BP's North Slope: De Facto Policy At Work
By Bart Mongoven
The revelation on Aug. 7 that BP was shutting down most of its North Slope operations in Alaska caught most of the oil industry by surprise -- so much so, in fact, that oil prices shot up by $2 a barrel and there were short-lived discussions about whether the U.S. Strategic Petroleum Reserve should be tapped. The decision may have been unexpected, but from a business perspective, the move to close some North Slope facilities makes perfect sense; the pipelines were found to be weak, one already had broken and new breaks were deemed likely. At another level, however, the decision was quite remarkable. There were no regulators or environmental activist groups clamoring for BP to test, let alone fix, the pipelines -- and strategically speaking, it was not an optimal time for 4 percent of U.S. domestic production to be taken offline.
BP's voluntary shutdown of much of its troubled North Slope facilities speaks to the power and scope of a new regulatory environment -- one that BP helped to create and define -- that extends far beyond the reach of government. In this environment, policy increasingly responds less to activist groups, and ever more to consumer perceptions and widely held social values. It perhaps would be easy to argue that the difficulties the company is experiencing are the work of its own hand, since the current regulatory atmosphere was born partly of self-laudatory ad campaigns BP launched in 2000, touting its environmental values. But the reality is more complex. The public relations offensive that BP undertook was -- like the broader shift toward corporations celebrating their corporate responsibility -- a highly strategic affair, and was seen by some in BP as a matter of life and death for the company (nor was the corporation alone in such thinking).
We long have argued that globalization is helping to shape a new framework for corporate decision-making: Brand protection and brand promotion are becoming even more important than regulators in dictating corporate policies. BP, with its Beyond Petroleum campaign, launched in 1999, was among the first to anticipate that globalization would move this sphere of public policy (what we have called the "de facto" sphere) forward. For the oil majors, the goal was maintaining their ability to drill in new and potentially sensitive environments -- yet without alienating employees and recruits, upsetting consumers, reinforcing industry stereotypes or actually harming communities near the operations. BP Chairman Sir John Browne described this effort in 1999 as maintaining a "social license to operate."
The notion that business needs a social license to operate -- distinct from government sanction -- is still seeping into the corporate cultures of many businesses. But it has already changed public policymaking at the global level, and it looks to be a permanent feature of the business landscape.
Public Image and the Roots of Change
Of all major corporations, BP is among those most strongly identified with the rapid uptake of the de facto regulatory regime -- that is, the set of regulations imposed on business by social expectations, which are more strict than the regulatory structure imposed by law. In the late 1990s, BP, then known as British Petroleum, began to differentiate itself from most other oil majors by acknowledging the negative aspects (and in some cases reinforcing stereotypes) of the petroleum industry -- and by implying, essentially, that it was terribly sorry to be an oil company.
In addition to changing the tone of its public communications, BP also made a number of policy changes that were viewed as radical at the time. The company brought new concepts to bear in working with communities near its operations, particularly through increased levels of dialogue with elected and unelected leaders. It endorsed the theory that humans are causing climate change, and concluded that oil was a major source of the carbon in the atmosphere that causes climate change. BP also endorsed new policies in the human rights arena, such as the Publish What You Pay initiative -- in which oil, timber and mining companies declare for public scrutiny the payments they make to the governments of developing countries. (Of course, without universal adherence to Publish What You Pay, some governments found that not awarding grants to BP was the surest way to avoid being held publicly accountable.)
BP did not do these things out of cynical motives, nor did it do them out of altruism. Rather, the changes resulted from a significant convergence of several market, social and geological forces.
The most significant catalyst for the changes BP and its competitors made was the Nigerian government's execution of political activist Ken Saro-Wiwa in 1996. Royal Dutch/Shell became a tremendous target for human rights activists who saw the company as bearing partial responsibility for Saro-Wiwa's death. Campaigners from around the globe began to take shots at the company. The Brent Spar incident, staged by Greenpeace activists following Saro-Wiwa's death, was the largest of many campaigns and protests against Shell. BP, Shell and most other larger multinational corporations that saw this trend unfolding emerged from this period as changed companies.
The human rights issue was not the only catalyst for the change, however. A number of issues came together during the late 1990s to hit the oil industry especially hard, but the same challenges visibly affected a number of other industries as well. For one thing, the first generation of workers who were brought up and educated during the modern environmental era began entering the job market during the 1990s. From their youth, these workers -- especially in Europe -- had learned environmental principles in ways their elders had not. The predominant style of environmentalism during that period is important to note: It evoked pictures of environmentalist "good guys" (typified by Greenpeace activists in zodiac boats) pitted against big corporate "bad guys" (typified by oil platforms and whaling ships). For another thing, the graduates of the 1990s also were making decisions about future courses of study and careers at a time that the high technology industry and a growing belief in a "new paradigm" were coming to dominate the economic markets. Added to this was the fact that the college graduates of the 1990s represented the smallest birth cohort in 40 years. The sum of this labor equation was, in short, a recruiting nightmare, particularly for companies that needed to keep 23-year-olds excited about the prospects of jobs related to drilling platforms.
