As organizations have established their power base we have also seen the emergence of a number of leadership strategies. As Daft (2011) suggests the concept of leadership has changed over time and has included a range of theories; all of which contain elements that are still applicable to the study of effective leadership today. Sparked by the financial crisis of 2007-2008 there is renewed analysis on how leadership theory is used to drive organizational success.
Two of these theories, Transactional and Transformational leadership, have evolved as dominate approaches and untie to be a source of research Judge and Piccolo (2004). By applying the results of studies in these areas we can explore how these approaches influence organizational results and consider the ethical implications of each leadership function. When applying ethical and leadership theory to the oil and gas industry we uncover a complex web of competing objectives.
This industry contains some of the world’s largest organizations (Chin, 2014) whose global operations provide essential resources for our on-going energy consumption and are a driving force in international financial markets. In developed countries like the United States of America and Australia oil and gas organizations like British Petroleum (BP) are regulated by Federal policy which enforce standards in defined areas of business operation. Of particular focus is the provision of safety standards that guide leaders on how to effectively manage production and operational risks so as protect the health and wellbeing of all stakeholders.
In recent years a number of man-made disasters have occurred in the oil and gas industry. Following events like those which took place at the BP Texas City refinery we have examined what actors contributed to these incidents unfolding. Research analysis and investigation reports have provided some perspective on the choices individuals made in these circumstances and detailed how the leadership framework of those organizations influenced these decisions.
From this we have also contemplated ways to prevent such tragedies from happening again; unfortunately, as demonstrated by the disaster at Departed Horizon, there still seems to be something missing. With the significant impact these events had on our greater society this obliges us to continue the debate on whether the leaders n such organizations, as moral actors within these groups, where ‘right or wrong’ in making the choices that they did. As such this essay aims to explore whether there is a case for change in the leadership approach in sectors like oil and gas?
Does our understanding and application of leadership theory, namely in the form of a transactional or transformational leadership approach, provide evidence to demonstrate that either of these frameworks function more effectively in eliminating choices which lead to the loss of human life as a consequence of achieving organizational goals? Transactional and Transformational leadership An abundant amount of research attention has been given to leadership theory with two distinct approaches emerging as the driving force behind today’s organizational performance.
Burns (1978) defined leadership as leaders inducing followers to act for certain goals that represent the values and motivations, the wants and needs, the aspirations and expectations of both leaders and followers. Burn was the first to conceptualize these two leadership frameworks – transactional and transformational – which Bass (1985) then broadened, setting in place a foundation for further assessment of what impact either style has n organizational performance.
While Bass proposed that transactional and transformational leadership were not mutually exclusive of each other, he did suggest that they have different effects on followers within an organization. In transactional leadership, leader-follower relationships are based on a series of exchanges or bargains between leaders and followers (Howell, 1993). The leader views the relationship between managers and subordinates as a quid pro quo like exchange; linking lower level needs such as salaries and job performance to leadership interactions. When subordinates perform well, they receive some hype of reward.
If performance drops, a form of punishment is administered. Transactional leadership contains three distinct types of leader-follower interaction – contingent reward, active management by exception or passive management by exception. When contingent reward is used by a leader they take an active role in structuring responsibilities for their followers and set a path to achieving agreed targets. In doing so they aim to create a positive link between the completion of task objectives in agreed timeshares and some type of beneficial gain e. . Praise, financial bonus, and promotion. By contrast a management by exception leadership approach focuses on below expectation performance or worker errors. This type of contingent punishment can be active or passive in application. Within an active management by exception environment the leader consistently monitors follower behavior, anticipate problems, and takes corrective actions before the behavior creates serious difficulties (Judge & Piccolo, 2004).
A passive leader, however, waits until the behavior has created problems before taking action. Rules, procedures and standards are essential in this managerial type of leadership. By using these as he foundation of normal operations the role of a leader becomes to ‘keep the wheel turning. As transactional leader, focus is on the balance of this exchange process and they spend little time on strategically guiding an organization to a position of market dominance; their sole concern is making sure everything runs smoothly day to day.
