Corporate Social Responsibility - BP - Case Study Example

Name Class Unit Table of Contents 1. BP history and operations 3 BP’s company structure 3 BP’s geographic operations 4 Diagram of BP’s value chain and the nature of the company’s operations 4 BP’s profitability and prospects 6 2. Compare and contrast BP to Royal Dutch Shell 6 Narrative of the Chairman and CEO’s report for both companies after the disaster 8 3. Stakeholder analysis 9 Relevant market and non-market stakeholders for BP during and after the Oil Spill 9 Environment 9 Fishing industry 10 Tourism 10 Community 10 Various interests, salience and sources of power each stakeholder for BP 10 Economic interests (Fishing industry, Gulf tourism, surrounding communities) 10 How stakeholder expectations aligned or differed from the company’s actual performance during and after the Oil Spill 11 Stakeholder map 13 How a stakeholder coalition was able to influence (or potentially influence) BP’s actions 13 4. Issue management and recommendations 14 BP’s context in terms of opportunities and threats using each of the eight “strategic radar screens” 14 Customer environment 14 Competitor environment 14 Economic environment 15 Technological environment 15 Social environment 15 Political environment 16 Legal environment 16 Geophysical environment 16 Most “significant” radar screen for BP to manage directly after the Oil Spill AND the relevant stakeholders involved 16 5. Conclusion 17 References 18 1. BP history and operations BP’s company structure BP oil is one of the largest oil producing company globally. At the top of BP oil P.L.C hierarchy structure is the BP Group. The company is divided into four major divisions for the organisational purposes. The divisions are; Exploration and production, Oil, Chemical & Gas and Power. Each of the division is headed by a chief executive. Each of the division reports its production volume and financial records separately in the strategic report. The company board has been tasked with giving direction and oversight on the behalf of shareholders (BP, 2015). The board is highly committed to fulfilling the shareholders’ interests. The structure at BP is based on good governance. This is through clarity of roles and responsibilities. There is also proper use of skills and processes by the organisation as demonstrated by the structure. BP’s geographic operations BP operations are in almost 80 countries worldwide. Despite this, most of the operations are in Europe where they have employed over 33, 400 staff. Other regions of operations ranked on staff headcounts are US and Canada, Asia pacific, South and Central America, Middle East and North Africa and lastly sub Saharan Africa. In these regions, the company engages in both upstream and downstream activities. In the Gulf of Mexico, BP has been in operation for over 25 years. The company have over 10 rigs in operations and engages in exploration, appraisal, development and production. The North Sea operations were started over 50 years ago and have over 20 oil rig and gas fields. The company also operates in Azerbaijan, Rosneft and Angola (BP, 2015). Diagram of BP’s value chain and the nature of the company’s operations Source: (Porter, 2001) A company value chain consists of its primary activities, support activities and margin. Primary activities helps in creation of the product, sale and after sale service. Supportive activities support the primary activities as well as each other (Porter, 2001). The petroleum industry value chain consists of different activities and processes. These activities and processes jointly contribute to the transformation of the petroleum resources into the final product. The activities are interlinked together. The principal stages in a petroleum value chain are; development, production, processing, transportation and marketing. The value chain starts with exploration for oil and gas. After exploration, the petroleum fields are developed and produced. These set of activities forms exploration and production (upstream). The oilfield services include well drilling, supply of equipment, and seismic surveys. There are infrastructure such as roads, rails ports and storage. They link production and processing facilities and processing and consumers. These components of value chain form the midstream. Oil refinery and gas processing are used to turn the hydrocarbons into final usable products. The final processed product is then distributed to wholesalers, retailers and industries. This is refining and marketing also known as upstream (Walters & Lancaster, 2000). BP’s profitability and prospects BP profits have been affected partly by the lawsuits related to the Gulf of Mexico oil spill and reducing oil prices. The company saw a great percentage of their profit being taken by latest lawsuit claims. The company had an average asset turnover of 1.23 and return on assets of 11.07%. The return on equity was at 28.19% while the return on the invested capital stood at 22.29%. The company got a $6.3 billion loss after settling the claims with the local governments over the oil spill. The company has also been affected by the low oil prices which are further hurting the profits. The refining and trading division also known as downstream have been performing well despite the falling oil prices (BP, 2015). BP plans on reducing the refining margins and ensuring that the levels of turnaround are lowered. The company has also embarked on enhancing efficiency and reducing operating costs. BP aims at managing and diversifying their portfolio. There are plans to divest core assets and come up with way of creating long time value. The company sees the Gulf of Mexico as one of their key growth areas. This is through growth in higher margin barrels. There are three multibillion dollar investments in the region (BP, 2015). 