UGB 210; Business Ethics

Business Ethics Assignment – BP Audit

1.0 Introduction

I have been asked to write an audit on the ethical and unethical practices of BP. In this audit I will look at many different areas that relate to BP’s current ethical practice, i will also give recommendations for BP that they could use In order to ensure that there ethical practice is relevant to their values statement.

Before I begin this audit some of the key facts about BP are;

BP has over 28,000 service stations worldwide Either owns or part owns oil refineries in over 12 countries including the UK,

France, Spain and the USA. Total daily sales combined are over 9.3 million barrels which includes crude oil

and other products. BP is the world’s largest merchant supplier of acetic acid and its derivatives

(BP.Com)

The three main sections that I will split this audit into are;

What are the key business ethics dilemmas that are facing BP? The importance of the ethical dilemmas that are facing BP. What are BP’s best ethical practices and values?

‘Business ethics is the study of business situations, activities, and decisions where issues of right or wrong are addressed’. (Crane and Matten, 2010)

“It examines alternative views of what is good and right; it explores ways of gaining the moral knowledge we need; it asks why we ought to do right; and it brings all this to bear on the practical moral problems that arouse such thinking in the first place.” (Arthur Holmes)

BP uses a values statement to state what it is that they would like to do it terms of ethics within their business, there values statement states ‘In all our activities we seek to display some unchanging, fundamental qualities – integrity, honest dealing, treating everyone with respect and dignity, striving for mutual advantage and contributing to human progress’ (http://manonamission.blogspot.com)

1.1 What are the key business ethics dilemmas that are facing BP?

Having researched in detail some of the ethics of BP, In this section I’m going to focus on the three main business ethics dilemmas that I consider are the most important facing BP at this present point.

Michael Winship

UGB 210; Business Ethics

The three most important ethical dilemmas facing BP are;

The Gulf Of Mexico Oil Spill Pensions The Cost of Oil

The Gulf Of Mexico Oil Spill

The Gulf of Mexico oil spill can be seen as one of the major unethical events that has showcased BP for all the wrong reasons due to the severity of the spill. The spill was caused by an explosion to a oil well miles below the surface of the Gulf of Mexico causing oil to wash up on the coast of neighboring cities around America such as Hawaii and Chicago. The impact from the oil spill is massive with eleven people losing their lives in the disaster and businesses losing everything. The cost of the oil spill is estimated to run into billions of dollars due to the clean u

Recent events have strongly showcased one of BP’s major unethical practices this is the BP gulf oil spill. The significance and severity of the oil spoil highlighted the importance of ethics within the business world and the problems that they create for not only the business but the outside world. What is unethical about BP in terms of the oil spill was that every day BP was leaking millions of gallons of oil into the American coastline which was creating an environmental disaster and BP wasn’t taking the responsible action that it needed to take quick enough. Failure from BP to stem the leak to stop the leaking from the oil well means that the Gulf of Mexico is a major unethical problem for BP due to the continuation of the leak and not reacting to the leak more efficiently. Another thing on BP’s part that is unethical about the spill is that in an 183 page internal report BP accepted part of the blame for the crisis but also signified that they were not the only ones to blame for the crisis, signaling other companies working on the well as part of the blame. (BBC News)

The Gulf of Mexico oil spill is a main unethical business dilemma for BP as it has created so much damage to livelihood and also to environment. The financial impact from this implies that it will take BP many years to try and recover from the damage that has been caused. Major restructuring will need to take place at BP in order to try and recover back some of the money that has had to be paid in order to clean up the spill and the compensation that has been paid.

Michael Winship

UGB 210; Business Ethics

http://www.aeternus.sg

This chart above shows some important information about the share price of BP over the course of the oil spill in the United States. It shows that over the course of the three months where the oil spill was having a dire effect BP lost over 20% of its value. This even lead to there being speculation over a BP takeover by rivals Texaco.

