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Managing ethics and responsibility -v2

| March 4, 2015

INTRODUCTION
Managing ethics and social responsibility imply taking account of an organization’s impact environmentally, socially, and economically (Briggs 2012). The growing societal and ethical concerns among consumers have led to them focusing primarily on ethics and companies social responsibility when deciding on which to favour with their spending. Managers today are becoming increasingly aware of this consumer position towards their businesses and brands and are determined to consider it in their decisions as reflected in their pursued CSR policies that underpin an organization’s strategy and ethos (Briggs 2012).
Companies that fail to pay sufficient attention to the ethical issues and issues of social responsibility increase the risk of their shareholders. The increasing economic integration has helped draw attention to these issues that transgress a company’s traditional concerns. The last decade has seen an expansion of the business agenda to include environmental issues, in particular the threat of global climate change; and ethical issues in terms of what is morally right or wrong (Briggs 2012). Business practices such as misleading advertising, insider trading, misleading labeling, poor safety of the product or service, corruption, transparency, human rights violations and dumping of flawed products on foreign markets are some of the issues that are considered to be unethical in businesses and illegal (Ferrell 2012).
With focus of today’s global business environment being placed on ethics and social responsibility, companies are increasingly being scrutinized for their management of corporate ethics and social responsibility. Demands for management of ethics and reporting on this “triple-bottom-line” (environmental, social and economic performance) is of particular relevance to a company such as BP that operate in regions with history of poor governance and human rights records. BP’s operations and activities span across six continents, most of which have a record of poor governance and concerns over human rights violations (Chazan 2010).
In this paper, we explore on this contemporary issue in BP and critically examine how the multinational has managed to deal with this issue of managing ethics and social responsibility in its operations globally.

BRITISH PETROLEUM COMPANY (BP) OVERVIEW

BP which was formerly known as the British Petroleum and the Anglo-Persian Oil Company has over time experienced ups and downs over the past century from nearly bankrupting William D’Arcy, its founder, to becoming amongst the top energy companies in the world (Anon 2012). The firm has also experienced a fair share of controversies with regard to environmental damage, business practices, hazards to workers and sustainability issues (Anon 2012). BP has become a subject of criticism and has come under fire for huge emission of greenhouse gases.
BP has however made an attempt to repair its tattered image by turning towards a more environmentally friendly future through investing in renewable energy and supporting ethics and compliance initiatives (Anon 2012). Moreover, the company has tried to rebrand itself as Beyond Petroleum, a move that would signal the company’s commitment to sustainability. The rebranding of British Petroleum to Beyond Petroleum shows the company’s effort to reposition itself as socially responsible and focused on sustainability. These efforts have however backfired due to the recent oil explosions at the Deep-water Horizon oil rig which resulted in one of the greatest offshore oil disasters in history (Anon 2012).

BP ON SPOTLIGHT OVER ITS MANAGEMENT OF ETHICS AND SOCIAL RESPONSIBILITY.

The recent oil spills has raised genuine CSR questions and managed to put BP once again on the spotlight for negligence and environmental degradation. Following the explosion of the deep-water horizon oil rig in the Gulf of Mexico, BP has continued to be on the spotlight on issues of corporate social responsibility (MacDonald 2010). The calamity of the deep water horizon disaster continues to put BP’s reputation at the fore of discussion on matters pertaining to social responsibility; and hardly surprisingly, many commentators contrast the firm’s attempts to claim a moral high ground on matters concerning the environment given the stark reality of the calamity that took place at the Gulf (MacDonald 2010).
BP’s behaviour in the wake of the calamity has generally left people in dismay. The general impression of the public is that the ‘heart’ of BP isn’t really focused on fixing this mess and that firm’s interest is more on protecting their profits (Ferrel et al 2012). This has left many scholars wondering whether the firm is really behaving ethically in solving the crisis. What are the obligations of the firm? Should they focus on a 100% cleanup of the mess? Or should they focus on preserving and building shareholder value? Alternatively, should corporate managers balance these two objectives? These are some of the questions that have generated heated debate among scholars and environmentalists.

MANAGER’S ETHICAL CHOICES

A commonly held view of the function of the executives in corporate governance is that executives are only hired to run a business and not to own it, so the decision on how to run the business rests entirely on the shareholders (MacDonald 2010). As long as corporate managers perform their task in constructive ways such that bystandards are not hurt; then such profit-seeking is socially beneficial (MacDonald 2010). This view is however subject to criticism.
Consider the case of BP, a few years ago, managers at BP could proudly say that their focus is on building shareholder value. As long as the firm doesn’t pollute too much, then it would seem ethical for the managers to focus on shareholder interests. Today, however, managers at BP can’t pride themselves with the above argument. The justification for the zealous pursuit of profits is not possibly today because managers haven’t been anywhere near sufficiently careful with regard to avoiding imposing costs on others (MacDonald 2010). The firm has imposed massive costs and negative externalities especially on the people living along the Gulf of Mexico and indirectly to the rest of the world.
The idea of serving shareholder interests leaves companies open to moral abuse without normative principles at the core. Managers at BP need to incorporate a stakeholder approach in their management by widening their managerial focus away from exclusivity of stakeholders to include any other interested party that is affected by the activities of the firm (MacDonald 2010). The stakeholder theory in its broadest sense helps managers to create procedures and mechanisms of dealing with issues of social responsibility in a more proactive way (Ohreen 2010).
There is however a number of factors that influences the ability of a manager to make ethical decisions. Factors such as family influence, personal needs and religious backgrounds shape the manager’s value system (Daft et al 2010). Personality characteristics such as strong sense of independence, self-confidence and ego strength enables managers to make informed ethical decisions (Daft et al 2010). One important trait that may enabler managers to make ethical choices is the stage of moral development.

