Oil and gas are the world's most valuable commodities. However, the oil and gas industry is faced with various environmental risks. These may range from oil spills, leaks, explosions and emission of dangerous gases into the atmosphere which may encourage global warming, (Burnham et al., 2011, p. 619). Serious accidents that have faced gas and oil industries in the past have resulted from unethical practices. These accidents include the Exxon oil spill which happened in 1989 resulting in the contamination of the ocean, incapacitation of fishing activities and liabilities to the company in terms of cleanups and compensation, BP explosion incident in 2010 which resulted in the death of eleven workers and the methane gas emissions which result from fracking activities, (Gill, et al., 2012, p. 3). There is, therefore, need for oil and gas companies to embrace ethical leadership and ensure ethical risk management activities are put in place to reduce the accidents.
According to Thiel et al. (2012, p. 49), ethics refers to the right behavior expected of a person, corporate body or group of individuals. It defines what is right or wrong in an organization. When a company is faced with unethical practices, then it may be exposed to several ethical risks. Moral risk refers to unexpected negative consequences that result from immoral activities, (Ford & Richardson, 2013, p. p. 20). Ethical risk management deals with several ways in which ethical risks can be identified, mitigated and transformed, (Valentine et al., 2011, p. 358). Ethical risk management in the oil and gas companies relates to the reduction of accidents in the following ways:
Management of change
Change management enables the company to adjust to risk. When a corporation has transparent change management procedures, it will be able to identify the dangerous areas of the business and adapt to them before any accidents occur, (Craft, 2013, p. 228). Change management closely relates to the strategy formulation. Companies should formulate strategies that allow for change. Whenever there is a change in operations, proper policies should be put in place to support such changes, (Hartman et al., 2014, p. 108). Changes can be exerted on employees, technology or the management structure of the organization as a whole.
The Deepwater Horizon oil spill gives an example of improper change management, which led to a fatal explosion. In this case, the emergency responder had died five years ago before the accident happened, yet there was no replacement made, (Ferrel & Fraedrich, 2015, p. 426). The emergency responder would play a vital role in responding to unusual occurrences like an explosion. This shows that the organization did not embrace change, as the employees were not properly evaluated to determine whether they handled their activities.
Proper preparedness for disaster
The gas and oil industry may be faced with various risks. These may result from unethical practices in the firms. Companies must embrace ethical leadership, and formulate strict risk policies to deal with ethical risks, (Crane & Matten, 2016, p. 201). Some ethical risks like an explosion, leakage and oil spillage are common in gas and oil industries, (Finkel & Law, 2011, p. 784). However, if proper preparation and safety procedures are put in place, then such occurrences may easily be tackled.
A good example to illustrate this point can be derived from the case of Deepwater Horizon spill. In this case study, the oil rig was not well-maintained as it lacked a remote control shut off switch that could be used to plug the leakage, (Ferrel & Fraedrich, 2015, p. 428). The blowout on the rig was also faulty. This showed clearly that the company was not prepared to handle emergencies such as explosions in case they occurred. Exxon’s case is also not an exemption. There is a clear evidence of unpreparedness. APSC which was operating the shipping terminal and the Alaska Pipeline at Valdez was not effectively prepared to contain the spillage, (Ferrel & Fraedrich, 2015, p. 427). Therefore, it took several hours to put together the equipment. It was also not sure whether to use a tug or barge for containing the spillage, (Ferrel & Fraedrich, 2015, p. 427). This resulted in a lot of time wastage in containing the spillage.
Organizations can offer on-the-job training to the employees to ensure that they have the right skills to handle activities extended to them. Proper training and certification also ensure that workers are fully qualified to do their jobs and that they fully understand the risks that they may be exposed to while handling different tasks in the firm, (Shapiro & Stefkovich, 2016, p. 99).
In Exxon Valdez disaster, the third mate who steered the tanker ship did not have a license. This showed that the captain was not competent and certified to handle the activities of a captain. This could be one of the causes of the accident that resulted into the oil spillage
Providing incentives to change the safety culture
During the extraction of crude oil, dangerous gases may be emitted into the atmosphere. This may cause air pollution. Oil may also spill on the oceans posing threats to the health and safety of aquatic life, (Finkel & Law, 2011, p. 784). The employees may also be exposed to health risks, whenever they inhale the gases emitted. Accidents such as explosions may also result into loss of lives of the employees, (North et al., 2014, p. 8389). Therefore, ethical risk management is necessary for reducing accidents and risk exposure levels, through prioritizing on safety and sustainability. Sustainable operations are operations geared towards reducing adverse effects to the environment. Companies which major on the sustainability of their activities, usually ensure that they do not pollute the environment, or expose their employees to health risks, (Elsenbeiss, 2012, p. 792).
In the case of Exxon, the rupturing of the hull could have been prevented if the company could use a double hull in the tanker. However, the company could incur 22 million in costs. BP also used a faulty blowout preventer on the rig, (Ferrel & Fraedrich, 2015, p. 428). This only showed disregard to safety, which later led to an explosion.