Other unethical dilemmas that BP face as a result from the Gulf of Mexico oil spill include the money that was paid to the former chairman of the investigation into the oil spill, Tony Haywood. Due to the overall progress of the investigation Tony Haywood left his post with a one million pound pay off, this raises serious unethical issues surrounding pay within the business. Questions were raised about how much this pay off should be considering the progress that was made under Tony Haywood leadership, some thought that the pay off was too much considering that at the time BP made a loss of around 11bn (The Scotsman.com)

Pensions

Pensions are another key unethical dilemma that is facing BP, the impact from the Gulf of Mexico oil spill can link in with the impact that it has had on pensions. As has previously been mentioned in this audit over the course of the worst of the oil spill the share price for BP dropped sharply raising concerns over the financial stability for the company. The reduction in the share price meant that this will have caused concern for the millions of pension fund investors in the UK. BP accounts for one pound of every seven paid out in dividends by the top 100 companies in the FTSE. What can also be

Michael Winship

UGB 210; Business Ethics

said is that as a direct result from the cost of the Gulf of Mexico oil spill around 55 billion was wiped off the cost of the UK pension’s pot. This is a major unethical problem for BP due to the problems that it causing for not only BP itself but for everyone in the UK who has a pension that is reliant on the dividends that BP pays out. (Times Online)

The significance that BP has on the pensions of the UK showcases the importance that the company plays on the UK economy. The severity of the Gulf of Mexico oil spill meant that the investors of BP would not be getting a payment as regular as other years this was a decision that BP needed to take so that the estimated bill of $2.6 billion could be saved to be used towards the clean-up operation in the Gulf of Mexico. (BBC News)

The Cost of Oil

Another major ethical problem that is facing BP is the overall cost of oil, recently the cost of oil has risen dramatically forcing the customers who use the oil providing by BP to have to pay more for the use of the services. What makes this an important ethical problem for BP is the fact that BP makes huge profits every year prompting the consumer to think whether the prices need to be so high and whether they can use the services from another company which will be cheaper for them.

The chart below shows the average cost of oil over the past ten years what it shows is that during 2007 oil hit a record high of $132 for a barrel of oil which led to many customers of BP using rival competitors in order to use their cars.

Michael Winship

UGB 210; Business Ethics

http://www.mongabay.com

1.2The importance of the ethical dilemmas that are facing BP

Gulf Of Mexico Oil Spill

All of the key dilemmas that are facing BP and important dilemmas this is because they are playing a significance to customers and consumer of BP. The Gulf of Mexico oil spill is playing a key impact in the lives of small businesses and homeowners and other areas such as wildlife that have been affected. Out of the three main issues that were raised previously in the audit my opinion would be that this is the most serious of the unethical practices by BP, this is more serious than the other two issues because of the cost and severity and the overall damage it has created. Furthermore to this it is also the most important ethical dilemma facing BP simply because it goes against what the company said in its values statement; ‘In all our activities we seek to display some unchanging, fundamental qualities – integrity, honest dealing, treating everyone with respect and dignity, striving for mutual advantage and contributing to human progress’(http://manonamission.blogspot.com) when the actions of a company go against what it has set out as it main values and business strategy this indicates how strongly a business has breached its aims and objectives and values. In terms of BP reacting to this as previously mentioned they have set aside billions of pounds that was set to be paid to investors in dividends to help clean up the damage and severity that was caused to millions. They also replaced the man at the head of the clean up Tony Haywood due to the negativity that he was giving about the overall situation.

The chart below shows a key perspective from which the U.S government saw the oil spill from, what it shows is that at the heart of business ethics Is the law and that the law must also be taken into consideration when ethics within a business is thought upon. The US government also announced recently that they would be suing not only BP but another ten companies that were involved with the environmental disaster.

Michael Winship

UGB 210; Business Ethics

Source; http://ansteadsue.tripod.com

Cost Of Oil

Referring back to the three main ethical dilemmas that I raised above I believe that the cost of oil is the second most important ethical problem facing BP. I think this due to the overall day to day impact that this is having on customers who are wanting to use their cars and also because of the impact that failure to control this could cause such as this could have consequences towards the UK pension pot similar to what was seen by the effects of the Gulf of Mexico oil spill. I also think that this is more important to BP then the cost of the pensions because the pensions are making money for the people who have the pensions, whereas with the cost of oil this is making money for BP in which they are making vast amounts in profits every year highlighting the questioning surrounding the need for the price of oil to be so high. In terms of what BP is doing to address this issue some people believe that they are not doing very much as they want to make bigger profits every year and aren’t satisfied with the money that they are making which could be argued as being true as every business wants to make money than they did the year before.

