Essay: BP Oil Spill Strategy

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[. . .] It is estimated that more than 8,000 birds and other forms of marine life including sea turtles and other marine mammals were found either injured or dead during the first six months after the oil spill occurred. In addition to the effects of the toxic hydrocarbons in the crude oil, the chemicals and dispersants used by BP to restrict the spread of oil in the sea may have serious long-term effects on the marine and coastal wildlife. National Wildlife Federation (2012) reports that among some of the immediate effects of the oil spill were those seen in the form of bodies of birds and sea turtles covered in oil. There is also the risk that marine mammals may have swallowed the oil causing health problems for them. Coral had also been killed because of the increased levels of toxicity. The sharp decline in the wildlife population may have impacted the local food chains and may have a visible effect on the food webs in the years to come. However, the death to marine life was less than that in the Exxon Valdez oil spill (Alleyne, 2010)

Coastal Communities

The major coastal areas affected by the oil spill are Texas, Louisiana, Mississippi, Alabama, and Florida. The coastal communities in these states are dependent on the coastline for their livelihood and living. They have homes built along the coastal region. Several fishing communities dot the coast that supports a $3 billion dollar fishing industry and provides more than 30% of the seafood for Americans (Johnson et al., 2012). Oyster beds, breeding grounds for various species of shrimp and fish, and coral were destroyed as a result of which the local communities have suffered a loss of livelihood. The coastal communities also depend on tourism. After the oil spill, there were a large number of tour cancellations and the local hotel industry suffered losses as a result.

Oil Companies

Following the oil spill, BP faced severe criticism for its disregard for the environment. There is a risk that the negative impact of the incident may carry over to other companies exploring oil in the region. Scott (2010) reports that legislation might be on the way to limit offshore drilling in the country and to impose increased liabilities on oil exploring companies by more than a 100 times.

Managers and Employees at BP

Employees and managers at BP are important stakeholders and were both affected by the oil spill and also served to bring it about. Eleven crew members were reported missing and many were injured. The management practices were responsible for the lack of coordination and faced criticism for this. The management also faced claims by the affected communities and demands from environmental groups to do more to clean up the environmental damage caused by the oil spill. There were even demands for the CEO Tony Hayward had to resign in July 2010 following these demands (Arnott, 2010).

Shareholders at BP

BP is a public limited company and had a shareholder's equity worth almost $95 billion in 2010. Following the news of the oil spill in the Gulf, the share price of the company immediately fell to half the value before the incident. Share price fell from $60 to $30 within two weeks (Hargreaves, 2012). The share price improved somewhat as BP tried to contain the oil spill and engaged in a PR attempt. By June 2010 the share price was only 13% lower than the price before the oil spill (BBC, 2010). BP also announced a cut in dividends and in payments to pensioners as well (BBC, 2010). This was a massive shock for shareholders of the company as many people saw that their investments were being lost because of the incident. They were concerned about the viability of the company in the future.

Regulatory Agencies

The regulatory agencies were also found to be guilty of negligence in the presidential panel's investigative report. They were found not to have taken all measures to assess the integrity of the structure and the procedures employed by the relevant companies and had signed approvals without paying complete attention to the requirements. A reform of the regulatory framework is needed to avoid such incidents in the future (Saenz, 2011).

Claims made by Stakeholders and the Response of BP

The most affected stakeholders of the BP oil spill were the shareholders, employees, local communities and government entities. They made claims against BP for the loss of their livelihood, income and damage to their property.

In the aftermath of the oil spill, BP created a trust fund with the agreement of the government worth $20 billion in which the amount were to be deposited over the subsequent years to alleviate apprehensions that it would try and evade financial compensation to the victims.

A steering committee was created to advocate on behalf of more than 100,000 individuals who wanted to file claims against the company. The claims were allowed for economic loss, damage to property of a vessel, damage to crops, trawlers and other fishing equipment or machinery, and for expenses incurred in helping the company with personal vessels at the time of the oil spill (Guarino, 2012). In addition to individuals whose lives have been affected by the incident, individual states and the U.S. government have also filed claims against the company for damage to the coastline and the economy. As of April 2012, BP had paid out $6 billion in claims out of the $20 billion trust fund. It has also pledged $57 million to help the tourism industry in the affected states to recover. The Court had approved a preliminary settlement between the company and the plaintiffs worth $7.8 billion (UPI, 2012).

Corporate Social Responsibility Challenges and the Strategic Implications for BP

Corporate social responsibility requires that a company take a proactive approach towards improving its image as a responsible citizen of society. The awareness of environmental issues such as pollution and climate control has assumed greater prominence in recent years. The popular belief is that organizations have caused damage to the environment through greedy and irresponsible ways of exploiting the resources of the earth. Instead of focusing on profits exclusively, firms should make use of other measures of performance that reflect the ethical and humane side of the company (Keinert, 2008, p. 58)

Disasters like the Valdez oil spill have placed oil exploration companies under the spotlight more often than other corporations. Because these organizations make enormous profits and have financial resources at their disposal, it is expected of them to use these resources to help maintain, conserve and develop the natural environment.

The managerial complacence and negligence alluded to in the report of the presidential panel and the $18 million severance pay awarded to the then CEO Tony Hayward (ABC News, 2010) has tarnished BR's image as a conscientious and a responsible corporate citizen. This may negatively affect how existing and potential investors view the company, whether the company is able to attract talented employees, what constraints regulatory authorities impose on the company in future, and how the victims of the oil spill perceive it. In order to win support for continuing its operations in the local communities, BP will have to shape a serious commitment towards its Corporate Social Responsibility.

How BP can Avoid such Incidents in Future

BP can avoid such incidents in the future by paying heed to the findings and remarks of the presidential panel made in their report. BP has been described as a company that is guilty of managerial complacence which has made it incur criticism from several stakeholders for not taking sufficient preventive measures and sharing information that could have prevented the incident and reduced the scale of damage that resulted.

The response of the CEO who tried to downplay the severity of the incident also reflected the lack of crisis management and communication skills within the Operations Management. The trust that has been lost will take time to be regained but the company can make structural ad cultural changes to improve its performance in the future.

The company can establish a crisis management cell that would act as a single point of contact for all stakeholders and media personnel to contact in the event of a disaster. The company should also create cross-functional teams where information about various operations and projects is shared so that problems can be identified and resolved timely. Senior management should also be involved in these teams and participate actively. Open channels of communication should be established with contractors and regulatory authorities so that information is shared within the company and with partners outside the company.

Conclusion

The BP oil spill in the U.S. Gulf in 2010 was one of the most serious environmental disasters in history, both in the scale of damage it caused to the environment and to the economy, as well the amounts that were paid out in compensation and continue to be paid by… [END OF PREVIEW]

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BP Oil Spill Strategy.  (2012, May 4).  Retrieved June 26, 2019, from https://www.essaytown.com/subjects/paper/bp-oil-spill-strategy/9227519

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"BP Oil Spill Strategy."  Essaytown.com.  May 4, 2012.  Accessed June 26, 2019.
https://www.essaytown.com/subjects/paper/bp-oil-spill-strategy/9227519.