How Is the Application of Business Law Incorporated on British Petroleum - Research Proposal Example

Business The research question of this paper has is “How is the application of business law incorporated on British Petroleum and how did this affect their operating procedure and their brand value public image after the Gulf of Mexico Oil Spill?”. The policies undertaken by the company just after the crisis have been discussed in details. The stakeholder’s theory, triple-bottom line theory and crisis management theories have been incorporated in the paper to provide the theoretical background. The research is a qualitative on that relies on secondary data in order to answer the research question. The findings from the paper have shown that British Petroleum had incorporated operational safety measures like taking extra attention in drilling activities and risk assessment methods to monitor operational risks. Millions of money is being spent in recreating the brand image of the organization. The public image of the company was maligned after the crisis but energy conservation projects and restoration projects taken up by BP are expected to improve the public image. Polls conducted on the public image of the company have shown that 41% of the people still think that BP have not taken adequate measures to help the victims. Long-terms research projects undertaken by BP are expected to improve the scenario in future. The number of oil spills has fallen marginally since the crisis. It can be said that BP have modified its business laws since the crisis by focusing further on the aspects of sustainability and ethical practices. It can be expected that any more crisis like the Gulf of Mexico oil spill can be prevented in the future based on the present practices of the company. Contents Contents 3 Introduction 4 Company Profile 5 Describing the Problem 5 Methodology 6 Discussion 6 Operational Issues 7 Brand Value 10 Public Image 13 Reliability of Data 15 Conclusion 16 Works Cited 18 Name of the Student Name of the Professor Name of the Course Date Business Introduction The purpose of this research is to investigate the application of business law in British Petroleum (BP) and after the Gulf of Mexico oil spill. The idea is to investigate the ways in which the corporate governance strategies were formulated to amend the operational procedure, salvage the brand value and public image of the company after the Gulf of Mexico oil spill. British petroleum is one of the largest oil and natural gas companies that have operations in more than 80 countries of the world. The Gulf of Mexico oil spill was initially thought to be an event that will not cause significant damage. On the contrary the accident did cause significant damage and it became clear in the later years the extent of damage it had caused to the environment in terms of oxygen depletion, chemical dispersants and petroleum toxicity. The research question directly links the business laws applied by the company to battle the crisis in the aftermath of the disaster. The research question can be framed as: How is the application of business law incorporated on British Petroleum and how did this affect their operating procedure and their brand value public image after the Gulf of Mexico Oil Spill? The research topic is quite significant as the Gulf of Mexico oil spill was one of the worst oil spill incidents in the American history. It is therefore important to investigate whether the corporate strategies were followed in accordance to the business laws so that any such likely event can be prevented in the future. It the wake of the disaster British petroleum had to face considerable losses both in terms of legal compensation and loss of reputation. It is therefore important to understand the factors that were responsible for the crisis in the first place and the ways in which the company has reacted to the crisis thereafter. It can act as a good learning point for other oil companies to learn from the case of British Petroleum (BP) and prevent such disaster in future. Over the past few decades the issues of corporate governance have become extremely popular in the literature. Corporate governance has been viewed from the lens of corporate social responsibility, corporate citizenship, corporate sustainability, corporate social performance management and corporate social responsiveness. The theories of corporate governance have been divided into four main groups by researcher’s namely ethical theories, political theories, integrative theories and instrumental theories. This paper focuses on ethical aspect of corporate governance and highlights the responsibility that organizations have towards their broader group of stakeholders namely the society. This paper uses the concepts of stakeholder theory, crisis management theory and triple-bottom line theory to develop the theoretical structure. It is important to analyze the Gulf of Mexico oil spill from the point of view of ethics and the ways in which BP have responded to its mistakes in the past and committed itself for improvement of its public image and brand value. Company Profile British Petroleum Plc (BP Plc) is one of the largest oil and gas companies of the world that was incorporated in 1909. The company has its headquarters in London, United Kingdom. It is the 5th largest company of the world in terms of revenues. The British government had sold stakes in the company in 1980 and it became a non-state owned company since then (“Company profile for BP”). BP is registered both in the U.S. and the U.K. BP has convenience stores that are included forms a part of its gas stations. BP employs more than 85,000 employees at present. The basic business of the company can be divided into two broad groups, namely exploration and production activities and refining and marketing segment. The first one relates to activities in production and exploration of oil and natural gas exploration, field development, marketing of natural gas, midstream transportation, storage and processing and liquefaction of natural gas. The second business segment relates to the refining and marketing activities like supply and trading of crude oil, petrochemicals and lubricants for use in cars. Upstream activities are related to the exploration, production and development of oil and natural gas and downstream activities are related to the management of hydrocarbon value chains (Company profile for BP). Describing the Problem The oil spill of British petroleum is also known as the Gulf of Mexico oil spill occurred on 20th April 2010 as a result of an explosion in the Deepwater Horizon oil rig that had resulted in its sinking. 