As a flow on effect followers are also not encouraged to be creative or to find new solutions to problems leaving ‘big’ decisions to those higher up the hierarchy chain. Contrasting the transactional approach is the process of a transformation leader who serves as an agent for change thin an organization. Bass (1985) argued that transformational leadership goes beyond exchanging inducements for desired performance by developing, intellectually stimulating, and inspiring followers to transcend their own self- interests for a higher collective purpose, mission, or vision.
Transformational leaders seek to grow a relationship not entirely based on power, instead developing and communicating a philosophy and helping followers build a broad perspective regarding the organizations goals. Daft (2011) suggests that by implementing this type of leadership approach it allows followers o shift their level of need on Mason’s of hierarchy needs from lower-level concerns for safety and security to higher-level needs for achievement and self- actualization. Over time, four factors or components of transactional leadership have emerged which define the leader-follower interaction.
These components include idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration. The transformational leader exhibits each of these four components to varying degrees in order to bring about desired organizational outcomes through their followers (Bass, 2000). Idealized influence fleets the leader’s ability to be a role model for followers. By demonstrating certain qualities, i. E. ‘walking the talk’, leaders appeal to an emotional level connection which results in a higher degree of follower admiration.
Leaders with inspirational motivation are able to clearly outline a shared vision which stimulates increased confidence, motivation and a sense of purpose. Once instilled in followers, this trait allows a leader to maintain high performance standards, generate positivist about achieving future goals and provide meaning for operational tasks. Intellectual stimulation is demonstrated by willingness to include followers in addressing organizational problems and stimulate and support them in identifying creative and innovative solutions.
Leaders accomplish this by encouraging followers to challenge assumptions, airframe problems, and approach existing problems in novel ways. Individualized consideration involves acting as a coach or mentor in order to assist followers with reaching their full potential. By listening to the follower’s needs and concerns the leader is able to identify and provide matching challenges, opportunities to learn and give developmental feedback. BP Texas City Refinery assister – A Leadership and Ethical discussion Based in London, United Kingdom, BP is the third largest oil producer in the world (Beauties, 2015).
On March 23, 2005, one of its refineries located in Texas City, Texas suffered a massive explosion and fire which triggered an industrial disaster which claimed 15 lives, injured another 170 and had wide spread impact on the local community. At the time of the incident the Texas City refinery (TRY) was one of the largest in the United States covering more than 5 square kilometers. Resulting damage to the refinery infrastructure totaled more than $SSI . Billion. The sequence of decisions that led to flammable liquids being released and then ignited, triggering this event, were investigated by a number of stakeholders including BP, the U.
S. Chemical Safety Board (CBS) and the Occupational Safety and Health Administration (OSHA), which has primary U. S. Federal government oversight responsibility for worker safety. The CBS is an independent Federal agency charged with investigating industrial chemical incidents. After collaborating with other U. S. Regulatory bodies and Up’s investigation team, and having reviewed an extensive amount evidence, CBS released their investigation report on the Texas City explosion and fire on March 23, 2007 (U. S. Chemical Board, 2007).
The report analyses technical and organizational aspects of the incident and explored compliance performance in relation to relevant legal considerations. While acknowledging that choices made by workers on that day were the direct catalyst for the explosion and resulting fire, the report concluded that “the disaster was caused by organizational and safety deficiencies at all levels of the BP Corporation” (p. 18). In coming to this conclusion CBS explored all contributing factors of the incident and used a range f analytical tools to make a number of key technical and organizational findings.
These set the tone for a range of recommendations intended to prevent the likelihood of such an event occurring in other refineries. Based the on key organizational findings in U. S Chemical Safety Board (2007) it can be deduced that a transactional leadership approach governed the operations of BP owned assets like the refinery at Texas City. This was most evident in the detail of sections 4 through 10 which examined the effect of BSP safety culture. A definition of safety culture, by well-known author Andrew
Hopkins, was presented in the report and stated that a safety culture reflects “the way we do things around here” (p. 142) and includes the collective practices of an organization that bring about cultural change. A fundamental practice of a positive safety culture is the implementation of a Health, Safety and Environment (HOSE) Management system which encompasses two main elements; personal safety which relates to areas such as injury prevention and personal protective equipment, and process safety that targets such things as prevention of chemical leaks and equipment malfunction.
