MGT4221 International Management S01 - Global group

Tuesday, March 1, 2011

BP Oil Spill, Obama Government and CSR

1.BP : Case study Overview

1.1 The Company:

  BP (British Petroleum) is a global oil and gas company whose headquarters are located in London. It is the third largest energy company and the fourth largest company in the world in terms of revenues. It is active in every area of the oil and gas industry, including exportation and production, refining, distribution and marketing, petrochemicals, power generation, and trading. It also has major renewable energy activities such as biofuels, hydrogen, solar, and wind power and currently invests over $1 billion per year in the development of renewable energy sources.

  BP operates in over 80 countries and produces around 3.8 million barrels of oil equivalent per day, and has 22,400 service stations worldwide.

  The company has been criticised several times over the years for its involvement in diverse environmental and safety incidents, as well as for its political influence. However, it also has been the first major oil company to publicly acknowledge the need to take measures against climate change and to establish a target to reduce its emissions of greenhouse gases.

1.2 Deepwater Horizon Explosion:

  In April 2010, a critical event, known as the Deepwater Horizon explosion, caused a lot of damage to BP’s brand name and corporate social responsibility image. Indeed, a floating drilling unit of BP in the Gulf of Mexico exploded, killing 11 workers and injuring 17 others. The explosion caused the Deepwater Horizon platform to burn and sink, and started a massive offshore oil spill in the Gulf of Mexico.

  There had been previous spills and fires on the Deepwater Horizon between 2000 and 2010, as well as other serious incidents, including one in 2008 which 77 people were evacuated from the platform where it began to sink after a section of the pipe was accidentally removed from the platform’s ballast system. Reports and investigations show that there was poor maintenance of the platform and an evident lack of safety practices: the blowout preventer was damaged in a previous unreported accident, and staff members complained that riskier procedures were chosen by BP to save time and money. In addition, workers reported poor equipment reliability, which they believed was a result of drilling priorities taking precedence over maintenance, and it was understood that they could get fired for raising safety concerns that might delay drilling.

1.3 Consequences:

  The oil spill flow for three months before the leak was finally stopped on July 15, after it had released 4.9 million barrels in the sea. According to the White House, the spill is the “worst environmental disaster the US has faced”. The spill had and continues to have disastrous environmental impact on the marine and wildlife habitats, as well as on the Gulf’s fishing and tourism industries:
  • 6,814 dead animals have been collected and Scientifics stress the fact that more than 400 species that live in the Gulf islands are at risk
  • Skimmer ships, floating containment booms, anchored barriers, sand-filled barricades along shorelines, and dispersants had to be used in an attempt to protect hundreds of miles of beaches, wetlands, and estuaries from the spreading oil
  • High level of chemicals contained in the waters of the coasts of Louisiana poses various risks to human health and may enter the food chain through organisms like plankton or fish
The U.S. Government accused BP of being responsible for the disaster and officials have committed to holding the company accountable for all cleanup costs and other damage. The company admits its mistakes but also claims that other companies should accept some responsibility, such as Transocean (whose staff was hired by BP to operate the platform) and Halliburton (subcontracted to cement the wellhead into the sea floor). The company also released on June 3 a new advertisement featuring CEO Tony Hayward apologizing for the oil spill.


2.BP and Obama

When they met....

They fall in love...

After honeymoon..

  The infamous oil spill of 2010 can be classified as for more than an environmental disaster. As the entire tragedy unfolded, the public was exposed to obvious unethicial and disorganized decisions made by BP and the US government. As indicated in our comic, the Obama government accepted large sums of money to allow BP to drill for oil in the gulf of Mexico. Both sides are happy as illustrated by the honeymoon picture. Ironically, when one bad event happens (oil spill) which can reflect either party negatively the blaming begins. This is depicted in the final picture where both sides are mud slinging, which is another expression in English for blaming. An oil spill is impossible to hide from the public thus swift but proper decisions must be made in a situation such as this. Instead of accepting blame then collaborating, BP and the obama government exchanged blows and blamed each other for the spill. In an unethical manner, both parties placed the issue of liability ahead of the environment and public.

  It is understandable that BP would not openly accept full blame for the spill, but that does not mean they should blame others. They placed blame on the government and other companies such as Transocean instead of working together to provide the right aid. This displays unethical decsion making as well as disorganized decision making. While focusing to heavily on public relations and reputations, BP forgot an integral part of business ethics and CSR. Ethical business behavior and CSR theory stress the importance of taking shareholder interests into account. The first instances of CSR can be traced back as early as 1651.

"...stakeholder theory, as a type of social accounting of corporations, has roots within the field of political economy as well:"
Political economy is the study if the interplay of power, the goals of power wielders and the productive exchange system. As a framework, political economy does not concentrate exclusively on market exchanges. Rather it first of all analyses in whatever institutional framework they occur and, second, analyses the relationship between social institutions such as government, law and property rights, each fortified by power and the economy (Cooper, 31).For many years firms have strayed from the fundamentals of CSR, BP inclusive.By developing a public response to the gulf oil spill, BP had failed to properly place its stakeholders at the center of its strategy. This displays further disorganized dicision making as well as poor CSR.
 According to the article, Making the case for Corporate Social Responsibility, BP would have scored low in the three major areas that measure CSR. They demonstrated low reactiveness concerning addressing the media and people affected which demonstrates a poor sense of social obligation. A firm wants to be proactive and interactive in the face of the market or disaster. BP failed to execute the appropriate measures thus classifying them as a hardly reactive firm.

  BP should have empathized with external stakeholders that will suffer directly from the oil spill. They include residents who depend on tourism revenue, Gulf coast fishermen and individuals and groups concerned with harm to wildlife. Appropriate corporate social responsibility could have involved BP, Transocean, and other companies working together to formulate a relief package to address these economic and environmental factors, regardless of who was ultimately responsible for the spill. By focusing on corporate liability in its public statements, BP has hurt all of its stakeholders.