2. Compare and contrast BP to Royal Dutch Shell For stakeholders’ maximisation, Royal Dutch shell has been advocating for emission trading and other market based mechanisms with an aim of addressing climate change. Stakeholders are engaged early during the design stage where there is widespread call for all stakeholders. Stakeholders are engaged through face to face interactions and written feedback. Royal Dutch Shell engages in a transparent process when making decision. Unlike BP, the company have a strong CSR which have enabled them to address the stakeholders adequately. In the 2014 report, Royal Dutch Shell gave their approach to addressing climate change. The message by the manager emphasized on new technologies such as carbon capture and storage with an aim of reducing CO2 emitted. Putting price on carbon emission was also addressed (Royal Dutch, 2015). BP has also emphasized on their focus on technologies that will reduce carbon footprint. The company commitment to stakeholders’ maximisation can be seen in their financial reports especially from 2009 to 2015. BP is very committed to shareholders value maximisation. Unlike Royal Dutch Shell, BP 2014 report main focus was on shareholders’ value maximisation (BP, 2015). The chairman addressed the shareholder and assures them that their welfare is catered for. The main focus for the company is a strategy that brings maximum value to the shareholders. The company in their 2014 report starts the CSR section by apologising for safety lapse. The company claims to be enhancing their safety and risk management for the wellbeing of stakeholders. This is aimed at preventing accidents such as the Gulf of Mexico oil spill. The company also commits to safe oil drilling in their reports. In their 2010 report, the company assures the stakeholders’ on their commitment to environment protection. This is also echoed in several reports such as 2011 and 2013. The company also addresses its impact on the environment as stated in 2014 report. The company claims to have preparedness to deal with oil spill in their 2014 report. BP commits to addressing climate change in their 2010-2014 reports. The company also looks at the impacts of greenhouse gas emissions and how they are addressing it. This is discussed in several reports such as 2014. It is important to note that BP enhanced their stakeholders’ value after the disaster (BP, 2015). Narrative of the Chairman and CEO’s report for both companies after the disaster Disasters have made both companies to change the narrative of the chairman and the CEO. After the Gulf of Mexico oil spill in 2010, BP chairman narrative is more concerned on the welfare of the stakeholders. The subsequent reports from 2010 have a message from the director addressing the disaster and updating on the company efforts in compensation. The chairman narrative informs the shareholders on the progress of the company recovery from the disaster that led to dearth of 11 of their staff and had a great impact on the environment. The manager terms the event as something that the company will never forget in 2014 strategic report. BP is working hard to regain public trust lost through the disaster which did a lot of harm to stakeholders (BP, 2015). The same is seen in Royal Dutch shell reports. The company strategic reports also addressees the stakeholders needs. The chairman message contains a section where it looks at energy and climate. In 2012 report, the chairman reaffirmed the company commitment to clean energy. In 2014 CEO review, Shell chief executive officer reaffirms the company commitment to safety. This is after the 2014 accident in which four employees lost their lives. The CEO message also addresses the Moerdijk chemical plant in the Netherlands explosion. Both companies seem to have their message tailored to fit their commitment to stakeholders. After the disasters, oil companies face a lot of criticism. They have to come up with measures to reaffirm their commitment to both stakeholders and shareholders (Royal Dutch, 2015). 3. Stakeholder analysis Relevant market and non-market stakeholders for BP during and after the Oil Spill Based on the stakeholders’ theory, the stakeholders in a firm are not only the direct owners but any person who benefits or burdens by the firms’ action (Grossman, 2005). The deep-water horizon oil spill had different stakeholders. The first group of stakeholders were the workmen in the rig. When the disaster happened, the rig had 126 workers and only 115 were saved. 11 of the company employees lost their life in the tragedy. The rest of the stakeholders include the environment, the fishing industry in gulf, tourism in the area and surrounding communities (Hall, Kice & Choi, 2012). Environment The environment was one of the mostly affected stakeholders. The impact of the oil spill on the environment leads to death of sea organisms and the ecosystem is affected. Oil spills have a great impact on the environment (Lin & Mendelssohn, 2012). For each oil spill, the pollution act of the 1990 requires a natural resources damage assessment. The results of the assessment shows the fish killed and wetland affected. The oil spill by BP led to about 1,100 miles of wetland being damaged (Brennan, 2013). The vegetation and root system were destroyed by the oil spill. This implies that the area was left open to erosion. Another assessment showed that the oil spill threatened 32 national wildlife refuges. From 2010 to 2012, there were 817 death of bottlenose dolphin. The long term impact is still unknown (White et al., 2012). Fishing industry The oil spill caused death of fish and made the area impossible to fish for a long time. This was a major blow to the fishing industry. Those who relied on fishing