A clear majority of the modern world is powered by oil. Automobiles, heating, machinery, factory production, sea & air travel, and electricity production are all dependent on oil. It should be no surprise that the oil industry is one of the largest in the world.
Among the top ten companies worldwide based on revenue, six are in the oil industry (Laporte). With such vast amounts of widespread investment and reliance, it should be expected that the participants of the oil industry try to minimize the chances of a calamity occurring. However, that is not always the case. The Deepwater Horizon tragedy is a prime example of the disastrous outcomes due to general negligence by members of the oil industry. Deepwater Horizon was an oil rig off the coast of Louisiana in the Gulf of Mexico. In 2010, the Deepwater Horizon oil spill became the largest marine oil spill in history with an estimated discharge of 210 million gallons of oil. Killing eleven and injuring more than 30 people, the tragedy was also the deadliest, not only to humans but also the marine animal population in the area.
The oil rig was owned and operated by Transocean Ltd. and leased to British Petroleum (BP) at the time of the oil spill. The direct and indirect costs to BP were vast. However, many of the costs were tax deductible for BP, and the only cost that was explicitly made non-deductible was the $4.5 billion criminal settlement reached for the loss of life of the eleven-people killed by the explosion (Ramseur 6). BP took advantage of the tax laws in order to minimize their net expenses for damages caused by the disaster. This mindset motivated the sort of behavior that plagued BP for years leading up to the Deepwater Horizon disaster.
When properly managed, the approach of maximizing profits while minimizing costs is the ideal model for corporations. However, when that ideology leads to cutting corners and valuing profits over safety, it becomes bad business practice. In the case of BP, years of negligence and poor decisions led to the Deepwater Horizon explosion and subsequent oil spill. Although there are a multitude of studies available on the impact of organizational culture on organization functioning, there are very few discussions on the impact of organizational culture on organization effectiveness.
Daniel Denison explores the link between culture and effectiveness in Corporate Culture and Organizational Effectiveness. Denison presents a framework for evaluating the work environment and structure of a business. He focuses on four concepts that describe the impact that organizational culture can have on effective performance: the involvement of the organization’s members; adaptability to respond to new circumstances while still retaining its basic character; a strong, clearly defined culture; and a clear mission providing direction and meaning (Denison). A strong and truthful organizational culture is crucial to an organization’s effectiveness in their industry. According to the model, BP was overperforming beyond their capabilities. In an attempt to maximize profits and effective performance, BP overlooked safety and increased the risk of their operations in deep water drilling.
Employees were unable to adapt to new circumstances at the same rate that the work environment was progressing. Consequentially, employees were ill-prepared for the conditions in which they were working and for a catastrophe on such a large scale as the one they would be faced with. Regardless, BP continued their operations in progressively deeper waters throughout the years leading up to the Deepwater Horizon disaster.II.
Leading Up to DisasterBP’s safety issues began long before the construction of the Deepwater Horizon oil rig. As argued by Abrahm Lustgarten in Run to Failure: BP and the Making of the Deepwater Horizon Disaster, the origins of BP’s corporate culture began decades ago with the rise of John Browne as the CEO of BP in 1995. Browne was appointed at a rather difficult time for BP during which the corporation was running low on their lifeline, oil reserves. Although Browne pulled off one of the greatest corporate turnarounds in history and positioned BP at the top of the oil industry, the corporate culture he spawned into the corporation has lingered and spread like a cancer within BP for decades to the present day; a culture that seemingly prioritized limited costs over human life. While oil costs were low and oil sources were reaching peak production, oil companies were scrambling to find new reserves of oil.
However, due to the 1989 Exxon oil spill, environmental efforts were dominating the industry. In response to this, Browne rebranded BP with the slogan “Beyond Petroleum.” However, Lustgarten points out the slogan was only in name and was not actually practiced by the corporation. In order to propel BP back to the top of the oil industry, Browne pushed risky drilling procedures and severely cut costs. Browne cut 1,700 jobs and ordered employees to find $750 million in budget reductions. “Even before he Browne had settled on a plan, one thing was clear. The way out of the trap was through abandoning British Petroleum’s historical affinity for safe and predictable operations and through taking some chances” (Lustgarten).
