How Recent Trend of Corporate Responsibility & Governance Influenced BP’s Practice on Deepwater Horizon Oil Spill Accident?

The role of business in the whole world should not be underestimated; moreover its role is more important in developed societies, than in the less developed countries of the world. Business is one of the leading forces in the society. This means that business should be correctly understood and interpreted and that there is a need to regulate it properly at all levels. A lot of researchers studied the business issues, as business is a rather versatile phenomenon and made different conclusions as for the final aims of business, either they should be limited to just acting legally and ethically correct or there are more obligations, which need to be considered by businesses. Irrespective of the concrete position and assumptions, not a single researcher is able to deny the evident connection, existing between society and business and the current need of business is to make investments into development of these relations with society for mutual advantages.

Milton Friedman in his well-known article wrote “The whole justification for permitting the corporate executive to be selected by the stockholders is that the executive is an agent serving the interests of his principal. This justification disappears when the corporate executive imposes taxes and spends the proceeds for “social” purposes. He becomes in effect a public employee, a civil servant, even though he remains in name an employee of a private enterprise. On grounds of political principle, it is intolerable that such civil servants—insofar as their actions in the name of social responsibility are real and not just window-dressing—should be selected as they are now.” (Clarke 2006). Finally he assumed that the only social responsibility of business is operating for the sake of increase of profits and stay within the concretely formulated frames of open competition and ethical actions. It is necessary to take into consideration the fact that all these assumptions were made in 1970, when such issues as free market system and ethics in business were widely debated. Most of the arguments were built upon the rights of private property, earning profits on capital, creation of free market system and so on.

As time passed these arguments were reconsidered and a bit different key political principle was worked out, according to which the role of business was to be efficient in production of goods and services, which were needed for consumers. At this moment the main contribution to the society by Bill Gates was considered to be his Microsoft that foundation of it. Thus the major role of business was identified here as production of the needed products and making society better in this way. Another widespread point of view was that poverty could be better coped with not via providing of help, rather by improving of the whole economy. “With a long enough time horizon, many social benefits created by the operations of for-profit companies can generate private benefits for the companies themselves. As a result, executives planning for the long term create social benefits in the most efficient way when they target a single bottom line – profit. Though calculating the private value of social initiatives under a single bottom line requires the use of estimates and probabilities, this approach offers greater efficiency in decision-making and more sustainable social benefits than schemes such as corporate social responsibility, creating shared value, and double- or triple-bottom lines” (Fitzgerald 2006).

Along with these approaches, there were different interpretations of the role of business developed. Some experts were convinced that it was necessary to accept greater involvement of business into society development. Actually this approach involved a lot of previous arguments and underlined the position of moral strength in business. In addition such issues and environment protections and sustainability considerations are also involved. In 2004 the Confederation of Swedish Enterprise presented their report about the Role of Business in Society. “The report makes a clear distinction between the ‘civic involvement’ of companies and corporate social responsibility, which is a less broad concept. Aiming to ‘stimulate an attitude among businesses that is thoughtful, ambitious and farsighted as far as norms and values are concerned’, the report recognizes the need for a wider involvement in society, particularly the need to ‘increase awareness of the role of business in society and the importance of acting in harmony with social norms.” (Clarke 2006). In case with oil spill of 2010 BP had to respond in various spheres. The company had to take the corporate responsibility for cleaning –up of the territory, work over compensating the results and impacts of the accident to local people, considering health and wealth of citizens. They company conducted the research of the actual outcome of the accident in economic and environmental spheres.

At its peak in 2010, the response effort involved the mobilization of approximately 48,000 people, the coordination of approximately 6,500 vessels and the deployment of approximately 2,500 miles (13.5 million feet) of boom to contain or absorb the oil. As at the end of December 2014, BP has spent more than $14 billion and workers have devoted more than 70 million personnel hours on response and clean-up activities. The U.S. Coast Guard ended the remaining active clean-up operations in the Deepwater Horizon area of response in April 2014. If residual oil from the Deepwater Horizon incident is later identified and requires removal, BP will take action at the direction of the Coast Guard. (Clarke 2006).

