Reputational Crisis in Shell Australia Limited - Case Study Example

Reputational Crisis in Shell Australia Name Institution Course Date Executive Summary Shell Australia Limited was established in 1901. In 1999, the company was faced with reputational crisis that involved crude oil spillage that threatened to damage the reputation of the company in terms of the relationship with the stakeholders and the company’s operations. In response to this, the company came up with some strategies to prevent the effects of the crisis. Shell held a press conference some few hours after the spillage and contacted advice from the government on the way forward in dealing with the crisis. In addition, the company updated the employees through the e-mail on the development of the response plan. Other institutions were contacted to discuss about the spill and more staff was hired to handle the number of calls coming from the public. These actions were effective since the crisis was controlled and there was no huge effect on sales and reputation with the stakeholders. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 Description of the Reputational Issue 4 Key Stakeholders of Shell Australia 5 Assessment of the Crisis 6 Shell Australia’s Response to the Sydney Harbour Oil Spillage 7 Public Relations Theories in Responding to Reputational Issues 8 Outcomes of Shell’s Response 10 Recommendations for Solving Reputational Crisis 11 Conclusion 12 References 14 Reputational Crisis in Shell Australia Introduction Reputational issues have faced a number of business entities across the globe which has negative effects on the company and the shareholders (Giles, 2015). One company that has been faced with reputational crisis is Shell Australia Limited. Shell Australia Limited is a subsidiary of Royal Dutch Shell that has been in operation since 1901. Initially, the company dealt with delivery of fuel and had storage and distribution terminals (Staas, 2011). Today, the company has expanded its operations to coal mining, oil exploration as well as petrochemicals. Shell Australia has a Sydney Harbour which is a receiving and storage facility that distributes crude oil in Australia. Ships offload more than four million tonnes of oil and petroleum products that is distributed by underground pipelines (Murray, 2001). In 1999, residents living near the Sydney Harbour were astounded by a strong gassy smell that was caused by a spill of about 80,000 litres of oil. This led to reputation crisis for Shell Australia Limited (Murray, 2001). This paper will offer a brief description of the Sydney Harbour oil spillage and will describe the company’s assessment of the crisis. In addition, the paper will detail out how Shell Australia responded to the oil spillage and the role of public relation theories in responding to crisis incident. Lastly, the paper will describe the outcome of the company’s response and will provide a list of recommendations for improved reputation planning and management. Description of the Reputational Issue In the evening of August 1999, an Italian oil tanker was transporting crude oil cargo at Shell’s Sydney Harbour (Staas, 2011). 300 tonnes of oil was spilled accidentally into the Bay terminal at 6.25 p.m. on a Tuesday. The reason for the spill was unknown at that time. The spill overwhelmed the residents living near the harbour and threatened the company’s reputation and business operation (Staas, 2011). The crisis could potentially ruin stakeholder relations and could influence the government to stop the shipping and transportation of Shell’s crude oil in Sydney Harbour. The termination of the oil shipping would severely affect Shell’s Clyde refinery as well as Gore Bay terminal that distributed almost fifty per cent of South Wale’s fuel requirements (Australian Maritime Authority, 2000). Shells External Affairs team came up with a pre-planned crisis communication plan immediately after the crisis which exploited the strong stakeholder relationships that has been available for the past ten years (Australian Maritime Authority, 2000). In addition, the company’s key messages were reinstated in several mediums through the use of communication tools such as personal briefing, media campaign and letterbox drops to name a few (Australian Maritime Authority, 2000). The campaign and key messages from Shell was successful as key local shareholders expressed their belief in Shells ability to solve the crisis and their integrity and competence. More importantly, after the reputational crisis involving oil spillage, Shell in collaboration with the government announced the commencement of the commercial shipping of crude oil in Sydney Harbour (Australian Maritime Authority, 2000). Key Stakeholders of Shell Australia A stakeholder is either a person or a group of people who are directly affected by the operations of the company (Giles, 2015). Stakeholders of Shell Australia includes: shareholders, customers, employees, and government and business partners. They are significant to the company since they bring very substantial impact to the performance of the company. Shell Australia often holds a forum involving all the stakeholders to explain the concerns of the society around Gore Bay (Giles, 2015). After the oil spillage in Sydney Harbour, the stakeholder held their usual forum and accepted the responsibility of the oil spillage and wanted to be more informed of the company’s activities. Additional stakeholder relations were created after the spillage with the ministerial politicians and public servants to create a two-way communication channels (Murray, 2001). When a problem emerges, the government require the need to be informed even before the community is hit in order to respond accurately and immediately. Assessment of the Crisis Between 1820 and 1850 hours, the oil spillage in Sydney Harbour was estimated to be about 300 tonnes of crude oil which was pumped from the Laura D’ Amato through the sea valve system (Australian Maritime Authority, 2000). This spillage was the largest in the Sydney Harbour. The rapid reaction by the company allowed the ship to be surrounded which minimized the spillage effect. The company reported that the spread of the spill was about 80 cubic metres (Veritas, 2000). There was oil recovery information that took place in the water which enabled some split oil to be recovered. Shell Company