Responsible Leadership

Lessons from the Front Line of Sustainability and Ethics

Mark Moody-Stuart

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351277143
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

As Chairman of the Royal Dutch/Shell Group from 1991–2001 and Anglo American plc from 2002–2009, Sir Mark Moody-Stuart is as qualified as anyone on the planet to discuss the realities, dilemmas and lessons to be learnt from the last 20 years of corporate engagement with sustainability, ethics and responsibility. In this unique book – part memoir, part confessional, part manifesto for leadership – we hear a unique voice from the front line of corporate responsibility. Moody-Stuart retraces the steps of a remarkable journey from being a postgraduate geologist to being at the helm of two of the largest corporations in the world.We hear of dealings with dictators and prime ministers, colleagues and NGOs, rivals and friends. We travel from Syria to Nigeria; Iraq to Downing Street; and from the machinations of the United Nations to those inside the boardroom of Shell. We see Shell's annus horribilis in 1995 unfold through the eyes of an insider, and how Brent Spar and the execution of Ken Saro-Wiwa sent shockwaves through the company, resulting in a complete reappraisal of its mission and principles. We hear about the oil and mining sectors and their complicated development role in areas of conflict and corruption; the way that markets have failed us on climate change and corruption; and how governments need to step up to the global challenges we face. We hear how Deepwater Horizon could have been avoided; what Shell were asked to do by Tony Blair during the UK fuel blockades of 2000 and why they declined; why China is too important to ignore; and why the Global Compact is too important to fail. We hear lessons from a life spent living in 10 different countries and we come to realize that, for corporations, trying to do the right thing can sometimes be almost impossible. We also come to know a deeply ethical and thoughtful leader who has always tried to do exactly that.

Chapter 1
Differing development outcomes and their causes

For the past 45 years I have been involved with the extraction of natural resources, first oil and gas and later metals and minerals. The industry in which I was involved was often a very major contributor to the host economy. In some cases the outcome has been positive, in others much less so. I do not subscribe to the inevitability of the ‘resource curse’ theory propounded by Jeffrey Sachs and others, which seeks to demonstrate that countries blessed with natural resource income have poorer economic and social development.¹ I have certainly often observed many of the ills ascribed to resource development—corruption, negative impacts on other sectors of the economy and unwise dependency on ongoing resource income. The picture is more complex and mixed than often portrayed. Here are three examples that I have followed over the last 45 years: Oman, Malaysia and Nigeria.

Oman

When I first worked as a field geologist in the Sultanate of Oman in 1967 and 1968, the country was in what could be described as a mediaeval state. There were only a couple of doctors for a population of over a million, and diseases such as the eye infection trachoma were endemic in the Bedu people of the desert and mountains. Education was basic, consisting often of only studying the Koran. Female genital mutilation was still practised. Prison could mean a ball chained to an ankle. I recall visiting the Wali, or governor, of Nizwa, a town to the north-west of the capital city of Muscat but on the other side of the Oman (Hajar) Mountains, which run along the eastern side of the country and rise to around 10,000 feet (3,000 metres) forming some of the most spectacular scenery in the Middle East. In the courtyard of Nizwa fort, the residence and office of the Wali, there was a man sweeping the dusty floor, picking up his chain and shifting his ball every few steps. One of our workers, Hamid Nasser, returned to his village for a break after having been earlier involved in a dispute over water with a neighbour and sentenced to two weeks in prison for breaching the peace. At that time there had apparently been no vacant leg irons available, but on his return to the village from our camp he was caught and put in irons. This consisted of a ball and chain with a heavy soft iron ring beaten around the ankle. When Hamid did not return after his break, a party went in search. When he was located—somewhat embarrassed by his predicament—his release was negotiated. The irons were struck off in an alarming process involving an anvil and a sledgehammer.

Along the Batinah coast on the Indian Ocean fishermen lived in barasti huts made of palm fronds. As in mediaeval Britain, revenue was still collected at internal toll gates through which caravans to the coastal souks or markets had to pass.

