On the 20th of April 2011 detonation at Deepwater Horizon rig in the Gulf of Mexico killed 11 workers and led to the largestA oil spill in the crude oil industry ‘s history.
Allotment of incrimination is likely to be contested in the jurisprudence tribunals for old ages to come. Who – i.e. which stakeholders – bash you see has to portion some duty for the accident – or make you see it an finally unpreventable accident, in today ‘s planetary economic system?
Trying to acquire out of the PR wars on the oil spill, 4 month after the calamity on September 8th, 2010, BP issued its ain internal 234-page study. BP cited at least eight mistakes of judgement and equipment failures that caused the detonation that sank the rig. BP concluded that “ a complex and interlinked series of mechanical failures, human judgements, technology design, operational execution and squad interfaces ” contributed to the incident.
The company accepted merely shared duty for the detonation and pointed fingers at its contractors – Halliburton, which provided cement for the enlarged Macondo well, and Transocean, the proprietor of the Deepwater Horizon. Transocean assailed the BP study as “ self-seeking, ” postulating that BP ‘s “ fatally flawed good design ” set the phase for the rig detonation 50 stat mis off the Louisiana seashore. Halliburton, which did the well cementing, said it found a “ figure of significant skips and inaccuracies ” in the study and “ remains confident that all the work it performed was completed in conformity with BP ‘s specifications. ”
BP ‘s internal probe study was met with unfavorable judgment by watchdog groups who questioned the company ‘s motivations. Wenonah Hauter, executive manager of non-for-profit organisation Food & A ; Water Watch told IPS News Agency: “ BP is administering the incrimination and deflecting duty for the incident so they can warrant their continued operation in the Gulf ” .
“ Rather than accept the incrimination and fiscal effects for its catastrophe, BP is go oning to indicate fingers at everyone it can, ” said Kieran Suckling, executive manager of the preservation group Center for Biological Diversity. “ BP is clearly seeking to restrict its fiscal liability by faulting other companies and denying at that place was condemnable carelessness, ” Suckling said. “ If the Department of Justice concludes that BP was reprehensively negligent, its mulcts under the Clean Water Act will quadruple from 1,300 dollars per barrel to 4,300 dollars. That is more than a 10- billion-dollar difference. ”
One month after the accident on May 21 President Barack Obama established the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. The Commission examined the relevant facts and fortunes refering the root causes of the Deepwater Horizon detonation and developed options to guard against, and extenuate the impact of, any oil spills associated with offshore boring in the hereafter. This included urging betterments to federal Torahs, ordinances, and industry patterns. A concluding study on the Commission ‘s findings was presented to the President on January 12, 2011.
Harmonizing to the study, “ the Macondo runaway was the merchandise of several single trips and inadvertences by BP, Halliburton, and Transocean, which authorities regulators lacked the authorization, the necessary resources, and the proficient expertness to forestall.
Halliburton and BP ‘s direction processes did non guarantee that cement was adequately tested. Halliburton had deficient controls in topographic point to guarantee that research lab testing was performed in a timely manner or that trial consequences were vetted strictly in-house or with the client. In fact, it appears that Halliburton did non even have proving consequences in its ownership demoing the Macondo slurry was stable until after the occupation had been pumped. It is hard to conceive of a clearer failure of direction or communicating.
BP, Transocean, and Halliburton failed to pass on adequately. Information appears to hold been overly compartmentalized at Macondo as a consequence of hapless communicating. BP did non portion of import information with its contractors, or sometimes internally even with members of its ain squad. Contractors did non portion of import information with BP or each other. As a consequence, persons frequently found themselves doing critical determinations without a full grasp for the context in which they were being made ( or even without acknowledgment that the determinations were critical ) .
Decision devising processes at Macondo did non adequately guarantee that forces to the full considered the hazards created by time- and money-saving determinations. Whether purposeful or non, many of the determinations that BP, Halliburton, and Transocean made that increased the hazard of the Macondo blowout clearly saved those companies important clip ( and money ) . There is nil inherently incorrect with taking a less-costly or less-time-consuming alternative-as long as it is proven to be every bit safe. The job is that, at least in respect to BP ‘s Macondo squad, there appears to hold been no formal system for guaranting that alternate processs were in fact every bit safe. ”
The study summarized that “ the accident of April 20 was evitable. It resulted from clear errors made in the first case by BP, Halliburton, and Transocean, and by authorities functionaries who, trusting excessively much on industry ‘s averments of the safety of their operations, failed to make and use a plan of regulative inadvertence that would hold decently minimized the hazards of deepwater boring. It is now clear that both industry and authorities demand to reevaluate and alter concern patterns to minimise the hazards of such boring ” .
