ESR - Coursework
Stakeholders in an organization consist of an individual or a group that either one or more stakes in the organization (Andriof, Waddock and Husted, 2002). They may be affected by an action or decision of that organization. Stakeholders too can have an impact on the organizations' policies, actions or decisions. Following Gulf oil spillage in Mexico BP affected the following stake holders.
Stakeholders Description harm Benefit Primary stake holders Managers The top executives of the company. Lost their credibility when the saga was referred as due to gross mistake Employees Individuals who were employed by the company and were at the scene. Some were injured during the explosion that left other employees dead They were compensated by the company. Investors and shareholders and partners Individuals and groups that have invested in BP. They lost their money when share price of BP fell. Customers Individuals and groups which purchase oil and oil products. Due to the closing of the drilling borehole, the supply was not enough for them. Local community The community surrounding deep water horizon Destruction of environment due to the spillage caused negative impacts to the local community. They also benefited from the amount BP paid in the restoration of the environment.
Also they were employed in oil clean up jobs. Secondary stakeholders Government The United States of America government. Government lost in the amount of revenue as TAX BP pays to the government reduced Media The media personnel who covered the spill. As the whole story became a hit Benefited from the news coverage they did concerning the spillage. Sea food industry Those who obtain food from marine products. Pollution of the sea affected them negatively by reducing amount of quality food Tourism industry Organizations and institutions that preserve marine animals for tourism. It was affected negatively as the spillage caused death of animals and destruction of tourism site. competitors Other energy companies They faced stiff measures that were given to energy industry. With poor image of BP low sales were experienced because customers run to competitors.
Theory of utilitarianism is directed to a goal state, and evaluation of moral actions in terms of progress towards the state (Weinstein, 2007). Actions will be right if they will promote the greatest good of many. In accordance to the theory, BP idea to put aside over $40bn to cover damages and claims over the explosion was ethical. These heavy penalties were aimed at assisting those affected by the blow out; it was also geared at reducing chances of such events occurring again. Since BP parting with fine serves for the greatest good of many who include the locals, environmentalists and them that were affected, this justifies the heavy fine that it paid to those who were affected. Cost benefit analysis is a technique used to aid in making decisions whether to take or refrain from taking certain course of action (Mishan, 1976). The tool compares the value of benefits of any decision to the cost associated with it. BP decided had put aside $ 40 billion to cover for claims and damages in order to protect its reputation. Companies with solid reputation have a more advantage than countries with weak reputation. BP needed to restore back a good reputation and therefore, since they had not planned for the explosion, by paying the fine they defended their reputation.
According to Vargo (2011), maxim of duty is an ethical theory that refers to acting in accordance to the duty is to do what is required or obligatory.
In drilling operations
Report from the government indicates that BP was the responsible party in the blow out of deep water horizon. Also the company has admitted that it was accountable for the mistakes that propelled Gulf of Mexico oil spill. Hence BP did not act in accordance to its obligation indicating unethical practice according to the maxims of duty theory. It was the obligation of the company to conduct a safe drilling procedure and therefore the company would have acted in order if they prevented the mistakes that led to the oil spill.
Setting up a compensation fund
The compensation fund that was set aside by the company was to recompense the damages that occurred because of the oil spill at Gulf of Mexico. This amount was to cover for claims because BP wanted to be responsible of their mistakes. It was their obligation and duty to pay for damages caused and to cover for injuries that resulted from the epic. This indicates that their action to set apart the compensation fund was ethical in harmony with the theory of maxims of duty.
Conflict of rights refers to a situation where the employer has not met the terms of his employees' contract of engagement or a negotiated agreement. It is possible to judge the importance of conflict of rights to this situation. These rights will be crucial to BP injured employees in claiming for compensation by the company. According to employers responsibilities (Directgov n.d), BP has an obligation to pay reparation fee to the said employees and the affected families.
The rights, which matter most, are those employee rights. The company has a responsibility to carry out risk assessment and offer its work force and visitors a sound and safe working environment. BP should have tried to prevent mistakes that led to the occurrence and hence it is liable to its employees (Directgov n.d).
Hatfield (1990) asserts that normative theories on ethics examines motives of doing right or wrong and is based on moral facts. The fact that BP admitted that it was responsible for oil spillage, answers the question whether BP was morally upright. Judging by normative theory then BP failed in its part and acted unfairly.
Stake holder's theory affirms that even if stakeholder management will result to improved financial status of the company, managers should propagate business activities for the benefit of all. BP oil spill at Gulf of Mexico happened when the company was geared to performing well financially. The tragedy caused harm to many stake holders than those who benefited. This is a clear indication that BP did not act for the good of many and therefore acted unethically. When the company sets aside an amount to cover for claims and damages, it was responding to cries of the majority of stakeholders. According to stake holders theory this was ethical.
Corporate social responsibility is an inbuilt self-regulating instrument that allows a business to monitor and to ensure it is actively compliant to the spirit of law, international norms and ethical standards. It allows a company to embrace responsibility for its action and encourages the company to have a positive impact to the environment through its activities. Social responsibility calls for obedience to the law and profitability, and is essential when discussing ethics and the extent to which firms support the society through charities of money, talent and time (Carroll and Buchholtz, 2009).