The then Sultan, Said bin Taimur, was what I regard as a pioneer of anti-globalisation. He believed that development of the country should come slowly and in line with Omani customs and values. He felt that the country could benefit from Western investment and technology to produce oil, but that the process, proceeds and impacts should be carefully managed. Western experts and their families should be kept separate so that Western influences did not have an adverse effect on society. In principle this idea is not a bad one, and in fact it is not unlike the ideas of those who believe that the ‘resource curse’ could be kept at bay by ensuring that resource income should only be accessed when the structures of society are sufficiently developed to handle the income. However, there are many practical difficulties to this approach. We field geologists lived in a tented camp and moved around the country by helicopter, accompanied at all times by a representative of the sultan. To ensure that our impact on society was limited, we were forbidden among other things to bring medical cases back to the medical facilities on the coast that were available to us in the oil industry. I remember a young boy of about 12 in the mountains who was suffering from a gunshot wound in his shoulder. The wound had been treated with a traditional and unhygienic poultice and was plainly infected. The boy was feverish. Knowing that we could not take him back to the coast in Oman, we offered to fly him to the neighbouring emirate of Sharjah where we knew British military medical facilities would be available. The family were not prepared to let the boy go alone, so we offered to take as many as wanted to go by truck on what was perhaps a five- or six-hour journey. After much discussion, the family decided to let the infection and fever run its course; God would decide on the outcome. I have often thought since of the boy dying from septicaemia, as he almost certainly did. The power of a helicopter and our relative wealth was of little relevance in that situation. The family were perhaps of the same mind as Sultan Said bin Taimur, although much of the rest of the population were not.

I developed an enormous respect for the Omani people. They were, and are, modest and yet very confident of their own position and values. Wherever we went, even in remote areas, people would gather round us and invite us for a traditional coffee. I could manage the long traditional to-and-fro Arabic greeting, but when that ran its course after a couple of minutes and we got on to the serious business of ‘the news’ I was stuck. Those who spoke Arabic told of their enquiries after progress in the war in Vietnam and the price of gold and silver—we still paid many local crews in silver Maria Theresa thalers, dated 1780 as are they all.² The Bedu people in the desert with few possessions would willingly share their last cup of coffee with you, prepared with ritual hospitality over a small fire of twigs. To ensure that we could get our work done before the inevitable hospitality, we would circle the helicopter to make sure no one was in sight before we landed and commenced our geological work, but no matter where this was, most likely within 20 minutes there would be a boy or girl beside the helicopter and the rest of the group followed soon after. The most popular gifts we could give in return were the heavy linen sample bags in which we collected rock specimens. These are invaluable for nomadic people who often leave possessions hanging in trees or bushes.

As ordained by Sultan Said bin Taimur, we had an Omani representative with us wherever we went. The Wali of whatever district we were in would nominate the representative from one of the tribesmen standing around his fort. At a moment’s notice the nominee would gather his gun and his few belongings and, leaving a message for his family, join us in the helicopter. Although he had probably hardly been in a Land Rover, let alone a helicopter, he would follow us in doing his seat belt up as if it was a perfectly normal event. The only change on his dignified face would be a tiny smile at the corners of his mouth as the helicopter lifted off. Omanis have stiffer upper lips than your average modern Brit!

The writ of Sultan Said bin Taimur did not run unchallenged over the whole of the Sultanate. There was still a rebellion in Dhofar in the south. We were challenged in the wild and beautiful Musandam peninsula in the north, where tribesmen still carried their trademark stone or metal axes. We were also shot at by tribesmen near the Wahiba sands in the centre of the country. Fortunately, this was at the extreme range of the most common tribal weapon, the Martini Henry rifle, which fired a large handmade lead ball. The damage was limited to scratches from fragmenting balls and a dent in the helicopter as we beat a hasty and undignified retreat.

While some resented the presence of strangers from outside their tribal group, others sought the changes taking place elsewhere in the region. The then almost ubiquitous little transistor radio was bringing not just news of Vietnam to the Sultanate, but news of developments elsewhere in the Middle East, of Gamal Abdel Nasser in Egypt, of the Organization of the Petroleum Exporting Countries (OPEC), of other Gulf kingdoms and emirates and of education and healthcare in hospitals. A slow development from the status quo was untenable and in 1970 Sultan Said bin Taimur was replaced in a bloodless coup by his son Qaboos bin Said. The father left in waiting RAF transport for London, where he was accommodated in comfort by his son.

