JEREMY GUIOTH SUP 5 2C ISM Ethics,

Business Paris, Oct 22 - Oct 23 2010 Simone de Colle

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OPTION B Code Comparison: Take two Companies in the same industry sector (one must be French) and analyze their Codes of Ethics applying the framework presented in class. Discuss the quality of these codes in a comparative examination

Summary
I. DILEMMA PARADIGMS..........................................................................................3 ENVIRONMENTAL AND SAFETY............................................................................3 SUSTAINABLE DEVELOPMENT..............................................................................3 TRANSPARENCY AND HUMAN RIGHTS.................................................................4 GOVERNMENT AND COMMUNITY.........................................................................5 II. Ethical codes and action with the stakeholders..................................................5 FINANCIAL: .........................................................................................................7 III. Conclusion and instruction..............................................................................10 Bibliography........................................................................................................ 11 APPENDIX............................................................................................................12

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I. DILEMMA PARADIGMS
How an industry as polluting and energy consuming it can adopt and achieve objective ethics? Why the oil industry focus does many ethical issues?

ENVIRONMENTAL AND SAFETY

The burning of oil as fuel produces greenhouse gas emissions and other air pollutants such as nitrogen oxides, sulfur dioxide, volatile organic compounds and heavy metals. Since oil is a nonrenewable natural resource, the industry faces an inevitable depletion of production. The statistics of BP Review of World Energy 2007 has listed the ratios of reserves to production ratio for proven resources worldwide. The survey placed the expected life of proved reserves in the Middle East to 79.5 years, year to 41.2 years in Latin America and North America just 12 years. The Hubbert peak theory, which introduced the concept of peak oil, questioning the sustainability of oil production. It suggests that after a peak in oil production, it will follow a period of depletion. According to IBISWorld research, biofuels (mainly ethanol but also biodiesel) can partially replace oil. But production levels are low, and these fuels do not fully replace oil production. All this factors, explain why this industry is initially subjected to major ethical concerns, such as environmental preservation and sustainable development. Indeed, oil companies are heavily monitored by NGOs such as Greenpeace who often complain of the mess the oil industry, some investments to reduce emissions of greenhouse gases, the conditions for extraction of oil and although the transport of raw materials to refining oil terminals. Many examples in recent years have justified the establishment of political ethics as the sinking of the Erika tanker, the explosion of the AZF factory in Toulouse or the recent failure of the offshore platform in the Gulf of Mexico and consequences for coastal Louisiana. The first ethical dilemma that companies like BP and Total are facing is how best environmental and safety without compromising the competitiveness of their businesses, both vis--vis the competition, and financial markets.

Short-term
SUSTAINABLE DEVELOPMENT

vs.

Long-term

As we all know from many decades now that fossil fuels are the main responsible for global warming and they are not eternal. The question
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posed for years is whether it will be the future of oil and which planet we will leave for our future generations. Oil companies have a big responsibility and they have to diversify their energy resources by investing in natural gas and other renewable energies such as solar panels and their first step in nuclear energy. The second dilemma business for Total and BP is how ally a political of sustainable development with an industry which generate important huge benefits. Indeed investing in new energy need time and money whereas extraction and prospection of oil is a safety investment and brings a lot of money quickly. How to understand to the financial and stock market with their short term vision, that these future activities which are currently lower profitability is the future of their company.

Short-term vs. Long-term

TRANSPARENCY AND HUMAN RIGHTS
Other problems are also related to the oil industry with numerous history of corruption like the old oil company Elf-Aquitaine, around its former leader Mr Sirven, who had an international arrest warrant filed against him and sought by Interpol. Ethical concerns are also at the heart of the ethics of oil companies, because oil companies have an international size which leads them to extract oil in countries usually regarded as dictatorships like Burma or Sudan. Often companies are condemned by international bodies and organizations as financial support to dictatorships, military juntas and other authoritarian state; we reproach that oil company finance directly or indirectly the autocratic system. They are also suspected to exert great pressure and have an important influence in western governments. Indeed they exert a significant lobbying on political institutions, for example when it comes to pass legislation related to their industry or with ecological significance as the Kyoto Conference not ratifying by the US. The interrelation of many Texas oil companies and the Bush family are particularly challenged in particular the correlation between the two conflicts in the Persian Gulf during the presence in power of George W. Bush Senior and Junior. The third dilemmas for oil companies nowadays are international and geopolitical. With the arrival of new competition particularly the Chinese companies which are aggressive in this market, should they simply respect the human rights and the transparency rules, or must they use the same methods as their Chinese competitor. We all know that oil resources are not generally present in democratic country. Strictly follow an ethical policy might be disadvantages for bids in markets such as Sudan, Iran or Myanmar.

