Sunday, May 5, 2013

Shell Oil in the Shared Value of Protection

Since shared value relies on self-interest, there comes some grey areas where business is able to derive value from otherwise inaccessible markets. Much like how the original American mafia and black market participants developed a group of heavily armed mafioso to protect their shipments of valuable alcohol to the American public; Shell Oil has an obligation to fill the void of legitimate functions of force in the countries which it drills. The popular example of this is Shell's work in rural parts of Africa. In some of these oil rich regions the legitimacy of institutions relies on a culture of conflict among the parties with availability to the use of force. This situation where there is no concrete monopoly of physical force or a culture of responsible conduct for the use of legitimate force create a void for the protection of assets which companies need to participate in the economy. Although this is seen as an investment risk, companies like Shell have the capital to make investments which curb that risk low enough to bring on profits from the extraction of oil.

Often times those investments have to make up for the lack of protection which is the result of an institutional void in those regions. Criminals even steal the oil directly from the oil lines in parts of Africa; some of these are ex-workers who understand the value but it doesn't take an expert to exploit the weaknesses of a rich Shell Oil company. Shell often flaunts its wealth to people in countries like Nigeria and pays off militants in the region. The activities span wide and far, bringing on public outrage. But it some ways it makes sense.

Shell needs to access the oil in a country and the militant informal leaders in those countries need money in order to continue exploiting others. It is a win-win situation. Value is created by the extraction of oil which is what Shell wants as well as the ammunition needed to exploit the weak as the militants want. The only one who loses are the innocent people outside of the negotiation. It is important to examine all related parties when making decisions to "increase the size of the pie" as Porter would say it. Some people may lose value and that burden should not fall inequitably onto the same people (I'm talking about the disadvantaged members of society as an abstract now). These people who endure great losses of value should not be put aside as casualties of great plans to increase the amount of value in the world - so even though CSR is not a perfect solution, we should consider Shared Value as an avenue to rectifying the lost value created by other contracts.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.