Business ethics is an integral part of any business that is interested in operating with long-terms objective of sustainability and social responsibility. The ethical part of business goes beyond managing ethical behavior within the business entity but also managing corporate behavior outside the boundaries of employee ethics. Business ethics is critical during times of crisis and when the business entity is undergoing through fundamental changes. (Albrecht, Thompson, Hoopes & Rodrigo, 2010). The code of ethics that is developed within the business can be used as the foundation that buttresses the corporate ethical behavior without the boundaries of the business entity. Social responsibility is the ethical form of corporate behavior that an organization is obligated to act toward the society at large for the benefit.
1.1.1 Question 1- How does managing ethical risk in the oil and gas industry relate to reducing accidents?
The term ethical risk can be defined as the negative consequences that result due to unethical actions taken within the business environment. Managing ethical risk therefore can be referred to as the management of the negative consequences that will arise when unethical action in the course of doing business is taken (Ma, 2009). The ethical risk management in the oil and gas industry can lead to reduced accidents within the industry from three main considerations which are: the identification, mitigation and transformation of the ethical risk that will lead to a reduction of the accidents in the oil and gas industry.
1.1.1.2 Identification- The process of managing risk with the Exxon Valdez should have started by identifying the consequences of giving the command of the ship to a person who had gone through an alcohol detoxification program and the potential dangers of his condition relapsing while working.(Ferrel & Ferrel, 2016). The poor judgment of the captain in giving command to the third mate who was not certified to chart that stretch of the journey was poor risk management.
The identification of the risk management in the BP oil spill should have started with identifying the risks involved and potential negative outcomes of not using a remote-control system in the oil rig that they leased from Transocean Ltd. Although not required by law, such as switch could have been useful to lessen the spill as it could have been used remotely to shut down the leaking oil rig.
The ethical risk identification in the fracking industry is the potential of releasing harmful chemicals and gases into the air, water bodies and the attendant health risks of those who are affected by their operations. (Chan, Fung & Yau, 2010). The risks of fires breaking out due to the escaping methane gas are important in fracking operations as this is the greatest danger in the industry. Proper casing of the shafts will reduce the methane that flows up to the surface and is a potential of fire explosions in the area of operation.
1.1.1.3 Mitigation- The failure by the management of Exxon Valdez was in the cutting of safety corners in order to save money ($22 million) by failing to build a second hull on the Exxon Valdez. (Ferrel & Ferrel, 2016). The second hull was important knowing that the waters where it operated had problems of icebergs and this would have mitigated the impact of the Exxon Valdez in the event that the first hull was damaged
The BP oil spill could have been better mitigated by managing the ethical risk by using a more costly design for cementing the steel pipes in the rig which could significantly have reduced the risk of the oil and gas surging back into the system. (Ferrel & Ferrel, 2016). The safety tests conducted were also ignored by the engineers even they showed confusing results which should have called for more tests or more inclusive consultations before giving the go- ahead to continue.
The mitigation in the fracking industry is rationalized on the ethical consideration of reducing the negative outcomes on the environment, the employees and the communities nearby. These include the pollution of water sources, employee safety and the health concerns of the residents nearby where the operations are being undertaken. There is also the danger posed by seismic shifts that are triggered by the fracking process.
1.1.1.4 Transformation- The transformation in all the three cases should be based on the ethical dissonance management that should be viewed as the gate-keeper to morality and not as the threat to the corporate image. There is a delicate balance between the moral self-image of oil and gas companies and the temptation that is availed to benefit from behavior that is not ethical.
Utilizing anticipated dissonance can be useful in helping the three cases to avoid the temptation to benefit from behavior that is not ethical in dealing with disasters and accidents. (Brand, 2009). The common behavior that is taken by most companies is to stretch and shuffle the truth when dealing with accidents and disasters. The result would be that companies should transform from inventing outcomes of a disaster scene, which raises tension, to actually reporting the outcome as it is. Experienced-dissonance is helpful in prompting corporations in the oil and gas industry to actions that will lead to moral atonement and compensation in the event of a disaster or accident occurring in their areas of operation.
