British Petroleum and The Delay of Maintenance Case Analysis - Part 2 - Cost Essay Example
British Petroleum, now known as simply BP, is a multinational oil and gas company that is headquartered in London, England - British Petroleum and The Delay of Maintenance Case Analysis introduction. On March 23, 2005, a series of massive explosions devastated one of the largest British Petroleum refineries located in Texas City. The blast rattled windows in downtown Galveston, 20 miles away and was even felt in Houston, 35 miles distant. Reports indicated that 15 people had been killed and well over 150 were injured, many of those seriously burned.
A BP spokesperson addressed the media by explaining how the explosion had occurred while an “isomerization unit of the plant was being brought back on stream to full production after having been shut down for annual inspection and repair” (Hosmer, 49). As the families of those killed in the explosion mourned their losses, BP pledged to a “long and intensive investigation to determine the cause of the explosion” (Hosmer, 49). These promises were cut short when accounts of prior problems at BP refineries began to present themselves.
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Reports revealed that a year ago from the day of the most recent explosion, a blast occurred at the same processing unit of the Texas refinery. No deaths or injuries resulted, but a U. S Occupational Safety and Health Administration (OSHA) investigation indicated violations of 14 standard operating procedures. Furthermore, merely a week prior to the Texas City explosion, BP was reported to have settled a large lawsuit claiming that their company had failed to; properly maintain huge storage tanks and improperly falsify the maintenance records of those very storage tanks.
A far more condemning report in the September of 2005 found hundreds of safety violations related to a venting system at the isomerization unit, seen to not have been working properly. As a result, the OSHA imposed a probationary period, in which, BP had to request permission from the agency to start up old isomerization units, report all accidents and injuries, and hire outside professionals to review all refinery safety programs and procedures. BP began accepting wider responsibilities and planned to spend more than $1 billion on improving maintenance procedures.
However, the company began to lose its credibility as yet another study revealed that the same isomerization tower that had leaked flammable gases to cause the deadly March 23 explosion, had leaked those same gases not once before, but eight times (Hosmer, 59). Two separate accounts of whistleblowing helped the OSHA conclude that BP’s lack of maintenance and worker training was a result of their continual demands to reduce fixed costs, which of course, the senior officials of BP denied.
Stakeholder Analysis In a case that involves such environmental destruction, fines, lawsuits and more importantly, the loss of human life; a wide variety of stakeholders are affected. The first primary social stakeholder is of course the central company to the case itself- British Petroleum, consisting of all its officials and executive members. To commence, since BP is the party being sued for the massive explosion at the Texas City refinery, it has a tremendous amount of stake in the case.
BP possesses a high interest in this situation, as it is their reputation and profits that evaporate with all of the proceeding lawsuits and investigations. In the same way, they possess high power because they have the full authority and financing to regularly maintain their production facilities and sufficiently train their staff. Referring to the typology of stakeholder attributes, it is clear that BP has high power, high legitimacy, high urgency and a close proximity in this case.
As mentioned earlier, BP attains a great deal of power because their decisions are the root cause of the problem. The fact that BP is the defendant in all its major lawsuits, and has so much at stake gives it high legitimacy. Not only that, but the situation for BP is very urgent as the majority of their facility is damaged and unable to produce any profits for the company. BP definitely possesses close proximity to the case, with their facility and management all situated at the explosion.
All of these characteristics prove BP as a definitive stakeholder that can be harmed through the bad publicity; countless lawsuits, fines and investigations; damage to multi-billion dollar refinery; and loss of profits. The only possible benefit for BP in this pool of harms is that this explosion gives them an opportunity to rebuild the refinery with new, safer technology that abides standard operating procedures. BP claims that the massive explosion is a result of highly complicated chemical processes and even places blame on its employees for “operational mistakes”.
The government agency OSHA thinks otherwise, and imposes their legal right to a probationary period on BP and its operations. BP thinks they are in no wrong, but they are denied the right to appeal for a shorter probationary period as the delay of proper maintenance is confirmed as the cause of the destruction (“csb. gov”). Moving on, another primary social stakeholder affected by the explosion of the Texas City BP refinery, is the employees and managers of the facility itself. Many employees working in the facility have lost their lives and suffered life-threatening injuries.
For this reason, their interest in the situation is very high as their health and well-being is placed in jeopardy. In addition, due to the explosion, these workers are unable to earn wages to support their families. These employees have very limited power because they have no control over the decisions made by BP to properly maintain their facilities. Consequently, the employees and managers of the BP refinery have low power, high legitimacy, high urgency and a very close proximity to the case.
