Abstract
The current discussion is aimed at the dissection of ethics, corporate social responsibility and sustainability of British Petroleum (BP) by taking the case of Gulf of Mexico Oil Spill in to consideration. By commencing the discussion with an overview of the externalities present in the oil industry, the pressures on oil companies are examined which is further evaluated through the application of stakeholder theory and the theory of utilitarianism.
In the case of BP, it is revealed that the resort to CSR was primarily a reactive measure to correct its tainted brand image and save it from reputational risks. The application of utilitarianism also revealed that instead for the greater good, BP undertook an erroneous decision making process to fulfill its capitalist motives.
However, upon realizing that in the long run, CSR pays off well amidst global warming, BP has proactively adopted the philosophy of CSR in terms of development of alternative sources of energy, using pollution credits for trading, reducing carbon footprints and engaging into transparent and regular reporting of sustainability actions.
Introduction and background
In the words of Milton Friedman (Friedman, 1970),
“. . . there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game. . .”
Here, the rules of the game may be taken to be the rules of the society which is to engage in businesses that are meant for profit motives. According to business law, a corporation’s perpetuity lies in being profitable to be able to feed the people involved with it and also comply with the legal ramifications. With the fast paced wave of globalization, business is now an economic necessity which aims to enhance the quality of life of people on this planet. However, in the process of production, there are certain forms of inefficiencies or negative externalities too that may tend to decrease in the quality of life so proposed, for instance, pollution is an inevitable production inefficiency.
Hence, by going with what Friedman opined, a business may have the sole motive of capitalism, but it is also expected to abide by the ‘rules of the game’ in which it should act ethically and strive to minimize the damages caused to the wider community through its actions- economically, socially and environmentally. This triple bottom line of being ethical and sustainable while also adhering to the profit motive is termed as corporate social responsibility in the broader sense.
In this light, if we take the example of the oil industry in particular, it can be noted that this is an environmentally unsympathetic industry because of its operations and possible consequences these have had on the people and planet in the past. This industry is more prone to negative externalities like negligence and ethical malfeasance as multiple oil spills have unfolded as mammoth disasters to the social and environmental well-being of the planet (Matthias and Woolfson, 2005).
However, when assessed from a different lens, the oil industry suffers from scarcity of resources due to which it is pressurized to deploy the available means and methods to extract oil to support its profit motives. With this, the triple bottom line of oil companies is put to greater CSR and sustainability risks such as depletion of oil reserves, damages to flora and fauna, etc. In the short run, by products of oil exploration, such as improper disposal of natural gas takes place and in the long run, global warming, ozone depletion and carbon emissions constantly put oil companies under debate of profitable versus ethical business operations.
With these repercussions, oil companies lately have recognized the importance of ethics and sustainability embedded in business practices to give vent to three major trends in this industry- the mandate of a social license to conduct business operations, getting engaged in problem solving to control costs and add value and incorporating corporate responsibility in business model. This brings the discussion to the deduction how major oil companies now clearly define in their sustainability reports and promotion messages to be coming closer to the ethical and sustainable business practices.
In this light, this paper discusses the ethics and sustainability drive at British Petroleum Plc.- one of the major global oil and alternative energy sources companies who has recently announced to invest heavily in the development of alternative energy sources like wind and solar power and has turned more ethical and accountable in its business practices after the Gulf of Mexico Oil Spill which had tarnished its image as a responsible corporation.
British Petroleum
BP or British Petroleum is one of the renowned companies in the oil and gas industry. It is its operations in more than 70 countries with a workforce of 79,800 employees and more than 3.3 million barrels of oil produced every day (BP, 2016 [online]). Its strategic priorities are reliable improvement, rapid adaptation and value capturing. With the help of advanced technology and proven expertise, BP is able to carve out distinctive capabilities in the oil and gas sector. Its history of business, however, is rich with cases of misconduct and ethical malfeasance.
Since 1995, BP had to its credit more than 65 cases of ethical misconduct which majorly pertained to violations of health and safety guidelines at the workplace. In 2005, its Texas refinery had met with an explosion. Then in 2006, similar case happened at Ohio refinery. More than 30 people were killed and over 200 injured in these two events (Thomas, Cloherty & Ryan, 2010). OSHA itself issued around 97% willful violation cases against BP in the area of employee safety and well-being.
