Articles

MHCi MONTHLY FEATURE:

August 2003

CSR: Hate Exxon Love Shell - Justified?

Background

In John Elkingtonís strangely named, ed but influential, advice book 'Cannibals with Forks' the idea was born that each company should account for their triple bottom line - social, economic and environmental. A sign of the high visibility of Shell in these issues and the invisibility of ExxonMobil in the book was that Shell was referred to about 50 times while Exxon had no references whatsoever. Moreover, Exxon received a rocky reception from environmentalists opposed to its support for President Bush's anti-global warming and anti-Kyoto treaty approach. As the Financial Times stated on 6 June, 2002 Exxon-Mobil involvement in Bush's decision to end any pretence of US support for the Kyoto Protocol has made it the environmentalists' most hated company. The word 'hate' also cropped up in a report by the UK Sunday Telegraph who reported that Exxon had 'committed the crime of opposing the Kyoto international pact on fighting global warming'. And, 'unlike BP and Shell, Exxon stalwartly refuses to invest in renewable energy such as solar and wind power'.

On the social front Exxon has also been less visible than Shell. A major watershed for Shell was the Brent Spar incident in the mid-1990s where Shell had to take all the blame even though a little known fact was that this was a joint 50/50 venture between Shell and Exxon. Exxon 'ducked its head and left it to Shell to take the heat' while the Brent Spar conflict lasted.

The weight of the two companies on the world business market, let alone as oil majors, is huge. Exxon, based in the US, is the world's largest non-governmental producer of oil and gas, and employs around 92,500 people in 200 countries (for more details see www.exxonmobil.com). Shell, of similar size, is an oil major based partly in London and partly in The Hague and employs 115,000 people in 145 countries (see www.shell.com).

According to Mallen Baker, Shell was the first to produce a social report when Shell Canada produced its 'Progress Toward Sustainable Development' report in 1991 - just a few years after the Brundtland Report had more or less defined the term 'sustainable'. Mallen Baker also noted that the most obvious difference between this and a modern report is the rather light touch accorded to the 'social' side within the definition of sustainable development. Nevertheless, for a document produced well before the term 'corporate social responsibility' had entered any kind of common parlance it stands up remarkably well to the expectations of a modern audience.

Stung by the Brent Spar controversy (the abandoned attempt to ditch an oil rig in the deep waters of the Atlantic) and other well-known incidents such as the death of Ken Sara Wawa in Nigeria, Shell released a series of annual reports covering its ethical, social and environmental activities - the most recent of which was "Meeting the energy challenge: The Shell Report 2002".

Exxon's approach has been much lower profile, content to argue that there are sound scientific arguments against at least some aspects of the Kyoto Treaty. But, Exxon's lower CSR profile might, indeed, reflect different concerns given that its homebase is in the US and less subject to the, perhaps more ferocious critics of Shell, in London and The Hague. According to Jon Birger, in comparison with other large European oil companies ExxonMobil has apparently avoided major NGO and media scrutiny on CSR. The Birger report noted that ExxonMobil has kept a very low profile in its external communication on CSR issues. By promising little, there is actually a high level of association between what the company says and what it does.

The Financial Times (June 6 2002) reported that the company's critics include Mark Mansley, a former chief analyst at Chase Manhattan. His report said that ExxonMobil's opposition to the Kyoto Protocol, which calls for cuts in greenhouse gas emissions, risks harming its shareholders. The report, which has a foreword by Robert Monks, the corporate governance specialist, has as much to say about ExxonMobil's tone as about its views on global warming. "The way in which you speak seems to create needless confrontation," Mr. Monks tells the company.

Yet another view of ExxonMobilís approach comes from Middlesex University Business Professor, Abby Ghobadian who believes that differences and changes in CSR strategy may be due to company-specific factors such as organisational structure and learning capacity, leadership, corporate tradition, CSR reputation and so on (see e.g. Ghobadian, et al., 1998). For example, since ExxonMobil has not been alleged of serious CSR issues it has apparently fewer incentives to change course, as compared to European companies. ExxonMobilís organisational structure and the recent organisational changes in the wake of Exxon's merger with Mobil merger could, therefore, also have consequences for company society relationships.

But does Exxon ignore CSR issues?

Exxon Mobil has deliberately allowed BP and Shell 'to seize the moral high ground' on CSR issues. As already noted, the company has chosen to keep a low profile on 'macro' CSR issues while implementing social programmes at a 'micro' community level. ExxonMobil claims that it contributes to social welfare worldwide by efficient production of energy and chemicals, community outreach programmes and high performance on SHE (Safety, Health & Environment - stepped up in the wake of the Exxon Valdez incident). The company has not changed this policy, but it has recently added human rights to its portfolio of corporate responsibilities. While this new element has not led to any significant changes in corporate principles and procedures, ExxonMobil's involvement with the World Bank in the Chad-Cameroon pipeline project indicates change in how to develop projects in extremely poor countries.

In 2002, ExxonMobil responded to the widening CSR agenda by publishing the report Corporate Citizenship in a Changing World. The aim of this report was to take stock of the company's responsibility through its involvement in society. One section discusses commitments to governments, communities and societies. As in the case of environmental publications and official statements, the section in question is amazingly sparse in clear commitments in contrast to the European oil majors and considering the size and importance of the company. The report does not signal any significant change in ExxonMobil's CSR strategy. Micro CSR issues related to communities and neighbours represent the main focus in the report. On the other hand, ExxonMobil has included a commitment on human rights. ExxonMobil condemns the violation of human rights in any form.

