The Likelihood of Success That Halliburton Can Achieve - Essay Example

Managing Emerging Issues Contents Contents 1 Introduction 2 Company Profile 3 SWOT Analysis 3 Issues faced by Halliburton 4 Poor Leadership 5 Gulf of Mexico oil spill 6 Problems with employees 6 Mitigation of Issues 7 Handling the controversies 7 Leadership Actions 8 Mitigation of future accidents 9 Improving Employee Relationships 9 Likelihood of Achieving Success 10 Conclusion 12 Reference List 14 Introduction There is an increasing concern among corporate houses to manage the current and the emerging issues that are being faced by them. This is required in order to create an effective management and maintain competitive edge over its competitors. If the issues are not resolved by the management in a timely manner then this is likely to impact the financial performance of the company and raise question on the credibility of the corporate governance (Carroll and Buchholtz, 2014). The most important task of the management is to identify the prioritised critical issues that are being faced by the organization. The effectiveness of resolving the issues depend on the identification of the problems and allocation of the top management in resolving that issue. Corporate scandals have an immense impact on the credentials of a business. The past decade had witnessed a major increase in the rate of the corporate scandals which had significantly impacted the profitability of a business. Corporate scandals have become an important source of loss of investor confidence on the company (Diermeier, 2011). A root cause for this failure has been identified in the “command and control” nature of these corporations which follows a top down approach of management with a single board dictating the policies. Owing to these complex procedures that raise the chances of corporate scandals, organizations are now being increasingly forced to adopt a simpler managerial structure that is guided by flexibility (Doorley and Garcia, 2012). The purpose of this report is to discuss the case of Halliburton an American based multinational company, and discuss the issues faced by the company and the ways in which it has been able to cope with the issues. The report tries to locate the strategic problems that are being faced by Halliburton Company. This is essentially a secondary research that will use data from secondary resources and interpret the problems that has been faced by the company and the way in which it has been successful or unsuccessful in handling the issues. The report tries to analyze the likelihood of success that Halliburton can achieve by implementing these measures. This report will use the academic framework of SWOT to identify the issues that are being faced by Halliburton. Company Profile Halliburton was founded in 1919 and since its inception it has become one of the biggest names in the energy sector. The company was incorporated in 1924 and since then it has continued its growth to become one of the world’s largest companies in supplying products and services to the service industry. The company is a major employer and has more than 80,000 employees working for it. Presently the business of the company is spread over 80 countries across the world. The current business profile of the company is ranges from locating hydrocarbons to organizing geological data. It is also involved in the drilling, completion and formation of oil fields. Broadly speaking, the business of the company can be bifurcated into two groups namely Drilling and Evaluation and Completion and Production. The company has about 13 product service lines. The product service lines of the company are responsible for forming the strategies of the company, development of process and allocation of capital for the company. As of 2011 the company had reported revenue of $24.8 billion (Halliburton, 2014). Over the decade of 2000s Halliburton has faced a number of difficulties in managing emerging issues. The company had long-standing problems in this decade which have severely impacted the corporate image of the company. Despite the problems faced by it has been able to double the size of business in 2012. This makes the case of Halliburton an exciting one to find the ways in which the company has been able to fight its issues and continue the journey of growth. SWOT Analysis SWOT is the acronym for strength, weakness, opportunities and threats faced by a company and it helps a company to analyze both its internal and external environment. SWOT analysis is an integrated process that considers the company along with the key environmental variables that are likely to impact the business of the company (Jamesford, 2014). This report uses the SWOT framework to summarize the internal strength and weakness and the external opportunities and threats that are faced by Halliburton. Strength: The wide geographic scale of operation and the wide range of product offerings of the company have made it one of the most trustworthy names in the energy sector. Halliburton has been successful in acquiring a wide range of customer base. Especially the service line of the company is able to support clients throughout the range of hydrocarbon production. Due to the strategies undertaken by the company it has been able to surpass many of its