Justice vs. Mercy

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GOVERNMENT AND COMMUNITY

The many benefits reaped by oil companies are the subject of much envy. Indeed, Western governments seeking funding sources, reflect increasingly taxing the profits of oil companies, under pressure from citizens. Dilemma: If states like France or the United Kingdom would increase their tax on the profits made by Total and BP, these companies should they leave their homeland and settle in tax havens such as Luxembourg or Switzerland? Indeed in recent years we have seen that the ratio of force changed significantly between the oil states and oil companies to recoup a little more after their windfall oil reserves, the states now require to be the majority in all oil projects on their territory. Countries like Russia and Venezuela are a perfect example of recovery of oil resources on their territory.

Individual vs. Community

II.

Ethical codes stakeholders

and

action

with

the

Each company BP and Total have an ethical codes, they engage them to respect those codes. Under these ethical codes many commitments are made to the various stakeholders, often related to bad past behavior or current expectations.

Environmentalist and NGOS:

The non-governmental organizations play an increasingly important role with oil companies in recent years. They represent a power-con against the greatness and power of these multinationals. It appeared a correlation between their emergence and the declining influence of the Governments and by consequence their influence in their decision process. The numbers of scandals these recent years, support to states that do not respect human rights, the relationship between tumultuous political and oil company has greatly increased the weight and credibility of its NOGS. These NOGs are increasingly mediated through their particular action against oil companies. They pushed an old cargo tanker registered in Panama along the French coast, and recently they protested on an oil
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platform in Greenland1, against the oil ambitions in this fragile ecologically environment. They therefore have an influence over the behavior of today and future ethical policies of companies in the sector. They also have a great influence on the brand image of companies with communities and consumers. TOTAL: The Company Total realized she cannot set a code of ethics effective if it is not recognized by NGOs. Thats why it decided to ask the various representatives of the largest NGOs in to know their expectations in different domains: Oil and Gas, Climate Impacts, Alternative Energies, Social Responsibility, Safety, Ethics, Environment, Local Development, Myanmar and Oil Sands. Total also agree to set targets in agreements with NGOs and the control performance is also observed and evaluated by independent institutions. Total adopts a proactive attitude by settings goals and procedures; it also reached agreements with NOGs. These different actions prove that Total set a god ethics code. Total has also a stakeholder approach every stakeholders involves for the establishment of it code of ethics; it also set social contract and use the indicators of evaluation from an extern institutions. BP: The Company BP contrary to the example of Total decided to set its own goals and is committed to always comply with environmental regulations in countries where it operates. We know that many countries have little or no environmental regulations as its the case in Nigeria where BP operates, which can lead to major risks. BP decides to adopt a preventing attitude and a follow the law mentality which means it is taking the wrong way of the establishment of a code of ethics.

GOVERNMENT:
Governments are the former owners of its oil companies, so there is always a relationship between the management of oil companies and governments of countries of origin. But with the privatization and the size attained by these oil companies, it is increasingly difficult for states to have any influence on them. The balance of power has changed in recent years:
1

http://www.sikunews.com/Commentary/Open-letter-to-Greenpeace-International-andGreenpeace-Denmark-7923

