Corporate governance and business ethics are key aspects of the success of an organization. Corporate governance deals with policies, customs, processes, laws, and institutions that affect the way an organization is run. It affects the way that an organization is controlled, directed, and administered (Agalgatti and Krishna 2007, p.121). Corporate governance also affects the stakeholders’ relationships with an organization and the goals of an organization.
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Common stakeholders in different organizations include the management, shareholders, employees, customers, suppliers, the community, and many others. The customs, policies, processes, laws, and institutions in corporate governance ensure that the individuals in an organization are accountable for all their activities related to the organization (Shleifer & Vishny 1986, p.472). An organization that has competent corporate governance in place sees to it that the shareholders gain for investing in it. Corporate governance is an internal system and allows the management and other staff in an organization to act with integrity and to be accountable in all their operations. It helps benefit the shareholders and other stakeholders in the organization.
For the implementation of corporate governance to be successful, the management in an organization must be committed to all its operations (Donaldson and Dunfee 2009, p.288). The presence of a strong board culture helps the management to safeguard the policies and processes in an organization so that members can follow them. The management in an organization has little control over the external environment.
This external environment is made up of groups such as the customers who must be satisfied. The management, therefore, has an option to implement corporate governance to attract customers. The board culture in an organization affects the internal environment and allows an organization to increase its competitive advantage over other competitors. The management should use the corporate governance mechanism to treat the cause of unethical activities together with their symptoms.
Business ethics address the moral and ethical principles that affect an organization (Ferell, Fraedrich & Ferell 2008, p.309). It greatly addresses the conduct of individuals and the business organization. It also addresses the problems that arise in a business environment. For an organization to be successful, the individuals and the organization itself must be able to differentiate between what is right and wrong and also between the good and the bad.
The customers’ interests should be put first so that the goods or services offered to meet their needs. Good interaction between an organization and the stakeholders creates a good reputation for the organization. In the past, many organizations saw business ethics only in terms of internal rules and regulations, and legal standards. To them, adherence to these was the most important thing and it meant that the reputation of an organization was good.
The trend has today changed where many organizations use business ethics to win the confidence and respect of their customers. Unethical conduct in an organization leads to the loss of customers and reduces the loyalty of customers to an organization. If the management in an organization is not careful enough, especially in ensuring that members of the staff follow the organizational code of ethics, the business is likely to be unethical. Any organization should be aware that it is its responsibility to maintain the environment in the communities where it does its operations.
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A combination of corporate governance and business ethics determines the success of an organization (Sison 2008, p.117). They help an organization to avoid those incidents that may result in unethical behavior. The levels of awareness of stakeholders are higher than they were sometimes back. Consumer movements have been formed to fight for the rights of the consumers. Unethical behaviors such as poor quality products, financial irregularities, non-compliance with environmental issues, and others affect the success of an organization negatively. There needs to be open communication, transparency, and integrity in all the operations of an organization for it to be successful.
The employees in an organization must have personal codes of ethics and the organization on the other hand must have an organizational code of ethics that everyone should observe. Observing the codes of ethics ensures good treatment on part of the customers and eventually increases revenue. Many individuals and corporations are willing to invest but with organizations that have proper corporate governance and are managed properly. Investors believe that corporate governance allows the efficient use of their resources. The incorporation of business ethics into corporate culture and sound corporate governance helps an organization attract more stakeholders and address any issues arising in an organization. This paper will seek to analyze the British Petroleum Company plc touching on corporate governance and business ethics.
The British Petroleum Company plc
The British Petroleum Company (BP) plc is an energy company. It is the largest corporation in the United Kingdom and the third-largest energy company in the entire world. Considering all lines of companies, British Petroleum Limited plc is the fourth-largest company in the world. It has its operations in all parts of the world. The company has its headquarters in Westminster London. It is privately owned and it especially deals with petroleum and natural gas. Shares of the company are listed on the London stock exchange.
As stated before, BP operates in several parts of the world. All its major operations are located in Europe especially in Westminster. It operates in six continents and has its products offered in over one hundred countries. In Africa, the production activities of the company take place in three countries namely Egypt, Algeria, and Angola. The company forms joints with other companies in different countries to enhance its operations.
The company has its production in Asia and carries out them in countries such as China, Indonesia, Pakistan, and Vietnam. Here, the company also manufactures chemicals in South Korea, China, and Malaysia. Production activities to serve Australia and New Zealand are located in Australia. BP is the largest gasoline retailer in the U.S and has its production activities located in Houston in the USA. In South America, production operations are located in Venezuela and Columbia.
