Risks That BP Faces Is With Respect

¶ … risks that BP faces is with respect to ethics. The company's pursuit of profits over safety on the Deepwater Horizon is perhaps the most obvious example of this risk. Ethically, safety would have been the more important concern, but BP pushed profit as a primary motive despite what it would do to worker safety. The end result, of course, cost the company over $40 billion as the result of the damage that was caused by the accident that occurred as a result of that ethical lapse (Wearden, 2010).

Ethics continue to be a risk at BP because the unethical practices that led to Deepwater Horizon. Instead of learning from Deepwater Horizon, BP is still believed to lack transparency with respect to its practices. As a reflection of how ingrained the company's lack of ethics is, the chair of safety, ethics and environment had 43% of shareholders vote against him in the latest annual meeting, a strong show of dissatisfaction for the company's efforts on this front (Maharaj, 2011).

With respect to financial wrongdoing, BP follows the usual corporate governance path that most companies follow. In general, the biggest financial malfeasance issues are committed by CFOs and CEOs, at least in terms of their risk level, so it is board oversight that is the most important mechanism for reducing risk. There are three internal members of the board of directors, which is two too many if ethics are of primary concern. In particular the CFO should not be on the board (he is at BP) when the CEO is also on the board. This puts too much influence over the board of the very people most likely to commit financial malfeasance. The safety, ethics and environment committee are comprised of external board members, however. In addition, it is important that the board have members who have a financial background in order to better defend against financial risk. There are no members of the ethics committee with a financial background. The audit committee has one financial person -- the only one on the entire board -- while others come from consulting backgrounds and the fourth is an engineer. This composition leaves BP with a high risk of financial wrongdoing, as the executives the company have too much influence on the board and there are not enough financial experts on the board to properly manage the risk of financial wrongdoing.

In terms of operations, again the company's culture is the biggest problem. BP employs skilled engineers so in that respect there is little risk on the technical aspect of operations. The more significant problem at the operations level is the unethical decision making by members of management, such as the decisions that led to Deepwater Horizon.

There is little risk inherent in Human Resources. As with any company, BP faces minor risks associated with its hiring and promotional practices. This risk is not significant at a company the size of BP. There are some risks, however, associated with temporary hiring, such as for the containment of oil spills. These are the sorts of risks that lead to class-action lawsuits. O'Brien (2010) notes that while BP hired numerous temporary workers to help clean up after Deepwater Horizon, many of these workers lacked proper training and equipment for such a risky job. Many of these workers reported adverse health symptoms to OSHA as the result of their work with BP, something that could expose the company down the road to a sizable class action suit.

Mergers and acquisitions pose no unusual risks for BP. The company is too big to be the subject of an acquisition itself, so that risk is minimal. In addition, the risk associated with mergers and acquisitions is always present (business risk). There is no undue exposure, and BP conducts numerous acquisitions with regularity. The risk of course would increase if BP undertook a major acquisition, but most deals are small relative to the size of the company as a whole.

Demographics are not a major threat. More people means more fuel consumption. The threat, if it were to be interpreted as such, is from people using the world's oil too quickly, but that is going to happen anyway regardless of demographic shift.