Strategic Management in British Petroleum
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STRATEGIC MANAGEMENT IN BRITISH PETROLEUM
TABLE OF CONTENTS
The advent of capitalism and the emergence of the corporation triggered higher level of commercial affluence and higher heights of business success. This improved levels of affluence and success similarly established opportunities for abuse and unethical behaviour on the part of the corporations as well as their individual leaders. This paradox of success and abuse gave birth of an entirely new system of managing and controlling the organisation which has been deemed as a necessary component to balance out these two opposing realities in modern business. This component is widely known as corporate governance. This paper will examine the theories surrounding the said concept and relate it to real world applications. Specifically, the discussions will involve theoretical and practical analysis of the existing works on corporate governance and the recent developments in its application in organisations. Moreover, these initial discussions will similarly be paralleled to the case of British Petroleum, UK’s leading corporation in distributing oil products in its territory. Along with the description of the respondent company’s corporate governance, the paper will also analyse its implementation by addressing certain areas and linking it to corporate governance literature. The main reference of this paper will come from the website of British Petroleum, academic journals, and scholarly articles that address issues of corporate governance relevant to this paper.
Before going to the discussion of the practical implications of corporate governance in an organisation, the theoretical foundations of the said concept should be established first. This part of the study will serve as the review of the existing literature on corporate governance, its basic principles and the consequent improvements as it has been subjected to numerous states and nations all over the world.
Corporate governance is an amalgamation of several principles on which an organisation should adhere. After reviewing several works on the subject, the researcher has established that there are at least five major principles that corporations should take into consideration. The first principle is the primacy of the shareholder. Basically, this is the general assumption in corporations given that it is the shareholders that provide the oil that operates the organisation. To some degree, equal treatment is regarded in corporations as these shareholders don’t have that power to make company-changing executive decisions. These actions are left in the hands of the board of directors. (2002) This equitable treatment between the directors and the shareholders is a necessary element in the survival or even the success of the corporation.
Another principle that corporations should consider in their corporate governance initiative is the regard on the welfare of stakeholders. These are the institutions that are directly and indirectly affected by the operations of the corporation. (2007) Essentially, this is collectively noted in organisational studies as the corporate social responsibility of the company. Recent studies have indicated that the regard of the company on their social responsibilities has become one of the determinants of company success and positive consumer behaviour ( 2006).
The effectiveness of the board of directors is also an element that should be considered in the context of corporate governance. As stated in the earlier part of this discussion, the board has the power to create and implement permanent changes in the company. This implies that they require the necessary theoretical and technical skills in making sound and valid decisions as representatives of the shareholders of the company. (1992) In addition, they similarly have to adhere to the laws of the state pertaining to their fiduciary duties to the shareholders. This means that the board should always find ways to make decisions that will further the welfare of the corporation as a whole, the shareholders and board of directors alike.
In relation to the duties of the board of directors, the corporation has to take into consideration the implementation of ethical behaviour with regards to trading and with regards to their operations. In countries with high levels of trading and high corporate presence, strict regulations on maintaining the ethical standards are implemented. Countries like Hong Kong have established a body that looks over the conduct of corporations with regards to their trading practices. (1990)
With reference to the required ethical behaviour demanded by the needs of corporate governance, the need for transparency is also required of the corporations. Normally, corporations are listed in government organisations like securities and exchange which requires them to provide documentation of their financial standing and the leadership of their board. (1990) This is also to serve as information for their investors and shareholders. Moreover, corporations are now using other means of dissemination to provide these types of information and practice transparency. The most frequently used medium is the company website where a link that directly addresses the information needs of the investors is provided. Monthly financial reports and annual corporation reports are accessible for the public to view or download.
Throughout the years, the theoretical regard on corporate governance has evolved. Especially since the implementation of such principles discussed above vary from state to state. For instance, the study of (2000) indicated that there are different models of corporate governance held in countries like the United States, Japan, and Germany. Specifically, the said authors have characterised the principles of corporate governance implemented in the said countries as contractarian and communitarian. The latter describes the corporation as “separate entity, independently capable of doing harm and good” and possesses responsibilities to the society as a whole. () Thus, this perspective deems the corporation as an entity or a living organism capable of developing and deteriorating. On the other hand, contractarian view “considers the firm's shareholders as the primary constituency of concern to management.” () This is seen by the existing literature on corporate governance as shareholder primacy. In this regard, the corporations that takes on such a stand
Thus, the distinction between the two types of corporate governance relies mainly on their regard on their roles. Basically, the communitarian view regards the implications of the operations of the corporation to the community. Social responsibility is the main concern of the said view of corporate governance. On the other hand, the contractarian view establishes the traditional perspective of shareholder primacy. This means that countries that hold this perspective in high regard, they still holds true in their objective of finding ways to further the welfare of the shareholders with less regard on the consequences of their actions. Thus, the pursuit of profit controls these types of corporations.
In this part of the paper, a descriptive account on the case of British Petroleum and their structure of their corporation will be provided. Moreover, this set of information will serve as the foundations of the consequent analysis of the corporate governance of the company. In this section, an account of the case history along with the elements surrounding the senior management of the corporation will be taken into consideration. Specifically, the senior management to be discussed here would be the accoutrements of the board of directors as well as their established duties and responsibilities. The main source of this part of the discussion is the website of the company; particularly the discussions are acquired on the part discussing the governance in the company and the role of the board of directors.
