It was about a decade ago when British Petroleum became bp. And bp came to stand for beyond petroleum, signalling a break
away from a corporate strategy that concentrated on fossil fuel extraction and
exploration to one that pursued environmentally friendlier energy mixes, in
particular with solar energy (hence, the green-ish sun as logo). With this new
name and an endorsement of renewables, the company sought to reinvent itself as
a good corporate citizen.
Like regular virtuous citizens, good corporate citizens act
socially responsible. They benefit society in ways that go above and beyond
what companies is legally required. Beyond the rebranding, bp does a lot of
things a good corporate citizen should be doing. As early as 1997, the company
left the climate-denying Global Climate
Coalition and became – 10 years later – a founding member to the US Climate Action Partnership, a business-NGO
advocacy group for progressive climate policy. Since 1998, it reports on its
sustainability performance. Moreover, the company, helped by the NGO
Environmental Defence, introduced an internal carbon trading system to reduce
its emissions and it sought advice for ‘greening’ oil extraction by the NGO
What a good, green citizen should not have to do, however,
is what we observe in the Gulf of Mexico since April 20 – bp desperately trying
to deal with an oil spill from its rig Deepwater Horizon. While it is not
entirely clear what happened, the good corporate citizen bp may have acted
carelessly if not in violation of operational rules: It used, partly for
financial reasons, a
particular type of casing to seal the well rather than a safer alternative.
In fact, Deepwater Horizon has not
been the only oil-related incident that happened ever since British Petroleum moved beyond petroleum. A trail
of accidents, including the Texas Refinery explosion (2005), as well as oil
pipeline leaks in Alaska 2006-2008, does not fit well with bp’s green image.
All the benefits of being a good corporate citizen, such as
a greener image attracting more motivated staff, more value-driven customer
loyality, and the like, are at risk now. Even more impressive, the existence of
the entire company is at stake. This is not only because of the expected
clean-up and compensation costs (a worst-case scenario expects $12 billion
for the clean-up alone), the mockery about green image
campaign, or the threat of criminal
enquiry by the government. Due to a 34% fall in share prices, bp may ultimately
be taken over by a competitor.
Intriguingly, in contrast to what advocates of corporate
social responsibility (CSR) say, some research on ethical investments has shown
pays to be bad. A case in point is oil giant Exxon, the arch enemy of many
environmentalists. It has been more
profitable than the greener Shell and bp (not necessarily ‘because of’
being bad but at least ‘in spite of’). Even after the Exxon Valdez disaster,
regardless of adverse reputational effects, its share prices
held on well – in comparison to those of BP after the current spill.
Why does bp suffer more than the conspicuously ‘evil’ Exxon?
One of the main problems may in fact be its commitment to being more socially
responsible. Once such a commitment is made publicly, e.g. through adverts,
sustainability reporting, mission statements, the public, especially NGOs,
scrutinizes such companies more intensely and holds them acccountable to these
standards. In such an environment of public scrutiny, not only violations of
regulations but even the choice of less safe methods potentially leads to
particularly severe backlashes.
This becomes particularly problematic in the case of
high-complexity industrial operations such as deepwater offshore drilling. Yale
Perrow argues that systems are bound to fail if they are interactively
complex so errors interact with each other in unexpected ways, and if they were
tightly coupled so we could not slow them down or shut them off. Intriguingly,
bp’s Vice-President for Deepwater Operations, David Eyton, noted
in 2005 that “if we’ve learned anything so far about the deepwater Gulf of
Mexico, it is that it contains surprises.
And that means an operator needs depth — depth in terms of resources and
expertise — to create the capability to respond to the unexpected”.
One lesson of the bp saga is
that exposing a company to institutional risks through committing to CSR emerges
as a high-risk strategy in very complex operational environments in particular.
Being a normal, even ‘bad’ guy may be a more suitable strategy.
The second lesson is that it might be better for
companies to advocate for tight and transparent regulation and a regulator with
adequate resources. This would ensure that ‘bad’ citizens would not be able to act
against wider public interests. And as there would be a level-playing field, there
would be less need to spend resources on becoming a virtuous company that will
be better spend on compliance with safety regulations.
Kristian Krieger takes a special interest in risk management and governance, in particular concerning environmental and climate risks. He is currently affiliated with the Hazard & Risk Group of King's College London.