Management of ethical risks to reduce accidents

The oil and gas industry faces sustainability challenges because of the continued environmental and economic impacts of drilling and exploration for gas and oil. Without a doubt, the global population depends on the oil and gas for survival. Today, the global demand for these commodities stands at 4 trillion cubic meters (Ferrell, Fraedrich, and Ferrell 2011; 2016). For the crude oil, the global demand is 90 million barrels daily. Interestingly, the petroleum products are essential in running machines and producing commercial products like fertilizers, pesticides, pharmaceuticals, and plastic. However, the companies in this industry have used their potential to exploit the society. It is feared that the oil reserves would be depleted soon because of the growing oil demand. To this effect, the stakeholders are investing in alternative energy sources (Farrell et al. 2016). These natural resources have exposed the environment to various risks. This affirms the safety is a concern as the recent explosions and accidents have put the gas and oil companies on the spotlight.

Stakeholders have accused the companies of contributing to environmental pollution die to their drilling operations. Through drilling, the companies release air contaminants such as the greenhouse gases leading to the global warming (Cleveland 2011). The recent major disasters that have damaged the environment, such as oil spills and leaks are of major concern to the society. The oil and gas industry responded to these issues by adopting safety processes and procedures to prevent disasters. Unfortunately, the ethical lapses experienced in these drilling companies have caused environmental mishaps (Dutta and Sengupta 2014). Based on the issues emanating from the operations of oil and gas companies, this article answers the aspects of sustainability and ethical practices expected in the industry.

The ethical risks are factors that the oil and gas companies must consider to maintain their sustainability potential. This implies that the management must value these risks to avoid preventable accidents (Ferrell et al. 2011). Companies, which conduct ethical business operations, have incessantly improved their safety conditions, help the employees, and improve safety conditions. These efforts ensure the gas and oil firms avoid catastrophic events. Ball (2011) has confirmed that safety issues are associated with the core safety culture embraced by an organization. The issues seem to be influenced by the strategies the business uses to respond to ethical risks thus improve its operational standards and quality. The ethical management of risks would involve:

Certification and Training

The employees of many organizations define the productivity and performance of an organization. These stakeholders serve as assets to the business. Based on the case study, it is evident that the employers failed to train these employees working in the drills on the environmental protection principles (Anis and Siddiqui 2015). This has caused the unending spills and leaks from the oilrigs. Exxon Valdez is among the companies that have invested the least on the workforce (ExxonMobil 2012). These companies, for instance, hire underqualified and undertrained workers in the drilling sites. The exploitation of workforce begins with poor pay. The firms have hired people with minimum qualifications who can never demand for higher pay (Leveson 2011). To salvage the situation, these companies must employee-qualified individuals and take them through proper training programs for certifications. This will help to prevent the accidents and explosions. In fact, such expertise will advise the management properly on adopting new and efficient technology.

The industry is undergoing significance changes that require proper management and planning. With the governments, nongovernment organizations, and communities exerting pressure on the organizations, it important that the ethical leadership takes over the companies. Recently, the Presidential Commission made recommendations relating to the best approaches the companies should undertake to avoid the accidents (Ferrell et al. 2011). Although even the current leadership of these organizations have received the recommendations, especially following the report about the Gulf of Mexico explosions, none of them is willing to adopt the changes as explained by Anis and Siddiqui (2015). For instance, the unconventional extraction methods require immediate overhaul. However, nobody is willing to make these dramatic changes. To this effect, new leadership is required who can take risk of adopting the contemporary hydraulic technology that is environmentally friendly (Environment Agency 2013).

The repercussions of the disasters have had grave financial implications. For instance, the BP had to part with over $36.5 billion, $18.7 billion, and $5.5 billion on clean-up costs, environmental fines, and the Clean Water Act fine respectively (Ferrell et al. 2011). The drilling companies suffered greatly because of poor management leading to plummeting stock values. Therefore, managing the situation requires leadership with sobriety who understands the implications and the interests of stakeholders.

Motivation is an important factor to promote productivity and increase performance of the workforce. Employees would maintain ethical practices whenever they are properly remunerated (McCarron 2017). Although the companies earn significant fortunes from their drilling operations, the workers are paid peanuts. The employees who are paid well will engage in ethical practices and avoid corruption or bribery. The companies should develop proper remuneration structures that offer all employees adequate salaries and allowances. Ethical leadership understands the ability of employees regarding motivation (Meehan 2016). These remunerations must be offered through disclosure systems thus avoids corruption.

Change management

Spills, leaks, and explosions

The companies in this industry face unprecedented risks that can be categorized into political risks, financial risks, geographic risks, and operational risks. The operational risks are those risks that are associated with failed or inadequate processes or due to external events. The legal risks are beyond the reputational and strategic risks (Kaplan and Mikes 2012). In the context of the industry, the risks that the companies are exposed to depend on the nature of the industry. Carbon emissions seem to intensify in oil and gas industry than other sectors. According to Konar and Cohen (2001), the production processes involves accidental release of natural gas like methane, flaring, and venting. Methane contributes greatly in the global warming potentials than other gases as explained by Pawan (2014). Production and drilling are operational risks involving an extensive use of compressors and engines emitting the gases. Despite the establishment of the GHG emission reduction standards, the implementation remains a nightmare in the United States and Canada (API n.d). The hydraulic fracturing process has defined the exploration and drilling operations in the companies.

