The devastation to the environment is taking place despite the

abundance of various environmental laws and agencies such as, the

federal environmental protection agency (FEPA) act of 1998 on the

environment, the department of petroleum resources guidelines

(DPR), environmental guidelines, national petroleum investment

management services (NAPIMS), the Nigerian national petroleum

corporation (NNPC) and standards for the petroleum industry

(EGASPIN) of 2002. In spite of these numerous laws, the Nigerian

state does not ensure their effective implementation (Ikporukpo,

2004). Therefore, the oil companies violate these laws without

punishment or sanction; for example SPDC admitted violating the

DPR regulations in its 2004 annual report (SPDC, 2005) but there

was no fine or sanctions imposed by the state. The above scenario


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had led Keane (1998) and Al Gedicks (2001) to conclude that the

state does not enforce the laws because it could affect the revenue it

derives from oil and that the state and Shell have formed a

relationship to suppress the communities. This is evident in the 1995

tragic execution of Ken Saro-Wiwa and eight Ogonis by the Nigerian

government and Shells alleged complicity in the case (Tuodolo,

2007).

Analysis

From the perspective of stakeholder theory, communities that are

affected by the activities of a firm are legitimate stakeholders

(Freeman, 1984; Clarkson, 1995). However, from the cases

described in the foregoing section (The impact of Shell and BP on

host communities), it appears that Shellsidea of a stakeholder is at

variance with Freeman and Clarksons definition of stakeholders.

This is because, the negative impact of Shell operations on host

communities in Nigeria is not a sufficient criterion that Shell uses to

determine legitimacy and salience. This might be due to the fact that

the oil companies in Nigeria have not always regarded local

communities as stakeholders in the real sense of it, especially in view

of the petroleum act of 1969 and the land use decree of 1978 which

not only vested all the petroleum resources to the Nigerian

government but also gave the state the right to revoke rights of land

ownership from people. For instance, section 1 of the petroleum act

of 27thNovember 1969 vest the entire ownership and control of all

petroleum in, under or upon any land (including land covered by


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water) which is in Nigeria or is under the territorial waters of Nigeria

in the state (Petroleum act, 1969). Hence, within the context of

Mitchell et al., (1997) model, the host communities in Nigeria

exhibited the characteristics of a discretionary stakeholders (see

chapter 2) having just legitimacy since they are affected by the

activities of Shell. But they have no urgent claims and no power to

influence Shell. As a result, they are recipients of what Carroll (1991)

calls corporate philanthropy just a theorized by Mitchell et al., (1997)

because there is no pressure on Shell to engage in active

relationship with them. This explains why Shell does not treat the

demands of host communities in Nigeria with the urgency they

deserve (Mitchell et al., 1997).

However, as predicted by Freeman (1984), stakeholders who are

affected by a firms activities or practices might in the future take

retaliatory measures against the firm. In line with this prediction, host

communities abandon their passive attitude and resorted to protest

and disruption of Shells operation because from their point of view,

their claims were legitimate and urgent which make them

dependent/expectant stakeholders (Mitchell et al., 1997). With the

host communities acting in concert with various NGOs showing their

abilities to prevent Shell from carrying out its operations and

achieving its corporate objectives, they were able to grab the

attention of Shell as theorized by Mitchell et al., (1997) when

legitimate stakeholders with urgent claims acquire the power to

influence or affect the business of a firm, they become definitive


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stakeholders, and thereby receive priority from firms and managers

(Mitchell et al., 1997).

In contrast to the situation in the Nigerian oil industry, empirical data

show that the American government is alive to its statutory

responsibilities of setting minimum standards and targets in the oil

industry. This is achieved through enacting legislations, the

establishment of enforcement and inspectorate agencies, and

governmental support for citizens legal action via legal and fiscal

penalties and rewards (Fox et el., 2002). This is evident in record

breaking fines and penalties that are awarded against companies for

the negative impact of their activities on host communities in addition

to the cost of clearing oil spillages and compensation to those that

are affected either directly or indirectly. The recent BP oil spillage is a

testimony to the decisiveness of the American government in dealing

with the crisis. From the point of view of Mitchell et al., (1997)

stakeholder identification and salience typology, host communities in

American oil industry can be considered as dependent stakeholder

having legitimacy and urgency but depends on government/

government agencies for the power necessary to carry out their will.

Findings

In a nutshell, the findings in this study show that: (1) Communities in

Nigeria can be considered as discretionary stakeholders possessing

only legitimacy, the acquisition of the attributes of urgency and power

at different periods determined their salience to Shell. While the host


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communities in America can be considered to be dependent

stakeholders possessing two qualifying attributes (legitimacy,

urgency) but depends on other stakeholders (US government,

Courts, NGOs) for the power necessary to carry out their will. (2)

Context, power and distance, rather than scale, may determine the

response of oil companies to oil industry disaster. Because if one

contrasts the response of Western governments and oil corporations

to the Deepwater 2010 disaster with the ongoing oil spillage of epic

proportion in Nigeria, there appears to be lack of awareness/interest

in the situation in Niger Delta. This may be as a result of context: 40

percent of all crude oil imports to the United States alone come from

the Niger Delta (Vidal, 2010, cited by Balmer, 2010); power: the

relative power of Nigerian government compare to that of Shell

Corporation is weak unlike the relationship between the US

government and BP; distance: the Niger Delta is a world away from

the Hague, London, Paris, Tokyo, Brussels and Washington. This

brings to mind the maxim of out of mind out of sight (Balmer, 2010).

(3) Shell and BP are different in their stakeholders engagement

strategy. This may be a result of difference in government posture on

enforcement of laws and regulations that govern the industry in both

countries as can be seen from the foregoing sections. (4) The dual

role of Nigerian government as a s

dissertation (keele university)1

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