Reference no: EM131451580

Question: Based on the information in the case, is there room to achieve a compromise here? Explain why or why not.

THE FAILED TRANSFORMATION OF BP

In 2000, the chief executive of British Petroleum (BP), Lord John Browne, who had transformed the company from a small oil producer into a global giant with the acquisitions of Amoco and Atlantic Rich- fi eld, rebranded the company as "Beyond Petroleum" to portray a company that was environmentally conscious and committed to the development of alternative energy sources such as wind and solar power. The new "blooming fl ower" corporate logo was intended to convey a company that was responsive to growing public concerns about climate change. However, that commitment to environmental awareness did not seem to extend to the safe operation of BP facilities around the world. In 2005 an explosion at an oil refi nery in Texas City, Texas, killed 15 workers and injured hundreds more.

The Occupational Safety and Health Administration (OSHA) fi ned BP a record $21 million for failing to correct safety violations. In 2006, a leaking BP pipeline in Alaska forced the shutdown of one of the nations biggest oil fi elds. Prosecutors later fi ned BP $20 million for failing to correct corroding pipelines. Browne's replacement, Tony Hayward, a geologist who had previously overseen BP's exploration and oil production, promised to refocus the company on safety, committing to spending $500 million to address the problems at the Texas City refi nery, and settling a series of criminal charges against BP operations totaling $370 million. Unfortunately, an emissions release at the refi nery in early 2010 confi rmed OSHA suspicions that the changes promised as part of the 2005 settlement were not being addressed, and BP was fi ned another $50.6 million that the company paid without an admission of violations. Critics have argued that BP's aggressive acquisition strategy under Browne created a focus on cost containment as a means to maximize profi t margins.

That mentality is now ingrained in the corporate culture to the extent that fi nes are simply addressed as a cost of doing business. April 20, 2010, brought yet another example of this argument and the largest oil spill in history. The explosion on the newly completed Deepwater Horizon rig in the Gulf of Mexico resulted in 11 deaths and broke open the Macondo well, allowing an estimated 19 million gallons of crude oil to fl ow into the gulf, threatening a fragile ecosystem and the livelihoods of thousands of businesses along the entire gulf coast. The terrifying scale of this event only becomes clear when the size of the Exxon Valdez spill in Prince William Sound in Alaska in 1989 is considered. That tanker spill released an estimated 500,000 gallons of oil. To some extent the practice of drilling in the deep water off the Gulf of Mexico brings extreme operational risks-risks that environmentalists believe should prompt a nationwide move away from a clear dependence on oil. However, what the gulf spill made clear was just how unprepared oil companies appear to be to handle any miscalculations in these risks. BP's response to the Deepwater Horizon explosion was described by all the agencies involved as "a scramble." A succession of attempts with strange names like "junk shot," "top hat," and "kill shot" delayed the eventual capping of the Macondo well until July 15-a total of 87 days.

Estimates of how much oil was allowed to fl ow are under dispute, with scientists arguing that access to the video footage of the wellhead (which they would need to calculate fl ow rates of the oil) has been restricted by BP. Inevitably, accurate accounts of BP's response to the spill have been marred by global media outlets enjoying the biggest story since Hurricane Katrina. BP has committed to "putting everything right" and doing "whatever it takes" to restore the gulf to the same condition it was in before the spill. However, alongside those promises has come legal posturing to spread the blame as much as possible. BP is the majority owner of the Macondo well, with Anadarko and Mitsui as minority partners; the Deepwater Horizon is owned by Transocean (and leased to BP); Cameron International is the manufacturer of the "blowout preventer" which is alleged to have failed, causing the explosion; and Halliburton engineers worked on the rig equipment the day before the explosion.

It is likely that all these companies will be tied up in litigation for many years to come as lawyers for each organization seek to hold the other accountable for the disaster. With insurance coverage involved on all sides, the complicating factor is precisely what the insurance covers, and what federal and civil penalties, if any, could invalidate that coverage, making the companies themselves liable for what are likely to be multibillion dollar settlements. The question remains, however, as to how well Tony Hayward delivered on his commitment to a safer BP. At the time of the Deepwater Horizon spill, Exxon, the former poster child for reckless oil companies, had only one OSHA fi ne in place. BP, by comparison, had 760. Hayward was reassigned during the response to the spill to a nonexecutive role with BP's Russian joint venture TNK-BP. The terms of his departure included immediate a ccess to his pension of $1 million annually and full entitlement to a compensation package estimated to be $18 million.