Managing Ethical Risk
What Is The Challenges In The Gas And Oil Industry?
Based on the global demand for oil and gas resources, it is indisputable that the world still depends on these natural resources. With the experienced issues relating to the exploration and spill outs during drilling, the management of risks is important in this industry. This is because; these commodities impose serious environmental and safety issues. The companies and governments have to join hands are reduce accidents through proper corporate governance. Scott (2014) believes that health risk management and ethical leadership are critical in managing the environments associated with the oil and gas industry. According to Anis and Siddiqui (2015), the stakeholders have increased interest in incorporating sustainability and overcoming the related operations challenges. Given the significance of corporate social responsibility, the oil and gas industry have faced challenges to address the emerging issues (Ferrell, Fraedrich, and Ferrell 2016). This article has provided an insight based on the case study about business ethics and sustainability.
The safety of the public and the environment are critical in managing risks thus reduce the accidents. By maintaining a safe environment, the drilling companies have an opportunity to reduce the possibility of explosions, spills, and oil leaks. According to Leveson (2011a), companies have affected the community by failing to address such issues. In fact, the impact of these risks extends beyond the public and community effects. It stretches to the public pressure and stakeholder reputation. Therefore, the companies have the responsibility to avoid public criticism many managing risks efficiently.
The safety culture is a problem to many companies and it has been the precursor for major accidents listed in this case study. Undoubtedly, the flaws in this culture are blamed for the accidents. In fact, both the industry and organizations have done the least to redefine their culture. Anis and Siddiqui (2015) held that the organizational culture highlights the company’s shared norms and values that should be guiding the decision making process. Safety culture is critical because it a subset of the firm’s overall culture. The safety culture also reflects the approaches and attitude the firm and its stakeholders take to conduct risk and safety management. The leadership of an organization use the safety culture to establish the values that they use to make crucial decisions (Dutta and Sengupta 2014). Based on the challenges and issues experienced in the oil and gas industry, it is arguable that dysfunctional safety culture is to blame. For example, the culture of denial has put companies into jeopardy. Despite the risk assessment pointing at the weaknesses that need to be fixed, the leaders of these companies have incessantly dismissed the assessment results thus avoids taking appropriate actions.
Under the denial culture, the management assumes that accidents are inevitable. To this effect, the managers only pay close attention to good news. Often, these managers argue that the conditions in their companies are dangerous and they can do the least to improve the safety conditions than allow the accidents to be part of the productivity. As a price of productivity, these managers believe it is impossible to eliminate the products. For example, in many offshore oil-drilling firms, the culture of denial is predominant (Environment Agency 2013). Regarding the statement of the American Petroleum Institute’s President after the Deep-water Horizon and the Washington State Tesoro Oil Refinery explosion, it was evident that the leadership is never taking any steps to introduce safety culture. In fact, the President classified the situation as normal happening in the industry. He acknowledged that nothing is safe outside the environment because nuclear engines run the metal tubes. Despite the dangerous status of this industry, it near impossible for the firms to operate without accidents.
Apart from the denial culture, the industry also experiences the paper culture. Under this culture, most workers are engaged in writing and elaborating arguments showing the safety of their systems (Kiany, Rahimi, and Jokar 2015). Actually, these employees have the least time to participate in the programs that would make the environment safe as claimed. For instance, when the UK Nimrod Aircraft suffered in Afghanistan, the company analysts associated the accident to the use of safety case to be the contributing factors (Ferrell et al. 2016). This demonstrated that culture of paper safety caused the problem. The management failed to understand the real safety that was befalling the organization as explained by Haddon-Cave (2009). The following steps should be undertaken to control the situation.
Many stakeholders have understood the relationship between the company’s future viability, profitability and safety. However, this relationship has been vague on unclear regarding the offshore oil industry. This relationship has however been distinct in the aviation industry. The case in point is the GOM drilling that had strong moratorium indicating that firms that enjoyed a strong safety signals and cultures are likely to fall victims to the companies without such practices (Environment Agency 2013). To this effect, it is critical for the businesses to engage in self-policing initiatives to improve their safety. It is also important for the companies to introduce incentives that would promote the update of safety technology. Based on the cases, it was evident that the BOP standard design was inappropriate and ineffective for the exploration of deep water (Farahani, Ahadmotlaghi, Farahani, and Valafar 2015). Despite various signals showing the need to change the technology, companies involved in the industry completely dismissed or ignored the previous failures of the BOP. The management of these corporations insisted that the BOP design never needed any improvement.
