Cases of BP and M&S

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Task 1

Blame can be adjusted by mitigation or aggravation; Praise can be adjusted by attenuation and amplification.

The Combined Code on Corporate Governance sets out standards of best practice and includes high-level principles and detailed provisions. ‘Comply or explain' allows a company to choose whether to follow the code's provision. Although M&S have a moral responsibility to separate the roles of chairman and chief executive according to Combined Code, there is no legal requirement. If the companies haven't complied with the Code's provisions, they would only need to provide an explanation (Financial Reporting Council, no date). Sir Stuart Rose chose not to the Combined Code because he is more familiar with ‘comply and explain'. Rose has not done something wrong according to “comply-or-explain” approach, so the blame can be turned by mitigation.

In the UK, 95% of companies separate the CEO and chairman positions. This suggests that although the majority of companies follow the Combined Code, there are 5% of companies that didn't follow it (Kakabadse, A.P. & Kakabadse, Nada K., 2006). According to Booz Allen Hamilton data, a separation of the roles of Chairman or CEO would reduce investors' return (Chuck, Rob & Edward, 2004). Therefore, it is possible that Rose didn't follow the Combined Code because he wanted to increase the return to their shareholders.

M&S promoted Sir Stuart Rose to be chairman and chief executive. A decision that was supported by four shareholders within the company. It can be surmised that he has done a good job when he was Chief Executive. Thus, it resulted in his promotion to the dual role of Chairman and CEO. Rose joined M&S in 1972 and spent ten years in charge. He successfully rehabilitated M&S with a series of key changes such as the stopping of use of ‘chubby' models. M&S subsequently became the second most profitable retailer in the world because of him (BBC news, 2007). With such heavy success under his tenure, no one wanted him to leave the company so hence he was promoted and largely due to his past performances.

James Madison stated that “The accumulation of all powers in the same hands, whether of one, a few or many, and whether hereditary, self-appointed or elective, may justly be pronounced the very definition of tyranny” (Elizabeth, 1995, p.130). Concerning consequences, Sir Stuart Rose would gain too much power when he becomes chairman and chief executive and tyranny could be emerged in M&S. In addition, M&S haven't complied with the Code's provisions. A possible future result would be that other companies may follow M&S and breach best practice by degrees in the future. They won't take responsibility to uphold corporate ethics in the UK.

Task 2

M&S chose to promote Sir Stuart Rose to be company chairman and chief executive, but Rose informed second-biggest shareholder L&G only one hour before announcing it. Rose wanted all shareholders to support the decision but the fact that its major shareholders including L&G was informed with so little notice, it could be seen as culpable behaviour by the company. It could be surmised that the reason that Rose chose to act in this manner, was because he didn't want to give enough time for the shareholders to influence the decision as there was a risk of them rejecting it. Shareholders have rights to participate, ask questions and vote at meetings to discuss key decisions such as this (Freshfields Bruckhaus Deringer, 2008). Sir Stuart Rose provided limited time for the shareholder to participate. He made many excuses for their behaviour such as they were afraid that the details could leak to the media so delayed telling its shareholders (Timesonline, 2008).

Sir Stuart Rose hasn't complied with the Combined Code which can be seen as culpable. The fact that he became both the Chairman and Chief Executive could have negative implications as there is too much power placed onto one man. All companies should be ethical as they have moral responsibility to uphold corporate ethics. Smith and Johnson (1996) stated that “morally irresponsible behaviour may be condoned as long as it does not break the law.” (Smith & Johnson, 1996). M&S is a company that could be seen as being morally irresponsible as it didn't follow the Combined Code, although they have not broken the law. Other companies may follow suit resulting in a negative impact on society. This might aggravate blameworthiness towards Rose for the consequences that may arise due to the company's decisions to ignore the Combined Code in the first place. However, Sir Rose has helped to train his future successor and has transferred some of his current responsibilities. Sir Rose deserves praise for this as this would allow success of the current regime to continue at M&S even when he steps down. This might mitigate some of the blame directed towards him.

