Oil and gas companies are among the firms venerable to different types of risks. According to Kihyun (2016), one way of minimizing risks in this industry is doing what is right for not only the benefits of the organization but also for the benefit of other people. Over the past years, various incidences including accidents which lead to loss of life and destruction of property worth a lot of money have been reported in different countries. Most of these accidents results because of negligence, lack of practicing ethical leadership among the leaders who manage these organizations, lack of valuing responsibility and accountability and lack of practicing corporate social responsibility.
According to Danielle (2015), ethical leaders reduce chances of accidents in this industry in the fact that they direct organizations to do what is correct to benefit their organizations and also other people. They also emphasize on corporate social responsibility by ensuring their companies engages in environmental preservation activities. One of the common causes of accidents in this industry is leakage, spillage of oil and gas products which result from bursting of pipes. Ethical leadership directs organizations to take responsibilities through regular inspection and repairing of pipes which are likely to burst.
Iqba (2015) defines ethics as a set of principle which relates or affirms to a particular group, field or form of conduct. In the oil and gas industry, the manner in which risks are managed determines if an organization is prone to accidents or not. Managing ethical risks in this industry is one of the best strategies which aid in minimizing accidents. Managing ethical risks in this industry comprises of identifying factors which are likely to cause accidents and addressing them before the accidents occur. The relationship between managing risk and reduction of accidents is portrayed in the incidences of EXXON and BP because the accidents resulted from failing to identify potential risks and establish mitigation strategies.
Managing risks relates with risk reduction in the fact that it focuses in preserving the environment and public safety (Kline, 2010). In oil and gas industry, most of the accidents are caused by oil leaks, spills and explosions. Managing risks in this industry emphasizes on inspection, repairing and replacement pipes, tankers or other facilities which are likely to cause accidents.
In the oil and gas industry, some companies fail to consider putting the required measures to safeguard their employees and the society. Good example of such companies is BP and Exxon because the management knew how these products would harm the environment, human beings and animals but did not take the necessary measures to prevent the accidents from happening. When companies fail to manage ethical risks, accidents occur meaning the two factors are related because the manner in which ethical risks are managed determines whether accidents will occur or not.
From the three cases provided, accidents would have occurred if the management considered doing the right thing. For example, from the case of wreck of the EXXON Valdez, the company did not manage the risk involved in transportation of oil and gas products because the people in charge of transportation allowed a person who was under influence of alcohol to be in charge of the ship. If the management considered ensuring the cargo was transported by sober person, the accident would not have occurred.
When companies manage ethical risks, they enhance the core values of respect, responsibility and exemplary behavior (Kurt, 2012). Such companies always focus on ensuring all factors which may negatively impact the wellbeing of employees, and other stakeholders are identified and addressed. This means the likelihood of accidents associated with oil and gas products are minimized.
The oil and gas facilities should be under intense scrutiny to ensure they do not pose threat to the neighboring communities and the environment (Gardiner, 2011). If firms do not track these potential risks, it is always challenging to demonstrate to employees, regulators or the public that accidents are being avoided.
Based on the past and current total demand for natural gas and oil, there is a huge dependency on these products. Study also indicates that while there is a high dependency on these products, employees who work in organizations which deal with these products are prone to accidents. According to Jackson (2012), managing ethical risks is one of the best ways which companies can use to ensure accidents are minimized.
According to Everton (2011), managing ethical risks comprise of certification and training employees and collaborators on the proper methods of handling these products. Training leads to minimization of accidents which result from lack of using proper guidelines during production, storage and transport of these products.
The relationship between managing ethical risks and reduction of accidents in this industry is triggered by the fact that when ethical risks are not managed, the possibilities of accidents are always high. According to Gardiner (2011), companies which manage ethical risks are at low possibilities of experiencing accidents. They also associated with few or no cases of environmental pollution because they identify the likelihood of such incidences and address them in advance.
According to Douglas (2010), companies which manage ethical risks provide proper incentives to change the responsibility culture. Being responsible of what the oil and gas companies do is among the best strategies of minimizing accidents. From EXXON and BP incidences, lack of taking responsibility led to the different accidents which led to loss of lives and environmental pollution. This means lack of managing ethical risks is one of the key factors which contribute to the accidents associated with the oil and gas industry.
According to Greenberg (2010), letting oil and gas to spill, leak or pipes to burst is unethical because it leads to environmental pollution, or fires which destroy property or kill human beings and animals. For example from the BP case, lack of following the proper guidelines for testing pipes led to the killings of 11 employees. From this incident, one can be able to identify the relationship between managing ethical risks and accidents because if the management emphasized on ensuring the right things are done for the wellbeing of not only the organization but also for the other people, the eleven employees would not have died. The Valdez incidence also portrays the relationship between the two because the accidents resulted from negligence to manage ethical risks.
