Corporate Governance

Study on the Issues of Leading Organization British Petroleum

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INTRODUCTION TO CORPORATE GOVERNANCE

Corporate Governance basically is related to the procedures and mechanisms through which conduct and performance of an organization while in the market can be controlled and monitored (Monks and Minow, 2012). For companies, in today’s market, it has become imperative that they implement and diligently follow the approaches, principles and practices of corporate governance in their every day routine. One of the main factors behind it is that this concept is directly linked with image of the company in market and thus affects its existence.

There are a lot of aspects that have to be considered by be developing plans related to corporate governance. Those companies which have effective corporate governance practices in place can leave a positive impact on the market and also maximize their sales by a considerable margin. Concepts of corporate governance are particularly related to accountability, especially because of collapse of large number of firms in the international markets during the period of 2001-02.

In this report, practices of British Petroleum (BP) in relation to corporate governance have been evaluated. Attempts would be made by the researcher to assess various elements of the bench marking process, so as to state what actions have been taken by management of the corporation to fulfill statement of corporate governance. The main reason as to why the petroleum giant has been selected for the report is that it is world’s one of the leading organizations in terms of CSR, corporate governance, etc (Bp Annual Report, 2012). In addition to it, another reason behind selection of the firm is that oil and gas industry leaves a lot of negative impact on the general society as well as natural environment. Industry experts have cited that BP is a front runner in departments related to taking care of the society.

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BENCHMARKING PROCESS

It is a well known fact that, considering the extremely volatile environment, performing and following the various corporate governance strategies and concepts is a key through which long term survival can be ensured (Beasley and et. al, 2000). But companies have to note that some sort of standards and benchmarks should be developed so as to make the practices of corporate governance much more efficient and effective. Main aim behind it is that the firm should be able to reach a position from where activities related to corporate governance (CG) can be made useful.

In this regard, it may not be wrong to say that developing some benchmarks is a key by which tasks of CG can be made effective and thus help the company to leave a lasting impact on the market (Claessens and Fan, 2002). There are a lot of aspects which have to be considered while developing frameworks related to corporate governance. Some of them have been described in the subsequent points. Management at BP would have to make sure that they follow the guidelines laid down by elements of the benchmarking process, so as to make their practices of corporate governance effectual.

Corporate Social Responsibility

One of the most important parts and elements of corporate governance is the activities related to carrying out corporate social responsibility. It is a form of corporate self regulation embedded into working of business organizations. CSR (Corporate Social Responsibility) states that companies should perform such activities and tasks through which they can take care of the society and environment they operate in (Banerjee, 2007). This means that they have to formulate strategies to pay attention to make sure that business operations do not negatively affect health and fitness of the people and the natural environment and resources as well. In this regard, we can say that it is one of those processes which can make or break the firm from inside out.

One of the main concepts and elements of corporate governance is the activities related to CSR. The management at BP has taken numerous steps so as to protect and take care of the environment from bad effects of the activities that they carry out. For instance, as per their annual report, firm strives to work in a manner so as to ‘avoid, minimize and mitigate the environmental impact of business, no matter where it is carried out (Sustainability Review, 2013). Earlier, they had declared that one of the prime tasks that they would carry out to protect the environment is to identify the areas where water is scarcely available, and understand what can be the consequences of drawing fresh water. This objective the company has achieved as they have identified those areas which have scarce water sources along with consequences that their operations may have and also the possible ways through which they can be controlled and overcome.

In addition to it, programs have been developed so as to enable the company to interact with governments of various nations gain insights into how its various operations and functions can be improved (Luo, 2006). This essentially means that the corporation is looking to build a good and trusty worthy image of itself in eyes of the various stakeholders, most important of them being that of the government. Such associations with different legal bodies would help BP to take care and protect the environment and its surroundings in the most effective of manner. The company has been highly efficient in carrying out its activities in terms of social responsibilities that it has. It is a known fact that performing responsibilities is a way by which the firm can not only interact with market, but also develop a positive image of itself (McWilliams and Siegel, 2000).

