Summative Assessment Deepwater Horizon 2022

Summative Assessment
Contextual Survey: Deepwater Horizon
In this contextual survey, Board and Management, Responsibility, Corporate Obligations, Board
Exposure, Compensation Practices, and Partners.
Introduction
The Deepwater Horizontal Rig is requested and serviced by Transocean, one of the largest
providers of government infiltrating maritime agreements. At the time of the oil spill, British
Petroleum, the subject of this contextual analysis, kept most of its rent to 65%. Anadarko (25%)
and MOEX (10%) were different residents.
The purpose of this contextual investigation is to investigate topics such as board and executive
responsibilities, company obligations, board risk, compensation practices, and partners.
Before completing this contextual investigation, actually do the following:
Clarify the meaning of morality and expert judgment. The represents an important management
and management system, reminiscent of a global perspective on company management and the
tasks of various partners. And a description of the nature, role, and importance of corporate
social responsibility.
Overview

On April 20, 2010, a flood of flammable gas struck a large center that was expected to block the
wells of the Deepwater Horizon drilling rig. Seal was introduced by Halliburton, a project
worker hired by BP to play off the rig's wells. What was the transaction?
After gaseous gasoline rose through the riser pipe of the device and reached the stage, the
gasoline took off and exploded. The explosion killed 11 experts and injured another 17. Seals the
bore hole when the drill pipe is clogged. Two days after the explosion, the device crashed and
sank. When it fell, the riser burst and crude oil began to be released into the sea.
The Deepwater Horizontal Rig is requested and serviced by Transocean, one of the largest
providers of government infiltrating maritime agreements. At the time of the oil spill, British
Petroleum, the subject of this contextual analysis, kept most of its rent to 65%. Anadarko (25%)
and MOEX (10%) were different residents.
According to the US Environmental Protection Agency, 4,000,000 barrels of crude oil filled the
sea for over 87 days. It was briefly picked up while signing the year contract on July 15, 2010
and was completely resolved on September 19. The EPA stated that Deepwater Horizon oil spills
are the largest of all marine oil infiltration missions present.
On December 15, 2010, the United States sued BP and its roommates Anadarko and MOEX,
and the owner of Deepwater Horizon, Transocean, for one of the most horrific environmental
disasters in American history.
2005
A series of explosions in a hydrocarbon isomerization unit in BP’s Texas
City refinery killed 15 workers and injured another 180.
The CSB found, in its final report on the incident, that BP had used ‘inadequate
methods to measure safety conditions’, had cost-cut and failed to invest (along with
former owner Amoco) during the 1990s, and ‘did not take effective steps to stem the
growing risk of a catastrophic event’.
2005

The day after Hurricane Dennis hit the Gulf of Mexico, BP’s massive Thunder
Horse oil platform started sinking into the sea. The Chicago Tribune reported that a
wrongly plumbed pipe had allowed water to flow through the ballast and bilge tanks
forcing open valves and flooding into two of the four giant legs of the oil platform.
2006
The Alaska Department of Environmental Conservation reported an oil spill of
up to 267 000 gallons of crude oil over 1.93 hectares in Prudhoe Bay. The
cause was identified as a quarter-inch hole in an above ground pipeline due to
corrosion. (Kasztelnik,,2020)
2010
The Deepwater Horizon oil rig explosion and spill.
Deepwater Horizon: a PR disaster
As Deepwater Horizon was leaking millions of barrels of oil into the Gulf of
Mexico BP CEO Tony Hayward (pictured below) told Sky News that
‘Everything we can see at the moment suggests that the overall environmental
impact of this will be very, very modest.’In June 2010, The New York Times
reported on Hayward’s appearance before the US Congress, where he said that
he ‘had no prior knowledge of the drilling of this well, none whatsoever’.
When accused of ‘stonewalling’ by Congressman Henry Waxman, Hayward
responded ‘I’m not stonewalling, I simply wasn’t involved in the decision-
making’.After several high-profile blunders, BP commenced an extensive
advertising campaign on national television and in major US newspapers where
full-page advertisements featured Hayward declaring he was ‘deeply sorry’ to
those affected by the disaster.
President Obama blasted BP for launching a multi-million dollar advertising
campaign to improve its image as oil continued to spew into the ocean.

