One lesson from BP’s quagmire could be that the corporate responsibility movement needs more focus and energy
One lesson from BP’s quagmire could be that the corporate responsibility movement needs more focus and energyFour months on since the Deepwater Horizon spill in the Gulf of Mexico and UK oil major BP is still weighing up the repercussions. So far it can tally up a colossal clean-up effort, huge litigation in the waiting, the divestment of $7bn of physical assets, one ousted chief executive and an unenviable brand rebuilding exercise.
But what are the wider repercussions of the BP affair for the corporate responsibility profession more broadly? How should responsible practices and strategies change as a result?
Not a lot, answer some. But such a response rests on the premise that the Deepwater disaster was the result of general regulatory non-compliance by BP. Add to that specific safety oversights and general management malaise and you have yourself a crisis. Had these been avoided, the burst well would never have happened.
David Vogel, professor of business ethics at the University of California, sums up the argument succinctly. He says: “The problem in [BP’s] refineries and operations are a standard regulatory compliance story. BP cut corners and now it’s paying the price.”
There is much to be said for the position. The catalogue of cost-driven risks and basic errors on the part of BP has already been well publicised. With the federal government’s criminal and civil investigation, more revelations are likely to follow.
Such a lackadaisical approach to health and safety is not new, critics say. They point to the Prudhoe Bay pipeline spill in 2006 and the 2005 Texas City refinery explosion as ready proof.
Corporate responsibility starts with getting the basics rights. For an energy company, that means health and safety first. Vogel says: “If a company wants to protect its reputation or improve it, it’s much better trying to avoid bad things happening than to put effort into doing good.”
So what does that mean in practice? More check-lists, more resources for health and safety, more emphasis on environmental rule-keeping. Essentially, more of what BP claims already to have been doing. Only better.
Was we duped?
But strong though the non-compliance case may prove, it does not preclude difficult questions being asked of corporate responsibility in general.
BP’s reputation is today damaged. But until recently, the UK oil major was a darling of the corporate responsibility movement. Even after the Prudhoe Bay spill, specialist index FTSE4Good ranked the company Europe’s top environmental performer.
The implication can fall only one of two ways. Either BP duped the public into believing it was responsible when it wasn’t, or the present “leadership” norms for corporate responsibility don’t go far enough.
The first position seems hard to sustain – at least from a longer-term perspective. In the 1990s, BP intentionally positioned itself as a pioneer of the modern corporate responsibility movement. It was among the first to issue triple-bottom-line reports. It invested significantly in renewables and alternative energies (albeit still a fraction of its total activities). It played a leading role in myriad business sustainability associations and initiatives, both at a sector and industry level.
Investment analysts duly accorded BP top spot in their responsibility rankings. Committees of seasoned corporate responsibility professionals judged the company worthy of awards. Could clever marketing and corporate spin have pulled the wool over their eyes? Unlikely.
The public may have been more cynical. Many were dubious about the “Beyond Petroleum” rebranding from the beginning. Its mishaps in Texas and Alaska tarnished its image further. But, broadly speaking, the company’s public engagement efforts still placed it in the good guys camp for most.
From a shorter-term perspective, the duping suggestion holds more weight. The guardians of corporate reputations are their leaders. Under BP’s former chief executive John Browne, the centrality of environmental considerations was not disputed. Has the same been true on Tony Hayward’s watch?
This, after all, is the man who is on record as saying BP “had too many people that were working to save the world” before he took the top job. His tenure has seen the company pull back on its investment in areas such as renewable energy, climate change and revenue transparency, according to Bennett Freeman, senior vice-president at US responsible investment firm Calvert.
“BP didn’t drop its commitments, but it abandoned its leadership on sustainability”, Freeman says.
Were priorities shifting under Hayward, the now outgoing chief executive? Was BP suffering from internal disagreements over its commitment to the responsibility agenda? Were senior executives receiving mixed messages when it came to environmental considerations and revenue growth? All seem probable (if not immediately provable).
One obvious lesson from the BP affair is that reputations can slip, especially when leaders take their foot off the gas. As BP is learning to its cost, trust is fragile: what can take decades to build up can be lost in an instant.
Processes, not personalities
If BP wasn’t intentionally duping the public (at least over the long term), was it duping itself? Did it believe itself to be intrinsically responsible when in fact it wasn’t?
