BP Stakeholder and Reputation Management - Research Paper Example

BP – Stakeholder and Reputation Management Contents Introduction 3 Stakeholder management 3 Reputation management 4 British Petroleum 4 An overviewof the oil spill 5 Stakeholder and Responsibility management of BP 6 Examples of an oil disaster 8 Reflection on the BP oil crisis 9 Conclusion and Recommendation for future 10 Reference List 12 Introduction The current paper highlights on the stakeholder and responsibility management in an industrial context. The company chosen as the subject matter is British petroleum (BP). The London based company has suffered major stakeholders’ issues after the disastrous Deepwater Horizon Oil Spill. The reputation management of BP was equally weak and forms an important point of discussion in the paper. Few other examples of similar disasters and their effect on the stakeholders have been cited in order to provide a deeper understanding of the topic. The issues are discussed in details so as to provide a comprehensive knowledge about the weak Corporate Social Responsibility (CSR) activities of companies such as, the British Petroleum. Stakeholder management It is the process of forming, monitoring and maintaining constructive relationship with the investors by overpowering their expectations of gain from the investment made. Stakeholder management helps a business to achieve the desired goals more efficiently by maintaining the investors’ satisfaction levels. It also enables the organisations to retain the existing investors and recruit new ones in an ethical and responsible manner. Stakeholder management forms an important part of business through which an organisation can develop its goodwill. Every sound organisation needs to satisfy the stakeholders in order to sustain in the business (Carroll and Buchholtz, 2014). Figure 1: Stakeholder Management (Source: Carroll and Buchholtz, 2014) Reputation management Reputation management involves activities that a business must perform in an attempt to create or upkeep goodwill in the eyes of public (Argenti and Druckenmiller, 2004). It involves identification of the individuals’ expectations from a business and taking necessary steps to ensure that the general consensus is in parity with the organisational goals. This term was originally used to denote public relations that are necessary for a company in order to sustain in the market. The disaster turned out to be an issue of search result over the web, following the advancement made in social media, computing and internet. There are various ethical forms of reputation management such as, responding to the customer complaints, restraining sites from displaying incorrect information and utilisation of the online feedback to influence the process of product development (Argenti and Druckenmiller, 2004). Figure 1: Reputation Management (Source: Argenti and Druckenmiller, 2004)) British Petroleum BP is a multinational oil and gas company that is headquartered in London. It is the fifth largest company in terms of revenue and ranks sixth in terms of production. BP operates in nearly 80 countries. It is one of the super-majors among the six oil and gas companies. BP is a vertically integrated company and operates in the areas such as production, exploration, petrochemicals, power generation, trading, marketing and distribution (BP p.l.c., 2014a). An overview of the oil spill The offshore drilling activity of BP had spewed immense amount of oil in the Gulf of Mexico, which resulted in loss of millions of dollars (Balmer, 2010). The London based oil company had faced the largest oil spill historically in form of the Deepwater Horizon Oil Spill. The company had to incur quite a large amount of out-of-pocket cost due to this disaster (BP p.l.c., 2014b). As a result, the reputation of BP had also declined. The reputational damage caused was too great to be redeemed. The stock of BP plunged to 8 percent in the American trade centres, which was unlikely as the stock prices were relatively high. The American Depository receipt of BP had fallen by 13 percent and closed at $52.56 (BP p.l.c., 2014b). The accident had rightfully threatened the organisational reputation built over last few years. The disaster overshadowed all efforts made by the company to furbish its reputation after the explosion in a refinery of Texas and the pipe line leak in Alaska. The blast led to a leak of 94 to 184 million gallons of oil into the Gulf of Mexico (Balmer, 2010). The leak resulted in massive devastation of the wildlife and local economy (Muralidharan, Dillistone and Shin, 2011). The stakeholders started associating the brand name of BP with all the tragedies resulting from mismanagement. In spite of the incident in 2010, BP did not show any initiative to stop the seepage (Muralidharan, Dillistone and Shin, 2011). Such negligence had irked the government officials of the country. The company failed to take any