Contemporary Business Management Issues - Case Study Example

Contemporary Business Management Issues Introduction BP, or British Petroleum, is the world’s third largest energy corporation, and the fourth largest in regards to proceeds. In 2010, BP registered $308 billion worth of profits, with $272 billion worth of assets. BP has more than 79,000 workers employed in different capacities all around the globe. Its main headquarters is stationed in London, while an additional large branch is based in Texas in America. In 1901, the then Shah of Iran, Mozaffaroddin Shah, ratified a concession that gave William Knox D’Arcy the right to prospect for oil. The Burma Oil Company would take over the Anglo Persian Corporation in 1909. The company would have its name changed first to ‘the Anglo Iranian Company’, then to the ‘National Iranian Oil Company’. After the CIA backed coup that overthrew Mohammed Mossadeq in 1953, an international consortium took over the running of the National Iranian Oil Company. In the agreement, Iran would receive 50% of the profits, five American firms would receive 40%, Total and Royal Dutch Shell would receive 20%, and the AIOC would get 20%. The AIOC would be renamed as the British Petroleum Company in 1954, and more than four decades later would merge with Amoco to create the BP Amoco Company. In 2001, the firm reverted to its former name, BP. Like most oil companies, BP has been accused over the years of operating through methods that cause the large scale pollution of the environment. The Deepwater Horizon incident, which occurred in 2010, triggered criticism from all over the world. This accident resulted in the spillage of approximately 35,000 to 60,000 barrels of crude oil within the Gulf of Mexico. The resulting oil slick covered more than 6500 km². Some of the states whose marine life was destroyed by this incident include Alabama, Florida, Louisiana, Texas, and Mississippi. BP would spend more than $7million on a daily basis to try and contain this situation soon after the disaster. This situation, which cost the company 11% of its profits to clear, forced it to look into ways of preventing such disasters from occurring in the future. It also helped BP’s management to start concentrating on different ways of conserving the environment as well as reducing its carbon footprint. The Significance of the Carbon Footprint in Today’s Oil Industry According to Blok, Höhne, Van der Leun, and Harrison (2012) the companies that drill for, and refine oil contribute significantly to global emissions. It has been stated that almost two-thirds of all carbon dioxide emitted into the air since 1854 can be traced to industries that deal with cement production as well as fossil fuel. The giant corporations that were responsible for this pollution in the past are nationalised firms that still operate today. These corporations include British Petroleum, Chevron, Saudi Aramco, Total SA, ExxonMobil, Royal Dutch Shell, Conoco- Phillips, the National Iranian Oil Company, and Gazprom (Pulver 2007). According to Höhne, Blum, Fuglestvedt, Skeie, Kurosawa, Hu, Lowe, Gohar, Matthews, Nioac de Salles, and Ellermann (2011) these companies are thought to have generated nearly 18.7% of the full quantity of industrial carbon discharged into the atmosphere since the inception of the Industrial Revolution. The release of carbon emissions into the atmosphere is dangerous because it can result in gradual climate change. According to Blok, Höhne, Van der Leun, and Harrison (2012) there are changes such as the depletion of nature’s resources and global warming which result from the discharge of these emissions. High emissions also result in the rise of the sea level. Due to the incessant campaigning about the incidence of global warming, many companies today are aware of the importance of preservation efforts and have themselves committed to creating programs that seek to reduce their discharge of emissions. For oil drilling and refinement companies, these programs may recommend plans that include operational improvement, the measurement of processes, and the integration of carbon-abatement objectives. Moreover, for most of these companies, the reality is that the financial resources that need to be channelled to such programs may not always be forthcoming. In addition, companies have to deliver the required results to stakeholders first before considering the CO2 reduction (Höhne, Blum, Fuglestvedt, Skeie, Kurosawa, Hu, Lowe, Gohar, Matthews, Nioac de Salles, and Ellermann 2011). Today, many Western nations have regulations that seek to curb the emission of carbon dioxide and other harmful gases into the atmosphere. In Europe, oil companies have to abide by the cap-and-trade scheme which sets a limit to the amount of carbon emissions that can be released by organisations. Oil refineries have to reimburse the government for the emissions they discharge. In the United States, bills such as Kerry-Boxer and the Waxman-Markey bills have sought to reinforce the message of curbing the discharge of carbon emissions (Sonibare