Sir Stuart Rose failed to give a justified explanation to the company shareholders for the reasons behind the combining of the roles of Chairman and CEO that was in-depth or clear. The investors were simply told that the decision gained a lot of support, although they weren't told who or where the support was coming from. Sir Rose has the responsibility to explain clearly. However, he wrote letters to the investors spelling out the plan which is laudable.

Task 3

“An act is morally right if the net benefits over costs are greatest for the majority. Also, the greatest good for the greatest number must result from this act.”(Joseph, 2009, p.105). Lord Browne cut costs because he wanted to maximize BP's profit. Thus, BP can maximize benefitz for their shareholders. He also wanted to maximize benefit for society. Cutting cost can provide cheaper oil prices to their customers. According to the above theory, Lord Browne's act is morally right.

“Kant is praised or blamed for actions within the control. Kant insisted that the moral evaluation of our actions was concerned, consequences did not matter.”(Charles, 1997) The CSB found BP's drum and stack were unsafe and the company failed to replace blowdown drums and stacks with a flare. Although Lord Browne has responsibility to do this appropriately and well, he ignored it and instead, chose a less expensive option (Timesonline, 2007). Based on Kant's theory, Lord Browne's action might be blamed.

“The view that equates morality with self-interest is referred to as egoism. The act is morally right if it best promotes an agent's interests.”(William, 2008, p.45) Texas City employees knew that their working place was unsafe, but yet they never informed anyone about it and just continued to work. This is because they only considered their self interest rather than others as well. Texas City is a small city where it is difficult to find a job if they left BP. Hence, the workers didn't pressure BP to protect all the employees' safety in case they lost their job as a result.

Virtue ethics awards ‘internal goods'. One refinery manager refused BP permission to cut costs because he believed that cutting cost would cause an unsafe working environment for his employees. Although his refusal could result in him losing his job, he cared little about it as he only wanted his employees to be safe. He deserves praise for putting the safety of his workers ahead of his own job security.

According to OSHA standards, employers should provide enough training programme to their employees. The training programme should train employees about health effects of the chemicals they work with and what they can do to protect themselves (OSHA, 1970) However, Lord Browne ordered to cut training course. CSB found that the employees were undertrained, increasing the risk of accident (Timesonline, 2007). Lord Browne deserves blame for this.

Employers have responsibilities to make sure their employees have and use safe tools and equipment and properly maintain the equipment (OSHA, 1970). However, CSB found that BP lacked of supervisory oversight. BP's managers failed to ensure their workers were using safe tools. The failure of the alarm system and lack of other indicators and automatic safety devices also caused the accident (Timesonline, 2007). Thus, we can see that managers didn't maintain the equipment properly.

Task 4

The senior managers who work at Toledo stated that ‘cost savings and production targets didn't override safety concerns'. However, the long series accidents that have occurred in the past tell another story. For example, In 1890, an accident occurred which killed 3 people when workers unloaded crude oil from a railcar; in 1987 and 2000, a big fire and an explosion occurred respectively where 2 people were killed; in 2005, an explosion at BP's Texas City refinery resulted in the death of 15 workers, and 170 injured. The frequency of accidents over a timescale suggests that safety levels for the workers were not very high and without improvements. This weakens the statements from senior workers that their plans did not override safety concerns and it is possible that these accidents (in large) could have been avoided and shouldn't have happened in the first place had safety levels been higher.

Toledo hourly-paid workers say that “BP's production was a higher priority than process safety.” The BP managers have also admitted that production had been their priority rather than safety when interviewed. The utilitarian ethic condemns people who don't promote the greatest human welfare (William, 1999, p.50). BP's managers care about their production, rather than employees' welfare.