11 platform workers had died immediately and many more were killed (Honnungar 7). A leakage in the pipe had occurred immediately after the accident and this had resulted in the flow of oil to the ocean floor about 42 miles off the coast of Louisiana. By the time British Petroleum had stopped the leakage three months in July an estimated 4.9 million barrels were leaked into the ocean (Muralidharan, Dillistone and Shin 226-232). The Gulf spill had not only claimed human lives it had affected the fishing industry in an adverse manner. Externalities were faced by underwater organisms, fishermen and consumers alike as safety of seafood became a major concern. Environmental damages had also followed in terms of depletion of the oxygen levels, increasing toxicity of petroleum and release of toxic chemicals in the water. Methodology This research is primarily a qualitative one that has used the intrinsic case study method to analyze the case. In an intrinsic case study the internal issues of a case are analyzed and the case is being analyzed in a descriptive manner. The case of British Petroleum is discussed and general assumptions are made from studying the case. The research has used only secondary data to answer the research question. This is because it is convenient to use secondary data compared to primary data. It is quite easy to collect secondary data from the previous works of other researchers and through web based platforms (Yin 32). British petroleum is a very large company and considerable data has been published about it. The researcher has made an attempt to collect all the necessary data pertaining to the research question from secondary sources which justifies the use of secondary data. Discussion The research question is divided into three parts. The first section focuses on the business laws that have been accommodated after the crisis to improve the operational issues of the company. The second part of the research question focuses on the brand value of the company and the steps that has been taken after the crisis to deal with the tarnished image and the third part of the research question focuses on the public image of the company immediately after the crisis and the necessary actions that has been taken to salvage the public image. Operational Issues The existing literature points out crisis can be defined as any situation which creates a negative impact for the organization. Researchers have pointed out that crisis is any type of organization has the potential to reduce the future profitability of the business and casts doubt over its survival in the future (Mejri and Wolf 67-90). Different models of crisis management have been developed by researchers. Crisis management has been developed through a defensive-accommodative continuum where the defensive mechanism seeks to protect an organization and accommodative responses include policies that deal with dealing with the victims. The order of crisis management from a defensive stance to an accommodative stance include attacking the accuser, denial of the event, excuse to protect oneself, justification, ingratiation to improve policies, corrective action, seeking an apology and mortification. The three stage crisis management models have been popular among researchers like Smith, Richardson and Coomb (Coombs 177-191). The basic idea behind these frameworks is that the first stage is the pre-crisis stage which is also known as the preventive stage and embraces all the strategies that are required to prevent the crisis in the first stage, second stage is where the crisis occurs actually and the final stage is the rescue stage which focuses on the way an organization manages the crisis. In case of British Petroleum it has been observed that the company has been negligent in the past despite successive accidents of minor oil spills. Majority of the reports that have been published regarding BP in the past have revealed that the company has not taken enough preventive measures in the past that have led one incident after another (“BP oil spill timeline”). The report of the congressional Investigations on energy and commerce have revealed that BP had inadequate contingency plan for the loss of the well and testing, planning, supervision and maintenance of blowout preventer that had caused the crisis in the first place. Immediately after the crisis had occurred BP had initially been ineffective in handling the negative public criticism and its initial response was termed as ineffective. Researcher has claimed that the damage of the Gulf of Mexico oil spill was aggravated due to the missteps that were followed after the crisis. BP faced a tarnished reputation after the crisis because the public issues management was grossly ignored (Harlow, Brantley and Harlow 80-83). Though the company had been relatively vocal about the implementation of safety practices of its workers yet the excessive cost cutting strategies had been a major factor that led to the disaster. BP had also not been transparent in framing policies immediately after the crisis that had outraged the external stakeholders. The company