To further explain, their measure of low power is the result of their position on the BP ladder. They simply carry out the orders enforced by BP officials such as cutting “costs by 25 percent” (Hosmer, 53), without paying much attention to the consequences. They also possess high legitimacy with their life and loss of employment at stake. Their urgency is high as they are unable to earn wages and must resort to external sources of income to provide for their loved ones. Also, those injured in the incident must seek medical attention very urgently.
Lastly, the employees clearly have close proximity as they work and reside in the vicinity of the facility that has been damaged with the blast. This combination of attributes deems the managers and employees a dependent stakeholder, which is reliant on the BP officials to carry out their will. These members of the case have virtually no benefit from the explosion. Due to the dangerous working conditions and BP’s high expenditures on the explosion, they are harmed with a possible risk of injury or death and potential job loss.
Prior to the accident, these stakeholders were denied the legal right to an adequate training regime, which may have been a factor in the blast as stated in an interim report issued by BP (Hosmer, 50). The workers of BP were also denied their legal right to a union, further addressing their lack of power and independency in the case. Finally, a third stakeholder affected by the massive blast of the BP refinery is the U. S Government, but more specifically, the federal agency OSHA (Occupation Safety and Health Administration).
Unlike the others, this secondary social stakeholder has a public or special interest stake in the case that is more indirect. The OSHA has a tremendous amount of power and interest given that it is in their authority to ensure BP’s business practices align with the standard operating procedures and provide safe work environments for the citizens of their nation. This secondary stakeholder can also be classified as a definitive stakeholder due to its high power, high legitimacy, high urgency and close proximity to the case.
To elaborate, the OSHA has issued lawsuits, fines, investigations and even a probationary period on the practices of BP and will continue to do so until the proper production requirements are met, giving them tremendous power. They possess high legitimacy and high urgency as it is in their right to prevent any future incidents that could lead to the loss of human life and mass environmental damage, in the shortest possible time period. Clearly the U. S government, with all its branched locations, has close proximity to the accident and all key stakeholders involved in the case. Though the OSHA may benefit from showing positive involvement (i. . investigation reports, fines etc. ) in the eyes of the public, the incident may actually decrease other countries’ investing interests. As touched upon earlier, the government has exercised their legal right to issue fines, suspensions and in-depth investigations. Through this extensive process and help from the media, the OSHA has been able to bring the amoral actions of the BP Company to the public’s eye, concluding that; regular maintenance of the production facility would have been enough to prevent the immense explosion. Define the Complete Moral Problem State the moral problem in a “complete” question form.
Is it ethically permissible for the BP Company to ignore and delay the maintenance requirements of their Texas City refinery given that: 1) the massive explosion caused 15 deaths and over 150 life-threatening injuries; 2) the employees, managers, local communities and environment are placed in a volatile situation; 3) it is one of the largest refineries located in the United States; 4) BP settled a large lawsuit claiming that it had (1) failed to properly maintain huge storage tanks and (2) improperly falsify the maintenance records for those storage tanks” a week prior to the explosion (Hosmer, 50); 5) the same isomerization tower that leaked the flammable gases to cause the March 23 explosion, had leaked those same gases eight times before; 6) a blast had occurred at the same gas processing unit of Texas City refinery a year prior to the March 23 explosion; 7) they were charged millions of dollars by the OSHA after finding hundreds of alleged safety violations in their facility; 8) they falsely pledged to a “long and intensive investigation to determine the cause of the explosion” (Hosmer, 49); 9) they were trying to cut costs by 25 percent after realizing an after-tax profit of $15. 7 billion? Characterize the Moral Problem Why is this a moral problem? According to Hosmer, a moral problem is a situation “in which the firm’s financial performance and social performance are in conflict” (Hosmer, 55). To further elaborate, a moral problem can present itself when a company disregards the needs and rights of its stakeholders in the pursuit of profit and financial reward. These are the situations when some individuals or groups to whom the organization has some form of obligation, such as employees and customers, are going to be harmed while others will be benefitted.
