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Shell s requirements to potential suppliers and business partners regarding their CSR policy.
Corporate level: Fundamental values Shell and CSR Like many big companies, Royal Dutch Shell (hereafter “Shell”) also publishes a yearly Sustainability Report. Since 1997 Shell makes sure that their CSR policy is caputered in a publication that became socially compulsory during the last 15 years. As the most valuable firm on the London Stock 1
Exchange and a major player in the societal sensitive energy and petrochemical sector, Shell is a main target for action groups. Shell not only will be held responsible for events happening within the Shell company itself, but society more and more expects (large) companies to take responsibility for events happening in the supply chain as well. When it comes to CSR to general supply chain law can seems to be applicable that a chain is as strong as its weakest link. Therefore strict demands on suppliers seem to be necessary. Shell ’s sustainability report is the main doc uments concerning their CSR-policy, but not the only one. Below the most important (and most generally written) reports that deal with selecting suppliers are described.
The sustainability report and the demands on suppliers 2
According to the Shell Sustainability Report 2012 Shell applies their “Shell Control Framework” (including the “Shell General Business Priciples” “Code of Conduct” and other standards) on the ventures they operate. If they are not operating the ventures Shell encourages partners to pursue equivalent standards. In the same report Shell points out what they require from their 120,000 suppliers, but due to the vagueness and generality this report fails in being a pragmatic guideline for suppliers. Besides the requirements of meeting the local laws and regulations, statements like
“behave towards employees ” “being socially and environmentally responsible ” are very multi interpretable. Shell’s suppliers should also meet three other standards: The “Shell’s Supplier Priciples”, “Shell’s Code of Conduct ” and “Shell’s General Business Principles ”. Below we will take a closer look at these three reports to see if they can clarify Shell ’s supplier standards.
The HSSE & SP framework (figure 1)
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The Shell Health, Safety, Security and Environment (HSSE) & Social Performance (SP) Control Framework, provides in a guide to direct Shell employees in their performance duties. It was launched in 2009 and is illustrated below. The specific manuals are provided to employees and third 4
parties, but are not available for the public. However according to the sustainability report Shell ’s suppliers and joint venture partners should work along the guidelines outlined in those documents.
General Business Principles 5 The set of business are applicable to all members of the Shell group in all parts of the world. Shell also expects their joint venture partners and suppliers to pursue the same values. Due to the generalizability of the statements (concerning: economic, competition, business integrity, political activities, HSSE, local communities, communication and engagement and compliance) the brochure is 1
rd
th
The Economist – August 3 – 9 2013 p 20 2 Shell sustainability report 2012 http://www.shell.com/global/environment-society/reporting/s-reports.html 3 http://s07.static-shell.com/content/dam/shell/static/environment-society/downloads/safety/hsse-in-shelllr.pdf 4 http://s08.static-shell.com/content/dam/shell/static/environment-society/downloads/previous-hssestandards.pdf 5 http://s00.static-shell.com/content/dam/shell/static/aboutshell/downloads/who-we-are/sgbps/sgbpenglish.pdf
rather fundamental than practical and has therefore no real practical implications, because it has to 6
deal with following the law. CFO Margot Scheltema calls it “ Shell Shell ’ ’s Constitution” .
Code of conduct7 The code of conduct is merely an elaborating version of the general business principles and give some practical implications for especially employees. Shell also applies this documents over the projects they are supervising and “encourages” other business partners to do the same.
Supplier Principles
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Derived from the “General Business Priciples” and the “Code of Conduct ” a document more focused on the Suppliers is published a the “Supplier Principles”, where it categorizes the requirements on suppliers into the following subjects: 1 Business integrity 2 Health, safety, saf ety, security and environment 3 Social performance 4 Labour and human rights. However this (one page) publication is rather focussing on very general topics than providing practical requirements.