BP ‘s claim about catastrophe in the Gulf of Mexico to be the “ ineluctable accident ” was really driven by a foolhardy chase of net incomes and selfish neglect for our planet.
Question 2: If you were Tony Hayward, how would you hold acted in the immediate wake of the accident?
It is easier to state what I would hold done being a Chief executive officer of BP after analysing what Tony Hayward did incorrect during the incident in the Gulf.
BP ‘s handling of the Deepwater Horizon crisis under its former CEO Tony Hayward may be seen as a “ text edition ” instance of how non to pull off an endeavor in a period of reputational crisis. On June 17 Tony Haywood stonewalled the House Energy and Commerce Subcommittee on Oversight and Investigation by declining to supply information he knows as head runing officer. He was recorded stating a camera adult male to “ acquire out of there ” during a photo-op on the shores of Louisiana.
Hayward ‘s summer of PR catastrophes culminated in his public declaration that “ I ‘d wish my life back, ” and he went to take part in the JP Morgan Asset Management Round the Island yacht race off the Isle of Wight in the UK, while Gulf occupants struggled with the effects of the spill. He was widely criticized for his remark which was perceived as selfish and he subsequently apologized for it on BP America ‘s Facebook page.
President Obama ‘s head of staff Rahm Emanuel wryly observed on American web intelligence that “ I think we can all reason Tony Hayward is non traveling to hold a 2nd calling in PR consulting. ” In an interview on NBC on 8 June, 2010, Barack Obama said that Hayward “ would n’t be working for me after any of those statements ” , mentioning to the comments BP CEO made following the spill.
In a talk at Stanford Business School in May 2009 Hayward declared to the concern pupils that “ … our primary intent in life is to make value for our stockholders. ” Subsequently his statements that focused merely on the single corporate remit have besides been quoted outside the context of the full talk. Hayward ‘s point of position is in line with Milton Friedman who wrote in his celebrated 1970 ‘s article in The New York Times Magazine, that “ the 1 and merely societal duty of concern, is to increase net incomes for stockholders. ”
General thought of Friedman was that merely people can hold duties, but non concerns. The people who are hired by concern proprietors have a duty chiefly to their employers, to run into their desires which in most instances are net incomes. General public view the company as a whole representative and if CEO ‘s error leads to an mistake is societal judgement, the populace will judge the whole company, non merely this individual.
It has been proven clip and whilst CSR has yet to be harnessed to make a important positive difference to net incomes, a negative policy can destruct net incomes. The costs BP saved by taking hazardous determinations at Deepwater Horizon have eventually gone to many other stakeholders – occupants of the Gulf, authorities, concern proprietors. “ BP cut corner after corner to salvage a million dollars here and a few hours at that place, ” said Henry Waxman, whose commission was look intoing the Deepwater Horizon accident in the US. “ And now the whole Gulf Coast is paying the monetary value. ”
Some theoreticians believe that CSR stops concerns executing to their full potency and stultifying the economic system. My sentiment is that an effectual CSR policy together with efficient selling and clear concern scheme could assist a concern grow to larger net incomes whilst besides profiting society.
Ironically plenty, Tony Hayward was one of the cardinal advocates of CSR in 2005, giving a address about corporate duty and its increasing importance at BP. This was when Lord Browne was CEO and CSR was deriving more attending. But since mid-2007 many factors have weakened under Tony Hayward ‘s leading, including contractor human deaths and nursery gas emanations. Environmental and safety mulcts spiked upward in 2009 and hydrocarbon flaring has about doubled since 2007.