has changed its safety measure policies after the occurrence of the incident in 2010. The company has recently modified its safety and operational risk functions (S&OR) to reduce chances of future risks. The (S &OR) function operates independently of the business and ensures that the safety measures comply with the operating management standards of BP. The risk management system of the company has been restructured and independent auditing of the risk management is done to ensure that effective monitoring of the policies can be done (“Sustainability Review 2010”). Separate committee has been set up by the board to investigate the causes that had led to the disaster and the way in which it can be prevented in the future. The key risks are reported to the relevant authorities to ensure immediate actions are taken on them. The Gulf of Mexico oil spill had made the company focus minutely on the risk management practices of the board. Risk identification of the company is done on a regular basis to ensure that they are maintained within permissible limits. Periodic investigations are also made regarding the risk and risk assessment is performed at a business and functional level. Supervision and governance of the risk management strategies happens at the board level. Employees at the executive and function levels help to oversee whether the functions of the board are implemented in the correct manned or not. In 2012 the company had implemented a special risk assessment team to monitor the risks (“Sustainability Review 2012”). Risk assessment and monitoring has been included as a part of the planning process. Technical support is provided to the operating business to understand the potential risks and create strategies to mitigate them. Preventive actions have also been included in the business and operational levels. The upstream and downstream activities of the company are monitored by independent advisors as a part of the preventive actions to stop any future accident regarding oil spills. The recommendations of the Bly report which happens to be the internal investigation report regarding the Gulf spill. 14 out of 26 recommendations have already been applied in the drilling activities of the company (“Sustainability Review 2012”). The company is trying to improve its technologies to work on containment and capping which is pivotal in preventing oil spill accidents. The following table shows the parameter safety of the company and the changes that had occurred to it in the past five years. Figure 1: Key parameters of safety by BP (Source: “Sustainability Review 2012”) The above table shows that BP has been showing marginal improvements in reducing incidents of oil spills. This implies that greater attention needs to be provided by the company to arrest its oil spill incidents. The measurement of the environmental variables is shown in the table below: Figure 2: Key parameters of environment (Source: “Sustainability Review 2012”) It can be seen from the above table that number of spills to land and water have shown considerable reduction from 2008 to 2011 but the value did not diminish in 2012. Other parameters have showed marginal improvements since 2010. Brand Value The concept of sustainable business modeling has been researched extensively in the management literature. Researchers have pointed out that incorporating sustainable business practices in the society have the potential of improving sustainable performance of organizations by adding greater value to environmental and social parameters. This in turn also improves economic performance of a company (Stubbs and Cocklin 103-127). The idea of sustainable business models goes beyond the conventional approach of solely creating economic value for the firm and includes creating value for the society as a whole. The rationale behind these models is that sustainable business codes developed by the company provide it with a competitive advantage over its rivals by enhancing customer value (Dawar and Pillutla 215-226). The product service system is an example of incorporating sustainable business practices in the business law where the focus of a company shifts from creating and selling physical products to a set of products and services that are better positioned to meet the expectations of external stakeholders. Researchers have shown that (Porter and Kramer 62-77) that incorporating sustainable business laws in the corporate code of governance improves the reputation of the company by enhancing its credibility to investors. The idea of creating a sustainable brand value through business laws adopted by a company is embedded in the triple-bottom-line theory of corporate governance (“Sustainability and its Impact on Brand Value”). The triple-bottom line approach goes beyond the economic bottom line of the company and takes into consideration of environmental and social parameters. The environmental bottom line considers the development of natural capital of the company by using renewable sources of energy and social bottom line deals with the creation of shared and ethical norms to create a sustainable presence. Brand has the capability of integrating activities of a business with its external environment by creating a link between the customers and the company (Grace and O’cass 97-111). Green initiatives created by a company to improve its brand value have been equated with the effort of enhancing sustainability (Chatterjee 367-384). The belief of customers is enhanced by the green initiatives created by a brand and they begin to understand that the brand will act in favor of the societal needs. Amidst the criticism about the actions that had led to the crisis of BP government agencies and private bodies sprung to action to control the damage. In the immediate aftermath of the crisis multiple agencies had reacted immediately to take control over the situation. The