The steady development of Oman then began and the results of the subsequent 40 years of wise and enlightened leadership by Sultan Qaboos bin Said are remarkable. The Sultanate is held up as an example of good development by the United Nations Development Programme. Healthcare is universal and statistics such as those on child mortality a source of pride. I have not seen a case of trachoma for years. Housing is good, and there are no longer barasti huts to be seen along the coast, just neat small villages. There is a bi-cameral parliament, with the lower house, the Majlis Al-shura, being elected from a list that has evolved from one nominated by the Sultan to open nomination. Women stand and are elected, although there are more women in the upper house, which is appointed by the Sultan, who has pointed out to me in conversation that he is less conservative than the electorate. The education system is excellent with a university that attracts students from other countries. There are televised discussions with ministers in which they can be challenged. The Sultan still goes on an annual tour of part of the Sultanate, living with his ministers, often in tented camps, and being accessible to all members of the local population.

As in any country there are challenges. The largest is employment for the growing population of young educated Omanis. There is also the inescapably finite nature of oil and gas reserves on which the economy has grown. This is addressed both by having investment in a reserve fund, and also in planning production so that at any one time the hydrocarbon reserves are there to allow production at the same level for at least a further ten years. The development of a sustainable tourism industry based on spectacular Indian Ocean beaches, desert and mountains is helped by Oman’s traditional yet tolerant and liberal culture. There is heavy investment in port and rail facilities and ancillary industry, which take advantage of Oman’s location at the mouth of the Gulf and Indian Ocean coastline. There is a well-functioning stock exchange.

Because of its relatively modest oil and gas production and much larger population than most of its Gulf neighbours, Oman has never been excessively wealthy. Perhaps because of this, the excessive consumerist culture and mass tourism of some of the other Gulf countries has been avoided. Through wise and inclusive government the country has escaped the problems of civil and sometimes religious strife that have affected its southern neighbour Yemen. Formed by the uneasy combination of the former North and South Yemen, the one traditional and tribal and the other secular and socialistic, Yemen has thus struggled to develop using its admittedly more modest resources. I believe that many of these differences are not down to chance, but due to the quality of leadership and wise use of economic resources by the government. Resources have been largely a blessing for Oman.

Malaysia

When we first travelled to Malaysia in the late 1960s it was a country with an economy largely dependent on primary industries—rubber, tin, timber, palm oil, and oil and gas. While wealthier than Oman, the population was ethnically divided. Certainly in Peninsular Malaysia, although less so in the East Malaysian states of Sabah and Sarawak, one could guess the occupation of an individual by their ethnic origins. Malays dominated the civil service, the police and the army, and rural subsistence agriculture and fishing. Commerce was largely the domain of the Chinese, while Indians worked in the rubber and palm oil plantations or drove the taxis in the towns. One of the great achievements of the last 40 years is that this is no longer true. That is not to say that divisions and stresses no longer exist, but the picture has radically changed. The economy has also broadened so that it is no longer dependent on primary industries, and now includes thriving manufacturing and financial service sectors.

The change probably had its origins in the riots in Malaysia on 13 May 1969 when in the aftermath of an election many hundreds of Chinese were killed in communal riots and thousands of people rendered homeless when their houses were burned. As in Singapore, which suffered racial riots five years earlier, all of Malaysia’s ethnic groups stared into the abyss of the deadly racial violence that has effectively destroyed many countries since. Citizens of different groups realised that compromises were necessary if strife and bloodshed were to be avoided. Singapore and Malaysia, with different racial balances and different economic histories, have taken somewhat different routes to addressing what is essentially the same issue. I do not think it is for outsiders to judge which method is more appropriate. Although attention is often focused on Singapore’s indubitably faster economic growth, a true comparison is difficult given the large geographic and historical differences and the need to take into account non-economic factors. We can just be very grateful that through the chosen method of resolution major bloodshed has been avoided and the two societies have found harmonious ways to develop economically in ways of which any nation could be proud.

In Singapore the approach was one of legal equality between different ethnic groups, combined with a bilingual approach, firmly guided by what is essentially a single dominant party. In Malaysia politics has always been more pluralistic, with different parties, predominantly ethnically based, coming together into an alliance, but with a single national language. Historically, when a new or different group challenges the alliance in one or other state and wins, the result has often been simply their subsequent co-option into the alliance, which has therefore sometimes come to resemble a form of winners club. The reward is generally a degree of government patrimony of a type certainly not unknown in Western democracies.

