Research Paper on "BP Social Performance"

Research Paper 6 pages (2036 words) Sources: 6

[EXCERPT] . . . .

Social Performance

Description of the Company

British Petroleum (BP) describes itself as "one of the world's leading integrated oil and gas companies." The company employs around 80,000 people worldwide. A truly multinational, BP has operations in most parts of the world, either in extraction, refining or retailing (BP Annual Report, 2013). The company's vertical integration allows it to control most parts of the oil business, leading to better margins along the way, and to leverage its world-recognized brand in the search for profits. A quick look at the company's value chain shows that it gains from the retailing side, marketing to consumers who have low price elasticity of demand, and from the extraction side, where access to properties and the ability to extract oil at relatively low cost are key success factors.

There are several factors in BP's external environment that are critical to success. The first is the price of oil, which is determined on the global commodities markets. The concept of supply and demand is typically applied to the price of oil, and the price is actively managed by OPEC, which controls around a third of global production. With this control, its members effectively control the supply of oil on global markets (OPEC, 2014). While BP might have some influence as one of the major oil companies in the world, ultimately they are beholden to these governments for the price of oil on the world market. The second external variable is demand. Demand is driven by the uses for oil, so more of those means more demand. But the economy also affects demand. When the global economy struggled a few years ago, demand dropped and the price of oil plummeted (RT, 2012). So the health of the global economy is an critical external environmental factor, affecting the demand side, versus OPEC which is a key determinant of the supply side.

Stakeholders

There are many stakeholders in BP but three important ones are the shareholders, the governments with whom BP deals and the company's employees. The shareholders are the owners of the company. The role that they play is that they vote on critical issues for the company, including the hiring of the Board of Directors. The Board then hires the CEO, who hires the other executives. The Board also provides strategic direction. Shareholders seek a return on their investment so as per agency theory the management of the company is seeking to earn return for the shareholders. Some would argue that this is the only duty for managers (Friedman, 1970). Pressure from the Board led to the resignation of former CEO Tony Hayward, noting that the company could not proceed in the U.S. following Hayward's performance in the wake of the Deepwater Horizon incident (Arnott, 2010). The link between performance in the U.S., profits and the needs of the shareholders is not hard to draw.

The governments of the major countries BP deals with also play a significant role in company policy. Oil producers rely on extraction companies for jobs and taxation revenue. Norway, for example, taxes oil producers heavily for access to its oilfields, and uses this money to build the world's largest sovereign wealth fund, securing the country's long-term future (Treloar, 2013). In other countries where oversight and governance are to a lower standard -- and this includes the U.S. -- the company can be responsible for oil spills, and social problems that arise from its presence (Adams, 2010). There can be no doubt that governments of the countries in which BP operates -- particularly in extraction, are among the most important stakeholders of the company, being gatekeepers to the oil and at least in part dependent on revenues from extraction.

The third major stakeholder is the employees of the company. There are nearly 80,000 of them, and they are all over the world. These workers rely on BP for their livelihoods, and are likely to suffer if BP struggles. There could be layoffs, or other negative outcomes. BP thus has a responsibility to these employees to keep the business going in order to help them.

Influences

The different stakeholder groups have many ways to influence the behavior of the company. Shareholders obviously have a lot of power with the Board, which in turn has a lot of power over the management of the company. The shareholders can, if they are organized, set policy with the company. In many companies, the shareholders are a diffuse body, not really capable of driving serious change. At BP, the ten largest shareholders -- all institutional -- hold around 24% of the company (The Telegraph, 2010). These shareholders all told do not have the ability to make decisions -- many more shareholders would need to be brought on board and that diffusion weakens the power of the shareholders. However, it should be noted that three of the top ten shareholders are foreign countries -- Norway, Kuwait and China. That adds a new wrinkle because BP has to listen to its two top oil producers and its #2 market, should they become dissatisfied with elements of the company's performance.

Shareholders also have the ability, should they choose, to influence social policy at the company. There are things like ethical mutual funds and ethical investors that highlight the possibility for shareholders to focus on social responsibility as a component of the direction in which they wish to take the company. This typically works better when there are shareholders large enough to have that short of influence, which is not really the case with BP, though arguably environmental catastrophes are a lot less likely to occur in Kuwait, Norway or China because of their specific interest in the company. The shareholders in an oil company, however, are not likely to be the most ethical types, and are probably oriented towards profit only. Should that not be the case, it takes 50% plus one to change the company's policy definitively, and a lot less to agitate for change.

Governments have direct, formal authority over BP. They are the gatekeepers for access to the petroleum, and to the markets as well. The governments effectively can wield this power to set policy -- how much BP pays for access to the oil and the regulations under which it can work. Countries that charge a lot for access, like Norway, get paid; countries that do not take their responsibility to their people seriously, like Nigeria, end up getting little revenue, have poor environmental protections and end up with nothing to spend on their people. So governments rely on BP for revenue, but ultimately because they have the oil they have the bargaining power.

There is also negotiation that takes place. Governments can put pressure simply by making threats. The Deepwater Horizon incident was a major issue in the U.S., with BP's CEO being called before Congress at one point. There was intense political pressure, with the damage ongoing at the time and the company not seeming to take the issue seriously. The pressure was enough to oust the CEO, even without any laws passed.

The employees also have a role to play in influencing policy. First, they are in charge of implementing whatever policy is passed. The manner in which they do this can be an influencer. If an employees takes a moral stand on an issue affected an external stakeholders, that can influence people throughout the organization. Further, employees can express their views to their higher-ups, because they have that direct communication access up the hierarchy. The result is that employees are actually well-positioned to influence the company's policies.

CSR

The most powerful stakeholder group are the countries that are the oil producers. As gatekeepers for the oil, we have an economic stake in seeing that oil extracted, but we also have all of the bargaining power with respect to how that oil is extracted. We are concerned about environmental damage -- there are a lot of spills and things like Deepwater Horizon are unacceptable. Thus, we need to take action to force BP to change its ways and actually start caring about the environment. We are also concerned about climate change and want to see the oil companies start to go all in on renewable energy. The other members of the coalition are the following: I want to get three or four other major oil producing countries on board, preferably from different parts of the world to show BP that this is a global effort and eventually all countries will be in the coalition. I will also bring on two or three key scientists to provide quality advice. If we are going to influence BP's actions, we need to make sure that we are pushing them to do the right thing, which requires us to actually know what we are talking about. That's where the scientists come in. We will also bring on an environmentalist group, a native people's representative, a media representative and someone from the United Nations. The latter is to improve the… READ MORE

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