Lord Browne has stated that he would ‘reform the company' despite saying that he would retire and leave BP on 31st December 2008 (Heather, 2006). However, he did not fulfil his promise before he left BP. He tried to justify why he would retire early by saying that it was because he had nothing to do with the Bake report. Analysts condemn that Lord Browne would leave because of longstanding company policy. BP's safety systems still should be improved.

CSB condemns that cutting cost is the most important reason for the high frequency of accidents. BP had not provided enough resources to ensure process safety. BP ‘'strongly disagreed'' with the contents of the CSB report, particularly with many of the findings and conclusions. However, despite the innocence claims from BP, it is a fact that BP reduced the training cost by half from 1998 to 2004. Furthermore, BP also cut the training staff size from 30 people in 1997 to just 8 in 2004 (Xinhua, 2006). This again severely weakens BP's arguments since it is likely that so many accidents have occurred where a lack of training for employees is a big factor.

To monitor the safety of the company, BP's managers relied solely on ‘'personal injury rate statistics''. However, personal injury rate statistics does not review an accurate representation of process safety and/or the numbers of injuries of workers since it does not take into account the contractor workers injuries. Hence, the figures are very misleading, and likely to underestimate the true number of injuries and overestimate the safety of the working environment. The accuracy of personal injury forms is also debatable since it uses a check-box format, in which is completed by the worker and checked off on safety policy and procedural requirements, even when those requirements were not met. Hence, BP needs to needs to readdress more accurate ways to correctly monitor the safety of the work area and to make the necessary improvements.

Task 5

Regulations and legislations are based on different legal restrictions to control people's behavior using penalties. However, according to current legislation, the penalties are weak. Thomas and Patricia claimed that the government regulation is impotent and ineffectual since light penalties are unlikely to strike any fear to people that commit mistakes (Thomas & Patricia, 1996, p.440). For example, a fine of US$ 7,000 can be seen as a measly sum for a violation involving a high probability that serious injury or death could result, where the employer knew (or should have), of the hazard (OSHA, 1970). Thus, the government should make changes to the legislation and impose far heavier penalties. Only then will people, including Lord Browne (BP) will care to improve the current company standards.

In the case of M&S, although they have a moral responsibility to separate the roles of Chairman and CEO according to the Combined Code, there is no legal requirement to do so (Financial Reporting Council, no date). Jack and Elizabeth stated that “when everyone is responsible, no one takes responsibility unless everyone feels personally responsible for the day-to-day maintenance of standards.” (Jack & Elizabeth, 1992, p.166). In an attempt to prevent other companies from following suit and ignoring the Combined Code, the government should impose more legislation with heavy penalties, where it is a legal requirement for all companies to separate the roles of Chairman and CEO. William claimed that “a regulatory approach is that standards would be legally enforceable.” If the organizations don't meet these standards, they could be forced to shut down (William, 1999, p.405).

“Virtues are dispositions that our moral principles require us to develop.” It is correlated with utilitarianism, rights, justice and caring. Virtue ethic condemns person who is dishonest or only reluctantly told the truth out of fear (William, 1999, p.132-136). An example of this is Rose's late announcement to his shareholders of his new combined role. Although it can be surmised that this was due to not wanting to give enough time for his shareholders to influence the decision, he made the excuse of not wanting details to be leaked to the media for the lateness of his announcement (Timesonline, 2008). This is a clear example of dishonesty. Virtue ethics also condemns those that are ruthless (William, 1999, p.134). An example of ruthless behavior was demonstrated by Lord Browne, who only focused on business profits by cutting costs, while ignoring the safety of his employees in doing so.

Therefore, virtue ethics is an important requirement for any organization to achieve success, as it requires people to break bad habits and to develop good ones. This is essential to allow people to make correct decisions in the future, to prevent corruption and to help achieve goals. Joseph stated that “virtue ethics adds an important dimension to rules and consequentiality ethics by contributing a different perspective for understanding and executing stakeholder management.” (Joseph, 2009, p.114). Thus, virtue ethics is what we need to make us behave well, and encourages a supportive culture.