In considering the issue involving the explosion of the Texas City refinery, it is clear to see that BP disregards the rights of its employees, managers and local communities by continually operating “rusty, unsafe and unmaintained systems” (Wolf), in order to cut costs and reap a greater financial reward. We can clearly see the direct relationship between the parties that have been harmed and denied their rights, as compared to those that are benefitted and profit from this decision, ultimately creating a conflict between financial and social performance. Thus, this issue is a moral issue. Define the kind of moral issue involved in the problem. To specify, the kind of moral issue present in the case is both a violation of justice and rights.
In terms of justice, the OSHA, a branch of the U. S government confirms that BP is in violation of fourteen standard operating procedures and hundreds of other safety violations. Moreover, a week prior to the explosion, BP settled a large California lawsuit as it claimed that it had failed to properly maintain storage tanks and improperly falsified the maintenance record for those storage tanks. With their decision to ignore maintenance, BP is breaking the federal law in order to increase profit and others are being harmed for it. Two cases of whistleblowing revealed that BP managers were ordered by senior officials to “cut costs by 25 percent” (Hosmer, 53).
This is simply unfair for parties with close proximity to the case, such as the refinery staff, as they are unable to maintain a facility, which they know for certain, is dangerous “with its interrelated valves, controls, tanks, flares and alarms- found to not have been working properly” (Hosmer, 50). In terms of it being a rights issue, BP has violated several positive legal rights and laws. For example, BP initially places blame of the Texas City explosion on its workers for “operational and supervisory mistakes” (Hosmer, 50). By making this claim, BP is violating the positive legal right to adequate employee training. Furthermore, these very individuals working inside the BP refinery are denied the positive legal right to a safe working environment. The massive blast is, as determined a result of BP’s ignorance of necessary repairs.
Thus, BP is responsible for violating their employees’ positive legal right to work and provide for their families as well. Therefore, rights and justice are presented in this case. Due to the rights violated and lack of justice, this is definitely a moral problem. Determine the Economic Outcomes The concept of Pareto Optimality is key for determining the economic outcomes. Pareto Optimality refers “to a condition in which the scare resources of society are being used so efficiently by the producing firms, and the goods and services are being distributed so effectively by the competitive markets, that it would be impossible to make any single person better off without harming some other person” (Hosmer, 27).
In order to achieve Pareto Optimality; all markets must be competitive; all customers and suppliers must be informed; and all costs must be included. In the case of BP’s Texas City refinery, the condition that states all internal and external costs must be included is violated. BP fails to recognize the costs necessary to maintain their facility, which results in the massive March 23 explosion. For example, when it was discovered that the same isomerization tower that leaked the flammable gases to cause the March 23 explosion, had leaked those same gases eight times before, all costs to repair the facility were ignored and operations were continued as normal.
In addition, BP fails to include; the costs associated with the loss of employee wages caused by the destruction of the refinery; and the costs of tarnishing the health reputation of local communities. While BP does recognize the costs to mitigate their environmental impact and compensate for all victims, such expenditures only represent a small fraction of the total social and environmental damage caused by their operations. Also, all customers and suppliers are not informed of BP’s practices, thus, they are in violation of another Pareto Optimality condition. Hosmer explains that all parties “must be knowledgeable about the features of the products and standards of the company” (Hosmer, 8).
BP does not disclose all information regarding their products and standards, in fact, generates corrupt documents in the process. This was evident when BP attempted to conceal a large California lawsuit, in which “they pleaded guilty to not properly maintaining, and falsifying the maintenance reports of huge storage tanks” (“dol. gov. com”). Without all necessary information, parties cannot make rational choices and express true preferences. In this situation, we cannot take the action that will generate the greatest profit for the company because this will definitely not generate the greatest benefit for society since all costs are not included and all information is not available.
This moral problem cannot be solved economically or by applying Pareto Optimality because human-well being is still being jeopardized for a marginal profit to BP, even when an after-tax profit of $15. 7 billion is realized. Consider the Legal Requirements The law in a democratic society is the minimum collective standard that we hold people accountable to. In this case, the laws that must be obeyed by BP and its operations are the United States government regulations imposed on petroleum industries. In the time leading up to and following the devastative explosion, BP has failed to comply with a significant number of legal requirements. In 2004, BP was cited for 14 alleged violations of standard operating procedures at their Texas City refinery.
In September 2005, seven months after the explosion central to this case, the OSHA found hundreds of safety violations that it called “egregious and willful” (Hosmer, 50). Not only was BP in violation of their legal operational rights, they also denied their staff the legal right to a safe work environment. However, since the outbreak of BP’s actions, the U. S government has been active in ensuring that all legal requirements are met. Following the September 2005 report, the OSHA levied a record size fine of $21. 4 million on BP. Also imposed, was a three-year probationary period in which BP “had to request permission from the agency before starting up old refinery units and report all accidents and injuries, regardless of cause, to the agency on a regular basis” (Hosmer, 51).