BP announced in July 2010 that Hayward would be stepping down as its CEO.
➤ Reflective Question 1
Responsibilities of executive management
Do you believe former BP CEO Tony Hayward and the BP Board practiced
responsible decision- making with regard to the Deepwater Horizon oil rig
disaster?
Ø A responsible Board would be expected to ensure that management has
appropriate policies in place and makes appropriate decisions to ensure:
• financial and commercial priorities do not override workplace and
public (social and environmental) safety standards;
• effective monitoring of the implementation of these standards; and
• An understanding and respect for the various stakeholders including
employees, the wider community and the natural environment.
In this context, responsible decision-making balances governance, ethics and
accountability—on behalf of not only the proprietors of the company, and also
all the stakeholders. Staying ‘in touch’ with the concerns and wellbeing of others
is a central responsibility.
Although the Board delegates responsibility for management to the Executive
management it still has overall responsibility for ensuring that the day to day
management practices of the organization are appropriate.
You may wish to review the ‘Responsible decision-making’ section in Module 1,
as well as the following sections in Module 2—‘Impact of ethical or unethical
decisions’, ‘Factors influencing decision-making’ and ‘Ethical decision-making
models’.
➤ Reflective Question 2
The best interests of stakeholders

Did the actions of former BP CEO Tony Hayward and the BP Board consider the
best interests of all stakeholders?
In evaluating the actions of the BP Board and CEO from the perspective of
responsibility to stakeholders, consider the effects of: allowing economizing
measures to negatively affect safety standards; extensive resources of
government and other social institutions pressured by a large-scale emergency
situation that could have been prevented; and local communities and the
environment struggling with the long-term effects of massive pollution.
You may wish to review the ‘Impact of ethical or unethical decisions’, ‘Factors
influencing decision- making’ and ‘Ethical decision-making models’ sections in
Module 2.
Shareholder backlash
A number of BP shareholders launched a class-action lawsuit claiming they had
been defrauded by BP over its ability to handle safety issues.
In the case Ludlow et al v. BP PLC et al, 15–952, the shareholders alleged that BP
had made two misrepresentations—the first over its pre-spill safety procedures, and
the second regarding the flow rate of the oil following the spill.
Judge Keith Ellison ruled that the shareholders had not ‘developed a workable
methodology for assessing damages’. The judge did agree to certify those who
bought BP shares following the spill.
➤ Reflective Question 3
Consideration of stakeholders
What are your views on how BP considered all the relevant stakeholders
following the disaster?
Ø In this case we need to consider the role of honesty, transparency and
inclusion in communications with all relevant stakeholders.
For example, apart from shareholders, other stakeholders who should have been
genuinely listened to were: employees, customers, local communities—both

directly and indirectly—affected by the spill (over a wide geographic area), and
government (at local, state and federal levels). You may wish to review
‘Stakeholders’ in Module 3 in the study guide. (Wang,,2020)
Executive Compensation
BP's 2009 Compensation Report shows that senior executives were paid an average of 170% of
their compensation. Of this, 15% was occupied by welfare measures and about 70% by financial
and work-related implementations.
Great efforts have been made to reduce cash costs:
· creation increased by more than 4%
· unit creation cost decreased by 12%
· hold substitution rate 129%
· refinement and promotion of cash costs
· Refining accessibility increased 94%
BP probably had the highest number of executions among the major oil organizations.
➤ Reflective Question 4
Remuneration policies
To what extent do you think BP’s remuneration policies contributed to
the disaster?
Ø A policy that provides 70% for financial and operating performance and
only 15% for safety measures is very likely to create a perverse incentive
to priorities commercial interests over safety standards.
Governance policies should be carefully designed to avoid incentives that
systematically undermine professional standards and safety practices. The
relationship between perverse incentives and willful blindness on the part of the
responsible managers should also be considered.

You may wish to review ‘Part E: Governance failures and improvements’ in
Module 3 in the study guide.
A questionable corporate payout?
In February 2012, The Telegraph reported that Hayward left the BP Board in
2010 with a GBP 1 million payout, as well as his salary and benefits for that
year. (Fioriti,,2020)
He was also eligible, according to BP’s 2010 Annual Report, to receive up to
750, 000 shares to vest in 2012, although BP refused to confirm to The
Telegraph if it would approve bonuses for directors.
In a Press Release dated 27 July 2010, BP announced that further down the rapports
of his agreement Hayward would get a year’s salary in lieu of notice. This would
amount to GBP 1.045 million.
Under Hayward’s leadership BP had recorded one of the largest losses in British
corporate history due to the Deepwater Horizon tragedy.
➤ Reflective Question 5
Reasonable compensation?
Was the compensation package awarded to Tony Hayward when he left BP
reasonable? How should companies manage the rewards for troublesome
leadership?
Ø While this compensation package may have appeared reasonable in the
competitive CEO market at the time the contract was signed, the
subsequent disaster led to a considerable gap between the contract terms
and the public sentiment about what is ‘reasonable’. (Aguwa,,2017)
To address this problem, you may wish to consider how executive contract
governance measures should deal with legal entitlements to financial benefits in