The same situation was evident when the relevant authorities and organization failed to act on the 1956 Refrigerator Safety Act that was adopted following the suffocation of the trapped children while playing in unused refrigerator (Dekker 2006). To manufacturers, redesigning the refrigerator was an effort in futility. These manufacturers ruled out any initiative to redesign the machine to create safer latches. However, after they were compelled to do so, these manufacturers introduced magnet latches that ensured the doors of refrigerators could only open from inside (Cleveland 2011). The new development completely eliminated the hazard and proved cheaper than the previous latches as explained by Martin and Schinzinger (1989). Based on this experience, it is important for the government to introduce technical incentives that would allow the companies and manufacturers to update their safety technologies because the oil and gas extraction and exploration conditions are dynamic.
The investigations revealed that the accident that was evident was attributed to lack of standards as expected in the industry. The cementing operations standards were never evident. For instance, even the least standards including the API Recommended Practices have become difficult to implement because of the lack of consensus among stakeholders. It is believable that such standards are a mistake (Kaplan and Mikes 2012). In the United States, the Federal Aviation Administration has entrusted the Federal Advisory Committee with the defining and establishing policy, regulatory decision, and programs to instil standards in the commercial aviation industry. The RTCA.inc is an important NGO that is mandated to develop recommendations relating to traffic management systems, surveillance, and communications system issues (Ferrell et al. 2016). This private organization has proved to be necessary in defining the industry standards because it acts as broker. Such initiatives should be encouraged to help in building consensus.
The industry self-policing is another important initiative that can help in managing risk. Indisputably, the government regulatory authorities have expressed frustrations in accomplishing the set objectives to enforce the safety policies in the organizations. Given the limitation, the industry-self policing are critical (Kaplan and Mikes 2012). The power industry had adopted the INPO, as an organization meant to offer an oversight on nuclear power safety. This followed the Three Mile Island. The Presidential Oil Spill Commission had recommended the INPO as one of the best model that can help restore the sustainability and ethics in the oil and gas industry. The model will ensure that the gas and oil companies use the modern technologies and practices to reduce accidents.
Companies operating in the gas and oil industries should consider the new safety control structures to manage risks. In fact, safety control structures are unique, as each company needs to develop its own. Based on the case study, it emerged that the safety management structure of BP was defective and it needed improvement (Konar and Cohen 2001). The Baker Panel raised the red flag over the BP’s safety control structure that it applied for its oil refineries. In the similar capacity, the FAA had recommended that airlines should take swift steps to address their safety needs. It further emphasized on the companies to use safety management systems to avoid accidents. Recently, the Presidential Oil Spill Commission emphasized on the environment and safety management system and the commission recommended that for the oil companies to be allowed to explore and drill oils, they must have acquired this condition as a prerequisite.
Based on the Deep-water Horizon accident investigation, it was evident that many workers of the firms only had minimal training (Leveson 2011). In fact, the majority of the workers had little certification needed for their operations. To this effect, it is prudent for the companies to train and certify their employees efficiently. Regarding the case study, it is evident that the industry has experienced accidents. However, it appears that the companies never learn from these events (Godfrey, Merrill, and Hansen 2009). To this effect, it is necessary for the companies to establish a system that is incident and accident investigative-oriented. This effort can encourage continual improvement and learning processes in the company.
Many companies in this oil and gas industry have established a strong hazard analysis tool. The HAZOP technique is one of the best tools that can help to restore the safety aspects in the organization (Pawan 2014). This technique has proved beneficial for the companies that have adopted it. This is because; the HAZOP has proved essential and can help the companies to improve their technological design. They need to apply the technique to guide performance and maintenance audits.
The fracking industry, Exxon, and BP seem to face similar risks. For example, these companies are vulnerable to various risks including explosions, environmental contamination, leaks, and spills. All these companies, if given a chance, can damage the environment beyond reparation. The stakeholders can significantly suffer from these risks. Based on the case study, it is evident that Exxon and BP are experiencing the worst situation, as the supply of resources is becoming untenable (Sylves and Comfort 2012). Because of the shortage in supply of their primary commodities, these companies have the highest chances of taking risks to help them meet their market demand. For example, they can go out of their way just to obtain the resources, even if it means engaging in unethical practice (Manna, Marco, Letterman, and Mullen 2014). Therefore, the two companies are exposed to more dangerous risks, like spills, explosions, and environmental emissions than the fracking industry.
The fracking industry is also experiencing its unique risks and uncertainty. For example, it is faces the challenge regarding its customer uncertainty. To this effect, it must continue to address this risk to avoid suffering the consequences of failing to responding to the market dynamics (Konar and Cohen 2001). Interestingly, the three companies are uncertain or sure about the safety of their operations. These companies have also failed to provide factual evidence to assure the public and shareholders that they take the issues of environmental and community protection seriously. This has made the communities to treat them with suspicion as the community view their hydraulic fracturing as dangerous.
