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Deepwater Horizon Case Study Ethics

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    Introduction To businesses, ethics have always been a grey area. Whilst it is not proven to be profitable to display ethical behavior, the discovery of any involvement in unethical behavior will lead to dire consequences on the company. As such, unethical behavior may have been inherent in certain businesses, but with the changing business landscape, increasing numbers of such actions are now being exposed and campaigned against, making it a concern for businesses today.

    Hence, in the light of Corporate Social Responsibility (CSR), this report will be focused on the analysis of the Deepwater Horizon oil spill. Using the incident as a case study, we will be looking at the case, analyzing the solutions undertaken by British Petrol (BP) and evaluating them. This will be done in light of BP’s code of conduct, with an emphasis on ethics. 2. 1: The Deepwater Horizon Explosion On the 20th of April 2010, the Deepwater Horizon oilrig owned by BP exploded and caught fire, causing the death of 11 workers and leaving a trail of damage to the surrounding environment in its wake.

    Two days later, it sunk, leading to the release of 4. 9 million barrels of oil into the Gulf of Mexico (Jarvis, 2010). This occurred due to a failure in the cement job at the bottom of a well, which was installed to prevent a blowout. BP then took a further 3 months to repair the broken well and halt the flow of oil (Read, 2011). In the aftermath, BP had to fork out $4. 5 billion for criminal charges, (CBS News, 2012). The oil spill had spread 3850 squared miles and affected coastlines of Louisiana, Mississippi, Albania and Florida (Read, 2011). 768 dead animals consisting of sea turtles and birds were found, and the fishing industry was affected by an estimate of $2. 5 billion (Jarvis, 2010). Furthermore, BP’s top managers were accused of receiving extravagant bonuses (Webb & McVeigh, 2011). In summary, it was a costly disaster for BP, with negative impacts on the environment and their stakeholders. 2. 2 Key Stakeholders and their Involvement In this accident, many groups of people were affected in various ways. Three main stakeholders involved were the company’s shareholders, the government and the fishermen. 2. . 1 Shareholders Flowing the explosion, BP’s shares dropped by 54%, resulting in a loss of $105 billion in share value (Jarvis, 2010). This greatly impacted BP’s financial status, as shareholders are vital to the financing of businesses. Share prices have been falling since the explosion, and have not returned to the original value before the 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. 2 Government

    As the oil spill concerned United States’ citizens and land, the US government stepped in to overlook the clean up of the disaster (Read, 2010). Aside from setting up a $20 billion fund for damages done on the economy, Obama imposed a moratorium on offshore drilling for 6 months from the incident. The government was also responsible for activating coast guards and the military in its response to the spill. Hence, the role of the US government here is crucial as a “parent” to ensure that BP acts in the welfare of its citizens. 2. 2. 3 Fishermen, Activists and Environmentalists

    With the huge impact of the oil spill on marine life and coastal regions, fishing and tourism industries of the places affected in the Gulf Coast severely declined. In the fishing industry, the incident led to an approximate $2. 5 billion loss, while tourist industries experienced a loss of a predicted $23 billion (Jarvis, 2010). In addition, the moratorium placed on deep water drilling left 58,000 workers unemployed (ibid). In its Annual General Meeting in 2011, BP faced protests against BP’s executive’s remunerations and voiced their injustice (Webb & McVeigh, 2011).

    Facebook pages such as “Boycott BP” and RIP Spongebob, who died in an oil spill cause of BP” have been set up by activists, and have garnered 847,730 and 468,157 likes respectively (Jarvis, 2010). Hence, the impacts on these stakeholders have varying degrees, but are nonetheless affected one way or another by BP’s mistake. 2. 3 Ethics and Values According to BP’s Code of Conduct, BP ”commits to “excellence and to the disciplined management of our operations” (BP, 2013a). In this case, this is broken, as the oil wells were not properly checked.

    Site managers Robert Kaluza and Donald Vidrine were accused of acting irresponsibly when handling the checks on the rig (CBS News, 2012). Furthermore, BP’s former vice president David Rainey was charged for the deliberate understatement of the amount of oil that was being discharged into the Gulf (ibid). In addition, BP was accused of overpaying their CEOs. Bonuses of $100,000 to top managers were deemed improper in the light of the disaster. Claims made by shareholders and victims whose livelihoods have been affected have not been fully reimbursed by BP as well (Webb & McVeigh, 2011).

    This breaches their Code of rewarding their employees fairly (BP, 2013a). With all these ethical issues, BP should consider taking actions to ensure that their Code is met, as it affects stakeholder’s decisions. 3. BP’s Solutions and Responses In wake of the explosion, BP came up with numerous responses to mitigate the damage done on the environment and on stakeholders. Some of these include cleaning up the Gulf, compensating victims, and training of BP’s employees. 3. 1 Cleaning Up In response to the oil spill, BP’s reaction was to repair the oil cap in the rig to stop the leakage.