Now, although the OSHA was able to bring some positive change, there are still problems with the law relevant to the case. Initially, the aforementioned government agency lacked adequate information to impose the necessary regulations upon BP that would force them to maintain their facilities properly. Due to the fact that BP was falsifying their maintenance reports and managing to stay clear of the media, it was not until a series of in-depth investigations after the Texas City incident that the OSHA was able to reveal the company’s maintenance fraud. The legal information observed in this case tends to lag behind the necessary regulations and moral standards of society, proving that the law is flawed by lengthy delays.
Due to the missing adequate information and lengthy delays, simply obeying the law will not solve the moral problem. The government takes action after investigating the cause, which is not up to par with society’s needs especially when human well being is being jeopardized. Even with federal regulations in place, in 2006, BP caused “the largest oil spill on the North Slope of Alaska” because their major pipeline “was found to have been poorly maintained, to be badly rusted, and to require total replacement” (Hosmer, 52). BP is operating against the law, even though they possess adequate information on their social and environmental consequences.
The government regulations such as the $21. million fine as observed in the case, are “much more a minor matter for BP, [who] had reported an after-tax profit of $15. 7 billion” (Hosmer, 50). Thus, the law cannot be used to solve this moral problem as BP is both lawful and immoral. Evaluate the Ethical Duties In order to propose a solution to a moral dilemma as such, it is crucial to analyze the ethical duties of BP and the various ethical theories that apply. First, the principle of Personal Virtues comes in to play. It implies that one should “never take any decision or action that is not open, honest and truthful, and one that you would feel proud to see widely reported” (Hosmer, 99). It is clear that BP’s actions have directly violated this principle.
Their decision to knowingly delay the maintenance of their problematic facility without informing many key stakeholders is definitely not open. BP also settled a lawsuit in which they “falsified the maintenance records for storage tanks” (Hosmer, 50), which is neither honest nor truthful. The key stakeholders in the case, such as the management of the refinery have not been open, honest and truthful, thus, cannot be proud of their decisions. This is seen in a two cases of whistleblowing where a manager of the Texas City refinery “claimed that he had been ordered to cut costs by 25 percent in early 2005” and another BP executive “had been directed to keep his maintenance expenditures low” (Hosmer, 53).
Since both of these members of the BP Company were “laid off” following the press release, it is clear that BP did not want the leaked information widely reported. Therefore, BP violates the principle of Personal Virtues. Moving on, the theory of Utilitarian Benefits is one that takes an instrumental approach, assigning costs and benefits to an outcome. It states that one should “never take any decision or action that does not generate greater benefits than harms for the society of which you are a part” (Hosmer, 99).
Based on the classical version of theory, from which, actions are judged solely in terms of their consequences, BP is in serious violation. Their decision to ignore maintenance requirements and operate under dangerous ircumstances leads to a massive blast that has virtually no benefits for the society, other than the fact that BP is provided with an opportunity to rebuild a safer, more secure facility. This benefit is very minute so we can assign it a 4 out of 10. Diametrically, the aforementioned decision creates numerous harms to society such as; 15 deaths and over 170 injuries; major environmental damage; loss of jobs and much more. Being of such importance, it is only fitting that we assign these outcomes with higher values such as 10,8 and 7 out of 10, respectively. Adding up the scores for the benefits and harms, we clearly see that the harms outweigh the benefits, thus, there is overwhelming evidence to infer the Utilitarian Benefits principle is violated.
Furthermore, the principle of Universal Duties implies that you should “never take any decision or action that you would not be wiling to see others, faced with the same or a closely similar situation, be free and even encourage to take” (Hosmer, 99). In the case of BP, their actions directly defy the categorical imperative of the Universalizability Principle, which implies that you should act only according to the maxim you are willing to universalize. If BP universalized their behaviour of ignoring maintenance requirements in oil refineries or their disregard to employee safety and well-being, several catastrophic industrial incidents could occur causing deaths, injuries, environmental damage and an overall decrease in the quality of life.