There are a lot of possibilities for companies and business organizations to organize voluntary activities with social concern in order to have positive impact upon their relations with stakeholders. In addition there are issues of morality and responsibility, which should never be ignored. “The recent world financial and economic crisis revealed a considerable deficiency of responsible management and accountability of financial institutions which contributed significantly to the chaos on the markets and the depth of the crisis.” (Korosec 2010). In the globalized world the role and responsibility of business is even broader and more meaningful. Most of the modern business leaders are aware of this situation and make attempts to be more engaged into communication with academics, stakeholder, policy makers for the sake of building and organizing their business in such a way that it meets social expectations to the highest degree. A lot of attention is paid in modern business to the interests of stakeholders. In various business corporations external stakeholders consist of trade creditors, customers, suppliers, shareholders and communities, which could be influenced by the operating of these corporations. Talking about internal stakeholders, it is necessary to mention executives, the board of directors and employees of the company. In most cases corporate governance has the task of mitigating of the conflicts between stakeholders, which might arise on the basis of their different interests. “The danger arises that, rather than overseeing management on behalf of shareholders, the board of directors may become insulated from shareholders and beholden to management. This aspect is particularly present in contemporary public debates and developments in regulatory policy.” (Korosec 2010). BP had paid a lot of effort, working with stakeholders and informing them about the development and sustainability of the company after the Deepwater Horizon accident in the Gulf of Mexico starting from 2011. One of the good strategies of the company was organization of round tables in Washington, London, Rio de Janeiro with the aim of organization of effective communication with community leaders, investors, thought-leaders and so on. This strategy allowed gathering the information about strategic insights and possible future perspectives in development and sustainability of the company. Any global company or business should support relations and cooperation with its stakeholders also globally.

There is a problem of correspondence of two main aims of business, that of gaining higher profits and serving society.  “Is it really possible to do well by doing good — to save the world and earn more money as a result? This apparent free lunch may be possible if today’s conscientious consumers seek products made by kinder, gentler companies — and are willing to pay a premium for them.” (Fitzgerald 2006). Based on the statistical research of the eBay listings, it was concluded that consumers are ready to pay higher prices even, in case the producer informs that these higher prices are justified by their charity activities.  Some researchers relate business and business responsibility to various processes in society and correspondingly they state that business nowadays is often viewed as one of the causes of environment and economic problems, which have negative impact upon society. Moreover there are debates about the role of corporate philanthropy. The provision of good management by the government was not secure and corporations received more responsibility to address social problems. Also such philanthropy presumes that all citizens are more involved into the problems of the society they live in.

The notion of corporate governance is widely applied nowadays in relation to business and social spheres. Generally it includes all the mechanisms and processes, needed for controlling and directing of the corporations. The governance structures are needed for appropriate distribution of responsibilities and rights of all participants of the corporation, for example stakeholders, managers, creditors, auditors, directors and so on, creating rules for making decisions in corporate affairs. Corporate governance is needed for setting of objectives and their fulfillment in social and market environments. The worked out mechanisms involve actions, policies, decisions and approaches and their monitoring and control. Partially these practices are implemented in order to cover the interests of stakeholders equally. “Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance. In the U.S., these include Enron and MCI Inc. (formerly WorldCom). Their demise is associated with the U.S. federal government passing the Sarbanes-Oxley Act in 2002, intending to restore public confidence in corporate governance. Comparable failures in Australia (HIH, One.Tel) are associated with the eventual passage of the CLERP 9 reforms.” (Korosec 2010).

Thus the notion of Corporate Social Responsibility could not be interpreted as narrowly as business ethics, related to product safety or honesty towards employees and so on. In such cases, as for example oil spills or other disasters, there is a question of real corporate social responsibility. BP is the organization working in the sphere of finding and refining oil, selling the gas, propane and so on. Certainly BP, as any other organization is involved into various kinds of relations with other companies and correspondingly bears responsibility and has concrete obligations in these relations. Basic obligations are relatively standard:

  • provide the kinds of products, which are needed by their customers ( of corresponding quality and standards)
  • building honest relations with their suppliers
  • securing the needed levels of security in work places and work conditions for their employees
  • working over creating a long-term share value
  • subduing to environmental laws and industry obligations