workFig 1: Stage of moral development (Daft et al 2010).

Preconventional level mainly concerns punishments and external rewards. Individuals at this level comply with the laws and authority to avoid detrimental personal consequences (Daft et al 2010). In the context of an organization, the preconventional level is associated with autocratic or coercive style of leadership.
At the conventional level, meeting social and interpersonal obligations is the main concern. Individuals at this level conform to the expectation of good behaviour as defined by family, colleagues, friends, and the wider society (Daft et al 2010). In organizational context, the preferred manner to accomplishing organizational goals is through work group collaboration and the leadership style used by managers is one that encourages cooperation and interpersonal relationships.
Lastly, we have the post-conventional level where in an internal set of values that are based on the principles of justice and right guide individuals in making their choices (Daft et al 2010). Individuals at this level will disobey rules or laws that go contrary to these universal principles. At this level, internal values become the priority and are chosen over the expectation of significant others. Managers at this level may challenge their superiors on matters that concern questionable ethical issues.
Managers at BP need to think at the post-conventional level in managing their business ethics and social responsibility. The idea of serving shareholder interests leaves companies open to moral abuse.

STAKEHOLDER ANALYSIS USING THE MENDELOWS MATRIX

It is also important for the management to analyze its stakeholders since the various stakeholder groups affect the company’s operations and its strategy. BP should devise its plans in a manner that cater for the needs of their shareholders whose main interest is returns; and the needs of the social activists and other key stakeholders involved whose main interest is protecting and preserving the environment.
The stakeholders’ interests can be balanced with the help of Mendelows Matrix which guides in mapping the stakeholders based on the power and interest to affect the organization. With the Mendelows matrix, the management at BP can be able to identify the responses to be made to the stakeholders in the different quadrants. low_001

Fig 2. The Mendelow Matrix (Campbell et al 2002)

The key players are those that are most influential in the company and they tend to have a high interest and power as well in the company. These are mainly the major shareholders and key customers to the company. Those that fall on the “Keep satisfied category” are those that have a high level of power but with low interest level in the company and these are mainly institutional shareholders who hold a large part of the company stocks. Those in the keep informed category are those that have a high interest level in the company but with low power. Their influence on the company is mainly through lobbying techniques and this includes the media, politicians and indigenous people. The least influential category comprise of the stakeholders that have the least interest in the company and the least amount of power as well.
CORPORATE SOCIAL RESPONSIBILITY

The recent oil spill that put BP once again on the spotlight certainly did have a wide ranging repercussion for not only BP, but the entire industry as well. The immediate consequence was the resignation of Tony Hayward (Ferrel et al 2012). Tony Hayward, the CEO of BP at the time, was heavily criticized for his overall handling of the disastrous oil spill (Ferrel et al 2012). In spite of his impressive track record at BP including generating the firm a substantial amount of net profit in the first quarter of 2010 and his dedicated attempt to ensure more transparency of the firm, Tony Hayward was forced to resign (Ferrel et al 2012).
Although maintaining such positions is often difficult in the face of disasters of such magnitude, it is believed that the verbal blunders of Hayward and his lack of visible empathy was what led to his downfall (Ferrel et al 2012). His resignation is ascribed to have resulted due to a failure of effective crisis management. In order to develop an ethical organizational culture, managers need to examine and understand the risk to various stakeholders.

In the case of BP, we can say that the management failed to put in place safeguards that were necessary to protect the local communities, employees, suppliers and the viability of various industries such as tourism and fishing and sustainability of offshore drilling. Preliminary results into the cause of the oil spills at the Gulf of Mexico reveal equipment failures (Ball et al 2010). However, to what extent can we blame equipment failures? More disturbing is the claim that BP had knowledge of the leakage weeks before the explosion and that they failed to halt their production. The extent to which BP knew of the equipment failure remains however unclear.
Despite being unaware of equipment malfunctioning, the stakeholder theory hold that the firm should still have had to weigh the potential of technological malfunctioning and the harm on the environment against cost and profit (Ohreen 2010). From a strategic management approach, the natural environment should have been considered as a stakeholder and the management should have incorporated environmental aspects into their vision, mission, goals and structures (Ohreen 2010). In the wake of the oil spill disaster, managers at BP should have heightened awareness of the risks of offshore drilling and should have put in place necessary safeguard for protecting the environment (Ferrell et al 2012).
IMPORTANT PROGRESS MADE BY THE FIRM IN ENSURING SUSTAINABILITY