effective initiative even after the government offered their support for handling the damages. The potential partners of the company were also forced to seek better opportunities, thereby hampering the existing business relations irrecoverably. The primary stakeholders who were most affected by the disaster was the workmen who were present in the rig itself. Almost 126 people were on the platform when the rig exploded and 115 of them could be saved (Munilla and Miles, 2005). The Deepwater Horizon disaster killed 11 workers and reflected a weak safety standard of the company (Munilla and Miles, 2005). BP also refused the proposition of Mineral Management Service to incorporate programs of environmental management and safety within organisations. The company lacked sound environmental plans in order to cover the damage. The company had faltered at a time when the business was prosperous (BP p.l.c., 2014c). Following the devastation, stakeholders began to boycott associations with the company. Consequently, BP has suffered huge losses in terms of brand reputation. Stakeholder and Responsibility management of BP Replacement of CEO to regain stakeholder faith: BP replaced its chief executive officer soon after the disaster. Tony Hayward, who was the company’s chief executive officer, had taken poor decisions resulting in the loss of brand image (BP p.l.c., 2014c). The company undertook various initiatives to rebuild the brand image. It worked diligently so as to mend most of the damages caused. BP announced the news related to resignation of Tony Hayward from the position of CEO, soon after the second quarter reports were shared. He was succeeded by an American CEO, Robert Dudley. The replacement aimed to initiate the transformation in order to regain public confidence. The company started functioning under the new leader in a better way. As the spill occurred in the United States (US) and about 40% of the BP shareholders are located therein, the decision to hire an American CEO was taken (W.F. Harlow, Brantley and R.M. Harlow, 2011). The company made adequate efforts to realize opinions of the people residing in the US regarding BP so as to facilitate necessary business changes for regaining public attention. Dudley was able to better interpret expectations of the US residents. Dudley belonged to Mississippi, which was one of the Gulf States that were drastically affected by the accident. He was able to empathise with the locals who experienced issues arising from the oil spill. He had identified the problem and could connect with the locals, thereby helping to rebuild the company’s brand name (Kolk and Levy, 2001). He undertook effective steps to recreate the brand name of BP among the masses and stakeholders as well as fund the individuals who incurred losses. The company remained committed towards the monitoring and cleanup of activities, after an initial refusal to do so. BP invested more than $14 billion in the response activities. The company had to bear a loss of $17 billion dollars after setting aside $32 billion for cleanups in the Gulf of Mexico (BP p.l.c., 2014b). Monetary loss made to the stakeholders The US branch of BP had suffered a downfall and adversely affected wealth of the company shareholders. The shareholders residing in the US had experienced a considerable fall in their wealth (BP p.l.c., 2014). The company undertook little environmental and safety measures in its oil reserves. As BP was not a good environmental performer, it had failed to make environmental disclosures to shareholders. BP had to incur a large incremental cost for adaptation to the new oil and gas regulations. As a result, the company stakeholders had to suffer a loss in their wealth extensively (Post, Preston and Sauter-Sachs, 2002). Thus, the shareholders had lost their faith in the company, following the disaster. After the passage of four years, BP was found to have lost all money in the compensation funds. Consequently, the company started to pay out from the profits earned so as to redeem damages caused to the stakeholders (Kolk and Levy, 2001). Environmental loss It was difficult for BP to rebuild the lost reputation. The oil spill had inflicted immense harm upon the United States, where people and the environment suffered equally. There were millions of sufferers whom the company failed to compensate (BP p.l.c., 2014b). BP was involved into various legal issues following the accident, which accounted for huge monetary losses. The company failed to carry out its responsibilities’ towards the stakeholders in an effective manner. Necessary precautions were not taken to maintain the company’s top market position. BP, therefore, had a very weak and ineffective system of stakeholder management (BP p.l.c., 2014b). Reputation Management As a part of the reputation management activities, the CEO of BP had assured the stakeholders that the brand image will be rebuilt through proper channels of media (Argenti and Druckenmiller, 2004). BP was able to conduct these activities with the help of regular updates about the organisational progress. It started to utilize the social media, advertising and the press accordingly. BP employed the print media in order to share views about the responsibilities taken after the disastrous spill and also displayed certain findings ensuring that such tragedies never take place in future. Besides that, BP sponsored several tourism campaigns in the Gulf Coast. These are few examples of the initiatives taken in order to adapt to a sound reputation management system within the organization. Reactive approach to stakeholder management The stakeholder management approach of BP is reactive. The company ignored all activities conducted outside its boundaries. BP had completely ignored the risks associated with drilling with inadequate safety standards (Buysse and Verbeke, 2003). The company regarded profit with higher importance compared to safety. There are also several proactive companies providing greater importance to the stakeholders whose functions include building healthy relation with the government and the community. BP, on the other hand, had failed to take into consideration the stakeholders’ interests. The company required a more interactive approach to recognize the interdependence existing between the company and stakeholders (Buysse and Verbeke, 2003). The mutual respect and interdependence between BP and its stakeholders will imply that the company no longer dominates the people associated (Post, Preston and Sauter-Sachs, 2002). As a consequence, instead of a reactive approach, BP should adapt to a proactive approach to stakeholder management. Examples of an oil disaster The Rayong Oil Spill in 2013 is another example of a major disaster that affected many people. The company named PPTGC had owned the Thai oil hub. The oil spill had occurred in the Gulf of Thailand when oil was being transferred to a tanker from an undersea well. The oil spill of the Thai based company was so intense that it reached the beaches and rendered the sea water toxic. Almost 1000 people suffered after inhaling the toxic emission and needed to be hospitalized. After the disaster occurred, Rayong undertook little initiatives to compensate the losses borne by the stakeholders (Traynor, M., 2002). The people and the environment were equally affected. The oil company reported spillage of 50000L of oil, but the figures stated by the government and critics were higher (Traynor, M., 2002). The government of Thailand also warned the people residing within the affected area of elevated health risks caused by both the spill and chemicals used for dispersing the same. The company were unable to compensate the people affected by the disaster. PTGCC remained silent about chemicals used in the oil, but mentioned that it could be environmentally hazardous (Traynor, M., 2002). Inability of the company to maintain the oil hubs in a more socially responsible manner resulted in this major disaster. Reflection on the BP oil crisis A number of lessons related to the stakeholders and safety aspects can be realized from the oil crisis. These are stated below. Primary issues of an organisation: Every organisation should differentiate between the major and the least important issues faced. Similarly, BP should be able to distinguish the major issues from minor ones, but had failed to do so. The oil spill crisis and the consequent harm on stakeholders was a major issue that BP should have dealt with more care. Understanding of Failure and resilience: Through organisational resilience, BP can anticipate problems and facilitate the required changes to eliminate the same, thereby saving on additional costs incurred. The company must handle external pressures from the multiple stakeholders in a very strategically sound manner (Schultz, et al., 2012). BP should not compromise on the safety goals while fulfilling the efficiency and productivity goals. Rapid communication- It is very important for every business to manage commercial affairs in the most advanced manner. With rapid improvement made in technology, it can be utilized appropriately in order to maintain communication with the stakeholders (Carroll and Buchholtz, 2014). BP had realized the importance of social media by way of engaging extensively in the crisis outcomes. The oil giant could have profited in long run by incorporating proper reputation management within business operations (Griffin, 2007). Peer and Self Regulatory standards: Around 300 different self-regulatory initiatives and codes are prevalent in different sectors around the world (Balmer, 2010). With thorough enquiry and analysis of the best practices prevalent in the industry, BP should be able to adapt to one that suits the best (Perrini and Tencati, 2006). Similarly, every oil and gas company should follow voluntary regulatory practices that can contribute towards