British Petroleum Oil Spill - Essay Example

? British Petroleum Oil Spill, Table of Contents Introduction 1 Discussion of concepts and theories used to analyze the case  2. The case  2.1 Context  Background information about the case  2.2 Data  Description of corporate disclosure vehicles chosen for analysis 2.3 Methodology  Discussion of the categories of analysis used to analyze the corporate texts 3. Findings  3.1 Summary of findings of your analysis  4. Conclusion  4.1 Discussion of findings in context of theory and prior literature 5. References 1. Introduction  1.1 Theories used in case analysis The paper talks about the oil spill caused by British Petroleum’s (BP) in 2010 that occurred in the Mexican Gulf and caused irreparable damage to the environment and life in and around that area. It looks at the company’s behavior post the oil spill and their reaction in front of the media and as expressed in their annual reports. More specifically, this paper looks at how BP’s reaction post the disastrous oil spill ties in with the theories about company behavior. Some theories used as reference for this paper include the legitimacy theory, the stakeholder theory and the institutional theory etc. 2. The case  2.1 Context  Background information about the case  British Petroleum (BP) is the 6th largest oil and gas company worldwide. BP is involved in all stages including the extraction of oil to the retail of the final product (BP, 2012, p.1). In “2010” the company faced a ruinous crisis when the drilling rig, Deepwater Horizon blew up on April 20, 2010. This cataclysmic disaster resulted in the killing of 11 persons and critically wounded many others (BP Annual Report, 2010, p.6). The spill continued for almost three months, making this catastrophe the biggest disaster of its kind (Mason, 2010, p.1). The scientists who had been vigorously studying the possible repercussions were still not sure about the complete extent of the environmental damage even after a whole year had passed. Further research is still required to provide a holistic detail on the matter because the destruction caused by the BP oil spill is too far reaching in a ripple effect caused by direct environmental damages. (Kinver, 2011, p.1). 2.2 Data  description of corporate disclosure vehicles chosen for analysis The annual report for 2010 was highly reflective of BP’s reaction to the disaster. O’Donovan (2002, p.344) says that companies reveal information in the annual reports only with the purpose of gaining support from the society and to retain their legitimacy in society. Companies that find themselves in situations that BP found itself in often try to improve their image by providing more information in their annual reports that “concerns” ethics and environmental issues (Deegan et al., 2002, p.312). This information is used by the company to clean up the mess it has somehow created in a disaster that has happened on its watch (Deegan and Rankin, 1996, p.50). BP increased greatly the amount of environment related information in its annual report under the law of legitimacy and to counter the bad press it was receiving in the aftermath of th disaster. It kept repeating to the media how it would clean up its mess, compensate the people and make amends for its mistake, thus making sure that all stakeholders, including the society and the government, continued to foster a positive image of the company, as explained by the stakeholder theory once more. These changes in the annual report were useful for the investors, accountants, regulators, environmental groups and the community because they provided these stakeholders with additional insight about the disaster and how BP proposed to go ahead with the scenario (Summerhays, 2011, p.3). BP’s reaction was timely, even “instantaneous” according to the institutional “theory” (BP, 2010, p.1) however they were condemned by the government because they failed to contain the spill before it reached the coast (Robertson and Lipton, 2010, p.1). The oil spill was called a “cultural anomaly” (Hoffman and Jennings, 2011, p.2). According to the institutional “theory”, firms lean more towards following traditional customs and are more agreeable not deviating from this path (Eisenhardt, 1988, p.489). However, the extent of the damage caused by the BP oil spill required some institutional changes to be made effective (Hoffman and Jennings, 2011, p.2) British Petroleum’s behavior in the aftermath of the catastrophic crisis can be explained by theories aforementioned that illustrate company behavior and reactions to situations based on certain variables. A day later, BP’s CEO said that their main concern was the victimized population of the blast in their drilling rig. He emphasized that BP would try its best to compensate and make amends to the victimized parties (BP, 2010, p.1). This statement by the CEO put forward BP as deeply regretting how badly people had been affect by the spill, while apologizing for its disastrous effects and assuring people that the company would do everything