In past some years, CSR has gained popularity, as it has become one of the most useful means of publicity and also building brand image. Though this is the philosophy followed by management at BP, but there is another reason to its popularity as well. The authorities know that activities performed by the company have adverse effects on surroundings, which have to be controlled and reduced. CSR activities performed by the company have been developed keeping in mind the bad effects that their conduct is having on the environment, which over the years have been very much successful (Du and Sen, 2010). There are numerous aspects to it as well that the oil & gas giant pays a lot of attention to.

Since most of its operations are carried out in seas, in eyes of the corporation it is the place or source which is the most affected. To protect the water from being polluted to a great extent, they have developed various policies and procedures along with governments of the nations that it exists in. This way the company not only has been able to reduce its harmful effect on sources such as that of water, but also make sure that it is not adversely affected above the decided limit.

In addition to it, different internal regulations also have been developed which describes about controlling and reducing emission of poisonous and toxic gases into the environment. It states that the organization now pays attention to developing ways through which the gases that they release into atmosphere can be reduced (Marrewijk, 2003).

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Risk Management at British Petroleum

British Petroleum is an organization which is operating in a very volatile and unpredictable environment which is characterized with the presence of a lot of changes. Therefore, it can be said that there are a lot of risks that the firm has to face and also try to overcome. Due to this, for the oil and gas industry leader it is crucial that various risk management approaches and techniques are used (Chew, 2013). There are numerous methods through which the risks that BP faces can be reduced and also overcome. Risks can be described in many terms such as human resources, materials, tools and machineries, unforeseen events, etc. In addition, these factors in themselves again have to face different kinds of risks.

Since it is a very tedious and laborious job, there are chances that the employees or the workers may leave the company, because of the same reason. In addition to it, this is not only a highly regulated industry, but requires that they possess certain skills and abilities to carry out the different tasks assigned to them (Steinberg, 2011). This means that if any of the labor or employee leaves the company, then hiring a new one and providing them the necessary trainings would be a very time consuming and expensive task for the organization. Apart from this there are some more risks as well which would have to be faced by BP in present environmental conditions (Domenec, 2012).

Oil exploration has now become a very complicated task as there are a lot of elements that would have to be considered by the company, such as numerous rules and regulations; continually changing business and natural environment; in context of which governments and various other bodies have developed several norms and policies. Non-compliance of them can lead to the firm being removed or struck off the industry or various other serious results (Beal, 2005). Due to this very reason, it can be said that operating in this market is becoming very risky for the organization. Another serious risk which the organization has to face is that of the fast eroding natural resources.

This is the most prominent peril which the firm has to undergo. Since the environment is being polluted at a very rapid pace along with excessive abuse of the resources, their quantity is declining very fast, which puts companies such as BP on the verge of being closed down any time. This is the biggest threat which the company has to face in current times (Allen, 2012).

To control and mitigate such issues, management at British Petroleum has designed and developed risk management systems, which enable them to effectively reduce various risks and thus make their operations much strong and effective (O'Regan and Ghobadian, 2010). This system enables the company to identify different threats that it has to face, understand, manage and then try to reduce them by a great margin.

This system has been developed to be simple and yet efficient with a clear framework that would enable the management to recognize risks at the earliest and also to develop ways through which it can be met and thus reduced. Further, in the same context, day-to-day risk management is an approach through which it can be done. For instance, the group-wide operating management system or the OMS embeds various operations of the company in a manner through which risks associated with departments and aspects such as human resources, finance, operations, environment, etc (Sustainability Review, 2013). This way the management can reach to a position from where it can identify the various kinds of risks and also try to remove them so as to make operations of the firm as effective as possible.

Herein, it can also be said that various processes and functions of the business also enable authorities to combine risks into different businesses such as strategy formulation; performance and human resource management; resource and capital allocation, etc. Additionally, data is collected on various types of risks, collating them, assessment of a variety of risk management activities to prepare a risk management report. This way, top management can effectively control different types of risks and stop them from harming the organization.

Therefore, it may not be wrong to say that it is one of the most effective forms of benchmarking working of the business and not making it dangerous for society (Neubauer, 2009). This is so, mainly because of reason that it improves aspects of corporate governance in the company by a considerable margin.