company itself collaborated with the federal and the local governments to control the damage. BP had to pay over $14 billion to the different agencies of the government and private agencies as a part of their penalty (“Investigations and legal proceedings”). The government had taken up a number of restoration projects and BP had been contributing money to fund these projects (“Gulf of Mexico restoration”). BP had taken up multiple compensatory actions to rebuild its brand image. Compensation came not only in the form of financial help for the victims but also in the form of non-financial help like escrow account to fund the construction activities of Louisiana, tourism grant to Mississippi, Florida and Alabama. Immediately after the Gulf of Mexico oil spill BP have made a deliberate attempt to take safety measures of sea food consumption and reduce their toxicity. The table below depicts the costs that had been incurred by BP in enhancing safety measures as a part of the campaign to improve brand value. Figure 3: Costs incurred in restoration projects (Source: “Gulf of Mexico restoration”) After the Gulf of Mexico oil spill the efforts taken by BP can be considered focused towards improving brand value. The company has invested $500 million to restore its brand image after the crisis (“Managing our impact on the environment”). Long-term research has been undertaken by BP to gauge the potential damage that had been created in the Gulf of Mexico oil spill. BP has shifted to alternative forms of energy like producing sustainable bio fuels. This effort is expected to reduce the dependence on petroleum-based fuel and create job for farmers. Reduction in carbon emissions of the company, saving consumption of energy and producing less toxic products have become top priority of BP after the Gulf spill (Muralidharan, Dillistone and Shin 226-232). Apart from taking initiatives of strengthen the green initiatives of branding BP has also taken number of restoration projects to mitigate the damage caused by the Gulf spill. The Gulf Spill of Mexico was a very big learning point of BP and it had started to give greater importance to the aspect of enhancing its brand value in the public by embracing its role as a corporate citizen. BP has put stronger focus on building a transparent communication with its stakeholders. Attempt to improve transparency in communication with the stakeholders can be considered as a way to gain back the trust. Researchers have claimed that the use of transparent communication during times of crisis makes the customers feel that organization is working to rectify the mistake it had made (Hess 453-476). Transparency has been described as a state in which the .internal identity of the firm becomes a reflection of its stakeholder’s expectations (Gao and Jane Zhang 722-740). Based on the information that is published by the BP sustainability reports it can be said that the company have taken up transparent communication dialogue with its stakeholder to enhance brand image. Public Image Adopting sustainable business practices by a company creates a probability of generating repeated demand for the product. The positive public image created by a sustainable brand value establishes a strong relationship between the organization and the customers. Researchers have pointed out that creation of a favorable public image for an organization strengthens the probability of improving the customer loyalty. Improvement in customer loyalty has a direct link with the financial performance of the firm. Owing to the strong link between these factors organizations are taking strong steps to address problems of community and the environment. The theoretical framework of improving the public image of the company lies in the stakeholder theory developed by Freeman. Proponents of the stakeholder theory had stated that any group or individual who is affected by an organization holds a stake in the company. Researchers have found that organizations who manage the interest of stakeholders have the probability of achieving greater success in the marketplace compared to an organization that does not take care of stakeholders. For oil and gas companies performance of duty towards the community is more of an obligation rather than a choice. This happens mainly because in case of oil and gas companies the local communities claim a share of the profits earned by the company working in the area (Wasserstrom and Reider 24-27). The public image of BP was jeopardized due to the crisis that had been occurring in the past. During the Gulf of Mexico oil spill the company made repeated blunders that had further created mistrust in the mind of the public. A cumulative effect of these disasters were felt when the stock prices of the company had begun to slide. The following graph shows the fluctuations in share prices after the crisis. Figure 4: Share price takes a plunge after Gulf spill (Source: Musafer, “2010: A year some companies would rather forget”) Though the company has been introducing number of measures to improve its tarnished public image after the crisis, little effect has been observed in practice. BP have spent ample amount in communicating the cleanup efforts that had been taken up by the company. In order to improve its public image BP had taken number of measures that gain the faith of the public. BP began an effort to communicate with the public after the damage. Researchers have claimed that an important way in which the company can restore its image after occurrence of a crisis is by following codes of corporate ethical conduct. After the occurrence of the crisis BP had changed its code of ethical conduct from a rule-based policy to a one that better reflects aspirations and expectation of the shareholders. In the sustainability reports published by the company there is a clear section that describes the policies that are acceptable