One Shell executive described that period with these words: "It was pressure from within, in the form of a highly anxious and demoralized workforce that also sounded the alarm. ... For the first time in our history, Shell had problems attracting good people to work for the company, and the employees that were there were extremely anxious about being immersed in a dysfunctional work culture." Similarly, another Shell executive told a Scottish newspaper that "staff morale at Shell after Brent Spar was rock bottom, but introducing [new social responsibility guidelines] turned it around."
Though retention is not a problem for most players in the industry, the recruiting problem was (and remains) acute not only in oil, but also in mining, chemicals and other businesses that are often thought of as "old industry," but which also depend heavily on science and scientists. The continued perception of these industries as "dinosaurs" at times can threaten the very life of the companies that lead them. Thus, something that on the surface appears to be "just" a public relations problem actually can represent a strategic threat to the organization.
In the 1990s, Shell became the public face of this trend. However, as events unfolded, some large businesses pounced particularly strongly on two ideas. First, globalization and new technology -- which resulted in pictures of Ken Saro-Wiwa and the Brent Spar being transmitted instantly around the world -- changed the way campaigners viewed environmental and human rights issues. And second, the new technologies also increased campaigners' ability to have an impact on key issues: The challenges of sending alerts to thousands of people in a short time had been overcome, and issues activists were able to start forming borderless communities. So long as industry continued to play by the old rules -- which encompassed a belief that what happens in far-off places stays in far-off places -- Shell's experience would be an inevitability for other major multinational corporations.
Other factors made this series of events of critical importance to BP. Two of the company's most significant regions for operations -- the North Sea and Alaska's North Slope -- were mature fields (oil-speak for "old and drying up"). Industry leaders recognized that the future of oil exploration and production increasingly would involve difficult-to-get-to places that had not yet been explored. A number of locations -- most of them synonymous with politically difficult issues -- came to the fore in the late 1990s: western China, Angola, Ecuador, Colombia, Sakhalin Island and the deep offshore of the Gulf of Mexico. Operations in any of these places could entail a host of political difficulties -- both on the ground and at home -- and ample risk that a company would run afoul of campaigning groups.
From this thinking emerged the concept of the "social license to operate."
The Next Phase of the Cycle
Having spent almost a decade in efforts to change its image and maintaining its "social license," BP could hardly afford to have its work destroyed -- which another occupational health or environmental disaster could have done. But what BP's decision on Alaska's North Slope demonstrates, however, goes to a deeper issue: The new regime of voluntary regulation by corporations is one that governments will not be able to affect or alter greatly, because the social license to operate is not issued by governments.
There is a temptation for activists on both sides of issues (and neutral observers as well) to see the growing number of policy changes that are driven by corporate voluntary agreements as short-term reactions to deregulatory political currents -- whether in the United States, or globally through the World Trade Organization. It is further tempting to speculate, as issues play out in the private sphere, how they will be translated into new de jure public policies -- that is, enshrined in legislation.
On many issues, this is not going to happen. We are approaching, or perhaps have entered, a period of globalization that can be defined as a "race to the top." Corporations and industries are approaching issues of social significance by trying to differentiate themselves from their competition and to improve their image (and that of their industry) in the public eye. On an almost weekly basis, for example, Wal-Mart announces a new voluntary initiative designed to show its leadership and is pulling attention to the company -- rather than the Chinese, Thai or U.S. governments -- as the key determiner of a product's safety and reliability. Dell Computer Corp. and HP, meanwhile, are locked in a battle to prove which company's computers are more easily recycled. Car companies and appliance manufacturers battle over energy-efficiency supremacy.
No government action can supersede such battles, because regulatory compliance is not being contested. The companies will remain locked in battle with each other to prove which is better; the groups pressing on the corporations for improvements in labor conditions, environmental performance or energy efficiency will seldom be satisfied that the companies are doing enough.
The stakes in this phase of the public policy cycle run highest for BP and other companies in what are viewed as "traditional" industries. In these industries, where wealth and market share were established decades ago, negative perceptions have had scores of years to build up. Thus, in order to recruit new employees and to win the trust of communities where these companies want to do business, there will be a continuing need to exceed regulatory requirements and play to public sentiment.
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