Practices and Activities Adopted by BP Following Its Gulf Oil Spill Crisis - Essay Example

Case study Table of Contents Introduction 3 2.The case 4 2.1Context 4 2.2Data 5 2.3 Methodology 5 3Findings 6 4Conclusion 8 References 9 Bibliography 10 11 1. Introduction Environmental concerns have become an increasingly significant issue for corporate organizations as they are under rising social pressure to accept responsibility for the environmental impacts of their business activities (Manning, 2004; Deegan & et al, 2000). Under such scenario, according to the ‘Legitimacy Theory’, an organization will utilise a number of disclosure strategies to maintain an image of an organization that is socially responsible in order to ascertain that it has constant access to necessary resources for its sustenance (Dowling & Pfeffer, 1975). Studies have revealed that organizations encountering environmental crisis generally endeavour to recuperate their legitimacy by amplifying their environmental disclosures inside their annual reports. An investigation of the corporate disclosures subsequent to a major environmental crisis is likely to provide additional understanding regarding the strategies and accounting theories implemented by such companies. This paper illustrates the legitimacy theory related to corporate disclosure and assesses the practices and activities adopted by BP following its ‘Gulf oil spill crisis’. The legitimacy theory illustrates the rationale behind the revelation of environmental information by corporate organizations. Legitimacy theory states that corporate firms must think about the rights of the society on the whole, and not merely focus on that of their investors. If the firms do not seem to function within the limits of the conduct considered suitable by the society, then the society will take actions to hamper the firm’s right to carry on its business operations. When there is a definite and possible inconsistency amid the business as well as the social value systems, it will result in intimidations to organizational legitimacy in context of economic, legal, and other authorizations (Prabhu 1998; Neu et al. 1998). Neu et al. (1998) opined that the legitimacy of a company is built and preserved by means of symbolic action, which act as elements of the company’s public image. This paper would evaluate the disclosure patterns as well as BP’s strategies following the crisis related to the ‘Gulf of Mexico oil spill’. 2. The case 2.1 Context In April, 2010, a fire explosion took place in the ‘Deepwater Horizon oil rig’, ultimately sinking the vessel and spilling 4.9 million barrels of oil into the Gulf of Mexico, until the well was lastingly plugged. This incident resulted in the death of 11 people, while gravely injuring 17 persons. The event had serious environmental as well as economic impact, hampering the livelihood of many. The ‘Deepwater Horizon oil rig’ was held by the Transocean Ltd; however it was leased to British Petroleum PLC, who possessed the drilling rights of the rig. As a result, BP principally became the only organization that was held accountable for the cleanup endeavours. Nevertheless, BP never took direct liability of the incident; instead they attempted to shift the blame by means of their press releases, in addition to declaring that the company would respect all justifiable claims. Moreover, the company ensured that the public were given comprehensive information regarding the measures that were taken up to control and correct the scenario (Upton, 2011). 2.2 Data The study would assess the annual reports of BP to investigate its disclosure responses to the oil spill crisis. This paper would accentuate on the alterations in the extent of environmental disclosures by the company, as well as the disclosure strategy employed by it. The annual reports were selected as the source of investigation for the reason that they are the chief source of information and data for institutional investors, individual investors as well as environmental groups (Warsame et al, 2002; Epstein & Freedman, 1994; Patten, 1992). As a result, annual reports are utilised by all the sets of stakeholders for reviewing a company and hence managers are likely to make use of annual reports to endeavour to control the perceptions of the society and its stakeholders. Moreover, the annual reports are considered to be extremely reliable owing to the significant extent of regulations and policies monitoring its preparation (Warsame et al., 2002). 