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The term 'Ethics', originating from the Greek word 'ethos', means character or custom, sentiment, moral nature or guiding principles of a person, group or institution. Ethics is a set of principles or standards of human conduct that govern the behavior of individuals or organisations.
Ethics is considered to be the scientific treatment of the moral order, which is classified as theological or Christian ethics (moral theology) and philosophical ethics (moral philosophy). The source of origin of ethics is from the empirical fact that certain general principles and concepts of the moral order are common to all people at all times.
Socrates, a Greek philosopher, was the first writer to refer to the concept of 'ethics', though not in the exact manner as it is known today. According to him, the ultimate object of human activity is happiness and the necessary means to reach it is 'virtue'. Everybody necessarily seeks happiness and that no person is deliberately corrupt. All evil arises from ignorance and the virtues are merely kinds of prudence. Plato later declared that the summum bonum consists in perfect imitation of God, the Absolute Good, an imitation which cannot be fully realised in life. Aristotle is considered to be the originator of systematic ethics. He chose to take facts of experience as his starting-point and analysed accurately to trace the highest and ultimate causes. He presumed that for all men happiness is the ultimate object of their endeavours, as the highest good, to which all other goods merely serve as means. True happiness can be attained only through a man's own individual exertion. Aristotle subsequently, proceeded to investigate the intellectual and moral virtues of men.
Ethics is pre-eminently practical and directive as it orders activity of will. Moreover, ethics not only directs a man how to act if he wishes to be morally good, but sets before him absolute obligation of doing good and avoiding evil.
Albert Schweitzer, a Nobel Peace Prize recipient, emphasised the importance of ethics. In his words, 'ethics' can be defined as: "..it is good to maintain life and to further life. It is bad to damage and destroy life. And this ethic, profound and universal, has the significance of a religion. It is religion.."
Ethics philosophies are the guiding principles that facilitate reasoning from a specific act to a judgment as to its morality. The vital philosophies are as under:
Deontological ethics or deontology, derived from the Greek word 'deon' meaning obligation or duty, is an approach to ethics that focuses on the rightness or wrongness of actions themselves, as opposed to the rightness or wrongness of the consequences of those actions. It deals with the set of ethical theories that are based on the idea that an action's being right or wrong is basic, and whether the situation is good or bad depends on whether the action that brought it about was right or wrong.
Teleology derived from the Greek word 'telos' meaning end or purpose, is the philosophical study of design and purpose. It connotes that there is an inherent purpose or final cause which is designed for or directed towards the final result.
Enlightened-egoism considers the harms, benefits and rights. This model denotes that an action is morally correct if it increases benefits for the individual in a way that does not intentionally hurt others, and if these benefits are believed to counterbalance any unintentional harms that ensue.
Utilitarianism purports that an action is solely determined by its contribution to overall utility, which is measured as the summation of happiness or pleasure of all persons. It refers to 'the greatest good for the greatest number'.
Relativism is the concept of dependency, i.e. all the elements or aspects of experience or culture are relative to other elements or aspects. It is also extended to the doctrine of truth relativism, which suggests that there are no absolute truths, but only relative truths.
Virtue Ethics theory emphasises character, rather then rules or consequences, as the key element of ethical thinking.
Justice is the concept of moral rightness in action or attitude. It is linked to fairness.
Business ethics is a form of applied ethics. It is simply the application of moral or ethical norms to business. The scope of business ethics is not limited to the HR or legal function of an organization, but encompasses all functions or departments, including compliance, finance, accounting, insider trading, compensation, discrimination issues, employee problems, occupational safety, sales, marketing, production, intellectual property rights, environmental issues, operations, price fixation and product testing, etc.
The organisation's values greatly influence the compliance of ethics in that business along with the decisions that individuals make in their own capacity to run the business. An organisation's culture comprises of attitudes, experiences, beliefs and values of an organisation. It is defined as 'the specific collection of values and norms that are shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organisation'.
An important concept of corporate culture is the ethical climate of an organisation, which is the shared set of understandings about what correct behavior is and how ethical issues will be handled. This climate sets character for decision making at all levels and in all circumstances, and reflects whether a company has an ethical conscience.
Andrew P. Witty, the CEO of GlaxoSmithKline, stressing on the need to abide to a culture of ethics, has expressed: "Ethical conduct is not something we do when we first join the company, or when we are asked about it, or when we have time to think about it. It should be what we do every minute of every day. In short, it should be in our DNA. There should be no company anywhere that has higher standards than GlaxoSmithKline. Our ethical conduct should be something that truly differentiates us from other companies."
Such ethical climate of a company can be created by following either through compliance orientation or values orientation. Compliance orientation program creates order by requiring that employees identify with and commit to specific required conduct. Values orientation strives to develop shared values. Although penalties are attached, the focus is more on an abstract core of ideals such as respect and responsibility. Thus, each company depending on its ethical climate chooses to follow an orientation program to ensure that the ethics culture is developed and pursued in letter and spirit.