The HSSE & SP framework – The The base for Shell ’ ’s CSR policy
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http://bamco2desk.nl/sites/default/files/domain-73/documents/shell__mw_scheltema_speech-731351004544595462058.pdf 7 http://s06.static-shell.com/content/dam/shell/static/aboutshell/downloads/who-we-are/code-ofconduct/code-of-conduct-english2010.pdf 8 http://s04.static-shell.com/content/dam/shell/static/products-services/downloads/suppliers/supplierprinciples2012.pdf
Product level: Meeting International International Standards Standard systems in the oil and gas industry Shells is working with the Internationally recognizes standards as much as possible and therefore 9
Shell follows the following ISO standard for use in the oil and gas industry. The policy Shells developed themselves is referred to as the DEP (Design and Engineering Practice).
Shell’s DEP (Design and engineering practice) The DEP system is developed and used by Shell and what it mainly does it to optimize the standard (Internationally recognized) procedures in order to save costs and increase safety in the chain. Because of the down and upward flow of information the company is able the constantly adjust the system. It also shows the shift of responsibility (or better the shift of influence) of CSR practices in the supply chain from the Shell group to its contractors and suppliers.
However Shell does not designed their DEP to exclude as much as potential contractors. The main purposes of the DEP are 10: -
To maximize use of common industry i ndustry standards
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Minimize additional company requirements
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Ensure the variations are justified
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Ensure continuous improvement
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Influence external standards bodies. Participate actively i n the technical committees and working groups of key external standards.
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http://info.ogp.org.uk/standards/downloads/StandardsIssued.pdf http://info.ogp.org.uk/standards/10Thailand/Presentations/15JohansenReeve.pdf
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Project level: Shell’s power over its supply chain The Shell Supplier Qualification System (SQS)
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In this system potential suppliers can apply for becoming a Shell supplier in the future and gives us more practical requirements than the reports mentioned above. The systems makes sure all suppliers meet the basic qualifications (but it is also a chance for supplier to provide Shell information about their services and products). At the first stage general company information has to be provided like: tax numbers, portfolio value, company size and financial data. After the data is evaluated, companies are either classified in “high” or “low” risk categories. If the potential supplier is assigned to the “low risk” category no further information has to be provided. If a company is assigned to the “high risk” catergory additional information should be provided. The so called “stage 2” of becoming a registered supplier also is not free of charge. info rmation and certificates related to finance, health and safety, quality management, insurance, products and services, corporate social responsibility (CSR) policies and legal information. Depending on the risk rating of the company, an additional examination on the supplier ’s policies on the above mentioned topics can be conducted. 12
However some parties (like government bodies) do not require registering in this system. By assigning potential suppliers into the different categories, Shell particularly looks at the areas of antibriberyand corruption, human rights, safety and environment.
The way Shell selects their business partners Margot Scheltema former CFO at Royal Dutch Shell spoke about the way Shell selects their business partners on social criteria. In general, all suppliers, project partners and joint venture partners should meet the internally used “Shell Control Framework” (see above). If Shell is not the main company in the project, a risk analyses has to be conducted to determine which Shell rules should be applied to the project. Especially the reputation damage is an important indicator. In some case where Shell ’s stake is limited to 20 % or lower, the company chooses to limit the influence on CSR practices, because the risk of reputation damage in declining as well. In some case Shell is using their power over third parties. In case of transporting oil, Shell will suffer from reputation damage if the ship-owner causes damage. Therefore Shells is having quality-control systems for ship-owners working for them. Shell checks the ship-owners and the certific ates and training of their employees. It also registers all ships transporting Shell ’s products. Every third party contractor, should have certified quality systems and Shell will inform their main contractors about their “General Business Principles ”.
The case of selecting the contractor for The New Technology Centre in Amsterdam In order to build the New Technology Centre in Amsterdam, Shell was looking for a construction company. The process of deciding to whom the contract was assigned shows the way CSR policies are carried out. At first Shell asks the company to show their certified quality systems. After it the main contactor should commit themselves to Shell ’s “general business standard ”. The main contractor should force their contractors to do the same. When Shells discovers this is not carried out, Shell will quit the co-operation immediately.