the event of leadership failure—and, in particular, with early exit payments when
the organization’s actions result in significant negative impact on society and the
environment.
You may wish to review the ‘International debates about remuneration levels and
fairness’ section in Module 4 in the study guide.
Facing the consequences
In The United States of America v. BP Exploration & Production Inc., et al it was
alleged that each defendant (including BP, Anadarko, MOEX and Transocean) had
caused or contributed to the Deepwater Horizon oil spill.
In 2014, Halliburton announced that it had reached a USD 1.1 billion settlement
with those who had suffered losses from the Deepwater Horizon tragedy.
A report by the US Safety and Hazard Investigation Board found that BP and
Transocean workers had misinterpreted the results of the cement integrity, which
had been used to seal the well.
BP's Accident Investigation Report (September 2010) revealed eight findings that caused the
explosion and oil spill. These include disappointment with the concrete used to seal the borehole,
disappointment with obstacles to hydrocarbon separation, misunderstandings of the seriousness
of the borehole by Transocean and BP employees, and BOP for closure. It included
disappointment with the crisis mode. Bore hole.
Judge Carl Barbier found BP to be grossly negligent and it settled for USD 14.9 billion.
In 2015, Anadarko faced a USD 159.5 million civil penalty ruling. In 2012, MOEX paid a USD
90 Million civil settlement. In 2013, Transocean paid a USD 1 billion civil settlement.

Long-term consequences
Following the Deepwater Horizon oil spill, the White House set up the ‘Gulf Coast
Claims Facility’—a program designed to assist in the aftermath. This included help
with cleanup costs, loss of earnings, damage, physical injury and death.
The White House responds
A White House Press Release on 15 June 2010 covered President Barack Obama’s
speech to the nation where he announced— ‘We will make BP pay for the damage
their company has caused.’
Obama met with BP on 16 June 2010. He announced a USD 20 billion fund to pay
all legitimate claims for compensation, and USD 500 million to a 10-year
independent research program to examine the long-term environmental impact of the
spill.
A preliminary report by the National Oceanic and Atmospheric Administration
(NOAA) in July 2010 found the US government had not made Americans aware
of the size of the disaster and had underestimated the amount of oil leaking into
the ocean.
In its final report in January 2011, NOAA attributed the oil spill to negligence
and time-cutting measures by BP and its partners, and a lack of regulatory
oversight by the US government.
Deep marine oil drilling
The Macondo well, where the Deepwater Horizon oil rig was located, closed
towards the end of 2010 when final procedures to plug and abandon the well were

completed. In July 2015, The Wall Street Journal (WSJ) reported that BP had
agreed to pay USD 18.7 billion to settle state and federal claims arising from the
oil spill. According to The WSJ, BP still faced approximately 3000 civil cases in
overseas and US courts.BP renewed its emphasis on protection and risk managing,
establishing the Protection and Functioning Risk unit with ‘sweeping powers to
supervise and audit [BP’s] procedures round the world’
In 2015, National Geographic reported on a ‘slew of technological and
regulatory changes’ that would not eliminate accidents—but would help
ensure they were not as serious as the Deepwater Horizon tragedy.
➤ Reflective Question 6
Mitigating risk
What measures do you think the BP board could have implemented to mitigate
the chances of a catastrophic accident like the Deepwater Horizon oil spill
happening again?
Ø In responding to this question, you may wish to reflect on the causes of
the accident—in particular the conflict of interest created by financial
performance incentives overriding safety principles and procedures.
To ensure the corporation’s practices are sustainable in the long term, the
measures taken by the Board should be directed towards being well-informed
about problems in a timely manner, introducing reliable systems to monitor
correct policy implementation and promoting a culture of vigilance in enforcing
safety standards.
Given the Board’s governance and oversight responsibilities in relation to all of
the company’s activities (and in particular to high-risk, high-impact, multiple
stakeholder operations), you may consider top-level governance measures such
as the creation of a Risk Committee with direct reporting responsibilities to the
Board, charged with regular assessments and recommendations to mitigate risks
and improve operational safety

