In this research paper we are going to analyze the problem of ethics and governance in business. We are going to do it on the example of accident in Texas City in 2005. This accident has shown the limits, which the principles of ethics can be used in business until. Also, this accident has proven that the level of governance should be strengthened in business. In the opposite case business can even be sometimes dangerous for the society. Therefore, the problem of correspondence between ethics and governance in business is very important. This problem is going to be considered in this research paper. We are going to provide some theoretical concepts and show the ways they are realized in practice.
The accident is associated with the well-known company BP (British Petroleum). That is why we believe that we should provide some background information about the company. This is a British oil and gas company. In fact, this is the second largest oil company in the world. As of 2009, the company was the fourth in the Fortune Global 500, which is the ranking of the biggest companies of the world.
Alas, the company’s history, especially in the recent years, has been associated with the quite unpleasant episodes. Among these episodes we may mention the company’s conflict with Iran, ecological problems, related to its performance and, of course, a range of accidents on the company’s sites. One of those accidents is going to be analyzed in this case study.
Now it is time to provide information about the accident. “Texas City” is a vast agglomeration of BP refining and processing facilities in Texas, U.S.A., acquired by BP, when it purchased Amoco in 1998. On March 23, 2005, 15 BP workers in Texas City were killed by a huge explosion, 170 were injured. Apart from that the accident has caused negative ecological consequences, which cannot be described in financial or some other terms, but which are really significant.
BP has accepted responsibility for the explosion and fire that occurred at its Texas City refinery on March 23, 2005. The company’s representatives said that the company was deeply sorry for the accident. The company promised to compensate losses and to continue working on the safety issues in order to prevent the similar episodes in future. In general, BP has paid about $1.6 billion in compensations.
First of all, we have to define the reasons of the accident. The direct reason of the accident was the following: it happened, when a crew tried to start up the raffinate splitter tower in the “isom’” after a maintenance shutdown. Despite the proper and accepted procedures, flammable hydrocarbons were being pumped into the tower for three hours, but no liquid was removed. Moreover, alarms and instrumentation provided false indications. The liquid formed a vapour that condensed and fell to the ground, where it was probably ignited by backfire from an idling truck. Thus, first of all, the accident was associated with a lot of technical problems. This opinion can be proven by the following words:
“The CSB found several technical failures that caused the accident, notably: failure of the alarm on the tower level indicator; absence of any other indicators or automatic safety devices; inadequate control board display; lack of supervisory oversight and trained personnel; fatigue of operators working 12-hour shifts for 29 days; and the location of trailer-type accommodation too close to the “isom” unit” (Mortished, 2007).
However, we should also say that the foundations of the accident have been laid down with the growing popularity of the deep oil drilling. Such growth has become possible because of the following reasons: technological development, higher oil prices, and government incentives.
Technological development has provided more possibilities for the deep drilling. The companies have got the instruments and techniques that help them to reach previously impossible locations. In fact, they are even forced to do it, because the previous sources are constantly decreasing, and they have to look for the new locations of oil.
Higher oil prices have made this kind of drilling economically beneficial. Deep drilling may cost 10 times as much, as opposed to a shallow drilling. However, increasing price of crude oil makes drilling in deeper places quite profitable. According to the experts, deep drilling is profitable as long as crude oil prices are above $45 per barrel.
According to the thoughts of a lot of experts, the problems that had led to the accident had a systematic character. Among these problems we may differentiate the following ones: cutting of expenditures on the safety problems, low level of safety culture, low level of qualifications of the company’s personnel, wrong orienteer in the company’s strategy, etc.
One of the main reasons of the accident was cost-cutting. Moreover, we can even name it as a trend in the company’s development. According to the information provided in the report, the company’s expenditures on safety issues have declined dramatically in the recent years. The reason was that the company paid more attention to its financial results than to the safety measures. Among the expenditures that had been cut were the expenditures on training of the company’s personnel. The number of training staff at the plant had been cut by 73%. Thus, some of the industry’s experts told that the company’s personnel was not qualified enough to predict and to prevent the accident.
The company has disagreed with the conclusion that the expenditures cuts were the direct reasons for the disaster. According to the words of the company’s representatives, the maintenance spending at Texas City had risen 40% over the previous five years. It was higher than the industry average per barrel. Also, the company argued that there were some problems in staffing. All the operators that were present during the accident had necessary knowledge and qualifications.
In fact, the warning signs existed for years. However, the company’s managers did not manage to use that information in a proper way and to prevent the accident. In the years before the incident, eight serious releases of flammable material from the ‘isom’ occurred, uninvestigated.
Moreover, the company had already faced the similar accidents. This fact only proves the existence of the serious problems in the company’s safety policy. For example, we can mention the accident that happened in Grangemouth in 2000. It is a really interesting fact that there is a lot of common between this accident and the analyzed one. Alas, this similarity is associated with the negative trends in the company’s safety policy. Both accidents were characterized by the lack of leadership and accountability, insufficient awareness of process safety, inadequate performance measurement, a safety program too focused on personal safety, and failure to complete corrective actions.
