BP has become the pariah of the oil producers operating in the USA and its CEO, Tony Hayward the hate figure and scapegoat for the present Gulf of Mexico oil spill. In a charged energy and commerce committee hearing this week Mr Hayward was subject to a sustained attack by US Congressman about his personal role as the chief executive and BP accused of “astonishing corporate complacency” and “one of the most shameful acts by a corporation in America’s history” because they cut “corner after corner”.
Should we accept these statements and the vilification of Hayward? Certainly the incident is raising tension between the US and UK governments, but to what extent should a company act responsibly and ethically, if that increases its costs, and to what extent should the chief executive be held responsible for the acts of the business, whether or not that person was involved or aware of the particular actions? In other words where does the ‘buck stop”?
The Business and Management programme includes dry references to ‘ethical objectives’ and ‘corporate social responsibility’, but it is events such as the one unfolding in the Gulf that adds the real context to the syllabus and brings it to life. The truth is that the present spill can become the focus for detailed examination of the roles and responsibilities of organisations and their management. In particular, the following questions are posed in the syllabus content:
- Examine the reasons why organizations consider setting ethical objectives.
Of course given the fact that BP has been forced to put aside $20 billion, to finance the clean-up and compensation fund, the reasons become almost self evident. It is likely that BP will survive, but unethical actions such as those by Enron and World Com have led to the demise of corporations. BP’s investors will also lose their dividend payout, so the costs of unethical behaviour impacts upon all of an organisation’s stakeholders.
- Discuss the impact of implementing ethical objectives.
If, indeed BP are found culpable for the oil leak through unethical and possible illegal behaviour, the firm will pay the consequences. One of the congressman at the BP hearing questioned Hayward about a $7m dollar saving in choosing a cheaper piping method that may have increased the likelihood of a blowout happening. Hayward merely commented that this was the method recommended by the experts at the time. What would have happened if BP had operated in another fashion and spent the additional funds to ensure the highest levels of health and safety? Initially, this may impact their competitiveness as CSR tends to increase operating costs. However, in the longer term, revenues may improve as the result of stakeholder loyalty and, indeed, costs may fall if the firm is subject to fewer fines and penalties. More importantly, BP may have been awarded more drilling contracts in the future. These are now in jeopardy, because of the company’s poor safety record.
A CBS poll found that 70% of Americans disapprove of the way BP has handled the oil spill and President Obama has attacked BP and its management, vowing to make them pay. Without minimising the appalling environmental and economic consequences of the oil spill, is there an element of hypocrisy in this attack? Is this ‘one of the most shameful acts by a corporation in America’s history’ or is there a collective amnesia about behaviour by US Corporations across the globe? For example my last CSR post, highlighted the action of the US Union Carbide in Bhopal, which resulted in the deaths of at least 15,000 people, for which Union Carbide paid a total of $470 which compares rather unfavourably with $20 billion for the Gulf fund. In addition, Texaco, Chevron and Exxon-Mobil are some of the major polluters in Nigeria and the Niger delta, as mentioned in a recent post in the Biology blog; with the massive pollution receiving little publicity and condemnation.
Of course, the oil spill is not the only pollution in the Gulf. A huge “dead zone” of deoxygenated water spreads across the Gulf of Mexico every summer, because farmers in the Mississippi watershed are using increasingly large quantities of nitrate-based fertilisers. The volume of nutrients flowing down rivers such as the Mississippi into the Gulf has tripled over the last 50 years. There huge dead zone is an area of water virtually devoid of oxygen which cannot support marine life. In the Gulf of Mexico it can cover an area of about 15,000 sq km (5,800 sq miles).
