Business Impact of Exxon and Term Paper

Excerpt from Term Paper :

One set of concepts from each area was utilized to explain how the situation at Grand Bois may have come about. The end goal of the authors was to "provide business practitioners, ethics teachers, and readers interested in corporate conduct with insights useful in understanding why managers may act the way they do."

It could be argued, according to Hamilton and Berken (2005), that Exxon managers had made a sound business judgment, based on facts that were not known, at the time. The industry still contends that the majority of exploration and production waste contains no harmful compounds, and that for this reason the disposal techniques that are used at the Grand Bois facility were not only cost effective, but also environmentally safe.

Just because the exemption of this waste for hazardous materials was brought about by political lobbying does not mean that it is not scientifically or justified.

Oftentimes, political lobbying, when conducted within ethical restraints, can be socially beneficial.

Yet, there were costs incurred by the residents, Exxon, and the industry as a whole. Certainly Exxon's actions were legally sound, and may have been a good business decision, at the time, however, it does not make it an ethically sound decision. Not only was harm done to the residents, but there were significant costs to Exxon in: administrative time, legal defense, loss of customers, damage to their reputation, damage to employee morale, and increased governmental regulation of the industry. Hamilton and Berken (2005) theorize that it may have been a mistake that any large organization, operating within a highly competitive and environmentally challenging industry, could have made.

An alternative explanation is given that perhaps "Exxon was an evil corporation with a bad environmental record, a company made up of bad people hiring other bad people and turning them loose on society and the environment" (Hamilton & Berken, 2005).

The researchers go on to explain that it was perhaps greed for money and power that caused Exxon's management to ignore the ethical implications of the actions they undertook. However, they note that this goes against the history of the company, as an efficient operator and a leading competitor in the energy industry, that has been successfully been able to cut costs and generate greater profits for their shareholders.

They provide good product and services to its customers, profits to their shareholders, jobs for their employees, and wealth to countries around the globe through their business activities, not the typical portfolio of a sinister corporation.

The fact remains that along multiple ethical standards, including a Kantian concern for treating others as ends rather than means, the fact that harm was done to innocent people, by Exxon's actions, indicates that these actions were ethically wrong.

Therefore, by understanding how and why Exxon managers could have made these unethical decisions when it is most probable that they didn't consider them as such, at the time, can help differentiate the unknowing decision maker from the coerced decision maker.

Several factors may come into play when making this decision, without the benefit of hindsight the critics have following an event. Corporate objectives and an overly bureaucratized decision-making chain resulting in disconnect between the decision and the end result may prevent the decision maker from fully understanding the moral implications of the decision at hand.

As Hamilton and Berken's (2005) analysis demonstrates, it may not have been a simple decision between profits and ethics.

The three levels of explanation Hamilton and Berken (2005) utilize to explain the ethical failure, at Grand Bois, is as follows.

The first is that Exxon's senior and implementing managers may not have understood the evolving social mandates for business -- the new standards of conduct which society expects them to meet in carrying out their contract to do business. A second is that organizational structures, policies, and processes within the company may have blocked ethical action in the name of efficiency. A third is that the rules of behavior that individual Exxon managers had to adopt to have successful careers with the company may have made it unlikely that they would raise ethical questions.

Exxon Valdez Analysis:

The events surrounding the Exxon Valdez oil spill are a second ethical dilemma that has plagued Exxon.

On March 24, 1989, the Exxon Valdez ran aground on Bligh Reef, 25 miles south of Valdez, Alaska. Exxon began offloading the 42 million gallons of oil that remained in the tanker, but a two-day absence of effective containment equipment resulted in the largest spill in U.S. history. (...) By May 15, 1989, it was estimated that between 2500 and 6000 square miles of ocean and from 300 to 800 miles of shoreline had been tainted" (Sellnow, 1993).

11 million gallons of crude oil were released into Prince William Sound (Carson, Mitchell, Hanemann, Kopp, et al., 2003; Merrick, van Dorp, Mazzuchi, Harrald, et al., 2002). It was a major twentieth-century disaster (Picou, Marshall & Gill, 2004). This spill would, once again, throw Exxon in the unpopular limelight of questionable ethics.

Key and Popkin (1998) use the Exxon Valdez oil spill incident as an example of poor ethical decision-making.

A review of the incident shows a "chain of strategic planning and corporate decision making that ignored fundamental ethical aspects of decisions." The company, once again, was focused on cost efficiency in its operations, much like the Grand Bois incident. di Norcia (1994) uses the Exxon Valdez as an example of corporations not fully analyzing the back-end risks of their decisions, and the ethical implications that come with it.

The implementation of new electronic maritime navigation systems, grafted onto single hull oil tankers was a cost effective solution, in place of additional personnel, in the eyes of Exxon. For this reason, there were a reduced number of key personnel onboard the tanker, as well as limited availability of clean-up equipment. Exxon had overlooked charges against Captain Hazelwood, for driving while intoxicated, so that they could continue to use existing personnel, again as a cost-savings measure (Key & Popkin, 1998). "To implement plans for higher efficiency within the company, some Exxon executives followed the common Japanese practice of finding and achieving maximum productivity through pushing work systems to the point where they begin to crack and workers can no longer handle the load" (Bowen & Power, 1993).

The social contracts that Exxon had with the people of Alaska are noted by Key and Popkin (1998) as one of the ethical factors the organization should have considered when making decisions regarding the cost of its personnel and equipment. In addition, Exxon failed to predict the costs of having reduced personnel on staff, as well as insufficient clean up equipment, in case of a problem.

For this reason, Exxon made their decision with insufficient data. What appeared, at first, to be a sound business decision, turned into a decision that cost the company, again, in time, money and reputation.

Bowen and Power (1993) go beyond the typical blame of Exxon's ethical culpability. They note that there were three junctures that led up to the incident that were of significant moral value. The first occurred long before the Exxon Valdez set sail and was during the debate over where and how to build the pipeline and shipping terminal. The second juncture occurred during the negotiations over the level of safety precautions that would be required as well as the cleanup preparedness.

The third was in response to the spill itself. Interestingly, Bowen and Power do not name the decision to reduce personnel onboard the Valdez as ethically critical decision.

These researchers agree that many commentators and analysts have blamed the Valdez oil spill on the managers of Exxon, and their greater concern for profit over the welfare of the environment. Yet, Bowen and Power (1993) suggest that in so doing, these critics are assuming that Exxon managers knowingly failed to adhere to ethical norms that were clearly defined and accepted. Although they acknowledge that this may very well have been the case, and the Exxon managers may have knowingly endangered the environment while seeking corporate profits, while also lying to gain advantages in hearings and negotiations, they surmise that reducing this case to such clear-cut moral failure is missing a more interesting point. The more interesting and important issue is what managers should do when a conflict arises with moral norms and when they cannot accurately foresee the consequences of their decision.

For analysts to derive simple moral lessons from the Exxon Valdez incident, Bowen and Power (1993) note that they are typically committing the 'retrospective fallacy'. The retrospective fallacy occurs when a person implies that judgments that are made in hindsight have been made with nearly the same clarity as at the time of decision-making.

This is a common fallacy in management theory and practice when managerial mistakes are identified and blame is assigned, with the belief that the mistake must've occurred due to bad judgment.

Exxon's Pipeline from Chad to…

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