Both of these safety elements function together to control risks associated with organizational operations. Evidence presented concluded that “BP Group and the Texas City officials almost exclusively focused on, measured, and rewarded reductions in injury rates and days away from work rather than the improved performance of its process safety systems” (p. 155). Specifically, one can assume that the BP leader-follower interaction at ETC was a combination of contingent reward and passive management by exception.
This is demonstrated by findings in the report such as: Safety campaigns, goals, and rewards focused on improving personal safety metrics and worker behaviors rather than on process safety and management safety systems. A “check the box” mentality where personnel completed paperwork and checked off on safety policy and procedural requirements even when those requirements had not been met. Introduction of performance contracts within BP business units and personal contracts with Group and business unit leadership.
HOSE metrics included fatalities, days away from work case rate, recordable injuries, and vehicle accidents and accounted for less than 20 percent of the total weighting of hose contracts. Implementation of an incentive program based on performance metrics. “Cost leadership” categories accounted for 50 percent and safety metrics for 1 0 percent of the total bonus. For the 2003-2004 period, the single safety metric for the PIP bonus was the OSHA Recordable Injury Rate. Introduction of “Compliance Delivery Process” and “Just Culture” policies. Compliance Delivery” focused on adherence to site rules and holding the workforce accountable. The purpose of the “Just Culture” policy was to ensure that management administered appropriate disciplinary action for rule violations. The “Just Culture” policy indicated that willful breaches of rules, but not genuine mistakes, would be punished. The Texas City Business Unit Leader announced that he was implementing an educational initiative and accelerated the use of punishment to create a “culture of discipline. While these accounts provide support to suggest a transactional leadership approach was the prevalent framework, there is also evidence that implies there was an absence of transformational leaders within BP. Such examples in the report include: An external consulting group study that was completed prior to he incident concluded that personal safety performance at Texas City refinery was excellent, but there were deficiencies with process safety elements such as mechanical integrity, training, leadership, and management of change.
BP management did not implement adequate safety oversight, provide needed human and economic resources, or consistently model adherence to safety rules and procedures. BP Texas City managers did not effectively encourage the reporting of incidents; they failed to create an atmosphere of trust and prompt response to reports. Texas City managers did not model safe practices, and in the incidents and critical events prior to the incident, deviated from numerous safety policies and procedures Managers did not act on findings from previous internal BP reports, such as more training for operators and supervisors.
Just as this evidence tends to suggest that a transactional leadership approach influenced the choices of the leaders within the BP organization, it also leads to assumptions that these choices were ethically flawed. While it seems obvious to make such conclusions given the devastation caused by the explosion and fire loss of life, physical and mental trauma to workforce and local community – it is always necessary for us to view a number of different perspectives before we can make an informed decision on whether the actions of the moral agent involved were ‘right or wrong’.
To achieve such a perspective we can draw on a number of different ethical theories. These tend to fall in to two categories – consequentiality (teleological) and non-consequentiality (deontological). Consequentiality theories, which include ethical egoism and utilitarianism, suggest that the moral rightness or wrongness of an act is exclusively related to the consequence or outcomes from that act. As such, consequentialness are more focused on the results of an action rather than the motives behind making the decision.
On the other hand non- consequentiality theory is solely concerned with the intentions of a moral agent’s action regardless of the outcome; the most widely applied of these theories being Kantian ethics. Burners (2011) suggests that the consequentiality stance, as demonstrated by ethical egoism, is the one most closely aligned to leadership in organizations as leaders are most often assessed on the results they produce rather than on the intentions behind bringing them about. In ethical egoism an act is morally right if it serves the long term self-interest of the moral agent.
