Case Study Analysis of CSR and Conflict Management

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CaseStudy Analysis of CSR and Conflict Management

CaseStudy Analysis of CSR and Conflict Management

Theconcept of conflict management has gained popularity following anincrease in incidents that require the use of court or alternativedispute resolution mechanisms. The corporate social responsibilitypolicies guide companies in enhancing safety in their operations andadopting the sustainability measures that benefit all thestakeholders. However, unexpected events may occur and subjectorganizations to unintentional violation of the corporate socialresponsibility (CSR) policies and laws (Pallardy, 2016). This paperwill focus on the Deepwater Horizon incident of the oil spill thataffected BP.

TheCompany Overview

TheBP PLC, formerly known as the British Petroleum Company, is amultinational corporation that operates in the oil industry. Thecompany was founded in 1908, and it is headquartered in London (BP,2016). BP is currently ranked as one of the seven leading producersof natural gas and oil in the world. It is estimated that BP producesapproximately 3.3 million barrels of petroleum products each day (BP,2016). Its products are consumed in more than 70 countries, which isan indication of the company’s wide geographical coverage. However,most of the BP’s operations are based in the U.S. and the U.K. Thecompany’s business segments include oil refining, oil and gasextraction, and marketing. The nature of the industry in which BPoperates subjects it to numerous environmental challenges that act asthe primary sources of its criticism.

TheIncident: The Deepwater Horizon Oil Spill

Theoil soil that occurred in April 2010 in the Gulf of Mexico is one ofthe major crises that threatened the going concern of PB. Theincident occurred about 41 miles from the shore of the state ofLouisiana (Pallardy, 2016). The oil spill was associated with theinstallation of a leaking deep sea rig. The company had built weakcores that were made of a mixture of concrete. The weak cores failedto withstand the pressure of the gas and fractured. The natural gasthat was released from the fractures ignited, leading to the death ofabout 11 employees (Pallardy, 2016). Eventually, the rig capsized,which resulted in uncontrolled spilling of gas and oil. It isestimated that about 1,000 barrels of oil were released from thedamaged well each day (Pallardy, 2016). An investigation reportrevealed that the shear rams used to slice through pipes that carrygas and oil had malfunctioned.

Initialmeasures (including the use of a containment dome) that were taken tocontrol the oil spill failed because of the buoyant action of thenatural gas. BP later installed a permanent seal, which was anindication that the well was affirmed effectively dead. After sealingthe well, PB started the exercise of cleaning up the sea. Severalmethods (including the mechanical removal of the floating oil and thedistribution of microbes) were used to reduce the amount of oil onthe water surface (Pallardy, 2016). BP mobilized a workforce of about48,000 employees and about 6,500 vessels that were used to absorb thefloating oil (BP, 2016). The management also made a commitment tofund long-term research projects that could help BP understand theprogress of the ecosystem of the Gulf of Mexico.

Apartfrom the environmental pollution that was associated with the spreadof gas and oil, the incident had other negative impacts. For example,the fishing and the tourism sectors along the Louisiana beaches wereaffected, which left about 12,000 residents unemployed (Pallardy,2016). Many aquatic animals and plants were also killed, which is anindication of the negative impact of the incident on biodiversity.Exposure to gas and oil was associated with the negative effects onhuman health, where about 143 cases of illness were reported tohealth care agencies in Louisiana (Pallardy, 2016). However, the oilspills motivated the government to initiate a process that resultedin a thorough review of the policies that guide the offshore drillingoperations in order to minimize such accidents. Therefore, the oilspill affected both the company and residents who relied on the Gulfof Mexico for their livelihood.

BP’sResponse to the Oil Spill Incident

Themanagement of BP responded by addressing the concerns of the keystakeholders and minimizing the environmental impact of the oilspill. The initial response was to prevent a further release of gasand oil from the broken well. Several strategies (such as the use ofdome) were tried and the company managed to seal the well completely.The objective of the response was to bring the leakage under controlin order to ensure that no further damage could be reported.

