Why the Managing Ethics and Social Responsibility Issue Is Relevant to the BP (British Petroleum) - Essay Example

? Identify why the Managing ethics and social responsibility issue is relevant to the BP (British petroleum) and critically evaluate how the organisation is dealing with the issue Introduction The development of commercial activities in the global market is based on specific rules so that fairness and justice in global commercial transactions are not threatened. Ethics are used for setting the limits in regard to the operations of MNCs in countries worldwide. In its common sense, the term ethics is used for referring to ‘a code or set of principles by which people live’ (Popkin and Stroll 1993, p.1). However, the monitoring of the alignment of organizational decisions with ethics is a difficult task; in fact, it has been proved that most decisions of MNCs may violate ethics, at least at regional level. According to Beer (2010) the decisions of organizations operating in the context of the international market are likely to oppose, more or less, to ethics. Current paper reviews the performance of a well-known multinational corporation, British Petroleum (BP), in regard to ethics. According to the company’s reports, as presented below, the firm highly emphasizes on social responsibility and ethics in regard to all its activities. However, in practice the above argument is not verified. In fact, it is proved that the organization has repeatedly failed in responding to its social responsibilities, causing severe damages on its employees and people living in the areas surrounding its sites; besides, the environmental effects of the firm’s activities cannot be ignored. It is clear that the firm needs to update its operations globally promoting ethics and social responsibility. British Petroleum (BP) – Company Overview BP is a major competitor in the oil and gas industry worldwide (BP, key facts and figures 2012). In 2011, the firm’s profits were estimated to $375,517 million (BP, key facts and figures 2012). The company operates in about 30 countries internationally, with about 16 refineries (BP, key facts and figures, 2012). The last five years the firm’s performance has been significantly increased, as revealed through the figures in Figure 1, Appendix. BP – Social Responsibility The level at which BP has been able to align its practices with ethics and social responsibility, can be identified by referring to the firm’s existing policies for promoting social responsibility and ethics. At the next level, events proving the violation by the company of ethics will be presented and evaluated using appropriate literature. BP operates in an industry the effects of which on the environment can be significant. For this reason, and under the influence of the accident in Mexico in 2010, the firm has tried to introduce a series of initiatives for improving its relationship with its stakeholders. Daft and Marcic (2008) explain that the organization emphasizes on the continuous increase of its performance in regard to environmental responsibility. Lord John Browne, the Group’s Chief Executive, monitors the performance of the organization in regard to the specific sector (Daft and Marcic 2008, p.149). Browne notes that the increase of the needs in oil and gas annually has led to the increase of environmental risks, an issue that it is difficult to be managed effectively, due to the lack of control over the global needs in oil and gas (Daft and Marcic 2008, p.149). Moreover, the firm has introduced ‘an emissions trading system’ (Daft 2007, p.761), in order to improve its performance in locating resources without set environment in risk (Daft 2007, p.761). In addition, the firm has established an Educational Service, which promotes educational schemes for informing students and teachers on the effects of industrial operations on climate change, and the impact of the latter on human life (Ferrell and Hartline 2010, p.556). In 2005 the firm developed its Code of Conduct aiming to show to its stakeholders its efforts in promoting ethics and social responsibility (Ferrell and Hartline 2010, p.556). The above Code of Conduct also set the responsibilities of the firm’s employees in regard to ethics and the protection of the environment (Ferrell and Hartline 2010). According to BP, the Code of Conduct was introduced in order ‘to show the commitment of BP to all legal requirements and the high ethical standards as incorporated in the Code of Conduct’ (BP, Code of Conduct, p.4) Despite the above measures, in practice, the success of the firm in regard to the promotion of social responsibility has been proved a difficult task. For