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- 1. Please Do Not Copy and Paste anything from this report, this is just history of the case BP: Example of an Unethical Trifecta Posted on September 17, 2013 by mensah_henry From the dawn of time, human beings have relied on the environment to provide with the all the things we need to survive and be successful. It has also helped us develop civilizations and founded industries where there was none. Our exploitation of our environment is part of what makes us successful. The more we have been able to conquer and manipulate our environment, the more we have developed culturally, socially, and economically (Kareiva and Marvier, 2012). The three tenets of culture, society, and economy has been our biggest source of influence in dealing with the environment. Ever since the discovery of oil by the ancient civilizations of Babylonia and Greece, great importance has been placed on our ability to utilize it and the products we get from it (Totten, 2007). Today, the oil industry has grown from nothing to become one of the world’s biggest and most important. British Petroleum (BP) is one of the largest oil companies in the world and a major stakeholder in the United States oil industry. Although BP has been operating in the United States for a long time, its history and operations have not always been worthy of praise. The company has been in the middle of several issues and held accountable for several incidents that have resulted in the loss of life, property, and massive environmental damage. The United States government has always placed a premium on the environment and its safety and Americans in general are conscious about the environment and what needs to be done to protect it. The purpose of this paper is to discuss the BP Pipeline case (Case 6.25 on pp. 411-422) and to address the following topics: • Discuss in detail the ethical, negligence, and environmental
- 2. issues you see in this case. • BP had rented the rig from Transocean for $500,000 per day. Transocean had been recognized by the U.S. government for its safety record. Can companies distance themselves from liability and responsibility through the use of contractors? • Discuss how BP got into the position in which it found itself in late 2006 and what might have prevented the spill, the financial fallout, and the loss of reputation. Be sure to factor in the financial implications of any decision made during the period from 2001 to 2006. • What was the impact of the emphasis in cost cutting on BP’s culture? What was the influence on the company’s performance? • Evaluate the social responsibility positions of BP in light of the refinery explosion and the pipeline issue. What can companies learn from the BP experience? British Petroleum has a large operation in the United States and it has made investments to ensure that it develops these operations to maximize its production and increase profits. One such investment was the acquisition of the vast oil field at Prudhoe Bay, Alaska. This acquisition represented a good increase in the percentage of oil production in the United States and ensured that the company could increase its production and further its goals and objectives for the United States market. As early as 2001 there were incidents at the facility that the company internally accounted for and management was made aware of the safety concerns that existed. The March 2006 oil leak represented a culmination of various factors that showed that a disaster was bound to happen. 260,000 gallons of oil leaked from a pipeline into the ocean. It represented the North Slope’s worst spill ever. A few months later, another spill occurred that forced the company to shut down operations at the behest of federal agencies. The environmental issues in this case are very obvious; massive destruction to the ocean ecosystem of the North Slope, and danger to the health and survival of plant and animal species both in the ocean and ashore. On the topic of negligence, it was easily discovered that
- 3. the pipes had sediment buildup in them. The inspectors failed to do their job because most of them were not certified. The reason why this was an issue can both be attributed to negligence and unethical decision making. The facility’s management should have ensured that proper maintenance was being conducted on all their equipment, especially the pipelines. If there was a company requirement for inspections, not conducting them represents an unethical decision by management (Jennings, 2012). If the problem had been brought up by employees and management failed to make the right decision, it is still not ethical. These were glaring problems management refused to address. The further problem of BP’s overall management not enforcing company policy means that there is a culture of unethical decision making where economics gains far outweigh the adherence to safety regulations (BP’s Troubled Past, 2010). With BP renting the rig from Transocean for $500,000 per day, the company was sharing liability with Transocean as well. Transocean would be held liable according to the provisions of the contract that the two companies signed. Because the law of vicarious liability is very vague, BP cannot distance itself from liability and responsibility through the use of a contractor (Conn, 2009). The provisions of the contract should have stated exactly what BP would be responsible for, and what Transocean would be responsible for. That said, Conn (2009) pointed out several factors that come into play when sharing liability and addressed the problem with the following points: (a) Companies usually seek the help of experts to perform particular tasks. BP had contracted Transocean because the company had expertise in rigging and had an excellent safety record. BP realized the importance of getting that expert help because it could not perform the same function and maintain that level of safety. (b) Companies can “obtain a full indemnity from the independent contractor for any liability that may result from the independent contractor’s activities” (p.192). Despite this fact, the level of damage done by the oil leak was not based on the