Despite the growing criticism against BP for its negligence and environmental damage, it is important to note that the company has in the last decade made important progress on its business ethics and ensuring sustainability. In dealing with the growing reputation of ethical misconduct, BP managers organized for the creation and distribution of their code of conduct entitled “our commitment to integrity” (Ferrel et al, 2012). This code that sought to unite the diversity of the workforce was distributed globally to BP employees and made publicly available online through the company’s website (Ferrel et al, 2012). The code outlined the ethical and legal expectations of the employees. Although this ethical code did not sufficiently prevent the calamity of oil spill on an unprecedented scale, it reflected the desires of the management to comply with rules, and ethical values and policies (Ferrel et al, 2012).
Moreover, the firm has in the last decade received much support and acclaim for its “proactive stance” on corporate social responsibility, most notably for its efforts to curb greenhouse gas emissions and its position on global climate change (Christiansen 2002). In fact, BP has more recently been widely recognized for its positive contribution to the CSR agenda and in the management of business ethics which is evident through its leadership, transparency and endorsement of the human rights policy (Christiansen 2002). The diagram below shows BP’s goal of sustainability.water

 

Fig 4. BP’s goal of sustainability (Sustainability report 2010)
NGOs have publicly acknowledged BP as the main catalyst for change because of its proactive stance on ethical issues and corporate social responsibility. BP is acknowledged for being among the first transnational companies in the oil industry to endorse a human rights policy and for its stance on climate change issue and its advocacy of transparency as evident in its new standards (Christiansen 2002). This can be seen in the diagram below which shows BP’s code of conduct and commitment to sustainability. team

Fig 5: Sustainability key indicator content coverage (Sustainability report 2010)
BP managers have implemented environmental awareness programs in the UK which emphasize on the importance of sustainability issues and the impact of global warming. This is evident through its Carbon Footprint Toolkit, an award winning program that is designed to guide students in understanding the impact of climate change and their carbon footprint (Ferrel et al, 2012). Through the toolkit, students are able to examine their own carbon footprint and thereby develop plans for reduction of carbon emissions.
Furthermore, in attempt to recover its tattered image, BP is taking a renewed interest in areas like Alaska where its image had been damaged for negligence. In every winter period, a group of specialists at BP head to the remote areas of the Alaska North Slope oilfields to excavate gravel from pads where drilling rigs once stood (Anon 2012). The purpose of the visit is mainly to return the sites back to their original tundra state. This includes reseeding and selective replanting in the area. Through its remediation management team composed of scientists and engineers, BP has managed to conduct a 40% clean up and restoration of the area (Anon 2012). Efforts to recover the damaged land are ongoing and it is estimated that this is likely to cost BP close to $250,000,000 (Anon 2012).
BP is also adapting to the changing world through its alternative energy business which was launched in 2005. BP has invested $1.4 billion in green energy (Anon 2012). Although still a small part of the overall company, BP continues to see investment in green energy as an important part of its business. In 2008, the firm began full-scale commercial operation of wind energy in conjunction with wind farms (Anon 2012). Its installed wind capacity can supply up to 6 million homes (Anon 2012). The firm is also expanding its solar capacity, evident through signed agreements with various producers of solar energy in Asia. BP is also pushing to contain greenhouse gases through its carbon sequestration and storage. Although tremendously expensive, the use of carbon sequestration and storage is one of the best ways to controlling emission of greenhouse gases (Anon 2012).
Beyond alternative energy sources, the company is also looking to save energy through better planning and implementation of its operations globally (Anon 2012). A good example is the BP Zhuhai (BPZ) PTA plant which uses more efficient energy forms (Anon 2012). The development of cleaner and more efficient energy forms is an increasing priority in China. A vast majority of companies in China are still reliant on the use of heavy oil and coal as fuel (Anon 2012). The BPZ will set new standards and significantly contribute in this area.

CONCLUSION

The focus of today’s global business environment is on managing ethics and social responsibility. Although a combination of toxic gas emissions, Oil leaks, pollution, and rising gas prices have painted an ugly picture of BP with regard to sustainability and management of business ethics; the firm has made important progress and has received much support and acclaim for its “proactive stance” on corporate social responsibility, most notably for its efforts to curb greenhouse gas emissions and its position on global climate change.
BP’s efforts to management of its ethics and social responsibility was however been undermined once again by the recent explosion of the Deep-water Horizon oil rig which resulted in the greatest offshore oil disasters in history. It will take years for recovery and restoration to be complete. Nonetheless, managers at BP have the new responsibility to provide leadership in sustainability and safety. BP’s future lies in the management’s ability to commit to a social responsible approach and stakeholder engagement.
REFERENCES
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