British Petroleum is one of the key players in the oil industry and the company is vertically integrated both forward and backward. Oil industry has its own set of unique risk and it is imperative for the industry to have in place a set of disaster aversion and disaster recovery programs. The organization has built an image recently as a corporate responsible citizen; however, this image was tarnished with the accident in April 2010, which spilt millions of gallons of oil on the shore. The responsibility of the accident on the oil rig was accepted by the management of British Petroleum. Business Crisis and Continuity Management system of the company was not adequately implemented which was the reason this incident occurred and the situation couldn’t be contained immediately after it occurred. The reaction of different stakeholders varied after the disaster. Role of corporate governance was also significant.
British Petroleum is a global petroleum organization headquartered in London, United Kingdom. In terms of the revenue, the company is the third-largest organization in the world in the petroleum industry, and fourth largest among all companies. British Petroleum has operations in over 80 countries round the globe. This speaks of the economic might of the company and the extent to which the operations of the company are expanded.
Overview of Business
British Petroleum also has the competitive edge of being vertically-integrated. From exploration of petroleum to marketing of the products, the company has control over its operations (Cohen, 2011). The advantage of this approach is reduced dependency on external suppliers and hence greater competitiveness of the company. The company has taken proactive approach in exploring alternative energy sources.
During the last two decades, British Petroleum has created an image of a socially responsible corporate citizen after it has been involved in a number of major environmental regulations which were declared publicly. The company even became the foremost player in the oil industry to openly recognize necessity of deterring climate change and declared a goal to reduce emissions of greenhouse gases from its operations (Binder, 2010). The company also had in place a comprehensive plan of crisis management to avert any accident on its oil rigs owing to terrorism, natural calamities or some other factor. Thus, the reputation of the company was highly respected in corporate circles due to excellence of its management and the lofty goals of taking care of environment.
In the April of 2010, there was a major explosion at oil rig which was operated by a company named Transocean Ltd on behalf of British Petroleum Limited. The casualty of the accident was eleven people and the real damage which caught the attention of the world was a gigantic spill of oil in the Gulf of Mexico. The estimates of the oil spill was put by experts at 35,000 to 60,000 barrels per day – enough to cover at least 2,500 square miles of the sea surface with a thickness of one mile of oil (Hershman, 2010). The coastal areas which were threatened by the oil spill were those of Louisiana, Mississippi, Alabama, Texas, and Florida (Dato, 2002). The entire responsibility of the incident was placed on British Petroleum and the liability of the entire environmental damage and the cost of cleanup of the sea were imposed on the company.
The paper provides a complete overview of British Petroleum’s Business Continuity and Crisis Management (BCCM) function. The discussion is all encompassing, conducting an evaluation of the Incident Management System of British Petroleum and Disaster Recovery function (Lockwood et al.’s, 2005). Later, three stakeholders are identified in the organization with the identification of three key stakeholders, the impact on them and their reaction. Role of corporate governance and external regulation is also performed.
Business Crisis and Continuity Management is a fairly recent concept in business management studies which is one step beyond the traditional disaster recovery function of businesses. Business Crisis and Continuity Management is a set of practices which puts forth the directions for all the decisions and actions that are compulsory for a business to prevent any possible disaster, and in case the disaster couldn’t be averted, it provides a set of SOPs to respond (Smith, 2003). Also, it helps to resume business operations and the transition to a normal mode is made in the quickest possible time. The concept is much more holistic and has implication enterprise wide. Disaster Recovery is only a supporting function of BCCM and is not specified in sufficient detail to insure a truly comprehensive and integrated program.
Business Crisis and Continuity Management is a truly strategic function in this respect. The discipline creates a common body of knowledge and terminology, specifies standards of performance, and puts in place a certification process. Therefore, it involves a far greater level of preparation for accidents and the responses are much more comprehensive than its counterpart Disaster Recovery System (Warren, 2010). The most common application of BCCM has been in manufacturing industries, however, the program is so comprehensive that it has been successfully implemented in financial and IT sectors too (Garcia, 2006). Today BCCM is viewed as an investment rather than an additional cost on the organization which subtracts from profits. BCCM adds to what is termed in management circles as business resilience. If true implementation of BCCM is not present in an organization, the firm is under the risk of going out of business altogether (Honnungar, 2010). Business Crisis and Continuity Management can be said to be a combination of Enterprise Management, Crisis Communication, Crisis Management, and Risk Management; along with the elements of planning and program implementation (Ulph, 2010).
