The Specific Scenario of British Petroleum - Term Paper Example

British Petroleum Oil Spill, April Table of Contents Introduction………………………………………………………………………...3 2. Overview of Theories……………………………………………………………...4 3. BP Oil Spill, April 2010……………………………………………………………6 a. Overview of the Accident ……………………………………………………..6 b. BP’s Reaction in the Media………………………………………………….…7 c. Effect on BP’s Annual Report 2010……………………………………………9 4. Conclusion…………………………………………………………………………10 5. References………………………………………………………………………...11 Introduction This paper brings under the spotlight secondary research based on the theories documented on the behavior of companies in critical situations. Through the course of this paper, these theories are illustrated, compared and contrasted and critically reviewed. Some theories discussed are the legitimacy theory, the stakeholder theory and the institutional theory etc. The paper then discusses the specific scenario of British Petroleum (BP) massive oil spill in April 2010 that occurred in the waters of the Mexican Gulf causing irreparable damage to the waters and marine life of that area. This event is investigated in light of the company’s behavior post the oil spill and their consequent reaction in front of the press and as expressed in their annual reports. More specifically, this paper looks at how BP’s reaction post the disastrous oil spill ties in with the theories about company behavior. Overview of Theories There is extensive secondary research that discusses company behavior and explains how and why a company might behave in certain specific situations. According to the legitimacy theory, an organization only acts according to the behavior that is deemed correct and wanted by society it operates in and as deemed fit by other potentially influential parties; the actions performed by the company should thus be ‘socially acceptable’ otherwise the company will have trouble operating in a society that thinks of it as ‘unethical’, ‘immoral’ or ‘unable to comply with social norms or requirements’ and will be fast rolling downhill on its way to failure. (O’Donovan, 2002, p.344). Results of some empirical researches confirm the legitimacy theory (Branco and Rodrigues, 2006, p.232; Deegan et al., 2002, p.312) while on the other hand, some scholars and their studies outright reject the concept put forward by the legitimacy theory (Guthrie and Parker, 1989, p.343). According to research, the stakeholder theory explains how a company may be portrayed with regards to the internal relations between different units and individuals that comprise it and that this may manipulate the firm’s performance. According to this theory, the company’s stakeholders include not only shareholders, but also other groups such as employees, suppliers, society, etc that have an inherent stake in how the company performs. (Freeman et al., 2010, p.28; Jones, 1995, p.407). critics of the stakeholder theory say that the nature of the relationships between the management and investors are always different from the nature of the associations between the management and other stakeholder groups mentioned; and thus this theory cannot fully elucidate the company’s actions in a specific situation because it has to factor in the management’s response in order to satisfy the shareholder and the response in order to satisfy other stakeholder groups and it is unclear which response the company will ultimately opt for. Furthermore, the management is more interested in trying to maximize profits so it can maximize the shareholders’ wealth, while the stakeholder theory entails that the management’s actions that should also reflect the interests of other stakeholder groups including employees, government, creditors, etc. (Goodpaster, 1991, p.53; Phillips et al., 2003, p.479). Moving on, the institutional theory involves the concept that the company’s management should concern themselves largely with just the business models and customs when trying to explain or illustrate the company’s behavior with regard to a specific situation. Moreover, research has shown that companies try to work in harmony with these traditions even when globally ther have occurred critical changes in the operational business environment (Eisenhardt, 1988, p.489). Sometimes the companies keep on following old norms and traditions just to gain legitimacy I in the business society that they operate in (Dacin, 1997, p.46). However, this theory is not defined wholly just with regard to its key variables, standard variables and research tactics, it also factors in critical concerns such as the determining factors of the institutionalization levels and how these affect the companies’ behavior in specific situations has not been scrutinized as comprehensively (Tolbert and Zucker, 2005, p.170). BP Oil Spill, April 2010 Overview of the Accident British Petroleum (BP) is one of the largest and foremost oil and gas companies globally. Since the company has a vertically integrated structure, it is involved in all stages including the extraction of oil to the retail of the final product (BP, 2012, p.1). In 2010 the company faced a ruinous crisis when its drilling rig Deepwater Horizon in the Gulf of Mexico blew up on April 20, 2010. The cataclysmic disaster resulted in the deaths of 11 people and left many people critically wounded (BP Annual Report, 2010, p.6). The spill out of 4.1m barrels of oil continued for almost 90 days making this catastrophe the biggest offshore oil spill in the history of the oil and gas industry (Mason, 2010, p.1). A year passed since the terrible disaster and the scientists who had been vigorously studying the possible repercussions were still not sure about the complete extent of the environmental damage which the disaster caused. Further research is still required to provide a holistic detail on the matter for the destruction caused by the BP oil spill are too far reaching in the ripple effect caused by the direct environmental damages. (Kinver, 2011, p.1). BP’s Reaction to the Media British Petroleum’s behavior in the aftermath of the catastrophic crisis can be explained by theories aforementioned that illustrate company behavior and reactions to situations based on certain variables. On the day after the disastrous