Read case study and answer questions. 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 field, re-branded 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 flower” 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 refinery in Texas City, Texas, killed 15 workers and injured hundreds more. The Occupational Safety and Health Administration ( OSHA) fined 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 nation’s biggest oil fields. Prosecutors later fined 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 refinery and settling a series of criminal charges against BP operations totaling $ 370 million. Unfortunately, an emissions release at the refinery in early 2010 confirmed OSHA suspicions that the changes promised as part of the 2005 settlement were not being addressed, and BP was fined 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 profit margins. That mentality is now ingrained in the corporate culture to the extent that fines 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 Deep water 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 of Mexico, 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 of 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 Deep water 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) had been restricted by BP. Inevitably, accurate accounts of BP’s response to the spill were marred by global media outlets enjoying the biggest story since Hurricane Katrina. BP 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 came 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 Trans ocean ( and leased to BP); Cameron International is the manufacturer of the “ blowout preventer” that is alleged to have failed, causing the explosion; and Halliburton engineers worked on the rig equipment the day before the explosion. Multiple law-suits were settled in the last two years between all the parties involved, though none included any admission of accountability as part of the settlement. The question remains, however, as to how well Tony Hayward delivered on his commitment to a safer BP. At the time of the Deep water Horizon spill, Exxon, the former poster child for reckless oil companies, had only one OSHA fine in place. BP, by comparison, had 760. Hayward was reassigned during the response to the spill to a non executive role with BP’s Russian joint venture TNK- BP. The terms of his departure included immediate access to his pension of $ 1 million annually and full entitlement to a compensation package estimated to be $ 18 million. For BP, the spill continues to dominate the company’s operations. A total of $ 42 billion has been set aside for the payment of fi nes, compensation to victims, and ongoing cleanup operations in the Gulf of Mexico. Of that amount, almost $ 36 billion has already been paid out or earmarked in settled lawsuits. However, civil trials are still pending, the U. S. government is asking for $ 21 billion in compensation for its costs in the cleanup, and the Gulf states impacted by the spill ( Florida, Alabama, Louisiana, and Mississippi) are seeking another $ 34 billion for economic losses and property damage. Under the Clean Water Act, the federal government can still fine BP between $ 1,100 and $ 4,300 per barrel of oil spilled. Since no accurate fi gure exists for the total size of the spill, that fine could run BP between $ 5 and $ 21 billion. A more immediate concern for BP’s strategic planning is that the company is currently banned from bidding on drilling licenses in the United States due to concerns over the company’s “ integrity.” 1. What evidence is there in this case that BP simply addresses fines “ as a cost of doing business”? 2. 2. BP chief executive Tony Hayward argued that “ changing the culture of a 100,000 person company couldn’t happen overnight.” He had been in charge for three years before the Deep water Horizon spill. Were critics right to expect more change than they saw? 3. 3. Has BP been successful in its move “ Beyond Petroleum”? 4. 4. How can BP begin to restore its reputation going forward? Sources: Clifford Krauss, “ Oil Spill’s Blow to BP’s Image May Eclipse Costs,” The New York Times, April 29, 2010; Jad Mouawad, “ For BP, a History of Spills and Safety Lapses,” The New York Times, May 8, 2010; The Economist, “ The Oil Well and the Damage Done,” June 17, 2010; Susan Thompson, Helen Power, and Robin Pagnamenta, “ Hayward Exit Leaves BP with £ 21 Billion Oil Spill Write- Off,” The Times, July 27, 2010; Sheila McNulty and Sylvia Pfeifer, “ BP Listed 390 Problems on Gulf Rig,” Financial Times, August 23, 2010; Juliet Eilperin and Scott Higham, “ How the Minerals Management Service’s Partnership with Industry Led to Failure,” The Washington Post, August 24, 2010; and The Economist, “ BP and the Deep water Horizon Disaster: Cleaning Up the Legal Spill,” November 15, 2012, and “ The Deep water Horizon Disaster: Spills and Bills,” February 9, 2013. COURSE BOOK: Business Ethics Now 4th edition