2.3 Methodology In context of British Petroleum, the Gulf of Mexico oil spill was an environmental disaster of unparalleled proportions. As a result, it affected the legitimacy of the organization very badly. The level of the disaster also raised the query on whether comparable crises could occur in future. In this manner, the Gulf oil spill crisis not only impacted the current image and legitimacy of BP but also its potential image as perceived by the society on the whole. It is therefore expected that BP responded to preserve its public image through its annual report disclosures. The probable strategies that could have been implemented by BP are ‘image improvement, disclaimer or deflection’. According to Neu Warsame, and Pedwell (1998), the three renowned strategies implemented by corporate organizations in context of information disclosure for image improvement are (i) endeavouring to inform the public on the whole about the latest corporate activities taken up by the organization to rectify the formerly perceived discrepancies, (ii) endeavouring to alter the views of all the associated stakeholders of the organization, and (iii) endeavouring to divert interest from the apparent crisis areas by altering the focus of the general public. The extent of environmental disclosure in the annual reports of BP before and after the “Gulf of Mexico oil spill” were analysed to understand the strategy implemented by BP to enhance its perceived image amongst the public. 3 Findings The assessment of the annual reports of BP, in context of the extent of environmental disclosures within them, revealed that the company had amplified its environmental disclosure post the occurrence of the referred oil spill (BP, 2009; BP 2010). The company also provide all the information regarding the incident and a comprehensive report on the measures it had taken up post the incident in order to regain its legitimacy amongst the public. The strategies adopted by BP while communicating with the public, as perceived from the analysis, is discussed below: Image Enhancement Strategy This is the most extensively used strategy by BP following the oil spill crisis in the year 2010. The company made public self commending disclosures in order to diver the focus away from the ill impacts caused by the oil spill in addition to illustrating to the stakeholders and other interested parties that the company was dedicated towards its social and environmental responsibilities. Hence the company reiterated its assurance in its annual reports, to take up remedial activities to set right the damages incurred by the incident. “(BP) have set up a $20-billion fund to show our willingness and capacity to pay all legitimate claims for compensation..... Having taken a total pre-tax charge of $40.9 billion in relation to the accident and oil spill, we announced our intention to sell up to $30 billion of assets” (BP, 2010). The significance of these disclosures can be understood from the number of times such information related to measures taken in response to the crisis were provided the various sections of the company’s 2010 annual report. Disclaimer Strategy BP also employed the disclaimer strategy, emphasizing in their disclosures that it was not entirely liable for the actions that resulted in the oil spill. This was an attempt to minimise the negative association, the public might perceive regarding BP. “BP holds a 65% interest in the Macondo well, with the remaining 35% held by two joint venture partners” (BP, 2010). Deflection Strategy The range and extent of the Gulf of Mexico oil spill did not allow BP to sole depend on the deflection strategy, as BP was principally perceived by the public to be liable for the incident. Hence the company utilised this strategy along with the strategy of image improvement by focussing on their positive disclosures, in order to deflect the society’s focus from the ill impacts of the oil spill disaster. Conclusively, it can be comprehended from the analysis that BP offered detailed information to the public regarding the oil spill in a manner that maximised the potential of the company regaining its legitimacy in the society. BP did this by means of its positive disclosures, which were targeted towards improving the company’s public image at the same time as diverting focus from the ill impacts of the oil spill. Additionally, the company also attempted to disclaim some amount of liability of the whole incident. 4 Conclusion The objective of this study was to evaluate the strategies employed by BP following the occurrence of the 2010 oil spill, so as to thoroughly comprehend the decisions as well as strategies employed under crisis scenario in relation to the legitimacy theory. The findings revealed that BP had increased its extent of positive disclosures in addition to reiterating its assurance to take remedial measures. Thus, BP employed the image enhancement strategy the most, though it also relied in the disclaimer strategy by disclaiming total accountability for the incident. These findings are in line with the aspects of legitimacy theory, which states that when the legitimacy of organizations are intimidated, they respond by utilizing their disclosures and other communication instruments to manage the perception of the public while endeavouring to get back their legitimacy. References BP. (2009). Annual Report and Accounts 2009, [Online] Available at: http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/set_branch/STAGING/common_assets/downloads/pdf/BP_Annual_Report_and_Accounts_2009.pdf [Accessed on November 14, 2012]. BP. (2010). Annual Report and Form 20-F 2010, [Pdf] Available at: http://www.bp.com/assets/bp_internet/globalbp/STAGING/global_assets/downloads/I/BP_Annual_Report_and_Form_20F.pdf [Accessed on November 14, 2012]. Deegan, C., Rankin, M., Voght, P. (2000). 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