Most companies begin the process of establishing organisational ethics program by developing standard of conduct. Standard of conduct are formal statements that describe what an organisation expects of its employees. Such statements may take three different forms a code of ethics, code of conduct and statement of values. A code of ethics is the most comprehensive and consists of general statements that serve as principles the basis for rules of conduct. A code of conduct is a written document that may contain inspiration statements, but usually specifies acceptable or unacceptable types of behavior. The final type of ethical statement is a statement of values, which serves the general public and addresses distinct groups. Values' statements are conceived by management and are fully developed with input from all stakeholders.
Donald L. Evans, 34th U.S. Secretary of Commerce - 2001-05 (during the tenure of George W. Bush), expressed: "A fundamental ingredient of any successful market economy is respect for basic human values: honesty, trust, and fairness. These values must become an integral part of business culture and practice for markets to remain free and to work effectively."
A company develops or customises individual ethics program to follow its mission statement, do business in consonance with its core values and meet the expectation of its stakeholders.
Applicability of business ethics to oil and gas industries:
In order to demonstrate the whole process and consequent ethical dilemma, I have evaluated the business ethics of Oil and Gas industry, comprising of trans-national companies, which is segmented into three different operating units: Upstream, Midstream and Downstream. Upstream refers to the oil and gas exploration, drilling and extraction. Midstream refers to building oil pipeline for transportation of crude oil and its refined products. Downstream is refining of the crude oil and to process various outputs like gasoline, natural gas and other petrochemical products. The key players in this industry are Exxon Mobil, Chevron, Shell, BP Amoco, Saudi Aramco and Schlumberger. Few are only in exploration or in refining business or in marketing of petrochemical products.
Oil and gas trans-national companies are considered to be the backbone of major economies and contribute largely towards world energy. The non-renewable products, produced from oil, natural gas, coal and other petrochemical products are required are essential for the existence of mankind. These products fuel the automobiles and all other modes of transportation, are required for producing and cooking food, provide ingredients for medicines, fertilizers, fabrics, plastics and other products that make human life safer, easier and better. On one hand, these products are essential for every person, on the other hand, the emissions from production of such products and usage is enhancing the natural greenhouse effect of the atmosphere, thereby effecting the climate change. It could lead to potentially dramatic impacts on human health, food availability, security, economic activity, water resources and physical infrastructure. Also, the natural raw materials for such products are available only in limited quantities and can not be replenished.
The oil and gas trans-national companies face ethical dilemma as a trade-off between socially detrimental processes, like emitting greenhouse gases and self-interested consequence i.e. profits. This characterisation of ethical dilemmas of such companies is rightly expressed: "the end does not justify the means."
The vital ethical responsibility / issue faced by oil and gas trans-national companies are: Sustainable development and Corporate social responsibility.
The term 'Sustainable development' as defined in the Report of the U.N. Brundtland Commission, Our Common Future, in the year 1987, reads as follows:
"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains within it two key concepts:
i) the concept of needs, in particular the essential needs of the world's poor, to which overriding priority should be given; and
ii) the idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs."
In other words, if the present generation utilises all available resources in consonance with its rapidly increasing demands, then the resources will be completely exhausted and unavailable for the generations to come. Such change will irreversibly effect the climate of our planet.
The real issue of sustainable development is not just environmental, but affects the social and financial aspects as well. Thus, the concept of sustainable development looks at the holistic view of a company. John Browne, CEO of BP Amoco has emphasized that: "Real sustainability is about simultaneously being profitable and responding to the reality and the concerns of the world in which you operate. We're not separate from the world. It is our world as well."
An environmentally sustainable organization seeks to participate within its community and seeks to balance economy, society and environment within its operations. Through seeking balance, an organization may better steward natural and economic resources taking into account the needs of future generations.
One of the key ethical issues arises in front of the oil companies, thus, is to assess the potential impacts of their operations on the environment and evaluating alternatives and designing appropriate mitigation, management and monitoring measures. Oil companies are only concentrated in usage of the crude oil which in turns has its deteriorating impact on the ecological balance. The process of extracting the crude oil from the earth's surface, refining it into various petroleum products has deteriorating effect on the environment. This includes Greenhouses gasses, petroleum disasters like oil spills and the gradual extinction of non renewable sources of energy like crude oil. Emissions of Green houses like carbon dioxide, methane, nitrogen oxide, nitrous oxide etc. contribute in global warming at the lower atmosphere. Petroleum disasters like oil spill is a form of pollution which occurs by releasing oil into the ocean or coastal water .It eventually takes several years to get cleaned. Air Pollution caused by the burning of the final product like gasoline, by the various fuel consumers intensely affects the atmosphere which directly or indirectly causes enormous environment related problems. Finally, wastage disposal in sea water greatly hindered the marine biology. There are several alternatives these oil companies are adopting for mitigation and management of these issues. Many of the companies have been migrating towards the eco-friendly products. But the cut throat competition, the race of being first in today's world and maximization of the profit led many of the companies to forget their key environmental issues.
The theory of utilitarianism is suitable in this scenario. The oil and gas trans-nationl companies must focus on 'the greatest good for the greatest number'.