2.0
2.1 Risks facing BP- The main risk that BP faces is in developing fields that are discovered far from the coast in the deep and ultra deep waters and the technical challenges of extraction in such rigs. Another risk is in the lack of proper differentiation between occupational and system safety in operation: the system safety of BP operations should focus on the engineering and operational aspects; the current engineering designs do not match the deep water operations in terms of the safety control structures that BP is using.(BP, 2017). There is the risk of continuing to use obsolete equipment to drill in the deep water fields which carries the increased risk of accidents.
The other risk BP is facing is replacing the dwindling reserves that it is already operating and the need to discover new reserves. Many governments are showing unwillingness to Western oil and gas companies to access their reserves and this is forcing BP to look for replacements which tend to have higher costs of production. These are the deep water, ultra deep water, oil sands and shale gas as the new sources that will push the company forward. The drilling for oil and gas in the deep water and shale gas extraction each pose its own distinct risks and challenges.
2.2 Risks facing Exxon- The risks facing Exxon is the remoteness of the oil operations especially in the Alaska which face the challenge of extreme weather. (Exxon, 2017). The other risk is the danger of ruptured oil pipelines in remote areas which take time to reach before such spills can be contained. Shipping the extracted oil and gas through the stretches of water that are frozen most times of the year poses the challenge of shipping vessels as they may collide with such icebergs and lead to oil spills.
The other risk globally is the negative perception of using resources to stifle groups opposed to their operations which could result in boycotts of their products. A good example was using the Indonesian military to protect their operations in Aceh province where there had been protests against its presence. (Polluter Watcher, 2017). The company also faces the risk of being portrayed as a company prone to political interference by lobbying which can affect its corporate image.
2.3 Risks facing the fracking industry-The fracking industry face the challenges of different laws and standards applicable in the different countries of operation. This is more clearly seen in the US where different states have different laws which are not universally applicable and this poses a challenge for a company operating in two different states. (Petrick, Cragg & Sanudo, 2011). The integrity of drilling deep underground is another risk that the industry is facing with some operators drilling to depths where water sources are located, thus polluting them. The fracking industry also carries a negative connotation within the shale gas extraction sector and this reduces its long-term sustainability.
Another additional risk within the fracking is the risk of seismic shifts that results from the injection back into the ground of the waste water from the fracking operations. The waste water that is injected back into the ground significantly contributes to fault lines which were relatively stable slipping. (Litvak, 2014). These then result in frequent earthquakes and tremors in the area of operation such as in Oklahoma which has significant oil and gas industry that is based on fracking. The increased tremors and seismic shifts are leading to litigation that stems from local residents filing lawsuits to ban such operations with the aim of reducing such seismic disturbances.
3.0 Ethical leadership in the oil and gas industry can lead to the reduction of risk in several ways. Ethical leadership should ideally focus on two dimensions within the oil and gas industry. The first dimension is the internal risk management while the second one is the external risk management. The ethical leadership should shift from a culture of denial to a culture of proactively engaging in action that will prevent and mitigate the risk factor. (Floyd, Xu, Atkins & Caldwell, 2013).The ethical leadership can be looked at from the perspective of the success of a peer in the industry and what other companies can learn from it. The company that will be used as the reference point for ethical leadership is Chevron.
3.1 Internal Risk- Chevron provides standards of ethical leadership that can be emulated in the industry in the steps taken to deal with internal risks. The desire for a paradigm shift in ethical corporate leadership led Chevron to formulate an Operational Excellence Management System (OEMS). (Chevron, 2014).This system employs the system of periodic evaluation of the site of operation that challenges the managers and employees to continually improve their practices. This is done with the intention of moving from a paper culture to a culture that is practical and yield tangible results in mitigating and reducing risks in the oil and gas industry. The move from a culture of paper safety to a state of real safety can only be achieved by ethically moving from the justification of foolproof paper systems to a system that can be validated in practice.
The Health Safety and Environmental unit gives oversight to the safety self-evaluation undertaken by the managers and employees and in turn reports to internal steering committees who review the operational safety performance. The high level of involvement in the top leadership shows ethical commitment to the success of managing the internal risk within the company and this reduces the risks that are attendant to the oil and gas business. (Nicholson & Bennet, 2009). The reviews are then communicated to the stake holders which are critical in garnering support for environmental expenditure that will reduce risks of accidents and disasters. The system is then audited periodically by both internal and external parties who have the relevant expertise in risk management.