Even though the company has expressed on numerous occasions that it has the capability to create most resilient systems for the exploration of oil and also conducts contingency planning at regular periods of time to operate some of the world's largest and most complex production onshore and offshore facilities (National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drill, 2010). Transportation of oil was the process in production chain which received the greatest amount of attention in terms of disaster recovery and contingency planning. Protecting people and the environment was expressed as the foremost priority of British Petroleum. Also, the key directions from British headquarters to the regional offices in various countries were to meet and exceed highly challenging health, safety and environmental performance standards.
The key lesson of Business Crisis and Continuity Management which can be derived from this example is that the every organization must have the ability to identify and manage risk. Identification of risk is the first step according to BCCM principles. It’s important to understand the need for a comprehensive risk analysis. Risk is something which is known to exist in all business environments. Even though BP had in place a system of BCCM, however, the company has lacked holistic approach to assess and manage their risk exposures. When the company was undertaking the task of drilling into hundred of meters below the surface of the earth, it should have known all possibilities of things which could have gone wrong (Juhasz, 2011). The incident which caused the accident was not foreseen by the company. There was something fundamentally wrong about the way in which executives were thinking about enterprise risk management, continuity of business operations and the way oil exploration business is run.
Firms Response to the Crisis
After British Petroleum was named as the responsible party for the Gulf Mexico oil spill incident, the immediate response of the company was the expression of a promise that it would harness all of its resources to battle the oil spill and to try to contain the disaster at the earliest possible time (Cheremisinoff et al.’s, 2009). The fund set aside by the company for this purpose was twenty billion dollars. The stock value of the company almost halved within a time span of mere fifty days (Hiles, 2011). It should not be thought that the company was just unlucky to meet with such a crisis, rather it was an overlook on the part of top executives of the company as well as the managers of the company to leave such wide gaps in Business Crisis and Continuity Management program (Steffy, 2011). The incident was completely avoidable and wouldn’t have occurred if proper anticipation of risk has been done. The valve system of the well was considerably new and it required a better set of precautionary mechanism than the one which was in use at the time (Alexander, 2010). Also, post incident response of British Petroleum was slow, wasn’t premeditated and in actuality was a series of tests – some of which worked while others didn’t.
Business Crisis and Continuity Management, which deals with the response after the accident, was too weak. The company didn’t have a clue as to how to counter the oil which has engulfed the sea, and commenced to sprinkle a toxic substance over the spill. This measure received widespread criticism and was against the directions of US government. Secondly, there was major anomaly it the statements of the company. Sometimes, they used to state that five thousand gallons per day of oil is being removed from the sea, while later it was found that only one thousand gallons per day is being removed. The extend of the weakness of recovery plan was that the company even didn’t know which staff they can call upon for helping in the disaster recovery plan. The company drew upon two thousand of its employees and even its retirees from around the entire world.
British Petroleum had a Business Crisis and Continuity Management on paper, it was not implemented in its real sense, for there was no predefined response for a crisis which wasn’t so farfetched. The first action by BP was to test tighter-fitted cap designed to stop the flow of oil into the Gulf of Mexico. The response didn’t yield much of a positive response immediately; however, soon the flow of crude began to slow down. The sorry state of affairs was that the flow took three months to stop completely. The total amount of oil which was spilled on the sea by that time was estimated at more than three million barrels. It was not until September of 2010, when the government source confirmed that the well was effectively dead. By that time, huge amount of damage had been caused to to marine and wildlife habitats and to the Gulf's fishing and tourism industries. Had the Business Crisis and Continuity Management of British Petroleum be in place effectively, such a huge proportion of loss could have been easily avoided (National Research Council, 2010). Other measures of the damage were made in terms of the miles of the shoreline which was contaminated by the spill. For instance, in Louisiana alone 287 miles of shoreline was found abashed with tar balls, oil sheen trails are seen in the wake of fishing boats and environmental damage was found to the extent that even wetlands marsh grass was fouled and died after being cut off from supply of air.
