Ethics and the Business Executive: A Case Study of BP
The corporate history of BP has transcended several phases of struggle and prosperity spanning over a century. William D’Arcy, a wealthy Englishman who had invested all his savings in the quest for oil in the Middle East initial and operated under the corporate name Anglo Persian Oil, founded BP. The change of name to BP was necessitated by the need to capture global markets. BP was the first oil firm to recognize the challenges of global farming and to shift its strategy towards cleaner forms of energy (Pg 1). However, the company has had its fair share of ethical challenges in its operational history that has seen the company sink nearly to bankruptcy. A good example is the explosion of the Deepwater Horizon rig in the Gulf of Mexico, which is one of the greatest offshore oil tragedies in history (Pg 1).
BP Ethical Issues
However, BP has had its fair share of ethical issues even as it continues striving to be a profitable and responsible company. In 2005, an explosion occurred at one of the company’s refineries located in Texas City, which caused the death of 15 employees and injured 170 others. This explosion was caused by a leak of hydrocarbon liquid and vapor (Pg 344). The Southern District of Texas invoked the Clean Air Act and found BP guilty of violations and the company was ordered to pay $50 million in fines. Both an internal investigation and a report released by the government indicated that this accident could have been prevented if the company had not cut down on its maintenance costs at the expense of safety. This happened at a time when the company was still wrestling with accusations from its traders that it was manipulating the price of propane in the market by holding back on supplies.
In March to August 2006, the company was again found guilty of violating the Clean Air Act in Alaska when its pipelines leaked over 200, 000 gallons of crude oil and later 100,000 gallons. The company paid $12 million worth of criminal fines, $4 million to the National Fish and Wildlife Foundation, and $4 million as criminal restitution to the lake of Alaska. It was later fined $25 million for violating the clean Air Act (Pg 344). The company could have prevented these explosions through regular inspection and cleaning of its pipes, which the company was not doing. In 2007, the company was again in the wrong books and was charged for violating the Commodity Exchange Act and committing mail and wire frauds when it created an artificial scarcity of propane and then sold it off at inflated prices. The company faced an over 20-count indictment in a Chicago Court and paid fines of over $300 million in criminal penalties, the U.S. Postal Inspection Consumer Fraud, and civil penalties to Commodity Futures Trading Commission (Pg 344).
BP has to make a choice between short-term profits and protecting the people and the environment. English philosopher Jeremy Bentham introduced a new ethical reference when he argued that ethical behavior was not merely a matter of pleasing God, but of bringing about as much happiness as possible for the greatest number of people. A close follower of Bentham by the name John Stuart Mill would later bring forth the ethical approach known as utilitarianism, which states that the right manner of behavior in a given situation involves choosing the alternative that is likely to cause the greatest overall good. Cost-benefit analysis, the sort of efficiency calculation that is a common feature in business decision-making like BP could have used to assess the profitability of deepwater oil production is based on overtones of utility.
Utilitarianism requires us to compare the harms and gains of an action not just for the one making the decision but also for all those who will be affected by that decision. In the situation of BP, this would have meant at the least not just weighing the effects that the decisions will have on the company’s investors, hence improving the bottom line, but also looking at the likely effects on other important stakeholders. From a utilitarian perspective, one has to evaluate both short term and long-term consequences to these stakeholders, paying close attention to the size of each group, the nature of the effects on each group, and the likelihood that particular consequences would actually occur. The ultimate criteria would be to consider a decision as ethical if the benefits accruing from that decision apparently outweigh the harms that we would identify from the decision.
In this case, we begin by assessing the consequences for one of the stakeholders, the BP investors. This significant group depends on the fortunes of this company. Consequently, significant loss of stock would cause ripple effects for several thousands of people. However, the consequences to shareholders from oil and gas spills and explosions are spread out over several thousands of individuals and will eventually fade into insignificance.
Turning to the other stakeholders, we find that they are more affected negatively. For instance, 11 people were killed and 17 injured in the Deepwater Horizon tragedy. In the Texas explosion, 15 employees died and 170 others were injured. Although the number of people in this group appears small, losses of life and health are much weightier on the scale and the failure of the company to institute safety measures as required and engaging in cost cutting technology and operations is therefore unethical.
BP’s Efforts towards Ethical Conduct
After the bad experiences that the company had which was nearly grounding the company to a halt, BP started a journey towards efficient business practices and towards redeeming its corporate image. One of the measures taken by the company was change of corporate name from British Petroleum to BP. The company also launched measures towards environmental responsibility and it became the first global energy firm to publicly recognize the challenge of climate change (pg 345). This saw the company invest over $4 billion in alternative energy plans, with plans to double these efforts by 2015.
In 2005, the company launched is going green strategy (pg 345) by adopting alternative energy sources. These include wind farms such as the Goshen North Wind Farm in Idaho, U.S. with a capacity of 124.5 MW. The other venture was solar with the major flagship projects being the 32 MW solar installations on Eastern Long Island, and large solar projects in Spain (pg 345). In biofuels, BP has a plant in Brazil with a capacity of 115 million gallons of sugarcane bio-ethanol (Pg 346). These are among other energy saving programs the company has launched. In addition, the company has implemented environmental awareness programs to help face the challenges of global warming (pg 347).
To help deal with the company’s challenges of ethical conduct, BP launched an Ethics and Compliance Team, which developed a code of conduct in 2005. This code known as “Our Commitment to Integrity” was distributed to all the employees around the world and is available on the company’s website (Pg 347). However, the code of conduct has not insulated the company from manmade disasters and in 2010; the company was found guilty of safety violations. The U.S. regulators fined BP $3 million for safety problems at its Ohio factory. The Occupational Safety and Health Administration (OSHA) ruled that the company’s workers were exposed to injury or death in the event of an explosion in the factory. The company has been fined a few months before by OSHA a fine of $87 million for being reluctant in addressing the safety issues that had caused the 2005 Texas explosion.
BP has taken a good measure by introducing an ethical code of conduct in the company and distributing it to all employees. However, as we have already noted, the presence of the code of conduct in the company has not insulated the company from safety violations and the company faces greater violation risks in future. The company should go a step further in taking measures that will inculcate a sense of ethical awareness and conduct among its employees. Further, the company must also be keen on balancing between the need to improve its bottom line for shareholder benefit and the need to ensure safety of all stakeholders in areas where it runs its operations. For the purpose of a utilitarian analysis, we can conclude that now and for several years in the future, there will be considerable suffering on the part and vast of human beings and several other living creatures related to the BP oil spill of 2010 and other tragedies that may occur as a result of the company’s actions. This should inform the measures taken by the company in consideration that sustaining its bottom line cannot be compared with the likely pains and suffering that will be experienced.