Ethical Issues Facing Shell and British Petroleum - Case Study Example

Business Ethics of BP and Shell Name: Lecturer: Course name: Course code: Date: Ethical Issues facing Shell and BP Introduction There is a conservative perspective that ethics and business do not integrate. Current corporations are increasingly showing that they can engage in sensitive ethical issues and commercial success. The objective to this combination is to demonstrate that the commercial environment is becoming effected by the same ethical issues that corporations are being anticipated to grapple with. Such ethical issues ought to be addressed by the system of organizational governance in an industry (Cadbury, 2001). The elements of ethical transmission mechanism have been outlined to help promote the integration of profitable and ethical decision making inside the organization. The adoption of an efficient market system has guaranteed self regarding economic decision makers who are available in a market associated with competent and knowledgeable buyers and sellers, are beseeched to behave ethically owing to their selfish desire to look flossy. First world governments continue to reinforce the ethical requirements of firms through such innovations as the US Federal Sentencing Guidelines of 1991. It provides a strong fiscal incentive to US corporations to avail a well thought out ethics plan (Ayres & Braithwaite, 2002). Leading companies are in the process of blending business ethics into effective management processes which provides ethical behavior as part of the employment contract. Ethical issues facing shell oil company i) Suppression and violation of human rights Shell oil captured global attention for their involvement that saw writer Ken Saro-Wiwa and 8 people from Ogoni subjected to an unfair trial and later executed by the Nigerian military government in late 2006. The hidden reason for their murder was that, they were protesting questionable operations of Shell Company in Nigeria. As media interest increased, Shell Oil was forcefully made to admit their primary involvement in the supply of guns to the Nigerian military government. Nineteen others were also detained without charge for their opposition of Shell’s operations (Cadbury, 2001). The company was accused of collaborating with the Nigerian military government. After admitting to paying the military, Shell withdrew their complaint about the program. ii) Exploiting Employees Shell Oil has vehemently opposed trade union activities and actively played a leading role in strategies of the Oil Industry to de-recognize trade unions in the United Kingdom. The specific practices of individual companies coupled with ingrained attitudes adopted by the present system of exploitation vests more power and profits to a minority, at the expense of the majority people, animals and more so the environment (Hood, 2005). It is crucial to expose the unethical practices of companies like Shell and BP since their practices and culture is indicative of the whole system. iii) Environmental Destruction One of Shell's oil storage premises called Brent Spar is outdated and requires decommissioning. The British government gave Shell the permission to dump Brent Spar in North Sea, in a deep water trench. In other places, like the Gulf of Mexico, oil storage platforms have been disposed and separated of on shore (Hood, 2005). Greenpeace UK, being a strong advocacy stakeholder quickly reacted successfully to the situation that forced Shell to back down. Shell of late, began operations in Peru, causing damage to the environment and the local people, though they are putting more efforts to minimize. Local people have serious claims to the disappearance of wildlife habitat and polluted rivers. Ethical issues facing BP Currently, an effective agreement among the world's leading scientists, well-informed people from the non-scientific community indicates to the distinguishable human influence on the climate and a connection between carbon dioxide concentration and rise in temperature i) Refinery explosion in Texas On March 23, 2005, an explosion at BP's Texas City refinery killed 15 people and injured other 170. Two months earlier, consultants outsourced by a Texas City engineer, published a safety behavior and culture assessment which entailed an employee survey requiring workers to talk about their fears of dying (Ayres & Braithwaite, 2002). The 1200-acre Texas City refinery was built in 1934, but was acquired in 1999 from Amoco at $61 billion by BP (Hood, 2005). Amoco management had kept postponing major refinery upgrades which would have considered the antiquated blow down drums replacement. To save money, they had decided against it. In 2002, BP had also contemplated updating the blow down drums but again like Amoco decided against it and the disaster was in the offing. March 23, 2005 explosion ensued with excess gas and liquid flying out of the vents of blow down drum. ii) Accident and spills in Alaska BP owns a vast oil field in Prudhoe Bay in Alaska's North Slope. It accounts for 8 percent of America's domestic oil production. In 2002, Don Shugak, an oil worker was injured while inspecting an oil rig in Prudhoe Bay (Cadbury, 2001). The accident agitated workers to demand safety concerns by BP management, a situation which was