underwent a major loss after the spill affecting the fish market hence the economy (Upton, 2011). Tourism The tourism industry was hard hit by the disaster. The spill led to negative coverage of the damaged coastline which led to decline in tourism. The number of tourists visiting the area after the oil spill went down leading to huge loss (Hall, Kice & Choi, 2012). Community The local community relies on fishing and tourism. With both sectors damaged by the spill, the community was highly affected (Solomon & Janssen, 2010). Various interests, salience and sources of power each stakeholder for BP Economic interests (Fishing industry, Gulf tourism, surrounding communities) The oil spill affected a lot of stakeholders economically. Fishermen, hotels, restaurants and tourism based business suffered a lot. Research showed that there was 20% decrease in fish production as fishery became closed. The safety of the seafood harvested from the gulf region still remains in question. The fishermen have the power to sue the company since it has damaged their source of livelihood. They have the power to force the company into compensation as seen in the case. The fishermen have high powers against the organisation (Upton, 2011). With the highly coverage by the media, the tourism in the area have gone down. This is due to pictures of damaged coastline, tar balls on shore and death of sea animals. The public perception of the area has been damaged a lot. There are still questions on the possibility of oil existing in the water (Lin & Mendelssohn, 2012). This has made it hard for diving to be carried out in the area. Tourists have been kept away by the quality of water in the area. The source of power for the tourism sector is based on the fact that they are in immediate environment with BP. The local population depends on fishing and tourism (Upton, 2011). The effect of the spill destroyed their source of livelihood. The community had to struggle looking for other means of survival especially those who relied on fishing and tourism industry. The local population have powers to compel BP to compensate them as evidenced. Failure to recognise the importance of the local community has the ability to destroy the company reputation. A strong CSR is vital in such instances. This is through ensuring that the company does not lose the support from the local community (Spence, 2011). How stakeholder expectations aligned or differed from the company’s actual performance during and after the Oil Spill After the oil spill, BP reaction was blamed by a lot of stakeholders. The company lost their reputation due to their handling of the crisis. The company become one of the companies with the lowest corporate reputation in US (Hall, Kice & Choi, 2012). BP faced an increase in calls for people to boycott its products. There have been a thousand of claims from different actors such as restaurants, animal welfare and restaurants. BP came up with a plan to combat damaged reputation and cater for oil spill. This is through hiring communication professionals. Despite this, the company was accused of having poor communicating with the stakeholders. The company crisis communication fell short of the stakeholders’ expectation. Crisis management is very vital during disasters (Ulmer, Sellnow & Seeger, 2014). BP lacked a proactive communication approach. This made it hard to have effective communication after the disaster. The company failed to show trust and credibility to the stakeholders. The former CEO arrogance and negligence led to reputation loss. He failed to accept responsibility and show compassion to the victims. The company changed their CEO which had little impact on their reputation. There have been compensation and pledges on enhancement of the CSR. In conclusion, the BP continues to hide vital information from the public (Choi, 2012). The company is yet to fully learn from the crisis. The shareholders expected BP to act swiftly and also communicate in a coherent manner. The stakeholders also expected the company to take full responsibility of the oil spill. Despite this, BP has failed in meeting their expectation during and after the crisis (Ulmer, Sellnow & Seeger, 2014). Stakeholder map High low Willingness Circle size=power How a stakeholder coalition was able to influence (or potentially influence) BP’s actions Stakeholders’ coalition has been able to influence BP to act on the oil spill. Through numerous lawsuits and pressure, BP has been forced to act. The company was able to change their hard stand at the beginning and acted towards cleaning the ocean (Muralidharan, Dillistone & Shin, 2011). BP has also worked to a certain degree in improving their communication with the stakeholders. Initially, the company lacked communication channels to stakeholders. The combined criticism forced the company to act. BP has also been forced to compensate the affected stakeholders. This is a major step towards the recovery of the company reputation and shareholders’ interests. NGOs, conservation groups and animal rights groups have been able to force the company to accept responsibility in harming the environment and ecosystem. This has made the company to make contribution towards the restoration of ecosystem (Freudenburg & Gramling, 2011). 