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CSR Congruence

The disaster in the Gulf of Mexico caused by the rupture of one of British Petroleum's off-shore oil rigs has been front page news for some time now. The scope of the disaster is such that it is expected to surpass the Exxon Valdez disaster in Alaska in terms of the quantity of oil spilled. Hundreds of thousands of barrels of oil have been spewed into the gulf as a result of the rupture of their well with much more oil threatening to follow. The current attempt to cap the spillage by sinking a dome over top of the ruptured well has met with challenges in part because they are working at a depth of 1500 metres and must position the dome with robots and remote cameras. They have also been challenged by a build up of gases in the dome which prevent the siphoning off of the oil

The explosion that ripped the system of valves and shutoffs from the head of the well was responsible for the deaths of 11 of the workers on the platform at the time of the explosion. Things have gone down-hill for BP since then. They have been criticized for the lack of immediate response to the disaster. BP claims that the owner of the drilling rig should bear some of the responsibility - BP rents the platform from a company specializing in providing these platforms to companies like BP who use them to drill for oil. They also claim that preventative action was hindered by their attempts to rescue the 11 workers. An attempt was made to discover the whereabouts of the 11 but they were never found.

The human tragedy stands at 11 deaths but the full affect the spilled oil is having on the environment has not been felt yet. The oil that is gushing from the well is heading towards the mouth of the Mississippi River where it will undoubtedly kill the marine wildlife native to that area. The area affected by the spill is a commercial fishing area for crab, shrimp, and oysters. Fleets of fishing boats in the Louisiana coastal area have already been idled by the spill and the affect of the spill on the shell fish is unknown at this point.

This is not the first time that BP has found itself in the news, being portrayed in an unfavourable light. In 2001 BP paid a $10M USD fine for violation of clean air laws for pollution at 8 of its refineries. BP pledged to spend $500M USD on upgrades to its pollution control methods. In 2005 an explosion at one of its Texas refineries killed 15 people. BP was fined $87M USD by the U.S. Occupational Safety and Health Administration, the largest fine of its kind up to that time. In 2006 their Prudhoe Bay operations were found to have leaked more than 1 million litres of crude oil due to corroded pipelines. The government forced BP to replace 26 km of its pipelines to ensure that there would be no further leaks.

BP launched a massive CSR (Corporate Social Responsibility)campaign in 2000, spending over $200M USD in an attempt to rebrand itself as a socially responsible energy producer. They marked the rebranding with a new tagline: Beyond Petroleum. They made efforts to cut their CO2 emissions to back up their CSR public relationships efforts and by 2002 they had succeeded in reducing emissions to 10% below 1990 levels. This accomplishment actually exceeded goals set forth by the Kyoto Protocol. They also invested in alternate energy sources and became the 3rd largest maker of solar panels in the world.

There seems to be a massive gap between the talk and the walk at BP. While their achievements in the area of CO2 reduction and alternate energy development should not be discounted, their track record with drilling safety counter-balances these efforts and is giving BP a black eye. Oil and gas exploration is a risky business, but if you would like to be seen as a "greener", more socially responsible energy company than your competition, perhaps you should be prepared to take more care mitigating those risks than the competition. Not only does BP seem to be more aggressive in the risks they take, they also seem to be extremely unfortunate in terms of the results. Their employees especially seem to be at risk when BP tries to cut corners with safety. Their record setting fine in Texas was not for the accidental explosion but for safety measures that they had violated. It is still not clear what caused the Gulf accident but we can speculate that there was more than one cause and that one of the causes was a failure of the equipment that should have cut off the oil after the well exploded.

The impression one gets from looking at the record of the company is of a Doctor Jekyll and Mister Hyde. One arm of the company is focused on making profits from their oil and gas exploration endeavours, whatever the costs while the other is focused on green initiatives such as cutting their CO2 emissions and investing in alternate energy sources. They appear to be successful in both areas, if you overlook their accident record for the moment. Bringing the two sides together though, seems to be a challenge they aren't up to. Their investors don't know what to make of their efforts either. Their shares have not gained since 2000 while their competitions share prices have soared with the increases in oil prices.

When a speaker gives out conflicting messages - a verbal message saying one thing but body language delivering a different message, we say there is no "congruence". This seems to be the case with BP. Their CSR efforts are delivering one message but their safety track record is delivering another. One almost gets the impression that CSR has no role to play in the oil and gas exploration projects the company undertakes. If BP wants to recover from this PR nightmare, they need to establish congruence between their CSR message and their projects. Each project needs to establish its own CSR goals and objectives and these need to be prioritized against the monetary goals and objectives of the project. Risks to these goals and objectives should be mitigated with vigour equal to the mitigation strategies used for risks to profit related goals and objectives. Establishing congruence between their CSR policies and their projects may reduce the number and type of projects they undertake, but should increase their credibility with the societies they do business in and eventually with their share holders.

BP may also want to take a page from the Risk Management playbook of the financial industry. This may sound strange in light of the recent debacle but the financial and insurance industries are proponents of Enterprise Risk Management (ERM) which places responsibility for managing risk at both the board and management levels. The board is responsible for defining the risk "appetite" of the corporation which in turn gives direction to management in terms of how to manage risk. Actually, the Committee of Steering Organizations (COSO) makes this definition a dual responsibility: the board and management must work together to arrive at a definition. It seems to me that taking a similarly holistic view of CSR and risk might benefit BP. Identifying CSR goals and objectives with each project and then defining the BP appetite for risks to those goals and objectives would make their approach more congruent.