Relation of managing ethical risk in the oil and gas industry to reducing accidents
Sustainability challenges in global oil and gas corporations can be identified as one of the most persisting challenges in contemporary business dynamics of the industry. Due to the massive dependence on crude oil and natural gas, organisations have found it difficult to manage every aspect of the business environment to meet the supply side (Zatzman, 2012). According to the sources, the current demand for crude oil has been recorded to ninety million barrels per day at the international level. At the same point in time, by the end of 2017, it has been reported that the demand for the natural gas is expected to go beyond four trillion cubic metres. As a result of the consequences, the crude oil reserves have been depleted at a shocking speed. Therefore, major investors have shifted the investing amount from the global oil and natural gas industry to alternative energy resources.
Currently, safety and health issues have been determined as the biggest concerns in the global oil and gas sector (Krysiak, 2009). Apart from the safety challenges, lack of maintenance and guidelines can be defined as the other significant concerns attached to the business environment of oil and gas sector. In this particular reported study, the importance of managing ethical risks in oil and gas industry has been described that will be evident to reduce untoward accidents and legal obligations (Starrett, 2013). Through the identification of the sustainability challenges of leading companies such as BP, Exxon, and fracking industry, the study also distinguishes different types of risks associated with the industry at the global level. Lastly, the role of ethical leadership to manage the risks has been drawn in the paper providing evidence.
Managing ethical risks can be identified as one of the leading sustainability challenges in the global oil and gas industry. Understandably, failing to manage the ethical risks such as responsibility towards the workers safety and health as well as environmental safety, leading oil and gas exploration companies can create massive environmental issues (Lambrechts, & Blomquist, 2016). By following the ethical business guidelines promoting safety and health of the human capital, organisations can reduce the chances of untoward incidents such as oil spill, explosions, and other leading issues associated to the business. By featuring latest technological efficiency in business, organisations can maintain the best infrastructure to avoid unnecessary accidents (Lu?tge, & Jauernig, 2014).
The risk of a health, safety or environmental incident (HSE), and ensuring regulatory compliance are some ethical threats that BP, Exxon, and the fracking industry has to face in the modern business management in oil and gas sector. Regulators have responded to heightened risk perceptions across HSE, finance and ethical areas by tightening rules and codes considerably over the course of the last decade. The industry has always looked to deliver leading performance in these areas seen as critical in their own right and as essential components of companies’ “license to operate.” Increasingly, there are regulatory compliance issues in all of these areas, and tangible consequences and penalties for non-compliance. Ernst & Young’s David Harrison observes that health and safety can be identified as the industry’s number one priority since past couple of decades or so. Increasingly, in addition to the industry’s goal to eliminate accidents, there is a broader zero tolerance among stakeholders for accidents and regulatory non-compliance. Indeed, as the CFO of a large US independent adds that after the oil spill in the Gulf of Mexico, environmental, health and safety risks have come under much greater scrutiny. Commercial factors are also key drivers of this risk. These include compliance in financial and ethical areas and the increases in multibillion dollar fines from regulators and litigation claims from shareholders and stakeholders, resulting from lapses (Ernst & Young, 2013).
Comparison of risks faced by BP, Exxon, and the Fracking industry
Compliance with HSE regulations should be a determining factor in the choice of coalition partners. When looking for partners, oil companies need to look at the safety profile and financial capacity of the partner to handle an accident in the event of a disaster, particularly if the partnership involves deep drilling. The oil spill in the Gulf of Mexico has changed the way we evaluate our partners (Ferrell, Fraedrich, & Ferrell, 2016). If we manage health, safety and the environment well, it is a positive thing for future cooperation opportunities. While some countries have tightened their environmental regulations, many developing countries lack the administrative capacity to enforce stricter rules, and developed countries need certain support.
Also, Oil and Gas Company must pay more for testing, additional safeguards, and environmental degradation in both short and long term. Government need to regulation on the exploration of oil and gas and post restrictions on exploration if recognizing the possibility of disaster. Stakeholders should identify environmental risks and reduce the company’s environmental impacts by limiting the number and severity of incidents occurring from oil and gas exploration, production and refining. Minimizing the number of incidents and minimizing environmental impacts and if they occur can help address environmental problems such as pollution, occupational accidents and global climate change. Evidently, BP, Exxon, and the fracking companies need provide enough evidence to assure stakeholders regarding steps being taken to protect employees, suppliers, communities and the environment from the above risks. They should have right tracking these potential problems and create a safety organization given authority to stop operations whenever danger is detected and take the time to analyse the environmental and safety impacts of their operations to avoid the risk of environmental pollution.
