Beyond Petroleum Oil Spill Tragedy Case Study Free Sample

Question: Write about theBeyond Petroleum Oil Spill Tragedy. Answer: Introduction Profit maximization has become a core concept in todays world. Organizations use various unfair trade practices with the public in order to gain economic advantage. Here comes the role of regulator who acts as agents for the best interest of the society. There intervention is necessary in order to safeguard the society from the organizations who are willing to take undue advantage for their personal economic gain. In the following assignment case of British petroleum has been discussed along with their negative impact of the society and how regulator controls such unfair trade practices. Beyond Petroleum Case Analysis Beyond petroleum formerly known as British petroleum is a British multinational oil company, headquartered in London. It is one of the largest energy companies in the world. In the recent years they have attracted a great share of controversy due to their oil spill tragedy which occurred in April2010. On April 20, 2010 the Mexico oil gulf witnessed the one of the biggest maritime disaster of the history. British Petroleum leased a deep water horizontal rig which was owned by Transocean for exploration of oil in macondo well, situated in Gulf of Mexico (Ingersoll, Reavis Locke, 2012). There was a blast on the rig platform which resulted into oil spill. Around 4.9 million barrel of oil was spilled due to the explosion and this leak was uncontrollable. There were around 126 workers were present on board among which 17 were injured and 11 died on the spot. The oil platform burnt for 36 hours and ultimately merged in water on April 22, 2010. Just before the explosion the company was abou t to close down their Macondo well operation which was running since 9 years. This disaster cannot be seen as an unfortunate unseen disaster rather there were many possible factors identified which contributed to the disaster. There were around 390 maintenance related issues were highlighted during the safety audit conducted by BP on the oil platform. Also, the BP officials had a fair idea about the issues in the well safety device, but they completely ignored. There was also a leak on the control pod which was not treated even after workers complained to the authority. During the disaster a 450 ton hydraulic device which was responsible for preventing oil from blasting out from the drill hole was not working. From the above mentioned instances it will not be incorrect to say that this disaster was a result of the negligence caused on the part of the BP authority. Impacts This disaster had a substantial impact on the whole ecosystem. Marine species such as Bluefin tuna, sea turtle, tiger sharks, dolphins, seahorse etc. were affected and according to the ecologists their whole generation may suffer due to the presence of contaminated crude oil in the body. Many migrating birds either lost their way or died due to suffocation. Plant species were also affected (Sherwell Lawler, 2015). People living in Louisiana, Mississippi, Alabama, and Florida rely mostly on the Gulf of Mexico for their earnings got affected badly. Tourism saw low fall due to which many people were left unemployed. The spilled oil cleanup in the Gulf area was the responsibility of BP. They used chemical dispersants, Corexit 9500 and Corexit 9527 on the surface water which will likely to affect the growth of the aquatic species. Due to sinking of deep water horizontal Transocean and the insurance company Lloyd, London suffered a huge loss of $560 million. BP lost around 5 million barrels of crude oil into the sea which was $ 74.81 per barrel at that time (CPR, 2010). The trust of the shareholders got shaken due to the ignorant attitude of the management towards the faults and defects detected at the oil platform. Also, there was a huge financial losses faced by the stakeholders as a result their stock prices seen a low of $ 27.02 which was the lowest of the past 14 years preceding the disaster. The spill negatively impact the share prices of other oil companies as the investors and stakeholders became aware about the risk associated with oil exploration (BP, 2010). Legitimacy Theory Environmental issues have become a primary matter of concern for the companys shareholders and stakeholders. Company uses environmental resources for their supply of raw material to ensure uninterrupted production process and to ensure regular flow of profits. Often their action result into environment degradation and ignoring the environmental health completely. Stakeholders wants that the organization should not only focus on earning profits but also repay back the environment by adopting safe environmental policies and practices (Coglinese, 2005). Legitimacy theory states that the company should follow high disclosure norms to present themselves as socially aware corporate entities. According to this theory company can hide their negative impacts on environment by disclosing more about their good environmental practices to ensure stakeholders trust and retain investors. This theory talks about the perception of stakeholders that the companys operations are in boundary of acceptable social and environmental norms, beliefs and values. The perception is formed due to the disclosure made by the company in their annual report. Company should ensure legitimacy in order to get the continuous supply of raw materials and to ensure the trust of the shareholders (Summerhays DeVilliers, 2012). 