The main risk that each of the three companies will continue to face is oil and gas leaks, spills and explosions (Julie, 2015). This is because there is mismanagement of resources and lack of taking responsibility in the three companies. Lack of taking the responsibility of regular inspecting the pipes, tankers and other transportation facilities will make these companies to be prone to these three risks which in turn may result to mass destruction of property, environmental pollution and or loss of lives.
Other than leak, spill and explosions, these companies will have to face the challenge of dealing with reputation of customers who purchase their products (Richard, 2010). for instance, when a loyal BP client realize negligence was the major reason which made the oil to spill in the ocean, he will feel the company does not take responsibilities and probably switch to shell because the company does what is right to prevent environmental conservation and loss of lives.
Consumers always like being associated with companies which consider taking social responsibilities in their operations. None of the three companies does this and therefore they are likely to face the risks of underperforming because of competition (Julie, 2015). Preventing environment and the wellbeing of all stakeholders makes a company to attain a competitive advantage in the fact that customers like purchasing from such companies because they feel the firms considers not only addressing their demand for particular goods but also tries to ensure they live in safe environment.
Both companies will also have to deal with legal risks because they must adhere with the law. If the companies do not consider preserving environment in their operations, they are supposed to face legal actions because all organizations must be accountable for anything they do to harm the environment, people and animals (Julie, 2015). The organizations will also face the challenge of dealing with various activist groups, institutions and agencies. For example, in their case, they will face pressure from the national resource defense council.
Financial risk is also another issue which the three companies are likely to face. In dealing with various aspects like trying to clean up and repair the oil spill, the companies will need to spend a lot of which may result to financial constraints (Richard, 2010). Apart from cleaning and repairing, the management may also require spending a lot of money for treatments in the cases where employees get injured. If the companies did what is right to avoid such accidents, this money would have been used for better cause.
The three companies will also face the risk of shortage in workforce and problems in seeking potential recruits. This is because employees do not like working in places where they are venerable to injuries and death (Richard, 2010). For example from the BP incidence, the accident killed 11 employees. This means employees who survived the accident may decide to quite the job because they feel similar accidents may occur in future. According to Julie (2015), companies which do not manage risks experience high rates of employee turnover. These organizations may also experience challenges in recruiting new staff members because people fear working in such organizations.
In providing adequate supply of energy, BP, Exxon, and the fracking industry will continue facing geographical risks. As time goes on, most of the easy to get oil and gas has been tapped out or is in the process of being tapped out. According to Fatemeh (2013), exploration and drilling of these products has moved in locations which are associated with unfriendly environment. Some of these areas include middle of undulating oceans. Sometimes obtaining oil and gas from such areas requires a lot of resources and keenness otherwise it may lead to mass destruction of property and loss of lives.
Political risk is also another issue which, Exxon, BP and fracking will continue to face in providing adequate supply of energy. Although it may not be the only way, one of the major ways which politics affect this industry is through the regulatory perspective (Nyankson etl., 2016). Typically, the oil and gas companies are covered by different regulations that limit where, when as well as the manner in which extraction is done. Interpretation of these laws may differ from one state to the other, meaning political risks may increase when companies which operate in this industry operate abroad.
In most cases, oil and gas companies prefer operating in countries with stable political schemes and also with history of granting and imposing long term leases (Wansley, 2016). However, some firms simply go to where the products are present even if the country does not have laws which match their preferences. This leads to numerous issues like for example sudden nationalization, shifting political winds which impact the regulatory winds and so forth. Depending on the country where the oil and gas are extracted, the deal which the firm starts with is at times not the one it ends up with because the government may change the agreement once the capita has been invested.
As BP, Exxon, and the fracking industry continue to provide adequate supply of energy, they face the challenge of establishing corporate social responsibility. This includes establishing relationships with different stakeholders groups who expect them to play a role in environmental conservation (Fatemeh, 2013). They also have to deal with various issues like health and safety concerns, stakeholder rights, employee rights, transparency and corruption among others.
According to Frank (2012), ethical leadership comprise of leadership directed by respect for ethical beliefs and values, and for the dignity and rights of the other people. This kind of leadership is associated with trust, consideration, responsibility, honesty, fairness and charisma. Based on these traits, ethical leadership can aid in managing risks in different ways.
The fact that ethical leaders do what is right for the benefits of not only their organizations but also for the wellbeing of other people will always manage risks through establishing the culture of responsibility. According to Enzo (2011), the culture of responsibility in leaders who manage gas and oil industries promotes awareness as well as thoughtful considerations of the potential risks which may arise from bad leadership
Ethical leadership makes employees and the society to know that the company is accountable for the risks which it poses to not only the stakeholders but also to the environment (Fatemeh, 2013). Understanding responsibilities makes people in this industry to do things the way they are supposed to be done in order to avoid risks.
