BP Blowout Case Analysis

 

Questions to consider…

1. What stakeholders were impacted by BP’s actions, and how were they impacted?
2. What were the environmental costs of the disaster, and how can these be measured?
3. Do you think that the legal consequences faced by BP, its employees, and the false claimants were appropriate, and why or why not?
4. Do you think it is a company’s responsibility to prevent a disaster of this type or the government’s (or both)? Why?
5. Describe changes in the U.S. regulation of deepwater drilling since the disaster. What approach to regulation do you support, and why?
6. What lessons should the oil industry, business in general, government, and civil society draw from this case?

 

 

 

 

Example for Profiting from Pain Case Analysis

 

 

 

1. What were the costs and benefits to stakeholders of the actions taken by Massey Energy and its managers?

 

 

Stakeholder	BENEFITS	COSTS/RISKS
Don Blankenship	·      $129 million over ten years in compensation ·      Use of a corporate jet, cars, and other perks ·      Social status ·      Power over others	·      Referred to himself as “vilified;” apparently widely disliked in the community and by his own employees
Managers	·      Relatively high pay and status in a low-income region	·      Demanding boss, stressful job
Board of directors	·      At least $130,000 per year in compensation for a few days of meetings	·         Reputational risk due to association with a company with a poor reputation  for environmental impacts and worker safety
Shareholders	·      Mediocre returns during the 2000s, but not much different from industry averages	·      High volatility, high risk investment
Employees	·      For some, a relatively high-paying job in a low-income region	·      Unsafe job; high risk of illness, injury, or death ·      Intimidating, threatening workplace culture ·      Lack of union protection ·      For some: a violent, sudden death by incineration  or suffocation ·      For some: the trauma of experiencing the death or injury of friends and coworkers ·      For the families of victims: loss of a loved one
Customers	·         A steady supply of high-quality, relatively low-cost fuel for steel, utility, and industrial customers ·         For utility customers: a steady supply of relatively low-cost electric power from coal-fueled power plants	·      Risk of supply interruption from a supplier with high safety and environmental risks
Local community	·         Some jobs, some taxes, some philanthropic support ·         Benefits to the broader community of energy independence	·      Water and air pollution ·      Environmental degradation
Union (UMW)	·         None	·      Highly effective anti-union strategy; declining membership
Government regulators	·         Massey’s flagrant disregard for compliance may have contributed to greater allocation of funding and positions to the regulatory agencies	·         Harassed, deceived and thwarted by Massey management in their efforts to enforce the law
Environment	·         None	·         Widespread damage to ecosystems and watersheds due to mountaintop removal mining ·      Coal sludge spill

 

 

2. Applying the four methods of ethical reasoning (utilitarianism, rights, justice, and virtue), do you believe Massey Energy behaved in an ethical manner? Why or why not? 

 

Utilitarianism: A utilitarian could argue this case either way.  Some would conclude that the benefits (ends, or results) of Massey’s actions did not justify the costs (means).  In this view, the means (high rates of injury, illness and death; environmental degradation; union-busting; open violation of the safety and health and environmental laws) did not justify the ends (employment for about 6,000 people in a relatively poor region; relatively cheap coal for industrial customers; and relatively cheap electric power for many utility customers.)

 

However, a utilitarian might come to the opposite conclusion if he or she weighed cheap energy and energy independence more highly and viewed the Upper Big Branch disaster as an anomaly.

 

Rights:  Massey’s actions violated human rights.  Massey put the health and very lives of its employees at risk through its deliberate disregard for accepted standards of mine safety.  It jeopardized the property rights and health of community members impacted by mountaintop removal mining.  It intimidated its own employees, robbing them of the right to speak their minds freely about their concerns about their coworkers’ and their own safety.  Massey violated workers’ rights to organize a union when it violently and callously broke the United Mine Workers at its own facilities.  The company as a matter of policy broke the law by violating government mine safety regulations, deceiving government inspectors, and contesting penalties imposed by regulators.

 

Justice: Massey’s actions were not fair and just. ethics and law are not the same, although they usually coincide.  Business ethicists believe that companies should follow the law as a minimum, but in many cases should go “beyond compliance” to achieve a higher standard of behavior.  Yet, a striking feature of Massey’s behavior is the extent to which it appeared to deny the very legitimacy of the government over its actions.  The company apparently viewed mine safety (and environmental) regulations as illegitimate, and actively sought to contravene these legal requirements.  Massey’s behavior was not only unethical; it was also illegal.  One individual benefitted enormously:  the company’s CEO, Don Blankenship (and possibly other senior executives, although the case does not discuss this).  Over the course of his career as CEO at Massey, Blankenship earned around $129 million and enjoyed many perks of his position.  The burdens of Massey’s actions fell disproportionately on the workers, communities, and unions of central Appalachia.

 

Virtue:  Massey’s actions do not pass the “virtue” test.  Massey was animated by “bottom line thinking” and showed an almost complete lack of empathy for others.

 

In sum, an application of the four methods of ethical analysis to this case demonstrates that Massey’s actions did not meet the standards of rights, justice, or virtue, and may or may not have met the standards of utilitarianism.

 

3. Who or what caused the Upper Big Branch Mine disaster, and why do you think so?

 

Here is the sequence of physical events that occurred on April 5, 2010:

 

A poorly maintained longwall shearer in contact with sandstone caused a spark which it could not extinguish because of inoperative water sprayers; the spark ignited a pocket of methane gas that had been allowed to accumulate at the coal face because of poor ventilation; and the resulting explosion propagated throughout the mine because of an accumulation of flammable coal dust that had not been properly treated with rock dust.

