This Assignment is part of ABE post graduate diploma and it is based on the British Petroleum plc a well known natural oil and gas industries. This assignment covers three main areas which include: Corporate Strategy, Governance and Ethics in the Global Environment. Module for ABE (PGD) Business Management assignment. This Assignment highlights and discusses about the ethical and corporate governance factors which are currently affecting the BP. By analyzing internal andexternal resources, environment, governance and ethics of the companyin complete. Evaluating how effectively the BP is managing these factors to achieve its corporate goals. To address the three main areas the assignment has been divided into 4-5 parts:
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British Petroleum p.l.c (formerly known as Anglo-Persian Oil Company) is a registered oil and natural gas industry established on 14th April 1909 in United Kingdom. According to BP ultimate (2012), during theearly 1900’s the search for oil was began by the Shah of Iran which was discovered in the mid of 1908 and it was known as the first major find in the Middle East. It’s also say that BP was considered as a subsidiary of Burmah Oil Company under the name of Anglo-Persian Oil Company (APOC). However in 1935 it became as the Anglo-Iranian oil company (AIOC). After 45 years of flourishing services, in 1954 the company got registered by the name today we know which is the British Petroleum p.l.c.
Although BP does not have a specifically labeled mission statement BPhas published a statement identifying its core interest is said to be progressive, responsible, innovative and performance driven (About.com retail industry, 2012).Each of these words in the statement being the main target of the company, describes its missions. These in general states that Bp creates a user friendly environment between them and their customers and also Bp would like to ensure that the products that they invent would be environmental friendly.
British Petroleum plc (BP) markets its products in more than 70 countries and operates 22,400 gas stations worldwide with over nearly 80,000 employees. Being the world’s third-largest energy company and fourth-largest in terms of revenues integrated oil concern, It is vertically-integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, powergeneration and trading. It also has major renewable energy activities, including in bio fuels, hydrogen, solar and wind power (Corporate Watch, n.d).
Today BP explores for oil and gas in 30 countries and has proventhat they reserves approximately 18.1 billion barrels of oil equivalent. Moreover, according to Corporate Watch (n.d) they are the largest oil and gas producer in the US and also a top refiner, with stakes in 16 refineries, processing 4 million barrels of crude oil per day.
3.0 METHOD OF INVESTIGATION
Main source of information regarding the various strategies adopted by BP to confront competitive and unforeseen challenges like, Gulf of Mexico oil spills disasters was acquired through.
BPwebsites, publicationsand International Oil Spill Conference served as the main sources of information on government policies, regulations and laws. Oil drilling regulationsand policiesare taken fromUK, USAand international oil and energy reports and periodic statistical reports published online. Apart from this,Bp annual reports 2011,articles, journal articles, websites, books and magazines.
“Integrated approach to good governance in the interests of a wide range of stakeholdershaving regard to the fundamental principles of good financial, social, ethical and environmental practice.”
Other developments over the past 10 years which have propelled CSR onto thegovernance agenda include publication of the Association of British Insurers’ (ABI)”Disclosure Guidelines on Socially Responsible Investment” (2001) (see page 24 fordetails) and the UK Turnbull report: “Internal Control, Guidance for Directors on the
Combined Code” (2001), the latter which asks companies to consider the following:”Are the significant internal and external operational, financial, compliance and otherrisks identified and assessed on an ongoing basis? (Significant risks may, for example,include those related to market, credit, liquidity, technological, legal, health, safety andenvironmental, reputation, and business probity issues).”5
In Canada, for example, the Canadian Council of Chief Executives (CCCE), seeking to instill public confidence in capital markets and the enterprise system on the heels of the corporate scandals, published a statement, “Governance, Values and Competitiveness: A Commitment to Leadership” in 2002. They laid out their views on corporate governance,
Facts, findings, discussion and analysis with suitable sections and headings;
The oil industry has shown great resilience in the face of ‘competitive disasters’ and the fast evolving (PESTLE): political, social and economic climates, technological environment, Legal and Ecological. According to Cooper et al 1994, it is state critical that the necessary information about the internal and external environment be gathered before a constructive criticism is made. He also argues that the findings are a very minimum to cover the bases of PESTLE investigation, that is to examine the political, economic, social, technological, legal and Ecological changes that may affect the company and the market. Governments provide and enforce the rules including regulations and policies due to Gulf of Mexico oil spill, “government are drafting more laws and regulations would required that drilling perform independent audits and hazard assessment designed to reduce accidents caused by Technological and human errors”(Alan Levin, USA TODAY Updated 5/10/2010 4:48 PM ).See PESTLE in Appendix 1,2.