3.2 External Risk- The external risk is reduced by the corporate and management decision to implement a policy of self-insurance that would provide cover up to a limit of $300 million. (Chevron. 2017).The ethical consideration of making provision for future unforeseen accidents and disasters is based on ethical behavior that mitigates the unknown which can occur despite the implementation of industry best practices. The provision for self-insurance is complemented with an external cover for claims that may arise which are beyond the limit allocated. This show that the company is aware of the potential risk associated with the industry and plans ahead rather with a contingency plan which show ethical leadership.
The company also makes use of corporate incentives as the metric that is used when considering promotions within the company hierarchy. The consideration for promotion is tied to the ability of the employees and managers in furthering the environmental objectives of the company. This type of incentive approach is critical in reducing risk by embedding a culture of safety in all areas of operation and rewarding employees who show compliance in embracing the organizational culture of safety. (Burg, 2009). The organizational culture takes on the approach of embedding risk awareness and mitigation as a critical component in the operations of the company for all cadres. This then leads to the following key factors as being universal ideals that can be embraced as ethical leadership behavior that can reduce risks within the oil and gas industry.
3.1.1 Stakeholder management- The stakeholder’s engagement is critical from the initial conception stages of the project to the final decommissioning of the project. The main philosophy of stakeholder engagement is to ensure that all interested parties are well informed and engaged if their contribution can lead to reducing risks associated with the projected.(Journal of Business Ethics,2009). Adopting the ten principles of the UN Global Compact is a good format that deals with the diverse stakeholders in the oil and gas industry. Derived from the Universal Declaration of Human Rights, the ten principles broadly deal with human rights, labor environment and anti-corruption. This breaks down to taking a proactive approach in dealing with the government, the local communities and the affected land and sea users who will be affected by the operations. This is done with the intention of reducing environmental hazards and risks as well as mitigating against litigation from interested groups in the project.
3.1.2 Delineating Leadership and Management-. Ethical leadership calls for the conscious decision by the management to nurture leaders who have got the relevant leadership qualities that would be critical in providing organizational direction in times of disasters and accidents as well as before. (Svensson & Wood, 2008).Leadership styles such as the servant leaders and altruistic styles of leadership inspire followers who will be willing to engage in ethical behavior within an organization in the oil and gas industry. Leaders with the desired traits of accountability and leading by example would be better placed within an organization to lead to organizational change which will result in a new culture of accountability to the environmental issues, the stakeholders and the surrounding community.
3.1.3 Risk Management- The triple bottom line form of corporate social responsibility would be more appropriate in the oil and gas industry, looks at three distinct areas which carry risk, which are the economic, social and environmental risks and their mitigation. (Holland, 7Albrecht, 2013). The economic risks would be important when considering corporate action such as in the case of Exxon Valdez in building a ship with a single hull which later had economic consequences on their bottom line in the resulting oil spill, the monetary implications in the cleanup as well as the payouts to affected communities. Ethical leadership would weigh the risks associated with the bottom line and proactively engage in considering all potential future outcomes before constructing such a vessel.
The social risks within the framework of CSR is seen in the need to balance the returns to the society as well as the return to the company engaged in the extraction of oil and gas within the locality.(Waples et al, 2009). Failure to engage in an ethical manner from the leadership can result in litigations that can disrupt company operations as well as calls for a complete cessation of all extraction activities within the area. Mitigating the health hazards to the community and proactively engaging to reduce risks of sickness can lead to beneficial relationships with the communities in the area of operation.
The environmental risks are reduced from the focal point that the resources being extracted are limited and maximum caution should be used in order to minimize loss through accidents which may result in losses which are not recoverable. (Curry & Thach, 2007). Environmental stewardship for the future generations should be an important consideration for leadership which exercises ethical behavior. Ethical stewardship of these resources will result in implementation of systems that will lead to minimum losses of these precious resources which are limited. This will lead to reduced risks of accidents and disasters in the operations to extract the resources.
Conclusion:
In conclusion, the sustainability of the oil and gas industry is closely tied to the ethical leadership that will be taken in developing organizational culture that place emphasis on safety as an embedded part of the work culture. The example of Chevron as an industry peer would be a good example to emulate. The ethical leadership approach taken should lead to the implementation of systems that focus on reducing risks within the industry from unforeseen disasters that may occur. The risk management should include systems that focus on the internal and external risk factors. Another important area which should be strengthened is the stakeholder management and risk management which should altogether work in reducing risks and accidents within the industry.
References:
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