This report looks at the value of ethics in the coal and oil business and its potential impact on business risk and company share value.
Ethics refers to the concept of what's right and incorrect, and ethical tendencies is generally considered behavior that is proper.
Business ethics is a form of applied ethics that examines ethical principles and moral or ethical problems that occur in a small business environment. It applies to all areas of business do and is pertinent to the conduct of individuals and organisations. They are the moral beliefs that guide the way firms or other businesses make decisions.
There are many instances throughout commercial background of how companies have disregarded ethics or morals in the quest for wealth. This can increase business risk as a consequence to breaking regulations, harming their image and the consequences of lawsuits and injuries.
Breaking the Law
Bribery and corruption are wide-spread in the producing nations. Companies say that the only way to get things done is to pay the bribes. Although few companies publicly defend bribing officers in third world countries, many privately condone bribery on several grounds. First, there are purely financial concerns. Bribes can prevent delays that may normally have serious financial implications. Inside a capitalistic environment, we need an even participating in field, and when other businesses take part in bribery, then either we do or face coming to a competitive disadvantage. Second, there are practical considerations due to what is apparently the universal character of bribery in under-developed countries. Often foreign government representatives are so corrupt that it is virtually impossible to conduct business without playing by the unspoken guidelines. Thus, there is nothing morally wrong with participating in bribery.
On November 4, 2010 the United States Section of Justice announced a series of settlements whereby seven firms were to pay unlawful fines and civil disgorgement fines amounting to a total of $236. 5m, in a settlement in relation to the Foreign Corrupt Techniques Function. Five of the businesses were Royal Dutch Shell, Transocean Inc, Global SantaFe Corp, Pleasure International and Commendable firm (Thomson Reuters, 2010).
This kind of transgression if repeated has the potential to place the companies included at serious risk.
It is this acceptance of 'that's the way the system works' that perpetuates and fuels the bribery culture. If all companies used a strong moral position and refused to pay the bribes the corrupt system would fail.
Some companies have taken steps to distance themselves from problem. BP was the first olive oil company to support the "Publish what you pay plan", a campaign for higher transparency in engine oil companies' dealings with overseas governments.
StatoilHydro was the first major olive oil company to begin disclosing ALL income and repayments in the countries where it operates. It offers set out a clearly identified ethics code of carry out and it is promoting this in the different countries it runs in (Statoil, 2008).
Damage to Company Image
In the 1990s Shell was involved with a highly harmful controversy in Nigeria. The Ogoni folks of the Niger delta, a minority tribe, experienced seen their land decimated by many years of drilling. Ken Saro-Wiwa helped form the Movement for the Survival of the Ogoni People, and started out protesting. The army bought a brutal crackdown and series of killings, beatings, and arrests took place. Saro-Wiwa was eventually framed for murder and executed. This event was satisfied with widespread condemnation and the bad publicity adjoining it was extremely problematic for Shell. It is difficult to say if Shell were complicit in these incidents however they certainly could and really should have discontinued it or at the very least spoken away against it. Shell eventually distanced themselves from Nigeria so that they can regain credibility.
Total has been around Burma since 1992 and it is a supporter of the armed service regime. The country comes with an appalling human privileges record.
Aung San Suu Kyi, Burma's pro-democracy leader, has said that "Total is becoming the key supporter of the Burmese military regime. " She informed the French weekly Le Nouvel Observateur that "TOTAL knew what it was doing when it spent massively in Burma while some withdrew from the market for ethical reasons". She added, "the company must accept the results. The country won't always be governed by dictators. " (Burma Plan UK, 2007)
However unlike Shell this will not stress nor deter Total "Sadly, the world's oil and gas reserves are not necessarily positioned in democracies" says Total's website.
Lawsuits and Damages
On Apr 20th 2010 the BP handled Macondo well blew out. The Transocean had Deepwater Horizon drilling rig was demolished with the loss of 11 lives. The well prolonged to leak petrol into the Gulf coast of florida until it was finally wiped out on the 17th September 2010.
Initial reports show that cost cutting, poor decision making and lack of honesty were critical indicators in the catastrophe.
Both companies have suffered damage to their company image, reputation and ability to earn money. BP initially faced all the blame as this is politically convenient to the point that it out of the blue became Uk Petroleum again following a gap of 20 years which clearly proved that the National government was about as ethically acoustics as either Transocean or BP.
BP protection record in the US is poor but a lot of this is down to the indegent condition of possessions it inherited during its mergers with Amoco and Arco. Due to its failure to surpass its ethical claims BP is seen with mistrust bordering on outright hatred in the US whilst elsewhere honest buyers are shying from it.
Tony Hayward, the previous group chief executive of BP, explained: "Our reputation, and therefore our future as a small business, depends on each folks, almost everywhere, every day, taking personal responsibility for the carry out of BP's business". Regretfully even the principle executive didn't surpass his own assertion.
The ramifications of this disaster on BP have been significant with BP as a corporate entity particular vulnerable. The effect of the Macondo devastation on BPs talk about price was primarily catastrophic.
As can been observed in Shape 1, the talk about price collapsed from 650p/share to 300p/promote in just a little over 2 a few months.
Figure. BP Talk about Price Apr 2010 - Feb 2011
BP has already established to spend a short 20 billion in clean-up costs and with civil lawsuits pending, the ultimate pay-out is likely to severely impact on the effectiveness of its business.
After announcing that it had effectively capped the Macondo well however BP shares increased 8% (Gray, 2010). This shows that shareholders with just as little regard to ethics are buying in at the bottom of the market in the anticipation of making a earnings.
There have been other situations where poor honest behaviour has led to significant declines in share price.
In January 2004 Royal Dutch Shell released that it was downgrading almost 4 billion barrels of 'proven' reserves to the 'possible' category. As a result Shells share price dropped by 7%. An internal report by US lawyer Davis, Polk and Wardwell, (Moore, 2004) detailed a damaging group of e-mails demonstrating that top professionals at the company got known about the inflated reserves for years and have been arguing about whether and the way to lie to traders.
Which means of ethical behaviour a corporation adopts has been open to much debate. There are some business leaders who think as Milton Friedman does that their obligation is, "to make all the money as you can while conforming to the basic rules of the society". Others such as Statoil wish to perform their business to the best ethical criteria possible.
Companies have set up Corporate Social Responsibility insurance policies. These policies obviously state the firms ethical and social stand point. The primary problem with this is when individuals fail to surpass the statements
Unethical business tactics will continue to be observed in the oil and gas sector as some companies continue to think that the lack of ethics will have no impact. In lots of ways they are right. Shell and Total do not appear to be attempting despite poor moral files. From a sales point of view ethics, or having less them, have little impact. Because of the very dynamics of the product the ethical position of the finish consumer will be weaker. When we buy petrol we don't know where it originated from or who experienced as a consequence and so companies are secured. The planet is reliant on essential oil and will therefore look the other way so long as it keeps streaming.
If these practices continue it may lead to federal government intervention and legislation that tend to be economically costly for companies to stick to. A lot more important than governmental involvement, is trust. Companies lacking trust by employees, business associates, and customers will suffer economically in the long-term. Trust, based on ethical reputations, could become even more important in the foreseeable future (Richardson, 2002/2003).
We stay in an age where the general public are more attuned to, and alert to, ethical concerns and can bottom their investment strategies on these ideas. In the computer get older information is more easily accessed and promotions against companies can be organised worldwide in times. Companies basing their commercial strategies on strong ethical principles might not show a whole lot short-term gain however their long term security will be assured.