competitors in the energy sector (Long, 2009). Weakness: The major weakness of the company is the frequent currency fluctuations faced by it in the various markets in which it operates. Currency fluctuation has the probability of causing considerable losses to the revenues. The price fluctuation of the petroleum products also poses a major threat to the company as business is directly linked to oil prices. Additionally, the negative image of the company arising from political controversies has impacted the brand image. There have also been cases of oil spill accidents and cases of employee harassment that has tarnished the image of the company (Long, 2009). Opportunities: It has been observed that Halliburton has aggressively identified business opportunities coming in its way by forming a large number of mergers and acquisitions. The company has been increasingly collaborating with the national oil companies to improve its business opportunities (Ferguson, 2005). Threats: External sources of threats faced by the company involve natural disasters, abnormal weather conditions and civil unrest that are being faced by the company in its multiple areas of location (Ryan, 2013). Based on this analysis two important critical issues are considered for discussion in the rest of the report. The first one involves the recurring case of political scandals that has been faced by the company and the ways in which it has handled these issues and the second one oil spill accidents and the associated reputation loss from such events. Issues faced by Halliburton Halliburton has been facing a number of political scandals since the beginning of 2000. The problems for Halliburton had begun much before the problems of the company in Iraq had surfaced. The nature of scandals of the company ranges from bribery in Nigeria to doing business in Iran in unethical manner. Firstly, it has been alleged that the company had made huge profits from the Iraq war. It has been reported from a number of resources that a large number of companies have gained money from the war by providing support services in the form of building infrastructure and feeding the troops (Maguire, 2012). Energy and construction based company KBR a subsidiary of Halliburton had received $39.5 billion in Iraq-related contracts. It has also been alleged that a number of these contracts were distributed without any type of bidding which has increases the suspicion regarding the nature of these contracts. The company had also faced a number of problems in 1998 with the SEC regarding the annual accounting disclosure. The immediate impact was a loss of a $7.5 million fine imposed on the company. The company had also attempted to cut the retirement benefits of 4,000 retired employees but had also lost that legal battle. As a result of these issues it has been reported that the company had made losses of $2 billion since 2005. SEC had charged Halliburton with bribing the government officials in Nigeria to secure contracts in construction. One of the recent involvements in the unethical behaviour of the company has been the conduct of business in Angola and Iraq. There have been allegations that the existing and the former employees have been violating the current code of ethical practices of the company (Elkind, 2005). Poor Leadership Most of the problems faced by the company had resulted in significant financial losses. Additionally, the corruption and scandals faced by the company was largely due to the poor judgement in the decision-making process. Culmination of all these factors had led to the conclusion that the poor leadership of Dick Cheney, CEO of the company from 19995-2000 had been a major factor that had resulted in the losses. During the retirement of Cheney a disproportionately large share of pension was given to him and it had also been viewed as controversial. Another poor judgment on the part of Cheney was bringing the Dresser industries that produced asbestos. This alone had led to losses of the company worth $4.17 billion in claims. Cheney was replaced by David J. Lesar as the C.E.O. Considerable doubt has also been casted on the role of Lesar as an appropriate successor of Cheney. There has been questions regarding the role that had been played by him in combating the problems that were being face by Halliburton (Fisman, et al., 2012). Gulf of Mexico oil spill This event has also acted as a major factor that had contributed to the poor reputation of the company in the contemporary times. Deepwater horizon rig had exploded in 2010 that had killed 11 workers at the site. Halliburton was directly held responsible for the company as it was responsible for cementing the wall that had failed. It was argued that better management and communication between the management of the company could have prevented the accident that had occurred. The root cause of the problem was traced to Halliburton because despite having stability issues in the laboratory tests it had passed the cementing design to British Petroleum. As a result of this British Petroleum had sued Halliburton to recover the costs of clean-up by the company (Progress, 2013). These have raised the cost of compensation for Halliburton. Another allegation was also faced by the company related to the oil well that had exploded in Australia