Most of the identified above obligations are related to concrete organizations or individuals, whether they are customers or employees and so on. Such obligations could not be considered absolutely social, apart of compliance with law, which is concretely characterizes as obligation of corporate citizenship and environmental obligations. Experts stated that most of these obligations were actually met by BP before the accident with the spill. The main problem here is the securing of workplace safety and health, because in the result of this accident 11 workers were killed in the Deepwater Horizon blowout. However, it is not only about human victims, as even if nobody had died, the question of social responsibility would be acute. First of all social responsibility for such cases as oil spill is related to risks and possible negative outcomes of BP’s deep water operations, which the company bears at any rate. Any kind of production is dangerous for environment, because it emits pollution. Thus the question about corporate social responsibility of this type of organization is defined by the degree of the responsibility of the company for the negative effects and the extent, to which an organization is able to reduce social risks to minimum or avoid them at all, at the same time increasing and developing the social contribution, releasing the products, needed for people. There is a serious issue about taking these risks and deciding whether they are reasonable, at the same time considering the interests of the consumers, it is possible to conclude that most of them would like to have cheap gas and be sure that there is plenty of it. Thus the case with BP oil spill is considered to be one of the brightest examples of how the term corporate social responsibility should be understood and implemented in real life.

After the accident took place and people died there, there were further outcomes of the spill. Talking about economic situation of the Gulf Coats, it is necessary to mention that a lot of industries, which were the source of financial support for the residents, were influenced by the spill. One third of all coastal waters were closed for fishing because of contamination danger.  “A moratorium on offshore drilling, enacted by U.S. Pres. Barrack Obama’s administration despite a district court reversal, left an estimated 8,000–12,000 temporarily unemployed. Few travelers were willing to face the prospect of petroleum-sullied beaches, leaving those dependent on tourism struggling to supplement their incomes. Following demands by Obama, BP created a $20 billion compensation fund for those affected by the spill.” (Attkisson 2012). One year passed and a huge part of the fund was paid out, due to the lack of oversight from the side of the government, the claims were rather high, there were even some claims, which were actually not related to the spill. This led to the fact that by 2013 the fund was empty. Recovery could not come quickly. Step by step the coastal areas were reopened for fishing and beaches were made ready for visitors. For these activities funds of BP were also used.  The company had significant losses, because they lost about a quarter of their market value and in addition had spent more than $ 40 billion of the costs, related to recovery and cleaning procedures. Separate attention was paid to seafood industry recovery, as this used to be a serious part of the whole economy of the region. All marketing and testing programs were done thanks to BP’s providing of $74 million. There were special programs developed in Florida, Alabama and other states in order to promote Gulf seafood. Testing was a serious procedure in order to avoid poor consequences for human health.  “Gulf seafood is among the most rigorously tested types of seafood, and test results show no evidence of contamination from oil or dispersants that would pose a threat to human health.

Since May 2010, levels of oil contamination residues in seafood have consistently tested 100 to 1,000 times lower than safety thresholds established by the Food and Drug Administration (FDA).” (Korosec 2010).

To make any concrete conclusions about the accident there was the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling created in 2010. The final report of this commission was issued at the beginning of 2011 and it stated that the main reasons of this spill were the lack of regular oversight from the side of the government and neglecting of the necessary measures from the side of BP and the partners of the company. “A report released in September by the Joint Investigation Team of the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) and the U.S. Coast Guard emphasized BP’s ultimate responsibility for the disaster.” (Attkisson 2012). Thus not only workers of BP, but also the employees of other companies, could be considered responsible for the accident, having impact upon the factors, leading to the oil spill.

