Exxon Ethics: Business Impact of Valdez and Grand Bois

Introduction

When discussing business ethics, one corporation in particular often comes to mind: Exxon. Since the late 1980s, Exxon has been the poster child for unethical corporate conduct. The ecological disaster that occurred in Prince William Sound, following the Exxon Valdez running aground on Bligh Reef and spilling millions of gallons of oil, is infamous. The scandal at Grand Bois, Louisiana, further exacerbated the organization's poor ethical reputation.

Good people, acting as corporate agents, can make harmful decisions. By understanding the ethical implications of their decisions, senior executives may be able to avoid making similarly harmful decisions in the future. Presenting the ethical and business implications of Exxon's experiences can also reiterate the importance of raising ethical concerns in the minds of mid- and lower-level managers, as well as their employees, and facilitate the removal of barriers in the workplace to raising those concerns (Hamilton & Berken). The following literature review investigates the business impact of Exxon and the ethical considerations that evolved from these incidents.

The research included the qualitative review of relevant literature. Identification of relevant literature was conducted through an electronic search for published articles or reports, in scholarly journals, concerning Exxon and business ethics. The author used a list of Boolean conditional keyword phrases to perform the literature search. These search terms allowed the author to quickly and easily identify the literature most likely to be relevant to the topic. Bibliographies from the identified literature were then searched for additional references to appropriate sources.

Grand Bois, Louisiana: Overview and Events

Cutting costs is an important part of any business. In order to remain competitive, it is critical to produce a product with cost efficiency in mind. It was this desire to cut costs that would lead to the unethical management decisions made by Exxon at Grand Bois, Louisiana, in the early 1990s.

Exxon management decided in March of 1994 to seek lower-cost disposal for oilfield wastes that had been declared hazardous in Alabama. Eighty-one trucks of exploration and production waste were moved from Big Escambia Creek, Alabama, to the Campbell Wells–U.S. Liquids disposal facility, located next to the small community of Grand Bois (Hamilton & Berken, 2005; Moberg & Moberg, 2005).

Although the Resource Conservation and Recovery Act exempted all exploration and production wastes from being classified as hazardous, it allowed state governments to regulate the disposal of these wastes within their boundaries. In Alabama, Exxon was required to dispose of these wastes in a certified facility. Louisiana, however, allowed the waste to be "pumped into large shallow open pits or cells surrounded by low earth dikes and mechanically stirred so the water and other volatile compounds would evaporate. The dried residue would be hauled to a disposal site and buried. Disposal in Louisiana was estimated to have saved Exxon $515,200, at $92 per barrel for the 5,600 barrels of waste" (Hamilton & Berken, 2005).

When the waste arrived at the disposal facility, it was pumped into cell number 11, a location less than 500 yards from the nearest dwelling. Toxic fumes spread through nearby homes. All children in a nearby school were assembled in the gymnasium in hopes of reducing their exposure to the toxic fumes. Although none of the air monitoring equipment at the site demonstrated dangerous concentrations of chemicals, no testing was done for benzene or hydrogen sulfide, despite these chemicals being listed on the shipping manifests of the trucks carrying the waste.

A renewed interest in closing the facility ensued, and the community enlisted the help of a local physician who had treated residents for headaches, sinus problems, and respiratory difficulties — all of which he deemed related to the disposal plant. However, neither he nor a toxicologist from Louisiana State University was able to demonstrate a causal linkage between the health complaints and the plant. Private concerns among oil company executives were that Grand Bois was one of the best-run disposal sites in the state, and if it were determined to be an environmental hazard, more problems would emerge at other facilities as well (Hamilton & Berken, 2005).

Lawsuits were filed, and for more than a year the turmoil in Grand Bois was national news. The government was accused of protecting the petroleum industry at the cost of its citizens. In response, however, the state began to reevaluate the exploration and production waste problem. A series of blood tests conducted on citizens by a Louisiana State University toxicologist revealed a significant number of abnormalities when compared to blood tests from another community in the region (Hamilton & Berken, 2005).

During the trial of the first eleven cases against Exxon and Campbell Wells–U.S. Liquids, the defense maintained not that they had not exposed citizens to toxic materials, but that they had followed all regulations and laws set forth by the United States and the State of Louisiana, and therefore should not be required to pay damages. They argued that they had not broken any laws and that the plaintiffs could not prove they had suffered damage, nor was there a causal link between the disposal site and the residents' health problems. A wife of an injured worker from Alabama read about the trial online, and his testimony was introduced just prior to the end of the trial, demonstrating that the waste had indeed caused real medical injuries. It also undermined the credibility of Exxon's medical expert, who had cast doubt on the residents' claims.

In addition, Exxon's legal team was accused of deliberately failing to produce a letter about the injured worker during discovery. Denying this, Exxon's legal team claimed the letter had been lost somewhere within the company (Hamilton & Berken, 2005).

During deliberations, Campbell Wells–U.S. Liquids reached a settlement with residents, making an unspecified payment and agreeing to close cell number 11. Exxon did not offer a settlement, and the next day the jury returned a verdict of not guilty, finding no long-lasting medical effects on the residents as a whole. The majority of the jury felt that although Exxon had been wrong in producing and dumping the waste, the company was abiding by the law and therefore could not be punished for following established regulations. Concern remained, however, regarding the failure to disclose information about the key witness during discovery. The trial judge held a private conference with Exxon regarding the company's internal investigation into why these documents had not been turned over to the plaintiffs. "Plaintiffs' attorney then received a letter from Exxon attorney admitting that Exxon's senior in-house attorney knew of a letter from the injured Alabama worker. Also, the defendants' physician failed to mention during his testimony that he had examined the injured worker" (Hamilton & Berken, 2005). With these facts presented, the judge fined Exxon $325,000 to cover legal fees for withholding pertinent documents from the plaintiffs. No new trial was granted, however.