Royal Dutch shell is an international oil and gas company with its headquarters in Hague, Netherlands. It is active in all areas of oil and gas industry which includes exploration, production, refining and distribution, power generation, petrochemicals and trading. The company also is involved in renewable energy activates like biofuels, solar hydrogen and wind power. It operates in over 90 countries and has about 44,000 service stations all over the world. According to Forbes magazine list 2011, Royal Dutch shell is second largest energy company.
According to Voser (2011), chief executive Royal Dutch shell, the company has contributed to economic development of developing countries. This has been achieved through education and skill development, social investment, local sourcing and also job recruitment. Shell's 90% work force is constituted by nationals of developing countries. Shell has been involved in Corporate Social Responsibility in countries such as India, and Nigeria. Corporate Social Responsibility was formed to engage the corporation's stakeholders and to start a joint sense making process.
Royal Dutch shell has formed shell foundation, which is an independent charity that is funded by shell. Shell foundation is in the frontline of major enterprise-based solutions to a sustainable growth in a number of developing world countries. It is involved in the areas of sustainable transport, growth of small enterprises in parts of Africa, reduction of indoor air pollution and promotion of ethical trade. The foundation aims at creating solutions to worldwide poverty and challenges to the environment that are related to energy and globalization. This initiative involves the application of market values and business thinking prototypes and discipline.
Shell foundation has reached various countries like India and Nigeria. In India shell foundation has introduced various programs that seek to promote the development. The programs include breathing space, Embarq, Excelerate and trading up. Breathing space program tackles the problem of fumes inhaled by people cooking using stoves often referred to as the silent killer. About 1.5 million premature deaths are associated to these fumes. The foundation promotes and sells improved stoves by market-oriented approach.
Trading up program unlocks market to aid producers from developing countries. This is done through providing seed capital, mentorship programs and promoting strategic partnership with retailers so as to produce a sustainable supply chains. The program has benefited about 55000 minor marginal farmers globally. Exelerate program of the foundation targets at helping small enterprises offer contemporary energy services to the poor. The foundation has championed for the provision of renewable and affordable sources of lighting to the poor in rural areas through Excelerate program. Under this program, shell foundation has plans of supporting rural electrification and provision of existing solar technologies to the poor. Embarq works on identification, analyses, evaluation and implementation of inclusive solutions to indigenous transport problems in India. These will include bus retrofits, cycling bus rapid transport and pedestrian infrastructure (Shell 2011).
Voser (2011), Comments that profitability and responsible behavior go hand in hand. Corporate Social Responsibility rests on profitability and economic stability of any organization. Corporate Social Responsibility is vital in building trust in a business, which is an important factor for improved business performance. Shell being a profitable corporation, it has been able to promote and fund Corporate Social Responsibility programs. The corporation has gone to a point of establishing its own foundation known as shell foundation to assist it in its social responsibilities.
Royal Dutch Shell shareholders are in support of the Corporate Social Responsibility that the company has embraced. Some believe that it will help in the company defending its reputation, especially after the 2004 scandal that involved misreporting of oil reserves which had dented its reputation. The corporation shareholders played a major role in influencing decisions that gave birth to the formation of Corporate Social Responsibility program by Royal Dutch Shell Corporation. (Gserrano, 2009)
Royal Dutch Shell stake holders include managers and local communities around where the company operates. Royal Dutch Shell corporate social responsibility was founded out of its stake holders' expectation. According to the Shell chief executive officer, who is the company's stake holder, Corporate Social Responsibility has assisted Royal Dutch shell to rebuild trust and confidence with communities they are found. Environmentalists who also form part of corporation stake holders have put the company on the edge so that it can be involved in environment rebuilding. Some have supported Corporate Social Responsibility programs and have even partnered with company foundation in bringing development to the poor.
Royal shell has been at war with Green peace initiative which has affected the corporation's reputation in United Kingdom. Though shell initiated Corporate Social Responsibility programs in United Kingdom, it found itself on the edge of losing battle on public relations front. This led to United Kingdom's ministry reporting that shells reputational risk have risen to an objectionable level therefore, rendering it no longer Best practicable Environment Option (BPEO) for the oil industry (Green peace, 2007). This has indicated a conflict between the corporation and its stakeholders. Though the episode was not healthy, it made shell realize the importance of reputation. Many critics argue that companies that undertake Corporate Social Responsibility programs do so with an aim of distracting public from posing ethical questions to their core operations. Another fear is that some companies promote Corporate Social Responsibility and, on the other hand, engage in hurting business practices.
Corporate Social Responsibility is a tool that allows organizations to have mechanisms of embracing responsibilities for their actions and also having positive impacts to the regions the organization is suited. Corporate Social Responsibility and profitability of the company go hand in hand, and therefore, the company with Corporate Social Responsibility should be financially stable. Royal Dutch Shell Corporation has been engaging in Corporate Social Responsibility activities which include breathing space, Embarq, Excelerate and trading up (Shell, 2011). This extends to number of countries which include India and Nigeria. Corporate Social Responsibility programs touch areas of sustainable transport, growth of small enterprises in parts of Africa, reduction of indoor air pollution and promotion of ethical trade. The activities also aim at creating solutions to worldwide poverty and challenges to the environment that are related to energy and globalization.