References

Books

Elizabeth, M. (1995) Business ethics at work. USA : Cambridge University Press.

Jack, M. & Elizabeth, V. (1992) Business ethics in a new Europe. London: Kluwer Academic.

Joseph W. (2009) Business Ethics: A stakeholder and Issues Management Approach with cases.5th edn. Mason, Ohio: South-Western Cengage Learning.

Smith, Ken G., and Phil Johnson. Business Ethics and Business Behaviour. Boston, MA: International Thomson Business Press, 1996.

Thomas Donaldson & Patricia H. Werhane (1996) Ethical issues in business: a philosophical approach. 5th edn. Upper Saddle River, N.J.: Prentice-Hall.

William H. Shaw. (1999) Business ethics. 3rd edn. Belmont, CA: Wadsworth Pub.

William H. Shaw (2008) Business Ethic. 6th edn. United States: Thomson Wadsworth.

Government Publications

United States Department of Labor Occupational Safety and Health Administration (OSHA) Worker Rights Under the Occupational Safety and Health Act 1970 http://www.osha.gov/as/opa/worker/rights.html

United States Department of Labor Occupational Safety and Health Administration (OSHA) Worker Rights Under the Occupational Safety and Health Act 1970 http://www.osha.gov/as/opa/worker/employer-responsibility.html

United States Department of Labor Occupational Safety and Health Administration (OSHA) Worker Rights Under the Occupational Safety and Health Act 1970

http://www.osha.gov/doc/outreachtraining/htmlfiles/introsha.html

Articles

Austin, C. About website. Available at: http://atheism.about.com/od/ethicalsystems/a/virtueethics.htm (Accessed: 12 January 2010).

BBC News (2007) Available at: http://news.bbc.co.uk/1/hi/business/3766215.stm (Accessed: 3 January 2010).

Carl, M. (2007) Timesonline website. Available at: http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article1545068.ece (Accessed: 8 January 2010).

Charles D. Kay. (1997) Wofford website. Available at: http://webs.wofford.edu/kaycd/ethics/deon.htm (Accessed: 9 January 2010).

Chuck, L., Rob, S. & Edward, T. (2004) ‘The World's Most Prominent Temp Workers', CEO Succession 2004, pp.10. Booz Allen Hamilton [online]. Available at: http://www.boozallen.com/media/file/145709.pdf (Accessed: 15 January 2010).

Financial Reporting Council. Available at: http://www.frc.org.uk/corporate/combinedcode.cfm (Accessed: 3 January 2010).

Freshfields Bruckhaus Deringer LLP (2008) ‘Implementing the shareholders' rights directive in the UK', pp.2. Freshfields[online]. Available at: http://www.freshfields.com/publications/pdfs/2008/nov08/24647.pdf (Accessed: 6 January 2010).

Heather, T. (2006) The New Your Times website. Available at: http://query.nytimes.com/gst/fullpage.html?res=9504E0DB153FF935A15754C0A9609C8B63&sec=&spon=&pagewanted=1 (Accessed: 13 January 2010).

Kakabadse, A.P. & Kakabadse, Nada K. (2006) ‘Chairman and Chief Executive Officer (CEO): That Scared and Secret Relationship', Management Development, pp.10. Cranfield [online]. Available at: https://dspace.lib.cranfield.ac.uk/bitstream/1826/1028/3/Chairman%20and%20chief%20executive%20officer%20CEO-2006.pdf (Accessed: 5 January 2010).

Sue, N. Business Ethics Qfinance website. Available at: http://www.qfinance.com/contentFiles/QF02/g1xtn5q6/12/2/business-ethics.pdf (Accessed: 7 January 2010).

Xinhua (2006) People website. Available at: http://english.peopledaily.com.cn/200611/01/eng20061101_317052.html (Accessed: 15 January 2010).

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