So what about the responsibility of the CEO of BP – should Mr Hayward be held accountable for the oil spill? During his recent testimony, Hayward frequently claimed ignorance of activities prior to the disaster and said he left the decision-making to the engineers and technical experts. It is obvious that no CEO can be aware of, or involved in, all the operations of a business, but is it acceptable to pass the buck? I do not believe so. The senior executives set the corporate culture, they approve the strategy of the business and appoint many of the managers responsible for implementing the corporate plan… and they get rewarded royally. Mr Hayward admitted to receiving over $6 million in remuneration in 2009. The public deserve a scapegoat, and the CEO has plenty to fall back on if he loses his job. Just like the managers of sports teams fall on their swords when teams fail, so the chief executive of BP, should do the same.
You can see an archived video of the leak on the BP site at:
There are also live feeds from some of the remotely operated vehicles at the site.
The extent of the spill is outlined in an interactive graphic from the New York Times, which shows the leak growing since the original explosion.
The BBC has some excellent graphics on BP’s attempts to reduce the leak of oil.
The Story so far of the Gulf Oil Spill – the background
An explosion on April 20 aboard the Deepwater Horizon, a drilling rig working on a well for the oil company BP one mile below the surface of the Gulf of Mexico, has led to the largest oil spill in the history of the United States. After a series of failed efforts to plug the leak, government and company officials say oil will likely continue flowing, until a relief well is constructed, an event expected sometime in August.
The US government estimated that between 12,000 and 25,000 barrels a day of oil were escaping, but later adjusted the estimate to a rate of 25,000 to 40,000 barrels a day. A containment cap put in place in early June began collecting 15,000 barrels of oil a day, even though much of the oil continued to flow through valves on the cap that had not been closed. A barrel of oil holds 42 gallons, so an amount equivalent to the Exxon Valdez disaster could be flowing into the Gulf of Mexico every 8 to 10 days.
Florida’s gulf coast could lose 195,000 jobs and $11 billion this year alone if Florida has a lot to lose, even beyond tourism and fishing. Housing has become increasingly concentrated along the state’s 8,436 miles of shoreline. With property values already down by a third in many areas and unemployment around 12 percent, the state could see its economy darkened for a decade by the spill.
Also vulnerable is the third-largest reef system in the world, which sits just offshore in the likely path of the loop current that, according to oceanographers, has already sent small blots of oil around Florida’s tip. Now that invisible wall separating Florida from its neighbours has been breached, the spreading BP oil spill has already reached the Panhandle, and if it rides currents will reach the renowned reefs and fishing grounds on both Florida coasts.
Apart from the obvious imperative to stop the leak and clean up the mess, all this matters very much to UK. BP dividends account for 15% of all dividend payments on the London Stock Exchange. Then there are all the pension funds with heavy exposure to BPs share price, not to mention all the jobs both direct and indirect which BP and its contracts provide. Some 257,000 people have signed up to a Facebook page advocating a boycott of BP. Additionally, a consumer advocacy group, Public Citizen, is calling for Americans to avoid filling up at BP petrol stations for three months to punish the company.
There is even a possibility the Gulf disaster will lead to a break-up of the 101-year-old company, which employs 80,000 people, operates 22,400 petrol stations and generated $239bn of revenue last year. The fall in BP share price is making it vulnerable to takeover, with suitors from the US, Europe and even China.
It was just eight years ago British Petroleum shortened its name to BP and began promoting itself as the environmentally-friendly oil company with a vision that went “Beyond Petroleum” to embrace solar cells and wind power. In a $200 million advertising campaign organized by Olgilvy & Mather, BP transformed its corporate brand insignia from a shield to the more wholesomely natural green, yellow, and white sunburst. BP’s chief executive, Lord John Browne, issued warnings about global warming and said the company had a social responsibility to take action.
Notwithstanding its new image, BP continues to be one of the largest producers of crude oil on the planet. Although it committed itself to devoting $8 billion to alternative fuels over ten years, the sum was tiny compared to BP’s annual profits from oil that have averaged over $20 billion and its annual capital expenditures of over $14 billion.
Tags: Accountability, B&M 1.3, BP, Crisis managenment, CSR, Ethics
