BP's external environment, stakeholders, and corporate strategy

Social Performance

Description of the Company

British Petroleum (BP) describes itself as "one of the world's leading integrated oil and gas companies." The company employs around 80,000 people worldwide. A truly multinational, BP has operations in most parts of the world, either in extraction, refining or retailing (BP Annual Report, 2013). The company's vertical integration allows it to control most parts of the oil business, leading to better margins along the way, and to leverage its world-recognized brand in the search for profits. A quick look at the company's value chain shows that it gains from the retailing side, marketing to consumers who have low price elasticity of demand, and from the extraction side, where access to properties and the ability to extract oil at relatively low cost are key success factors.

There are several factors in BP's external environment that are critical to success. The first is the price of oil, which is determined on the global commodities markets. The concept of supply and demand is typically applied to the price of oil, and the price is actively managed by OPEC, which controls around a third of global production. With this control, its members effectively control the supply of oil on global markets (OPEC, 2014). While BP might have some influence as one of the major oil companies in the world, ultimately they are beholden to these governments for the price of oil on the world market. The second external variable is demand. Demand is driven by the uses for oil, so more of those means more demand. But the economy also affects demand. When the global economy struggled a few years ago, demand dropped and the price of oil plummeted (RT, 2012). So the health of the global economy is an critical external environmental factor, affecting the demand side, versus OPEC which is a key determinant of the supply side.

Influences

The different stakeholder groups have many ways to influence the behavior of the company. Shareholders obviously have a lot of power with the Board, which in turn has a lot of power over the management of the company. The shareholders can, if they are organized, set policy with the company. In many companies, the shareholders are a diffuse body, not really capable of driving serious change. At BP, the ten largest shareholders -- all institutional -- hold around 24% of the company (The Telegraph, 2010). These shareholders all told do not have the ability to make decisions -- many more shareholders would need to be brought on board and that diffusion weakens the power of the shareholders. However, it should be noted that three of the top ten shareholders are foreign countries -- Norway, Kuwait and China. That adds a new wrinkle because BP has to listen to its two top oil producers and its #2 market, should they become dissatisfied with elements of the company's performance.

Shareholders also have the ability, should they choose, to influence social policy at the company. There are things like ethical mutual funds and ethical investors that highlight the possibility for shareholders to focus on social responsibility as a component of the direction in which they wish to take the company. This typically works better when there are shareholders large enough to have that short of influence, which is not really the case with BP, though arguably environmental catastrophes are a lot less likely to occur in Kuwait, Norway or China because of their specific interest in the company. The shareholders in an oil company, however, are not likely to be the most ethical types, and are probably oriented towards profit only. Should that not be the case, it takes 50% plus one to change the company's policy definitively, and a lot less to agitate for change.

Governments have direct, formal authority over BP. They are the gatekeepers for access to the petroleum, and to the markets as well. The governments effectively can wield this power to set policy -- how much BP pays for access to the oil and the regulations under which it can work. Countries that charge a lot for access, like Norway, get paid; countries that do not take their responsibility to their people seriously, like Nigeria, end up getting little revenue, have poor environmental protections and end up with nothing to spend on their people. So governments rely on BP for revenue, but ultimately because they have the oil they have the bargaining power.

There is also negotiation that takes place. Governments can put pressure simply by making threats. The Deepwater Horizon incident was a major issue in the U.S., with BP's CEO being called before Congress at one point. There was intense political pressure, with the damage ongoing at the time and the company not seeming to take the issue seriously. The pressure was enough to oust the CEO, even without any laws passed.

The employees also have a role to play in influencing policy. First, they are in charge of implementing whatever policy is passed. The manner in which they do this can be an influencer. If an employees takes a moral stand on an issue affected an external stakeholders, that can influence people throughout the organization. Further, employees can express their views to their higher-ups, because they have that direct communication access up the hierarchy. The result is that employees are actually well-positioned to influence the company's policies.

CSR

The most powerful stakeholder group are the countries that are the oil producers. As gatekeepers for the oil, we have an economic stake in seeing that oil extracted, but we also have all of the bargaining power with respect to how that oil is extracted. We are concerned about environmental damage -- there are a lot of spills and things like Deepwater Horizon are unacceptable. Thus, we need to take action to force BP to change its ways and actually start caring about the environment. We are also concerned about climate change and want to see the oil companies start to go all in on renewable energy. The other members of the coalition are the following: I want to get three or four other major oil producing countries on board, preferably from different parts of the world to show BP that this is a global effort and eventually all countries will be in the coalition. I will also bring on two or three key scientists to provide quality advice. If we are going to influence BP's actions, we need to make sure that we are pushing them to do the right thing, which requires us to actually know what we are talking about. That's where the scientists come in. We will also bring on an environmentalist group, a native people's representative, a media representative and someone from the United Nations. The latter is to improve the seriousness of the effort, while the others are key stakeholders. An environmental loudmouth and the media are specifically there to get advice about publicly amplifying our efforts, because utliately this affects everybody and we want everybody to get on board with the effort. BP needs to know that if they don't listen to us, that it will be them vs. The world. This gets us more bargaining power.

Getting cooperation between these different groups could prove a challenge. While we all believe in the same general objective, I do not doubt that everybody's interests are different, such that it might to tough to get agreement with regards to objectives and methods. However, we will seek to find common ground and start pushing BP to make improvements on the most critical areas first, like increased protection against spills.

Challenges

The first challenge is to get agreement about what we will push for specifically. Different groups have differnet interests and objectives, so the first challenge will be to find common ground among the group members. A process of prioritizing the different issues is likely going to be the best way to accomoplish this. So prioritization will be the second big challenge, because we need to present BP with concrete objectives that are actionable for the company. Things that are not actionable do not have real value if we are trying to change the way that the company behaves.

The third main challenge will be communication with BP, and the expected resistance. National stakeholders in particular have an interest in doing business with the company, so our objectives with environmental protection are going to be balanced against our revenue objecdtives. The problem si that BP will present its case knowing this -- we will need to overcome this. To overcome such objections, it is important that the company has a wealth of information at its disposal, to counter some of the expcted objections that BP has, and arguments that we should put revenue ahead of environmental concerns. Such arguments can hold sway over the ill-informed and the uncaring, and we wish to be neither, so that we can thoughtfully present airtight arguments to compel BP into action.