To maintain all the sudden risky endeavors, BP persuaded inspectors to alter their findings when inspecting BP operated pipelines. This negligence and carelessness had already been deeply engraved into BP’s organizational culture by the time of Browne’s resignation in 2007. Lustgarten points out that in late 2010, a memo was leaked that found 148 sections of a BP pipeline in Alaska were corroded. The memo was downplayed by BP, demonstrating BP is still largely influenced by the careless culture put in place by Browne, even after the Deepwater Horizon disaster.Any organization seeking to grow and succeed must have effective leaders with good judgement to make good decisions for the betterment of the organization. Those decisions must then be acted upon effectively by the organization employees. This defines the culture of a corporation. According to Michael Williams, a worker on the oil rig at the time of the explosion, BP had ordered Transocean to cut corners when constructing the oil rig after BP was running weeks behind schedule on the drill construction.
He also mentions the multiple failures of the rig crew to identity the leak from the warning signs presented to them (CBS News). Poor decisions by BP leadership influenced the conduct of employees on the rig. In the Adaptability Hypothesis of Corporate Culture and Organizational Effectiveness, Denison states:A culture usually consists of the collective behavioral responses that have proven to be adaptive in the past for a particular social organization. When confronted with a new situation, an organization first “tries” the learned collective responses which are already a part of its repertoire. When new situations are unlike old, the capacity to unlearn the old code and create a new one becomes a central part of the adaptation process (Denison).The decisions made by BP leadership created an environment of lacking adaptation. Instead of slowing progress to ensure safety and allow the employees time to adapt to the changing environment and technology, BP proceeded full steam ahead and began drilling in 5,000 feet waters to rack up record-breaking profits.
BP was pushing the technological limits of oil drilling at the time; a good organizational culture would advise extreme caution and an increased focus on safety for such an endeavor. However, BP failed to increase safety standards and focused purely on the pursuit of profits. The Deepwater Horizon incident was not an isolated incident for BP. BP’s organizational culture shows a history of spills and safety lapses. “Until the Deepwater Horizon accident, BP had not been involved in a fatal accident in the Gulf of Mexico.
But between 1996 and 2009, according to the Minerals Management Service, BP-operated platforms spilled a total of about 7,000 barrels of oil — 14 percent of the amount spilled in the Gulf by any company. In that period, BP accounted for 15 percent of the oil production in the Gulf” (Mouawad). BP accounted for nearly a 1:1 ratio of oil spilled and oil produced for their share of oil production in the Gulf. In 2005, a BP refinery in Texas burst and killed 15 workers.
BP acknowledged actively ignoring safety concerns which led to the burst. “BP admitted that its written procedures to ensure its equipment’s safety were inadequate, and that it had failed to inform employees of known fire and explosion risks. The company paid $50 million in criminal fines in connection with that disaster, and acknowledged violating the Clean Air Act” (Thomas). After the incident, BP vowed to address safety shortfalls that caused the blast. However, just the following year a poorly maintained oil pipeline in Alaska operated by the oil giant burst and over 200,000 gallons of oil were spilled. Once again BP vowed to address the issue and prevent future occurrence.
Shortly thereafter, BP was in the spotlight yet again after the Deepwater Horizon explosion and oil spill. “OSHA statistics show BP ran up 760 “egregious, willful” safety violations, while Sunoco and Conoco-Phillips each had eight, Citgo had two and Exxon had one comparable citation” (Thomas). Regardless of the repeated vows to change, BP is still beleaguered with one of the worst safety records of any large oil company, a title BP has obtained from decades of negligence and safety violations. BP faces a systematic safety problem rooted in its organizational culture of purely profit-oriented decision making with disregard for safety and quality assurance. III. The ExplosionThe cause of the Deepwater Horizon explosion was a gradual escalation of multiple failures in the Macondo well in the Gulf of Mexico.
