Best Practice in Corporate Governance - Assignment Example

FN0360 ASSESSMENT: MODEL A College: Year of Study/Semester: 1st Task a) The management of BP can be praised for establishing and maintaining a culture of personal safety which was geared towards ensuring that workers were more aware of their personal safety. Workers were informed on rules and mechanisms to follow in order to avoid causing accidents thereby reducing the number of personal injuries that occurred while employees were on duty (Davies 2006, p. 106-120). Unfortunately, this created a false sense of security which eventually degenerated to a catastrophe. One decision to which the catastrophe can be attributed to is the 25% fixed on all the corporation’s spending. This left Texas City quite vulnerable to a catastrophe. The decision by the key actors in this BP’s case was founded on the need to ensure that the issue of non-compliance to public safety and health issues by oil companies was addressed. According to Campbell and Tom (2005, p. 551); Davies (2006, p. 106-120) corporations which do not subscribe to the appropriate business ethics do so because they have egoistic inclinations. It is imperative to note that failure to uphold ethics also amounts to lack of effective governance within the affected corporations. Ethics and governance issues in corporations lay the foundation upon which virtues within firms are laid. The action by the Safety and Hazard Investigation Board (CSB) to investigate BP was to audit its safety standards. Hence, this decision was based on the oil fire incident at BP which killed fifteen of its workers and injured a hundred and seventy others. However, the company had ignored this issue for a long time. The report notes that this company was plagued by years of cost cutting which in turn increased its vulnerability to this catastrophe in its refinery in Texas. According to Mortishead, (2005, p. 8); Davies (2006, pp 106-120) the decisions of BP through its management and workers of the company were based on the need to improve its image in the oil industry. From the BP’s case, there are a range of possible consequences based on the report findings. These consequences were changes triggered by the findings in the report. One such consequence is the improvement in the compliance to safety standards by BP and other companies as well. According to Stocker (2005, p. 453-66), in so doing, these oil firms would have to embrace the canons of ethics and governance. In this regard, they shall have to implement fundamental organisational changes to ensure they are virtuous. The other actual consequence is the loss of market leadership position by BP to its competitors. According to the CSB report, the company had been noted to be more concerned with profit maximisation through cost cutting at the expense of ensuring that its employees were safe. As noted by Carl, BP’s main concerns were in terms of meeting its production targets, budgets and operational goals but not safety. This was emphasised by the management’s decision to opt to cut costs with the main emphasis being on saving of such costs for other uses. To the other companies, this action by CSB would result to them being under both public and government enquiry over safety compliance. 2nd Task One of the key decisions culpable in BP’s case can be attributed to its top management in London to ignore audit recommendations conducted in its Texas refineries. The report had noted that this Texas City oil plant had serious safety management challenges which required to be addressed since it did not have a framework for safety training and maintenance. According to the CSB report, this can be attributed to the budget pressures within BP which thus impaired its safety management and performance. BP’s failure to learn from its previous mistakes as noted by Robertson aggravates its culpability. On the other hand, Texas City plant refinery manager’s decision to rule out investing into safety might help to mitigate the blame on BP’s top management. At the same time, it surmises that the inability by BP and the other companies to put in place safety measures was caused by the apparent absence of a holistic safety policy from OSHA. From Harding’s report, it is questionable as to whether BP actually invested the $ 1 billion at its Texas City plant as it had indicated. This is a clear indication that the company did not have ethics and governance principles since its management’s primary focus was on saving costs and maximising profits. Hence, it is justifiable to note that the company was being managed on egoism whereby it considered its interests first above the safety of its workers. Unlike utilitarianism, the company decided to do as it pleased as it ignored all the recommendations which pointed towards the need to have comprehensive safety measures at its Texas City plant. The inability of America’s OSHA to put in place responsive and effective safety measures due to lack of policy is also culpable. It is this absence of policy that made BP and the other oil companies to find it easier to ignore public safety issues. Evidently, this led to a series of fires with the overall result