Pensions

Lastly I think the overall impact that the Gulf of Mexico oil spill has had on pension contributions in the UK I would consider to be the third most important ethical dilemma facing BP. As mentioned all of the three ethical dilemmas that have been mentioned earlier are important and critical to the future success of BP. The reason in which I think that the impact to pensions is less important to BP then the oil price is simply based upon the pensions contributions can sometimes be over a number of years and therefore will not have most of the short term impact that the rising cost of fuel has on everyday people who are using the services that BP are providing. The way in which BP is addressing this important ethical dilemma is by ensuring that once the clean up in the Gulf of Mexico is under control that the dividends payments to shareholders and investors will be restored.

Theories

Consequentialism and Non Consequentialism

Some of the theories that can be used around BP’s ethical and unethical dilemmas include the view of Consequentialism which states that a morality of an action is judged by the result of the action, in this case the Consequentialism of the Mexico oil spill is that it was bad for BP and that the company could have handled the situation better. (University Of Sunderland Lecture Slides) There is also the view of Non- consequentialism this is where it states that an action is good or bad in itself therefore

Michael Winship

UGB 210; Business Ethics

meaning when the action is carried out it is from that moment when it can be considered good or bad. (University Of Sunderland Lecture Slides)

Utilitarianism

When BP undertook the action that it did to try and fill the leaking oil well in the Gulf of Mexico then did not take the action of Utilitarianism which states that it should be undertaken with the ‘greatest good for the greatest number’ however some people could argue that BP took the right action to try and get the leak under control as soon as possible. The two types of Utilitarianism which are act Utilitarianism and rule Utilitarianism also bases the moral judgement on the amount of pain or pleasure that it brings, also whether an action brings a long pleasure or pain for society. In this instance from the three main points that i have mentioned above BP has neglected this as all of its main ethical dilemmas are abandoning the people who they should care the most about – their customers. (University Of Sunderland Business Ethics Lecture Slides)

Deontology

BP has also failed to meet the deontology requirements of ethics which state that it is Non-consequentialist and based on principles and focuses on the valid nature of moral principles. The view of deontology concerns duties, obligation and rights and although BP has met the obligation part of cleaning up the spill it can be argued that they have not met the duties and rights of the operation. (University Of Sunderland Lecture Slides)

1.3What are BP’s best ethical practices and values?

Similar to what has been done above in this section I will concentrate on three of BP’s best ethical and unethical practices. This is so that I can focus on what BP does best in terms of operating ethically within the business.

One of BP best ethical practices is that in 2005 and 2006 they were named one of the global 100 best ethical companies highlighting how BP normally uses ethics in the way that it should be using them.

Another one of BP’S best ethical practices is the overall values statement that they have ‘In all our activities we seek to display some unchanging, fundamental qualities – integrity, honest dealing, treating everyone with respect and dignity, striving for mutual advantage and contributing to human progress’ this is a good value to have because it allows them to be able to ensure that they are doing everything that they are doing to the best of the statement that they are using. Unfortunately due to recent events this statement could be classed as out of date and that a new statement needs to be made.

Michael Winship

UGB 210; Business Ethics

Another good ethical practice from BP is that the investment arm of the company aims to be a responsible company and a force for progress indicating that shareholders can be assured that the company will work hard for their pensions.

2.0Recommendations

http://en.wikipedia.org/

1. Reduction In Staff –

This chart above echoes one of the recommendations that I believe should be made by BP which is at the minute they are not the global market leader for providing oil and are currently being overtaken by the likes of Royal Dutch Shell and Exxon. Royal Dutch

Michael Winship

UGB 210; Business Ethics

Shell has less staff then BP but yet manages to make profit the recommendation here would be to trim back the amount of staff that BP has this would help BP as it would help them to be able to reduce operating costs of the business and allow them to be able to put this money into other key parts of the business.

2. The Continuous Clean Up Of The Gulf Of Mexico Oil Spill

A major recommendation for BP would be to continue to put money towards the ongoing clean- up operation and to also contribute physically to this. BP doing this will help to restore some of the battered reputation that BP has suffered from the fall out of the spill.