Afterpreventing the release of oil, the management of BP reported that itssecond initiative would involve the compensation of firms andindividuals who were affected by the accidents, which wasaccomplished under the direction of the federal government (BP,2016). This initiative focused on three aspects, including thesafety, health, and economic well-being of all the stakeholders,especially the residents and people who were employed to remove oilfrom the shores. The management of BP also responded by compensatingthe seafood as well as the tourism firms that operated along thebeach, which was considered as its long-term measures for restoringthe economic progress of the region. The last initiative in the BP’sresponse plan was to ensure that the accident will not happen in thefuture. The company funded a research that could help the companyunderstand the causes and the impact of the incident in order to helpit develop preventive measures.

PB’sresponse is associated with two major weaknesses. First, the companyhad a poor emergency preparedness plan, which is confirmed by thefact that it tried several methods that failed to prevent furtheremission of gases and oil. Although organizations are expected toprevent the occurrence of accidents, being prepared for theemergencies is a basic requirement that helps them deal withunexpected events (Pallardy, 2016). The lack of preparedness resultedin the failure of initial measures taken to contain the situationsince the management used the trial and error approach.

Thesecond weakness is the poor communication of the unfolding of events.It was reported that the management of BP prevented Journalists fromaccessing the site and provided information that underestimated theoutcome of the oil spill (Mejri, 2013). An effective communication isrecommended during emergency response because it enhances efficiencyof the responders and eases tension among the members of the public(Onuha &amp Barendrecht, 2012).

Thestrengths of the PB’s response to the incident are seen in theresponse and post-crisis phases. During the response phase, anorganization is expected to mitigate the crisis, protect thestakeholders from further harm, and support the affected individuals(Mejri, 2013). Although PB took a long time to protect residents fromfurther harm, the deployment of over 48,000 employees to clean up thebeaches and $ 7.8 billion compensation confirm that the companyprovided adequate support to people who were affected (Mejri, 2013).During the post-crisis phase, an organization is supposed to returnto its normal operations and provide a comprehensive plan indicatingthe mechanisms that will be put in place to prevent the occurrence ofthe accident in the future (Mejri, 2013). In the case of BP, asustainability report was published after one year of the incident,which indicated the company’s intention to ensure that a similaraccident does not happen again. BP has been accused of failing torespond in time, but it is evident that it took care of the affectedpersons and developed a long-term plan to enhance safety andsustainability in its operations.

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BP’sresponse in terms of Carrol’s four areas of corporateresponsibility

Accordingto Archie Carrol, organizations have responsibilities that can be putinto four groups. First, organizations have an economicresponsibility, which implies that they are expected to add value tothe lives of the people by providing services as well as productsthat address their needs and creating shareholders’ wealth (Onuha &ampBarendrecht, 2012). A decision to divest part of the BP’s assetsand seal the damaged hole completely indicates that the company didnot focus on the need to increase the wealth of the shareholders. Forexample, PB decided to divest assets worth about $ 38 billion, whichwas part of the shareholders’ wealth that was lost to otherinvestors (Mejri, 2013).

Secondly,organizations have a responsibility to obey the laws of thejurisdictions in which they operate. Although BP had broken laws thatrequired it to avoid operations that could damage the environment,its response to the accident was reasonable in the face of the law.For an instant, the company agreed to settle all lawsuits bycompensating the affected businesses and individuals without beingpushed (Mejri, 2013). In addition, PB obeyed the court order thatrequired it to pay $ 20 million as a result of corrosion of pipes inAlaska following the Deepwater Horizon incident.

Third,businesses are required to engage in activities that are ethical innature, even in cases when the law does not force them to do so. BPhas managed to engage in public relations campaigns suggesting thatit took its responsibility of rectifying the damage caused by the oilspill. However, the organization responded to the incident afterbeing forced by the government agencies, especially the EnvironmentProtection Agency (EPA) (Pallardy, 2016). The fact that theorganization waited to be pressured and guided by the governmentagencies indicates that it failed to observe its ethical obligation.

