BP Pipeline regarding Ethical Behaviors and Decision-Making - Case Study Example

BP Pipeline Case regarding Ethical Behaviors and Decision-Making al Affiliation BP means British Petroleum. It is aglobal oil and gas company. The company’s headquarters are located in London. The company has faced several environmental crises that have led to several law suits and compensations to people affected by the oil spills and the explosions. This is due to the fact that the company has been involved in several oil spills and explosions. These include the explosion at the Gulf of Mexico, the Alaska tragedy, the Deep water Horizon drill rig and the Algeria oil spill. The most serious spills have been experienced between 2000 and 2010. This paper focuses on the 2006 oil spill and the 2010 Gulf of Mexico oil spill. The explosions and oil spills could have been prevented if BP could have replaced the corroded pipes and paid attention to maintenance and warnings given beforehand. When a company faces a crisis, it should take full responsibility of the crisis and not put the blame on the contractors like BP did. Keywords: BP (British petroleum), oil spill, explosion, negligence, ethical, environmental, cost-cutting Introduction BP is also referred as the British petroleum. The company has its headquarters in London (Jennings, 2009). The company has operations all over the world making it a multinational. According to Chew, it is the second largest company in Europe and the largest in the United Kingdom (2008). The BP Company has been involved in several environmental crises with the most serious ones being experienced between 2000 and 2010. In 2005, the Texas City refinery experienced an explosion which caused the deaths of 15 workers (Baladi, 2011). In 2006, an oil spill suspected to be as a result of pipe corrosion occurred at Prudhoe Bay (Baladi, 2011). Baladi points out that the most serious oil spill occurred “at the Deep water Horizon rig in the Gulf of Mexico on April 20, 2010” (2011, p. 207). This paper focuses on the 2006 oil spill and the 2010 Gulf of Mexico oil spill. According to Jennings, “BP’s Prudhoe Bay pipeline burst in March 2006 and resulted in a spill of 267,000 gallons of oil” (2014, p. 362). According to industry requirements, companies with pipelines are required to replace them after every five years. However, the last time BP had replaced the pipelines was in 1998 (Jennings, 2014). In fact, before the spill, a board member at BP had pointed out that he was concerned that the pipes had undergone a lot of corrosion and needed pigging. There was also a warning on increased corrosion in 2004 that was in form of an internal report in the company. However, despite these warnings, BP did not make any plans to test the pipeline and did not conduct any maintenance. Discuss in detail the ethical, negligence, and environmental issues you see in this case Many crises in companies occur due to negligence, poor control, lack of ethics and incompetence. BP failed to observe the proper environmental safety procedures during the construction of the oil pipeline in Colombia since the contractors were given a limited budget and had to work with it (Kline, 2011). This issue came up as BP dealt with the fallout from the report of the deep-water Horizon oil spill in the Gulf of Mexico and the closure of the Trans-Alaska pipeline leak. When the explosion and fire at the Deep water Horizon occurred killing 11 workers, gallons of oil had spilled into the water. As a result, the marine animals and people got affected. The fishermen in these areas were affected due to the decline of the fish. The beaches and surrounding marshes were closed for the public and many people feared that the environment would not recover. All the disaster was caused by BP’s management failure and its contactors, namely Transocean and Halliburton. The negligence was due to failure to report safety risks, which was endemic to the BP contracting team. The tragedy surrounding the explosion could have been prevented, but the BP team members compromised the safety and stakeholders cut their costs to maximize profits and save time (Fridell, 2006). The oil spillage in these areas had severe environmental consequences. The water got polluted due to the oil that spilled and hence it affected the marine life in the sea; many animals died due to lack of oxygen in the sea. Water is a good source of rain. This however got affected because when the conventional sea breeze occurs and the water evaporates, rain occurs. The farmers who depended on this water experienced losses; this is because the water wasn’t clean and healthy for the plants and the soil. Oil spillage causes a lot of harm to the environment, people, animals, soil and vegetation. BP had rented the rig from Transocean for $500,000 per day. Transocean had been recognized by the U.S. government for its safety record. Can companies distance themselves from liability and responsibility through the use of contractors? Contractors play a big role in a company, but when it comes to issues of liability and responsibility, the companies cannot distance themselves and have the blame placed only on the contractors. Contractors work according to the budget given and use the materials given by a company contracting them. If a company provides a low budget and low quality material to the contractors, they are obliged to use that. In the case of BP and Transocean, BP could not distance itself from taking responsibility. This is despite the fact that it had rented the rig from Transocean for $500,000 per day. Although Transocean is a much smaller company compared to BP, both companies were affected by the explosion and oil spill. Even after hiring contractors, a company should ensure that it investigates their work and point out any lapses. In the case of BP, it should also take responsibility. Discuss how BP got into the position in late 2006 and how should it have prevented the spill, the financial fallout, and the loss of reputation. Factor in the financial implications of any decision made during the period from 2001 to 2006. In March 2006, the largest oil