In all six continents, BP markets different products that it manufactures. Some of these specific products include solar panels, lubricants, gas products, and many others. Marketing activities in Europe are spread all over. In Africa, the company has its retail and marketing in South Africa. Here, the company concentrates on marketing products such as gas products, oil, and solar panels. The products are sold all over the continent. In Asia, the company has its major retail shops in India and china from where oil products and lubricants are marketed. In every country, the company uses a few countries to distribute its products to other parts of the continent.
Corporate Social Report
The corporate social report of British Petroleum Limited plc shows the impacts that the operations of the company have on society and the commitment of the company to promoting success on members of the society. In carrying out business, the company has economic, social, and environmental impacts. The reports are given to shareholders and customers so that they can see the commitment of the company to act responsibly.
The corporate social report helps the company to create strong relationships with stakeholders. More individuals and corporations plan to invest with the company because they will have a return on investment within a short period. The commitment by the company to carry out operations that ensure safety on part of all stakeholders is very beneficial to the company. It has a safety, ethics, and environment assurance committee that ensures that all the processes that take place within the company ensure safety on part of all stakeholders. Helping in the conservation of the environment helps in the protection and conservation of brand image.
The company involves members of the community in environmental conservation projects. This makes them feel part of the company. Proper communication in the organization is very important. It provides a means by which subordinate staff can communicate their views with the top management in matters affecting the company. Enhanced communication in general increases the production and in turns the revenue of the company.
Stakeholders to British Petroleum plc
Stakeholders to an organization comprise those individuals and groups of people that directly or indirectly affect the operations and profitability of the organization. These make the internal and external environment of the organization. They are all important to the company and are treated in a manner that they feel satisfied.
BP plc shareholders are individuals and groups of people who have invested with the company. Such individuals and corporations pit their money into the business hoping to have a return on investment within a short period. They also expect the shares to gain value and earn profits for them. By involving shareholders in the business, the company spreads risks to many places. This helps secure the future of the company.
The money that shareholders bring is used to enhance the operations of the company. The management in BP plc makes all operations to increase the value of the company which gives its shares some more value. BP plc has a great impact on the shareholders because it helps them earn revenue. Major shareholders are involved in decision-making so that they can represent the wishes of other shareholders. In general, shareholders own the company and are therefore involved in the running of the company.
The management of BP plc also forms another group of stakeholders. All the operations that take place with the company are agreed upon by the management. They are expected to make complex decisions that ensure the success of the company. The management is held responsible for the behaviors of subordinate staff in the company. It, therefore, comes up with a code of ethics that is followed to ensure ethical behaviors on part of the employees.
The management also assigns work to the employees in the company and also ensures that all work is done effectively. It plans the activities to take place and implements programs that help in the efficient achievement of the company’s goals and objectives. The management expects their efforts to bring success to the organization. They also expect their efforts to be rewarded very well. In general, the management ensures that the company is run efficiently.
Board of Directors
The board of directors decides mainly on the future of the company. Members of the board sit in a panel and make decisions on some strategies that can be used to enhance the company further. Major shareholders are included in the board so that they have control of their investment. The board also reviews the current operations and their contributions to the value of the shares. The individuals on the board of directors do not meet very frequently but they hold regular meetings to oversee the running of the company.
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Employees form a group of stakeholders that work in the organization so that the final goals of the company are met. The employees of the company are spread in all areas where the company carries out its operations. They direct their individual goals towards the goal of the organization so that they succeed and the organization succeeds. Employees in the company work from within and this allows the company to meet the needs of the customers. Coordination amongst employees and between the employees and the management allows high levels of such. The employees are well-disciplined and are individuals with high integrity.
This allows them to work responsibly and always to have respect for the management in the company. The employees recruited are those possessing the skills and experience for the production of quality products. On their part, employees expect to be paid for their work. The company has a great impact on the employees because it offers them jobs that allow them to earn a living.
Customers make a group of stakeholders purchase the products manufactured by the company. The company has customers all over the world. These are individuals who use machines such as automobiles and industries, those who use gas for cooking and welding, solar panels for lighting, and many others. Customers want products that meet their needs. The company, therefore, concentrates on products that meet the needs of the customers. The customers also expect the products to be readily available and accessible. This is the reason why the company has its operations in several countries on every continent. The impact of the company on the customers comes in that it provides products that the customers require and meet their needs.