ignored. Earlier in 2001, workers at the Prudhoe Bay facilities had demanded safety concerns to BP management which was taking cost-cutting safety and outlines recommendations as lack of trust (Eatwell, 2008). The aftermath of the Alaska spills saw serious questions being raised concerning pipe quality inspections. Many incidences of inspection were carried out by subcontractors who lacked certification or proper training. Some of these shortcomings included the violations in compliance requirements, poor record keeping and the recruitment of uncertified inspectors. It is not a surprise to learn of the allegation that BP places profits ahead of the environmental concerns. BP’s consequent failure to stop the oil spill, which is the worst in the United States history, is indicative of a bigger problem with companies that have subscribed to the running paradigm in management today: stakeholder theory (Eatwell, 2008). The concept that companies can satisfy the demands of some stakeholders leaves them vulnerable to moral abuse without normative principles at its center. Preliminary results into the inquiry to the cause of the Gulf spill, unravels important failures of equipment designed to stop a possible blowout. What remains unclear is the degree and time at which BP was aware of equipment failure (Hood, 2005). However, eyewitness majority rig workers claim that BP was aware weeks before the blowout of the equipment malfunction. According to stakeholder theory, though BP may claim to be unaware of the technological malfunction, they would have reconsidered potential equipment failure and environmental harm as opposed to cost and profit seeking (Ayres & Braithwaite, 2002). From a strategic management dimension, BP would have to refocus the natural environment as a stakeholder and take measures to include environmental elements into their goals, plans, and structures as a means of attaining an overall company strategy (Eatwell, 2008). But what is missing is the ethical content within strategic environmental management system of BP. Stakeholder theory would be right point out the environment as a stakeholder but it gives no guidance concerning the ‘how’ ethics or what we must to do to protect the environment. From a moral approach, BP should have halted drilling and repaired the blowout preventer before going on even if it is expensive. After all, right thing to do is guided by morality and demands that humans forgo self-interest for the wellness of others. However, from a stakeholder dimension, nothing demands BP to halt drilling so long as they protect the interests of all stakeholders compared to their own interests. A moral perspective would demand that a manager to identify other sources for inspiration, like philosophical arguments, to establish if polluting the ocean with oil has ethical legitimacy (Jones & Pollitt, 2006). The Deepwater Horizon drill rig explosion has been investigated and BP executives are being accused of placing drilling costs ahead of well safety so as to save time and money. Executives conceded to provide more weight to cost saving and prospective profits at the expense of environmental considerations. The mass loss in the seafood industry was evident giving rise to decades of decimated oceans tucked away from future generations. Given the financial demands of employees and executives, it is hard to assume that they will balance the ethical decisions under stakeholder theory (Ayres & Braithwaite, 2002). When justification of one stakeholder over another is done, usually favors goes to the shareholder which creates unrealistic efforts to balance with any success. Comparing and contrasting Shell and BP The messiest industry is oil when viewed in pretty much every way conceivable. There is no existence of such thing as clean oil, or an environmentally conscious oil company. However, degree of responsibility exists. Like in business ethics, oil companies have been associated with some very dirty business in the past, and some realistically have bloody hands. The second quarter results of Shell Company in 2006 saw the Friends of the Earth calculate that the company is allocating a tiny proportion of its assets into renewables more than the dismal amount being used by its major arch-rival BP (Eatwell, 2008). Owing to the crude method of assessment, the environmental organizations demanded the Government to take on companies to apply common standards and indicators while annually reporting on their environmental and social performance. Shell and BP declare their financial results in a span of two days of each other in quarterly periods. However, the lack of similarity of standards in environmental performance reporting complicates non-financial comparisons. Most significant comparison to undertake on environmental issues is what percentage of each company’s investments are being channeled into clear, green renewable energy as opposed to finding fossil fuel to burn, giving rise to more lethal climate change. The calculation also assists test of how much every company's investments compare with their claims of going green and advertising. BP or Shell has not given sufficient information in their quarterly results to provide who is investing, in proportionate terms, the most in the fuels of the future. BP has applied huge effort into