and Akeredolu 2006). Methods such as benchmarking have also been proposed in order to deal with the incidence of carbon emissions. This can have a positive impact in terms of how an oil company is perceived by the public. According to Blok, Höhne, Van der Leun, and Harrison (2012) some oil companies already regularly publish the operations they are engaged in which seek to reduce carbon emissions. Specific Companies Chevron Chevron has an approach that is centred in identifying environmental processes that deal with aspects such as water use, air emissions, and dealing with wastage. The company has the Environmental Stewardship Corporate Standard Process that assists in the identification of projects which can be generated to assist with further developing the environmental performance. Chevron officially embarked on this process in 2007. This process calls for the company to assess all forthcoming projects for potential health-related, environmental, and social impacts. In cases where there might be significant adverse environmental effects, the ESHIA (Environmental Stewardship Corporate Standard Process) finds ways of minimising, avoiding, or mitigating them. All through the lifecycle of any project undertaken by Chevron, the company is careful to consult with local government officials, neighbours, and other stakeholders. According to Andres, Boden, Bréon, Ciais, Davis, Erickson, Gregg, Jacobson, Marland, Miller, Oda, Olivier, Raupach, Rayner, and Treanton (2012) the ESHIA plan has been used to plan and execute almost 900 projects globally. Royal Dutch Shell The Royal Dutch Shell Corporation is currently involved in a variety of activities which call for the removal, production, processing, handling, transportation, and storage of goods such as hydrocarbons. In 2008, the company underlined its objective to meet the challenge to generate fuel without necessarily increasing the levels of carbon dioxide in the atmosphere. It also released a report that stressed on one of its goals which is to find ways of utilising cleaner sources of energy such as wind power. Exxon-Mobil Like BP, Exxon suffered from the spillage disaster which occurred in the Prince William Sound, in Alaska, more than 25 years ago. The oil spill led to the death of a lot of animals, and the subsequent reduction of tourism, as well as fishing expeditions. The lingering oil slick also negatively affected the surrounding ecosystem. To this day, the area has not recovered from the spill. Since then, Exxon has effected a number of changes to prevent the occurrence of such a disaster in future. According to Andres, Boden, Bréon, Ciais, Davis, Erickson, Gregg, Jacobson, Marland, Miller, Oda, Olivier, Raupach, Rayner, and Treanton (2012) ExxonMobil has decided on different targets for the realisation of energy efficient operations. For example, the company announced the objective which called for the setting aside of $300 million for the purpose of purchasing lithium ion battery technologies. The company has also set aside $100 million for research into purer ways of drilling for oil without necessarily emitting carbon. Total SA Total SA’s has an extensive environmental policy that seeks to supervise the company’s activities while still fulfilling its duty to its stakeholders. It has come up with an ‘environmental management system which is responsible for ensuring that all its policies are aligned to the international as well as local environmental laws (Sonibare and Akeredolu 2006). The management system has also created measures that support the minimisation of processed waste, while also setting performance standards. The system also seeks to assess the company’s effect on different environments, while also encouraging Total SA’s workers’ to take individual responsibility in ensuring that they realise preservation objectives. Total SA also seeks to collaborate with local governments as well as international stipulations in engaging in operations that result in reduced carbon emissions. The company even has a contingency plan for emergencies such as events that compromise the environment. This is an effort to manage all natural assets by mitigating the potential impact of accidental discharges of hazardous substances, oil, and gas. Recommendations for BP British Petroleum has pledged to join with other companies in the endeavour to search for active solutions when dealing with climate change. There are different ways in which it can effectively reduce the discharge of carbon emissions into the atmosphere. For example, it could invest in the research into, and the generation of new energy technologies such as geothermal power, ocean energy, biomass energy, bio-fuels, hydroelectric energy, wind energy, hydrogen energy, and solar power. The company could also invest in joint ventures with other oil producers to generate safer ways of extracting oil, or of generating alternative energy sources. However, there have to be other methods used to coax the oil producing organisations to stop discharging carbon emissions. Many organisations such as