reported that 120-150 tonnes were lost through evaporation while 90 per cent of the remaining was discovered. According to Shell Australia Limited, the spill required an immediate response in order to reduce the effects it could have on the company and the society in general (MacDonald, 2010). This led to the implementation of a pre-planned response. The initial response by the company was highly recommended but averted the larger response requirement. The spread of the oil spillage was unclear until after some hours. The spillage was greater than reported was outside the estimated range (Veritas, 2000). As reported by the company, the oil spill threatened to affect the reputation and operations of the company. This led to the immediate response by the company. Shell recognised the importance of a successful response activity (MacDonald, 2010). The required actions required to be well produced and thought through. According to the company, the sought put response actions were well put and were successfully implemented (Botan and Hazleton, 2006). The company received praises from the public and the media on the way they responded. There was no clear impact of the reputational crisis on sales as long-term business destruction was avoided as much as possible and the reputation with all the key stakeholders was restored. Shell reported that oil spillage crisis was an eye-opener as it made the company aware that the risk of spill as well as other environmental challenges could threaten its operations and thee relationship it has with the stakeholders (Australian Maritime Authority, 2000). This made the company more focussed on preventing environmental issues and disasters from happening as a result of their operations and activities (Kenny, 2002). Sydney Harbour was not closed and Gore Bay Terminal continued to act as the receiving and storage facility for Shell. Support from the community and all the stakeholders was immense and relationship between stakeholders and the company grew. Shell Australia’s Response to the Sydney Harbour Oil Spillage An hour after the occurrence of the spillage, the External Affairs team of Shell Australia came together so as to come up with a plan crisis communication plan which included a 24 hour coverage of the situation as a result of the oil spillage (Australian Maritime Authority, 2000). The company held a press conference three hours after the oil spills with their background information sheets related to the Gore Bay Terminal sent to all media houses (Murray, 2001). In addition, the company’s spokespeople were invited for interviews in both radio as well as television on the current matter throughout the crisis. Furthermore, the Shell staff communicated with the number of advisers from various governments and ministers department during that night of the crisis. A follow-up letters were forwarded to the various governmental departments contacted containing extra information about the crisis (MacDonald, 2010). In addition, the company commenced the proposal to collaborate entirely with every governmental enquiry. Additionally, a private letter from the manager of the Gore Bay Terminal was effectively distributed to the local residents before break of the day via hand with a follow-up of letter-box drops during the subsequent weeks (Tan, 2005). Also, meetings with non-governmental organizations were set with an initiative of discussing the causes as well as mitigation issues regarding the spills. Emails were also sent to all shell staff members at 3 a.m. informing them of the crisis in order to update them and prepare them as they came to work the following morning (Australian Maritime Authority, 2000). Voice mail messages as well as emails were also sent to every shell employee notifying them of the developments that were to occur the following week. Immediately after the clean-up was conducted, a letter of appreciation was forwarded to both the staff and contractors who participated and additional staff members were employed at their Clyde refineries in order to take care of the rising number of switchboard calls from the public (Australian Maritime Authority, 2000). Finally, Shell’s customer service was informed on ways in which they can effectively respond to calls regarding the crisis. Public Relations Theories in Responding to Reputational Issues Crises are often considered a threat to the reputation of an organization. This in turn influences how the organization’s stakeholders interrelate within the organization (Eyun, Kim and Ledingham, 2015). Therefore, communication after the crisis can be utilized in order to repair and at the same time avoid any reputational damage towards an organization. Thus, crisis management requires guidance related to evidence-based crisis communication. Public relations theories such as Situational Crisis Communication Theory (SCCT) are used during these events (Eyun, Kim and Ledingham, 2015). This theory offers an evidence-based framework aimed at narrowing various methods of getting full use of the reputation protection afforded by post-crisis communication. Therefore, exploring using SCCT depends heavily on experimental methods than case studies (Eyun, Kim and Ledingham, 2015). It recognizes how fundamental aspects of the crisis affect stakeholders as well as their reputation. In addition, understanding the response of the stakeholders to the crisis enlightens the post-crisis communication. Thus, the empirical research offers a set of procedures with which crisis managers can utilize strategies so as to protect the reputation of the organization (Eyun, Kim and Ledingham, 2015). Another theory that is used in responding to reputational issues is Attribution Theory (Botan and Hazleton, 2006). Tis theory states that individuals more often seek for the main cause of an event which most of the time are negative and unexpected. The individual assigns the responsibility for a crisis and hence will experience a reaction to that event (Botan and Hazleton, 2006). Therefore, SCCT reaches upon this attribution theory base in order to predict the kind of reputational threat brought by a crisis and at the same time provide crisis response strategies which are intended to take care of reputational assets. As we all know, a crisis is negative in nature that prompts stakeholders to assess crisis responsibility. Therefore, whenever an organization