In fact, universalizing this behaviour would be self-defeating as the lack of clean water and resources would hinder the growth of petroleum industries. Looking at the Respect version of the categorical imperative, it is clear that BP is once again in violation. The principle explains how one should use humans “always as an end and never as a means only” (Hosmer, 96). The BP Company uses their employees as merely a means to an end by ordering them to carry out duties within the refinery. Given the numerous risks present in the workplace, the workers are treated as objects with very little care and value, useful only in achieving the company’s aim. BP does not abide with the both aspects of the categorical imperative; therefore, it violates the Universal Duties principle.
Another ethical duty worth evaluation is the principle of Distributive Justice. This theory mentions that moral standards are based on the primacy of a single value, justice, and that “everyone should act to ensure a more equitable distribution of benefits and burdens”, because this promotes individual self respect, essential for cooperation (Hosmer, 100). This theory, unlike the others, is hypothetical and teleological. If we were to conduct a thought experiment, whereby we imagine ourselves in the original position behind the veil of ignorance, it is clear that BP’s actions violate the Difference principle. Behind the veil of ignorance, we are unaware of our socioeconomic status.
However, we are in the original position, which means we are interested in ourselves and those that who we care about to succeed; thus, we would want benefits and burdens to be distributed equitably, as we do not know which party we belong to. The least advantaged members of the society include the workers of the BP refinery since they earn low labour wages, taking orders from BP managers and senior officials. With BP’s decision to ignore the gas leaks, rusty pipelines and delay future maintenance of their refinery, high proximity employees are placed in a very volatile situation. They can very possibly encounter life-threatening injuries or death.
BP’s actions fail to benefit the least advantaged members of society, which is unfair. Consequently, BP is not acting in their right moral duty. Moreover, the decision to delay maintenance destroys the BP refinery and does not provide the workers with increased employment (or any employment for that matter). Due to the facts outlined, the social and economic inequalities created through BP’s amoral actions are not justified. By means of a though experiment, it is evident that an equitable distribution of benefits and burdens is one that benefits the least advantaged members of society. The final ethical duty is Contributive Liberty or Libertarianism.
In the same way, it explains that moral standards are based on the primacy of a single value, which is liberty, and that “everyone should act to ensure greater freedom of choice” as this promotes market exchange, essential for social productivity (Hosmer, 100). Applying this theory, it becomes clear that BP’s actions are in violation with this principle. A few stakeholders, such as employees have their negative rights violated with the explosion, as they are unable to work and earn wages in a dangerous facility lacking maintenance repairs. More importantly, they are not ensured greater freedom of choice because even though they can see the flaws located in the refinery, they must proceed with the instructions from management. In the same way, the management is also denied a freedom to maintain the facility as they are ordered to “cut costs by 25 percent” or otherwise, risk losing their positions.
By suppressing the freedom of these two stakeholders, BP is liable for the massive blast which shuts down the supply of BP petroleum and gas products; ultimately, obstructing efficient market exchange and violating the principle of Contributive Liberty. Propose and Defend a Solution After determining the economic outcomes, considering the legal requirements and evaluating the ethical duties, it is appropriate to make my recommendation. My proposed solution to BP’s moral problem is to make its most disadvantaged stakeholders better off and implement an ‘Employee Workplace Evaluation Program’ as a part of BP’s regular operations. It is important to note that this case has already been “solved” legally through BP being sued, fined and placed on a probationary period, however, it does not help the moral situation as the law cannot solve anything morally.
BP is already mitigating its environmental impact through financial compensation, but my solution involves them to start by personally apologizing to each and every family they have harmed through the explosion of the refinery. Next, BP needs to work with local communities to provide long-term health care, food and other services to those families that have either lost or suffered an injury to an earning loved one. In my opinion, this is the least a multi-billion dollar oil corporation can do to begin righting its amoral actions. The second step in my solution entails BP implementing an Employee Workplace Evaluation Program or EWEP, with overview from government authorities (OSHA).
This will give the workers inside BP facilities an opportunity to report on various aspects of their job such as; the safety of the equipment; specific work instructions from their boss; any hazardous occurrences (regardless of magnitude); all of which, are relevant to the cause of the March 23 explosion. With the use of an EWEP, all information is openly available, honest and truthful from the employee’s perspective, thus conforming to principle of Personal Virtues. The solution also holds true for Utilitarian Benefits as the benefits of helping families recover from devastation and ensuring the future safety of employees, greatly outweighs the harms. Finally, by providing employees with the freedom of speech, BP will be able to align with the principle of Contributive Liberty and create more secure and productive work environments.