Sum uping the reply, if I was a Chief executive officer of BP I would pass all my clip in the US to see what ‘s go oning on a regular footing and actively communicate with US disposal for coordination of clean-up attempts. I would non lie about the size of calamity from the beginning and will non seek to corrupt ecologists in efforts to conceal the existent consequence of the oil spill. The leader is ever needed at the clip of crisis which Tony Hayward has failed to be.
Question 3: If you were a member of the BP board what would you be urging at this point that BP should make about the catastrophe flowering in the Gulf of Mexico?
BP lost $ 95 billion in market capitalisation within a few hebdomads of the Deepwater Horizon detonation, with its stock priced back to 14 old ages. There was a clear disproportion between the company ‘s market losingss and even the most pessimistic estimations of killing costs – that ne’er exceeded $ 30 billion – this was an indicant of the costs of this reputational hazard crisis to BP. While houses today recognize the value of trade name definition as a competitory advantage in the market place, repute remains an frequently underestimated constituent of a company ‘s value.
Corporations sing a public crisis, such BP in 2010 undergo what is termed “ reputational hurt. ” This construct was foremost coined by Stephen Greyser, Professor Emeritus at the Harvard Business School, and describes the critical period following a crisis event when a company ‘s direction is at hazard of losing the assurance of the markets. Reputational hurt can ensue in important impact upon a house ‘s market capitalisation, every bit good as its corporate repute, in correlativity to how the crisis response of the house ‘s direction is represented in the markets and the mass media.
Brand Finance Plc, the universe ‘s prima trade name rating consultancy, estimated that the radioactive dust from the detonation at the Deepwater Horizon rig has caused BP ‘s trade name value to plump by $ 7.4bn, stand foring a 61 % autumn ( or ?72m per twenty-four hours ) . Having spent many 1000000s on advancing its “ Beyond Petroleum ” strapline and positioning itself as the most environmentally friendly of the oil companies, this catastrophe has had a extremely damaging impact on its trade name value globally, particularly in the US.
In contrast to BP, the actions of Johnson & A ; Johnson in the instance of the Tylenol fiddling dirt represent a “ best patterns ” illustration of how a house can successfully pull off reputational hazard. Using a crisis scheme defined by aggressive transparence, Johnson & A ; Johnson retained public and market assurance, ensuing in the value of its portions rapidly bouncing from immediate losingss and the Tylenol trade name really going the industry leader shortly thenceforth. Reputational hazard direction can therefore represent non merely a challenge, but an chance.
Traditionally in CSR the Bottom Line refers to the fiscal and economic duty of the company that is doing net incomes. Recently introduced by John Elkington ( 1994 ) Triple Bottom Line theoretical account gives a wider position of duties of organisations which evidently encompasses fiscal facets and besides environmental and societal impacts of the company. The use of the ternary underside line allows companies to measure their success non merely in their economic field but besides in the environmental and societal 1s.
BP presently remains a member of United Nations Global Compact. This is a high-profile CSR strategy, which requires houses to adhere to 10 rules which require to take a precautional attack to environmental challenges, promote environmental duty, and promote the development of clean engineering. The oil spill in the Gulf of Mexico appears to supply grounds that BP has non adhered to the rules and could sabotage its credibleness as a signer to the Compact.
Harmonizing to Mary Ann Ferguson, professor of PR at the University of Florida, “ when a company has a good repute, people will appreciate its high-fit CSR plan. But if BP tries to utilize high-fit CSR to foster its public image, it may make itself more harm than good. Before you develop any high-fit CSR plan, measure your company ‘s repute foremost so you do n’t merely bring farther injury ” . Once the company name is tarnished, high-fit CSR tends to bring forth lone incredulity. In other words, it backfires.
If I was a member of the BP board at the clip of the scheduled board meeting in London in May 2010, foremost of all I would urge that the board meeting should be convened in Louisiana, sooner transporting portion of it on one of the support vass, engaged in the oil spillage settlement operation, so that all board members can see for themselves, what has happened and received first manus information from the exigency operations crew. The 2nd portion of the board meeting should hold been carried on the shore in Louisiana, and representatives from the cardinal stakeholders in US such as regulators, environment protection bureaus, NGOs, angling community, should hold been invited to this meeting. This small measure, which would n’t be much would hold helped to alter the public perceptual experience of the company ‘s attack to the job.