in 2009. However, this factor was not disaster could not be linked to Halliburton currently due to lack of evidence on the part of the authorities. Problems with employees About 40 employees had lodged complaints of sexual assault while they were working for KBR. There have been allegations of acts of sexual violence on the female employees and their petitions have been rejected in the court of law. In order to reduce the negative publicity associated with this type of a press these cases cannot be taken to the court of law but solved by arbitration. However, the United States government had passed legislation that if companies refuse employees to take the case to the court of law. Also the cancellation of the retirement benefits had created a big stir among the employees but finally the decision could not be passed by the company due to a ruling from the Supreme Court. Mitigation of Issues Handling the controversies The existing literature shows that there are a number of ways in which a company can improve its corporate governance by addressing ethical issues. The issue of corporate governance have become extremely important due to the collapse of the large-scale organizations over the world. It has now a well-known factor that corruption whether political or corporate has become an increasingly important global phenomenon. Corruption and unethical practices of a company can put huge drain on the public and the private funds. Apart from this it can also result in the drain of public trust and loss of reputation for the company which poses difficulty for the company in the long-run (Casson, 2013). The increased integration of the global economy has led to a situation where unethical practices conducted by a company have an adverse impact on the national economy of the country as a whole. This can generally occur in the form of reversal of the FDI flows from the country and reduced capital flows from the country due to the corrosion of the image of the country (Arjoon, 2005). One of the most effective ways to address this dilemma is to improve the corporate governance of a company to prevent fraudulent activities on the part of the company. Strengthening the level of corporate governance have become one of the most effective tools in fighting unethical practices of the company and reduce the level of corruption and controversies surrounding it (Kolk, 2008). Since the scandals had tarnished the reputation of Halliburton from the early 2000’s the company has been trying to strengthen the tightness of its corporate governance to prevent further controversies in the future. The board of directors of the company are constantly trying to improve the management oversight and corporate governance of the company. In order to improve the level of transparency and accountability to the shareholders and employees the boards is comprised of independent board of directors to increase the authenticity of reporting. The corporate governance guidelines of the company have been tightened to improve compliance with the regulatory practices and prevent previous mistakes of the company relating to Iraq and Nigeria. Strict adherence to the Foreign Practices Corruption Act is now being followed by the company to eliminate any further chances of controversies regarding unethical practices. Employees of the company are strictly prohibited from securing contracts to the company by unfair practices like bribes, kickbacks or any other measures to manipulate the government authorities to secure contracts from them. System of due-diligence investigation has also been introduced by the company to eliminate chances of bribery and manipulation on the part of the employees. Dealings with the governments have been designed in an extremely transparent manner to prohibit any speculations regarding the use of manipulation in securing government contracts. These practices have been tightened particularly after the cases of Nigeria, Indonesia and Iraq (Halliburton, 2013). Leadership Actions The retirement of Cheney was immediately followed by accession of Lesar. There were some important measures taken by Cheney to remove the difficulties that were being faced by Halliburton in the 2000s. For instance, Lesar had described the year 2004 as an extremely unfortunate one for the company and had taken few actions to solve the crisis. The immediate repercussions of the Iraq incident were followed by the shutting down of plants of the company in Iraq. This was followed by casting of KBR altogether from the operations of Halliburton. In 2007, Lesar had immediately taken steps to sever ties with KBR after he had realized that KBR had only contributed to a fraction of the profits earned by Halliburton but has been a major contributing factor in affecting the reputation of the company adversely. Initially Halliburton had sold 81% of its share in KBR (Gold, 2007). In order to remain responsible to the shareholders the company had specifically provided the options to the shareholders to trade KBR shares for the shares of Halliburton at an unspecified ratio. This option clearly demonstrates the commitment of the company towards its existing shareholders. The company had also sold 19% of its stake in KBR through an initial public offering later in November. Halliburton had also taken up