Why British Petroleum Must Re-Evaluate Its Business Practices - Case Study Example

Introduction Business ethics is one of the most important aspects of the modern organizations as doing business ethically has became a norm now. Withconsumers becoming more aware of the way business should contribute towards the society, it has become important for modern organizations to ensure that they engage into practices which are considered as ethical from the point of view of the society in which they work. This also means that the different actions, organizational practices as well as the policies of the modern organizations must correspond to the generally acceptable ethical standards of the societies in which they operate. The recent deep water horizon oil spill by the BP in Gulf of Mexico is considered as one of the significant incidents of this year. The massive oil spill not only put BP under the sharp scanner of regulatory bodies from US but it also resulted into the sharp decline in the share prices of the firm. Further, this incident also raised some important questions about the overall ethical conduct of the modern organizations and whether they have put in places the important checks and balances which can ensure that they serve as ethical citizens of the society. This further raised the issue of whether the modern organizations are actually performing ethically or not. This paper will therefore attempt to present an ethical audit report of British Petroleum and will discuss the ethical dilemmas faced by the firm, how BP has been dealing with these ethical dilemmas and finally an evaluation of the best ethical practices of the organization will be presented. Business Ethics In order to provide a comprehensive discussion of the different ethical dilemmas faced by the firms, it is important to define the ethics and set the broader context for the paper. Ethics is the field of moral philosophy dealing with the questions related to the morality- more specifically ethics deal with the concept of good and bad or evil, virtue and justice. In a broader sense, ethics therefore tend to focus on the society’s interpretation of what is good and bad and how the idea of justice and fairness should be introduced into the society. Ethics are also important in the sense that they provide overall moral direction to the society and set out the path on which the society defines it’s right or wrong.( Hooker, 2003) There are different branches of ethics including moral psychology, descriptive ethics, meta-ethics and normative as well as applied ethics. Ethics in modern as well as post modern era however, been radically changed as compared to older ideas on ethics. Consequentialism and utilitarianism are two of the most important schools of thoughts on which ethics are based. Consequentialism comprises of set of theories which are based on the overall consequences of an action and therefore the overall value judgments are based upon how the consequences of a particular action fall onto the society. Utilitarianism however, does not consider consequences of the actions but rather it advocates the morality of actions from the point of view of the greatest good for greatest number of people.( Ferrell, Fraedrich & Ferrell, 2009). Post modern ethics however present a completely different picture of what ethics historically has been. Post modern ethics suggest that the ethics are situational in nature and in order to judge the righteousness or wrongness of an action, it is important to view the situational context behind such acts. Post modern ethics therefore is a latest stream of thought in the current thinking on the ethics suggesting the relative nature of ethics and how we should be viewing them. Business ethics have become important because individuals and society also demand that the organizations- artificial persons of the society, shall also act responsibly and engage into the activities which are considered as right from the perspective of the society in which they are operating. Business ethics are therefore form of applied ethics studying the moral issues arising due to the conduct of the businesses. It is also important to note that the business ethics can be either of normative or descriptive in nature. Ethics in the context of business are important in the sense that the businesses have the tendency to engage themselves into unethical practices and therefore require a comprehensive code of ethics which can actually rule their conduct and allow them to follow a certain pre-defined path in order to ensure that they act responsively and contribute positively towards the achievement of greatest good for the greatest number of people in the society in which they operate. British Petroleum- A Brief History British Petroleum is one of the leading oil exploration firms in the world with the presence in many countries of the world. Over the period of time, it has been able to develop and expand its business all over the globe. Headquartered in London, BP is the third largest energy company in the world with its revenues running in billions. What is important however, to note that the firm is a vertically integrated firm having presence in almost every process/business in the oil and exploration business? This also means that the firm not only is engaged into the exploration of the energy resources but it is also engaged into the marketing and sales of its