Lastly,Carrol held that organizations should be philanthropic by being goodcorporate citizens. BP demonstrated its philanthropic responsibilityby taking care of the medical needs of all individuals who wereaffected. A decision to fund the medical monitoring as well as carefor residents of the affected regions for a period of 21 years was anact of philanthropy (Pallardy, 2016).

Stakeholdersin the incident

Therewere six major stakeholders in the Deepwater Horizon incident. Thefirst group of stakeholders was comprised of employees, who wereadequately engaged during the process of cleaning up the beaches. Inaddition, BP identified its employees properly, which is confirmed bythe fact they were provided with medical assistance together with theresidents (Pallardy, 2016).

Thesecond category of stakeholders is the government agencies. BPidentified and engaged these agencies during the incident as requiredby the law. The company collaborated with the EPA throughout theprocess of clean up and development of the sustainability plan(Mejri, 2013).

Third,residents and local companies were at the top in the list of theparties that BP compensated and assisted to ensure that they returnto their normal lives. Although the process of compensation involvedthousands of lawsuits, BP acknowledged its fault and engaged theresidents as well as the local residents in facilitating the processof compensation (Mejri, 2013).

Fourth,BP identified and engaged its suppliers from the beginning to the endof the emergency response process. The faulty rig that resulted inthe accident was owned by a company known as Transocean and installedby a contractor firm named Halliburton (Pallardy, 2016). BP invitedthe two companies to take part in the process of removing the spiltoil and compensation of the affected people.

Fifth,BP’s management identified and engaged its shareholders as it wouldbe expected to do. The CEO travelled to Midwest after three months ofthe incident in order to reassure the primary shareholders that thecompany was in the process of getting back to its normal operations(Mejri, 2013). An adequate engagement of the shareholders resulted ina decision to divest some of the firm’s assets.

Sixth,BP engaged its customers in the last phase of the response process.The company engaged in the public relations campaign that focused onassuring the customers that it had adopted the suitablesustainability measures (Mejri, 2013). However, BP failed to engageits customers properly since they were considered in the last phaseand the information provided to them did not indicate the causes ofthe accidents.

Resolutionof the incident

Theresolution of the Deepwater Horizon incident was just because it tookcare of the concerns of all the affected stakeholders. A procedurallyjust outcome balances the conflicting interests of all parties(Pallardy, 2016). In the case of the BP’s incident, there was aneed to establish the balance between the needs of the shareholdersand the interests of the people who were directly affected by thespilt oil. The company balanced these interests by selling some ofits assets, which reduced the wealth of its shareholders, and usingthe money to compensate the residents as well as the localenterprises.

Thelevel of transparency

Duringthe crisis, the affected organizations are required to demonstrate ahigh level of openness and transparency. In other words, anorganization is not expected to emphasize on its needs over those ofthe rest of the stakeholders. A high level of transparency isachieved when the organization facilitates an adequate flow ofinformation to all stakeholders. BP was accused of denyingjournalists an access to the scene of the accident and supplyinginconsistent information about the measures taken to reduce thegallons of crude oil that floated on the water (Padgett, Cheng &ampParekh, 2013). The supply of inconsistent information suggests thatthe company could be concealing some details to its stakeholders,which is an indication of a low level of transparency. However, therest of the stakeholders, especially EPA maintained a high level oftransparency towards BP. For example, EPA worked hand in hand with BPduring the entire process of response and informed the company aboutits obligation to rectify the environmental damage caused by itsoperations.

TheCRS policy

BPhad an effective CRS report that guided its relationship with otherstakeholders prior to the occurrence of the oil spill incident. Thecompany started strengthening its CRS policy in 2000 when it adopteda new sunburst logo and initiated a $ 200 million public relationscampaign (Mejri, 2013). By the end of the year 2009, BP had advancedits CSR policy and it was based on five core values. The companyclaimed to be progressive, innovative, responsible, andperformance-driven (BP, 2009). Although the BP’s CSR reportpublished in 2010 was considered as a “green washing” exercise,the existing policy helped the management avoid lengthy litigationduring the process of correcting issues of environmental degradationand compensating victims. For example, the core value ofresponsibility helped the management comprehend that the company wascommitted to development and safety of the people, irrespective ofthe prevailing circumstances. It did not matter whether BP had lostits investment during the incident, since the desire of the companyto restore the local enterprises and residents to their normal lifewas a priority. Therefore, the existing CSR policy played a criticalrole in the process of resolving the incident.