internal investigations for its cases in Angola and Iraq on its own (Wethe, 2012). This shows that the company had been complying with the Foreign Practices Corruption Act. The company has begun probing regarding custom related issues in these countries. In order to improve its public image and show its commitment towards anti-corruption the top management had alerted the Securities and Exchange Commission (SEC, 2003). Lesar strongly believes that few disgruntled former employees had deliberately violated the norms of the company to tarnish the public image of the company. Mitigation of future accidents The number of accidents in terms of oil spills has increased in the past for majority of oil companies. There are multiple externalities of oil spill accidents namely ecosystem restoration, costs of clean-up and legal settlements. The impacts on the stakeholders are also profound as they are affected by these accidents. Research on the behaviour of stakeholders during oil spills have revealed that they prefer to invest in companies which have higher disclosure regarding environmental impacts. Share holders believe that these companies are better positioned to deal with future regulatory costs and further possible environmental incidents (Heflin and Wallace, 2011). The company has been facing difficult times regarding the issue of controlling the issue of accidents related to oil spills. This has mainly occurred due to the fact of increasing business activity of the company. Since 2012 the number of events of oil spills has been rising consistently for the company and this is creating a major concern for the commitment. Oil spills can be attributed for a number of costs associated with the company like loss of products, financial costs owing to legal battles and costs of clean-up and remediation. In order to combat these issues Halliburton had consistently improved the R&D to find out the root causes behind the oil spills so that the cause can be stopped at the very beginning. Few modifications have been incorporated in the system of HMS. The HMS wing of the company is responsible for personal safety, management of change and minimizing the impact on the environment. In order to enhance the integrity of the processes of the HMS system to improve the environmental standards and minimize oil spills a system of thorough audits have been introduced by the company since 2012. Improving Employee Relationships Halliburton has come under scrutiny due to the complaints received from the employees regarding ceasing of the retirement benefits and the cases of sexual assault filed by the employees. In order to handle this issue in a sensitive manner the company has improved the standards set for the well-being of the employees. In order to deal with cases of harassment, coercion and intimidation relating to the employees age, gender and orientation Halliburton had revised its Code of Business Conduct program. The COBC program is designated to deal with regulations and laws pertaining to the behaviour of employees. Any employee found to be involved in any activities violating the guidelines of COBC is subjected to disciplinary action even leading to the termination of employment. Halliburton encourages all of its employees to take the case of violation of corporate ethics very strictly and allows them to take immediate actions in case of any distress. The Ethics Helpline is specifically set by the company to take calls from distressed employees round the clock. The concept of cultural diversity has also been kept in mind for which the helpline is available in several languages. In order to check the authenticity of the reports produced by the COBC they are subjected to audit by the Corporate Security Board. This is done to ensure that the problems of the employees are handled on a real time basis. To prevent further cases like Angola to Iraq to occur again the company have made it mandatory for all its employees to comply with the FCPA guidelines. Multiple management scrutiny needs to be done in order to hire an agent or pay commissions directly. 9500 courses for training have been introduced to train the managers and expatriates to make them understand the ways in which they can prevent from unethical behaviour. In order to ensure that no further controversies regarding retirement benefits surface in the future the company have introduced Target Date Portfolios to improve the investments made during employment years. In 2013 it had introduced the Retirement Portfolio and the Income Retirement Portfolio as target portfolios extending the advantage to regular employees as well as the retired employees. The rationale behind introducing this measure is to simplify the process of investment and making sure that the retired employees are not left out from benefits. Likelihood of Achieving Success It appears that the decade of 2000 have brought unexpected challenges to Halliburton on a number of fronts. However, the company has dealt with most of its strategic issues instantaneously and tried to improve the situation. Firstly, it can be argued that the measures taken to reduce the controversies regarding political agenda is moderately effective. This is because despite the introduction of FCPA act by the management the issues of controversies have diminished