4. Issue management and recommendations BP’s context in terms of opportunities and threats using each of the eight “strategic radar screens” Customer environment This includes the people who do business with BP. After the oil spill, BP customers were highly affected psychologically. There was an increase in call to boycott BP products. Customers were not proud to be associated with BP due to the company damaged reputation (Cherry & Sneirson, 2011). Competitor environment This involves looking at the strength weakness and behaviour of other enterprises the business competes with. BP competes with Royal Dutch Shell in the oil and gas market. Despite the challenges faced by the Royal Dutch Shell, the company have been able to maintain a positive reputation. Royal Dutch Shell has a better reputation than BP. At the moment, Royal Dutch Shell is in a better position compared to BP in CSR. The company have been handling crisis in an appropriate manner as compared to BP. Royal Dutch Shell have balanced stakeholder and shareholder value maximisation as compared to BP (Royal Dutch, 2015). Economic environment This involves the market dynamics, national economy and international trade among others. The company is susceptible to economic conditions. The recession had a great impact on the company revenue. There is also a threat from the falling oil prices globally. This has made the company to suffer from loss. The oil spill has also damaged the company reputation which may also lead to reduced number of customers (Cherry & Sneirson, 2011). This has acted to the interests of the competitors. Technological environment BP has invested heavily on the technology. This is through high quality equipments that are aimed at attaining the maximum efficiency. After the oil spill, BP has been investing in new technologies and funding research and development in renewable energy (BP, 2015). This aimed at creating value to the customers and other stakeholders. Social environment The company faces a hostile social environment after the oil spill. Most of the stakeholders still doubt the company ethics. The oil spill led to conflict with the society which has affected the organisation business environment. The company lacks an appropriate corporate social responsibility (Cherry & Sneirson, 2011). Political environment This includes the processes of government that affects business. This includes taxes, legislation and regulations. The company has faced a lot of pressure from the governments after the oil spill. The company safety measures were questioned by the governments and local authorities. There have also been a lot of pressure groups who have come against BP after the disaster (Cherry & Sneirson, 2011). Legal environment After the oil spill, BP faced thousands of lawsuits. The company is still under a lot of lawsuits to compensate the affected stakeholders. The lawsuits have affected the company profitability with recent compensations crippling its annual profits (BP, 2015). This is due to fact that the company lacked a well-developed risk management approach. Geophysical environment This includes the physical surrounding to the industry. It includes the ecosystem, natural resources, raw materials and skilled talent. BP has been susceptible to natural disasters in their operations. After the spill, the ecosystem in the area was affected. This affected the business operations of the company. The effect of the oil spill on the geophysical environment has been a major drawback for the company operations (Hall, Kice & Choi, 2012). Most “significant” radar screen for BP to manage directly after the Oil Spill AND the relevant stakeholders involved BP has to focus more on the social environment radar screen. The company have already ruined their relationship with the society (Mak, 2012). BP has to engage in good citizenship which will help in restoring the damaged reputation. BP seems to have ignored the role played by crisis communication during and after the disaster. The company failed to utilise communication during the initial hours of crisis (Choi, 2012). Most of the damage due to crisis lies on the perception rather than reality. The company must understand the need to keep the stakeholders informed. This will require BP to ensure that they have trustworthy reporting and regular flow of communication to stakeholders especially after the crisis. BP should be honest with the stakeholders (Hall, Kice & Choi, 2012). Crisis communication should be proactive instead of being reactive. This will help BP a lot in anticipating crisis and reducing their probability. Communication will help BP in maintaining good social relations (Muralidharan, Dillistone & Shin, 2011). 5. Conclusion BP is one of the largest oil producing companies globally. The company structure is based on division with each of the division headed by chief executive officer. BP operations spans in over 80 countries worldwide. The company stages in its value chain are; development, production, processing, transportation and marketing. BP has been enhancing efficiency and reducing costs. There are also new prospects in Gulf of Mexico where the company have invested heavily. BP and Royal Dutch have demonstrated shareholder Value Maximisation and Stakeholder Value Maximisation in their operation in varying ways. Royal Dutch have demonstrated stakeholder Value Maximisation more than BP. After the disaster, BP has chairman and CEO message have changed and become more focused on corporate social responsibility. Despite this, the company still lags behind Royal Dutch Shell. Stakeholders affected by the oil spill include the employees at the rig, environment, the fishing industry in gulf, tourism in the area and surrounding communities. The company lost 11 employees and the rest 115 were affected. The environment was highly affected and both fishing and tourism industry suffered loss. Stakeholders group have been able to influence BP through lawsuits and pressure groups. Analysing opportunities and threats using each of the eight “strategic radar screens”, BP should concentrate more on social environment. The company should invest more in crisis communication and management. Crisis communication must be proactive not reactive. References BP, 2015. 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