Restoring legitimacy in order to remain sustainable- BP CASE

Presented by Yulhendri Saputra & Marcel Bernadi

Introduction

IntroductionPurpose of the paper:While sustainability from a medium to long term perspective has been the focus of the majority of research this paper focuses on steps taken by the BP oilCompany, when facing the worst environmental disaster in history, to restore their legitimacy.

Findings of paper: The analysis found that non-financial disclosures together with image repair discourse strategies were used by BP, to repair organizational legitimacy.

Practical Implications: With renewed emphasis on the importance of sustainability to thebusiness environment, this paper contributes to an understanding of how organizations use sustainability reports to restore legitimacy

Originality value: Complimenting Hearit's strategy with semiotics, this paper adds andextends the literature by studying the use of image repair discourse and semiotics in theannual and sustainability reports

Introduction of Deepwater horizon - USDeepwater Horizon was an ultra-deepwater, dynamically position-ed, semi-submersibel offshore oil drilling rig own by Transocean. Built in 2001 in South Korea by Hyundai Heavy Industries, the rig was commissioned by R&B Falcon, which later became part of Transocean registered in Majuro, Marshall Island, and leased to BP from 2001 until Sept 2013. Deepwater Horizon was built for R&B Falcon (which later became part of Transocean). Construction started in December 1998, the rig was delivered on 23 Feb 2001 the rig was registered in the Republic of Panama

Introduction of IncidentOn 20 April 2010 an explosion on Deepwater Horizon, off the Gulf of Mexico sank the deep water oil rig and killed 11 workers. The Deepwater Horizon spill was not the first oil spill in the gulf, but what made the Deep Water Horizon disaster different, was that for the first time in history the public could view live streaming of an environmental disaster on television.

Initially, after the explosion Hayward, CEO of BP at the time of the disaster estimated that the oil spill would have very little impact. Estimates of the quantities of the oil spill were not clear and varied greatly,what soon became clear, was that the parties involved quickly blamed each other for the spill, which had resulted in the widespread pollution

Introduction of Incident (cont)• The drilling contractor company, Halliburton cemented the well, after

it was decided to temporary abandon the well, despite it being found to be commercially viable.

• The cement was supposed to stop any oil and gas from bursting into the well pipe. Owing to numerous errors the oil and gas vented onto the rig directly, causing the heating ventilator and oil air conditioning systems to carry a gas rich mixture into the engine room and 2 huge explosions to occur.

• The explosion not only injured 17 and killed 11 workers, but also led to the worst offshore oil spill in the United States (US) history (De Gravelles & de Gravelles, 2011). Estimates of the oil spill varied greatly ranging from an initial conservative 1000 barrels a day to anything between 35 000 to 60 000 barrels per day (King, 2010) with at the end of 86 days, an estimated 4.9 million barrels of oil leaking in to the Gulf of Mexico destroying over 400 species of wild life and hundreds of meters of fragile coastline. (Guarino, 2010).

Introduction of Incident (cont)• The three companies, BP, Transocean and Halliburton blamed each

other for the disaster and Transocean also blamed Cameron, a manufacturer of valves (Milbank, 2010). Others blamed the Departments‟ Minerals Management Services for rubberstamping BP‟s drilling projects without ensuring that BP has a proper response plan in place in case of an oil spill (Eilperin, 2010). According to the Washington Post, (2010).

Alternatives Course of Actions

A theory of organisational legitimacyA number of dimensions to legitimacy have been identified (Shoemaker 1982; Yoon,2005). These include legality, evaluation, viability, stability and credibility. Yoon (2005, p. 765) goes so far as to suggest that “legitimacy may be a reflection of whether an organization has the competence and resources necessary for achieving its goals”

•If institutional legitimacy matters at the macro level of analysis, actionable legitimacy matters at the micro level of analysis. •Actionable legitimacy is achieved when an action is perceived by publics as being undertaken within the institution's realm of authority and thus inspires public confidence in the institution. Boyd (2000)

The case of BP• According to the 2009 Annual report BP

operates at the forefront of the energy industry. BP mentions that it operates from deep beneath the ocean to complex refining environment. In both its 2009 Annual review and its 2010 Summary review BP highlights it capabilities and strength but also refersto the risk of operating in areas which provide severe physical, technical, intellectual and geopolitical challenges.

• Hayward (2009) said that “We continue to show our ability totake on and manage risk, doing the difficult things that others either can door choose not to do.

Result and discussion of result• The question then was not was BP

having a legitimacy crises, but what type of legitimacy crises. This section examines what type of legitimacy BP faced and how the legitimacy challenge BP faced was repaired through the use of image repair discourse supplemented by semiotics.

• Discussions and media remarks it was evident that the messages in the public arena about BP were not favorable. From the 2010 Summary it is evident that BP understands the role that legitimacy plays in its operations.

Result and discussion of result (Cont)• Although Boyd says actional

legitimacy is more common, and that institutional legitimacy only occurs when organizations have to demonstrate legitimacy of their entire enterprise.

• In contrast to the group photo of the board of directors in the 2010 Annual report the 2009 Annual report contains individual photos of both the Chairman Svanberg and depicted CEO Hayward

Result and discussion of result (Cont)The resignation of Tony Hayward can be classified as a matter of institutional legitimacy, but rather that of actionable legitimacy. With the chairman's words in the 2010 Annual reports he attempts to demonstrate the legitimacy of his action of replacing Tony Hayward.

Reading the annual reports it is clear that in the matter of the edited images, it became a matter of actionable legitimacy

Establishing from the annual exports that BP faced both actionable and institutional legitimacy challenges, it is clear that action had to be taken to restore legitimacy

Tony hayward

Result and discussion of result (Cont)Summary review (2010) the Chairman says “the accident should never have happened.We are choked and saddened that it did.” yet does not admit BP‟s mistakes.

“..Was a very, very low probability event, by BP and the entire industry…?” however Dudley acknowledged BP„s role in this event by saying “As a responsible party,…we knew we would face wide ranging claims and potential fines” (Annual report 2010). But again does not admit BP‟s mistakes.

Sustainability Review (2010) BP made extensive use of images, placing 57 pictures dealing with the disaster. Of the total pictures only 10 depicted no humans and the majority of the pictures were of 2 or more individuals looking either concerned or caring.

Result and discussion of result (Cont)In resignation of Tony Hayward The board was saddened to lose someone whose long- term contribution to BP was so widely admired. These words seem to indicate no form of apologetic behavior either in the form of apology or apologia, it rather appears that BP is defending its former CEO and hence its action.

Flicker account (2010) providing informationon the altered images, clearly tries to lay blame for this on BPs contract photographers and the terms of use of any of the images state “that the images are provided in good faith and that amongst others these images will not be used in connection with any purpose that is prejudicial to BP… “This signals that BP did not take an apologetic view to repairing its image regarding the altered image matter.

Key Success Factor

The factor is to establish whether BP used institutional or actionable legitimacy repair strategies in response to the Deepwater Horizon incident. For an organization to have institutional legitimacy, its stakeholders must perceive it to be responsible and act in accordance with societal norms.

These conditions not only made the public question BP‟s actions, but also appeared to threaten BP‟s sustainability. This paper draws on the theories of organizational legitimacy and image repair discourse.

Reference

Vida L Botes and Grant Samkin University of Waikato, Hamilton, New Zealand

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