In terms of managing ethical risks, modern organisations need to invest in developing the skills and safety measures of the organisational functions. Meanwhile, modern safety equipment, robotic technology, proper maintenance schedule, and review of the safety measures can be identified as the best practices to reduce the untoward incidents in oil and gas companies (Ferrell, Fraedrich, & Ferrell, 2016). By valuing the corporate social responsibility, strategic management team must develop contingency plan according to the order so that in case of disastrous situation, the disaster management system can work in an efficient way reducing the chances of casualty and environmental catastrophe.
In the global business scenario of oil and gas industry, there are different types of risks associated with the business functions. Precisely, the case study analysis has delivered diverse issues and risks attached to the business operations of BP, Exxon, and the Fracking industry. In terms of risk factors, BP had to deal with refinery explosions that led to serious environmental risks. The explosion of Deepwater Horizon Oil Rig can be identified as one of the most devastating scandals towards sustainability management of BP’s business. During the event, the entire oil rig was exploded in the Gulf of Mexico when the oil rig was managed by BP. The aftermath of the accident was even more pathetic, to say the least as the mishap had forced an environmental catastrophe in a large territory. The explosion caused oil spill as thousands of gallons of oil added to the sea water. Moreover, 15 workers had been reportedly killed in the oil rig incident as the entire disaster management system of BP has collapsed (Ferrell, Fraedrich, & Ferrell, 2016).
In oil rig explosion of Deepwater Horizon Oil Rig in the Gulf of Mexico has fuelled several environmental as well as safety challenges for BP to be managed. Due to the massive oil spill, the coastal areas of the United States have been contaminated. Coastal cities in the US such as Florida, Texas, and Louisiana etc. have been hit hard during the oil spill. Meanwhile, the livelihood of fisherman has been entirely destroyed due to the untoward calamity. The contingency and safety planning of BP had failed to control the scenario as the crisis hit badly in terms of protecting life and environment (Pranesh, Palanichamy, Saidat, & Peter, 2017). The investigation of the crisis evaluated the loopholes in the safety measures of BP’s system. Accurately, low maintenance of pipes and poor quality of tools led to the catastrophe. Lack of inspection and proper maintenance schedule have hit hard on the business operations of BP affecting the functions of the oil rig (Schmitt, 2017). Decisively, due to the oil rig disaster, management of BP has to face legal challenges in their business to compensate the crisis circumstances.
By considering the case of Exxon, it can be seen that the accident occurred due to the inappropriate measures of the management. Furthermore, the result of the accident got severe due to no proper measures taken by the management of Exxon and other supporting organisations that made the spill cover more than 2600 miles area of the coastline of Prince William Sound (Ferrell, Fraedrich, & Ferrell, 2016). The accident of Exxon Valdez was one of the largest oil spill incident in the history of oil and gas industry. The negligence of the management is employing a drunken Captain was one of the major fault of the company. The management of Exxon handed over the charge of its largest oil container to a person who has undergone an alcohol detoxification programme (Kropp, 2013). On the other hand, the poor safety measures after the accidents of the Alyeska Pipeline Service Company have resulted in a devastating outcome for the company (Ferrell, Fraedrich, & Ferrell, 2016). Furthermore, the Captain of the ship was not licensed to pilot the vessel through the waterways of Prince William Sound. Hence, the breach of several rules and regulations has resulted in such a blunder. Additionally, the CEO of Exxon did not speak to the people until one week that resulted in a loss of reputation of the company (Ferrell, Fraedrich, & Ferrell, 2016). Hence, the risk has got worsen due to the lack of proper safety and quality measures, inadequate policy of the company and lack of responsibility of thee top level management.
On the other hand, the type of risk faced due to the operations of the fracking industry is quite different than the other two cases. The risks in the fracking industry are limited and can be found to occur at a lower proportion. By considering the case study, a small amount of chemical of around 0.5 percent is used in the mixture of two to five gallons of water and rest of sand to extract gas from the wells (Ferrell, Fraedrich, & Ferrell, 2016). Comparatively, the level of risk for fracking industry is quite less than the BP and Exxon incidents. The risk in the fracking industry primarily occurs at individual level, i.e. the people living around the gas resources are harmed by the use of chemicals in the long run (Kropp, 2013). Furthermore, no cases have been found regarding the contamination of ground water due to the operations of fracking industry. However, few cases can be seen in which people directly working in the gas extracting wells are infected by the chemicals used in the extraction process (Ferrell, Fraedrich, & Ferrell, 2016). The workers of the fracking industry may face serious health issues due to lack of proper safety and health measures. Hence, the risk related to the fracking industry is quite different than the other two incidents in the oil and gas industry.