in its power to clean up its mess and make amends. Within the next two days, BP made three press releases that confirmed the accident and displayed genuine concern about the victims while offering support for all the affected people. From this time on, BP made a total of 140 press releases concerning the terrible oil spill. Theoretically, BP’s actions fall under and can be explained by the stakeholder theory. The organization responded to all concerned parties, i.e. stakeholders, including the society to which they were answerable due to the immense and widespread environmental consequences in the aftermath of the BP oil spill. However, the CEO of BP’s first reaction does not fall under stakeholder theory. He transferred all the blame to a third party, Transocean, the company that owned and run the rig for BP. BP’s CEO asserted that it was not BP’s fault because they were not the ones in charge of the drilling in the rig. This statement and similar ones were issued only to create legitimacy for the company in the society and as protection from the attacks of blame it would have to suffer from the media which could tarnish BP’s market image and brand perception indefinitely in the society (Webb, 2010, p.1). Apart from this, the CEO’s statement can be understood as portraying BP’s desire to protect its shareholders from bad press and consequent falling profits at the expense of their other stakeholder groups, this shows that BP’s actions at this point in time favor the critical approach to the stakeholder theory (Goodpaster, 1991, p.53). Furthermore, notwithstanding instantaneous response from BP’s side towards the devastation, the US lawmakers and scientists supposed that the company was lying about the actual extent of the destruction caused by the spillage and was possibly trying to cover up the depth and width of the actual damaging consequences of the disaster to protect the image of the company in the society and the market it was functioning in (Driver and Big, 2010, p.1). 2.3 Methodology  categories of analysis used to analyze the corporate texts There is extensive secondary research that discusses company behavior and explains how and why a company might behave in certain specific situations. According to the legitimacy theory, an organization only acts according to the behavior that is deemed correct and wanted by society it operates in and as deemed fit by other potentially influential parties; the actions performed by the company should thus be ‘socially acceptable’ otherwise the company will have trouble operating in a society that thinks of it as ‘unethical’, ‘immoral’ or ‘unable to comply with social norms or requirements’ and will be fast rolling downhill on its way to failure (O’Donovan, 2002, p.344). Some empirical research confirms the “legitimacy theory” (Branco and Rodrigues, 2006, p.232; Deegan et al., 2002, p.312), on the other hand, some scholars and their studies outright reject the concept put forward by the legitimacy theory (Guthrie and Parker, 1989, p.343). According to research, the stakeholder theory explains how a company may be portrayed with regards to the internal relations between different units and individuals that comprise it and that this may manipulate the firm’s performance. According to this theory, stakeholders of the company include not only shareholders, but also other groups that have an inherent stake in how the company performs (Freeman et al., 2010, p.28; Jones, 1995, p.407). Critics of this theory say that the nature of the relationships between the management and investors are always different from the nature of the associations between the management and other stakeholder groups mentioned; and thus this theory cannot fully elucidate the company’s actions in a specific situation because it has to factor in management’s response in order to satisfy the shareholder and the response in order to satisfy other stakeholder groups, and it is unclear which response the company will ultimately opt for. Furthermore, management is more interested in trying to maximize profits so it can maximize the shareholders’ wealth, while the stakeholder theory entails that the management’s actions that should also reflect the interests of other stakeholder groups including employees, government, creditors, etc. (Goodpaster, 1991, p.53; Phillips et al., 2003, p.479). Moving on, the institutional theory involves the concept that the company’s management should concern themselves largely with just the business models and customs when trying to explain or illustrate the company’s behavior with regard to a specific situation. Moreover, research has shown that companies try to work in harmony with these traditions even when globally ther have occurred critical changes in the operational business environment (Eisenhardt, 1988, p.489). Sometimes the companies keep on following old norms and traditions just to gain legitimacy I in the business society that they operate in (Dacin, 1997, p.46). However, this theory is not defined wholly just with regard to its key variables, standard variables and research tactics, it also factors in critical concerns such as the determining factors of the institutionalization levels and how these affect the companies’ behavior in specific situations has not been scrutinized as comprehensively (Tolbert and Zucker, 2005, p.170). 