Suppliers comprise those individuals and companies that supply BP plc with necessities such as raw materials, packaging containers, and others. The major suppliers are companies where petroleum is mined. They provide BP plc with the most important raw material for its business. Suppliers expect the company to purchase their products at a fair price. The company creates strong relationships with the suppliers and observes the rules and regulations put down in the specific countries where it obtains petroleum. The company has an impact on the suppliers in that it provides them with cash by buying their products.
Each country has some rules and regulations that are followed. Any individual or company that operates in a country must observe the rules that govern the country. The rules also help in the conservation of the environment. These rules are written by regulators especially the government. Governments gain from tax paid by the company. The company impacts the regulators by increasing revenue.
Community at Large
BP plc operates in different communities. Some individuals live in these communities. They expect the company to carry out activities that will not be harmful to them and the environment. Some of the individuals in the communities secure some jobs either skilled or unskilled from the company. The company has a great impact on the individuals from the different communities where its operations are carried out. Many people benefit from the presence of the company in their communities.
BP plc Key Issues with Stakeholders
British Petroleum plc has had some key issues with stakeholders. These key issues mostly touch on the environment of the safety of the lives of individuals in affected areas. One of the controversies concerns the shutting down of the company’s operations in Prudhoe Bay. The operations were closed in August 2006 as a result of corrosion of pipes carrying petroleum to join the pipelines in Alaska (Chemical Business NewsBase 2006 para.6). Sediments had collected at the bottom of the pipes but the bacteria run in the pipes could not protect the corrosion. The corrosion forced the company to spill oil on the slopes in North Alaska.
The spilled oil-covered snow and gravel on the slopes. Another field was partially closed in May 2007 because the water was leaking at a separation plant. The spill of methanol in the Prudhoe Bay oil field that was managed by BP plc was faced with criticism from environmental conservation officials. Extraction of oil from oil sands leads to the release of high amounts of carbon dioxide. BP plc is involved in the extraction of oil from Canadian oil sands and it has been greatly criticized for its devastating effects on the environment and local communities (Pals 2010 para.9).
In 2005, there was an overflow in a large tank containing hydrocarbon in Texas City. The overflow formed a cloud that ignited and caused the death of fifteen people and about one hundred and seventy others were hospitalized. Just before the explosion of the refinery, there had been other minor accidents in the refinery but the engineering problems causing them had not been addressed. There are claims that the management had cut the maintenance cost to save some money.
The blame was put on the executives in London and the company suffered big losses. Almost all the other parts of the plant were damaged by the explosion and the company was also fined about eighty-seven U.S. dollars in 2009. This greatly affected the image of the company. The operations of the company in some places have been criticized or projects to open operations in some places opposed. This is due to some of the incidents that have previously occurred.
Such a project that has been opposed is the Mist Mountain Project that the company wanted to open adjacent to the Waterton-Glacier International Peace Park. This is due to worries that the company might danger to the animals and plants in the park. The Columbian Pipeline also cost the company a lot of money after allegations that the company had benefited from terrorist attacks carried out by the Columbian government paramilitaries.
Critical Analysis of two Issues with Stakeholders
BP plc has had many issues that affect the confidence of the stakeholders in it. The two common incidents that have been under great criticism in the Texas City refinery disaster where there was an explosion that killed fifteen people and injured about one hundred and seventy others. The Prudhoe Bay Oil Spill was also faced with great criticism. The blame is put on the management for the failure to use enough anti-corrosion to prevent the corrosion that caused the spill.
Texas City Refinery Disaster: Stakeholder Management Techniques used by the Company
As stated before, there was an explosion affecting the largest BP refineries in the United States in 2005. Several people lost their lives and many others were injured (Mallenbaker 2007, para.2). The stakeholders especially the community where the company had its operations were not pleased by the incident. The government of America was also not pleased by the explosion. The employees were not pleased because they lost their fellow employees in the explosion. The closing of the operations was not positive for the shareholders because it reduced profits. After the incident, several investigations from different firms took place.
The aim was to identify the cause of the explosion. The investigations done led to criticism on part of the management in the company. The blame was placed on the company because the management had decided to cut costs for maintenance to increase revenue. This was seen as mismanagement of the plant by the company. The plant ought to have been maintained so that overflow could be detected and controlled. The explosion had been preceded by other minor accidents but the management did pay much attention. The engineering problems could have been addressed had the management taken a step the very first time when the refinery caused the first accident.