The role of the stakeholders of the company has been both helpful and challenging for the organization in its attempt to overcome the problems associated with the oil spill. The government of United States was the key stakeholder for it has a give-and-take relationship with this giant oil conglomerate. At the time when the criticism was at its peak on the management of British Petroleum, government of US actually came forward to defend the company (Elliott, 2001). The federal government avoided to scold the company publicly and expressed that the government thinks that the response of BP is adequate to deal with the challenges of oil spill that have occurred. The government of US said the BP’s team has exhausted all possible ways in which the oil spill could have been controlled and the official response wasn’t changed despite harsh stance of media over the British oil company. In fact, the government partnered with the team of British Petroleum to contain the oil spill in the shortest possible time. Even though, BP didn’t comply with the orders of the government as not to spray any toxic material over the oil spill, however, BP continued with the spray of the toxic material and responded to government’s query by saying that the material sprayed by the team of British Petroleum is less toxic than the oil itself.
The response of the shareholders was highly uncooperative. Majority of the shareholders lost their trust on the company and began to unload shares as early as possible (Blyth, 2009). This was even before the extent of responsibility of British Petroleum in the incident was known. When the liability on the company began to become clear, the share price of the company fell further. Upon announcement of twenty billion dollars of self-imposed penalty by British Petroleum, it was stated that the real set of liability on the company would in effect be much larger. Hence, the shareholders began to sell of their stake in the company to the point that the share price of the company fell to fifty percent of its original value.
Employees of the company are another set of stakeholders who were highly loyal and cooperative to the company. Even though it was anticipated that several employees of the company will prefer to leave the organization, however, it didn’t happen. Teamwork was exemplary among the team, and hoards of employees got together for containment of the loss despite the risky nature of the operations. BP’s crisis management team quickly established a Human Resources task force to address and manage its staffing needs. Even retirees were taken on board as part of containment team.
Corporate governance is a statement of the ways through which an organization can safeguards the interests of its financiers – namely, the investors, lenders, and creditors of the organization. According to view some other theorists, it is not about the financiers of the company, but related to all stakeholders. In their view, corporate governance is not only a collection rather a comprehensive framework of rules and practices for the board of directors of an organization to ensure accountability, fairness and transparency in a firm's relationship with all stakeholders (Burtles, 2007). The backbone of corporate governance is explicit contracts between the firm and the stakeholders for distribution of responsibilities, rights and rewards. Even though corporate governance is usually reported in terms of the misdemeanors in financial industry, the oil industry is faced with risk issues that go well beyond fraudulent financial reporting. Therefore, the set of principles of corporate governance for British Petroleum is unique.
In case of the British Petroleum, external regulations have been very clear. The circumstances and issues of oil industry are quite known; oil spills have taken place on ships and through pipelines, and the penalties and rules regarding the spill are quite known. The impact of external regulation on petroleum organization is that they are highly careful about taking on liabilities on their shoulders, and thus are highly watchful of any possible risks which might be faced by them and precautionary measures are taken. External regulation also made it mandatory for the company to minimize its risks. According to the view of some experts, the initial process of British Petroleum were in line with the directions of corporate governance, however, over time the external environment changed very rapidly while the operations of the organization remain unchanged. A strategic drift was created which deepened over time and the incident finally occurred which tarnished the image of the organization in a very big way. Procedures are the means to an end, however, in case of British Petroleum procedures become a goal in themselves – doing an activity for the sake of the activity rather than what it accomplishes. A heavy dependence on performing processes that become activity traps creates an inability to change within the organization which ultimately leads to the demise of adherence to external regulations by British Petroleum.
British Petroleum is one of the key players in oil industry. The company’s financial and operational excellence had been laudable being a vertically integrated entity. The company also had the reputation of being a socially responsible corporate entity. However, there was a major weakness within the Business Continuity and Crisis Management function which came to surface with the April 2010 oil spill. Firstly the incident itself was a result of safety measures which hadn’t kept pace with the changes in external environment of the company. Secondly, the response to the crisis wasn’t preplanned and was highly inefficient. The net outcome was a loss in the stock price of the company in a very dramatic manner. Role of adherence to corporate governance has also been weak. It is concluded that proper adherence to Business Continuity and Crisis Management principles is essential for all organization especially the ones operating in sensitive industries like petroleum.
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