Key themes and literature
CSR or Corporate Social Responsibility is defined in extant literature as “the expectation that business or individuals will strive to improve the overall welfare of society.” (Gregory and Eisner, 2006). Thus, for business managers, it implies to be considerate of the needs and demands of the wider community in which the business operates and extracts its factors of production. When such businesses are operational in multiple countries, there come increased responsibility with increased power. In current globalized world, companies are required to be good corporate citizens by not only Adhering to the mandates of law, but also complying with the environment protection, employment law binding and social welfare regimes in different countries.
In the light of being good corporate citizens, the United Nations in its ‘Responsibility in World Business’ defines the bottom line and suggests that companies should be “responsible for the actual harm [they] cause or contribute to, no matter where [they] operate.” (Bomann-Larsen and Wiggen, 2004, p. 3) Further, The UN recommends that for every action, the company should ask itself two questions: “[w]hat is the potential impact of our operations on people and the environment?” and “[i]f some degree of harm is unavoidable, what measures [can be taken] to minimize it?” A company resorts to public relations and marketing and promotion tools to minimize the impact of any adverse action.
Critical evaluation of BP
BP has resorted to brand redefinition to attract investors and penetrate in the developing alternative energy source market. By revamping ‘British Petroleum’ to ‘Beyond Petroleum’, BP’s commitment to reduce its carbon emissions and resort to more alternative sources of energy is actually a marketing gimmick to cultivate and develop a ‘greener’ image which is more environment-friendly and the public support its products in the global market. By putting Friedman’s contention here, BP is solely fulfilling its profit motives by covering its ‘unsympathetic by nature’ business operations by promising to increased sustainable operations (Schwartz and Gibb, 1999).
According to Carroll’s pyramid of CSR, a corporation’s responsibility is defined through four major themes- economic, legal, ethical and discretionary philanthropy (Carroll, 1979). At each of these stages, the stakeholder theory plays an important role as every stakeholder group has a specific interest vested in each of these phases. In this regard, BP’s approach may be termed as ethical as it is progressively proceeding towards environment protection through measures such as setting of ethical conduct targets, publishing regular reports, dismissing unlawfully acting employees, demonstrating zero tolerance towards bribery or favoritism in tender and contracts, etc. It has also committed to the Red Cross’ financial support appeal and is a signatory to the United Nations Global Compact which, to a great extent, satisfy its role on all the four levels of Carroll’s’ pyramid. However, in the subsequent sections, it is still to be deciphered and analyzed if it is really an ethical business stance or just a clever trick to mask its unethical actions.
The case of Gulf of Mexico Oil Spill and the role of BP
The Mexico Oil Spill is counted amongst one of the most disastrous oil spills which occurred in 2010 when the Deep water Horizon oil rig met with an explosion. BP was held accountable for this spill as it was the prime company which had leased the rig and was also the owner of the oil well to the tune of 65% ownership (Broder, 2012). In the explosion, the Macondo oil well started leaking oil into the Gulf of Mexico and it continued for 87 days until around 4.9 million barrels was already emptied into the sea (Gannon, 2012). It severely contaminated the neighboring coasts and shorelines, the waters and life under sea. In a task force assigned to determine the culprits, it was revealed that in addition to Halliburton and Transocean, BP was the main culprit to be held accountable for this spill as it was the responsibility of BP to seal the well before irrecoverable damage takes place (Broder & Krauss, 2011).
In 2011, when BP and Halliburton sued each other, the court ruled out that Halliburton was responsible only for fines under the Clean Water Act and all other claims and damages fell upon BP. Though the BP oil spill was not the biggest by volume, however, it had a number of associated stakeholders which made BP’s Chief Executive Tony Hayward to assume the responsibility of all damages and fines for the spill and its subsequent clean up (Cleveland, 2010).
As a global corporation, BP has to interact with a number of people including government agencies, NGOs, employees, etc. BP’s fundamental ethical obligations include:
Ensuring adherence to OSHA (Occupational Health and Safety) standards,
Engaging in honest dealings with suppliers,
Providing customers with authentic and pure products,
Strive to develop long term shareholder value
Adhere to nation-specific environmental and social welfare policy, and so on
If the matter of social responsibility is assessed in the case of Oil Spill, it can be inferred that this event had enormous negative externality associated with it. But then, every business in its course of action encounters a lot of negative externalities. So why the Mexico oil spill is considered a gross ethical malfeasance case- because its effects were borne by the society at large which included not only the visible stakeholders, but also sea creatures, the coastlines, the coral reefs and the invisible and unexpected stakeholder groups.