 

However, this is a difference between the immediate cause of the problem and the people involved.

 

Don Blankenship:  Blankenship had near-total control over Massey Coal Company, and later Massey Energy, for almost twenty years.  During that time, he had decisive influence over the culture, policies, and practices of the firm.  He directed a management system that gave priority to productivity—running coal—over all other considerations, including environmental impacts, worker health and safety, and legal compliance.  As a hands-on manager, he was fully aware of everything that was going on in the company, down to the last tank of gasoline or ton of coal.  Accordingly, he should bear the ultimate responsibility for the Upper Big Branch mine disaster.  Students may note that Blankenship himself disavowed any responsibility for the disaster, telling analysts that his conscience was “totally clear.”

 

The Board of Directors:  The board of directors was responsible for the disaster because it set up a compensation system for their CEO that incentivized high earnings and productivity over other factors.  Blankenship’s incentive-based compensation (stocks and option awards and incentive plan) comprised more than 86 percent of his compensation in 2009.  His compensation plan based more than half (55%) of his incentive pay earnings on earnings and productivity-related factors (EBIT, produced tons, continuous miner productivity, surface mining productivity, and fulfillment of contracts).  Percent reduction in environmental violations counted for 10 percent, and percent reduction in NFDLs for 10 percent.  Arguably, the latter figure could be—and was—manipulated by the company by a deliberate policy of not recording miners’ injuries.  Other factors (identification of successors, employee retention, and diversity of members) counted for 25 percent.  Notably, there was no incentive for reducing fatalities.

 

Arguably, Blankenship was doing exactly what the board wanted him to, that is, run as much coal as possible with only minimal regard for the costs to the environment and worker safety.  The board put in place an incentive system that handsomely rewarded productivity—and then hired as CEO a trained accountant who was obsessed with numbers and seemed to have a complete lack of empathy for others.  The result—a history of flagrant environmental and safety violations—was a predictable outcome.

Government Safety and Health Regulators:  Another view is that the main responsibility lies with government regulators from MSHA and the corresponding West Virginia agency.  Evidence in the case shows that inspectors were frequent visitors to the mine and issued repeated citations for violations of federal and state mine safety laws.  However active the regulators were, they apparently did not use sanctions, up to and including shutting down the mine, that were sufficient to change Massey’s behavior.

 

Policymakers:  Despite decades of legislative advances in the area of mine safety and health, the law was still too weak to effectively constrain the actions of rogue corporations like Massey.  In this view, strong laws might have prevented the tragedy.

 

The Workers at Upper Big Branch:  Many of the workers at Upper Big Branch appeared to be either intimidated by management, unaware of the danger in which they worked, or aware but resigned to acceptance of the conditions.  For whatever reason, they had not effectively asserted their legal rights to organize a union.  Some may argue that the workers were, in some sense, responsible for their own fate since they had not left the situation or effectively changed it.

 

God: The company’s view was that God was responsible for the disaster, because the explosion was caused by a sudden inundation of methane, an “Act of God” that they could not have anticipated or prevented.

 

4. What steps could be taken now to reduce the chances of a similar tragedy occurring in the future? In your answer, please address the appropriate roles of mining companies (and their directors and managers), government regulators and policymakers, and the workers and their union in assuring mine health and safety.

 

Stronger Board

• Management selection and advancement: Boards of directors should select ethical managers and advance managers through the organization based on a proven track record of effectively balancing the requirements of profit and productivity with the legitimate interests of stakeholders and the need to comply with all relevant laws.

 

• Compensation systems: Boards of directors should design compensation systems that reward safe and environmentally sound operations (and apply penalties for noncompliance with the law).

 

• Legal compliance: Managers should make it clear that the policy of the corporation is to comply with the law and to go beyond compliance to achieve “best practice” health and safety systems.  Safety should be given priority over production.

 

• Stronger protective legislation: The government needs to strengthen powers of regulatory agencies such as MSHA and West Virginia (office of mine safety) and give them sufficient authority to enforce their citations.  Penalties for noncompliance should be strengthened, and flagrant violations should be felonies.  Workers who report safety violations to government inspectors should be protected against retaliatory discipline.

 

Stronger Laws

• Labor laws: Strengthen the labor laws that enable fair, unbiased elections for union representation.

 

• Energy policy: Develop an energy policy that gives greater support to less polluting and less dangerous (for workers and the environment) sources of energy.

 

 

 

 

 

 

 

 

 

Rubric for Case Studies

Maximum: 10 points

Points will be adjusted for the Henderson Paper

 

	Excellent 7- 10	Good 3 – 6	Poor 0 – 2
Use of Evidence	Argument is very well supported by evidence	Argument is somewhat supported by evidence	Argument is not supported by evidence
Organization	Structure is well organized and readable. Ideas flow in a logical sequence. Concepts are cohesive. Writing stands together.	Structure is somewhat organized and readable. Ideas flow in a somewhat logical sequence. Concepts are somewhat cohesive. Writing stands together somewhat.	Structure is poorly organized and difficult to read. Ideas do not flow in a logical sequence. Concepts are not cohesive. Writing does not stand together.
Language, Mechanics, Voice, and Style	Sentences are very clear with no confusion. Word choice reflects content very well No errors in grammar, punctuation, spelling, and syntax.	Sentences are mostly clear with little or no confusion. Word choice reflects content adequately Few errors in grammar, punctuation, spelling, and syntax.	Sentences are not clear and are confusing. Word choice does not reflect content very well. Several errors in grammar, punctuation, spelling, and syntax.