4 Phases of Legitimacy Theory: Establishing legitimacy- This is the first phase of newly incorporated entities or organizations. They lack financial competency and they should analyze the socially accepted standards and behavior and perform their operations accordingly within the boundaries. Maintaining legitimacy- The organization should try to maintain their legitimate behavior in the front of its stakeholders and try to identify the potential threats that can risk or question their legitimacy. Also, community expectation regarding socially accepted behavior changes from time to time. So companies should try to perform their operation keeping in mind their expectations regarding environmental safety, product quality etc (Vanderlaan, 2009). Extending legitimacy- When a company grows and crosses geographical boundaries the perceptions and beliefs of people changes. The company should try to adapt the standards of potential stakeholders and implement a proactive strategy to ensure the legitimacy in the new market. Defending legitimacy- Whenever a company is faced by serious allegations regarding environmental issues or there are any accidents which affects both environment and society the legitimacy of the organization gets questioned. At this stage the organization should try to follow high disclosure policies regarding their safe environment practices in front of the society in order to gain their regain their confidence (Brennan, 2013). Components of Legitimacy Materiality: The organization should disclose all the material information which has a significant impact on the stakeholders opinion. In BPs tragedy shareholders had no idea regarding the risk factors involved in the oil exploration procedure After the incident happened many investors of other oil companies like shell got aware about the risks and impacts in the oil exploration fields and sold out the shares in the market as result share price of BP and other related companies fell drastically (OSHA, 2011). Stakeholders inclusiveness- The organization should not only address one stakeholders rather they should address each stakeholders according to their requirements. BPs shareholders were investors, shareholders, creditors, people whose income was dependent on gulf coast, tourism industry which got affected due to oil tragedy, media and newspapers etc. They announced claims for around 1, 70, 000 businesses which were affected due to explosion but there are still many associated parties are yet to be compensated (USGPO, 2010), Sustainability context- The organization should continuously address their societal and environmental issues and try to improve their sustainability standards by identifying their safety related issues and focus to work on it. BPs main reason of explosion was their negligence and their inefficient safety prevention tools (Olenski, 2014). Completeness- The organization should include the impact of their operations on environment and society in their annual report. Beyond Petroleum CEO Tony Hayward issued a statement that Gulf of Mexico is very large and the oil spill is very low in comparison to the volume of water. This statement shows the ignorant attitude of the company regarding such big tragedy. Later he did apologize but words once spoken cannot be taken back (Chen, 2010). Also they played a blame game by engaging themselves in a civil trial and try to put the blame on Transocean. In order to maintain trust and confidence of stakeholders after the oil spill disaster, BP should follow high disclosure practices. Though there are many unforeseen risks involved that cannot be predicted but they can follow appropriate safety practices to ensure risk minimization (BP, 2010). The company should follow legitimate theory as the risk of environmental damage is very high in oil exploration, so they should try to educate the stakeholders about the various safety practices which are followed by them in order to ensure safety of environment and worker s who are working on the oil rigs (BP, 2011). Apart from this accounting bodies such as FASB and AASB should enforce strict provisions regarding environment disclosure on the companies. Role of Regulators