The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

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Wednesday, April 3, 2013

Strategic CSR - BP

The article in the url below discusses the relative advantages of state vs. private ownership using a salient example:
 
“Ten years ago, BP was the darling of the energy world — the unprofitable duckling transformed by privatization. … The London civil servants of the 1960s and ’70s who all but ignored profitability as they issued directives across British Petroleum’s bloated corporate network were replaced by highly motivated managers who were rewarded for cutting costs, reducing risk and making money.”
 
As BP moved from state ownerships in the 1960s and 1970s to private ownership in the 1980s (under Margaret Thatcher), so its goals and performance metrics changed. In some respects, this was a good thing; in other respects, it caused problems that remain with us today:
 
“But then, in 2005, a BP refinery in Texas City blew up, killing 15 and injuring around 170. In 2006, a leak in a BP pipeline spilled hundreds of thousands of gallons of oil in Prudhoe Bay, Alaska. And in 2010, an explosion on the Deepwater Horizon oil rig killed 11 and resulted in the biggest offshore oil spill in the history of the United States. These days, BP’s stock trades about 25 percent below where it was before the disaster off the coast of Louisiana, about the same place it was a decade ago.”
 
The example is salient and provocative, but the overall point of the column is instructive. In essence, the author (who is reviewing a book by two academics) concludes that, in comparing state with private ownership, rather than one form being better than the other, each has its strengths (and weaknesses):
 
“While in government hands, British Petroleum paid too little attention to profitability. … But in private hands, it may have cared about profits far too much, at the expense of other objectives.”
 
Perhaps not surprisingly, what gets measures gets managed. In other words, irrespective of the overall message, it is the behavior that we incentivize that remains the focus during implementation:
 
“Rewarding teachers for how well their students perform on standard math and reading tests will encourage lots of teaching of reading and math, at the expense of other things an education might provide. Private prison operators who bid for government contracts by offering the lowest cost per inmate will most likely focus on cutting costs rather than tightening security. Unsupervised apple pickers who are paid by the apple will probably pick them off the ground.”
 
As a result of their different characteristics, different forms of ownership are better suited to different kinds of organizational tasks:
 
“… if the task is clear-cut and it’s possible to define concrete goals and reward those who meet them, the private sector will probably do better. … But if the objectives are complex and diffuse — making it difficult to align profit with goals without undermining some other desirable outcome — the profit motive could well make conflicts more difficult to manage.”
 
Take care
David
 
 
Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
When Public Outperforms Private in Services
By Eduardo Porter
January 16, 2013
The New York Times
Late Edition – Final
B1