ExxonMobil has taken a clear stance on corruption and bribery. The company argues that fraudulent practices, bribery, and dubious accounting methods could contaminate the whole organisation leading to an acceptance of such practices. ExxonMobil's Standards of Business Conduct on ethics states that:

Employees must understand that the Corporation does care how results are obtained, not just that they are obtained. Employees must be encouraged to tell higher manager all that they are doing, to record all transactions accurately in their books and records, and to be honest and forthcoming with the Corporations internal and external auditors. The Corporation expects employees to report suspected violations of law or ExxonMobil policies to company management.

Sustainability reports compared

Shell has produced sustainability reports for a number of years, its most recent comprehensive report was the fourth in the annual series while Exxon has published two on corporate citizenship. Definitions and concepts aside, what would I expect, at minimum, to find in a report on CSR? At the very least, one would hope for: 1. A top level statement from the CEO or equivalent; 2. Some commentary about the policies and / or values of the business; 3. A review of the company's stakeholder engagement; 4. an analysis of what are the key social and environmental issues for the company with narrative on how the company is responding; 5. Data showing performance in each of these areas and 6. An independent assessment of replies.

How do the most recent sustainability report of Shell and the corporate citizenship report of ExxonMobil stand up to my six criteria? The results are shown in the following table and I have used a scale that reads 1=Nothing, 2=Poor, 3=Neither poor nor good, 4=Good, 5=Very Good.

 

The Shell Report 2002

ExxonMobil: Corporate Citizenship Report 2002

1.Top level statement by CEO

5

5

2.Commentary on policies/values

4

2

3.Review of stakeholder engagement

4

3

4.Analysis of key social & environmental issues

5

2

5.Data showing performance for each stakeholder group and issue

5

2

6. Independent Assessment

5

1

Average Score

4.7

2.5

 

From the table it can be seen that Shell has an overall score bordering on very good (to my mind it could do more on social indicators and governance issues). Exxon performs just a little bit better than poor due to its main focus upon environmental issues (and even there its views are found wanting as discussed above) and little information on social issues; it only addresses two stakeholder groups other than the environment (the community and its own workforce); indicators are scanty and no independent assessment is provided. Exxon could draw many lessons from the Shell report should it so wish especially the innovative 'Tell Shell' which provides frank and sometimes discordant views to those Shell would wish. However, neither report provides any cost of their 'socialí'involvement nor their corresponding 'benefits'. I didn't include the latter in the table since few companies have done such an exercise.

Shareholder value

What does that tell us about the two companies? Strong, usually negative, words are used when discussing the social responsibility of Exxon. While Shell is considered a model corporate citizen. My scores above and those calculated with my online CSR assessor CRITICS, show that Exxon is a long way behind Shell, but is not as bad as many believe. Moreover, cynics might argue that Shell is doing a disservice to its shareholders in fussing (and spending) about its social responsibility while the more 'hard-nosed' penurious approach of Exxon is more beneficial.

Thus, one hypothesis is that Shell's extra (but unreported) costs compared with ExxonMobil should reduce the shareholder value of the company simply because all this extra 'non-business' effort detracts from the company's main focus of creating profits. An alternative hypothesis - I called this the j-curve hypothesis is that care and attention given to main concerns of stakeholders in a socially responsible manner would eventually lead to increased shareholder value. I have not been able to measure this so far, given available data, but one measure is the share (stock in the US) price performance of the companies' respective shares over a reasonable period. Drawing from information readily available on each of the two companies websites for the share price of each company in the US (on the NYSE) over a five year period, 1999-2003. I can see that both charts shows that their share price varied from around $30 to $45 (ExxonMobil) and $40 to $65 (Royal Dutch Shell), and that the fluctuations were pretty much the same over the period.

This rough and ready method allows us to reject the first hypothesis above but not necessarily to accept the second hypothesis. Nevertheless, it does appear that a more socially responsible approach does not negatively affect share price over and above other factors and hence there is little reason not to behave in a socially responsible manner. Indeed given that the future is unknown, the CSR approach is a risk aversion approach that may as well be followed since it could help reduce future problems while, at the same time, does not injure share price. Moreover this view is backed up by the fact that a shareholders' resolution calling on ExxonMobil to take renewable energy more seriously picked up 20 per cent of the vote in 2002 - more than double the 2001 level. More worrying to ExxonMobil should be the quality of the opposition. Pat Mulva, vice-president for investor relations, said supporters of the resolution appeared to have been swayed by Institutional Shareholder Services, which advises institutional investors. ISS backed the resolution after opposing similar motions in the past two years.

Concluding Remarks

So, can our title be justified? As the arguments in this article show both the words 'hate' and 'love' are too strong since, clearly, Exxon is not as bad as all that, while Shell is not quite as perfect as some would have us believe. Clearly, Exxon's poor reputation has a lot to do with its cautious approach to CSR coupled with its obvious support for President Bush's anti-environmentalist views. But should Shell revert to a more minimalist position on the social front given that Exxon has managed to survive with its own parsimonious approach? Only time will tell but my view is Exxon's position will eventually weigh negatively on its share price, while my money goes on Shell!

[contributed by Michael Hopkins, CEO, MHC International Ltd., thanks to Jawahir Adam, George Starcher, John Lawrence for comments]