Exxon, BP, and fracking industry are exposed to similar risks because these companies operate in the same environment (Kaplan and Mikes 2012). The risks that the companies experience are explosions, spills, and leakages. These risks depend on land use and biodiversity patters. Indisputably, many governments, industries, and non-profit organizations have quantified their value due the increasing regulations. The impacts are evident in the devaluation of property value, lost tourism, and damages to fisheries (Prasad, Balakrishnan Nair, Francis, and Vijayalaksmi 2014). These cross-industry impacts have affected the oil and gas industry beyond repair. To this effect, the traditional land users could demand for compensation due to surrounding terrains. The poor land management systems have threatened the species and natural resources thus escalating the costs of protecting biodiversity. The industry faces the risks of compensating for the destruction of the diversity.

The large oil spills have affected wildlife as these spills disrupt the natural habitats. The spills further tarnish the company’s reputation (Anis and Siddiqui 2015). The perceived systematic risks have caused a widespread outcry and public opposition to hydraulic fracturing that is unconventional extraction practice (McCarthy 2013). The leading public traded organizations are using the unconventional production methods that are unfeasible to meet their future demand. The operations including coal seam gas, hydraulic fracturing, shale gas, ultra-deep wells, offshore, and oil sands have increased risks to land use and biodiversity (Sylves and Comfort 2012). The gas and oil development continue to disrupt the ecosystem and contaminate water, air, and soil. The subsea and offshore structures systems that the companies use to explore deep-sea oil have affected the marine ecosystem. Currently, the world is experiencing increased oilrigs and spills. Even today, nobody can easily predict the time when the environment will heal from the deadly Gulf of Mexico spill and explosions. The catastrophic oilrig explosion led to the infusion of methane, oil, and toxic substance to the ecosystem (Tollefson 2013). This indicates that the marine species are threatened by such environmental disasters.

Introduce incentives to inculcate safety culture

Brand image is very critical for the success of an organization. The companies in the oil and gas industry are struggling to build their image. With the continued oil spills, leaks, and explosions, the reputation of the companies are tarnished (Ferrell et al. 2011). The Environmental Agencies in the United Kingdom and the United States have imposed penalties and fines on the companies, which disrupt the biodiversity. Given the impact of the Gulf of Mexico explosions, the Exxon has struggled to build its image (Statista 2015). Currently, these companies are investing in sustainable operations.

The industry has nothing to do with the region, landscape, and earth bodies relating to the explorations. These political risks or geographical risks focus on the imminent corruption and other scandals in this industry. In most cases, governments attract foreign conglomerates to invest in their country’s economic wellbeing (Shank 2002). With ambiguity and discriminative governance efforts, sustainable development has become difficult to achieve. It has continued to promote environmental stress, massive divisions, and unprecedented poverty. Corruption in gas and oil industry starts from the search or exploration of the oil sources leading to violence, political instability, and corrupt business activities (Homayoun, Al-Thani, and Homayoun 2016).

The regions endowed with these resources have the potential to grow economically. However, when the companies invest in the region, the stock prices devalue when the political turbulence and regional political instability become evident (Homayoun et al. 2016). This instability can disrupt the operations of organizations. The political regimes have thus used the opportunity to demand payouts that are illegal. Many countries like the UK and the U.S have imposed fines on companies, which violate these laws (ExxonMobil 2012). For instance, when the Exxon and BP experienced oil spills and explosions, they were fined by the environmental agencies billions of dollars and were compelled to clean up the environment. These payments justify the financial implications associated with the explosions.

The industry lacks transparency. For instance, these companies rarely publish their statements and payments to governments (Sharma, Aggarwal, and Kumar 2014). They believe by posting such information, the government can exploit them. The political class and industry insiders have unlawful reaped big and gained unlawful benefits. Since most of these companies are partially or wholly state owed, they must play in the tune of the government. With the emerging markets embracing bureaucratic governance, the touch points with government officials is critical. The government officials have demanded for bribes. In fact, these companies have protected the identities of their equity holders and subsidiaries thus giving room for corruption and hiding the stolen funds (Farrell et al. 2016). Since the companies rarely publish their evidence or information, it becomes difficult to trace the stolen funds. The hidden taxes and royalties have made it difficult to put government to account.

Comparing the risks in the industry

Culture of transparency and responsibility

Ethical leadership focuses on the welfare and safety of the stakeholders. The culture of transparency and responsibility is essential in making the company responsive to the society. Without a doubt, the oil and gas companies provide energy required for a sustainable economic development. Following the disaster at the Gulf of Mexico, sustainability proved essential (Ferrell et al., 2015). Through the ethical leadership, it became possible to manage sustainability by encouraging companies to communicate openly and frequent with their stakeholders. This would involve notifying stakeholders about the governance, economic, social, and environmental impacts of the firm’s business operations. Open dialogue can define the company’s long-term success. Since these companies engage in unconventional developments, it is important for the management to engage the local leadership and opinion leaders in the community to identify the most important development they require. This culture of transparency ensures the community shares with company their concerns (Ball 2010).