As BP was running tens of millions of dollars over budget and weeks behind schedule, the initial construction of the well in 2001 was troubled by shortcuts. These initial shortcuts contributed largely to the imminent fate of the well. BP designated the failure of eight different safety systems designed to prevent such an occurrence as the cause of the incident. Firstly, the cement at the bottom of the borehole did not create a seal and allowed oil and gas to leak to the surface.
The pipe leading to the surface was also fitted with two valves designed to close in order to prevent oil and gas from leaking to the surface, both valves failed to close. The crew of the oil rig performed pressure tests to assure a seal was created at the bottom of the borehole; the crew misinterpreted the tests and thought the borehole was sealed when in fact it wasn’t. Furthermore, a sudden increase in pressure in the borehole occurred about 50 minutes before the explosion but the crew did not interpret it as a sign of a leak. 8 minutes before the explosion, the crew attempted to close a valve in a device called the blowout preventer after mud and gas began to discharge onto the floor of the oil rig; this valve also failed to close.
The gas detection system on the rig, designed to sound an alarm and automatically close ventilation fans when a gas leak is detected, also failed. Lastly, the blowout preventer had two of its own safety systems in place that would automatically shut the valve whenever contact with the surface was lost; despite guidelines requiring constant check of the batteries, one of the systems had a dead battery, the other a defective switch (Mullins). The combined failure of all these systems allowed gas bubbles at a pressure of 9,000 pounds per square inch, or 612 times the atmospheric pressure, to rise to the surface and ignite in the oil rig’s engine. Tony Hayward, the CEO of BP during the explosion, stated “It is evident that a series of complex events, rather than a single mistake or failure, led to the tragedy.
Multiple parties, including BP, Halliburton and Transocean, were involved” (Hayward). While it may be true and quite unfortunate that there was such a vast failure of safety mechanisms, it was the responsibility of the crew to assure all systems – or even one, as any one of them should have been enough to prevent the explosion – was working correctly. Many of the system failures may be attributed to the hasty initial construction of the rig which consisted of many cut corners. “As the drill was planned, BP chose a cheaper casing seal, which reportedly contributed to the blow-up. Also, the company intentionally cut corners on procedural and safety” (Edersheim). However, the organizational culture of BP is the main culprit for the cut corners and ultimately the disaster.
“…none of the drilling companies in the Gulf had a workable scheme to cope with a massive oil spill… over the decades, drillers gradually moved into deeper waters and sunk wells that involved much greater internal pressures and hazards. The technologies and regulations originally developed for shallow waters were updated in response, but not to a degree commensurate with the growing risks” (Meigs). Unlike other drilling companies in the Gulf however, BP was careless with their efforts in deep water drilling. Instead of practicing caution due to the inability to cope with a massive oil spill, BP hastily proceeded to drill in dangerously deep waters while disregarding the safety of the oil rig.
This sort of behavior had been practiced by BP for decades before the explosion.IV. AftermathThe explosion was followed by 210 million gallons of oil seeping into the Gulf of Mexico that took 87 days to get under control. The spill caused more than a third of federal waters in the gulf to close to fishing due to fears of contamination and left approximately 8,000 – 12,000 people temporarily unemployed. With approximately 1,100 miles of shoreline polluted, few travelers were willing to face the prospect of petroleum-sullied beaches, leaving those dependent on tourism struggling to supplement their incomes (Pallardy). BP provided a clumsy response to the spill, focusing efforts on damage control.
BP’s public response mostly consisted of shifting much of the blame to oil rig owner Transocean or oil rig contractor Halliburton. “Chief executive Tony Hayward attempted to shift the blame for the accident to the US owner of the sunken rig, Transocean. “This was not our accident … This was not our drilling rig … This was Transocean’s rig. Their systems.