products. This broader horizon of the activities involved therefore place BP into a very special position where its activities and actions are monitored very closely. Over the period of time, BP, as a firm, has been engaged into certain environmental, safety as well as political issues which have created serious ethical dilemmas for the firm in the past. Its most recent issue has been the deepwater oil spill in the Gulf of Mexico region thus not only damaging the environment but raising certain important issues regarding the overall conduct of the firm. Further, BP has also been accused of some serious human rights violations in the past by the corporate watchdogs. It has also been accused of the highest record of the oil spills in the world over the period of last two decades. Ethical Dilemmas A closer analysis of the history of BP would suggest that the firm has been facing different ethical dilemmas in the past. One of the spotlights of this year was the oil spill episode by BP’s drilling facility in the Gulf of Mexico. This oil spill not only attracted the attention of the regulatory authorities but also resulted into the dampening of the investors’ confidence in the firm’s ability to perform ethically. It was because of this reason that the firm was de-listed from the ethical index of the stock exchange.( Johnson & Rudolph, 2010). BP’s ethical record in US has not been so successful because earlier it has been involved in serious safety and environment related issues. Its Texas refinery got fire, oil spill happened in the Alaska as well as the general pollution caused by its operations in North America region specially. It is therefore argued that the firm places financial goals ahead of the safety and environmental damage control therefore it does not put into place the effective systems and procedures which can actually allow it to develop sophisticated system to prevent the environment damage and create further safety nets.( Verschoor, 2010). Sustainability is another important issue which is under the scanner because of the overall nature of the business. Since most of the oil exploration firms have been deplored because of the sustainability issues in terms of oil as the major source of the fuel energy in the world. Though most firms are in the process of developing alternative fuels however, there are still concerns over the sustainability issues.( Desjardins, 2010). BP’s presence in Columbia where it is operating two facilities is also considered as fraught with the safety and risk issues. Since Columbia is a politically volatile region therefore there are constant safety and risk issues which may create significant damage to the environment. Over the period of time, guerillas in the region have blown up oil pipelines resulting into the death of hundred of innocent people. Similarly, the strategic partnership of BP with the Columbia military is also considered as unethical in the sense that Human Rights Watch has accused Columbian army as one of the leading armies in the world with worse human rights records. (Clark ,2001). Relative Importance of Ethical Dilemmas Some of the ethical dilemmas mentioned above should probably be viewed from the perspective of whether these are resulting into the greatest good for the society. As discussed above that the modern ethics are focused on two important aspects of exploring the actions and their ethical value judgments. Consequentialism and the utilitarian therefore are the two important theoretical insights which can actually help to identify the relative importance of these ethical dilemmas. Considering the recent deepwater oil spill in the Gulf of Mexico, if considered from the perspective of the utilitarianism, the same may not seem to be appropriate. Considering the impact of the same on the environment and the cost involved in the cleaning up of the environment would definitely add up to the ultimate cost which society will have to bear due to this pollution. Utilitarianism suggests that the actions should be judged from the perspective of whether they contribute towards the greatest good for greatest number of people. Thus viewing from this suggest that the firm may not be engaging itself into activities which can be considered as responsible and resulting into the greatest good for the society. It is important to note that the BP has a very well defined ethical conduct policy outlining the different ethical standards firm has set for it. It states that the purpose of its ethical policy is to ensure that it develops the reputation for conducting the business with integrity. BP has put into place an independent mechanism within the firm which ensures that the operating activities of the firm are conducted in the most ethical manner. Further, firm publishes the sustainability review every year outlining its activities and actions guided towards reducing the risk and safety issues. It is also important to note that the firm has put into place a very dedicated and expensive research and development program to focus on the development of more effective processes and methods which can reduce the risk. Further, BP is also in process to develop and market alternative fuel technologies considered as necessary for the protection of the environment and meeting the sustainability challenges. BP is active in the research and development for alternative fuel technologies such as bio-diesel, hydrogen