Introduction
Ethics have always been a grey area for businesses. Although it is not proven to be profitable to display ethical behavior, any involvement in unethical behavior can lead to dire consequences for the company. In the past, unethical behavior may have been inherent in certain businesses. However, with the changing business landscape and increasing exposure of such actions through campaigns against them, it has become a major concern for businesses today.
In the light of Corporate Social Responsibility (CSR), this report will focus on analyzing the Deepwater Horizon oil spill. We will use this incident as a case study, examining the solutions undertaken by British Petroleum (BP) and evaluating them in light of BP’s code of conduct, with an emphasis on ethics.
On April 20th, 2010, the Deepwater Horizon oil rig owned by BP exploded and caught fire. This tragic event resulted in the death of 11 workers and caused extensive damage to the surrounding environment.
Two days later, the Deepwater Horizon oil rig sunk, resulting in the release of 4.9 million barrels of oil into the Gulf of Mexico (Jarvis, 2010). This was caused by a failure in the cement job at the bottom of a well that was meant to prevent a blowout. BP took three months to repair the broken well and stop the flow of oil (Read, 2011). As a result, BP had to pay $4.5 billion for criminal charges (CBS News, 2012). The oil spill affected coastlines across Louisiana, Mississippi, Albania and Florida covering an area of 3850 square miles (Read, 2011). Additionally, it resulted in the death of 768 animals including sea turtles and birds while causing an estimated loss of $2.5 billion to fishermen (Jarvis, 2010). Furthermore, BP’s top managers were accused of receiving extravagant bonuses (Webb & McVeigh, 2011). In summary, this disaster was costly for BP with negative impacts on both their stakeholders and environment.
2. Key Stakeholders and their Involvement
In this accident many groups were affected in various ways but three main stakeholders involved were company shareholders government officials and fishermen.
2.1 Shareholders
Following the explosion at Deepwater Horizon rig,BP’s shares plummeted by54%, which resulted in a loss worth $105 billionin share value(Jarvis ,2010 ).This greatly impactedBP’s financial status as shareholders are vitalto financing businesses.The share prices have been falling since thenand have not returnedto their original value beforethe incident(Read ,2010 ).Dividends were also not given out that year(ibid ).As such,BP had to take measures to regain shareholder confidence.This incident also led to the resignation of BP’s Chief Executive Tony Hayward.
2.2 Government
Concerned citizens and the environment were at the forefront of the United States’ response to the oil spill. The government stepped in to oversee the cleanup efforts, setting up a $20 billion fund for damages to the economy and imposing a six-month moratorium on offshore drilling following the incident. In addition, coast guards and military personnel were activated to aid in response efforts. The role of the US government was crucial as a parent” ensuring that BP acted in accordance with citizens’ welfare.
Fishermen, activists, and environmentalists also played an important role in responding to the disaster. These groups worked tirelessly to raise awareness about the impact of oil spills on marine life and ecosystems, while also advocating for stricter regulations on offshore drilling.
The oil spill had a huge impact on marine life and coastal regions, severely declining the fishing and tourism industries in the Gulf Coast. The incident resulted in an approximate $2.5 billion loss for the fishing industry, while tourist industries experienced a predicted loss of $23 billion (Jarvis, 2010). Additionally, the moratorium placed on deep water drilling left 58,000 workers unemployed (ibid). In its Annual General Meeting in 2011, BP faced protests against their executives’ remunerations and voiced their injustice (Webb & McVeigh, 2011).
Activists have set up Facebook pages such as Boycott BP” and “RIP Spongebob, who died in an oil spill caused by BP.” These pages have garnered 847,730 and 468,157 likes respectively (Jarvis, 2010). The impacts on these stakeholders vary but are nonetheless affected one way or another by BP’s mistake.
BP’s Code of Conduct states that the company is committed to “excellence and to the disciplined management of our operations” (BP, 2013a). However, this commitment was broken in this case as the oil wells were not properly checked.
According to CBS News (2012), site managers Robert Kaluza and Donald Vidrine were accused of acting irresponsibly when handling checks on the rig. Additionally, BP’s former vice president David Rainey was charged with deliberately understating the amount of oil being discharged into the Gulf. Furthermore, BP was accused of overpaying their CEOs, with bonuses of $100,000 to top managers being deemed improper in light of the disaster. Shareholders and victims whose livelihoods have been affected have also not been fully reimbursed by BP (Webb & McVeigh, 2011).
This breaches BP’s Code of rewarding their employees fairly (BP, 2013a). Considering these ethical issues, BP should take actions to ensure that their Code is met as it affects stakeholder decisions.
BP’s Solutions and Responses
In the wake of the explosion, BP implemented numerous responses to mitigate damage done to the environment and stakeholders. These included cleaning up the Gulf, compensating victims, and training BP employees.
