Reference no: EM131048971

ExxonMobil in Chad and Cameroon

Synopsis

In November 1999, ExxonMobil and its CEO Lee Raymond had to determine what course of action to take after two major partners, Royal Dutch/Shell and France's TotalFinaElf, withdrew from the Chad-Cameroon Oil and Pipeline Project. The project was enormously complex, involving billions of dollars in potential revenue, with a wide variety of stakeholders, an array of critics, and a potentially volatile political and social environment. The situation was further complicated by the history of oil extraction in developing countries and the unbridled corruption that had inevitable ensued. Shell's and Elf's pullout threatened to sideline the whole operation and seemed to give credence to those critics who thought that the environmental and human costs of oil exploration and extraction in the extremely poor countries of Chad and Cameroon were too great. Raymond and ExxonMobil had to decide whether to proceed with the project.

Objectives

While a greater conscientiousness of the interactions between business and the environment has grown in recent years, it is important to note that business and the environment have always impacted each other. How can ExxonMobil balance the interests of the Chadian and Cameroonian citizens, the two countries' indigenous people, the environment, and development? What are the ethical issues and sources of ethical guidance involved in ExxonMobil's decision-making process?

Class, please consider the interests and roles of the various stakeholders involved. Stakeholders here can refer to:

1. Direct Parties: ExxonMobil, the governments of Chad and Cameroon

2. Indirect Parties: the indigenous peoples, the citizens of Chad and Cameroon, rebellious groups, The World Bank, environmental organizations

3. Abstract Concepts and Ideals: the environment, freedom, prosperity

For the stakeholders, this project can potentially result in much progress and in much pain. Although on the surface the case may seem to be asking whether or not ExxonMobil should continue with the pipeline project or not, the more important question is how the company should proceed with either decision.

Additional Material: ExxonMobil proceeded with the project. The pipeline created 11,000 new jobs for Chadians (55 in supervisory positions). ExxonMobil spent $3.7 million to train those employees and $100 million when into local businesses. In 2004, $84 million was transferred from the London escrow account to Chad, allowing for many microlending projects. $67 million was spent on poverty reduction, building roads and schools and $13 million had been placed in a "Fund for Future Generations."

The influx of transient workers, however, also resulted in an increase in prostitution and HIV infections. There were inter-tribal disputes over the allocation of benefits. In the meanwhile, the Chadian government began restricting political freedoms. In late 2005 and early 2006, the Chadian government described its accord with the World Bank and ExxonMobil as a "fool's agreement." It pressured ExxonMobil to hand over the royalties, citing national security reasons. It then began to draw money from the Fund for Future Generations and tried to take more from the oil proceeds that were supposed to go to the escrow account. In response, the World Bank suspended all loans to Chad and froze the London account.

Assignment Questions

1. How should managers think about the environment as part of their decision-making? How much should it matter and how should it be incorporated?

2. If ExxonMobil is truly committed to the environment, is this the last place they should be drilling or exactly where they belong? For those who say they should leave, where else is it OK to drill for oil? For those who say stay, is there anywhere that ExxonMobil should not drill for oil?

3. What about this case and its appeal for ExxonMobil? What are the biggest opportunities and risks for the company?

4. Strategically, what is at stake for the firm and its future operations? How important is it for them to earn recognition for being environmentally responsible?

5. How much does it matter that someone else is likely to partner with the Chad government and develop this oil to your decision here? Especially if they are likely to do a worse job on the environmental issues, does that impact your thinking - and if so, how much?

6. What about the Chad government? Do you "own the ethics" of your business partners? Will ExxonMobil end up suffering for being associated with this government and be seen as supporting its activities? Are they the kind of business partner ExxonMobil wants to do business with?

7. Make the case: vote to stay and invest or leave and make the best arguments for your side.