Theories behind the voluntary disclosure of Deepwater Horizon Disaster by BP Plc.
Prepared by : Gajanayagam Jeyasundram
This paper examines the relevant theory that explains public disclosure by big corporations in disclosing corporate mishaps that has environmental, social and economic consequence. We look at Deepwater Horizon in particular and its disclosure by BP.
| Introduction 1.1 BP Plc.
1.2 Deepwater Horizon Disaster
| Legitimacy Theory vs. Stakeholder Management Theory2.1 Legitimacy Theory 2.2 Stakeholder Management Theory
| Reference List.
The Environmental disclosure by companies in particular raises some intriguing questions as the motivations behind it. There are number of theory that seeks to explain it. Namely the legitimacy theory and stakeholder management theory. The case in point in this instance is the public disclosure of the Deepwater Horizon by BP in its 2010 Annual Report. 1.1 About BP.Plc
British Petroleum or BP is a British based oil and gas multinational. It is one of the biggest in the world. It is the third largest energy company and fourth largest company in the world in 2011. It has operations in over 80 countries and produced around 3.3 million barrels of oil equivalent. It is primarily listed in the London Stock Exchange and has secondary listing in Frankfurt Stock Exchange and New York Stock Exchange. It was formed as Anglo Persian Oil Company in 1909 , established as a s subsidiary of Burmah Oil Company , then in 1935 as Iranian Oil Company and finally in 1954 as British Petroleum. It was initially stated owned by the British government, but underwent privatization in stages between 1979 and 1987. In 1998, British Petroleum merged with Amoco and acquired both ARCO and Burmah Castrol in 2000. In 2001, the company formally renamed themselves as BP Plc. (Wikipedia-BP.Plc 2012) 1.2 Deepwater Horizon 2010 Disaster
The Deepwater Horizon 2010 disaster in the Gulf of Mexico killed 11 rig workers and spilled 4 million barrels of oil. It is regarded one of the worst off shore spill in the U.S history and one of the worst spills in the world. It could have avoided if BP complied with industry standard when came to maintenance. Other oil and gas CEO such as Shell and Chevron testified that BP did not comply with industrial safety standards. The impact was so devastating; it destroyed marine life, economic activity of major parts of the US that relied on the Gulf of Mexico such as fishing. Till today, the suits are still pending (Various news articles via Google Search 2013)
The incident forced BP to replace its CEO, Bob Dudley with Tony Hayward. It also announces a USD38 billion assets sale in compensating the liabilities related to the incident. This caused BP to fall from second largest oil company to fourth after the sale of assets.
Prior to this incident, BP has been in crisis mode for at least the past 5 years. BP have been facing declining profits especially after the Iran revolution. It has hugely dependent on the previous regime. Therefore, in 1995, a new management was bought in and lead by Lord John Brown as CEO of BP. Lord John Brown expanded BP rapidly. He went on to purchase Amoco and a couple of small companies such as Arco. Within 5 years, the company value was quadrupled. (The Spill 2010)
However, rapid expansion came at a cost. Cost of financing the expansion put a lot of pressure in profitability. As a result, Lord John Brown ordered a 25% cost cut across the board in BP. This major cost cut trickled down and affected safety management budget for their oils sites and oil refinery.
In 2005, one its major crisis happened. Its Texas refinery exploded. 15 people died and 175 people was injured. It was later confirmed that the blast occurred because of lack of compliance in maintaining safety and ensuring...
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