The application of Stakeholder Theory to the incident of BP oil spill
If we consider the application of stakeholder theory in assessing the ethical stance of business in decision making during Mexico oil spill, we need to first consider the definition of stakeholder theory which is propounded as, “the stakeholders of a company are not just its direct owners but that stakeholders are any person, group or entity that a corporation has benefited or burdened by its actions and those who benefit or burden the firm with their actions” (Miles, 2012). In the case of Mexico oil spill, the major stakeholders involved were the employees working in the oil rig, the broader environment, surrounding communities, tourism-based businesses, the fishing industry workers, governments, investors, media, tourists, environmental activists and others.
Combining the stakeholder theory with the triple bottom line of business as mentioned above, the environment was the primary stakeholder in this case which was majorly and adversely impacted. Based on the Oil Pollution Act which necessitates an assessment of natural resources damages after each oil spill, the BP spill led to more than 1100 miles of coastal wetland to be at risk, along with detrimental effect on the ecosystem of sea organisms. Since the incident and through 2012, sharp increase in the death of dolphins was marked and several other environmental damages are supposed to take place in the years to come (National Academy of Sciences, 2013 [online]).
Economically too, both direct and indirect impacts were placed on various stakeholder groups. The most adverse effect was felt by tourism businesses, fisherman community and the nearby hotels and restaurants. Due to fishery closures, commercial fish production declined drastically and because of scarcity of seafood and poisonous and toxic oil and by products spilled into the Gulf, the long term livelihood of fisherman was also at stake. In the light of this event, the role media played is important as because of heavy media coverage and unpleasing pictures of the ruined coastlines, the image of Gulf tourism declined (Jones, 2011). Sea-excursions such as scuba diving and related event and tourism companies have fallen into losses because the factor of water safety is making tourists stay away from such activities. Due to the negative image portrayed by media, even those areas which were not directly impacted witnessed a sharp decline in tourist footfall.
Now putting this case in the light of stakeholder theory which assumes that companies should assess the outcomes of their actions on stakeholders in the following order- customers, employees, management, communities and stockholders (Freeman, Wicks & Parmar, 2004), it can be inferred that BP had the necessary resources to engage in such mammoth size of venture. In order to legitimize its presence and allow for perpetual business operations, a corporation has to engage in a variety of ventures, some of which may be riskier than others. Because of scarcity of resources in oil industry, BP was legitimized to enter into contracts with suppliers and partners in the case of oil exploration and digging of oil rig in the Gulf of Mexico. What happened at the Gulf such as the explosion was a matter of externality and not a deliberate attempt from the part of BP.
On the flip side, the stakeholder theory has its own disadvantages which aptly apply to the case of BP oil spill too. For example, the stakeholder theory assumes that in an attempt to maximize shareholder wealth, even unprofitable and unethical CSR programs can be implemented, thus leaving the onus of fiduciary duties from the management of the firm (Marcoux, 2003). Further, if BP had abided to the regulations, it would not have been able to cater to the diverse needs of stakeholders and provide cheap and continued supply of oil to the demanding nations.
However, on the continuum of CSR activities, while BP only strove to maximize shareholder wealth and fulfilled its capitalist motives, it failed to recognize the importance of competing interests in a strategic decision made by a firm. For example, while it attempted to maximize returns for shareholders through extensive oil exploration, it ignored the realization of safety of workers at the rig, the quality of sea life and the perpetuity of related industries which should have been balanced. Further, despite its tainted history of ethical misconduct, BP failed to be extra vigilant and cautious in conducting a full-fledged and regular risk assessment of its operations at the Gulf of Mexico oil rig which could have led to the avoidance of explosion.
Notwithstanding the short term adverse effects of the oil spill, BP took appropriate action steps to remedy the situation which actually brought significant competitive edge to it. This is in line with the suggestions of the United Nations when it asks to answer two questions for a specific action- the potential impact on the people and environment and the measures undertaken to minimize the adverse impact. No doubt, the BP oil spill was highly disastrous for the people and the planet.
Now coming on to address the mitigation and compensation mechanism undertaken by BP, the management, first of all, took the entire responsibility of paying the damages for the event as well as the clean-up efforts (Arena, 2004). After the spill, the stock prices of BP declined sharply and its investors had their trust shaking on the authenticity of business practices at BP. Thus, as a reactive measure to the damages already happened, BP got engaged in intense compensation mechanism as a means of green-washing its tarnished brand image and to secure its competitive positioning from long term glitches and reputational risks (Spence, 2010).