example, in 2004 the firm developed conspiracy in order to purchase ‘more than the available supply of TET propane’ (Ferrell and Fraedrich 2012, p.344), a fact that led to the conviction of the organization for the violation of the Commodity Exchange Act (Ferrell and Fraedrich 2012, p.344). Also, in March 2006, a leak occurred in the firm’s oil pipelines in Alaska; ‘200,000 gallons of crude oil’ (Ferrell and Fraedrich 2012, p.344) were released to the water, i.e. the tundra, causing a severe environmental damage. In August of the same year, another leak took place, in the same area, releasing ‘1,000 gallons of crude oil to the nearby lake and the tundra’ (Ferrell and Fraedrich 2012, p.344). In 2007, a similar accident in Alaska, led to the release of ‘2,000 gallons of toxic methanol’ (Ferrell and Fraedrich 2012, p.344), causing severe damages to the local environment. According to the firm’s employees in Alaska, the use of anticorrosion materials for ensuring the safety of the firm’s pipelines in the region has been limited, mostly because of the costs involved (Jennings 2011). In 2010 the courts of Washington imposed on BP a ‘$69,000 fine for a series of safety violations at its Cherry Point refinery, Wash’ (Mauer and Tinsley 2010). This fine was another indication of the firm’s failure to meet the requirements of ethics and social responsibility. The accident in the firm’s operational unit in the Gulf of Mexico in the 20th of April 2010 is considered as one of the most severe accidents of this type; about 170 million gallons of crude oil were released into the sea (National Wildlife Federation 2012), resulting to severe damages on the area’s flora and fauna; ‘about 5,686 birds, 93 dolphins and 546 sea turtles were died’ (National Wildlife Federation 2012); the long term effects of the accident on the environment cannot be precisely estimated. In June 2010, the spread of oil towards the land and the sea was in progress (Figure 2, Appendix). It should be noted that in the case of the above accident, BP violated ethics and social responsibility in various ways; primarily, it violated its responsibilities towards its employees, as described in its Code of Conduct; then, it violated its responsibilities towards the environment; these responsibilities are also included in the firm’s Code of Conduct; finally, it violated its responsibilities towards its shareholders. According to a report published in Bloomberg (2011) the investors of BP accused the firm ‘for misleading them in regard to its efforts for securing the Health and Safety of its employees, during the last 3 years before the accident in Mexico’ (Bloomberg 2011). The inability of BP to align its operations with ethics and social responsibility is reflected in graph of Figure 3 (Appendix) where the percentage of accidents in the workplace that required medical care are presented; reference is made to the years 2006 up to 2010. It is clear that in 2010, these accidents have been significantly increased (BP, Safety Statistics 2012). In the investigation report developed by the authorities of Texas in regard to the accident (explosion) in BP’s unit in Texas on 23 March of 2005, it is noted that the accident ‘was indicative of the failure to follow many established policies and procedures’ (Mogford, Investigation team leader 2005, p.i). The need of emergent measures for improving the firm’s performance in regard to ethics and social responsibility is clear. Evaluation of BP’s practices in regard to the management of ethics and social responsibility The activities of businesses in the context of modern market need to be ethical, as ethics are related not only to law but also to the social rules applied in each society. Different approaches are used for evaluating the alignment of business strategies and initiatives with ethics. The utilitarian approach is a common framework for checking whether the decision making process within an organization is ethical; in the context of this approach, which is also used not only in organizational but also in social environments, a decision ‘is judged as right or good on the basis of its consequences’ (Weiss 2008, p.104). The basis of the utilitarian approach, which was first introduced in 19th century, is that ‘moral behaviour produces the greatest good for the greatest number’ (Daft and Lane 2009, p.132). A different perspective of ethical decisions is given by the individualism approach. The specific approach is based on the idea that an action is ethical when ‘it promotes the long term interests of individuals’ (Daft and Marcic 2010, p.115). Collectivism is an approach opposite to individualism, as explained above. Collectivism