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http://www.shell.com/global/products-services/solutions-for-businesses/supplier/supplier-qualification.html http://www.shell.com/global/products-services/solutions-for-businesses/supplier/supplier-qualification.html
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In order to create a list of potential contractors, companies were selected by: specific knowledge, financial capabilities, management structure and quality especially when it comes to safety and environment. This process already deleted many companies and the ones lef t were asked to subscribe. An project independent “tenderboard” determines the weight of the different variables and the most important ones are price and safety and environment. environment. The potential contractor do not know the exact way we calculate it. We also asked the potential contractors for their safety-plans and we checked if they were carried out on the project they were working at that time. Out of the five companies left, one had performed really bad on their HSSE standards so no matter how cheap it was, the tenderboard decided not to hire that company (at the end their price was not the lowest, what was a confirmation of Shell ’s believes that Shell ’s safety philosophy is related to business performance. Where the work is carried out well organized it is carried out safe). At the end 13
the Heijmans company was selected.
After selecting the contractor After the contractor was selected, the CSR policy did not end yet. With the contractor negotiations about the TRCF (Total Recordable Case Frequency) which is a sum of the amounts and the kind of accidents during the construction. Shell asks Heijmans to meet their wish of 5 LTI (Lost Time Injury) on a range of 1,000,000 man-hour. In short this means that Shell does not accept more than 5 accidents among 1,000,000 working hours (the average in the Netherlands is 35 and the worldwide average is around 50-100). Shell also has a policy of rewarding contractors and their subcontractors when they meet the targets formulated when the project started. In this project, also the construction workers were rewarded when working safely. They amount of money is calculated so the incentive is enough to work safely and warn colleagues, but is not worth it to fraud or not report accidents. This system will be replaced immediately if fraud is discovered.
Conclusion So at first paragraph we saw a very fundamental general set of principles regarding the CSR policy. This merely is just a constitution for doing business in general and it is just nothing more than adhering to the law. In this stage one can argue that these demands do not exclude many of the potential suppliers if they have the desire to become one of Shell ’s suppliers. At the second level of products we already see a more practical framework and this also results in a higher set of demands that Shell S hell asks from their suppliers. Potential suppliers should meet at least the international accepted standards which are used by Shell. Companies how do not meet the international standards are already excluded at this level. When looking at a project level the impact of a CSR policy becomes clear. Turning a company into one of Shell’s contractors is more than just adhere to the law and meet International standards. Due to the size of the company, Shell is carefully selecting its contractors and suppliers with great care. Only companies that allow Shell to do safety checks, are able to present a detailed plan and a sol id management seems to make a serious chance to link themselves to to Shell. Shell should be convinced 13
http://www.heijmans.nl/
that its business partners meet the same standards and qualifications like the company does for itself. Suppliers and contractors should understand the fact that companies like Shell are very vulnerable for reputation damage and therefore contractors should be able to provide a solid package of plans and certifications in order to exclude that risk. Shell is always aware of the potential (small) hazard of reputation damage and therefore conducts risk analysis on (almost) every co-operation and can act
“over the top” when it comes to safety. Potential contractors, suppliers and business partners should be aware of that.