oil spill, the CEO of BP stated: “Our concern and thoughts are with the rig personnel and their families. We are also very focused on providing every possible assistance in the effort to deal with the consequences of the incident” (BP, 2010, p.1). This statement was issued with the purpose of portraying BP as having depe regret for how negatively people had been affect by the spill, while apologizing for its disastrous effects and assuring people that the company would do everything in its power to clean up its mess and make amends. Within three days of the disaster, BP issued three press releases that confirmed the accident and displayed genuine concern for the victims while offering support for all the affected people. From April 20, which was when the accident occurred to December 2011, BP issued 140 press releases concerning the terrible oil spill. Theoretically, BP’s actions fall under and can be explained by the stakeholder theory. The organization responded to all concerned parties, i.e. stakeholders, including the society to which they were answerable due to the immense and widespread environmental consequences in the aftermath of the BP oil spill. However, the CEO of BP’s first reaction does not fall under stakeholder theory. He transferred all the blame to a third party, Transocean, which was the company that owned and operated the rig for BP. The CEO asserted that it was not BP’s fault because they were not the ones in charge of the drilling in the rig. This statement and similar ones were issued only to create legitimacy for the company in the society and as protection from the attacks of blame it would have to suffer from the media which could tarnish BP’s market image and brand perception indefinitely in the society (Webb, 2010, p.1). Apart from this, the CEO’s statement can be understood as portraying BP’s desire to protect its shareholders from bad press and consequent falling profits at the expense of their other stakeholder groups, this shows that BP’s actions at this point in time favor the critical approach to the stakeholder theory (Goodpaster, 1991, p.53). Furthermore, notwithstanding instantaneous response from BP’s side towards the devastation, the US lawmakers and scientists supposed that the company was lying about the actual extent of the destruction caused by the spillage and was possibly trying to cover up the depth and width of the actual damaging consequences of the disaster to protect the image of the company in the society and the market it was functioning in (Driver and Big, 2010, p.1). Effect on BP’s Annual Report 2010 The annual report for 2010 was highly reflective of BP’s reaction to the disaster. O’Donovan (2002, p.344) says that companies reveal information in the annual reports only with the purpose of gaining support from the society and to retain their legitimacy in society. Companies that face social or environmental distress may improve their image with regard to social responsibility and accountability for their activities by providing more information in their annual reports that concerns ethics and environmental concerns (Deegan et al., 2002, p.312). This information is usually said in self praise as the company uses it to clean up the mess it has somehow created in a disaster that has happened on its watch (Deegan and Rankin, 1996, p.50). BP increased greatly the amount of environment related information in its annual report under the law of legitimacy and to counter the bad press it was receiving in the aftermath of th disaster. It kept repeating to the media how it would clean up its mess, compensate the people and make amends for its mistake, thus making sure that all stakeholders, including the society and the government, continued to foster a positive image of the company, as explained by the stakeholder theory once more. These changes in the annual report were useful for the investors, accountants, regulators, environmental groups and the community because they provided these stakeholders with additional insight about the disaster and how BP proposed to go ahead with the scenario (Summerhays, 2011, p.3). BP’s reaction was timely, even instantaneous according to the institutional theory (BP, 2010, p.1) however the company was still heavily condemned by the government because BP failed to stop the spill before it reached the coast (Robertson and Lipton, 2010, p.1). The oil spill was called a “cultural anomaly” (Hoffman and Jennings, 2011, p.2) and according to the institutional theory, companies lean more towards following traditional customs and are more agreeable not deviating from this path (Eisenhardt, 1988, p.489). However, the extent of the damage caused by the BP oil spill required some institutional changes to be made effective (Hoffman and Jennings, 2011, p.2) Conclusion In sum, BP’s actions need to be seen in linkage with the theoretical context. The legitimacy theory says that the company behaves in line with the expectation of society (O’Donovan, 2002, p.344). The stakeholder approach emphasizes the role of other stakeholders apart from shareholders and the nature of their relationship with the management (Freeman et al., 2010, p.28). The institutional theory says that companies have a tendency to act in line with societal norms and are rather unwilling to deviate from this path (Eisenhardt, 1988, p.489). BP’s behavior with respect to the oil spill of 2010 disaster can be explained by numerous theories. According to the legitimacy theory, BP issued press releases and included extra information about the spill in the annual report. On the other hand, the CEO initially tried to pass off blame to a third part (Webb, 2010, p.1). BP was doubted to be concealing the actual extent of the damage caused; these steps show that BP management wanted to keep its shareholders happy (Goodpaster, 1991, p.53; Phillips et al., 2003, p.479). According to the institutional theory, BP reacted according to norms and traditions already set. Due to extent of damage and the humungous scale of the disaster it is often termed a “cultural anomaly” from the viewpoint of the institutional approach (Hoffman and Jennings, 2011, p.2). References 1. Branco, M.C. and Rodrigues, L.L. 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