Applicationof mediation

Mediationis one of the key alternative approaches of dispute resolution.Mediation could have been used in the place of the usual courtprocess. The approach could have been applied in resolving thedispute between BP and the local residents and owners of food as wellas tourism companies. The parties would have selected a mediator, whois a third party, to hear their cases and guide them to an agreeablesettlement. Unlike the court system where the judge made the decisionon the amount that BP should compensate the victims, the mediationprocess would have given the company an opportunity to give itsopinion and negotiate with the residents since the mediator has noauthority to decide for the parties (Onuha &amp Barendrecht, 2012).One of the key benefits of mediation is the low cost of reaching thesettlement decision as compared to the court system that is quiteexpensive. In addition, the mediation process receives lesspublicity, which would have helped the BP minimize the damage on itsimage.

InAccordConflict Analysis: The Application of the Arbitration Process

BPand its stakeholders had an option to use the arbitration approach inresolving the oil spill issue. According to Mediators without Borders(2014) the arbitration process requires the concerned parties tosubmit the dispute to an unofficial person or a panel of people whoare selected by procedures provided by an agreement of the parties orthe law. For example, BP and the affected people would be required toselect an arbitrator to facilitate a discussion leading to aresolution. In addition, the arbitration process would have given theparties an opportunity to use the services of experts in the relevantareas and hold private sessions, unlike the court proceedings thatcould be accessed by the members of the public. The use of a neutralparty to reach an agreement with the affected companies andindividuals would have helped the BP avoid the court cases. Mediatorswithout Borders (2014) stated that the arbitration process is fasterand leads to a resolution that satisfies the interests of allparties.

Conclusion

Companiesthat operate in the oil and gas industries face a unique challengesince they find it difficult to avoid the environmental pollutionissues. The Deepwater Horizon crisis was an unexpected challenge thatresulted in one of the largest oil spills in the history of BP. Thecompany had a poor emergency preparedness policy, but it managed tomobilize resources and employees to clean up the affected waterswithin the first few months of the incident. Although BP had failedto include pollution associated with the incident in its 2010 CRSreport, it is evident that that the existing policy motivated themanagement to resolve the issue without engaging in a lengthylitigation. In addition, BP failed to provide consistent informationabout the progress made in responding to the accident, which limitedthe level of transparency. In overall, the BP’s response wasreasonable, given the magnitude of the accident and its impact.

References

BP(2009). Sustainabilityreview 2009.London: BP.

BP(2016). Deepwater horizon accident and response. BP.Retrieved August 18, 2016, fromhttp://www.bp.com/en_us/bp-us/commitment-to-the-gulf-of-mexico/deepwater-horizon-accident.html

Mediatorswithout Borders (2014). InAccordconflict analysis: Model for arbitration.Boulder, Co: Mediators without Borders.

Mejri,M. (2013). Crisis management: Lessons learnt from the BP DeepwaterHorizon spill oil. BusinessManagement and Strategy,4 (2), 67-90.

Onuha,A. &amp Barendrecht, M. (2012, December 8). Issues between companyand community: Towards terms of reference for CSR-conflict managementsystems. HagueInstitute for the Internationalization of Law.Retrieved from http://ssrn.com/abstract=2230102

Padgett,R., Cheng, S. &amp Parekh, V. (2013). The quest for transparency andaccountability: Communicating responsibility to stakeholders incrisis. AsianSocial Science,9 (9), 31-44.

Pallardy,R. (2016). Deepwater horizon oil spill of 2010. EncyclopediaBritanica, Inc.Retrieved August 18, 2016, fromhttps://www.britannica.com/event/Deepwater-Horizon-oil-spill-of-2010

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