For the death of 11 workers in the rig explosion, manslaughter and fines under the Clean Water Act and other criminal and civil charges, BP had to suffer from a total fine of around $42.5 billion (CNN Money, 2006) along with a maximum term probation of 5 years to provide a detailed report on the safeguards, risk assessment and mitigation strategies pertaining to the drilling and maintenance of the oil rig and the oil well (Cohen, 2013). The management at BP, in order to secure itself from the ramifications of long term court cases and prolonged negative publicity in media, also accepted that the leadership and the decision making at BP was erroneous as it knew that the oil well was leaking but it chose not to take any action to keep its operations running for profits.
In its compensation mechanism too, BP acted unethically by avoiding the legitimate means of compensating businesses and individuals and trying to settle the claims outside the court. The response by BP’s management of accepting accountability in public was a mere act of managing its damaged brand image against negative public perceptions. While in reality, it continued to plea for freezing the payment for settlement and requested for amendments in the amount of compensation to limit its fiduciary duties and improve its short-term tainted image (Partlett & Weaver, 2011).
Even so, when the Environmental Protection Agency (EPA) banned BP’s access to oil contracts and leases, BP sued EPA for this illegitimate banning for which EPA reasoned out that it is due to the gross ethical misconduct and inability to abide by the principles of truthful and transparent reporting guidelines (Sheppard, 2013 [online]). Such a stringent action from a globally acclaimed agency reflects the intensity of how grossly BP failed to meet its triple bottom line expectations and put the long term sustainability of the people and the planet at stake.
The theory of Utilitarianism and its application on BP’s business practices
The theory of Utilitarianism is one of the most traditional and resorted to when consequentialist viewpoint is adopted. Crane and Matten (2010) define utilitarianism to be “morally right if it results in the greatest amount of good for the greatest amount of people”. On this ground, it can be assumed that BP should go with riskier investments and strategies that intend to maximize shareholder value, result in higher profits and returns for shareholders, helps it exploit more territories and energy domains and benefit a larger number of people over a longer span of time by enhancing their standard of living through the provision of energy, power, employment and livelihood. In this attempt, minor blips to employees, planet, environment and the community may be considered to be the cost paid for such greater good delivered to the society. Hence, if BP aims to develop a more sustainable business environment, the theory of Utilitarianism offers good analysis on the related costs and benefits of such decision making.
However, when Utilitarianism is adopted as a rule-based approach, the short term objectives of the corporation may be marred by the sufferings from act-based utilitarianism. For example, in the pursuit of long run sustainability, short run safety of employees, their human rights and even environmental policy may be jeopardized. Thus, by being ruthlessly capitalist and later hiding behind public relations gimmicks to promote unethical sustainable motives is completely against the notions of CSR. As opined by Parker (2000), good business is defined by a good environment policy and that environment is a ‘cost to be internalized’. Hence, BP’s commitment to bring small decline in its carbon emissions is not an ethical way of counteracting the mammoth losses done to the community, the employees, the environment and the overall society. Additionally, it seems that its sustainability reports and marketing tools are merely ways of ‘green washing’ its image so that at the back stage, it can make more furious and unethical decisions like the Mexico Oil Spill.
Conclusion
Owing to the long-term consequences of ‘oil’ in the form of global warming, declining stakeholder confidence and negative public perceptions for events that have happened in the past, BP is now trying to be proactive in adopting the philosophy of CSR. In this endeavor, its first initiative is to lower down the rate of its carbon emission to below 10% (compared to 1990 levels) by the year 2010. It led the wave of radical change in the oil industry by implementing the concept of tradable pollution credits (Hertz, 2014) through an internal emission trading program. It is also now the pioneer in the development of alternative sources of energy along with the provider of ‘cleaner burning’ fuels (Jha, 2007).
Thus, despite being in the middle of such negative and almost uncontrollable externalities, BP sets its safety targets and manages to meet them every year. While critics can still attack BP for engaging into CSR for profit maximization, it is in the long term health and interest of BP as opined by its own executive that “the simple fact is that business needs sustainable societies in order to protect its own sustainability.” Thus, learning from the past events, BP realized that public relations are just a quick-fix solution while resorting to CSR can actually affect its bottom line in a positive manner. As a result, BP is now the leading and exemplary corporation in transforming the business model from capitalist to CSR-oriented in the oil industry.
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