Additional information information about the SQS system Ones companies uploaded their information, Shell ’s procurement and contracting mangers are able to see the suppliers company ’s information. The supplier will be asked to upload the information annually, but this can also be done when major changes take place. Shell ’s contracting and supplier specialists are able to make a up to date shortlist of qualified suppliers for upcoming purchasing events. If companies are assigned as a low risk, they will be ask to upload different document (see above). It also involves a payment. Even the companies i n “stage 2” can be divided into a low and higher risk. Some of the “stage 2” companies therefore undergo a further examination on their health and safety and/or finance and/or CSR policies (a second examination does not look on the subjects of quality management, insurance, products and services and legal info rmation anymore) More information about the stage 2 process can be obtained by contacting Achilles and they can provide a “stage 2 SQS user guide ”. The cost of registering: 14
Annual subscription fees listed below apply to suppliers registering at Stage 2 . Payments are accepted in GBP, USD and EUR*
level 1 (1 to 5 Product Codes**) £725, $1250, € 870 level 2 (6 to 15 Product Codes**) £850, $1450, € 1020
level 3 (16 to 25 Product Codes**) £1,150, $2000, $2000, € 1375 level 4 (26 or above Product Codes**) £1,400, $2400, € 1675 * Fees (and currency exchange rate used) are correct at time of publishing and may be subject to change. ** Product Codes describe a category of product or service provided by a supplier and allow buyers to search for suppliers capable to match their sourcing requirements. Suppliers who wish to register multiple legal entities can apply for a corporate license. Please contact Achilles for more information. Suppliers who are not registered on the Supplier Qualification System will not be considered
compliant with Shell’s procurement policies and may miss out on future opportunities to work with Shell. Achilles (Achilles is a company that identifies, qualifies, evaluates and monitors suppliers so that procurement specialists have access to accurate and up to-date information on their suppliers) staff
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http://www.shell.com/content/dam/shell/static/products-services/downloads/suppliers/generalbrochure16dec.pdf
will provide support to suppliers throughout the registration process and will be available to answer any questions.
Registration method (stage 1 and stage 2)
More information about the staqge 1 and stage 2 criteria At the end of providing the information during stage 1, the potential supplier is advised about the 15 “risk level” of his company. More information about the system can be found in the brochure.
Member of FPAL/JQS (supplier register among the Oil and Gas Industry managed by Achilles) do need to sign up again, but will have no problem to pass “stage 1” indicating that they are already FPAL/JQS suppliers is in most cases enough to subscribe to the SQS register as well.
Corporate Licence fee If parent companies want to obtain a Shell SQS Corporate Licence, one fee can cover all the costs (if 16
they are assigned to stage 2). Below an overview of the costs are listed. Achilles is taking care of the process and for more question they can be contacted via
[email protected] or +852 3996 7317
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http://s05.static-shell.com/content/dam/shell/static/products-services/downloads/productsservices/supplier/sqs-faqs-190912.pdf 16 http://www.achilles.com/files/communitypdfs/SQS/SQS-Corporate-Licence-Brochure.pdf
However every entity (like every single company) has register itself separately. This is done because every entity (or company) undergoes the standard examination applicable to its company profile. When companies want to obtain a Corporate Licence, Achilles can help the company to go through the process of subscribing and obtaining the license. The Oil and Gas industry is working with different codes for different products and industries. Shell also uses these codes and they can be needed to fill in the forms to register as a Shell supplier. Those 17
codes can be found via the Shell website . Companies should remember that even though they are registered in the Shell SQS system (so successfully passed stage 1 and sometimes 2) this is no guarantee that a business with Shell will occur. Also taking in consideration that sometimes (well the subscribed company is no “low risk” company), subscribing to the system is not free, companies can decided to cancel the process. Even though no business occurs, companies sometimes takes the benefit of being subscribeb to t he 18
systems by promoting their products and services as “certified Shell supplier” . This is an advantage of the Shell supplier system compared to other multinationals (e.g. Unilever) where they select the companies able to apply for the system.
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http://www.shell.com/global/products-services/solutions-for-businesses/supplier/supplier-qualification.html http://www.fendercare.com/uk/news-and-media/newsletter/fendercare-marine-is-a-certified-supplier-forshell/ 18
Shell Er worden dus twee zaken onderzocht. Ten eerste: Welke voorwaarden stelt de Nederlandse overheid aan bedrijven waar ze mee samenwerken. Moeten zij aan bepaalde criteria voldoen? Zo ja welke? Miss Lim Een ander onderdeel is het bedrijfsleven en dan met name de grote organisaties. Wat doen zij aan CSR. Nu gaat het hierbij niet om het hele beleid, maar meer om het feir welke eisen zij stellen aan toeleveranciers en andere stakeholders in de supply chain. Ook is het interessant om te kijken of er voor de verschillende landen nog een ander beleid bestaat. Door het internationale kar akter van Shell is het waarschijnlijk dat er een internationale standaard is. Wat is die standaard precies en hoe wordt dit in de praktijk toegepast. Uiteindelijk is het handig om uit te zoeken in welke mate ZuidKoreaanse bedrijven ook CSR policies toe moeten passen om niet op voorhand te uitg esloten te worden.