is considered responsible, its reputation is tarnished and this may bring about affective and behavioural effects to an organization (Botan and Hazleton, 2006). Various models are being used in responding to reputational issues. They are used in examining of the current views of the organization’s strategies, risks as well as their vulnerabilities (Botan and Hazleton, 2006). This ensures that the risk of reputation is well explored and every known and unknown risks as well as vulnerabilities are identified. Such risk of reputation models involves the recognition of various techniques which are used to gain information from the individuals who are directly involved (Botan and Hazleton, 2006). They are fundamental since they gauge from a number of perspectives on the influences that drive the organization’s reputation especially on major enterprise strategies. Finally, these risks of reputation models proactively manage risk to reputation (Botan and Hazleton, 2006). They identify various methods of outreach and research and hence put them into action. Outcomes of Shell’s Response Due to their timely response to the crisis, Shell Australia received widespread praise due to its effective response to the crisis (Belinson, 2013). There were no occurrences of apparent effect on their sales during and following the crisis as well as their business in the long-run was avoided. In addition, there was an enhanced reputation between Shell and its stakeholders (Belinson, 2013). The company also received great support from the local community at large and therefore, most of the residents commended Shell for demonstrating great involvement during the crisis and also for maintaining a fruitful relationship with them. Furthermore, after crisis, the company recorded very high statistics with regard to the attendance at the community consultation committee meetings as well as the Gore Bay terminal open day (Treanor, 2009). Additionally, Shell’s involvement and active responsibility during the crisis promoted Sydney Habour to being a commercial shipping traffic (Kimrey, Christopher and Doucette, 2014). This was publicized by Bob Carr of NSW Premier making Sydney a commercial shipping traffic. Also, he cancelled the closure of Sydney Habour either permanently or temporarily mentioning that the transfer of location of the Gore Bay Terminal was not an option (Botan and Hazleton, 2006). Therefore, till date, Gore Bay Terminal serves as a receiving as well as a storage facility for Shell. Other than the above mentioned outcomes, the Italian shipping company, Fratelli D’Amato, was fined up to $510,000 by a case ruled by Justice Talbot. In addition, the chief officer of the Italian shipping company was also fined $110,000 (Botan and Hazleton, 2006). Recommendations for Solving Reputational Crisis For an organization to respond effectively to a crisis, they ought to have a solid crisis plan as well as better communication and management (Meier, 2011). This can be achieved through a number of ways. Almost every organization has emergency response measures in position responsible for tackling any form of crisis experienced within an organization. Therefore, Shell Australia ought to have accessibility. This is the most optimistic form of management plan and it contains various faces of emergency planning. Therefore, the inability to modify information as well as gaps within communication can result to a reduction in the effectiveness of any plan. Therefore, if accessibility within an organization is focused on, it makes it easier to ensure proper and quicker sharing of information from one person to another (Stuart, 2014). In large and small organizations, crisis response needs coordination between dissimilar departments. To battle this, plans require to be adjusted in order to coexist with emerging technological solutions which are essentially more accessible. For example, mobile devices nowadays have become very accessible and therefore serve as a solid platform for in both voice communication as well as sharing of emergency notifications (Meier, 2011). In addition, technological tools have also been continuously adapting to yearly changes in emergency situations (Meier, 2011). Therefore, technology tools such as smartphones, tablets as well as other mobile devices put the tool to communicate and organize effective crisis management into the hands of the organization (Rayner, 2003). Statistics have been carried out and a conclusion has been made that an average smartphone user checks his/her phone 150 times a day. Therefore, smartphones act as an anchor of attention and thus administrators can utilize this advantage by shifting an already-existing emergency response plan to that platform (Rayner, 2003). Digital data permits the storage of numerous amounts of data in a single place. Therefore, offering the general public with a one-stop mobile safety solution can be a huge step in ensuring better crisis management and communication (Rayner, 2003). They ought to be as close as possible and easily accessible at any time. Conclusion Shell Australia was faced with reputational crisis in 1999 when one of their distribution ship accidentally spilled crude oil in the water. This posed some potential damage on the relationship between the company and the stakeholders and on the company’s operations and activities. Shell designed an immediate response to the crisis which involved all the stakeholders of the company. First, the company involved all the stakeholders in solving the crisis. The company formulated a communication plan which included 24 hour coverage of the situation and seek advice from the government on the way to solve the issue. Meeting with external bodies were held with initiative to discuss the causes of the crisis. The company’s customer service was informed on effective way of responding to calls regarding the spill. The response to the oil spillage was successful. Shell received tremendous praise for their success in dealing with the crisis. Their sales as well as business operations were not affected by the crisis and they restored the reputation they had with the stakeholders. The commercial shipping of crude oil and other petroleum products to Gore Bay Terminal continued while the terminal continued to be the receiving and storage facility for Shell Australia. 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