In this essay, we will look at the ‘problem’ of corporate environmental management on a global scale. This issue has garnered the attention of academics and management consultants alike, and it is part and parcel of the public debate over globalisation. We are going to look at an instance of corporate failure of British Petroleum public limited company (BP PLC) and the world known Texas City Explosion of 2005.
BP PLC is a holding company consisting of three operating segments: 1) oil and natural gas exploration and field development and production, transportation and processing of natural gas; 2) oil supply, trading and refining; 3) marketing and trading of natural gas, natural gas liquids, liquefied natural gas, its shipping and regasification activities, low-carbon power development, which include solar and wholesale marketing and trading (alternative energy).
BP PLC operates globally having its customers and business activities in more than 100 countries including European states, Russia, Australasia, the United States, Canada, Africa, South America, and Asia. It has exploration and production interests in 26 countries of the world.
The Texas City Refinery is considered to be BP’s largest and the most complex oil refinery, which produced up to eleven million gallons of gasoline a day including chemical feed stocks, jet and diesel fuels. The refinery has 30 process units, and employs about 1,800 of permanent staff. The refinery experienced two fatal safety incidents in 2004. Texas City Explosion began in March 23, 2005 following by an explosion, a temporary outage and fire, which killed fifteen and harmed over 170 persons.
The beginning of the exposure is characterized by a cloud of hydrocarbon that was released from a fractionating column, later it ignited. The fatalities of that accident occurred in temporary trailers. Those trailers were used by contract workers, many of which were either injured or killed.
Talking about financial impact of this case, occupational Safety and Health Administration (OSHA) has announced the fines of more than $21 million in 2005. As of the 2006 second quarter, BP has set aside $1.2 billion in compensation and has reached settlements with many of the injured and bereaved.
BP also entered into a settlement with the U.S. Occupational Safety and Health Administration to resolve alleged violations of OSHA safety regulations. Texas City is BP’s largest and highest-complexity refinery, and its continued downtime should negatively affect future segment earnings; despite the robust refining, environment management estimates the facility that is currently only running at break-even rates.
The company was expected to invest $1 billion to improve and maintain the site during the next five years. BP restarted the refinery in March 2006. What is interesting, full “economic impact” of the Texas City refinery was not anticipated before 2007.
As we see, this British multinational oil and gas company has experienced such a global problem, which affected many business stakeholders and lives of ordinary people. There were many debates on the management of subsidiaries according to a mix of internal standards, the standards of their domiciled headquarters, and the operative standards in the jurisdictions in which they operate.
In this case, we do not talk only about getting the “stake” for profit maximization, although it remains very controversial question. When the business problem requires dealing with global environmental problems, finding the solution becomes even more complicated as it usually affects various stakeholders and, as in this case, subsidiaries.