Second, Tony Hayward should hold been removed by the board at this meeting, and a new interim Chief executive officer with specific boring and catastrophe direction experience should hold been appointed at this clip, demoing BP ‘s dedication to neutralize the catastrophe, therefore conveying person with hands-on attack alternatively of damaged CEO. At this clip I would besides propose that the company get down supplying accurate estimations of the sum of oil sloping from the well, alternatively of seeking to lead on the media and professionals. BPs move with take downing estimations of the oil spillage has done more harm than good. The inconvenient truth is less harmful that the sweet prevarications.
The following measure would be stop seting incrimination on subcontractors Halliburton and Transocean and get down working together seeking to happen fast and solid solution of the job. BP looked truly silly with its biased internal study which has put most duty for the catastrophe to its contractors. Was n’t it BP – the proprietor of the rights to the well, who selected those contractors in the first topographic point? I am certain that BP has done their due diligence before engaging these companies.
Last, but non least is to get down paying serious attending and puting important financess into catastrophe settlement in the communities along the Gulf. BP has to pull attending of chiefly US every bit good as universe media to the attempts which company is set abouting in the sea and on the land along the affected seashore. Caping the well is no uncertainty a high precedence, but covering with the local stakeholders and environmental harm is no less of import undertaking, which provided to the company as being one of the most hard 1s. Stakeholder direction is every bit of import, and salvaging the environment and supplying other chances to the people which have lost their income beginning is critical. If I was a member of the board of BP at that clip, I would set as much attempts and funding into this exercising as I would into capping of the well, if non more. Such proactive attack would assist BP in the hereafter when covering with single or category cases, coming their manner, as US is one of the most litigious states in the universe.
Question 4: Why do you believe BP attracted such obloquy?
Hayward, and BP in general, ab initio downplayed the spill, saying on 17 May 2010 that the environmental impact of the Gulf spill would probably be “ really really modest ” and naming the spill “ comparatively bantam ” in comparing with the size of the ocean. On 27 May, Haywood changed his appraisal, naming the spill an “ environmental calamity ” in an interview with CNN. Hayward earned the nickname “ Tone-deaf Tony ” for his far from the truth averments.
Then after the detonation, BP denied there was a leak until it became distressingly obvious. When they could no longer conceal that fact, they low-balled the estimation of the leak at 5,000 barrels a twenty-four hours, which is likely low by a factor of 20.
When Hayward met with members of the U.S. Senate shortly after the accident, he asserted that BP intended to run into its duties up to its $ 75 million liability cap under the U.S. Oil Pollution Act. Hayward ‘s averment that BP was protected by limited liability under U.S. jurisprudence, coming at a clip when 1000s of fishermen and touristry workers in Gulf provinces were being laid off due to the oil spill, so angered the senators with whom he met that within yearss statute law was introduced in the U.S. Senate to raise the harm cap confronting BP from $ 75 million to $ 10 billion.
BP sprayed more than 1 million gallons of chemical dispersants Corexit 9500 and 9527 into the Gulf since the oil spill began in a foolhardy attempt to do the oil “ disappear ” from public position. BP threatened clean-up workers they ‘d be fired if they spoke to the media, besides the company ordered workers demoing up with inhalators and other protective cogwheel to take it or be fired. Cleanup workers have been kicking of giddiness, sickness and other symptoms of all time since so.
Dispersants merely alter the chemical and physical belongingss of the oil, doing it more likely to blend with saltwater than sedimentation on the shoreline. So what the dispersants do is re-direct the oil, doing its impact possibly less so on birds and shore-dwelling animate beings, but more so on fish, coral reefs, oysters and other marine life that live in the deeper Waterss. Besides, when the dispersants mix with the petroleum oil, a 3rd far more toxic merchandise is produced called “ spread oil ” which has been shown to be more toxic than the amount of its parts. Toxicologists can merely think what the full extent of the harm will be, and it ‘s likely it wo n’t demo up in full for old ages or decennaries.