and the ones that are not. BP had used multiple image restoration strategies after the occurrence of the event. The television commercials that were used by the company can be considered as an effort of mortification according to the defensive-offensive framework of crisis management as portrayed in the existing literature. One of the commercials resealed by BP had particularly concentrated on restoring the wildlife of the Gulf States. BP had heavily focused on the compensation strategies and began to support every restoration project in the Gulf area (Harlow, Brantley and Harlow 80-83). Despite the efforts taken by the company, recently a poll conducted by the Huffington Post had discovered that the public image of the company has remained tarnished even after three years of the accident and the Americans still share a negative image about the company. However, visible results were not observed from the campaigns as has been revealed by the poll. 43% of the Americans had expressed a view that they were satisfied with the cleanup efforts that had been taken up by the company and 41% of them think that BP has been tackling the situation of cleanup in a less than satisfactory manner (Swanson, “Poll Finds BP Public Image Still Tarnished 3 Years After Gulf Spill”). BP had introduced number of policies regarding control of environmental damage that can be expected to improve its public image. The company has pledged itself to reduce its carbon emission and investing in lower-energy consumption products that minimizes the harmful impact on the environment. The company has also taken up measures to work in collaboration with the vehicle and automobile manufacturers so that energy consumption of the vehicles can be reduced. The policy introduced by the company known as ‘Invigorate’ intends to create to improve the public image of the company by offering innovative form of gasoline resulting in cost-savings for customers (“Sustainability Review 2012”). In regard to the damage created by the Gulf oil spill BP had undertaken an effort to rebuild its image. In the sustainability report published by the company since 2010 the company has made repeated commitments to support programs that aimed at mitigating the damage caused to the coast life of the Gulf area. Reliability of Data This research is primarily a qualitative one that has mainly relied on secondary data. The researcher has ensured to collect data from authentic company reports, government websites and articles from renowned newspapers to cross-check the authenticity of the data. The framework for the literature review has been constructed by using peer-reviewed journals. Citing relevant published work can be considered as a measure of validity of the data. As the research that has been conducted is essentially a qualitative one so the researcher has applied descriptive validity method to conduct the validity testing (Saunders, ‎ Lewis and Thornhill 67). Accurate data have been collected from authentic and reliable sources following the chronology of events that had occurred prior, during and after the crisis. The press releases and the company actions to mitigate the crisis and future plans to reduce their chances of occurrence have been used to analyze the results. Conclusion The Gulf oil spill of Mexico had deep implications on the business laws of BP. BP is one of the oil and gas companies that had maintained high standards of sustainability in the past. Despite the standards adopted the company had been unable to prevent the oil spill in Mexico that had endangered the lives of both terrestrial and aquatic animals. Damage to the environment was also inevitable after the crisis. BP has been widely criticized for the way in which the crisis was handled and negligence of safety measures and cost cutting activities were considered as the main reasons for which the crisis had occurred in the first place. Four years have passed after the crisis and quite a few changes have been implemented by the company management to prevent any type of crisis in the future. Changes in the operational factors have been introduced by the governance at the corporate level and greater attention is now being provided to risk assessment and risk monitoring. Independent committee has been set up to investigate the causes of the disaster and find ways for combating environmental impact. Recommendations of internal investigation regarding the reasons of the crisis have been implemented in the drilling operations. In terms of brand image the company had long back adhered to the policy of green initiatives to build a sustainable brand image. In the period following the crisis additional effort were taken to construct the brand image by focusing on the restoring projects related to the Gulf area. The company pledges to use greater transparency in its communication with the stakeholders. Finally in terms of developing the public image it has been found that greater emphasis is now being given to sustainable and ethical practices. The organization is planning to strengthen its eco-friendly image by creating products that saves energy and has minimum impact on the environment. Despite the efforts that were taken by the company to improve its operational measures, brand value and public image, little has translated into material results. The public image of the company is not yet restored compared to the pre-crisis period and the expenditure incurred in rebuilding the brand is yet to yield effective results. However, it can be commented that the efforts taken by BP is commendable in terms of the long-turn research projects undertaken. The special measures framed at the corporate levels and strict adherence to them is likely to restore the public image of the company in the future. Works Cited “BP oil spill timeline.” The Guardian. The Guardian, 2010. 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