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- The non-oil producing states: In response to demand increasingly high energy, these states need to have strong energy companies to secure their supply. These states shall ensure to have strong national companies to retain significant influence in the world rankings, so they put everything in their power so that it retains their influence, and this inevitably has a negative impact on ethics. E.g. the French state does not insist on the redistribution of profits earned by TOTAL, for fear of disadvantaged national company at the expense of its competitors. In the same vein, legal and financial sanctions are sometimes less stringent. - States oil producer: Petroleum resources are often located in countries where democracy is not present. Access to the resources requires the agreement of States that grant concessions owners over several years. Those agreements are often concluded by irregularities in the bidding, often bribes and fraudulent transactions occurred. Furthermore the locations of these resources are often where people have lived for centuries. There is often forces expropriation and damage to the landscape. E.g.: Total and BP are both present in numbers of country where the human rights are not respected, like Myanmar for Total and Nigeria for BP TOTAL: In its code of conduct, Total has decided to play the transparency by referring directly taboo subjects such as Myanmar. It indicates the proportion that this country represents on the total turnover of the company (0,6%), to prove that its presence in Myanmar is not strategic. Total are also show shown commitment to this neighboring village around the pipeline, in collaboration with NGOs Helen Keller International. When there are absences of regulation government imposing aggregate limits of protection air, soil and water, Total fix with local governments and again local NGOs limits when they signed the contract of exploitation. BP: In addition of the rights and local rules, BP has established internal rules that must be respected by all its employees. In it ethics code, BP define a lot of basic rules that must be followed. We can with this phrase For further information on bribery laws, contact BP legal., that BP doesnt act with transparency. This proves that BP reserves the right to interpret its commitments in its own way. Without the commitment of an independent external party, we can not verify the value of the code of ethics of the company. FINANCIAL: Nowadays, we discover new oil and gas fields, but these are often located in deep water or in extreme regions. The projects costs are becoming
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higher and more risky because of political instability, fluctuation of oil barrel price and environmental risk. Since the collapse of Enron, the rules of transparency in accountability are stricter, it is also important for financial institutions to know exactly the accounting data before lending money for projects worth billions of Euros. Moreover we can notice that in the capital of oil companies we find most often banks, who consider these investments as safe, but they are also attracted by the generous revenues from dividends distributed each year by oil companies. Banks play an important role in the management in these companies and necessarily influence their strategy. In the Appendix 1 we can see the composition of the shareholders of Total and BP. We have confirmed that banks are strongly present, the consequences are inevitably impact on company strategies and influence on management. Necessarily take a short-term fiscal policy focused on increasing revenue and reducing operating costs will be preferred. TOTAL: In Total shareholding we can see that the largest shareholder is simply the company itself. With a percentage of 8% and if we add 4% of employees, Total can implement a policy on the long-term and not be under pressure from the financial markets. Once decried as a policy to stratify its shareholders, the repurchase program of shares, now appears as an effective tool to secure the companys strategy but also its direction. Total also audited accounts from two separate audit firms KMPG Audit and Ernst & Young Audit, ones of the most recognize and serious company in this sector. BP: BP instead of Total, has a scattered and highly capital whose main shareholders are banks or financial institutions. This does not promote a political and a long-term strategy but rather a short-term expectations with quarterly results expectations, which pressurizes the ongoing management team.

EMPLOYEES
The uses of different companies have an important role but differ from one company to another. Indeed, Total employees has 4%2 stake in their
2

http://www.total.com/en/individual-shareholders/group/shareholding-structure940640.html

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business allowing them to weigh in the distribution of profits made by the company. Indeed, this windfall is very important and it is important to know how it will be distributed. For employees it is important to reward their participation in the results, with bonuses and profit sharing. It is also important for their jobs and the future of their company that profits are reinvested in the production tool and innovation. BP: Indeed while oil companies reap important benefits that does not stop them from firing employees or to have recourse to the restructuring plan. Before the disaster this summer, BP had already provided a plan to cut 5,000 jobs, a survey is also in court to determine whether downsizing within the company was not at the expense of security.