green branding with whole newspaper page and consistent weekly TV adverts suggesting that the company is confident in thinking beyond petroleum. In 2005, the company accounts shows that it was investing about $800m annually in alternative energy which is about 5.7 percent of the total capital investment of $14,149m in 2005. In the same year, 72 percent ($10,237m) of new capital investment of BP's in 2005 was used in exploration of more oil and gas (Eatwell, 2008). Green claims usually dominate Shell's corporate advertising. It gives the impression that it is well and positioned to become clean and green. Shell is investing $200m on average annually in renewables accounting for about 1.1 percent ($17,436m) of the total capital investment. In contrast, shell spent ($12,046m) which is about 69 percent of new capital investment looking for more oil and gas. These figures shows that, Shell and BP’s investments in renewables account for a minute proportion of their entire investments and both companies are still very ideal in addressing green energy (Cadbury, 2001). They are yet to come close to actualizing the impression they are showing customers about going clean and green. The government has a great opportunity to hit on these misleading claims and to allow a realistic comparison between BP and Shell by reinforcing its Companies Bill when it is back to the House of Commons. The bill ensures Companies Bill comprises a common reporting standard and allows important Performance Indicators to be addressed on a number of canonical issues, like climate change and energy efficiency. The ratio of BP and Shell's investments in renewables should come close to the ratio of their advertising budget. It would help address the dangerous climate change (Ayres & Braithwaite, 2002). In reality, both companies are taking massive green claims while undertaking unsustainable business known. Quarterly, investors compare financial performances of these two companies but less on their environmental performance and, specifically, climate change (Eatwell, 2008). If the Government is even non committal on addressing these most grave issues, they should demand all big companies to report to a similar auditable standard on environmental issues. Responding to ethical challenges Shell Company was successful in North Sea, to stop dumping a decommissioned oil storage platform by aid of Greenpeace organization. The firm assisted them to draw up an environmental assessment. In Nigeria, the company made a $15.5 million human rights settlement to help pacify the Ogoni people and set a new tone for the future. It was an out-of-court settlement which was not easy route, but highly sensible one for all involved parties (Ayres & Braithwaite, 2002). Desperate to regain its reputation, Shell put measures to remove shareholder fears. For instance, Shell offered to eliminate the application of consistent flaring at all Nigerian sites and also to clean up the oil spills on Ogoni land. In early 2006, Shell carried out a huge revision of its business principles and values. It was necessary and seen to be belated. Although concerns over brand value were an elementary motivator, the oil company was also conscious to liabilities in environmental and social portfolios which were generally overlooked. Being its biggest change, Shell recruited a consultancy group to carry out a broad public relations campaign to publicize its new open approach to heeding the voice of stakeholders (Ayres & Braithwaite, 2002). In effect, Shell outsources Community Service Responsibility (CSR). The initial CSR objective was to focus on transparency. Shell managed to disseminate information on health, safety, and environment performance matters. This information helped to establish if Shell’s self-imposed targets, meant to lower the environmental impact, were realized (Hood, 2005). On the other hand, BP has since conceded that more than 19 inspectors, employed in more than 13,000 inspection points, had no certification. There are claims of problem solving owing to at least 10,000 inspection points re-examined. BP maintains that it acknowledges the important environmental and social problems faced by the contemporary world. It believes it is possible, and thus, plays a role in addressing and resolving a number of the issues connected with sustainable development (Eatwell, 2008). It also concurs that while the firm can provide solutions; it cannot and should provide every solution. Governments, civil society and companies need to find effective ways of collaborating. Alongside the financial figures which are standard, BP gives a report on its greenhouse gas and other emissions like oil spillages. It also provides reports on employee satisfaction, lost days as a result of injury at work, and community investment worldwide (Hood, 2005). BP's policy statement guides the company to aspirations and far ranging business principles. The company's reporting endeavors to show how it is going to meet these commitments in a way that sustains the profitability of the business. The company also experienced operational hardships in Alaska and the serious destabilizing effects of huge and at times lopsided media scrutiny and criticism. Along this context, the goals recorded were remarkable and a broad testimony of its team worldwide (Ayres & Braithwaite, 2002). Some measures were put forward to improve working conditions through increasing levels of personal safety, with reported lowest injury frequency. In addition, continuous improvements in environmental ramifications across a range measures need to be made. There should be a desire to develop people by including a rise in the number of women in leadership. Obviously, a strong financial performance permitting future investment and to extending rewards those who trust the company with their savings Recommendations for ethical business practice by shell and BP Most companies in the past have demonstrated little or no interest in ethical behavior monitoring and that at present, few companies a willing to take a gauge of their ethical behavior. Shell and BP should choose to put ethics high on their agenda (Eatwell, 2008). These should neither be arising from increased ethical challenges than other large companies nor being unusually high-minded but rather it should be because it is thought as the right place for employees worldwide, partners, industry, and communities in which it does business. It should also be for its reputation, current performance and posterity (Cadbury, 2001). In reality, being ethical in a business sense entails such things as averting corrupt business practices which include bribery, clandestine or crooked accounting practices, excessive entertainment and generous gifts (Hood, 2005). There should be greater respect for human rights in addition to averting harm to people and the environment and eliminating conflicts of interest and loyalty. Basically, ethics should be regarded as a performance issue that can be managed like any other business issues in relation to performance. It entails adopting clear policy commitments, regular and consistent delivery improvement, and leadership and accountability improvement. They should be consistent with the company’s fundamental values (Jones & Pollitt, 2006). There are some other factors which should be taken into consideration like the industry's size and strategic importance. For instance, the company should be closely regulated and individuals allowed enjoying a high degree of discretion with regard to own interpretation of these regulations. Private sector companies' reiteration on results seems to promote the officials' negotiating position (Ayres & Braithwaite, 2002). With the changing legal environment, the company should and must comply with the government policies and regulations. The company should steer to benefit from more immediate, market-led pro-reform proposals. Events such as the occasional high-profile corporate scandals, and spread of ethical investing trends should put the organization into laying greater emphasis on corporate social responsibility and corporate governance. There is unmistakable and indispensable influence of stakeholders like communities, customers and non-governmental organizations as they increasingly become outspoken on the topic of "ethical" behavior in the corporate world (Jones & Pollitt, 2006). Additionally, employees’ opinions are geared towards feeling good and esteemed about the companies they work for and as a result assist in recruitment staff, retention and motivation. The companies should demonstrate open behavior and accountable reporting which are widely recognized throughout the current world. Businesses that acknowledge good behavior and follow accordingly are swimming along tide but not against it. A global environment is enhanced by looking at the broader context as shown in increasing all-round demand for both large and small companies to show accountability for their activities and enhance a more ethical behavior (Cadbury, 2001). Finally, companies should subscribe to commitments and update to reflect dynamic expectations, but always staying with the same intentions. They should also follow to the latter the principles and vision of ethical conduct through respecting the rule of law, not participating in, or condoning, corruption or business practices that are not acceptable like taking or giving bribes. Besides, they should support the UN Universal Declaration of Human Rights principles and ultimately anticipate the same commitments from those acting on their behalf who happen to be third parties. Words need to be put into action so as to bring the outline of Shell and BP into context. Their goals should be clear: conduct business with integrity and work to the commitments, and acknowledge to the dynamic external environment (Jones & Pollitt, 2006). References Ayres, I & Braithwaite, J 2002. Responsive Regulation, Oxford: Oxford University Press. Cadbury, A (2001). ‘The Role of Voluntary Codes of Practice in Setting Ethics’, In Jones, I. and Pollitt, M. (eds.) The Role of Business Ethics in Economic Performance, Basingstoke: Macmillan. Eatwell, J 2008. ‘Ethics and Self-Interest’, In Jones, I. and Pollitt, M. (eds.) The Role of Business Ethics in Economic Performance, Basingstoke: Macmillan. Hood, N 2005. ‘Business Ethics and Transnational Companies’, In Jones, I. and Pollitt, M. (eds.) The Role of Business Ethics in Economic Performance, Basingstoke: Macmillan. Jones, I W & Pollitt, M G 2006. ‘Economics, Ethics and Integrity in Business’ Journal of General Management Vol.21, No.3, pp.30-47. Read More