Employees should follow proper codes of behavior to operate efficiently in the organization. Codes of conduct dictate how employees should handle themselves in the organization, (Thiel et al., 2012, p. 50). Proper ethical considerations ensure that workers adhere to the company rules.
It is evident from Exxon’s case study that the captain's system had a considerable quantity of alcohol, (Ferrel & Fraedrich, 2015, p. 426). Therefore, he was not supposed to be allowed to operate the ship. The captain who had the credentials to run the ship was also asleep at the time of the accident. This showed clear ethical lapse which may have contributed to the worsening of the situation during the spillage.
Comparison of the risks faced by Exxon, BP, and the Fracking industry as they strive to provide a constant energy supply.
Some of the risks faced by Exxon, BP and the fracking industry in their attempt to provide sufficient energy supply are leaks, explosions, and spills. The companies are also faced with the loss of reputation due to the accidents, political risks, and financial risks. These are discussed as follows:
Spills occur when oil finds their ways out of the cargos and into the oceans. Many of the world's largest oil reserves are located beneath the sea, (Ferrel & Fraedrich, 2015, p. 426). Therefore companies must take adequate measures to reduce spills during extraction. The Exxon oil spill which happened in 1989 illustrates one of the risks that oil and gas companies face. The spill had important effects which included the death of sea birds, interference with fishing activities and loss of reputation of the firm among its customers, (Ferrel & Fraedrich, 2015, p. 427). The company also incurred legal expenses and other cleanup costs.
Oil and gases are always highly flammable. Therefore the companies face a risk that the gases and oil may explode, (Michel et al., 2013, p. 65087). This is precisely demonstrated in the case of BP, whereby there was an explosion in 2010 that led to the loss of lives of eleven employees. The oil also continued leaking into the Gulf, for three months, (Ferrel & Fraedrich, 2015, p. 429). Thousands of aquatic animals were killed in the oily waters, and most of the people who derived their income from the Gulf of Mexico lost all or parts of their earnings. The also beaches turned black because of the oil.
Hydraulic fracturing results in the emission of methane gases into the atmosphere. These may cause safety risks to the employees. However, most companies have not carried out proper education to the community regarding the adverse effects of hydraulic fracturing, (Brandt et al., 2014, p. 733). The risk of emissions makes fracking activities more harmful than beneficial to the communities living in the areas where fracking is conducted, (North et al., 2014, p. 8389). While oil extraction industries pose substantial effects to the environment through emission of harmful gases, spills, leakages, and explosions, fracking activities expose individuals living near the fracking sites to safety risks through emission of radioactive gases like methane.
As stated by Thiel et al. (2012, p. 50), reputation refers to the respect a company holds among its stakeholders such as the customers, employees, creditors, and suppliers. Whenever a company operates ethically, then it may derive respect from the community, (Valentine et al., 2011, p. 354). However unethical operations may lead to deterioration of a company’s reputation.
The best example can be extracted from BP's case study. The company was formerly respected by its customers and employees as it concentrated on safety and sustainability of its operations especially after learning from Exxon oil spill, (Ferrel & Fraedrich, 2015, p. 428). This was until the 2010 explosion occurred, leading to the death of eleven employees when it lost its reputation. The company could therefore not defend its preparedness regarding the safety of its employees in times of emergency.
Hydraulic fracturing activities may also not hold reputation in the community as the emissions of gases like methane into the atmosphere expose their employees and the community as a whole to safety and health risks. Exxon also lost its reputation after the 1989 oil spill, which led to the death of sea birds, incapacitation of fishing activities and liabilities in the form of clean-ups and other legal liabilities in the form of compensation, (Ritchie, 2012, p. 188). These examples only show how the accidents faced by Exxon, BP and the fracturing continue to reduce the level of reputation they hold in their operational environment.
They all face political risks
Political risks are always faced by states, investors or organizations, when the political decisions made have a high tendency of making them incur losses. Political risks may arise from liabilities that emanate from unethical practices conducted by firms, (Ford & Richardson, 2013, p. 20). Exxon, BP and the fracking have continued to face different political risks in the course of their operations. To start with, Exxon was exposed to liabilities worth 10 billion due to the spill, (Ferrel & Fraedrich, 2015, p. 426). These included clean-up, fines and compensation expenses. BP also had to spend 36.5 billion dollars for cleanup and plugging the leakage, (Ferrel & Fraedrich, 2015, p. 429). These are political risks that face the oil and gas industries.
Fracking activities also lead to the emission of methane gas into the atmosphere. The fracking companies may, therefore, be exposed to liabilities related to compensation, whenever they expose the employees to health and safety risks, (Vangosh et al. 2014, p. 8334).
Financial risk is the possibility an enterprise or its shareholders may make some loses when they invest in a business that has a debt. Debts may be caused by unethical practices that a company involves in, (Craft, 2013, p. 222). For example, if a company exposes its employees to health risks, making the employees sick or get injured, then the company may be forced to compensate such workers.