Ethics

This is another issue or facet that has to be considered by management at BP, so as to ensure that they are able to carry out practices of Corporate Governance in a far more efficient and effective manner (Barkemeyer, Holt and Napolitano, 2010). The main reason as to why it is included in aspects related to corporate governance is that the more ethically duties and tasks of the firm are carried out, the more effective would be corporate governance of the company.

In today’s business environment, it is a must for firms that their various operations and activities are as ethical as possible. This is a very effective key through which long term survival in market can be ensured along with the ability to capture a major chunk of the market. Also, it is a way through which the company can look to make a good impact on customers and try to increase its own sales along with overall profitability. In this regard, it can also be said that companies which are ethical in the modern day business environments hold the key through which acquiring success in the market can become a relatively simple job (Ferrell and Ferrell, 2014).

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At present, doing business in an ethical manner is given a lot of importance at BP, as the management gas realized the fact that it is the most effective way through which firm can be made to survive and operate in market for a considerable time period. This can be supported through the fact that they have developed a unique code of conduct which states about using a ‘principle-based’ approach while performing various operations and tasks.

Herein, precedence is given to ‘safety, excellence, courage and respect’ (Our Code Our responsibility, 2014). Along with this, the code also states that if the company wants to become a trusted organization in eyes of various stakeholders, then very high standards must be set and met along with that of performing various duties in the most honest of manners. The ethical based code of conduct prepared by BP is applicable and to be followed by all the employees, officers as well as members of the top management (Cragg, 2004). The main philosophy which describes as to why performing business functions in an honest way is given so much importance in the company can be understood through fact that their operations and conduct would affect a variety of stakeholders such as the customers, suppliers, society, government, etc. To make sure that they are not negatively affected by the company in any possible way, the code of conduct comes into play.

To be able to ensure and manage the same, different set of rules, regulations and policies have been developed by management at BP for workers, employees and the top management. For instance, employees are provided with a manual where all the norms that they have to follow are described in detail along with the consequences if they are not complied with (Mcdonald, 2009). Apart from this, the workforce is also motivated so as to act in a manner which is ethical, safe and as per the legal norms developed by both the company and government of the country that they operate in. They are also required to cooperate with the top management in event of any kind of inspection or checking.

On the other hand, separate regulations have been developed to aid managers of the company in performing their various tasks and managing functions carried out by the firm. It entails that they should create an example in front of the employees, by fulfilling and carrying out their tasks in an ethical and honest manner, so as to motivate them to do the same. They are tasked with the responsibility of creating such an atmosphere at workplace which is positive and also helps staff members to carry out the responsibilities given to them in the most effective ways and also help in attainment of the organizational goals and objectives (Allen, 2012).

Also, the management has developed a special approach which involves zero tolerance for any kind of mistakes made by the employees, managers and the authorities, which may be unethical in nature to the company. This has helped in dramatically reducing such acts through which image of firm may be tarnished in the market. But the recent case where, oil tanker carrying petroleum produced by BP spilled in Gulf of Mexico, proved to be a big stain on image of the company. Though there were a lot of reasons for such a mishap, but there are many sections of the society which believe that lack of attention by management and some other greedy or unethical purposes were the main reasons behind it (Steinberg, 2011).

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CONCLUSION

British Petroleum is one of the leading organizations in the oil & gas industry. There are so many operations of the company, which put it at the risk of not being able to maintain a good position in terms of corporate governance. Today, it is one of the most prominent issues related to functioning of companies in the present market. During the study it was seen that for the firm as well, giving attention to this facet is one of the most important tasks that they have to carry out.

There are a lot of elements and issues which are being faced by the company and are associated with its practices of corporate governance. Some such issues which have been stated in the report are related to identification and management of various risks; fulfilling its corporate social responsibility; and ethical dimensions of it as well. To manage threats and risks such as the ones related to environment, health and safety of the employees, different systems have been developed by the company such as OMS which enables authorities to collect various types of data and identify the areas that may have to face some or the other kinds of risks. On the other hand, report also sheds light on how effectively the company can meet its corporate social responsibilities in the best manner. For instance, they have collaborated with governments of various nations to formulate different policies and regulations to reduce harmful impacts that it may have on the environment.

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