being loss of lives which would otherwise have been avoided. According to Mortishead, (2005, p. 5) the decision by Mr. Baker to savage BP for failing to implement appropriate safety management as it was required is praiseworthy. In this report, BP is exposed to the public for its shortcomings in terms of a breakdown in worker-management relations, insufficient safety resources as well as its short term focus. This was the case despite the fact that the company knew very well that it had a very old refinery drum. 3rd Task The M & S case, the ethical standard which can be used to lay blame is egoism. According to Lefkowitz (2006, p. 95), the main concern for egoists is usually to benefit at the expense of other people irrespective of whether they might be hurt or not. By so doing, they completely ignore the canons of entitlement and deontology theories. In this case the decision by the top management of Marks and Spencer to appoint Sir Stuart Rose as the overall Chief Executive without giving its largest shareholder; Legal and General adequate time for consultation is a clear indication that the this company was much concerned with achieving its interests. To Marks and Spencer, Legal and General did not have the right to fairness as is enshrined in the deontological rights. In this regard, the concept of procedural justice was violated from the perspective of Legal and General. According to the theory of deontology, the Chief Executive in question ought to have been selected through free flow of information and fair competition which is clearly lacking in this case. Based on these principles Marks and Spencer might be blamed since the violation of the aforementioned ethical principles is also a violation of the stakeholder theory. Hence, the appointment of Stuart was not transparent and was also disrespectful to Legal and General. To this end, Marks and Spencer is culpable since a similar concern was echoed by Association of British Insurers (ABI) through its head of investments. This is based on the “comply and explain principle” in which case Marks and Spencer seems to be having difficulties to explain to the other stakeholders on its decision. However, Marks and Spencer might be praised based on the Kantian principle in the event that this Chief Executive was qualified to bring the needed radical changes in this company. This means that it was necessary to hurt the other stakeholders dutifully but the greater good of the firm be upheld. This is also captured by the utility principle which is founded on the premise of hurting a few individuals in order to benefit the majority as was in this case. According to Lefkowitz, (2006, p. 249), virtue ethics is the other basis upon which Stuart’s appointment might be praised. This principle is based on the idea that individuals must be hurt for their own betterment since his promotion ensured that there is continuity in Marks and Spencer. In addition Lord Burns’ argument and views also displayed the utilitarian approach of ethical standards (Mallin 2007, pp 45-67). This is because the decision was geared towards producing the best results and leadership balance in the organisation. He argued that by giving Sir Stuart the additional powers of undertaking the chairmanship post the company was fighting for the best welfare of the employees, shareholders, customers and the community at large since the exit of Sir Stuart would develop a talent gap which would prevent the organisation, customers and the community from enjoying its benefits. 4th Task The outgoing chairman, Lord Burns’ words to justify his action of not providing sufficient time for consultations to other shareholders, makes him an egoist. This is illustrated when he attests to the fact that he had been preparing his successor for almost a year without consulting any one else. This is sufficient evidence to show that he was bent on getting his preferred candidate irrespective of what the other shareholders might think. Accordingly, such actions negate the very principles of ethics and governance. It is unreasonable for the outgoing chairman to expect the other shareholders to agree with him over Sir Stuart’s candidature for the said position (Hawkes, et.al, 2008, p. 6). His statement through the spokesperson purporting that there was only one exception to this appointment shows his perplexity since this decision is actually opposed by other shareholders in addition to Legal and General. In objection to this Stuart’s appointment is Peter Montagnon, on behalf of the Association of British Insurers (ABI), in which case he points towards the apparent lack of procedural justice in the entire process of this promotion sentiments backed by Susanna Rust, a Research Executive at Pirc when she notes that this appointment was a direct violation of the ethics of corporate governance. On the other hand, Sir Stuart in an attempt to justify his appointment as the Chief Executive and his intention to stand for elections, states that it would be extremely difficult for the company to identify a suitable successor. He goes on to justify his promotion by stating that no one had forced the firm’s outgoing chairman to appoint