Of course, we cannot forget about the most recent and, probably, the most serious accident. The Deepwater Horizon oil spill happened on April 20, 2010, because of the explosion on the Deepwater Horizon drilling rig that killed 11 men and injured 17 others. The leak lasted for three months and was stopped on July 15. However, it had already released about 4.9 million barrels or 185 million gallons of crude oil by that moment. It means that it had been releasing about 53.000 barrels per day. That negative process was totally stopped on September, 19. The Deepwater Horizon has become the largest oil spill in the U.S. history, easily exceeding the 1989 Exxon Valdez tanker accident. Moreover, it is the second biggest oil spill in the world’s history.
Another reason for the accident can be found in the company’s safety policy. For example, the company had relied on personal injury statistics that fails to provide true and overall picture of the process’ safety. The company lacked a learning culture and failed to respond to its own surveys and studies that had revealed important safety problems. This opinion can be proven by the following words:
“Although the company achieved a 70 percent reduction in work place injury rates at Texas City, the investigation team determined those efforts were not sufficient because these efforts were primarily focused on personal safety rather than process safety. The significant reduction in workplace injury rates led the company to believe that conditions at the refinery were improving. The investigation team found no evidence of anyone consciously or intentionally taking actions or decisions that put others at risk” (BP, 2013).
Conclusions and Recommendations
To conclude with this particular case study we would like to differentiate the decisions that have been taken into positive and negative ones, and also to grade them. Looking at the consequences of the accident and taking into account that the similar accidents repeated again, we may claim that mainly the decisions made were wrong and negative. The recent oil spill near Mexico has only proven this fact.
It has proven the fact that the analyzed company has always had a lot of problems in the sphere of safety. These problems have systematic character. That let us talk about some negligence in the company’s approach to the safety issues. That is why we are forced to talk mainly about negative decisions and actions of the company in the context of the analyzed case.
Among the positive decisions we may only differentiate the company’s reactions to the accident. First of all, the company has taken the full responsibility for the accident. It has admitted that there had been undetected problems and agreed to pay compensations. Such step has helped the company to save its corporate image. However, as the experience has shown, it was a mistake and the company did not learn anything from the accident. In this context we are forced to mention again the Deepwater Horizon oil spill.
Alas, we are forced to talk mainly about the company’s negative decisions and actions, especially in the sphere of safety policy. First of all, the company tried to save on the expenditures on the safety issues, which is unacceptable approach. Second of all, the company had a lot of mistakes in the safety policy itself. For example, the company mainly relied on the personal injury statistics, being unable to see more global and dangerous problems. Finally, the company has not created an effective link between its own surveys and investigations and implementation of their results. As we have mentioned, the company’s own investigations had shown a lot of problems, but the company’s managers did not take it into account.
The accident and the company’s behavior before, during, and after it, have strengthened the problem of ethics in business or the so-called business ethics. First of all, we would like to provide the definition of the term “business ethics”. In our opinion, one of the most appropriate definitions is the following one:
“Business ethics is the examination of the variety of problems that can arise from the business environment, and how employees, management, and the corporation can deal with them ethically. Problems such as fiduciary responsibility, corporate social responsibility, corporate governance, shareholder relations, insider trading, bribery and discrimination are examined in business ethics” (Investowords, 2013).
In our opinion, one of the most important components of business ethics is an ability of a business to be environmentally and socially responsible. In general, the modern state of the world’s society requires just these characteristics. Because this state is characterized by the deep environmental problems, including extreme climate changes, natural disasters, and global warming. Also, we should not forget about the social problems, which include poverty, inequality, social and national conflicts, etc.
In such circumstances there should be powerful institutions that are ready to take responsibility for the surrounding world and people. As for us, business is one of such institutions. Being socially and environmentally responsible means having some other goals apart from getting profit. Alas, the analyzed company has proven, and not once, that profits and shareholders’ value are the main values for it. These values sometimes may be higher than the humans’ lives and natural environment.
As evidence we may mention the company’s cutting of expenditures on the safety issues, because budget and profits were the main target. The situation is strengthened by the fact that the company’s representatives were aware of the possible consequences of such policy.
Generally, the analyzed situation has proven that sometimes the principles of business ethics are not followed. There are still some companies that position profits higher than human’s life. That is why we are forced to talk about the role of governance in business.
This governance should be performed by the governments and civil organizations in particular, and by the society, in general. This governance should be performed not only in the forms of law, but also in the form of direct control and monitoring over the companies’ performance. In general, we believe that the modern capitalism should be limited by the principles of social and environmental responsibility. These limitations should be mainly provided by the governments and society.
Finally, we would like to weigh up opinions of the victims and culprits of the accident. First of all, we would like to say that the arguments of the victims and their defenders, including the government, look more significant. At least they are supported by the facts, while the arguments of the company are just sentiments.
Generally, the company has chosen a correct position. It has accepted the fault and responsibility ,and promised to change the situation in future. However, the experience has shown that it was not able to do it. It was the only way for the company, because it did not have enough arguments to defend itself. It was guilty. Its main goal was not to justify itself, but to convince the world’s society that the accident was not the result of negligence. In fact, the company has managed to do it. However, the recent accident has undermined this strategy. No one is going to believe the company again.