Most of the oil companies usually see the consequences of their operations and not the issues that occur during the procedure to extract or produce the products. As far as environment is concerned, companies have adopted key measures for reducing their devastating impact. Many Oil companies installed MSQ Up gradation plants (Motor Spirit Quality Upgradation) so as to increase the Octane number of gasoline and reduces the 'Lead carbonate' content from it. Lead carbonate being the toxic chemical in gasoline when combusted out from vehicles contribute a lot to Air pollution. By installing these Up gradation plants and moving towards the ideology of "CLEANER FUEL" many companies acted towards the happiness of all person.
These refiners have also installed the Residue UP Gradation plants in order to reduce wastage so as to reduce the problems regarding wastage disposal.
Altruism is the moral obligation to help, serve or benefit others, if necessary at the sacrifice of self interest. Few of the Public Sector Undertaking refining and the marketing companies of downstream adopted the fundamental concept of altruism by working for the welfare of the society and by sacrificing their own interest. India being the developing economy and its biggest refiners Indian Oil Corporation a 62 billion US dollar company provides the subsidies on its petroleum product and taking the burden of losses on its own shoulder.
The traditional approach of ethics or deontology is adopted by many of the oil and gas trans-national companies because of green issues, which have become the social responsibilities of all majors oil players.
Managers looks forward for maximizing their profit and compete for the market share. There is a trade off between the procedural and consequential ethics concern oil sector but now a days the companies are more shifting towards consequential ethics as a part of their routine operations.
Corporate Social Responsibility:
Social responsibility refers to duty of the business to serve the society as well as the financial interest of stockholders. The majority of oil and gas companies now view corporate social responsibility (CSR) issues as important for their reputation and access to future business opportunities. For the benefit of external stakeholder it necessary for oil companies makes voluntary contributions typically through the transfer of skills or resources. Many of these companies should contribute to the well being of the surrounding communities by implementing Social Investment programmes. Companies should not look it as a burden. Companies need to identify the social risk, corporate core competencies, government plans and community inputs. It is also crucial for these company to asses the implementation of these programmes whether it should be budget-driven or needs-driven. Investment in these programmes improves the goodwill and enables the people to improve their own lives.
SI is only one aspect of corporate activities that shapes how communities perceive companies. Today many of the oil companies have different understanding about their responsibility towards the society. These corporate social responsibilities include, but are not limited to: Philanthropy, Community projects not related to core corporate activities(e.g. micro-credit and medical programs), Those related to core corporate activities(e.g. local hiring or contracting), Social impact management, Improve maternal health, Women Empowerment and Human Rights.
Many of the upstream and downstream companies are actually investing in these programmes. An oil and gas companies operate in diverse regions of the world and need to take into account a variety of social habits and cultures. Therefore it becomes very crucial to understand their approach towards the social investment programmes.
SI is no longer seen by the major companies as an 'add-on' to core corporate operations, but as an increasingly integral aspect of doing business.
There are three geographical level of social investment:
Local footprint area: mitigating social risk; supporting capacities and improving welfare.
Regional and national: Establishing a positive legacy to obtain new government licenses or to support government efforts.
International: Support for campaign and initiatives connected to business needs.
In order to mitigate social risk, the oil companies is focusing upon how its daily activities are perceived by communities and the governments. Oil company's social responsibilities leverage the company's perception in front of the society.
The most appropriate ethical approach towards the social responsibilities is the ethics of duty. It's the duty of the company to serve the society .Many of the oil majors like Exxon Mobil Corporation took crucial initiatives towards education and women empowerment as a part of their corporate responsibility. They have launched many scholars programmes in middle east and the north Africa regions.
"Exxon Mobil is proud of its partnership with the Institute of International Education and we are honored to receive this award"
Other oil companies took major initiative towards the medicals programmes such as fight against HIV/AIDS, cancer etc. These types of contribution of oil companies leverage their image at national as well as international level.
Many Oil companies have their stringent focus towards Human Rights standards which they incorporate in their Corporate Social Responsibility policies. This approach suits with the theory of Ethics of Rights where the fundamental human rights of an individual is preserved and respected. Some of the fundamental human rights are the right to life, equality before the law and freedom of expression; economic, social and cultural rights, such as the rights to work, social security and education , or collective rights, such as the rights to development and self-determination.
Companies across the globe are designing and implementing business ethics programs to address their legal, ethical, social responsibilities along with the environmental issues. On addressing these issues systematically, companies can definitely improve their own business performance, expand opportunities for growth, and contribute to the development of social capital in their markets. They can realize specific business benefits, such as:
â€¢ Enhanced reputations and good will
â€¢ Reduced risks and costs
â€¢ Protection from their own employees and agents
â€¢ Stronger competitive positions
â€¢ Expanded access to capital, credit, and foreign investment
â€¢ Increased profits
â€¢ Sustained long-term growth
â€¢ International respect for enterprises and emerging markets
Enterprises that excel in these areas create a climate of excellence for their employees, shareholders, and communities, and contribute to the economic wellbeing of their countries.