- 4. actions of Transocean employees alone since BP was supposed to provide certified inspectors but failed to do so. (c) Hiring another company does not always provide full indemnity for major incidents. The oil spill (the worst ever on the North Shore) was a major catastrophe and BP should have included an indemnity clause in the contract if it did not want to be held liable in any way. That said, even if there was such a clause, the federal government, its agencies, and the general public will still hold BP responsible because they are the company in charge. There are a number of factors that led to BP falling into the position it found itself in late 2006. These include: (a) BP’s board of directors vote to build a pipeline in China in 2001, despite concerns that were expressed about the environmental risks of such project. (b) An independent audit in 2002 that showed that BP’s compliance with safety procedures was virtually nonexistent. It was also shown that much needed maintenance and training was not being conducted both for the facility and its employees. (c) The company’s lack of commitment to safety. When Walter Massey, BP’s environmental committee chairman, reported that there was “accelerated corrosion” which was “creating the possibility of a catastrophic event” (Jennings, 2012, p.415), it did not create a sense of urgency in the company. Even after an independent consultant found out there was at least twenty-two miles of pipeline with problems and in danger of leaking (Jennings, 2012), with six miles of those twenty-two actually found to have leaks (Schwartz, 2006), the company refused to budge. Instead, company executives decided to cut the budget for safety support. This degree of negligence and unethical behavior created an environment that led to the company’s 2006 crisis. There is not much that could have been done to prevent the spill, the financial fallout of over five billion dollars (Schwartz, 2006), and the loss of reputation because BP was already notorious on that front. From the 2001 accident at Prudhoe Bay that left an
- 5. employee severely injured to the explosion and loss of life at Texas City which cost the company over eighty-seven million dollars, BP proved over and over again that the safety of its operations, facilities, and employees played second fiddle to economic rewards. One thing that could have been done was for the federal government and its industry governing agency to shut down the company’s operations in the United States till it was able to prove that all safety issues had been completely resolved. It sounds radical, but it would have forced the company to stand up and act, and would have saved lives, property, and the environment. Cutting costs, especially in an industry like oil production and refining, is a very dangerous thing to do. It is dangerous for the company’s operations, its reputation, its employees, the federal government and its regulatory agencies, and especially the environment. Cutting costs in the aspects of safety and maintenance only increases the risks of catastrophic events happening over time. Focusing only on achieving the economic goals of the firm at the expense of the environment, employees, and operational facilities is surely a recipe for disaster (Jennings, 2012). Ethically, a company would seek to combine its economic interests with the interests of other factors as well and push for a more balanced approach. BP, on the other hand, did not place any emphasis on ethics. Cost cutting for economic gains was the most important thing to them, and it negatively impacted the company performance and reputation. The incidents cost the company a lot of money and its public image (goodwill) was gravely affected. Both the refinery explosion and the pipeline issue were colossal negatives for BP, especially since they happened back-to-back and were caused by most of the same factors, negligence, unethical decision making, and non-adherence to safety regulations. If BP cared about the environment, its employees and the United States as a whole there would have been more done to ensure that the best result for all stakeholders is achieved. I believe that BP’s social responsibility model would
- 6. have greatly changed, with most of its efforts geared towards reclaiming the company’s image and goodwill. Following safety recommendations/regulations and completing the proper maintenance requirements would have saved the company from the ills that befell it. The company has no one but themselves to blame for all their issues. The company apparently failed to take the much needed action to mitigate their policies and ideologies which resulted in another oil spill in 2010 off the Gulf coast. The lesson here for companies is that if you have an executive board that is not willing to budge on its views and positions, they need to be replaced. Another lesson is that there needs to be an emphasis and company culture dedicated to promoting and supporting safety efforts. Safety is paramount to every organization and is a very important piece that promotes operational efficiency. Not following safety recommendations and regulations have risks, as BP witnessed, that can both be very expensive and damaging to the company, its employees, and the environment. References BP’s Troubled Past. (2010). PBS: Public Broadcasting Service. Retrieved September 15, 2013, from http://www.pbs.org/wgbh/pages/frontline/the-spill/bp-troubled- past/ Conn, D. N. (2009). When contract should preempt tort remedies: Limits on vicarious liability for acts of independent contractors. Fordham Journal Of Corporate & Financial Law, 15(1), 179-219. Jennings, M. (2012).Business ethics: Case studies and selected readings. 7th ed. Mason, OH South-Western Cengage Learning. Kareiva, P., & Marvier, M. (2012). What Is Conservation Science?. Bioscience, 62(11), 962-969. Schwartz, N. (n.d). Fortune – Can BP bounce back?. Fortune, 154(8), 90-+. Totten, G. E. (2007). Standards. ASTM International. Retrieved September 13, 2013, from http://www.astm.org/COMMIT/D02/to1899
- 7. Tsui, K. K. (2011). More Oil, Less Democracy: Evidence from Worldwide Crude Oil Discoveries. Economic Journal, 121(551), 89-115. doi:10.1111/j.1468-0297.2009.02327.x This entry was posted in Uncategorized and tagged BP, British Petroleum, Business, Capitalist, Culture, Economy, Environment, Ethics, Prudhoe Bay, Responsibility, Texas City by mensah_henry. Bookmark the permalink. Comments are closed. Powered by Blog.com The BP Pipeline case (Case 6.25 on pp. 411-422) is a complex situational case about the actions of individuals and the practices of a large corporation. Prepare a paper that addresses the following: · Discuss in detail the ethical, negligence, and environmental issues you see in this case. · BP had rented the rig from Transocean for $500,000 per day. Transocean had been recognized by the U.S. government for its safety record. Can companies distance themselves from liability and responsibility through the use of contractors? · Discuss how BP got into the position in which it found itself in late 2006 and what might have prevented the spill, the financial fallout, and the loss of reputation. Be sure to factor in the financial implications of any decision made during the period from 2001 to 2006. · What was the impact of the emphasis in cost cutting on BP’s culture? What was the influence on the company’s performance? · Evaluate the social responsibility positions of BP in light of the refinery explosion and the pipeline issue. What can companies learn from the BP experience? Support your paper with a minimum of three (3) scholarly resources in addition to your text. In addition to these specified resources, other appropriate scholarly resources, including older articles, may be included.
- 8. Length: 5-7 pages not including title and reference pages Your paper should demonstrate thoughtful consideration of the ideas and concepts that are presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards. Be sure to adhere to Northcentral University's Academic Integrity Policy.