Business Ethics – Shell’s Strategic Stakeholder Synthesis

Due to the size and impact many large companies such as Shell have on society, most managers have come to realize that the interests of stakeholders, as well as shareholders, is an important factor in the success of a business. Stakeholders are individuals such as employees, customers, and people in the local community who do not hold equity directly in the company but are none the less affected by the decisions made by it. The idea that stakeholder interests should play a role in the decision-making process of a company seems not to be questionable, what is, however, is to what degree it should play.

Depending on whether a manager uses strategic stakeholder synthesis or multi-fiduciary stakeholder synthesis will influence how much of a role the interests of stakeholders have in the decision process of a company. Under strategic stakeholder synthesis, those outside the stockholder group are seen only instrumentally as a factor or means in which to address and take into consideration only so far as to maximize profits for the stockholder. This method is perfectly in accordance with a manager’s fiduciary obligation to stockholders to maximize profits. Thus it is strategic because it is using the stakeholder information to maximize profits for another group, the shareholders, and it is a form of synthesis because it takes the priorities of the stakeholders as a fundamental priority in the information structure of the decision-making process.

A multi-fiduciary stakeholder synthesis for managerial decision making within a company is far less accepted. It requires a management team to process the information provided by stakeholders with the same care as is provided to shareholders. Stakeholders are not seen as instrumental on the multi-fiduciary approach as they are under the strategic method for maximizing profit. The main problem with this method is that it is seemingly incompatible with the already held notion that the fiduciary obligation of a manager to the shareholders is stronger than any obligation to third parties such as stakeholders. Such a method would transform private organizations into essentially public ones having to make decisions in accordance with individuals with no equity in the company.

Of the two forms of stakeholder synthesis just described it seems clear that Jeroen van der Veer’s report on Shell’s 2003 activity report indicates more of a strategic stakeholder synthesis method of decision making than and multi-fiduciary one. Two main reasons for thinking that it is a strategic rather than multi-fiduciary are the following. First is that it would be impractical and extremely difficult for a company such as Shell to use the multi-fiduciary method, therefore unreasonable to think that they actually do, and so that simply leaves strategic stakeholder synthesis. Secondly, the wording used in the report clearly indicates that the interests of the stakeholders are being used instrumentally to maximize the profits of the shareholders.

There are three key sections of the report that support the claim that it is a strategic stakeholder synthesis. One of the strongest indicators that the stakeholders are being used strategically comes in the third paragraph of the report. Van der Veer rejects the claim the commitment to sustainable development is an unnecessary distraction from the central task of profit maximization for the shareholder not because it will go against what the stakeholders desire, but rather because he recognizes the importance of sustainable development in maximizing the profits of Shell for the shareholders over the long term. Regaining trust and restoring Shell’s reputation with its stakeholders as mentioned in the first paragraph of the report are clearly means of Shell’s to improve financial performance. This indication of Shell using improvements in social and environmental to improve financially is a clear sign they are using stakeholder interest instrumentally to fulfill their fiduciary obligation to shareholders.

The second key indicator that the Shell report is an example of strategic stakeholder synthesis is the explicit mentioning of the necessity to engage with stakeholders in order for major projects such as Sakhalin II in Russia and the Athabasca Oil Sands in Canada to succeed. It seems obvious that stakeholders for these projects are being kept satisfied in order for the projects to be a success and through which will increase profits for the shareholders of the company. This is another clear indication that the stakeholders are being used instrumentally in order to maximize profits. Although it cannot be proven that Shell would not take the stakeholders interests into account if doing so would not have an effect on profit they would not do so. They would have no obligation to the stakeholders and by creating one they are diminishing profits through the time and effort to accommodate stakeholders, which would negatively affect the strongly held fiduciary obligation of the company to the shareholders.

The third key indicator that strategic stakeholder synthesis is being used is in the final paragraph when it is stated that Shell is committed to listening and responding to our stakeholders. Such a statement is clearly not indicative of multi-fiduciary and may even be closer to stakeholder analysis rather than strategic synthesis. If Van der Veer wanted to let the stakeholders know that they were an actual part of the decision process rather then merely a factor in it, it would have been more appropriate to word large portions of the report differently.

The 2003 Shell report to the stakeholders is clearly an instance of strategic stakeholder synthesis because the wording and structure of the document indicates that the stakeholders are being used instrumentally as a means of increasing the profits for the benefit of the shareholders. This is in accordance with the managerlong-standingng fiduciary duty to the shareholders to increase profits.