spill occurred in Alaska and it was known as the Prudhoe Bay oil spill (Baladi, 2011). Several red flags had been raised about the corrosion in the pipes carrying petroleum, but the management ignored them. Earlier on, BP employees reported the presence of calcium in the line but nothing was done about it. The company was fighting corrosion on a limited budget. The corrosion was due to the lack of cleaning over the decades. The oil spillage could have been prevented by replacing the old alarms with new and accurate ones. BP management should have installed a new and advanced system and organized timely inspections. They should have installed new turbines and systems and should have insisted on proper maintenance. Finally, all worn out pipes ought to have been replaced. BP Company has experienced a huge financial crisis because of the oil spill; their net profit has reduced by half the price. The financial fallout had a major impact on the company as the profits were also hit by divestments. This has led to withdrawal by many stakeholders. Many investors have withdrawn their shares; this has made the company profits fall by $8.5 billion (Lerbinger, 2012). The company is facing uncertain times. The cash flow continues to worsen and the western sanctions are tight. BP will not be able to raise capital in Europe in the near future, and this could prevent BP’s billions of dollars in dividends over the next years. Things couldn’t have gotten worse for BP. Three months after the Deepwater Horizon explosion, millions of gallons of oil spilled into the Gulf of Mexico (Epstein & Ferber, 2011). The March 20th explosion and the sinking of the Deep water Horizon created a huge reputational and financial crisis for BP. The image of BP was shattered, as well the professed dedication and corporate social responsibility of the company. BP is still facing cleanup and legal charges, despite its image being damaged. BP had downplayed the whole issue so that it couldn’t be taken seriously, but when the disaster became so big to ignore, the company could not run away from the truth. Despite the poor reputation BP has experienced, it has on several occasions campaigned for environmental stewardship. The decisions made by BP between 2001 and 2006 led to a number of financial implications. One such decision was the cost cutting conducted in the company between 2001 and 2006. In 2005, the company’s executives reduced the budget by 25 per cent (Jennings, 2014). Jennings asserts that “tragically, the inattention and cost cutting were a direct contributor to the explosion at BP’s Texas City Refinery that resulted in a loss of 15 lives and injuries to 500 workers” (2014, p. 362). This also led to a fine of $ 87 million (Jennings, 2014). What was the impact of the emphasis in cost cutting on BPs culture? What was the influence on the company’s performance? As mentioned earlier “the inattention and cost cutting were a direct contributor to the explosion at BP’s Texas City Refinery that resulted in a loss of 15 lives and injuries to 500 workers” (Jennings, 2014, p. 362). British Petroleum’s cost cutting and shortcuts are to blame for the deadly and destructive oil spill in the Gulf of Mexico, as well as the Deep water Horizon drilling rig explosion. In 2005, BP continued with its cost-cutting policies and this led to the 2005 explosion (Jennings, 2009). In 2009, operational costs were cut by roughly 15%; this reduction in the budget undermined the company’s ability to operate safely and the personnel were overworked and stretched (Jennings, 2009). There is no measurement for measuring performance since performances are influenced by different factors. Several factors influenced the company’s performance, top among them being the decisions made. The company’s performance suffered due to this since it operated below budget. Evaluate the social responsibility positions of BP in light of the refinery explosion and the pipeline issue. What can companies learn from the BP experience? Social responsibility refers to a company’s value and behavior with the respect to stakeholders and customers. The environmental disaster that was caused by BP was uncontrollable. The leak in some of the areas flowed for approximately three months. The leak had caused great damage to the wildlife and marine habitats. Instead of BP taking care of the surrounding environment and the people around it, it destroyed the animals, polluted the water and caused deaths of people (OECD, 2001). Many people who depended on the sea from their livelihood, lost their livelihood and job because of the oil spill. Companies can learn a big lesson from the BP experience and the oil spill saga. Companies should try as much as possible to listen and not ignore employee’s advice on matter concerning the organization. Red flags are signs that something is going wrong and companies should try and prevent these red flags. Companies should learn to offer good quality material for the contractors to use in construction matters. Companies should be transparent to their employees and contractors. Reference List Baladi, J. (2011). The Brutal Truth About Asian Branding: And How to Break the Vicious Cycle. Clementi Loop: John Wiley & Sons (Asia) Pte. Ltd. Chew, D. H. (2008). Corporate Risk Management. New York: Columbia University Press. Epstein, P. R. & Ferber, D. (2011). Changing Planet, Changing Health: How the Climate Crisis Threatens Our Health and what we can do about it. Los Angeles: University of California Press. Fridell, R. (2006). Environmental Issues. New York: Marshall Cavendish. Jennings, M. (2009). Business Ethics: Case Studies and Selected Readings. Mason: South-Western Cengage Learning. Jennings, M. (2014). Business: Its Legal, Ethical, and Global Environment. Stamford: Cengage Learning. Kline, B. (2011). First along the River: A Brief History of the U.S. Environmental Movement. Maryland: Rowman & Littlefield Publishers Inc. Lerbinger, O. (2012). The Crisis Manager: Facing Disasters, Conflicts, and Failures. Oxon: Routledge. OECD. (2001). Corporate Social Responsibility Partners for Progress. Paris: OECD Publishing. Read More