In business, customer is an important factor that any firm must consider. Regarding this companies, the brand image and reputation are equally relevant in attracting and retaining the customers. With the current customers opting for socially responsive companies, Exxon, BP, and fracking industry must address the issues associated with their product to avoid negative reputation. Customers would purchase products from companies that embrace safety measures (DeMarrais, and Lapan 2004). To this effect, it would prudent for Exxon, BP, and fracking industry to think of the targeted customers and their expectations. The individuals who will purchase the product would determine the brand image in the market. Therefore, they must overcome this risk by playing their cards according to the customers.
Based on the case study, the hydraulic fracturing process remains under intense public scrutiny because of the potential harm it imposes on the environment and neighbouring communities. Ferrell, Finanacial, and Ferrell (2011) maintained that the public view the hydraulic fracturing to be the cause of water and air pollution, crime, traffic, and increased noise. The companies should track these problems and demonstrate to stakeholders including the regulators, investors, and the public their remedial measures. Since these companies have continuously failed to report to the investors about their activities, the investors have no obligation to credit them. This has a direct impact on the company’s image.
The political risk dominates the oil and gas industry because of the political interests evident in this industry. For decades now, most of the political class have continued to get funding from the old and gas industry. For example, BP has continued to support the political activities so that the new administration can support its causes. The same applies to Exxon and fracking industry (Environment Agency 2013). The public pressure has put the companies on the spotlight. To this effect, the companies have identified leaders who can never turn against them and formulate policies that can ruin their operations. Therefore, the political risk evident is the ability to sustain the financial support without engaging in unethical practices. The corporate executives have been compelled to continue supporting the political activities in hope of gaining favours with the political class. This confirms that the political class has held the firms at ransom.
The financial risk is also evident in this industry and all the companies have continued to face these risks (Breeze 2012). The continued uncertainty surround the global market value is affecting the companies. For instance, the global market has become unpredictable thus affecting the companies’ overall revenue earnings. With the economic crisis, the customers have opted for environmental friendly fuel. This has affected the company’s ability to improve their earnings. For example, in the case study, it is evident that Exxon, fracking industry, and BP have posted losses. As a result, they have to identify the best strategies to overcome the financial risk. Diversification is one of the strategies these companies are using to remain in business.
Leadership is the cornerstone of any organization because a company can only set its organizational culture through its leaders. For example, when a leader makes ethical decisions, it is possible for the stakeholders to follow such a person. This is because; such a leader would display a complete commitment to protecting the stakeholders. According to Patton (2001), ethical leadership always guarantee an organization of proper risk management. For example, ethical leaders understand the significance of conducting an environmental risk assessment. To this effect, they incessantly establish relevant organizations to protect the environment, like IPIECA. With an organization that can stand out and speak for the society regarding the environmental ills perpetuated by other firms would gain public confidence. It is important for ethical leaders to take responsibility for their action (Ferrell et al. 2016). Based on the case study, companies lack ethical leaders who can pursue the interest of the society and stakeholders. Most these executive pursue their interests at all costs. This has seen them espouse an opaque culture in which nobody understands exempt them. Nonetheless, ethical leadership has seen everyone operate transparently and share views openly about the company. This transparency culture ensures the company engages stakeholders in its operations.
The ethical leadership principle ensures that the company operates under clear guidelines. For instance, a transparent culture would embrace ethical reporting and disclosures. This accounting practice reduces any chances of corruption or inside trading that have befallen many corporations.
The ethical managers are concerned about the environmental risks. To this effect, they would do everything within their powers to adopt the best risk management programs to save the company, employees, and stakeholders. Without a doubt, a leader who values employees and environment always remain focused, visionary, and transformational. Such leaders are able to adopt changes that can transform the organization. The environmental risk management programs including hazard analysis system (Patton 2001). The ethical leaders would also embrace the industry standards to avoid unethical activities that would compromise its ethical practices.
Ethical leaders are concerned of the company reputation, community welfare, and the employee rights. To guarantee the organization its rightful position, the manager would train and certify the workers to make them skilful and experts in their field of operations. Konar and Cohen (2001) argued that ethical leaders value quality and safety of the workers. This is achievable by establishing organizational culture, values, and principles.
The companies involved in the work of gas and oil experience social and political difficulties because of the technical complexity. In the last few years, these companies have engaged in noble tasks and efforts to conduct their businesses in a socially responsible and sustainable way. The leadership have the responsibility to use environmental protection laws in responding to the impact of business on the environment. Sustainability remains to be a moral and scientific problem that managers must solve. The solution to this problem is founded on good governance as evident in this article. This involves brainstorming on the interconnections of the society, economy, government, and the environment. The good governance aspects fall back to the government while the multinational companies are the propelling forces. These companies must comply with the law by developing sustainable strategies and practices to define their operational environment. However, the companies have incessantly hell-bent on corruption and malpractices to benefit a few players.
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