It also implies that the agent is obligated to avoid being concerned for others if by doing so it does not further their own interests. It would seem based on the evidence that this could be the only theory that ethically justifies what took place at Texas City refinery in 2005. The moral agent in this case is BP, a publicly owned multinational organization. Each year shareholders elect a Board of Directors and delegate authority to them for direction and oversight of the company’s businesses including all annual financial targets, policy decisions and monitoring of the Group Chief Executive Officer’s performance.
The ultimate goal for the shareholders in passing authority to these individuals is to attain a higher share price for BP on international stock exchange market. The question that we can draw from the U. S. Chemical Safety Board (2007) findings to ethically evaluate the moral agent’s action is, “Why did BP consistently choose to ignore the practice of effective process safety management at Texas City which was shown to lead to such a catastrophic event? ” When looking at he positive consequences of this decision the stand out is that to do so saved a significant amount of money.
The report details that from 2001 to 2005 numerous internal BP reports highlighted risks with the mechanical integrity of the refinery and made recommendations to inject funds in to capital investment and process safety management. Amounts were in the puffs of million dollars and would have had a significant impact on oil production flow – the sole source of revenue from this asset. On every occasion that these recommendations were presented to the BP Board they were ignored or rejected.
On the negative side of the equation there was a number of consequences relating to the actions taken towards process safety management. Indeed there were warnings contained in internal reports that highlighted these consequences and in fact one presentation stated that “Texas City is not a safe place to work” (p. 172). Negative outcomes from the stance on process safety were likely to include harm to workers, damage to refinery infrastructure, law suits, fines from regulatory bodies and loss of reputation.
As it happened, all of these negative consequences did in fact eventuate as a result of the T ARC incident: Fifteen lives cost, 170 suffered some sort of injury, local resident were forced to stay indoors, an estimated $US. 5 billion damage to infrastructure (U. S Chemical Board, 2007, pip), OSHA fined them $USES million (U. S. Department of Justice. 2007, Para. 2. ) and BP were widely condemned in the media (Bach, 2006). Despite all of the negative consequences of these actions BP experienced a record year for financial performance in 2006 (BP p. L. C. 2006).
So based on the long term principal of ethical egoism it could be argued that BP acted morally in neglecting to implement effective process safety management at ETC. In fact it appears that this ethical approach continued to be the moral compass for other BP operations as is demonstrated by preliminary findings released by CBS in relation to the Departed Horizon disaster in 2010. In this event 11 people died and due an explosion and fire, which caused the collapse of the BP operated offshore platform, millions of barrels of oil spilled in to the ocean creating devastating environmental damage off the Gulf of Mexico.
CBS investigators on this case found that there was a lack of attention to process safety at this facility and that there was an resemblance” between the 2005 explosion at the BP Texas City refinery and the explosion aboard the Departed Horizon” (U. S Chemical Safety Board, 2012, Para. 6. ). Here in lies one of the debates in ethical theory especially with the school of thought behind ethical egoism. How can the choice by leaders of the BP organization to save money and drive shareholder benefits at the expense of human of life be considered morally right?
Because by measure against other consequential theories like Utilitarian (greatest good for the greatest number) and by non-consequential theories like Kant (good will, universal acceptability ND humanity as the end never as a means to an end) the actions of the BP Board and Management to neglect the health and safety of their workforce for the pursuit of financial gain seem to be clearly immoral. This perhaps shines light on the nature of publicly owned organizations whereby decisions made by the Board will always have the long term interests of the shareholders in mind.
And in the case of oil and gas companies, most of which are biblically listed on international stock exchanges, the worldwide dependency on their ‘product’ seems to encourage an environment where a ‘means to an ends’ attitude can flourish. Conclusion So what role does leadership theory play in the decisions of those in authority in organizations like BP? Would a transformational approach have a direct impact on eliminating choices by leaders that contribute to incidents like Texas City and Departed Horizon?
While it can be argued that transactional leadership is a necessary function in industries like oil and gas as it helps drive compliance with policies and procedures to control the high amount of risk workers are exposed to, it would appear that this singular approach increased the potential of what most would consider ethically flawed decisions. There is growing research based on the work done by Bass (1985, 2000) to suggest that transformational leaders have a positive effect on organizational performance.