overcoming several problems. Danger of Over-Specification: The operations of various organizations and industries indicate a tendency to excessively control policies and over design organizational recommendations. Setting more number of policies and procedures to prevent accidents can be cumbersome and may act in favour of a company (Carroll and Buchholtz, 2014). Therefore, it is important for BP to have a simple structure of policy, thereby preventing all possible accidents and crisis. Conclusion and Recommendation for future The change required for prevention of a crisis does not solely demand for fundamental alteration and remodelling of various organisational policies. BP must also incorporate changes pertaining to culture, information practices and values. The company had encountered pressure to create value for the shareholders by way of cutting down costs, gaining more efficiency and improving profitability. In this process, the company failed to meet the stakeholders’ expectations as well. BP did not undertake adequate safety measures in its oil reserves. BP regards the short-term efficiencies with higher importance as opposed to long-term safety operations. Hence, BP must provide more importance to long-term safety goals compared to the short-term productivity and efficiency goals. The fulfilment of the safety goals should be core value of the organisation. BP was unable to manage the stakeholders properly. The stakeholder management had reflected a weak link of the company. Even after the explosion in a refinery of Texas and the pipe line leak in Alaska, BP did not undertake the required steps to mitigate problems faced by the stakeholders. The reputation management is a primary activity of any organisation. BP had not given sufficient effort in this respect, until the Gulf of Mexico crisis had affected its brand image. In aftermath of the incident, BP started to use social media advertisements in order to share details related to the company with all stakeholders. Despite the CEO replacement, BP failed as an organisation to incorporate policies ensuring a sound stakeholder and reputation management. Recommendations for future There are several recommendations for British petroleum that can assist in conducting the future activities more safely. It can help BP to regain the competitiveness in the market if it brings in some changes in the organisational framework. The list of recommendations can be laid down as follows: 1. BP should frame its rules and regulations in a more environmentally safe manner. 2. The oil giant should keep a check on all oil refineries extensively. 3. BP must instil more transparency in activities undertaken so that the stakeholders can feel more secure as a part of the company. 4. The company should incorporate environmental programs to spread greater awareness among the stakeholders like, employees, suppliers and customers. 5. BP should maintain a considerable amount of fund for attending to accidents and disasters so as to effectively manage any calamity and protect brand image. 6. The London based company should try to establish better connections with stakeholders and corporate governance activities must conducted efficiently. 7. Adequate Corporate Social Responsibilities (CSR) activities must be performed so that the company stakeholders feel secure and make investments without any hesitation. 8. BP should use the social media for communicating about the company status so as to attract more number of investors and updating the shareholders regarding business activities. 9. BP should also review the activities of the top level management. It should bring in the required changes in the management structure as per the need of the company. An experienced and knowledgeable team of mangers can control the functions of the organisation in a more professional and efficient manner. 10. BP should review all the recommendations so as to bring in more stability in the business. Therefore, considering the recommendations mentioned, BP can derive greater benefits as well as regain the lost status in the oil and gas industry. Implementation of the suggestions provided can considerably help other oil and gas companies, such as, PPTGC, to rebuild lost integrity and reputation. Reference List Argenti, P. A. and Druckenmiller, B., 2004. Reputation and the corporate brand.Corporate Reputation Review, 6(4), pp.368-374. Balmer, J. M., 2010. The BP Deepwater Horizon débâcle and corporate brand exuberance. Journal of Brand Management, 18(2), pp. 97-104. BP p.l.c., 2014. Investor. [online] Available at: [Accessed 6 August 2014]. BP p.l.c., 2014a. About BP. [online] Available at: [Accessed 6 August 2014]. BP p.l.c., 2014b. Gulf of Mexico restoration. [online] Available at: [Accessed 6 August 2014]. BP p.l.c., 2014c. Sustainability. [online] Available at: [Accessed 6 August 2014]. Buysse, K. and Verbeke, A., 2003. 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