In most cases, the communities have believed that explorations and other operations of the oil companies disrupt their livelihoods. The ethical leadership must consider addressing these concerns by taking actions that limit the potential consequences including avoiding disrupting the bus traffic and altering the routes (Ferrell et al., 2016). The company should further consider embracing the community by allowing them to conduct sightseeing so that they can observe the company’s operations regarding hydraulic fracturing, drilling, and processing. Since the company operates in various locations, adopting a two-way dialogue with stakeholders can be productive. It justifies the significance of transparency and accountability. The company managers should establish community advisory panels, weekly community notices, town hall meetings, and land conservation projects thus provide a platform to share and address the concerns of the society (Statista 2015). This indicates that the firm thinks beyond its interests by becoming a productive member and a good neighbour in the community.

Without proper governance structure, corruption becomes the order of the day. This has ensured the gap between the poor and rich widens thus promotes chaos, poverty, and terrorism. However, corruption is impossible where there exist responsible governance where accountability and transparency is the emblem (USEIA 2015). Such leaders respect the rule of law thus avoids becoming a victim of unlawfulness.

The growth potential in the unconventional energy is indisputable. However, the sustainability risks like safety risks, climate change, and community disagreements are eminent. These risks seem to exert pressure on the economic feasibility (Statista 2015). The ethical leadership have the ability and skills to analyse the threats that can obstruct sustainable development. The ethical managers can assess the dangers and risks and confront these issues. Good managers have to be steadfast in maintaining excellence in environmental, security, safety, and health performance (Farrell et al. 2011). This commitment justifies the leaders’ ability to comply with the operations integrity. Undeniably, the operations and products of these companies expose them to potential risks to the environment and people. Identifying and managing these potential risks is critical for ethical leaders. Through proper leadership that has been, lacking in this industry it is possible for the companies to achieve its commitment by embracing their environmentally responsible operations (Manna, Marco, Letterman, and Mullen, 2014).

Spills, leaks, and explosions

The companies led by ethical leadership are committed to their workforce. These companies accomplish their objectives through clearly defining practices and policies. The leaders apply management systems that deliver results. For instance, the best ethical companies would use the Operations Integrity Management Systems to help in managing risks and delivering excellence performance (USEIA 2015). Therefore, the corporate culture must embrace such management systems as exclaimed by Dutta and Sengupta (2014). Indeed, an ethical leader would be responsive to the needs of the society and other stakeholders. For instance, they tend to comply with the ethical practices and environmental standards instead of ignoring those (Ferrell et al. 2011).

The offshore and onshore operations expose the companies to health and safety incidents. The BP Deep-Water Horizon offshore rig was preventable if the ethical leadership could have been installed (Anis and Siddiqui 2015). Such leaders would ensure that the health and safety management matches the integrity of pipelines, wells, installations, and rigs that can help to minimize risks that can cause worker injuries and fatalities. The incident-free and safe operations are critical in achieving strong efficiency and productivity. The ethical leaders understand that accidents are unpreventable but can be minimized by investing significant resources to establish emergency and prevention response capacity. Notably, failing to manage these risks adequately can lead worker deaths and injuries (Steffy 2010). The ethical leaders understand the legal and regulatory implications relating to the operations risks.

The leaders should analyse and evaluate risk exposures depending on each country’s standards and safety performance. To this effect, it is essential for the leader to improve targets, manage systems and certification, and invest in governance and strategy (Ferrell et al. 2016).

Conclusion

The oil and gas companies operate in a politically and socially complex business environment. The industry has proven to be technically complex. In the recent past, many companies engaged in oil and gas exploration and distribution have tried their efforts to improve their operations to meet the sustainable standards. Based on this paper, it is evident that the companies have tried to improve the situation by making the business socially responsible and sustainable. In fact, the relevant governments have opted to use stringent measures to compel the companies to be sustainable and responsive to the society. For instance, in the case study, the BP oil spill that had a grave bearing on the environment attracted an environmental fine worth $18.7 billion. The company also spent over $36.5 billion towards cleaning the environment. With the Clean Water Act, the BP was further fined $5.5 billion. These stringent measures seem to be bringing sanity to the oil and gas industry.

From the case study, it has proved critical for the oil and gas companies to invest in ethical organizational culture so that they can examine the risks affecting the stakeholders. It is evident that many companies completely disregarded the safety of their workforce, suppliers, and the local communities. Following the Exxon Valdez disaster, it was prudent to intensify the risks associated with offshore drilling. The companies needed to have adopted the safeguards relevant to protecting the environment. However, it emerged the BP ignored the recommendations that could have lessened or prevented the disaster. This later caused further disaster at the company. Therefore, the situation requires an ethical leadership that can comply with the programs related to the welfare of the society and other stakeholders. The companies dealing in gas and oil products require contingency plans to avoid disasters and assure workers of their safety.

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