Cleaning Up
BP’s initial response to the oil spill was to repair the oil cap on the rig in order to stop further leakage.
BP used a combination of chemical dispersant, booms, and burning to clean up the spill (McGreal, Macalister & Gabbatt, 2010). President Obama held BP accountable for the incident and collaborated with them to restore the Gulf to its original state. The cleanup efforts affected stakeholders differently. Shareholders did not receive dividends as resources were allocated towards cleaning up the spill. However, fishermen and victims impacted by the oil spill benefited from these efforts. Additionally, job opportunities were created for people through the cleanup process.
BP and the government agreed on a $20 billion trust fund for victims’ claims (Read, 2010). Furthermore, $100 million was set aside to compensate workers who lost their jobs due to the spill (Jarvis, 2010). BP also implemented projects such as wildlife monitoring and studies, seafood testing programs while allocating funds towards promoting tourism and supporting seafood industries in order to restore Gulf’s environment and economy (BP, 2013b). These actions are beneficial for those affected by this disaster but negatively impact shareholders’ dividends.
In preparation for future incidents like this one BP has implemented training programs that include first aid training along with oil-spill awareness exercises in field situations(BP ,2013c) . This is beneficial for stakeholders as it boosts their confidence knowing that employees are better equipped to handle these situations during times of crisis. Employees would also have more knowledge about how best they can deal with similar circumstances if they arise again.
Following the oil spill incident BP has made every effort possible to control it.
BP was held responsible for the oil spill (Read, 2010), and as a result, cleanup efforts were necessary. Large sums were also set aside to compensate victims. However, some claims were not fully reimbursed (Webb & McVeigh, 2011). This may be considered unethical as BP caused harm to people’s livelihoods and should repay them for their losses. On the other hand, BP has taken a long-term solution by training its employees to ensure their safety in accordance with their Code (BP, 2013a). BP’s response to the oil spill is considered quick and efficient.
Within 2 months, they were able to control the well and have since been working on compensating the victims. In situations like these, firms can only take actions to limit damage. However, the excessive bonuses given to executives and false statements made by David Rainey have further tarnished BP’s image as an ethical company. Additionally, activists were angered by claims that were not fully reimbursed. Despite these events, BP has done what they could within their control to mitigate the situation.
The Deepwater Horizon incident had a significant impact on BP, the environment, the economy, and BP’s stakeholders. Therefore, ethics play a crucial role in BP’s response to the incident. Positive ethical actions can enhance BP’s image, while negative actions can further damage its financial status. As one of the world’s largest energy sources, oil companies must be strictly regulated to prevent another oil spill.
Sources:
- BP. (2013a). Code of Conduct [Internet]. Available from: http://www.bp.com/sectiongenericarticle.do?categoryId=9038306&contentId=7006600 [Assessed 9 February 2013]
- BP. (2013b). Gulf of Mexico Restoration [Internet]. Available from: <http://www.bp.com/assets/bp_internet/globalbp/STAGING/global_assets/e_s_assets/e_s_assets_2010/downloads_pdfs/GoM_restoration.pdf> [Assessed 9 February 2013]
- BP. (2013c). Oil Spill Response Strategy [Internet]. Available from: <http://www.bp.com/liveassets/bp_internet/bp_caspian/bp_caspian_en/STAGING/local_assets/downloads_pdfs/xyz/BTC_Construction_Phase_ESAP_Annex_D.10_Oil_Spill_Response_Strategy_Document.pdf> [Assessed 9 February 2013]
CBS News reported in 2012 that BP workers were charged with manslaughter in the deadly Deepwater Horizon Gulf blast. The article is available on the internet and was accessed on 15 November at <http://www.cbsnews.com/8301-201_162-57550555/bp-workers-charged-with-manslaughter-in-deadly-deepwater-horizon-gulf-blast/>. On the other hand, The Guardian published an article by McGreal, Macalister, and Gabbatt in 2010 stating that the Deepwater Horizon oil slick would hit the US coast within hours. This article can also be accessed online at <http://www.guardian.co.uk/environment/2010/apr/29/deepwater-horizon-oil-slick-us-coast>. Both articles were assessed on 9 February 2013.
Read, C., 2011. BP and the Macondo Spill. Great Britain: Palgrave Macmillan. [Accessed 9 February 2013].
Jarvis, A., 2010. BP oil spill: Disaster by numbers. The Independent, [Internet] 14 September. Available from: <http://www.independent.co.uk/environment/bp-oil-spill-disaster-by-numbers-2078396.html>. [Accessed 9 February 2013].
Webb, T & McVeigh, K., 2011. Protesters target BP annual meeting [Internet], The Guardian. Available from: <http://www.guardian.co.uk/business/2011/apr/14/protesters-bp-agm>. [Accessed 9 February 2013].