A key element, and one of the drivers for the social changes, was positive discrimination by means of the controversial New Economic Policy (NEP), which mandated an element of ownership for bumiputra shareholders—essentially Malay and other indigenous groups.³ This was not imposed overnight, but if a business wanted to restructure, raise capital or expand by building new facilities, then the requirements had to be fulfilled before permission would be granted. There were undoubtedly abuses—fronting or so-called Ali Baba organisations, advantageous deals by the politically connected or indeed effectively by political parties. However, considerable amounts of the investments were made through what were essentially investment trusts such as Permodalan Nasional Berhad (PNB) or the pilgrims’ fund, Tabung Haji. These organisations provided savings vehicles for bumiputras, deploying the funds in advantaged shareholdings often acquired from firms seeking to meet the requirements of the NEP. In the 1980s in Shell we also worked with Tabung Haji to find a solid remunerative outlet for their savings funds. An outlet for some of these was created by putting in place financing for a refinery expansion through one of the first Islamic bonds (what would now be known as a ‘sukuk’).⁴ This form of collective bumiputra investment meant that while an individual could realise his or her investment to deploy in, for example, the purchase of a house or car, the bumiputra element was maintained.

This contrasts with the South African process of Black Economic Empowerment (BEE), where shares have more often been acquired by individuals or black-owned companies, often supported by loans from the company seeking to meet empowerment criteria. When the individual or organisation wishes to release capital, sales are often made on the open market, so that the shareholding reverts essentially to that of the market as a whole, with no specific black component. In discussions with South African ministers on the process and aims of BEE, I was never able to engage their interest in the Malaysian model. Attention often focused on the political and historical differences between the two countries and on one or two failures. There are of course many differences, but there were, nonetheless, some two decades of Malaysian experience to draw on, both successes and failures, before the South African process was embarked on.

In Malaysia, the main oil-producing concessions are offshore and initially were held largely by Exxon in Peninsular Malaysia and by Shell in the East Malaysian states of Sabah and Sarawak. In the 1970s, Malaysia decided to form a national oil company, Petronas, and to convert all concessions to production-sharing contracts. As the oil and gas had so far been developed without a national oil company, the international oil companies were less than enthusiastic. There were arguments that this would simply lead to another layer of overhead and unnecessary expenditure; the performance of national oil companies elsewhere had not always been good, not least because they had often been starved of development capital by their short-sighted or financially pressed governments.

At the time, for reasons of efficiency, Shell’s operations in East Malaysia were largely run from a long-established operational base in Brunei, an independent sultanate that lay sandwiched between the Malaysian states of Sabah and Sarawak. This was plainly untenable, and discussions began with Petronas to recreate operations bases in Malaysia. Shell’s operations were essentially in East Malaysia, while the fields off Peninsular Malaysia were operated by Esso Malaysia, later a part of Exxon. The Malaysian approach was essentially pragmatic, but none the less firm. While content to have foreign operations, there was a strong desire to establish a national oil company and Petronas, or Petroleum Nasional, was formed. After initial skirmishes, we in Shell approached the project with a determination to make the inevitable work. Petronas needed operational experience but acknowledged that they did not yet have the staff or all the skills necessary. Long-established traditional concession agreements were converted into production-sharing contracts, in which the ownership of the oil remains clearly with the state but there is a contract that allows an operator to recover capital and operating costs from a share of production. An area off the Baram Delta in Sarawak with a number of Shell-operated oilfields was identified and turned into a joint venture. This was staffed jointly and run as an independent joint venture between Shell and Petronas, but operated by the nascent Petronas operating arm Petronas Carigali. In this way there was no loss of efficiency and Petronas gained vital operating experience. Likewise, under Malaysian employme...

Table of contents

• Cover
• Half title
• Title
• Copyright
• Contents
• Acknowledgements
• Foreword by Sir Robert Wilson
• Foreword by Mark Malloch-Brown
• Preface
• Introduction
• 1 Differing development outcomes and their causes
• 2 Coalitions, governments and doing the right thing
• 3 The United Nations Global Compact
• 4 Some alternatives in countries with military rule or human rights abuses: Sanctions or withdrawal
• 5 Dining with the devil: Engaging with those guilty of human rights abuses
• 6 Markets are essential, but they cannot do everything
• 7 Oil, gas and climate change
• 8 Corruption: The biggest market failure of all
• 9 Enterprise solutions to poverty and development
• 10 Lessons from China on poverty eradication
• 11 1995: Shell's annus horribilis and its consequences
• 12 Embedding values and principles
• 13 Changes in structure and governance: Do they matter?
• 14 Differences in remuneration and wealth in companies and societies
• 15 The business of not-for-profit enterprises
• Afterword
• Index