To try and retain its stakeholders, the company did investigations and accepted its mistakes. The communities felt that the presence of the company in the location was disastrous. The management apologized for the losses suffered and promised to do all its best to avoid such incidents in the future. To increase the confidence of the employees in working with the company, the management promised to conduct frequent maintenance to the plants in the company. As a result of the damage caused by the company, the government of America fined BP plc eighty-seven million dollars. This is the highest that has ever been fined to a company for failing to correct safety hazards. The company did not mind about the loss it would suffer but to show its commitment to serving the market, it agreed to pay the fine.
The explosion had a great impact on the reputation of the company. Many stakeholders could not trust the company especially on hearing that the explosion was a result of a mistake that the management could have corrected. The company lost some customers and shareholders to some competitors. Employees in the company work with the fear that there may be another explosion. Some competent individuals who could have wished to work with the company now withdrew their ambitions and opted for other companies. This had a great impact on the company.
Prudhoe Bay Oil Spill: Stakeholder Management Techniques Used by the Company
The Prudhoe Bay Oil Spill as stated before involved the spilling of oil at the Prudhoe Bay Oil field managed by BP plc. The oil that was spilled contained methanol, some crude water, and oil. The oil covered a tundra pond and a gravel pad from a pipeline. On discovering the spill of the corroded oil, the company reacted by closing its operations in Alaska North Slope oil production (Gregorio 2010, para.8). The gas that was contained in the spill was very harmful to both plants and animals. Again for this case, it was felt that the management in the company failed to safely and properly maintain their oil pipelines in Prudhoe Bay.
This led to the leaking of the oil releasing hundreds of thousands of gallons. An e-mail that had been exchanged in 1999 revealed that the management had agreed to reduce the number of anti-corrosion by ten percent. The management knew that it was a risk but they argued that they were working under tight budget pressures. An e-mail that had been exchanged in 2001 revealed that the use of the pipe corrosion inhibitor had been withdrawn with the argument that there was not enough money to purchase it.
The management argued that they had to take disagreeable measures because of the budget constraints. This was meant to cost cut the expenses used in maintenance. Unfortunately, the cost-cutting was taking place at a time when the company was enjoying huge profits. There were claims that the reduction in production had led to extreme budget pressure in the branch. When all this was happening, the shareholders were not informed of the practices.
The hydrocarbon in the oil that spilled was dangerous to the lives of plants and animals. This is a threat to members of the community and the government. The shareholders experienced losses because a lot of oil was lost and the money to be used for repair could have profit if the maintenance program had been implemented properly. Closure of part of the plant meant a deficit in the market for the customers which could lead to the increased price to recover the loss undergone (Michelle 2006, para.4).
For the company to maintain its stakeholders, the management apologized for the mistake and promised the stakeholders that it would do its best to ensure that such an incident does not occur again. In addition, it offered to clean the areas that had been affected by the spilled oil. When the government fined it for the mistake to implement competent safety methods, the company paid the money.
The actions by the management that led to the spill of the oil harmed the reputation of the company. Stakeholders felt that the company was concerned with money that it was with the environment. The management knew that the steps were dangerous but went on to implement them. Members of the community together with the government felt that the company’s presence in the area was a threat to the health of plants and animals in the region. The government released a report showing that the Texas refinery accident and the Prudhoe incidents had been caused by ignorance and cost-cutting measures by the management in the company. With this information in mind, some shareholders would wish to invest their money in companies other than in one that is fined frequently as a result of errors made by the management. Some customers would also turn to products from other companies. In general, the loyalty of the customer is declined by the incident.
Critics have always found a word to criticize BP plc. Critics feel that the move to producing products in different lines has harmed the reputation of the company. The operations by the management in the company have been under great criticism. On its part, the company has always had a word to counter the criticisms that it receives from the critics.
Prudhoe Bay Oil Spill
Following the Prudhoe Bay Oil Spill, BP plc was ranked by critics amongst the ten worst companies in the world. The company had branded itself as an environmentally sound corporation in 1997 when it offered to widen its line of production to offer non-petroleum products in addition to petroleum. The company has been criticized for the pollution it has caused (Beaudo 2006 para.5). Critics argue that this is the reason why it has been criticized so frequently. The critics argue that the management in the company has been very greedy only concerned with money. This is the reason why they cannot mind risking the lives of individuals working with the company and the communities that surround their operations. This is contrary to the argument that it is environmentally sound.
that firm stated that it was concerned with addressing the issues that are concerned with sustainable development. It argues that what has previously occurred is as a result some errors that will be avoided in the future (Malhotra 2009, para.9).