The kind of leadership exercised in particular industry determines not only the performance of organization but also the relationship between the organization and the society. When companies engage in activities which pose threats to the wellbeing of the society, negative relationship arises (Richard, 2010). Ethical leaders value positive relationship with all stakeholders and therefore direct their organizations to benefit the society through corporate social responsibility. They always manage risks to ensure no accidents or environmental pollution arises from their operation.
The other way which ethical leadership will aid in managing risks in this industry is through environmental risk management (Thomas, 2012). Over the past years, different cases of environmental pollution which arise from oil and gas industry have been reported in different countries. For example form BP and Exxon incidences, the release of oil and gas products led to environmental pollution and loss of life simply because of negligence which resulted from bad leadership. Ethical leaders always manage environmental risks because they understand the products which their companies deal with can result to serious pollution.
According to Chuck (2012), ethical leadership respects the rights of other people, and one of the most important rights for human beings is the right to live. Oil and gas products can kill large numbers of people if not handled in the right manner, and therefore ethical leaders directs their organizations to manage risks in order to give every human being the right to live.
Ethical leadership also assists in managing risks through safety and quality management. Cardenas (2015) argues that good leadership values safety for not only the employees but also for the society. Ethical leaders ensure their organizations have safe working environment through managing risks which can lead to injuries or even death of employees. They also ensure products which can harm the environment are properly discharged.
Quality management refers to ensuring the facilities used for production, distribution and storage is of good quality. One of the factors which led to BP accident was mainly lack of quality management because the pipes were not in good condition. According to Banerjea (2010), quality management is one of the best ways which organizations can use to manage risks. Ethical leadership values quality in organization and that is one of the major reasons why organizations associated with this kind of management aspect realizes few or no accidents.
The other way which ethical leadership assists in managing risks in oil and gas industry is through operating based on the law. Ethical leaders direct their organizations to do what the law requires them to do. This leads to risk minimization in this industry because obeying the law means doing the right thing (Douglas, 2010). In most countries, there are laws which aim to environmental conservation. If organizations operate based on such laws, they not only conserve the environment but also minimize risks of deaths and injuries.
Managing risks in this industry includes regular inspecting of pipes, and other transportation and storage facilities to ensure they are in good condition (Perry, 2011). Ethical leadership is also associated with managing risks through directing concerned departments or persons to ensure everything in the company works in the right manner.
The other way which ethical leadership assists in managing risks in oil and gas industry is through promoting the culture of integrity. Bruce (2010) argues that managing risks in an institution where corruption is the order of the day is highly challenging. In most cases, corruption occurs in organizations where the leaders do not use ethics in their leadership. Ethical leadership do not encourage doing things which can harm other people or lead to environmental pollution in order to obtain personal gains.
Ethical leadership is associated with doing what an individual or the society finds appropriate or desirable. Because the desire of the employees is to get safe working environment and that of the society is to live in conducive environment, ethical leaders ensures these desires are met through addressing issues which may lead to environmental pollution or impact pose danger to the employees and other stakeholders (Wicksten, 2015). This means ethical leadership leads to risk management because ethical leaders emphasize on risk reduction and one way of reducing risks is managing them.
Conclusion:
managing ethical risk in oil and industry relate to reducing accidents in the fact that managing risks means taking actions to address factors which are likely to trigger accidents. When companies which operate in gas and oil industry manage ethical risks, they enhance the core values of respect, responsibility and exemplary behavior. By doing this, they reduce accidents through doing the right things for the benefits of not only their organizations but also for the wellbeing of other people. Managing risks in this industry comprise of regular inspecting of pipes, tanks and other transportation, storage and production facilities to ensure there are no leakage, spillage or bursting.
As BP, Exxon, and the fracking industry continue to provide adequate supply of energy, they all face the risk of spillage, leakage and bursting. They also face other risks which include political risks, financial risks, the risk of shortage in workforce and problems in seeking potential recruits, bad reputation among others. Some of these risks like reputation and shortage of workforce are caused by the fact that people like being associated with companies which value corporate social responsibility and human rights.
Ethical leadership assists oil and gas industry to manage risks in different ways. Some of these ways include promoting the culture of integrity, safety and quality management, environmental risk management, responsibility and accountability among others. Ethical leaders exercise leadership which is directed by respect for ethical beliefs and values, respect for human rights and accountability. These aspects make them to consider doing the right thing for not only the benefit of their organizations but also for the wellbeing of the society.
References:
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