If plausible, this second scenario has far more important implications for the wider corporate responsibility field. BP’s approach had all the whistles and bells we have come to expect from a values-led company: core principles, a strategic vision, operating management systems, human rights policies, reporting practices, and so on. But did its commitment go deep enough or far enough?
Depth is an issue of integration. Any self-aware, honest corporate executive will admit that embedding corporate responsibility strategy remains a perennial challenge.
“Painstaking work” is how David Grayson, director of the Doughty Centre for Corporate Responsibility at Cranfield University, describes the internal change management process that real integration requires.
Grayson says: “Senior management needs to ensure that each part of the business understands what [corporate responsibility] means for them. What can individual business units do to better align their activities? What are the hard measures that will ensure they are making progress?”
Systems and processes are all important. The corporate responsibility profession has developed its fair share of these over recent years. Everything from social and environmental data tracking systems and reporting mechanisms to codes of conduct and supply chain audits. But the repeated question must be: do these drive responsibility deep enough into the fabric of a company?
“Hayward was vocal about improving health and safety and technical aspects of environmental management … but in two years, [BP] still had an appalling track record,” argues Simon Pickard, director general of the European Academy of Business in Society.
If the messages from the top are clear, then the problem occurs further down the chain. That in essence means a systems fault.
Where corporate responsibility sits in a company is often part of the problem, Pickard maintains. “The BP incident underlines that companies cannot afford to have corporate responsibility functions working in isolation or part of corporate citizenship or public affairs,” he says.
Instead, functional responsibility needs to be devolved through successive managerial layers of the company.
Deepwater indicates that the company still falls a long way short of that objective. Employees in the frontline – whether employees or contractors – either did not flag up potential risks or BP’s management didn’t listen when they did. Both outcomes indicate a profound systems failure.
The lessons for other companies is clear: once a corporate responsibility strategy has been established and agreed, use whatever tools at your disposal to cascade it through the business and suppliers. More bluntly, keep drilling. In the search for a fully integrated responsible company, you can never dig too deep.
Touching the edge
The more radical implications of the Deepwater crisis derive not from the depth of BP’s corporate responsibility vision but from its distance. Did it go far enough? Did it capture the entirety of how social and environmental externalities might touch on the business?
The response partly has to do with risk. Did BP have a robust enough system in place to identify, prepare for and manage the risks related to its core activities? Again, events in the Gulf of Mexico indicate that the answer must be no.
The company makes much of its commitment to “two-way” dialogue. Its engagement strategy stretched across eight stakeholder groups, from employees and shareholders to independent experts and non-profit groups. These efforts, it is generally agreed, were not disingenuous.
Yet for all that talking, the current crisis manifestly hit BP completely unprepared. Either it was talking to the wrong people, asking the wrong questions or not listening to the answers. Of course, it could be a case of all three. Other companies, take note.
The nub of the issue is not risk, however. It is imagination and courage. BP cannot be ignorant of the basic issues that it faces in the 21st century.
First, the world is demanding more oil, just as conventional sources are running out. The solution? Presumably more risky deepwater drilling, not less.
Second, fossil fuel consumption is driving climate change. The solution? Reduce oil production and invest in the development of alternative sources of energy.
The orthodox response firmly focuses on the first issue, with the thinking “keep doing what you’re doing, only do it better”.
For BP (and other major oil companies) that means learning the technological lessons from this initial experiment in deepwater drilling and ensuring every precaution is taken to avoid such a crisis happening again. That would tick the “responsible business” box as many currently define it.
Other industries are confronted by similar dilemmas: drinks companies and future water shortages, the confectionery industry and obesity, consumer goods manufacturers and waste, retail banks and consumer debt. The list goes on.
And in a world of shrinking resources and changing expectations, old business models don’t just need updating. Some are in need of an overhaul.
The responsible business community, for its part, has an opportunity to engage with the oil industry. Yes, continue the big debate about the future of energy, reducing oil dependency and bringing renewables properly on stream. But first accept that there is going to be an oil industry for the next few decades at least, and work to help the oil companies ensure that there isn’t a repeat of the Deepwater disaster.
BP in figures
- Headquarters: London, UK
- Supermajor: world’s third largest oil company
- Revenues: $239bn (year 2009)
- Number of employees: 80,300
- Service stations: 22,400
- Proven reserves: 18.3bn barrels of oil equivalent