5.1 Political factors:
These refer to government policy such as the degree of intervention in the economy
BP had one of the biggest engineering, logistical and financial problems the oil industry had ever faced, but the company was up to the challenge.
BP also faced a massive political problem, perhaps the biggest such crisis for an oil company operating in the United States since Teddy Roosevelt broke up John D. Rockefeller’s Standard Oil.
BP’s failure to grasp the fact that its biggest challenge was in Washington, not the Gulf, has led to a series of gaffes and strategic communications errors that have inflamed public opinion, fanned the political firestorm and dragged the company’s share price ever lower
the spill cleanup to cost under $30 billion
BP’s market capitalization is down $100 billion, on expectations it will face fines of up to $30 billion as well as curbs on its business in the United States, its most important market.
“BP’s handling of the spill from a crisis management perspective will go down in history as one of the great examples of how to make a situation worse by bad communications,” said Michael Gordon, of New York-based crisis PR firm Group Gordon Strategic Communications.
“It was a combination of a lack of transparency, a lack of straight talking and a lack of sensitivity to the victims. When you’re managing an environmental disaster of this magnitude you not only have to manage the problem but also manage all the stakeholders.”
The company also failed to tackle its image as a serial safety and environmental offender. That was especially true in the United States where regulators had blamed both a 2005 refinery blast that killed 15 workers and pipeline leaks in Alaska in 2006 on cost-cutting.
BP’s inability to precisely describe the improvements it has made in its safety and operational culture took us by surprise,”
BP would have faced public anger and political pressure
Dispute on Iran and other middle east countries causes instability on Stock market prices and the crude oil price will
5.2 Economic factors:
These include interest rates, taxation changes, economic growth, inflation and exchange rates. As you will see throughout the “Foundations of Economics” book economic change can have a major impact on a firm’s behavior.
– higher interest rates may deter investment because it costs more to borrow
– a strong currency may make exporting more difficult because it may raise the price in terms of foreign currency
– inflation may provoke higher wage demands from employees and raise costs
– higher national income growth may boost demand for a firm’s products
Current economical crisis and Euro zone, economic crisis is affecting the BP corporative objective of the company
5.3 Technological factors:
New technologies create new products and new processes to drills deep sea. This will increase efficiency and cost effective way to carried out BP business. Latest technology improves BP production and environmental friendly way to operate its business.
5.4 Environmental and Ecological factors:
Environmental factors include the weather and climate change. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for firms to consider. The growing desire to protect the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybrid cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities.
When an oil slick from a large oil spill reaches the beach, the oil coats and clings to every rock and grain of sand. If the oil washes into coastal marshes, mangrove forests or other wetlands, fibrous plants and grasses absorb the oil, which can damage the plants and make the whole area unsuitable as wildlife habitat.Other Ecological factors include the wildlife animal, marine environment, High Dolphin Deaths, fishing birds and lots of fishes move from that area.
5.4 Legal factors:
These are related to the legal environment in which firms operate. In recent years in the UK there have been many significant legal changes that have affected firms’ behavior. The introduction of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that affect an organization’s actions. Legal changes can affect a firm’s costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service).
6.0 CORPORATE SOCIAL RESPONSIBILITY
After the Gulf of Mexico oil spilling incident BP investing billion on Corporate Social Responsibility (CSR) is now prominent and evident more than ever due to the emphasis laid on businesses regarding environmental, social and ethical issues. This is because over the recent years, there have been social, political, ecological and economic pressures on corporate management to pay attention on social and environmental consequences of corporate activities. These pressures motivated the corporate management to actively participate in a wide range of social welfare activities. CSR now-a-days covers almost all issues like the use of child labor; inequality of employment; environmental impact; involvement in local community; products’ safety; company cultures; brand image and reputation. Apart from this, BPis now disclosing these activities in their annual reports, and one of the parameters to judge the performance of a BP is CSR reporting.