COMMUNITY
The challenge for communities is most prevalent in developed countries and oil producer as Burma, Nigeria and other countries with low human development index. This applies in particular issues when constructing oil pipelines, gas pipelines or else the operation of a new oil field. Communities are sometimes driven from their habitat to make way for the realization of a project. We watched some to abuse with forced expropriation, compensation or unacceptable pollution of lakes or river because of non-compliance with safety standards. TOTAL: Often their rights are violated but it is difficult in dictatorships to rebel against a military junta or authoritarian. However there are other solutions as did the Burmese migrants who litigated the TOTAL group 3. The story begins in 1992 at Yadana, a point lost in the Andaman Sea, off the Burmese coast. At bottom, beneath the sand, slumber 140 billion cubic meters of natural gas. Total won the mining contract. Through more than a billion dollars. Six years later, the first molecules borrow the pipes that lead them to neighboring Thailand. In 2002, a complaint is lodged in Brussels. A Burmese refugee attack Thierry Desmarest, CEO of French Oil Company, and Herve Madeo, leader of the Burmese subsidiary of the company. Victim of violence by military junta in Rangoon, Aung Maw Zin believes that TOTAL has provided moral support, financial and logistical support to Burmese battalions, including officials, he said, acts of forced labor during the construction of the pipeline in the south, is the pipeline to
3

http://www.unhcr.org/refworld/country,,BEL_CDC,,MMR,,42ca8aa94,0.html

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channel gas from its underwater home to the Thai market. The court case lasted 10 years, but the Aung Maw Zin appeal was reject, however the case has left its mark on the brand of Total and consumers.

III. Conclusion and instruction

BP and Total communicate a lot in the media to demonstrate their respect for ethics and the importance of their company for the future of the planet. It was therefore of interest for me to do a research work on the ethical nature of their policy if they meet the commitments made in their charter and what is their solution to the energy of tomorrow. I chose these two companies because to my knowledge, these are the two oil companies which created the two biggest environmental scandals in the world with one hand the Erika disaster for Total and the platform Louisiana oil for BP. I am looking for work why companies as powerful as the latter are arrived to such tragedies. On one hand I wanted to know if Total had engaged the teaching of past disappointments and the other side with BP where I wanted to know how the company had come to create one of the greatest tragedies that our planet green is known. Though education I received in the course of business ethics, I could easily identify the reason which leads the ecological tragedy of BP and lessons of the past for Total, which is nowadays the model of business ethics in the oil industry. In just summarizing the ethical codes of both companies, we can easily understand which are the differences between good and bad policy:

TOTAL
Establishing indicators Let the NGOs expectations Publications results of performance fix their external -

BP
Arrogant attitude from management which fix own expectations BP its

Forbidden of stakeholders in the Ethic code, as security which can be a reason of the BP Louisiana oil spill A list of prevention of how prevented illegal risk and ethical risk
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Performance supervised by international organizations recognized by NGOs : Dow Jones Sustainly Indexes; ASPI;

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FTSE 4 Good, Disclosure Project Transparency

Carbon

No performance indicators, BP can interpreted its own ethics codes Lack of credibility because there are no external organization which supervise BP performance In all the BPs ethic code, we have a list of DOs and DONOTs Opacity of the information

Stakeholder Approach Social Contract

Numbers example of ethical actions and leadership, as actions with burans village Moral imagination and moral thinking with a lot illustrations why Total and its employees have to take some responsibilities

We notice easily through this table that in the majority Total respect principles of good ethical conduct. Its ethical code is a success because it pushes the company into action and achieves results. All stakeholders are included in this code and are heavily involved in achieving it. The various agencies being able to fairly assess a company like Total are also present and are the ones who publish the results in the annual report of the company; thanks to all those measure Total has a policy more transparent. Total has used his many experiences past, to learn and implement. We can also notice that BP had an arrogant policy, which made predictable a tragedy like it happened this summer. BP should use the example of Total to rebuild its ethics image in the future.

Bibliography
http://www.transnationale.org/companies/total.php http://www.transnationale.org/companies/bpamoco.php Page 11 sur 14

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http://www.total.com/MEDIAS/MEDIAS_INFOS/3356/EN/Total-2009-csr-va-v2.pdf http://www.total.com/MEDIAS/MEDIAS_INFOS/3315/EN/Total-2009perspectives.pdf http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/set_branch/S TAGING/common_assets/downloads/pdf/BP_Annual_Review_2009.pdf http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downl oads/C/coc_en_full_document.pdf http://www.greenpeace.org/international/ http://business-ethics.com/ http://trade.gov/goodgovernance/adobe/bem_manual.pdf

APPENDIX
TOTAL SHAREHOLDERS

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BP SHAREHOLDERS

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