3. Findings and Conclusion 3.1 Summary of findings of your analysis  In sum, BP’s actions need to be seen in linkage with the theoretical context. The legitimacy theory says that the company behaves in line with the expectation of society (O’Donovan, 2002, p.344). The stakeholder approach emphasizes the role of other stakeholders apart from shareholders and the nature of their relationship with the management (Freeman et al., 2010, p.28). The institutional theory says that companies have a tendency to act in line with societal norms and are rather unwilling to deviate from this path (Eisenhardt, 1988, p.489). Conclusion BP’s behavior with respect to the oil spill of 2010 disaster can be explained by numerous theories. According to the legitimacy theory, BP issued press releases and included extra information about the spill in the annual report. On the other hand, the CEO initially tried to pass off blame to a third part (Webb, 2010, p.1). BP was doubted to be concealing the actual extent of the damage caused; these steps show that BP management wanted to keep its shareholders happy (Goodpaster, 1991, p.53; Phillips et al., 2003, p.479). According to the institutional theory, BP reacted according to norms and traditions already set, thus due to the extent of damage and the humungous scale of the disaster it is often termed a “cultural anomaly” from the viewpoint of the institutional approach (Hoffman and Jennings, 2011, p.2) 4. References 1. Branco, M.C. and Rodrigues, L.L. (2006) "Communication of corporate social responsibility by Portuguese banks: A legitimacy theory perspective", Corporate Communications: An International Journal, 11 (3), pp.232-248. 2. British Petroleum (2010) “BP Offers Full Support to Transocean After Drilling Rig Fire”,[online] Available at: http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7061458, [Accessed 14 November 2012]. 3. British Petroleum (2012) “BP at a Glance”, [online] Available at: http://www.bp.com/sectiongenericarticle.do?categoryId=3&contentId=2006926, [Accessed 14 November 2012]. 4. British Petroleum (2010) “BP Annual Report 2010”, London: British Petroleum 5. Dacin, T.M. (1997) “Isomorphism in Context: The Power and Prescription of Institutional Norms”, The Academy of Management Journal, 40 (1), pp.46-81. 6. Deegan, C. and Rankin, M. (1996) “Do Australian companies report environmental news objectively?: An analysis of environmental disclosures by firms prosecuted successfully by the Environmental Protection Authority”, Accounting, Auditing & Accountability Journal, 9 (2), pp.50-67. 7. Deegan, C., Rankin, M. and Tobin, J. (2002) “An examination of the corporate social and environmental disclosures of BHP from 1983-1997: A test of legitimacy theory”, Accounting, Auditing & Accountability Journal, 15 (3), pp.312-343. 8. Driver, A. and Bigg, M. (2010) “BP swamped by criticism”, [online] Available at: http://www.reuters.com/article/2010/05/21/us-oil-rig-leak-idUSTRE6430AR20100521, [Accessed 14 November 2012]. 9. Eisenhardt, K.M. (1988) “Agency- and Institutional- Theory Explanations: The Case of Retail Sales Compensation”, the Academy of Management Journal, 31 (3), pp.488-511. 10. Freeman, R.E. et al. (2010) “Stakeholder Theory: The State of the Art”, New York: Cambridge University Press. 11. Goodpaster, K.E. (1996) “Business Ethics and Stakeholder Analysis”, Business Ethics Quarterly, 1 (1), pp. 53-73. 12. Guthrie, J. and Parker, L.D. (1989) “Corporate Social Reporting: A Rebuttal of Legitimacy Theory”, Accounting and Business Research, 19 (76), pp. 343-352. 13. Hoffman, A.J. and Jennings, P.D. (2011) “The BP Oil Spill as a Cultural Anomaly? Institutional Context, Conflict, and Change”, Ross School of Business Paper No. 1151. 14. Jones, T.M. (1995) “Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics”, the Academy of Management Review, 20 (2), pp.404-437. 15. Kinver, M. (2011) “BP oil spill: The environmental impact one year on”, [online] Available at: http://www.bbc.co.uk/news/science-environment-13123036, [Accessed 14 November 2012]. 16. Mason, R. 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(2011) “Annual Report Disclosures: What Happens after an Environmental Crisis”, Working Paper, available at: http://docs.business.auckland.ac.nz/Doc/Summerhays-NZ- SARS-paper.pdf [Accessed 14 November 2012]. 21. Tolbert, P.S. and Zucker, L.G. (2005) “The Institutionalization of Institutional Theory” In: S.R. Clegg et al. (eds.) Studying organization: theory & method. London: SAGE Publications Ltd. Ch. 6. 22. Webb, T. (2010) “BP's clumsy response to oil spill threatens to make a bad situation worse” [online] Available at: http://www.guardian.co.uk/business/2010/jun/01/bp-response-oil-spill- tony-hayward, [Accessed 14 November 2012]. Read More