Welke voorwaarden stelt Shell aan haar bedrijven in de supply chain? Punt 4 CSR / ESG. Het concept dat de kopende partij CSR van de andere partij verlangt. Worden er boetes gegeven aan de bedrijven in de supply chain die het geod doen en worden er boetes gegeven aan bedrijven die het niet goed doen. http://www.mvonederland.nl/content/feed-item/gouden-plak-shell-voor-duurzaamheid - door het zwitserse SAM uitgeroepen tot beste in de Olieindustrie.
http://www.shell.com/global/environment-society/s-development/our-commitments-andstandards/hse-manuals.html
http://reports.shell.com/sustainabilityreport/2012/ouractivities/jointventurescontractorssuppliers.html
http://www-static.shell.com/content/dam/shell/static/can-en/downloads/ds-guide-for-suppliers.pdf Shell Supplier Principles www.shell.com/suppliers Shell General Business Principles www.shell.com/home/content/aboutshell/who_we_are/our_values/sgbp/ Shell Code of Conduct www.shell.com/home/content/aboutshell/who_we_are/our_values/code_of_conduct
HSSE in Shell http://reports.shell.com/annual-report/2011/corporategovernance/controlsandprocedures.php http://reports.shell.com/annual-report/2011/corporategovernance/principlesandcodes.php?cat=c CALIFORNIA TRANSPARENCY IN SUPPLY CHAINS ACT OF 2010 DISCLOSURE - http://s03.staticshell.com/content/dam/shell/static/products-services/downloads/suppliers/californiatransparencydisclosure.pdf HSSE in Shell - http://s07.static-shell.com/content/dam/shell/static/environmentsociety/downloads/safety/hsse-in-shell-lr.pdf Sustainability Report 2012 - http://reports.shell.com/sustainabilityreport/2012/servicepages/welcome.html
HSSE and social performance - commitment and policy http://www.shell.com/global/environment-society/ http://www.shell.com/g lobal/environment-society/s-development/our-commi s-development/our-commitments-andtments-andstandards/hse-com-policy.html HSSE and Social Performance – standards standards and manuals http://www.shell.com/global/environment-society/ http://www.shell.com/g lobal/environment-society/s-development/our-commi s-development/our-commitments-andtments-andstandards/hse-manuals.html http://www.youtube.com/watch?v=nVs9qjF http://www.youtube.com /watch?v=nVs9qjF5Uzo&feature=youtu.be&hd=1 5Uzo&feature=youtu.be&hd=1 DEP standards http://www.gobookee.net/shell-dep-standards/ http://www.gobookee.net/get_book.php?u=aHR0cDovL2luZm8ub2dwLm9yZy51ay9zdGFuZGFyZHM vMTBUaGFpbGFuZC9QcmVzZW50YXRpb25zLzE1Sm9oYW5zZW5SZWV2ZS5wZGYKU1NkZE0gU2hsbFN 0cmF0ZWdpYyBTdGFuZGFyZHMgTWFuYWdlbWVudCBpbiBTaGVsbA= 0cmF0ZWdpYyBTdGFuZGFyZHMgTWFuYWdlbWVudCBpbiBTaGVsbA == http://info.ogp.org.uk/standards/10Thailand/Presentations/15JohansenReeve.pdf http://pdfsdb.com/pdf/shell-dep Documenten geupload m.b.t. veiligheid http://www.shell.com/global/environment-society/safety/safety-in-shell-brochure-downloads.html