The management in the company argues that the company has a responsibility to ensure sustainable development but increases by arguing that government, companies, and civil societies have a responsibility to work together to bring effectiveness. In addition to addressing financial figures, the company also talks about other issues that have faced it. Some of these include oil spillages, gas emissions, injury in the workplace, employee satisfaction, community investment, and others. It states that to increase its profits, it uses ambitious and wide-ranging business principles. In his social responsibility report, Lord Browne agreed that the years 2005 and 2006 were amongst the worst years in the company. These are the years that the company was faced with issues of explosion and the oil spill (The Associated Press 2007 para.5).
People lost lives, others were seriously injured, and the environment and animals got destroyed. He said that company has received much criticism from the media but the company is doing its best to avoid such incidents in the future. The company argues that the codes that it has been using for the past fifteen years show great improvement other than in those two years when there were tragedies. The company has a program that ensures improved personal safety especially on the employees who work with the machines. It has a series of measures that are aimed at improving the negative impacts of the company’s operations on the environment.
It has a program that improves the lives of the less fortunate individuals in the community. The company has a program that is aimed at improving the lives of women by empowering them and giving them positions of leadership in the company. A strong financial performance allows the company to invest in the future and provide rewards to the shareholders in the company.
Texas City Refinery Disaster
The explosion in Texas is the worst incident that has ever happened to the company since it started its operations. It happened on March 25, 2005, when it was least expected. The media, politicians, and other critics rose against the company criticizing the death of the employees and injuries caused by the explosion. They argued that the management in the company was not careful enough to ensure safety on part of the employees.
Others argued that ignorance by the management to repair the plant led to the explosion that caused the death of many people. They said that they had received information that the plant had caused minor accidents before but nothing had been done to repair the error in the plant (Mogford 2006, para.5). The company had been involved in money-saving deals and could not find money to maintain the plant. The programs that the company ran were also criticized with an argument that the company did not care for the employees in it.
Company’s Response to the Issue
In response to the Texas City refinery disaster, the company gave a speech in response to incident. The speech highlighted that the incident was preventable. John Mogford argued that the incident was a cultural failure, a process failure, and a management failure (Mogford 2006 para.6). He argued that the company has a code of conduct that is followed to ensure safety on part of the employees. Accountability for safe operations has been at the forefront.
Major audits on operating facilities ensured that the facilities meet the standards of facilities in the company. The employees in the company have been given the power to raise any safety concerns and stop working with a facility which they felt was faulty.
To avoid such an incident in the future, the management in the company had taken some measures (Chappell 2005 para.3). A thorough investigation took place where facts were gathered and some critical factors determined. The committee that performed the investigations then reported its findings and recommendations. The company set aside seven hundred million U.S. dollars for compensation purposes. The company also paid $21.3 million charged for violation of OSHA regulations. The committee that performed investigations found that the working environment was not fair and that there was no trust, motivation, and purpose in the company.
There was poor communication between the employees and the management in the organization. To counter these, a new management team was selected to replace the team that managed the operations in Texas. A team to oversee the implementation of the recommendations that the investigating committee had made was put in place. The company also put a new safety and operations organization. These would ensure that the safety of employees was observed.
Corporate governance and business ethics allow an organization to address the issues that affect an organization. The British Petroleum Company (BP) plc is an energy company that has for a long time dealt with petroleum and gas products. It later changed its operations to offer other products such as solar panels, lubricants, and others. The corporate social report by the company identifies the concerns of the company to meet the needs of all stakeholders. Stakeholders to the organization include shareholders, management, employees, board of directors, the community, customers, and many others.
The common key issues that affected the operations of the company include the Texas City Refinery Disaster and the Prudhoe Bay Oil Spill. Texas City refinery disaster represents an explosion that took place in 2005 killing fifteen people and injuring about one hundred and seventy others. The explosion led to high criticism of the company. It was said that the organization had turned to cost-cutting at the expense of maintenance.
Prudhoe Bay oil spill concerns the corrosion of pipelines carrying oil. The pipes leaked and poured hundreds of thousands of gallons of oil. The oil that spilled contained methanol that is very dangerous to the lives of plants and animals. The oil covered a tundra pond and a gravel pad. The two incidents were faced with great criticism from the media, politicians, and all other critiques. The corporation did not sit down and watch them criticize it but rose and accepted its mistakes. It also laid down some strategies that it will use to avoid the occurrence of similar incidents in the future.
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