Chevron, Exxon-Mobil, and Conoco-Phillips have ‘Carbon Assessment Reports’ in which they detail how they intend to limit greenhouse emissions. From a business perspective, this is a good thing because it will compel the organisations in question to find practical ways of addressing weather-related issues that are caused by carbon emissions. However, the ‘carbon report’ does not call for oil companies to reveal their levels of responsibility for weather changes due to their individual carbon emissions. The report does not compel oil companies to even commit to reducing carbon emissions. Impact of Regulations on the Oil Industry Oil and gas companies are correctly perceived as being responsible for a larger amount of global emissions than any other industry. For this reason, any regulations to reduce carbon emissions into the earth’s atmosphere will significantly affect their proceeds because they will affect demand. It is likely that it is the top performers in the oil industry who will remain competitive due to their capacity to utilise value creation, as well as mitigate the risks by means of abatement efforts. BP has to implement serious changes in order be seen to be serious about controlling the discharge of carbon emissions. This is because even the methods that could be used to assist in the implementation of alternative fuels are lacking. According to Andres, Boden, Bréon, Ciais, Davis, Erickson, Gregg, Jacobson, Marland, Miller, Oda, Olivier, Raupach, Rayner, and Treanton (2012), even the Western nations do not have structures in place to deal with the transformation that would be required for oil to be exchanged for alternative fuels. Even though alternative energy sources have many benefits, many citizens still do not see enough change to persuade them into changing their choice of fuel. The biggest hurdle to the utilisation of alternative fuel on a more mainstream basis has to do with economics. The reality is that oil is an extremely effective source of energy which still exists in millions of barrels, in many places. Corporations such as BP have to go beyond the current just to embrace the possibility of using new fuel alternatives. This is why it is necessary for the company to find practical ways of implementing methods of reducing carbon emissions. At present, oil is extremely profitable because there is no capital required to invest in new technologies for drilling, or other processes. In the financial sense, it makes sense for oil companies to keep investing in oil, alone. The only way through which alternative fuels will be embraced in the mainstream is if the price of oil increases so much that citizens all over the world are persuaded, without any campaigns or politicising, to choose alternative fuel sources. This means that oil companies have to deeply accept the importance of environmental preservation before they can make decisions that will affect their bottom line in a less than positive manner. According to Andres, Boden, Bréon, Ciais, Davis, Erickson, Gregg, Jacobson, Marland, Miller, Oda, Olivier, Raupach, Rayner, and Treanton (2012) petroleum companies recognise that the products that they create negatively affect the environment by contributing to, among other things, the discharge into the atmosphere carbon emissions. BP could assist the process of people changing to alternative fuel sources by openly discussing their benefits. BP could also publicise the fact that oil reserves are nearing depletion. According to Höhne, Blum, Fuglestvedt, Skeie, Kurosawa, Hu, Lowe, Gohar, Matthews, Nioac de Salles, and Ellermann (2011) it is a well known but seldom discussed fact that oil reserves around the world are nearing depletion. Moreover, few companies directly address this reality in their websites. They do not speak of the prospects for the year 2050. It is a fact that all oil companies have confronted this reality because their future survival is dependent on their findings. However, they are not likely to disclose their findings to the public- particularly if they are not favourable. If they were to share their findings in a public setting, they would have to reconcile themselves to the possibility of starting to lose proceeds. Most oil companies, even when faced with the possibility of reserves drying out, still entertain the notion that more excavations will in future reveal more oil deposits. Chevron’s representatives have openly asserted that they believe that there will be technological advancements in future that allow for oil prospectors to be able to scout for the precious product in harsher environments. BP has, in the past, stated that the only viable alternatives for oil would be coal and gas due to the fact that the expense incurred in using renewable energy sources is prohibitively high. It is true that any long term change to alternative fuels would take a considerably long time to effect (Zhang and Pang 2005). This means that energy companies would incur extra costs in the process of making changes. BP has stated its intention to cultivate an alternative fuel that