    In effort to clean up, BP also used “a mix of chemical dispersant, booms and burning” (McGreal, Macalister & Gabbatt, 2010). Obama had held BP responsible for the incident, and worked in collaboration with BP to restore the Gulf back to its original position. This affected stakeholders in different ways. On one hand, shareholders did not receive any dividends as efforts were placed in the cleaning up of the spill. On the other hand, stakeholders such as fishermen and victims affected by the oil spill will benefit from the clean up. Furthermore, the cleaning up of the Gulf created job opportunities for people. . 2 Compensation and Restoration BP and the government settled on a $20 billion trust fund set aside for claims made by victims (Read, 2010). $100 million was also allotted to compensate workers who were left jobless due to the spill (Jarvis, 2010). In efforts to restore the environment and economy of the Gulf, BP has projects such as wildlife monitoring and studies, seafood testing, as well as allocating money to promote tourism and supporting the seafood industry (BP, 2013b). This, once again is beneficial to those affected by the spill, but depletes dividends for shareholders. 3. Training of Employees In case of future incidents, BP implements training programs that covers first aid, trainings for oil spill awareness and in field exercises. This is done to minimize damage in case of a second oil spill (BP, 2013c). This Is beneficial to stakeholders and it boosts their confidence as employees who are trained will be better abled to handle these situations in times of crisis. Employees would also have more knowledge in this area and know what to do should these circumstances occur. 4. Evaluation Following the oil spill, BP has done their best to control the situation.

    As BP was held responsible for the oil spill (Read, 2010), the clean up was necessary. Large sums were also set aside for the compensation of victims. However, there were claims that were not full reimbursed (Webb & McVeigh, 2011). This might be considered unethical as BP had caused harm in people’s livelihoods and should repay them for their losses. On the other hand, training of their employees is a long-term solution undertaken by BP. By doing so, they are following their Code of ensuring safety of their workforce (BP, 2013a). BP’s response to the oil spill is considered quick and efficient.

    They managed to curb the well In 2 months and have been working on compensating the victims. Furthermore, in such situations, firms can only take actions that limit damage. However, the excessive bonuses to executives and the giving of false statements by David Rainey have further ruined the image of BP as a company that takes ethics into account. In addition, claims that were not fully reimbursed added to the anger of activists.. Without these events, BP has done what they can within their control to mitigate the situation. 5. Conclusion

    The Deepwater Horizon incident has resulted in a large impact on BP, the environment, the economy and BP’s stakeholders. As such, ethics come into play in the responses of BP to the incident. Positive ethical actions would lead to a better image, whilst negative actions would further damage BP’s financial status. Hence, being one of the biggest energy sources of the world, oil companies needs to be regulated stringently in order to avoid the occurrence of another oil spill. Sources: BP, 2013a. Code of Conduct [Internet] Available from: http://www. bp. com/sectiongenericarticle. do? ategoryId=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, 2012. BP workers charged with manslaughter in deadly Deepwater Horizon Gulf blast CBS News, [Internet] 15 November. Available from: <http://www. cbsnews. com/8301-201_162-57550555/bp-workers-charged-with-manslaughter-in-deadly-deepwater-horizon-gulf-blast/> [Assessed 9 February 2013] McGreal, C. , Macalister, T. & Gabbatt, A. , 2010. Deepwater Horizon oil slick to hit US coast within hours [Internet], The Guardian. Available from: <http://www. guardian. co. uk/environment/2010/apr/29/deepwater-horizon-oil-slick-us-coast> [Assessed 9 February 2013]

    Read, C. , 2011. BP and the Macondo Spill. Great Britain: Palgrave Macmillan [Assessed 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> [Assessed 9 February 2013]

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    How did BP act unethically?
    BP acted unethically because it implemented cost-cutting changes that were projected to increase profits. The company failed to implement the required safety measures that could have protected the workers and avoided destruction of infrastructure (Freudenberg and Gramling 46).
    What ethical issues has BP faced?
    BP has had a long history of ethical and legal violations because BP chose to put profits above all else. In the past twenty years, BP subsidiaries were convicted of environmental crimes in Texas and Alaska. In addition, BP received the biggest fine in US history regarding safety violations.
    What was the issue with the Deepwater Horizon well?
    The central cause of the explosion aboard the Deepwater Horizon drilling rig was a failure of the cement at the base of the 18,000-foot-deep well that was supposed to contain oil and gas within the well bore.

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