Shell and the liability debate

While businesses in India push the boundaries of what they can get away with, globalization of activism, judicial process aim to ensure they get away with less Sudeep Chakravarti

The new year has provided an object lesson in community relations, environmental management, corporate risk and corporate responsibility. It has global implications for businesses. That makes it local for India, currently in the throes of a policy makeover that firmly places government on the side of business, not communities.

While businesses here continually push the boundaries of what they can get away with in terms of irresponsibility and liability, globalization of activism and judicial process is increasingly ensuring that businesses get away with less.

A transnational business with operations in India, or an India-based business with transnational operations, is increasingly open to scrutiny of its business practice and human rights record—and consequent liability. In a marquee development on 7 January, Royal Dutch Shell Plc. agreed to pay £55 million (about Rs.530 crore) in an out-of-court settlement to a community of fishermen in Nigeria. Two oil spills—leaks from a pipeline owned by a Shell subsidiary—had in 2008 devastated the livelihoods of those in 35 villages of fisherfolk and subsistence farmers in the Niger Delta. At the time, the company had allegedly offered £4,000 (about Rs.3.84 lakh at current exchange rates) to the Bodo community.

Amnesty International, which has since 2008 tracked the incident, and Financial Times (FT) provide details as to how the outraged community of 49,000 took Shell to court in London. FT quoted Leigh Day, the London-based firm that represented the community, as alleging that the equivalent of at least half a million barrels of oil had spilled, damaging 600,000 hectares (nearly 1.5 million acres) of mangrove swamp—so devastating that the “local fishing industry had almost ground to a halt”. The subsidiary, Shell Petroleum Development Co. of Nigeria Ltd, had initially claimed the spill amounted to 4,000 barrels.

The payout is expected to take effect in the coming weeks. The community will receive £20 million. The remaining £35 million will be shared equally among 15,600 individuals. For its part, in a formal announcement to media, Shell Global termed the spills as “deeply regrettable operational accidents”. In what is a fascinating study of liability and resolution, Shell has maintained a stoic public relations front. “Earlier settlement efforts failed mainly as a result of the grossly exaggerated nature of the claims, which at one stage exceeded £300 million,” Shell asserts. “We wanted to compensate those who have been genuinely impacted by the spills; however, we could not do so at a level which rewarded those making false claims.”

Shell’s statement continues: “We have now reached a settlement agreeable to ourselves and the community which, from our perspective, also factors in the costs and time which would have been incurred by both parties should a full trial have taken place later in the year.” While this seeks to lay the issue to rest, Amnesty counters it even as it acknowledges the settlement as a “long-awaited victory for the thousands of people who lost their livelihoods”. It’s an indictment of corporate attitude: “In effect, Shell…made false claims about the amount of oil that had been spilt. If Shell had not been forced to disclose this information as part of the UK legal action, the people of Bodo would have been completely swindled.”

From the liability and risk-planning perspective, some feel the settlement—a middle ground between claims and counter-claims of reality, falsehood and liability—has not exactly closed the book, merely one chapter. FT quotes the concern of Joseph Hurst-Croft, executive director of Stakeholder Democracy Network, as to the likelihood of continuing scrutiny of Shell: “If I was a shareholder, I would be factoring in future liabilities.” This, maintains Hurst-Croft, is not merely on account of the 2008 spills, but what United Nations Environment Programme terms “legacy spills”.

This potentially implicates Shell for several decades of alleged environmental damage in Nigeria, where it has been a hydrocarbons producer for long. I wouldn’t hold out much hope for such “legacy” issues in India. The continuing fracas over the Bhopal settlement is now a 30-year-old issue. And, looking that far back for redress would in probability—in theory, of course—financially hobble the government of India, several state governments, and numerous businesses that have treated communities with disdain. But what of more recent matters, extending to, say, a decade’s worth of such disdain?

From what I gather from the buzz in activism circles, 2015 should prove to be a somewhat riveting year for the liability debate in India. Sudeep Chakravarti’s latest book is Clear.Hold.Build: Hard Lessons of Business and Human Rights in India. His earlier books include Red Sun: Travels in Naxalite Country and Highway 39: Journeys through a Fractured Land. This column, which focuses on conflict situations in South Asia that directly affect business, runs on Fridays.

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