Analysis of the Factors That Led to Grand Bois

In investigating the events of Grand Bois, Hamilton and Berken (2005) constructed a timeline of events based on contemporaneous television and newspaper accounts. The researchers did not have direct access to the decision makers at Exxon, and their analysis was based on evidence from outside the company. Although the actions of public companies such as Exxon are open to public scrutiny, the motivations behind those actions are not. As such, they strove to provide the best plausible account of how these actions may have come about, using the mainstream business press to connect the recent history of the company to their analysis.

Hamilton and Berken (2005) applied three levels of analysis to the case, related to research on stakeholder theory and corporate social responsibility, organizational structure and design, and corporate culture. One set of concepts from each area was used 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 fully 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 used at the Grand Bois facility were not only cost effective but also environmentally safe. Just because the exemption of this waste from hazardous materials classification was brought about by political lobbying does not mean it is scientifically unjustified. Oftentimes, political lobbying conducted within ethical restraints can be socially beneficial.

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

An alternative explanation is that "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 perhaps greed for money and power caused Exxon's management to ignore the ethical implications of their actions. However, they note that this goes against the history of the company as an efficient operator and a leading competitor in the energy industry, one that has successfully cut costs and generated greater profits for its shareholders, while also providing quality products and services to customers, jobs for employees, and wealth to countries around the globe — not the typical profile of a sinister corporation.

The fact remains that by multiple ethical standards — including a Kantian concern for treating others as ends rather than means — the harm done to innocent people by Exxon's actions indicates those actions were ethically wrong. Understanding how and why Exxon managers could have made these unethical decisions, when it is most likely they did not consider them as such at the time, can help differentiate the unknowing decision maker from the coerced one.

Several factors may come into play when making decisions without the benefit of hindsight. Corporate objectives and an overly bureaucratized decision-making chain can create a disconnect between the decision and its ultimate consequences, preventing the decision maker from fully understanding the moral implications at hand. As Hamilton and Berken's (2005) analysis demonstrates, it may not have been a simple choice between profits and ethics.

The three levels of explanation Hamilton and Berken (2005) offer to account for the ethical failure at Grand Bois are as follows. First, Exxon's senior and implementing managers may not have understood the evolving social mandates for business — the new standards of conduct that society expects them to meet in carrying out their contract to operate. Second, organizational structures, policies, and processes within the company may have blocked ethical action in the name of efficiency. Third, the rules of behavior that individual Exxon managers had to adopt in order to have successful careers with the company may have made it unlikely that they would raise ethical questions.

The Exxon Valdez Oil Spill

The events surrounding the Exxon Valdez oil spill represent a second major ethical dilemma that has plagued the corporation. 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 at that time. "By May 15, 1989, it was estimated that between 2,500 and 6,000 square miles of ocean and from 300 to 800 miles of shoreline had been tainted" (Sellnow, 1993). Eleven 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).

Key and Popkin (1998) use the Exxon Valdez incident as an example of poor ethical decision-making. A review of the incident reveals 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 as in the Grand Bois incident. Di Norcia (1994) uses the Exxon Valdez as an example of corporations failing to fully analyze the back-end risks of their decisions and the ethical implications that accompany them.

The implementation of new electronic maritime navigation systems grafted onto single-hull oil tankers was seen by Exxon as a cost-effective solution in place of additional personnel. 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 also overlooked charges against Captain Hazelwood for driving while intoxicated in order to continue using existing personnel — again, as a cost-saving 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 personnel costs and equipment. In addition, Exxon failed to anticipate the costs of having reduced staff and insufficient clean-up equipment in the event of an accident. The decision, which appeared at first to be sound, turned into one that cost the company dearly in time, money, and reputation.

Bowen and Power (1993) go beyond the typical assignment of blame to Exxon's ethical culpability. They identify three junctures that led up to the incident and carried significant moral weight. The first occurred long before the Exxon Valdez set sail, during the debate over where and how to build the pipeline and shipping terminal. The second occurred during negotiations over the level of safety precautions and clean-up preparedness required. The third was in response to the spill itself. Notably, Bowen and Power do not name the decision to reduce personnel onboard the Valdez as an ethically critical decision.

These researchers acknowledge that many commentators and analysts have blamed the spill on Exxon managers and their greater concern for profit over environmental welfare. Yet Bowen and Power (1993) suggest that in doing so, critics assume Exxon managers knowingly failed to adhere to ethical norms that were clearly defined and accepted. Although they acknowledge this may have been the case — and that Exxon managers may have knowingly endangered the environment while seeking corporate profits and lying to gain advantages in hearings and negotiations — they argue that reducing the incident to such a clear-cut moral failure misses a more important point: what managers should do when a conflict arises with moral norms and when they cannot accurately foresee the consequences of their decisions.

To derive simple moral lessons from the Exxon Valdez incident, Bowen and Power (1993) note, analysts are typically committing the "retrospective fallacy." The retrospective fallacy occurs when a person implies that judgments made in hindsight were made with nearly the same clarity available at the time of the decision. This is a common fallacy in management theory and practice, when managerial mistakes are identified and blame is assigned with the assumption that the mistake must have resulted from bad judgment.