as well as other forms of environment friendly fuel. The social contract theory suggests that all the businesses are actually ethically bound to work and act in the overall welfare of the society. Though this is based on what utilitarianism says however, the social contract theory views businesses as a part of the society and therefore focuses on viewing the businesses to act responsibly and for the welfare of the society as a whole. This approach is based on the overall implicit agreement between the society and the artificial citizens of the society. This approach therefore implicitly assumes that the rights given by the society to the artificial persons shall be in the best interest of the society. As such the social contract theory therefore advocates the formation of links between each individual in the society and the organization. Viewing from this perspective, the actions of BP may not be entirely considered as ethical because over the period of time, BP has been engaged into the actions which were detrimental to the society as a whole. The oil spill episode as well as its plans to explore the areas is vehemently categorized as the serious damage to the environment and their overall cost to the society. Though in case of recent deepwater oil spill, BP has set up a fund to cleanse the environment and compensate for the damage but the actual extent of damage and how it will shape in future is still considered as an issue which need to be dealt with by the society as a whole. Organization’s Best ethical practices One of the most important aspects of the firm’s policies is its focus on the research and development to curtail the risk and safety issues. The code of ethics of the firm suggest that it wants to develop the perception that it actually practices what it preaches therefore BP’s focus on the research and development activities can be considered as one of the most important initiatives by the firm. Further, the firm has been actively engaged in the development of technologies which are considered as the environmental friendly. Issues such as development of diverse and affordable energy, low carbon emission as well as safe and responsible energy use are being dealt by the firm on regular basis. It published a yearly sustainable business review wherein it outlines all its major initiatives which have been undertaken to ensure that the firm is on track to minimize the environmental damage. It has various Board of Directors Audit Committees as well as the ethics and safety committees which regularly review the ethical performance of the firm and report their finding to the board of directors. What is however, critical to note that despite these efforts, BP has faced consistent increase in the incidents which suggest that the firm may not be putting too much effort and resources to ensure that it operates safely. Repeated incidents therefore indicate a wider gap between what is being said by the company and what is being actually practiced by the firm. Conclusion and Recommendations In order to successfully overcome the ethical dilemmas as well as to minimize the criticism, it is important that BP must re-evaluate its business practices and processes. There is a general perception that BP does not act on what it preaches therefore there is a general gap between what BP says regarding its ethical conduct and what it actually undertakes to overcome these issues. In order to bridge that gap, it is important that BP must improve its processes and ensure that the different processes are performed in accordance with the laid down criteria for safety and risk minimization. This also means that the BP has to ensure that its operating facilities shall be strictly scrutinized routinely in order to ensure that they comply with the acceptable criteria. It is also suggested that the firm must increase its budget on the development of different safety nets within its operating facilities. The higher level of investment will ensure that the manufacturing facilities are more modern and are purpose built to reduce the risk of damage and danger. Further, it also needs to ensure that it forms its strategic partnerships with only those partners who have better human rights record. This means that the firm may have to drop some of its business plans wherein the overall cost to the society in general may be higher in the long run. Firm therefore need to balance its business targets with that of the ethical considerations before committing on any deals. References 1. Canadian Business; (2010). SPILLOVER EFFECT. Canadian Business;. 83 (19), pp.53. 2. Clark A (2001). BP chief fields barrage of questions on ethics [online]. [Accessed 29 Dec 2010]. Available from: . 3. Code of Conduct [online]. (2010) [Accessed 29th December 2010]. Available from: . 4. Desjardins, J (2010). WILL THE FUTURE BE SUSTAINABLE?. Business Ethics Quarterly. 20 (4), pp.723-725. 5. Ferrell , Fraedrich, J, Ferrell, L (2009). Business Ethics: Ethical Decision Making and Cases . Seventh. ed. New York: Cengage Learning. 6. Hooker, J (2003). Why Business Ethics? [online]. [Accessed 29 Dec 2010]. Available from: http://web.tepper.cmu.edu/ethics/whybizethics.pdf 7. Johnson, L , Rudolph, H (2010). When oil spills, cash flows.. Journal of Corporate Accounting . 22 (1), pp.17-25. 8. Verschoor, C (2010). BP Still Hasnt Learned Ethical Lessons. . Strategic Finance. 92 (2), pp.13-15 Read More