but only partially. The company has been caught in controversies in even in 2010 regarding the Nigerian bribery case despite implementation of FCPA. Although the alienation of Halliburton from KBR was indeed an effective step as the frequency of scandals have reduced to some extent after this separation was made. In 2011-2014 the company has reported lesser number of scandals. Therefore, it can be said that the measures introduced by the corporate governance of Halliburton are slowly showing success. Secondly, the leadership shown by the company since 2005 have not been poor as well. Lesar had quickly taken few emergency steps like closing down of the asbestos business and temporarily stop the business transactions in Iraq in order to restore the confidence of the shareholders. These prompt steps taken in short-run were useful and helped in the damage control. The act of separation from the long-term partner KBR was also a bold step taken by Lesar to improve the difficult challenges being faced by the company in early 2000’s. Additionally, the concern expressed towards the shareholders was also an effective step taken by the leader to maintain good relationship with the shareholders. Thus it can be argued that the leadership characteristics exhibited by Lesar is likely to be successful in dealing with the problems in the forthcoming years. Thirdly, regarding the steps taken towards the mitigation of oil spill accidents has not been quite effective. The Gulf of Mexico oil spill and the Deepwater explosion had both occurred in 2010 when the company had already taken measures to reduce the incidents regarding oil spills. This factor has severely undermined the reputation of the company. The effectiveness of the policies in controlling the environmental issues remain a major concern for Halliburton and it must soon devise ways in order to improve the situation. Preventive course of action should be followed in an austere manner to prevent any further disaster from happening in the future. Finally, regarding the issue of employee commitment it can be said that the policies needed to ensure safety of employees is quite promising. It can be expected that further cases of employee complaints can be strictly reduced with the measures. Also the case regarding sexual assault had happened back in 2005 when KBR was still a subsidiary of Halliburton. Since that case there has been no other cases of major employee complaints. Also the problem regarding retirement benefits has been resolved as the retirement plans of the company has been revised to suit the needs of the employees. The system of distress management introduced by Halliburton is therefore likely to reduce the problems of the employees in the forthcoming years. Conclusion The case of Halliburton Company can be considered as one of the most interesting ones in managing emerging issues. This is because despite being one of the biggest companies in the energy sector of the U.S.A. the company has been facing considerable challenges in its management. The SWOT analysis conducted on the company had been successful in identifying weaknesses of the company that has been focused in this project. The issues of political controversies and unethical behaviour exhibited by the employees have been identified as the most important problems being faced by Halliburton. The issue of leadership of the company has also been questioned as few practices in early 2000 by the CEO had made Corporate America question the efficiency of the CEO. The rising number of oil spill accidents has also raised the concern regarding the issue of environmental concern of Halliburton. Finally, issues of employee harassment have also been identified as a major problem for the company. It can be said that overall the company has been earnest in dealing with the above mentioned issues. The management had taken some stringent actions to cope with the issues like strict compliance with the FCPA act. Also delicate issues like hiring of agents and paying of compensation have been subjected to heavy regulations by the management to reduce scandals. The practices regarding safe management of the employees have also been made stricter and it has been ensured that compliance of the business code of conduct is to be maintained by all employees. The effectiveness of the measures regarding the issues is variable. This is because in cases like scandals, it can be said that the frequency of them has reduced since the implementation of stricter corporate governance. Also complaints regarding employee distress and leadership style have decreased but same cannot be said about dealing with the issues of oil spills. Unfair practices of employees have also reduced. The year 2011-2014 have witnessed slight reduction in the problems faced for which it can be concluded that the strategies adopted to cope with the issues are likely to be successful. Reference List Arjoon, S., 2005. Corporate governance: An ethical perspective. Journal of business ethics, 61(4), pp. 343-352. Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and stakeholder management. Connecticut: Cengage Learning. Casson, J., 2013. A review of the ethical aspects of corporate governance regulation and the guidance in EU. [pdf] IBE. 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