him but rather his promotion was borne out of consensus within the board. Such statements clearly indicate his lack of concern owing to the fact that he was appointed through minimal consultations with the other shareholders if any. Hence, it is possible to note that he is an egoist who believes in getting what he wants even if it means hurting others. His interest in power is also brought to the fore when he vehemently defends his good performance despite the open fact that the firm was performing poorly at the stock market. Hence, it is justified to state that he had crude craving for power based on an idealism of utopia. At the same time, Windsor, (2009, p. 309) says that critics to his promotion as the Chief Executive officer states that this post is in fact a duplication of duties which in turn leads to significant wastage of resources. 5th Task As it is in the wider society, regulations are important role in shaping the use of ethics or virtues within the business fraternity (Bleischwitz 2007, p. 63-87). With reference to BP’s case, one of the possible regulation changes that need to be in place is the creation of a policy that makes it mandatory for such companies to devote a given percentage of their total profits towards safety management. In order to ensure that this is implemented, it would be imperative to institute such requirements as a condition for one to be given license. In particular, this policy should demand from these oil companies to come up with safety management plans for their workers and the general public. This shall ensure that such companies shift from being centred on profit-maximisation to being upright as a matter of obligation. This policy should therefore address issues such as the need to have an adequate numbers and competent workforce, use of appropriate production technology as well as promotion of sound worker-employee relationship (Solomon 2007, p. 56). As noted by the Barker report, this responsibility lies on OSHA department to ensure that such oil companies comply with the required safety management standards. For this body to be effective such regulations should have penalties attached to the violation of this requirement as suggested by Paavola, (2007, p. 98). Furthermore, to avoid cases such as that within Marks and Spencer, companies operating under such framework should put in place clear and concise procedures of making such appointments. This would not only ensure for the upholding of ethics of governance, but would also reduce conflicts. In this regard, shareholders should be informed of their powers and limitations with respect to their proportion in the parent company. In order to enforce this regulation, the state would be tasked with the responsibility of coming up with a code of conduct on a range of issues including company leadership. At the same time, companies at their own level should come up with a binding in-house code of conduct to address these issues and foster tranquillity. In both cases, one can not afford to ignore the issue of organisational change and management. That virtues play a key role in regulating our behaviours is a fact. On the other hand, it is imperative to note that these virtues shape corporate culture since they act as benchmarks for rational thinking and decision making process. However, their implementation and adoption by organisations can be ensured through the creation of regulations with their associated penalties for their violation. Hoye and Graham, (2007, p. 172); Mallin (2007, p 45-67) write that without virtues, the concept of sound governance in an organisation would be a mirage. References Bleischwitz, R 2007, Corporate governance of sustainability: a co-evolutionary view on resource management, Gloucester, UK, Edward Elgar Publishing. pp. 63-87. Campbell, D & Tom, C 2005, Corporate governance and Business Ethics. Journal organizations and the business environment. pp. 546-560. Davies, A 2006, Best practice in corporate governance: building reputation and sustainable success, Aldershot, Hants, Gower Publishing, Ltd. pp. 109-120. Hawkes, S et.al .2008, They have an opinion. We have got an opinion. We won. End of story. The Times and Sunday Times. Hoye, R and Graham, C 2007, Team Rules: Ethics and Principles of Good governance. Journal of Sports Management. pp. 166-182. Lefkowitz, J 2006. The constancy of Ethics amidst the changing world of work. Human Resource management Review, 16(2), pp. 245-268. Mallin, CA 2007, Corporate governance, 2nd Ed, Oxford, UK, Oxford University Press. pp 45-67. Mortishead, C 2005. Bank the Savings!. A case study on Externalities about the two Reports into a disaster at BP Texas City Refinery in the U.S.A. The Times. Paavola, J 2007, Institutions and Environmental governance: A re-conceptualisation. Journal of Ecological Economics, 63(1), pp. 93-103. Solomon, I 2007, Corporate governance and accountability, 2nd Ed, Hoboken, New Jersey, John Wiley and Sons. pp. 56. Stocker, M 2005, The schizophrenia of modern ethical theories. Journal of Philosophy. 21(4), pp. 453-66. Windsor, D 2009, Tightening Corporate governance. Journal of International Management. 15(3), pp. 306-316. Read More