This accident was disastrous for environment, as thousands of animals and birds suffered from the leaked oil and died. Dolphins suffered from diseases and some of birds perished, because they especially vulnerable towards the effects of oil spill. According to statistical data around 12% of brown pelicans suffered from this accident. Those, who migrated to Minnesota, produced eggs with some components from the BP spill. 1.700 turtles were found dead within a period of 2 following the accident years. All these effects related to bigger species, talking about smaller species, it is next to impossible to make any concrete judgments about the outcomes. All these examples of the aftermath effects of the accident underline the need of corporate social responsibility, as such accidents could not relate only to one company, or to business of this sphere, rather they are influential for many spheres of life and this should always be taken into consideration by managers of the company and government representatives. The whole 4.400 miles of the shoreline were investigated and those places, which revealed some degree of oiling were cleaned. Around two-thirds of the areas were cleaned either manually or mechanically. Cleaning was done with the help of specially worked out operations, which possible due to participation of state organizations and BP specialists and resources. “The Coast Guard ended the last remaining active cleanup operations in April 2014 and transitioned these areas to the National Response Center (NRC) reporting process. The operational phase of the response ended on Feb. 28, 2015.” (Attkisson 2012).

Generally the Deepwater Horizon oil spill in the Gulf of Mexico in 2010 was the outcome of a number of failures. Apart of immediate terrible effects, those long lasting impacts of oil caused even more damage to the region in general. Specialists state that if the well had been contained quicker, the damage would have been not so great, thus the problem was worsened also by the failure to contain the spill ranks in addition to failure of preventing it in general.

In the case of Deepwater Horizon Oil Spill Accident most of blame fell upon BP for their lack of supervision and accountability, as well as some other companies, working there. Technical report stated that there was failure to make the correct cement barrier, and this work was done by Halliburton. Transocean Ltd. was said to fail to alert engine operators at the moment of gas detection.

If to consider the initial situation in a broader sense, then it is necessary to note that drilling technology outpaced the containment technology for wells. Drilling technologies have been developed so rapidly that oil supplies preferred to move their wells further from the offshore to deeper waters, considering also the growing demands of the consumers for energy. Here is the evident problem of correlation of growing need of consumers from the one side and challenging activities from the other side. Oil production in deep waters has tripled since 2000 globally. One third of all locations are situation in the U.S. Gulf of Mexico. There were a number of failures in operating with the well after the accident and this revealed the problem of lack of experience of treating well in water of such depth. It was not possible to act effectively and quickly, because all the containment equipment was far from the place of the accident and it needed time and effort to bring it there. In this case this equipment partially did not operate normally.  “Ensuring that containment capabilities are adequate for deepwater and ultradeepwater operations is therefore a salient challenge for government and industry. Prior to the accident, the U.S. Department of Interior had tracked the industry’s technological advances to develop exploration and drilling operations at these depths.” (Attkisson 2012). After such events and the moratorium on deepwater drilling, there is a chance that the responsible people would contribute more effort into containment procedures both physically and financially. Most of the companies, working with deep-water drilling technologies, are nowadays aware of the fact, which the outcomes of such accidents could be, including the financial resources for compensation of the social responsibilities. They are aware of the necessity to ensure adequate containment capabilities, available at any moment of time and some of the drilling companies united into the Marine Well Containment Company. MWCC is a consortium of companies, the aim of which is to control the designing and building of the containment system for deepwater drills.

Talking about BP after this oil spill accident, it is necessary to mention that the management of the company became aware of the impact of these events upon a lot of usual people from the local communities, upon the businesses, which were operating in the region, their customers and so on. They learnt to bear the responsibility for their business, for the ways, how it is organized and secured and not only in the Gulf of Mexico, but everywhere. The have developed the strategy to grow their long-term value,  with the aim “to build a portfolio of enduring positions in the world’s key hydrocarbon basins, focused on deepwater, gas and giant fields. This will be enabled by strong relationships built on mutual advantage, deep knowledge of the basins, technology and the development of capability along the value chain in exploration, development and production.” (Attkisson 2012). BP developed the main objective of focusing upon securing of reliability and safety of all the operations, which are done in the process of their operating. In addition they have established a separate organizational unit, which was supposed to secure the needed leadership and corresponding resources for meeting of all commitments of the company and fulfilling their responsibilities, which were related to restoring of the aftermath effects of the Gulf Coast oil spill.

Overall, the issues of corporate and social responsibility are utterly important in the era of globalization of business and technologies; however, it is complex and many-sided. The case of Deepwater Horizon Oil Spill Accident is one of the brightest examples of why corporate social responsibility is so important for local societies and local and global businesses; it contributed to better understanding of the roles of government and business organizations and the measures, which should be taken in case of such accidents.

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