First posted on Commercial Law International on June 9, 2009.

By Charles Wanguhu

A report by the Economist Intelligence Unit indicates that protecting a firm’s reputation is the most important and difficult task facing corporations. With the development of global media and communication channels, managing reputational damage is seen as crucial with events undertaken in even the remotest areas affecting the international brand of a corporation.

For Shell the stark reality of reputational damage is all too clear. After years and years of denial and expressing its innocence of the Ogoni affair (it still maintains its innocence), Shell has decided to settle a case brought against it out of court for a sum of 15.5 Million US $. The lawsuit had accused the company of colluding with Nigeria’s former military regime over the execution of Ken Saro-Wiwa and other peaceful anti-oil protesters.

Like Nike before it Shell remains in many minds as the poster child of a lack of corporate responsibility especially in big multinationals. The Saro Wiwa case is largely sited not only in commercial classrooms but across NGO conferences worldwide. Multinationals are viewed as bulldozing their way with the help of corrupt and dictatorial regimes to fulfill their interests with complete disregard to vulnerable communities.

The perception of Shell as the irresponsible corporate persists despite the fact that it has invested millions in engaging communities in areas that it works in and has increasingly taken on human rights in its business models and stakeholder engagement strategies.

In response to the case filed Malcolm Brinded, Shell’s executive director for exploration and production, was quoted,

“While we were prepared to go to court to clear our name, we believe the right way forward is to focus on the future for Ogoni people, which is important for peace and stability in the region.”

The settlement could be seen as a magnanimous move by Shell in some quarters with some already hailing the move as groundbreaking in terms of holding corporations accountable. However when looked at broadly the settlement will be seen as a coup for Shells PR team: instead of having weeks, months or even years of a contested trial where Shells actions or lack of thereof would be once again stirred up in everyone’s mind globally, a quick settlement offers a quick escape route.

All in all $15.5Million may well be considered a bargain when factoring in legal costs, reputation risks and lost revenue. There could well have been some champagne popped at Shell HQs but am sure downstairs in the legal department the wait is on with baited breath to see whether the floodgates have been open.