The environmental aftermath
In July 2015, BP approved to pay USD 18.7 billion—the major environmental
fine in history— to settle legal actions brought about by the Deepwater
Horizon oil spill. The payment, announced by BP in a press release, would be
spread over 18 years.
The National Wildlife Federation monitored the effects of the oil spill on
wildlife in the Gulf and its findings were alarming. One study estimated that
millions of fish and almost 170 000 sea turtles were killed. Massive numbers of
whales, dolphins and birds died, and scientists predicted the Gulf floor might
take hundreds of years to fully recover.
About 60% of Americans’ oysters came from the Gulf Coast, and the industry
was almost destroyed when more than eight million oysters died in the oil
spill. Three years later CNN reported that many of the Gulf’s oyster reefs
were still barren.
The Center for Disease Control and Prevention published several studies
showing the health effect on humans of oil spills.
To understand the impact of the tragedy take a look at each of the items below.
• Environmental—Hastening of land-loss/subsiding, habitation
obliteration, disclosure to oil deposit/dispersant vegetation/wildlife
• Economic—Depletion of shrimp/fish/oyster stocks, damage to
Louisiana/Gulf fishery reputation, losses for ancillary businesses (e.g.
cafes, restaurants), reduction of property value, reduction of tourism.
• Social—Disruption/dislocation of family life and sleep patterns,
individual psycho-somatic symptoms, erosion of coastal fishing culture,
people selling up and leaving
Health—Reports of nausea, headaches, anxiety, respiratory infections, post-traumatic stress
disorder and stress-related proble

The impact of the spill on oystermen
Video synopsis: This video is a news report that discusses the economic and social
impacts of the oil spill on the oyster industry in Louisiana. It focuses on a family
oyster fishing company, ‘Collins Oyster Company’ and also features comments
from Kenneth Feinberg—the lawyer who was appointed by the United States
government to administer the compensation fund for the oil spill.
Health concerns
It is a news report that focuses on the health concerns that have been raised by
residents of the Gulf following the oil spill. George Barisich and Bert Ducote, two
fishermen from Louisiana, discuss the health problems they are experiencing.
➤ Reflective Question 7
Was it predictable?
How predictable do you think this accident was from the perspective of BP
leadership? How could corporate ethics and governance insure against loss of
public trust and reputation?
Ø Here you may wish to distinguish between predicting specific events and
predicting general outcomes produced by systematic practices.
Good ethical and governance practice significantly reduces the risk of producing
unintended negative consequences beyond the organization’s control.
Consider also the interdependencies that exist between the various areas of
public damage (economic, social, and environmental), the increasing liabilities
incurred by BP as a result of its actions, and the long-term reputational damage
suffered by BP.
Conclusion
We have now explored some of the ethical and governance issues associated with the Deepwater
Horizon oil spill case. The case study has provided a real world example of the connection

between ‘theoretical’ issues, such as ethics, and regulatory requirements, such as governance,
and how these manifest in practice.

References
Aguwa, C., Olya, M.H. and Monplaisir, L., 2017. Modeling of fuzzy-based voice of customer for
business decision analytics. Knowledge-Based Systems, 125, pp.136-145.
Andjelic, S. and Vesic, T., 2017. The importance of financial analysis for business decision
making. In Book of proceedings from Sixth International Scientific Conference Employment,
Education and Entrepreneurship (pp. 9-25).
Fioriti, D., Pintus, S., Lutzemberger, G. and Poli, D., 2020. Economic multi-objective approach
to design off-grid microgrids: A support for business decision making. Renewable Energy, 159,
pp.693-704.
Kasztelnik, K. and Delanoy, N., 2020. Data Analytics and Social Media as the Innovative
Business Decision Model with Natural Language Processing. Journal of Business and
Accounting, 13(1), pp.136-153.
Kimmel, P.D., Weygandt, J.J. and Kieso, D.E., 2020. Financial accounting: tools for business
decision-making. John Wiley & Sons.
Oumlil, A.B. and Balloun, J.L., 2017. Cultural variations and ethical business decision making: a
study of individualistic and collective cultures. Journal of Business & Industrial Marketing.
Tseng, M.L., Chiu, A.S. and Liang, D., 2018. Sustainable consumption and production in
business decision-making models.
Wang, X., Zeng, D., Dai, H. and Zhu, Y., 2020. Making the right business decision: Forecasting
the binary NPD strategy in Chinese automotive industry with machine learning methods.
Technological Forecasting and Social Change, 155, p.120032.