  The Obama government was heavily criticized for continuing to acknowledge the denial of press access to the spill. This raises ethical questions about what circumstances justify a government or private company restricting what information is made to the public.

Some other ethical and organizational questions involve what moral and legal obligations we have to the environment as well as the lateness of the president’s first public statements where he addressed the oil spill.

3 - A real-life case of a CEO (mis)handling an opportunity in saving the company's image
3.1 CEO Tony Hayward's personal involvement in BP's struggle over brand image control : story telling.

In matters related to "Business Ethics", the CEO must be involved. Instead of using "dry and abstract numbers" about BP's involvement in repairing the consequences of the incident, BP and its CEO wanted to translate [them] into compelling pictures.

This can be called story telling. In a effort to redeem it's corporate image, BP released on June 3 2010 a one minute advertisement featuring CEO Tony Hayward apologizing for the oil spill.

This is a good example of story telling and the objective of this story can be seen as :

Communicating who you are :
A CEO who can admit full responsibility of its company and truly feels sorry for the victims.
Transmitting values :
- BP cares about the environment and has organised the biggest environmental response in the US.- BP employees are also common citizens and therefore also feel the impact.

Fostering collaboration :
- There are already many volunteers and the government is helping.
= How about you ? Come and help.

Taming the grapevine :
- BP is doing all it can to clean up the pollution (boats, people...).
- There will be no cost for tax-payers.

Leading people into the future :
- "We will get this done, we will get this right"
= BP will do things properly.

What is the response on BP's Youtube channel for this video ?

Tuesday March 1st 2011 :
741 222 views
1 539 like, 16 122 do not like

3.2 CEO Tony Hayward, a "long line of PR gaffes"

A potential explanation for the non-success of BP's efforts to control their brand image, apart from the disaster in itself, is that Tony Hayward kept making mistakes such as this statement he made after the oil spill on the 30th May 2010 :

  The comment "I'd like my life back" was widely perceived as selfish, putting his own personal situation before the dramatic ecological consequences of the incident.

  In an interview on NBC on 8 June, U.S. President Barack Obama actually stated that Hayward "wouldn't be working for me after any of those statements" if he actually worked for the President. This tough talk from Obama is thought to have been part of a concerted administration strategy to distance itself from the oil company and shield itself from growing public anger at the in the Gulf.

  In the end, BP eventually announced on the 27 July 2010 that Hayward would be replaced by Bob Dudley as the company's CEO.

3.3 Conclusion of story telling

No matter how good is the story telling, the person telling the story has to have an adequate attitude. Otherwise, the story telling and the story teller will just loose credibility.

  In our case, Hayward example became a character of South Park where is he is mostly responsible for the oil spill and can be usually seen making lots of videos saying he's sorry.

4 BP and their Employees

The oil spill does not only affect BP’s image, but also affects its employees and other stakeholders.
BP employees have been received BP’s stock as their saving plan. Offering stock to company’s employees is not unusual as it can give incentive to employees to work harder for the company in order to boost the stock price. It is also a way that prevents the conflict of interest between employees to the shareholders. After the oil spill, BP’s stock drops dramatically and remains half of its original values only. As a result, some BP employees have sue the company.
Obviously, BP employees have to pay for its mismanagement and improper business practices. The cost of oil spill is not just only on their financial loss, but also their safety and lives.
 Besides the financial loss, many BP employees are much more concern on their safety in working environment. A desirable work climate for employees includes “high trust”, “collaborative”, “feeling connected” and “feeling value”. But in the case of BP oil spill, BP employees may find themselves “are not valuable” to the company. When BP CEO returned to management in 2007, he tried hard to make the company operating in a more efficient way by so called “Repositioning cost efficiency” (from BP Strategy Presentation in London 2010). He has cut 7,500 jobs and focus on cost savings of the company.  K, Korosec describes BP has a reactionary management culture that puts an emphasis on cutting costs and efficiency while neglecting preventative maintenance. (BP’s History of Oil Spills and Accidents: Same Strategy, Different Day)
In the investigation of the oil spill, investigators discovered a letter to two congressmen that describe the clogged gas and oil pipelines during 2008 and 2009. But the letter has also identified and admitted the failure of equipment meant to prevent gas buildups and an improperly installed warning system for worker. Obviously, BP found out the problem before the oil spill.
To encourage employees to perform better in their job, BP cannot just rely on its financial saving scheme. In fact, a survey conducted by Fleishman-Hillard Inc. found that commitment to employees has been ranked No. 2 in 2007 and No. 1 in 2006 by consumers regarding to the meaning on CSR. It also identified that consumers are not satisfy only with financial contribution by firms, but they also concern on firm’s non-financial contributions. In addition, engagement grows important. One specific finding is that when employees move from being disengaged to being highly engaged, their productivity improves 20 percentage points in performance levels.”  Hence, any impropriate working practice or management can drive away employee’s engagement.
In conclude, creating a safety working environment can help to prevent accident, but also help BP to grasp their employee’s heart again.


 Articles :
  • Telling Tales 2004, "Stephen Denning", Harvard Business Review, May
  • Peter Ketter. Jan, 2008. What's he Big Deal About Employee Engagement.
  • Fleishman-Hillard Inc. May 2007. Rethinking Corporate Social Responsibility. A Fleishman-Hillard/National Consumers League Study.
  • December 3, 2007. David Cavett-Goodwin. Making the Case for Corporate Social Responsibility
  • Lee Gardenwartz and Antita Rowe. March 2001. Cross-Cultural Awareness.


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