Before BP could halt the oil leaking at the underside of the Gulf of Mexico, it unleashed $ 100 million in ad disbursement, mostly on web Television, to stem the harm to its image. But it besides started passing to a great extent where it had ne’er spent much before: purchasing ads in Google ‘s hunt consequences. About $ 3.6 million in the month of June entirely were spent by BP, which pushed the company into the upper echelon of hunt advertizers, in a conference with AT & A ; T, Expedia, Amazon and eBay. When people searched for “ oil spill ” they ‘ll be directed to BP ‘s harm control page that shows the company ‘s “ Gulf of Mexico Response ” and cleanup attempts, alternatively of the monolithic sums of harm that was still ongoing.
In the CNN interviews, Deepwater Horizon workers described a corporate civilization of cutting staff and disregarding warning marks in front of the blast. They claimed BP routinely cut corners and pushed in front despite concerns about safety. The rig subsisters besides said it was ever understood that you could acquire fired if you raised safety concerns that might detain boring. CNN interviews besides revealed that BP had ordered a cutoff on the twenty-four hours of the detonation designed to rush boring, as the rig was five hebdomads behind agenda and one twenty-four hours of its operation had an estimated cost of $ 750,000.
All these facts are non surprising as BP is no alien to environmental offense. Over the past two decennaries, BP subordinates have been convicted of three offenses in Alaska and Texas, including two felonies. Besides BP holds the doubtful award of having the stiffest mulct in history for work safety misdemeanors – 760 mulcts as of June 2010, while Exxon Mobil has had merely one. In 1991 BP was cited as the most polluting company in the US based on EPA toxic release informations. The company has been charged with firing contaminated gases at its Ohio refinery ( for which it was fined $ 1.7 million ) , and in July 2000 BP paid a $ 10 million mulct to the EPA for its direction of US refineries.
During the last twosome of old ages before the Gulf accident BP became more profitable: Tony Hayward received a 40 per centum wage addition in 2009 based on BP ‘s “ improved public presentation. ” The company announced net incomes of $ 5.6 billion for the first one-fourth of 2010, more than double the same one-fourth in 2009. But BP failed to repair the one job that continues to acquire it into problem: a reactionist direction civilization that puts an accent on cutting costs and efficiency while pretermiting preventive care. BP has been inveterate unable or unwilling to larn from its errors harmonizing to analysts, rivals and former employees.
Question 5: Looking in front 3-4 old ages, how do you believe the catastrophe will impact BP? Will it: ( a ) have no important, long-run impact on the concern? ( B ) Consequence in BP going a much smaller company? ( degree Celsius ) ) Consequence in BP being bought by the Chinese, Qataris etc ormerged with another international oil company? ( vitamin D ) Be the accelerator for BP to travel irrevocably “ beyond crude oil ” and going a new signifier of planetary energy concern, based finally in renewable energy?
The BP oil spill has set a new case in point for both environmental harm and corporate irresponsibleness. Harmonizing to BP functionary “ there was a good ground why the Macondo well was being drilled in the first topographic point. It ‘s because the universe severely needs the oil and gas that reside beneath the ocean floor of the Gulf of Mexico, the Atlantic and other oceans in order to run into inexorably turning energy demand ” . BP pushed engineering to the bound in the remotest reaches of Alaska and the deepest Waterss of the Gulf of Mexico – “ the tough material that others can non or take non to make, ” as Tony Hayward one time put it.
Last twelvemonth at that place was a serious argument as to whether the Deepwater Horizon incident will take to bankruptcy for BP. Undertaking failures such as the Deepwater Horizon can hold tremendous effects on the value of BP stockholders, including many pensionaries in the UK and current and past employees and may even endanger endurance of the endeavor.
BP have been paying non merely for all environmental and economic amendss from the runaway, but will besides be confronting old ages of claims, dialogues and judicial proceeding. The company is still facing legal suits from Edinburgh and Merseyside pension financess for the loss of value that emanated from an Alaskan grapevine spill in 2006. Gulf of Mexico claims will last much longer. Harmonizing to Bloomberg, BP took charges numbering US $ 40 billion in the 2nd and 3rd quarters of 2010 to account for the cost of the Gulf spill.