The company has a lush history as it opened commenced trading in 1908 when it found oil in the Persian region. With the leadership of William D’Arcy, the campaign in the Persian region gave the company its first shot in the oil business after several uncertain years of rummaging. However, the actual acquisition and finding of oil did not solve the problems of the company in the early years. The company was one of the top producers of oil; however there were no demand for oil at that period. The company was in dire need of buyers of oil at that period. With such harsh demands from the market, this also drove them to the brink of bankruptcy.
The company found its way back into business as the Second World War has made oil and oil products a rationed commodity. In this regard, the company has found a demand for its products. In the same regard, the emergence of the gasoline-powered automobile has be improved the business faculty of the company. In the recent years, the company has made a considerable change in their orientation as they sought to take on a closer regard on their social responsibilities. In the same time, they indicated that the aside from their oil products, the British Petroleum has taken steps to take on the entire industry of energy. From its humble beginnings in the Persian region, it has become one of the top energy providers in the world.
The Board of Directors of the company is classified into two types, executive and non-executive directors. The company have five executive directors that govern specific areas of the operations. There is a director that covers the role of chief executive, chief of staff, refining and marketing, finance, and exploration and production. On the other hand, there are ten non-executive members of the board. Along with these non-executive members of the board, there is also a designated corporate secretary that oversees board meetings.
Apparently, the difference between the two types of board members is the positions that they handle in the company. For executive directors, they hold headship on certain areas of the operations of the company. On the other hand, the non-executive directors hold on basically to the decision making attributes of the board. Looking at it more carefully, the executive are those who have been hired by the company based on their skills and leadership. On the other hand, those that are within the members of the non-executive members appear to be the major shareholders of the company. This means that they have the power to make decisions that could either be beneficial or detrimental to the organisation as a whole. In any case, this part of the paper has maintained the importance of the board of directors on the operations of British Petroleum.
In this part of the study, an examination of the implementation of corporate governance will be provided. Specifically, the actions of the board and the regard on the company’s shareholders are taken into consideration. Same as the previous parts, the discussions will be based on the data acquired from the company’s website.
Based on the website of BP, the company highly regards its shareholders such that they adhere to several initiatives to take care of them. For instance, the site has mentioned that the board have been taking steps to identify with the preferences of the shareholders. This allows the company to know how they care for their shareholders and how they value their input to the organisation.
For instance, it is similarly noted that the chairman of the board himself engages in a dialogue with the shareholders regarding the business standing of the company. This is apparently done in a regular basis. On the other hand, feedback and transparency is also implemented by the company as it carries out different reporting styles and uses different channels. As indicated in the earlier parts of this paper, annual reports and annual reviews are held available by the company in its websites which are highly accessible to the shareholders.
Moreover, an annual general meeting is held by the company. It is in this forum that the shareholders are able to further ask questions regarding the standing of the company specifically with regards to its social responsibility, market position and financial status, among others. In terms of voting, the shareholders hold elections on certain decision in the annual general meeting of British Petroleum. In the same regard, they are also given the chance to elect new directors that will represent them in the board.
In the context of the board of directors, British Petroleum highlights the importance of their relationship with the shareholders of the company. High regard on accountability is also mentioned as a huge part of their responsibility and as part of their duties as directors. In the context of governing the company, it has taken steps to ratify a policy that will serve as guidelines to the implementation of corporate governance in British Petroleum. These covers the following areas:
“(a) the conduct of members at meetings; (b) the cycle of board activities and the setting of agendas; (c) the provision of timely information to the board; (d) board officers and their roles; (e) board committees, their tasks and composition; (f) qualifications for board membership and the process of the nomination committee; (g) the evaluation and assessment of board performance; (h) the remuneration of non-executive directors; (i) the process for directors to obtain independent advice; (j) the appointment and role of the company secretary.”
The company also takes on accountability within the board itself. For instance, the company website has mentioned that a non-executive board member should be free from any relationship with any of the organisation’s executive management. In doing this, the company veers away from any conflict of interest in the future. At this rate, one could surmise that the company is taking steps that could effectively cover the required level of corporate governance.
In order to take the issue of corporate governance further, the company have instituted a means of controlling itself through the company’s Combined Codes. In this mode of internal control, committees are created to handle audit and safety, ethics and environment assurance issues for the company. It is these committees that check the capability of the company and its standing with reference to their respective areas. Moreover, it is the company’s general auditor that serves as the main authority in addressing the internal control of British Petroleum.
Corporate governance has been pointed out time and again in numerous organisational studies and business articles. The paper has taken a serious look on the matter with the use of British Petroleum’s case as a benchmark for proper implementation of corporate governance. To a certain extent, this paper claims that the company’s success did not rely entirely on the products that it sells in the market. British Petroleum’s success rests on the accountability, transparency, and social responsibility that it has implemented throughout the years of its operations. Thus, its adherence to the principles detailed in its corporate governance has been very essential to its overall success in its field.
The discussions above have established the importance of corporate governance in the conduct and performance of the organisation. Basically, the paper has established that in having valid and sound corporate governance instituted in the organisation, the handling and management of the company is improved. This denotes that in having effective corporate governance, the direction of the corporation is guaranteed to stay staunch despite the presence of uncertainty.
The paper has also established that having a great set of corporate governance initiatives serve as deterrent for any possibilities of abuse especially those from the top echelons of the corporation. At this point, corporate governance protects the welfare of all the stakeholders of the corporations including the shareholders, the board of directors, and the public. In any case, the proper implementation of such corporate governance initiatives provides the organisation a boost not only in its performance and operations but also on the context of its reputation with the public. In the end, corporate governance allows the corporation to become its best version - an accountable, transparent and socially responsible corporation.
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