is an approach similar to utilitarianism at the level that it emphasizes on the superiority of collective interests over the interests of individuals, a view promoted through the individualism (Trevino and Nelson 2010). At the next level, the moral rights approach is based on the following view: each individual has a series of rights ‘that cannot be taken away by individual’s decision’ (Daft and Lane 2009, p.133). Robbins (2009) notes that ethical decisions would be based on one of the following criteria: a) the utilitarianism approach, as explained above, b) ‘to focus on rights’ (Robbins 2009, p.129) and c) ‘to focus on justice’ (Robbins 2009, p.129); the justice approach focuses on the idea that decisions can be ethical when they ‘distribute benefits and costs’ (Robbins 2009, p.129), i.e. when they do not promote unfairness, either for individuals or for the public in general. Ferrell and Fraedrich (2012) note that the development of an ethics audit can help the organization to check its performance in regard to the promotion of ethics; also, it is made clear that these audits are likely to have different forms, depending on results of each audit (Ferrell and Fraedrich 2012, p.263). In any case, the ability of an organization to align its decisions and practices with ethics is an indication of the organization’s willingness to ‘be a good corporate citizen’ (Daft et al. 2010, p.138). For such organizations, corporate social responsibility is considered as a key priority. At this point, the following question could be set: is BP a good corporate citizen? The ethical and social responsibility incidents in which BP has involved need to be evaluated using the theories mentioned above. In this way, the current performance of BP in terms of ethics and corporate social responsibility could be identified. According to these theories, the firm’s ethics and social responsibility practices would be criticized as follows: a) at a first level, the firm seems to focus on justice, aiming to keep a balance between the benefits of its activities, in terms of profits and oil provision to markets worldwide, and their effects on the local social life and environment; the above target is not achieved. Though the oil and gas extracted help markets to cover their energy needs, benefiting also the firm’s financial performance, still, the damages on the environment are severe, as analysed earlier; b) for the above reasons, the firm’s practices in regard to ethics and social responsibility cannot be characterized as based on the utilitarian approach, which sets the interests of the public as the key criterion of actions; at the same time, the firm’s practices do not meet the requirements of collectivism (Trevino and Nelson 2010), which promotes the idea that the interests of the public should be promoted as a priority; then the interests of individuals could be addressed. The practices of the firm in regard to ethics and social responsibility meet rather the requirements of individualism, since they are based on the interests of the organization as a unit of interests of its shareholders. Moreover, as noted in the study of Bartlett, Ghoshal and Beamish (2008), in emerging economies the following ethical stances are likely to appear: a) exploitation; reducing the amounts spent wages and employee safety, b) transactional; focusing on avoiding harm, without being interesting in promoting equality and fairness, c) responsiveness; limitation of products’ prices for attracting customers at lower levels of the society, d) transformation; alteration of business decisions so that local needs of society are primarily addressed (Bartlett, Ghoshal and Beamish 2008, p.730-741). BP’s operational practices can be categorized as related to the first and the second ethical stances. In other words, the organization, as proved through its responses to ethical and social responsibility issues, does not focus on the promotion of public safety and interests. Rather it just tries to avoid major damages on people, infrastructure and the environment, a target that is not achieved, as proved through the accidents in which the firm is involved. According to the above, it can be stated that BP is not a good corporate citizen since its performance in regard to ethics and corporate social responsibility is rather low. The establishment of regular ethics audit, as suggested by Ferrell and Fraedrich (2012) would significantly help the organization to improve its performance in regard to the promotion of ethics and social responsibility, the influence of which on organizational activities is not, currently, clear. The firm could, in addition, follow the suggestions