The company announced in July 2010 it would sell between $ 25 billion and $ 30 billion of assets, and has sold Fieldss in Argentina, Colombia, Pakistan, the U.S. and Vietnam. BP involvements in Algeria, Alaska ‘s Prudhoe Bay and Canadian grapevines may be following up on the block. Harmonizing to offshoreenergytoday.com, since taking charge in October, new CEO Bob Dudley has taken plus gross revenues to $ 22 billion to pay costs from the worst US oil spill, reorganized direction and cut the trade with Rosneft to give the company entree to Russia ‘s untapped Arctic militias. The portion monetary value has recovered about 60 per centum from June ‘s post-spill depression, in portion on outlooks that the dividend will return at 50 per centum of the old degree. Recently BP has reinstated the dividend that was suspended after the spill as higher oil monetary values and improved refinement borders lifted its net incomes.
It is improbable that BP will be acquired by other major oil companies ExxonMobil or Royal Dutch Shell. BP executives held negotiations with a figure of autonomous wealth financess including financess from Abu Dhabi, Kuwait, Qatar and Singapore, for creative activity of a strategic partnership to avoid coup d’etat. Now BP continues to be Europe ‘s second-biggest oil company and the biggest manufacturer of oil and gas in the US. Financial Times said that “ before the accident, the US had been the chief focal point of the group ‘s scheme, with deepwater oil production in the Gulf of Mexico at its bosom. It was a beginning of oil and gas militias in a part with an seemingly stable legal and revenue enhancement model, and was a topographic point to develop techniques that could so be deployed around the universe ” .
The BP oil spill has brought attending to the issue of greenwashing. This term was coined by New York conservationist Jay Westerveld ( 1986 ) and means delusory usage of green PR or green selling in order to advance a deceptive perceptual experience that a company ‘s policies or merchandises are environmentally friendly. BP entered the greenwashing playing field passing 200 million dollars on rebranding the company in 2000. BP Television ads were focused on subjects of biofuels, alternate energy and C footmarks, shuting with a green, flower-like logo and the slogan “ Beyond crude oil. ”
Harmonizing to Kate Sheppard, a author at Foreign Policy ( 3 May 2010 ) , “ despite all BP has spent on rebranding, the company has n’t done about every bit much to travel “ beyond crude oil ” as its run implies. In fact, BP has been turning off from investings in nonfossil energy, last twelvemonth cutting investing in alternate beginnings from $ 1.4 billion to $ 1 billion. Weeks before the spill, BP announced that it was shuttering its solar fabrication works in Maryland, it closed the doors of its much-hyped UK Alternative Energy central offices in 2009. The company brought in $ 73 billion in gross in the first one-fourth of 2010, but merely about $ 700 million of its concern was alternate energy beginnings like air current and solar. The company has besides spent a batch of clip and money converting political leaders that offshore boring is clean, safe, and environmentally friendly — while at the same clip really contending against safety steps that might hold prevented the horror in the Gulf. ”
Green Energy Reporter said that BP plans to put $ 1 billion in 2011 in its renewable energy concern, approximately the same sum it invested last twelvemonth. In 2008 BP was awarded a satirical award, the “ Emerald Paintbrush ” award, by Greenpeace UK. The award was given to BP in order to foreground its alleged greenwashing run. Critics point out that while BP advertises its activities in alternate energy beginnings, the bulk of its capital investings ( more than 90 % ) continue to travel into fossil fuels linked with major environmental challenges on a planetary graduated table.
BP will decidedly non do stairss to going a new signifier of planetary energy concern based on renewable energy until it can acquire the same enormous net incomes from oil and gas. After the incident Bob Dudley has identified bettering BP ‘s safety pattern and public presentation as one of his highest precedences. As it mentioned in BP ‘s internal probe study, it was possible for BP to bore deepwater Wellss safely. It is critical for the company ‘s hereafter that it can populate up to that aspiration.
In his latest address on March 08th 2011 at CERA Week Conference in Houston Bob Dudley said: “ BP is regretful. BP gets it. BP is altering. We ‘re beef uping safety, turning value and working to gain trust ” .
The lesson for big companies is that whilst cost and clip nest eggs are surely cardinal enterprises, senior direction and the Board demand to guarantee that they do non go on at the hazard of trade name and stakeholder relationships. Merely by retrieving this catastrophe and forcing for the truth to be brought to the surface – the truth about what BP was concealing – we can forestall a similar event from happening in the hereafter.