After the spill, Exxon was forced to pay for cleanup costs. It also paid legal expenses to inform of fines and compensation, (Palinkas, 2012, p. 220). Therefore, the company lost money in the process. This is a clear example of a financial risk. BP was also forced to pay cleanup costs and other compensation costs after the 2010 explosion, (Gill et al., 2012, p. 23). Fracking companies are also not exempted from financial risks. This is because they may lose money, paying for compensations to their injured employees and community members as a result of dangerous gases emitted through their operations.
How ethical Leadership helps the oil and gas industry manage risk
Leadership involves getting things done through people. A good leader must be able to motivate and inspire the workers to achieve the desired organizational goals, (Schaubroeck et al., 2012, p. 1053). Ethical leadership is usually directed by respect of beliefs, values, rights, and dignity of others, (Pless & Maak, 2011, p. 10). It is, therefore, related to concepts like consideration, charisma, fairness, and trust. Ethics is usually concerned with the virtuousness of individuals and their motives, (Thiel et al., 2012, p. 49). The following are how ethical leadership may help oil and gas industry in managing risk:
Transparency involves doing things in the right way and as required by the organization. Responsibility, on the other hand, refers to a situation whereby, employees are held accountable for their actions, (Shapiro & Stefkovich, 2016, p. 98). Ethical leadership enables employees to be motivated to be responsible for conducting their duties in the right manner. The case of Exxon reflects an example of unethical leadership. The captain who was entrusted with operating the ship was fast asleep at the time of the spill, (Ferrel & Fraedrich, 2015, p. 426). This shows how irresponsible the captain was. The third mate who operated the tanker ship did not have a license, hence was not qualified for the job, (Ferrel & Fraedrich, 2015, p. 426). In the case of BP, the emergency responder had died five years before the explosion occurred. These examples show cases of unethical leadership.
Environmental risk refers to the potential or actual adverse effects on living organisms and the environment by resource depletion, emissions, wastes and effluents arising out of the activities conducted by an organization. Proper ethical leadership would ensure that the company adopts sustainable operations to minimize emissions into the atmosphere, (Schaubroeck et al., 2012, p. 1053). The oil and gas companies are faced with the risk of emissions, spills, and leakages, (Finkel & Law, 2011, p. 785). These risks can only be controlled through exhibiting ethical leadership.
Proper detoxification procedures should be taken in place to ensure the emissions are not hazardous to the environment. Leaders should make sure adequate preparedness is respected to ensure emergencies are handled accordingly. The BP explosion that occurred in 2010 could be controlled if the company had prepared adequately for emergencies. In the case of Exxon, if the company concentrated on safety, then it could have acquired enough emergency equipment, which could be used to conduct cleanups, during the spill. However, it was evident that there was lack of preparedness, (Ferrel & Fraedrich, 2015, p. 426). The company also depended on skimmer boats to clean up the oil spills, which broke down frequently.
Safety and quality management
Safety of the employees and the community as a whole should be considered by every company before venturing into any activity. Enterprises should put in place safety measures to control health risks that the employees may be exposed to in the course of their operations, (Crane & Matten, 2016, p. 200). Proper equipment should be installed to control accidents. Organizations should also ensure that its equipment is properly inspected for any faults, (Crane & Matten, 2016, p. 200). Quality of the material used by businesses should be monitored to ensure that they do not expose the workers and the organization generally to any form of risk.
In Exxon's case, if the company could use a double hull in the tanker, then it could have prevented the hull from getting ruptured which resulted into oil spillage. The company also lacked proper communication channels, (Ferrel & Fraedrich, 2015, p. 426). This inhibited the communication between the shore and APSC crew during the spill.
Ethical leadership ensures that companies are fully prepared to handle risks. This can be enhanced through the creation of a risk policy, (Craft, 2013, p. 222). The risk policy statement states the level of risk accepted by the company and the level beyond which the organization should not take a risk, (Craft, 2013, p. 222). Taking risk without proper evaluation is one of the leading causes of accidents. In Exxon and BP's cases, there is an apparent show of unpreparedness for risk. This reflects unethical leadership. If the companies in the oil and gas industry formulate adequate risk policies and put in place proper machinery to handle risk, then it could help in managing their risk exposure.
The activities of oil and gas companies are as socially and politically complex. In the last two decades, some oil and gas companies have made commendable strides in doing their businesses in more sustainable and socially responsible ways. However, most accidents in the oil and gas industries have been caused by unethical leadership. Oil and gas companies should, therefore, embrace ethical leadership to ensure the promotion of a culture of transparency and responsibility, proper environmental risk management and avail adequate safety and quality control measures to ensure they operate responsibly and reduce ethical risks. In the case study, Exxon, BP, and the fracking industry continue to face similar risks, in their attempts to provide adequate energy supply. These risks which include leaks, spills and explosions, reduction of reputation from customers and the community in which they operate, political risks and financial risks can only be managed through embracing ethical leadership.
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