CSR is defined by Naylor (1999) and mentioned in the work of Douglas et al. (2004) as “the obligation of managers to choose and act in ways that benefit both the interests of the organization and those of society as a whole.”
Fraser (2005) describes CSR as sustainable development which needs to be carried out by all the publicly held companies. These companies need to be responsible not only for their shareholders, but also its stake holders like the employees, customers, suppliers, government and non-governmental organizations.
The speech made by BP Senior Advisor Charles Nicholson in 2002 at the CSR Europe General assembly meeting: “The boundaries to corporate social responsibility are conceptual. A company’s primary responsibility is to its shareholders, to its owners. The boundaries are ideological. A company is not a government. It is not elected. It has no popular mandate. It mustn’t confuse its role with the role of others. The boundaries are practical. A company has limited resources, limited expertise and limited reach. A company is not a panacea, a cure-all. The boundaries are influenced by self-interest. Business thrives if the society in which it operates thrives. To neglect this is to put at risk the interests of our shareholders. And however you look at it the boundaries are constantly changing. What was a boundary a few years ago is now a starting point. “Bp is leading, accepting responsibilities and demonstrating to building community is a source of human progress through its CSR.
At the most basic level it means delivering what we promise. It means being transparent in what we do. It means practicing universal standards of behavior and care and applying the skills we have and engaging constructively in society.
I’m not implying that business has complete answers. It doesn’t, and one of the reasons for taking part in events like this one today is to listen – to open a dialogue.
Every company will also draw boundaries reflecting its own circumstances, of course. For most the key factors are experience and values. At BP we’ve defined our values in a document called “What We Stand For”.
7.0 CORPORATE GOVERNANCE
Jonathan Lister (2003), “function of Corporate Governance”,corporate governance encompasses the policies, initiatives and practices a corporation uses to accomplish its business goals and develop its infrastructure. The functions of corporate governance begin with a corporation’s shareholders and are passed to the elected board of directors, who are then in charge of developing governance strategies for the company as a whole.
According to bp.com/section generic article,Good governance involves the clarity of roles and responsibilities, and the proper utilization of distinct skills and processes.
The board is responsible for the direction and oversight of BP on behalf of shareholders and is accountable to them, as owners, for all aspects of BP’s business. The board believes that good governance involves the clarity of roles and responsibilities, and the proper utilization of distinct skills and processes. The board therefore focuses on activities that enable it to promote shareholders’ interests, such as the active consideration of strategy, the monitoring of executive action, and ongoing board and executive management succession.
To achieve this, it has developed and approved a set of corporate governance principles which set out its approach in this area.
Most writings on governance situate its evolution within the backdrop of the corporate governance scandals at companies such as Enron, WorldCom and Lehman Brothers these two decade and this financial crises, which drove a concern for accountability and transparency amongst corporate leaders and regulators. This, coupled with growing shareholder activism, changing societal expectations about the role of corporations, and the globalization of capital markets, has resulted in a proliferation of governance principles and codes of conduct over the past 15 years.
According to experts.blogs.lincoln.ac.uk, the impact of the BP oil spill in Gulf of Mexico has resulted in a fallen its share value by 45% and drop in its credit rating, downgraded by rating agencies such as Moody’s, Standard and Poor and Fitch. There are fears that the claims from America’s worst environmental disaster could reach $100 billion.To cover the cost of the Gulf of Mexico oil spill BP has divest some of its noncore assets and reduced its capital investment to raise cash to compensation.
The market has analyzed the impact of the Corporate Governance (CG) practices of BP and adjusted accordingly. Corporate governance is a vital issue for firms in the global market. To raise funds to finance their domestic and international growth requires firms to demonstrate strong CG credentials, so that investors do not discount their stock. To ensure all the corporate governance practices BP following one tire board system.