is able to compete commercially with oil in the near future. According to Andres, Boden, Bréon, Ciais, Davis, Erickson, Gregg, Jacobson, Marland, Miller, Oda, Olivier, Raupach, Rayner, and Treanton (2012) this could be power that is harnessed from photovoltaic cells. The company is today involved in generating new energy channels, even as it keeps supplying oil to its market. BP should realise that, in future, hydrocarbons will merely be one of a number of fuel options to power the global economy. This means that there is a very real need for petroleum companies to begin developing other sources of fuel. At present, it still appears that the phrase ‘alternative fuels’ is mainly used to refer to options such as compressed natural gas, methanol, liquefied petroleum gas, propane, electricity, hydrogen fuel, and photovoltaic solar cells. BP, among other oil companies, has not yet reached a stage of development that calls for the use of different technologies which are economical enough to fill the gap that will be left by the exhaustion of oil reserves. The reality is that even if companies such as Conoco-Phillips, Shell, and Chevron do not mention any research into alternative fuel technologies, they all have their own motives. Due to the fact that billions of ‘energy dollars’ are at stake, it is likely that each of these corporations have their own plans to substitute their main moneymaking resource with practical options in spite of what they choose to reveal or not reveal to the public. There is a very real imbalance between future projected economical development and estimated global reserves. By changing in a major way to accommodate the development of alternative fuels, BP can capitalise on the existing situation to establish itself as the principal energy company of the future. In addition, there are changes that are already taking place in different sectors, which will support the use of alternative fuels. For example, the privatisation and deregulation of energy could open the way for the implementation of entrepreneurial innovations within the energy industry. If renewable energy sources are made less expensive than fossil fuels, the monopoly of oil will be brought to a close. Seeking to contain its carbon emissions is not just a proposal that concerns preservation of the environment; it is also concerned with securing the future of oil companies such as BP. There are also, at present, many industries that are experimenting with cleaner sources of energy. For example, electric cars are a result of the push for the creation of fuel efficient cars. There has been other business as well as technological breakthroughs experienced in the biotechnology industry. Such realities affect the way governments perceive different things. For example, if the present preoccupation with all matters concerning global warming were to affect banking corporations as well as insurance companies, there would be a definite change which would be to the detriment of oil companies such as BP. This would be because financial as well as political institutions would consider that the risks being taken by the continued discharge of greenhouse gases were more serious than the financial risks to be incurred in doing away with all energy sources that support this condition. Governments could easily enforce this position through methods such as serious penalties to oil companies, changes in public policy, and even direct investment in the development of new energies. These are all very real prospects for the future. BP could avoid the consequences of being caught unprepared in future by investing heavily, at present, on fuel technologies that do not pollute the environment with greenhouse gases. References Andres, R. J., Boden, T.A., Bréon, F-M., Ciais, P., Davis, S., Erickson, D., Gregg, J.S., Jacobson, A., Marland, G., Miller, J., Oda, T., Olivier, J.G. J., Raupach, M.R., Rayner, P. & Treanton, K. (2012) ‘A synthesis of carbon dioxide emissions from fossil-fuel combustion’, Bio-geosciences, vol. 9, pp. 1845–1871. Blok, K., Höhne, N., Van der Leun, K. & Harrison, N. (2012) ‘Bridging the greenhouse gas emissions gap’, Nature Climate Change, vol. 2, pp. 471–474. Höhne, N., Blum, H., Fuglestvedt, J., Skeie, R. B., Kurosawa, A., Hu, G., Lowe, J., Gohar, L., Matthews, B., Nioac de Salles, A.C. & Ellermann, C. (2011) ‘Contributions of individual countries’ emissions to climate change and their uncertainty’, Climatic Change, vol. 106, pp. 359-391. Pulver, S. (2007) ‘Making sense of corporate environmentalism: an environmental contestation approach to analysing the causes and consequences of the climate change policy split in the oil industry’, Organisation Environment, vol. 20, no. 44, pp. 44-83. Sonibare, J.A. & Akeredolu, F.A. (2006) ‘Natural gas domestic market development for total elimination of routine flares in Nigeria’s upstream petroleum operations’, Energy Policy, vol.34: pp. 743-753. Zhang, K. & Pang, M. (2005) ‘The present and future of the world’s LNG industry’, International Petroleum Economics, vol. 13, pp. 55-59. Read More