of Boeger (2008) who claims that the introduction of accountability systems in different areas of the decision-making process (Boeger 2008, p.203) can increase the awareness of a firm’s employees in ethics and social responsibility, improving the organizational performance in regard to these sectors. Conclusion BP is one of the most powerful organizations in the global oil and energy industries. The organization has introduced a series of schemes for increasing its performance in regard to the promotion of ethics and social responsibility. However, in practice, the activities of the organization have led to severe violations of laws and to environmental damages, leading to the assumption that the effectiveness of the firm’s measures for promoting ethics and social responsibility is quite limited, at least for now. It is for this reason that the initiatives of the organization to promote ethics and social responsibility have been strongly criticized as of their actual effectiveness and reasoning (Daft 2007). The review of the firm’s practices in regard to ethics and corporate social responsibilities have been evaluated taking into consideration the incidents of ethics violation in which the firm has been involved. It has been revealed that the firm has not managed to improve its performance in regard to ethics and corporate social responsibility; the measures that the firm has introduced for promoting ethics and corporate social responsibility have not been applied in practice, a fact indicating the unwillingness of the organization to focus on the specific areas. References Bartlett, C., Ghoshal, S. and Beamish, P. (2008) Transnational Management. 5th edn. (4th edn. 2004). Columbus: McGraw-Hill. BBC News (2012) Mapped: eco-impact of the BP oil spill. February 8 2012. Available at http://www.bbc.co.uk/news/special_reports/oil_disaster/ [Accessed at 16 April 2012] Beer, L. (2010) A Strategic and Tactical Approach to Global Business Ethics. New York: Momentum Press. Bloomberg (2011) BP Misled Investors Before Gulf Spill, Lawyers Say. Available at http://www.bloomberg.com/news/2011-02-15/bp-misled-investors-before-gulf-oil-spill-inflating-shares-lawyers-say.html [Accessed at 19 April 2012] Boeger, N. (2008) Perspectives on Corporate Social Responsibility. Cheltenham: Edward Elgar Publishing. British Petroleum (2012) Corporate website. Available at http://www.bp.com/bodycopyarticle.do?categoryId=1&contentId=7052055 [Accessed at 16 April 2012] BP (2012) Code of Conduct. Available at http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/C/coc_en_full_document.pdf [Accessed at 19 April 2012] BP (2012) Health and Safety Statistics, accidents required medical care. Available at http://www.bp.com/sectiongenericarticle.do?categoryId=16003356&contentId=7022455 [Accessed at 19 April 2012] Daft, R., Kendrick, M., and Vershinina, N. (2010) Management-International Edition. Belmont: Cengage Learning. Daft, R., and Marcic, D. (2010) Understanding Management. 7th Edition. Belmont: Cengage Learning. Daft, R., and Marcic, D. (2008) Understanding Management. 6th Edition. Belmont: Cengage Learning. Daft, R. (2007) Management. 8th Edition. Belmont: Cengage Learning. Ferrell, O., and Fraedrich, J. (2012) Business Ethics: Ethical Decision Making & Cases. 9th Edition. Belmont: Cengage Learning. Ferrell, O., and Hartline, M. (2010) Marketing Strategy. 5th Edition. Belmont: Cengage Learning. Mauer, R., and Tinsley, A. (2010) Gulf oil spill: BP has a long record of legal, ethical violations. McClatchy. Available at http://www.mcclatchydc.com/2010/05/08/93779/bp-has-a-long-record-of-legal.html [Accessed at 19 April 2012] Mogford, J. (2005) FATAL ACCIDENT INVESTIGATION REPORT - Texas City, Texas, USA. Available at http://www.bp.com/liveassets/bp_internet/us/bp_us_english/STAGING/local_assets/downloads/t/final_report.pdf [Accessed at 19 April 2012] National Wildlife Federation (2012) How Does the BP Oil Spill Impact Wildlife and Habitat? Available at http://www.nwf.org/Oil-Spill/Effects-on-Wildlife.aspx [Accessed at 16 April 2012] Popkin, R., and Stroll, A. (1993) Philosophy Made Simple. Oxon: Taylor & Francis. Robbins, S. (2009) Organisational Behaviour: Global and Southern African Perspectives. 2nd Edition. Cape Town: Pearson South Africa. Weiss, J. (2008) Business Ethics: A Stakeholder and Issues Management Approach. 5th Edition. Belmont: Cengage Learning. Appendix Figure 1 – Performance of BP from 2007-2011 (Source: 2011 Annual Report, p.56) Figure 2 – Spread of the oil spill, as in 27 June 2010 (Source: BBC News, 2012) Figure 3 – BP Health and Safety Statistics, accidents required medical care (Source: BP, Safety Statistics 2012) Read More