One of the biggest environmental disasters happened around this time. The BP oil spill has left undeniable impressions on how we view oil drilling and non-renewable sources of energy. This has had a knock-on effect on CSR, PR and marketing. The BP spill is possibly the most high-profile CSR/PR disaster of recent times.
It is true that BP has had a questionable safety record, but the spill could have happened to any of the companies operating a deep sea rig. It is the nature of the business and demand for oil has made it profitable for oil companies to take these risks. Of course BP has accepted blame, but it has resulted in PR disasters for the company that has ultimately reflected on its CSR profile as well.
A year after the spill BP is still gunning to get back into oil drilling the Gulf of Mexico, this time with higher safety standards. There are still questions about what these standards might be.
Residents in the area have reported various health problems. Of the 954 residents in seven coastal communities, almost half said they had experienced health problems like coughing, skin and eye irritation, or headaches that are consistent with common symptoms of chemical exposure.
The aftermath of the spill is still being felt especially on the marine life in the region which in turn affects many livelihoods in the area.
Hundreds of very endangered Kemp’s Ridley sea turtles have been washing ashore and dead dolphins are showing up at 10 times the normal rate. Right after the spill, over 6,000 birds, 600 sea turtles and 160 dolphins were killed. Traces of oil have been found in the larvae of blue crabs and researchers have found carcinogens in the water. These carcinogens have also percolated through the food chain affecting Gulf shrimp and fish which have been shown to contain toxic hydrocarbons. More than 20% of the endangered blue fintuna spawn were killed in the spill.
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Despite the clean-up efforts, the oil spill has damaged fragile coral reefs and dispersants being absorbed by zoo plankton and fish. The effects of the spill in the marshes and coastal areas will still be felt for years to come. A year on, there are still reports of tar balls being washed ashore which no one can verify because BP does not give reporters access to the beach. A year on and the biggest CSR disaster is that BP still has not issued any reports with real transparency regarding their clean-up efforts, compensation and concerns of safety in their operations.
Despite domestic and international competition PB has managed to retain its position into the Market. This is mainly due to BP ability to successfully implementing Corporativegovernance, CSR/PR and other major changes necessary to overcome the challenges faced by Gulf of Mexico. Second factor is even after this unexpected incident BP had certain exclusivities like market position, investing alternative energy, investing CSR, changing its safety standards, improving corporate governance, taking blames and paying off damages to local and international community might improve its business image.
As now BP has completely lost its remaining exclusivities it will face new challenges from Russia and most of the Middle East Countries overchanges in political and economical condition. Therefore good corporate strategy, CSR and good governance will maintain oil price and Alternative energy.
According to OECD report 2011, There are perceived threats to the BP as well as oil company in future it need to be more proactive to these changes , which can be perceive by the knowledgeable among the corporate:
Even after facing major chellges faced by BP, had some exclusivity, with those exclusivities lost it may have to come up with strategies to compete in those areas especially in risk management safety and environmentally friendly way drill.
Challenges will keep emerging for this, Bp needs to adopt a learning organization concept to be proactive to change and keep ahead of competition.
Increase investment on alternative energy like biofuels, wind and keep close tie on Middle East countries may achieve its corporate strategies.
Investing on emerging economies like India, chain and Brazil will give competitive advantages in the near future.
Making strategy and policies towards on efficient combustion engines and power train technologies, including hybridization, combined with use of biofuels, could offer the quickest and most effective pathway to a secure sustainability
To meet future challenges BP is changing its strategy towards on ethics, CSR and improving its corporate governance.
11. Works Cited
Andrew, C and Dirk, M. (2007) Business Ethics: Managing Corporate Citizenship and Sustainability in the age of Globalization.
Linda K.Trevino& Katherine A.Nelson (2010) Managing Business Ethics Fifth Edition
I happen to come across lots of valuable research work carried by the respected scholar in this field throughout my effort to seek answers to various questions in this field that was not very clear. I noticed that when a difficult concept is assessed in various angles explored by scholars it widens the knowledge of that concept and gives an insight into the grounding of the concept in the field.
I came across difficulties and the risk of operating business in global prospective, especially in field of oil business. Most importantly, how well ethicaland corporate governance will help to overcome the challenges facing modern business world.
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