Their people. Their equipment.” BP press officers briefing journalists that week repeated the line that “this was not our accident”” (Webb). Furthermore, Hayward commented in an interview, “The Gulf of Mexico is a very big ocean. The amount of volume of oil and dispersant we are putting into it is tiny in relation to the total water volume.” The comments seemed to downplay the entire disaster by saying the environmental effects of oil cleanup efforts are miniscule and can essentially be overlooked. As Elizabeth Edersheim states, “This fiasco has become more about public relations than public’s right to know.
Rather than releasing realistic figures of the volume of oil flowing into the environment, BP knowingly cited a very conservative estimate. They initially put up a video loop instead of live feed, until Rep. Ed Markey of Massachusetts forced a change. Their website excluded information about damages to fish and wildlife” (Ederchein).For BP, profits and public image are often valued more than safety and human life. A direct result of the culture bestowed by Browne, what once served to maximize profits and drive BP to the top of the oil industry is now costing BP more than it is profiting, in terms of both capital and public opinion. Following the Deepwater Horizon disaster, public opinion of BP was dismal.
In addition, BP market capitalization and revenue fell shortly after the oil spill and BP has yet to fully recover. Shortly before the oil spill, BP stock was trading at approximately 62 USD per share. Directly after the spill, in June of 2010, shares rapidly declined to 27 USD per share, an all-time low since 1996. Ever since, BP has failed to restore the level of success present before the oil spill (see figure 1).As of 2015, BP had accumulated a total of $53.
8 billion in pre-tax charges in relation to the spill, and had already paid $14 billion in cleanup costs alone and roughly $40 billion in additional civil and criminal liability fines (Sharkey 704). At the same time, Transocean had agreed to a $211.7 million total settlement, or 0.
4% of BP’s settlement (Wade). In September of 2014, Judge Carl Barbier of the U.S District Court for the Eastern District of Louisiana ruled that “BP acted in with gross negligence and bore the majority of the blame for the 2010 oil disaster. The ruling allocated 67 percent of the blame to BP, 30 percent to Transocean and 3 percent to Halliburton the contractor of the oil rig” (U.S. Courts MDL 2179 p. 136). Halliburton had agreed to pay $1.
1 billion in settlements. Following the corporate culture created by previous CEO John Browne, BP sought to cut costs to the fullest even after the oil spill regardless of being the main wrongdoer in the incident. To do so, BP took advantage of the tax laws in place and claimed a large portion of the expenses for the oil spill as tax-deductible.
“Two years ago, BP claimed $10 billion in tax savings by writing off $37.2 billion put aside for expenses related to the Gulf oil spill disaster. To put this amount in perspective, BP’s $10 billion tax windfall was half the size of the $20 billion restitution fund that the company established. Taxpayers were effectively forced to shoulder the other half” (Baxandall & Pierannunzi 6).V.
ConclusionDecades ago, the poisonous roots of BP’s modern day organizational culture were planted. Under the leadership of John Browne, British Petroleum began to drastically cut costs and set their sights on achieving maximal profits under any circumstance. Although in the short term it led to drastic growth and led BP out of a challenging era in its history, it was unsustainable in the long term. BP sought to perform to a degree greater than they were capable of. Simultaneously, safety standards were also disregarded and care for human life was minimal. Browne had brewed a recipe for disaster for BP.
British Petroleum was warned by inspectors and employees alike that their growth was unsustainable and would spiral out of control if left unchecked. Unfortunately, executives did not listen and even went so far as to lay off employees that dared to speak up under the Browne administration. Much like their pipelines, BP was contaminated with unchecked imperfections. The full manifestation of BP’s unsustainable infrastructure became evident from the Deepwater Horizon explosion and oil spill. However, even after a disaster as catastrophic as Deepwater Horizon, it seems unlikely for BP to reform their corporate culture.
If BP continues along the same path, it is only a matter of time until another tragedy occurs.