3. The Cost Of Oil

One simple recommendation is to continue to pass on the cuts in petrol prices to customers who are depending on the service that BP on providing this will mean that customers who left BP because of the rising costs that they were charging will come back to BP in the long term.

4. Review Ethics Policy

In 2005 BP made the top 100 global list of most sustainable companies in the world thanks to the way that it uses ethics and the way that it handles ethics towards customers. This was also repeated in 2006 highlighting how bad things ethical functions have got at BP where once they were once one of the best globally now they are one of the worst. The recommendation here would be to look at the current values statement that BP has and consider whether it is still fit for purpose in light of recent events. BP doing this would help them to be able to provide an ethics statement that is relevant to what it is that they are trying to do.

5. The Payoff To Tony Haywood

The company should look at the payoff that was given to Tony Haywood and consider whether this was the right amount of money that someone who was not doing his job responsibly enough should have been given. In the wake of the Gulf of Mexico oil spill many thought that his payoff was obscene and that it should not have been so much. My recommendation here would be to re evaluate the payoff that he was given and decide whether any of this money can be obtained, recovering some of this money will help towards some of the costs of the clean- up operation in the Gulf.

3.0Summary

In summary of this audit into the ethical and unethical functions into BP I would say that BP needs to have a serious look at the current state of the company from top to bottom

Michael Winship

UGB 210; Business Ethics

and consider the overall structure of the company in light of recent events. The values statement needs to be also considered when looking at the structure of the company and determined whether it does suit the company going forward. A review of the company will help them to be able to try and recover from one of the worst points in the company’s history and help them to be able to create a more structured and sustainable company in which incidents like this can be prevented from happening again. I also think that from undertaking this audit it can be said that BP is good in what it does, being named in the top 100 for global ethical companies for two years running in 2005 and 2006 illustrates this. BP does best when it is helping its investors this is why they should try and ensure that the link to dividends is restored as soon as possible this will help them to be able to try and build back up the reputation that it had prior to the Gulf of Mexico oil spill.

Furthermore to this it was reported on the 6th January 2011 that the overall crisis in the Gulf of Mexico was due to management failures rather than a simple accident and without reform in the industry the incident could happen again. The report raised some key points about the incident which were;

A flawed design for the cement used to seal the bottom of the well A test of that seal identified problems but was "incorrectly judged a success" The workers' failure to recognise the first signs of the impending blow-out

These failures from BP again highlight the need for better control in the industry and also indicate that BP need to work to ensure that they are doing what they can to help clean up the mess that was caused and put relevant procedures in place to prevent it from happening again. (BBC News)

4.0 References

Books

Business Ethics, Third Edition, Crane And Matten 2010 Page Five

Internet

University Of Sunderland, Business Ethics Lecture Number Five, Slide Number Three

BP Key Facts - http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/A/ARCO_Key_facts_and_operating_statistics.pdf

BP values statement - http://manonamission.blogspot.com Internal Report - http://www.bbc.co.uk/news/world-us-canada-10656239

Michael Winship

UGB 210; Business Ethics

BP Oil Spill impact on share price - http://www.aeternus.sg/2010/bp-oil-spill-shown-in-an-excel-chart/

BP Payoff Despite Loss - http://thescotsman.scotsman.com/news/Tony-Hayward-payoff-fury-after.6443116.jp

BP Pensions - http://www.timesonline.co.uk/tol/money/pensions/article7148161.ece

Impact from decision to not pay dividend - http://www.bbc.co.uk/news/10293829 The Price of Oil -

http://www.mongabay.com/images/commodities/charts/crude_oil.html The relationship between ethics and the law -

http://ansteadsue.tripod.com/ethics.htm Cognitivism – University Of Sunderland, Business Ethics Lecture Number Five,

Slide Number Ten Non- Cognitivism - University Of Sunderland, Business Ethics Lecture Number

Five, Slide Number Ten Utilitarianism - University Of Sunderland, Business Ethics Lecture Number Five,

Slide Number Deontology - University Of Sunderland, Business Ethics Lecture Number Five,

Slide Number Fifteen Financial Data Chart - http://en.wikipedia.org/wiki/File:Big_Oil.svg Report Into The Oil Spill - http://www.bbc.co.uk/news/world-us-canada-12124830

Michael Winship