A manager can be a leader, but without ethical leadership approach a manager cannot be a good leader. Young (2014) said that a good leader must possess ethical leadership attributes to work for the welfare of the society, environment and economy. For instances, a good leader must possess certain characteristics like influencing skills, advising ability, supportive nature and coaching knowledge (Young, 2014). Moreover, a leader must use these characteristics along with ethical leadership attributes in order to lead the organisation towards its success. According to Fennell (2015), ethics is all about values, beliefs and morals to do the right thing that does not harm the environment, society and the economy (Fennell, 2015).
However, ethical leadership is a way of leading the organisation and the workforce directed by respecting the ethical beliefs and values for the dignity and rights of the people involved with the operations of the firm. In other words, an ethical leader is honest, fair and true, who work for his people and safeguards their health and rights to live safely (Fennell, 2015). Ethical leadership is the key to seek positive growth of business by sustaining the environment, society and economy. Therefore, ethical leadership can be effectively used to work for the benefit of the environment and community by managing the risk in the oil and gas industry.
By establishing ethical leadership in the oil and gas industry, a company can better manage the risks. Establishing controls to prevent future risk they will be able to identify the mistake in the safety control structure that allowed the accidents to occur and what can be done to strengthen the overall offshore oil and gas industry safety control structure (Faldu, 2012). The general key to preventing such occurrences in the future is to provide better information and guides for decision making, not just for the government regulators but for those operating the oil rigs. Any decision making need to consider potential risks.
Oil and gas companies now have to deploy some sort of rotational program that includes international assignments to get somebody ready to take on a leadership role. Companies with strong talent management in place will be the most competitive. Restoring reputation in oil and gas companies required ethical leadership and effective ethics and compliance program that reach all employees. The employees need to be trained and educated on the importance of managing environmental risks at every stage of oil and gas operations (Andrews, & Playfoot, 2014). The company relies on internal units like the Corporate Emergency Response team to develop response systems and to teach employees proper response techniques in the event of a severe incident. These training initiatives are critical in developing employee attitudes and skills that are necessary to mitigate the impacts of environmental incidents and hopefully prevent these incidents from occurring at all (Vallero, & Vesilind, 2017).
At many oil and gas companies, business priorities and processes are defined by internal steering committees that review performance. These steering committees are designed to ensure compliance with the Operational Excellence Management System (OEMS) standards and to improve operational efficiency. One of the key drivers of the success of the system is the high level of engagement of these companies’ leadership in managing and supervising operational risk (Haley, 2015).
Ethical leadership also push oil and gas companies to maintain high ethical standards, legal compliance, and integrity is reflected in their global policies and practices. They are dedicated to running safe and environmentally responsible operations and have better response time to disaster such as oil spills. By establishing ethical leadership, oil and gas companies may make ethical leadership and ethical responsibility at all management levels are needed to manage the risk of industry and increase the industry standards, adopt safety procedures and processes, integration of safety engineers into operational decision making, certification and training of all staff (Corkindale, 2010).
However, ethical leadership approach can be used to put into operations the environmental standards of the International Petroleum Industry Environmental Conservation Association (IPIECA) that helps in managing the environmental risks that are associated with the functions of the oil and gas industry (Garrett, 2010). The major objective of the IPIECA is to build up and promote practical, scientifically sound, socially acceptable, cost effective and economical solutions to the international issues of environment and society related to the operations of the oil and gas industry (Hoffman, 2011). Therefore, the industry leaders in the oil and gas industry can use the standards and solutions of the IPIECA to safeguard the ecosystem and conserve the environment. Decisively, ethical leadership is the key approach for the oil and gas industry to manage risk by implementing better CSR policies and safety measures for the welfare of the community, environment and economy.
Conclusion
On the basis of the above discussion, the management of ethical risk helps the oil and gas industry to minimise the level of occurrence of accidents that harms the environment and the society. The development and implementation of the health and safety measures can be helpful to avoid incidents that have occurred in the cases of Exxon, BP and other hydraulic fracturing industry. On the other hand, the management needs to monitor and check the quality of the equipments used in the operations of the oil and gas extracting process to avoid any sort of accidents. Additionally, proper training must be provided to the employees and other members of the oil and gas industry regarding the health and safety measures to avoid occurrence of any sort of accidents. Moreover, the organisations must maintain adequate measures to be taken after any accidents to reduce the level of disasters. Furthermore, Operational Excellence Management System (OEMS) standards and the International Petroleum Industry Environmental Conservation Association standards can be implemented to manage risk in the future. Conclusively, ethical leadership can be used to develop a culture of transparency and responsibility in the organisations to build trust and minimise the occurrence of accidents.
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