The major regulator in any economy is Government of that country. After the BP oil disaster the stakeholders pressure on government regarding organization unsafe work practices which ultimately harm the environment and employees have increased. Society wants government to make strict laws addressing environmental and societal issues. When crude oil was flowing on gulf coast the federal government instead of being proactive they relied on BP to clean the mess. There were many flaws and faults identifies on the oil rig before the explosion but no authority took concrete action to fix it. The governing body Outer Continental Shelf should organize timely audits to ensure safety at such vulnerable places. Many people employment source got affected and their compensation claims are pending in the civil courts. The government should ensure fast track hearings so that the people can get back to their regular lifestyle ans resume their earnings. Conclusion The report concludes that Legitimacy theory plays a very crucial role in maintaining the trust of the stakeholders. The trust of stakeholders is important to build a long term business value. Legitimacy can only be possible when there is a high disclosure from the side of the organization about all the significant environmental risks. The organization should practice sustainability business practices in order to minimize the possible hazards and disaster like oil rig explosion of BP and to be known as socially aware corporate entity in the society. References BP (2010) Deepwater Horizon Accident Investigation Report. Beyond Petroleum, US. Retrieved from https://www.bp.com/content/dam/bp/pdf/sustainability/issue-reports/Deepwater_Horizon_Accident_Investigation_Report_Executive_summary.pdf on 28 January 2017. Sustainability review, 2010. Beyond petroleum, US. Retrieved from https://www.bp.com/content/dam/bp/pdf/sustainability/group-reports/bp_sustainability_review_2010.pdf on 28 January 2017. Sustainability review, 2011. Beyond Petroleum, US. Retrieved from https://www.bp.com/content/dam/bp/pdf/sustainability/group-reports/bp_sustainability_review_2011.pdf on 28 January 2017. Brennan, K.(2013) A Stakeholder Analysis of the BP Oil Spill and the Compensation Mechanisms Used to Minimize Damage. University of South Florida, USA. Retrieved from https://www.usf.edu/business/documents/undergraduate/honors/thesis-brennan-katelyn.pdf on 28 January 2017. Chen, S. (2010) Crisis management 101: What can BP CEO Hayward's mistakes teach us? CNN, US. Retrieved from https://edition.cnn.com/2010/LIVING/07/27/bp.tony.hayward.mistakes/ on 28 January 2017. Coglinese, C. (2005) Legitimacy and corporate governance. Harvard University, Massachusetts. Retrieved from https://sparky.harvard.edu/m-rcbg/CSRI/publications/workingpaper_11_coglianese.pdf on 28 January 2017. CPR (2010) Regulatory blowout. Center for progressive reform, Washington, DC. Retrieved from https://www.progressivereform.org/aboutCPR.cfm on 28 January 2017. Ingersoll, C., Reavis, C. Locke, M.R (2012) BP and the Deep water Horizon Disaster of 2010. MIT Sloan, Massachusetts. Retrieved from https://mitsloan.mit.edu/LearningEdge/CaseDocs/10%20110%20BP%20Deepwater%20Horizon%20Locke.Review.pdf on 28 January 2017. Olenski, S.(2014) Nearly four years after deepwater horizon, has BPs brand image recoverd? Forbes. Retrived from https://www.forbes.com/sites/steveolenski/2014/01/24/nearly-four-years-after-deepwater-horizon-has-bps-brand-image-recovered/#3a0589b04d7a on 28 January 2017) OSHA (2011) Deep water horizon oil spill: OSHA s role in the response. Occupational Safety and Health Administration, US. Retrieved from https://www.osha.gov/oilspills/dwh_osha_response_0511a.pdf on 28 January 2017. Sherwell, P. Lawler, D (2015) BP oil spill: Five years after 'worst environmental disaster' in US history, how bad was it really? Telegraph, US. Retrieved from https://www.telegraph.co.uk/news/worldnews/northamerica/usa/11546654/BP-oil-spill-Five-years-after-worst-environmental-disaster-in-US-history-how-bad-was-it-really.html on 28 January 2017. Summerhays, K. DeVilliers, C. (2012) Oil company annual report disclosure responses to the 2010 Gulf of Mexico oil spill. Journal of the Asia-Pacific Centre for Environmental Accountability. Retrieved from https://www.unisa.edu.au/Global/business/centres/cags/docs/apcea/APCEA_2012_18(2)_Summerhays_deVilliers.pdf on 28 January 2017. USGPO (2010) The gulf oil disaster and future of offshore drilling. United States Government Publishing Office, US. Retrieved from https://www.gpo.gov/fdsys/pkg/GPO-OILCOMMISSION/pdf/GPO-OILCOMMISSION.pdf on 28 January 2017. Vanderlaan, S. (2009) The Role of Theory in Explaining Motivation for Corporate Social Disclosures. University of Wollongong, Australia. Retrieved from https://ro.uow.edu.au/cgi/viewcontent.cgi?article=1062context=aabfj on 28 January 2017.